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Its now official, can has been kicked yet again…Greece’s Memorandum #3 is ready

Greece has reached another bailout deal but even with write downs, the outlook is grim. As Finnish Foreign Minister Timo Soini said over the weekend, “we should just admit that this isn’t going to work.”

Alex Christoforou

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While most of Greece in enjoying their annual August holidays on the islands, far away from Athens and the Quadriga (formally Troika) negotiations, Syriza has been a busy bee putting their ink to just about anything Greece’s creditors want, in an effort to kick the can just far enough down the street so as to not be “the party” that will eventually usher in the return of the drachma, and the collapse of the Greek banking system.

Via Zerohedge…

After what were described as “marathon” negotiations (although compared to the “mental waterboarding” he suffered in Brussels last month, this must have seemed like a walk in the park to PM Alexis Tsipras), Greece and its creditors have agreed to the terms of the country’s third bailout program. Here are the details, via Bloomberg:

  • Greece’s deal with creditors provides funding of ~EU85b over next 3 years ensuring ability to meet payment of debt obligations, Athens-based Press Ministry says in e-mailed statement.
  • Deal sees 2015 primary deficit of 0.25% of GDP, primary surpluses of 0.5% in 2016, 1.75% in 2017, 3.5% in 2018
  • Govt will take initiatives in coming months to settle issue of bad loans that stand at ~EU95b, consultation group on issue to be set up with creditors, govt won’t allow sale of bad loans
  • Greek power grid operator Admie to remain public asset, there will be no break up of Public Power Corp, natural gas market to be liberalized

Over the weekend, FAZ reported that creditors had drafted an MOU which would need to be discussed with the Greek finance ministry before it could be passed to EU member countries and the Greek parliament for final approval. Generally speaking, today was the deadline to produce a mutually “acceptable” draft agreement, as Athens must make a €3.2 billion bond payment to the ECB next week in order to ensure that the Greek banking sector retains access to ELA. Now, it looks like Europe will get to pay itself back after all, assuming there are no unexpected political problems later on in the week.

Reuters reports:

Greece and its international lenders clinched a multi-billion-euro bailout agreement on Tuesday after marathon talks through the night, officials said, raising hopes aid can be disbursed in time for a major debt repayment due next week.

After a 23-hour session that began Monday morning, exhausted Greek officials emerged in a central Athens hotel to announce the two sides had agreed on terms of the three-year agreement barring a couple of minor issues being ironed out.

“Finally, we have white smoke,” a finance ministry official said. “An agreement has been reached.”

Finance Minister Euclid Tsakalotos confirmed only “two or three small issues” were pending. Greek shares rose, with the banking index surging 6 percent, while two-year bond yields fell more than 4 percentage points.

Greek officials have said they expect the accord to be ratified by parliament on Wednesday or Thursday and then vetted by euro zone finance ministers on Friday. This would pave the way for aid disbursements by Aug. 20, when a 3.2 billion euro debt payment is due to the European Central Bank.

Although it certainly appears as though this is a done deal, the usual caveats apply, including the fact that Tsipras will be forced to once again beat back party infighting to pass the draft through the Greek parliament with the presumed backed of opposition lawmakers. As noted on Sunday, the Syriza rebellion which imperiled the first two votes on bailout prior actions will likely have died down in the wake of a dramatic party meeting late last month in which the Greek Premier insisted that for the time being, “opposing voices must stop.”

Once the bailout is official, Tsipras will convene an emergency Syriza party congress (likely in the first two weeks of September) – the meeting could be a prelude to snap elections.

Germany meanwhile, has pressed all sides to take their time and to avoid letting the ECB payment dictate the pace of negotiations. Whether or not Angela Merkel and German Finance Minister Wolfgang Schaueble will be satisfied that the proper diligence was exercised over the past two weeks or so remains to be seen. “One needs to look closely and then we’ll ask the Bundestag for approval when the common understanding is that this will hold for three years,” Schaeuble’s deputy Jens Spahn told ARD television on Tuesday. “It has to be convincing that it isn’t just about Aug. 20 and an installment payment, but really about how, together with the Greeks, we can have a lasting solution for Greece. Most of our colleagues agreed on July 17 that we wanted to speak to Greece and would give it another go in negotiations, and now we need a good result for them to be able to say that the result, the negotiations result is right. Privatization isn’t just about raising money, it’s about changing parts of the economy. Think about what the privatization of our federal post and federal railways meant for those industries in terms of competition and new opportunities”

The most immediate concern after the ECB payment will be “stabilizing” Greece’s woefully undercapitalized banks. Here’s more from Reuters:

During talks that dragged through Monday night, the sides reached agreement on the three main sticking points – dealing with non-performing loans held by banks, setting up an asset sales fund, and deregulation of the natural gas market.
Athens wanted to set up a “bad bank” to take on the problem loans, while creditors want them bundled and sold to distressed debt funds. It was not immediately clear how that was resolved.

Officials had also argued over how to set up a sovereign wealth fund in Greece designed to raise 50 billion euros from privatizations, three-quarters of which would be used to recapitalize banks and to reduce the debt.

Of course all of this assumes that the deal is viable in the first place which, as the IMF and the EU Commission have made clear, simply isn’t the case without some manner of debt relief or re-profiling for Athens, and even then, creditors seem profoundly unwilling to admit or even consider the fact that forcing the Greeks into a deep fiscal retrenchment in the midst of what amounts to a depression may be counterproductive to the point of absurdity. From ABN Amro (via Bloomberg):

Several potential pitfalls could knock Greece’s deal with its creditors off course in coming months, raising Grexit worries, ABN Amro analysts Aline Schuiling and Nick Kounis write in client note.

These include the weak economy, which makes for a very tough environment when implementing difficult measures, risk that austerity proves counter-productive, the need for debt relief and risk of a financing gap

Given Greece, Germany and the IMF have all expressed doubts about the program, it’s not clear how things will play out should the going get tough

And here’s BBC:

There will be few economists who believe that Greece will succeed in generating a surplus of 3.5% in 2018 and then sustaining that surplus for years – partly because it is rare for any Western economy to stay on a path of spending less than tax revenues for any length of time, let alone an economy with a private sector as feeble as Greece’s.
And I am sorry to say you will have heard this a few times from me, the really hard negotiations start soon – on how to reduce Greece’s massive debts, set to peak at close to 200% of GDP or national income in the next two years (according to the IMF) to an affordable level.

Without debt write-offs, prosperity will never return to Greece, and its future in the euro will never be assured.

With debt write-offs, populist parties throughout the eurozone will be able to claim to voters that they have nothing to fear and everything to gain from throwing out the mainstream establishment parties and re-asserting national sovereign rights to economic self-determination.

Or to put it another way, euro politics and euro economics of Greek debt forgiveness point in diametrically opposed directions.

Which is why no-one should see today’s important bailout agreement for Greece as a permanent happy ending.

So if you’re Pablo Iglesias you’re watching closely to see if Germany blinks in its staring contest with the IMF over writedowns for Greece – if they do, the door is open to demanding similar relief for Spain, which could prove to be a powerful campaign message going into elections due before the end of the year.

References:

http://www.zerohedge.com/news/2015-08-11/third-times-charm-greece-agrees-bailout-amid-rampant-skepticism

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Theresa May’s soft Brexit plan continues to fail, as EU now pushing for UK to leave (Video)

The Duran – News in Review – Episode 138.

Alex Christoforou

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Theresa May’s soft Brexit strategy has been such a monumental failure that even Brussels negotiators are now pushing for the UK to simply leave the union, in what has becoming a British debacle, and a thorn in the Conservative Party’s side.

Many media pundits and analysts are now asking if the latest impasse in Brexit talks means that we are indeed seeing the last days of Theresa May?

While much of the mess the Conservative Party finds themselves in because of Brexit is squarely Theresa May’s fault, much of the damage done by May’s inability to close the deal on Brexit will not go away, even if she does.

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss Theresa May’s continued failure to obtain her soft Brexit dream, placing herself (and her Conservative Party) in such an embarrassing position, that European Union negotiators, tired of never ending talks, are eager to see Britain go away, in what will be an inevitable hard Brexit.

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Follow The Duran Audio Podcast on Soundcloud.

“Are these the last days of Theresa May?”, authored by Stephen Bush via The New Statesman:


Are these the last days of Theresa May? This morning’s papers are full of stories of plots and ultimatums to the Prime Minister unless she changes her Brexit strategy, whether from her Scottish MPs over any extension of the transition period due to concerns over fisheries policy, from her Brexiteer MPs over the backstop or from her Cabinet over practically everything.

All this before the Budget next Monday, when Philip Hammond is going to have to find some way to pay for the extra cash for the NHS and Universal Credit all while keeping to May’s pledge that debt will continue to fall as a share of GDP. So added to all May’s Brexit woes, a row over tax rises could be coming down the track.

Of course, the PM’s position has been perilous for a very long time – in fact, when you remember that her period of hegemony ran from July 2016 to June 2017, she’s actually been under threat for more of her premiership than she hasn’t. But just because you roll heads 36 times in a row doesn’t mean your chances of rolling tails aren’t 50/50 on roll 37, and May’s luck could well be running out.

But while May shares a good size of the blame for the mess that the Conservative Party are in, it’s not all her fault by any means and none of those problems will go away if May is replaced or changes tack to win over her internal opponents in the European Research Group.

Ireland has a veto over the end state and only an indefinite and legally binding backstop for the island of Ireland will do if any deal is to be signed off. It’s true to say that no deal also means a hard border on the island of Ireland, but it’s also true that it will always been in the political interests of whoever is in office in Ireland for a hard border to be imposed as a result of no deal rather than for the Irish government to acquiesce in the creation of one through a EU-UK treaty.

The DUP can bring the Conservative government to an early end so they, too, have a de facto veto over any deal that creates barriers between Northern Ireland and the United Kingdom. But the only UK-wide solution – for the backstop to encompass the whole of the United Kingdom – is nothing doing with pro-Brexit Conservative MPs who don’t want an indefinite backstop. It’s also politically tricky with many EU member states, who don’t want the default outcome of the talks to be a UK-wide backstop, which many regard as a threat to the sanctity of single market. (The only reason why it is acceptable on the Irish border is because Ireland is still a member state and because the Irish border was both the location and the cause of political violence within living memory.)

Added to that, the Conservative parliamentary party seems to be undergoing a similar psychological journey to the one that Steve van Riel described during the 2015 Labour leadership election: that groups of any kind tend to reach a more extreme position the longer an issue is debated. Brexiteers who spent 20 years saying they wanted a Norway style deal now talk of Norway as a betrayal. Leavers who cheerily talked about making Northern Ireland into its own customs area before Brexit now talk of the backstop as a constitutional betrayal. And Conservative Remainers who only reluctantly backed an In vote to avoid the political upheaval of negotiating Brexit, or the loss of David Cameron, now call for a referendum re-run and privately flirt with the idea of a new party.

Some of that is May’s fault, yes. But none of it is going to go away if she does and all of it makes the prospect of reaching a Brexit deal considerably less likely.

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Saudi Crown Prince Spoke To Khashoggi By Phone Moments Before He Was Killed: Report

The shifting Saudi narrative of the killing has been met with scepticism and condemnation from the international community.

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Via Zerohedge


In the latest bombshell report involving the Khashoggi murder, Saudi Crown Prince Mohammed bin Salman reportedly spoke on the phone with journalist Jamal Khashoggi moments before he was murdered in the Saudi consulate in Istanbul. Turkish pro-government daily Yeni Safak disclosed the new alleged details of the case in a report on Sunday, contradicting claims by Saudi authorities that Prince Mohammed played no part in Khashoggi’s murder.

“Khashoggi was detained by the Saudi team inside the consulate building. Then Prince Mohammed contacted Khashoggi by phone and tried to convince him to return to Riyadh,” the report said.

“Khashoggi refused Prince Mohammed’s offer out of fear he would be arrested and killed if he returned. The assassination team then killed Khashoggi after the conversation ended,” it added.

While the report is so far unconfirmed, the New Arab reports that so far Turkish pro-government media have been receiving a steady stream of leaks many of which turned out to be accurate, including pictures of the hit team as they entered Turkey and reports of audio recordings of the murder said to be in the possession of Turkish authorities.

Meanwhile, the Saudi version of events has been changing significantly over the past two weeks with authorities conceded Saturday that Khashoggi, the Washington Post columnist and a Riyadh critic, was killed inside the kingdom’s Istanbul diplomatic compound following a “brawl”. The admission came after a fortnight of denials with the insistence that the journalist left the consulate alive, starting on October 5, when Crown Prince MBS told Bloomberg that Khashoggi was not inside the consulate and “we are ready to welcome the Turkish government to go and search our premises”.

On Saturday, the kingdom announced it had fired five top officials and arrested 18 others in an investigation into the killing – a move that has widely been viewed as an attempt to cover up the crown prince’s role in the murder.

The shifting Saudi narrative of the killing has been met with scepticism and condemnation from the international community, and has left the U.S. and other allies struggling for a response on Sunday. As Bloomberg reports, France demanded more information, Germany put arms sales to Riyadh on hold and the Trump administration stressed the vital importance of the kingdom and its economy to the U.S.

In Sunday radio and TV interviews, Dominic Raab, the U.K. politician in charge of negotiating Britain’s exit from the European Union, described the latest Saudi account as not credible; French Finance Minister Bruno Le Maire called for “the truth’’; and Germany’s Foreign Minister Heiko Maas said his government would approve no arms sales so long as the investigation was ongoing.

Earlier on Sunday, Saudi Foreign Minister Adel al-Jubeir acknowledged a cover-up attempt. The dramatic reversal, after Saudi officials had previously said the columnist left the building alive, has only complicated the issue for allies.

Saudi Arabia’s al-Jubeir told Fox News on Sunday that the journalist’s death was an “aberration.”

“There obviously was a tremendous mistake made and what compounded the mistake was the attempt to cover up,” he said, promising that “those responsible will be punished for it.”

More importantly, he said that Prince Mohammed had no knowledge of the events, although if the Turkish report is confirmed, it will be yet another major flaw with the official narrative.

Several senior members of US President Donald Trump’s Republican Party said they believed Prince Mohammed was linked to the killing, and one called for a “collective” Western response if a link is proved. In an interview with The Washington Post, President Trump, too, said the Saudi narrative had been marked by “deception and lies.’’ Yet he also defended Crown Prince Mohammed bin Salman as a “strong person,’’ and said there was no proof of his involvement in Khashoggi’s death. Some members of Congress have questioned his willingness to exonerate the prince.

“Obviously there’s been deception and there’s been lies,” Trump said on the shifting accounts offered by Riyadh.

On Sunday, Turkish President Recep Tayyip Erdogan promised to disclose details about the case at a meeting of his AK Party’s parliamentary faction on Tuesday, Haberturk newspaper reported.

Meanwhile, as Western firms and high-ranked officials scramble to avoid any Saudi involvement, Russia is more than happy to step in and fill the power vacuum void left by the US. As a result, Russian businesses are flocking to attend the investment forum in Saudi Arabia, as Western counterparts pull out.

Russian President Vladimir Putin has had considerable success boosting Moscow’s influence in the Middle East at U.S. expense, by standing by regimes that fall afoul of the West, including in Syria and Iran. Last week Putin signed a strategic and partnership agreement with Egypt’s President Abdel-Fattah El-Sisi, backed by $25 billion in loans to build nuclear reactors. Until El-Sisi came to power, Egypt had been closely allied to the U.S.

Meanwhile, all eyes are fixed squarely on the Crown Prince whose position of power is looking increasingly perilous. Congressional leaders on Sunday dismissed the story proffered earlier by the Saudis, with Republican Senators Lindsey Graham of South Carolina and Bob Corker of Tennessee saying they believed the crown prince was likely involved in Khashoggi’s death.

Lawmakers said they believe the U.S. must impose sanctions on Saudi Arabia or take other action if the crown prince is shown to have been involved. Speaking on NBC’s “Meet the Press,” Senator Dick Durbin of Illinois, the chamber’s No. 2 Democrat, said the Saudi ambassador to the U.S. should be formally expelled until a third-party investigation is done. He said the U.S. should call on its allies to do the same.

“Unless the Saudi kingdom understands that civilized countries around the world are going to reject this conduct and make sure that they pay a price for it, they’ll continue doing it,”’ Durbin said.

The obvious question is what happens and how the Saudi royal family will respond if it is pushed too far, and whether the worst case scenario, a sharp cut in oil exports, could be on the table if MBS feels like he has little to lose from escalating the situation beyond a point of no return.

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The Biggest Winners In The Mediterranean Energy War

Energy companies are flocking to the Mediterranean after oil and gas discoveries in the territorial waters of Israel, Cyprus, and Egypt.

The Duran

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Authored by Vanand Meliksetian via Oilprice.com:


Former Vice-President of the United States Dick Cheney once said: “the good lord didn’t see fit to put oil and gas only where there are democratically elected states… Occasionally we have to operate in places where, all considered, one would not normally choose to go. But we go where the business is.” Europe is surrounded by states with abundant energy resources, but supply from these countries is not always as reliable. Russia, for example, is regularly accused of using energy as a weapon. However, major discoveries of gas in the Eastern Mediterranean could mitigate dependence on Russian gas.

The discovery of a gas field named Tamar near the coast of Israel in 2009 set off a wave of investments in the energy sector. After 9 years, companies are flocking to the region after other discoveries in the territorial waters of Israel, Cyprus, and Egypt. Ever larger finds in the Mediterranean Sea’s Levant Basin such as the Leviathan gas field in 2010 and Zohr in 2015, have the potential to transform the strategic importance of the region.

Turkey’s energy hub ambitions

Few states in the world are geographically so well positioned as Turkey. The country controls Russia’s only warm water port in the Black Sea and serves as a bridge between east and west. Therefore, during the Cold War Ankara was an indispensable member of NATO. More recently, Turkey has the ambition to become an energy hub for Middle Eastern and Caspian energy. Ankara has had mixed successes in attracting investors and maintaining political stability.

After Israel’s significant discoveries, a U.S. backed initiative presented Turkey as an energy hub. Although a land pipeline is the cheapest option to transport gas from the Mediterranean to Europe, political developments have stalled construction. President Erdogan’s escalating public denunciations of Israel have made Jerusalem look for other options. Furthermore, relations with Europe have also been damaged which would be dependent on Turkey as a transit country.

Egypt as the regional gas hub

Egypt’s has the third largest gas reserves in Africa. Therefore, its export-oriented LNG industry came on-stream in 2004 but was shut mid-2013 due to a lack of resources. The growth of the domestic market demanded ever larger volumes, which went at the expense of exports. Instead, Egypt started importing LNG. However, the discovery of the massive Zohr gas field, the largest in the Eastern Mediterranean, has turned around the situation. Egypt imported its last shipment of LNG in September 2018.

Although relations between Egypt and Israel are far from normal, privately held companies have been able to strike a deal. Starting from the first quarter of 2019, in 10 years 64 bcm worth $10 billion will be delivered. The agreement has stirred controversy in Egypt, which until recently was exporting to Israel. However, with this deal, Cairo comes closer in becoming an energy hub.

The recent signing of another agreement, this time with Nicosia to develop a subsea pipeline from Cyprus’ Aphrodite gas field, has been another important step. Cypriot gas will be pumped 400 miles (645 kilometers) to the south to Egypt’s LNG facilities. Difficult relations with Nicosia’s northern neighbors make a pipeline to the north highly unlikely.

Cairo has been able to act pragmatically concerning its relations with its neighbors such as Israel while taking advantage of the limited amount of options for exporting gas. The obvious winner in this context has been Egypt and its LNG industry. Its chances of becoming the regional energy hub instead of Turkey have significantly increased.

Turkey’s hope for luck

All littoral states of the Eastern Mediterranean struck ‘gold’ in the shape of natural gas except for Turkey. Ankara strongly opposes the exploitation of the gas resources in the exclusive economic zone of the Republic of Cyprus without a sharing agreement with Northern Cyprus’ Turkish inhabitants. The Turkish Navy prevented ships from Italy’s Eni from performing exploratory drilling off the coast of the Republic of Cyprus.

In search of its own luck, Ankara has set up a project to start looking for gas in the EEZ of the Turkish Republic of Northern Cyprus (TRNC), which is only recognized by Turkey. Kudret Özersay, TRNC deputy prime minister and minister of foreign affairs, proclaimed the desire to turn the TRNC into an energy and electricity hub. However, it seems unlikely that investors will be willing to participate due to political and legal reasons.

The legal situation of the TRNC is an impediment to any major decision involving a longtime commitment worth billions. From an international point of view, the region is de jure part of the Republic of Cyprus, despite holding no control over the region. The TRNC holds no seat in the WTO.

Large investments require solid legal and political support for companies to earn back their investments. The current economic situation of Turkey makes it dependent on foreign money. However, stringent due diligence rules could impede some international banks in lending the necessary funds.

The Eastern Mediterranean Sea basin promises great rewards, but the risks are also high. With Turkey potentially being the only country that doesn’t profit from the gas bonanza, Ankara has acted aggressively to get what it regards as its fair share. However, it faces a united front from the other littoral states of the Eastern Mediterranean. Therefore, it is highly unlikely that Turkey will be able to profit in the same way as Cyprus, Egypt or Israel.

By Vanand Meliksetian for Oilprice.com

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