International
“Another Masterclass In Can-Kicking”: Europe Reaches Farcical “Debt-Reduction Deal” Which Does Nothing To Reduce Debt
"Another Masterclass In Can-Kicking": Europe Reaches Farcical "Debt-Reduction Deal" Which Does Nothing To Reduce Debt
One month ago, we reported…
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One month ago, we reported that Europe, already sliding into a stagflationary recession, was about to unleash the same crushing austerity that brought the continent to the verge of collapse over a decade ago. That's when the German government - one day after the German constitutional court ruled a decision to move €60BN from unused pandemic funds in 2021 into the Energy and Climate Fund, later renamed the Climate and Transformation Fund (KTF), was unconstitutional and void - froze public spending for the rest of the year, dealing a blow to Europe’s recovery and efforts to beef up Zelensky's offshore bank accounts Ukraine's military and reduce carbon emissions. Which is why many were closely watching the outcome of last week's European fiscal reform negotiations to see just how much worse Europe's upcoming austerity could be.
The outcome: after months of haggling, EU finance ministers bowed to German pressure for tough debt-reduction rules, as part of a deal to phase in a sweeping overhaul of the union’s budget framework; the package as detailed by the FT, gives EU member states greater independence on agreeing debt and deficit plans with Brussels, but only within tight spending limits demanded by fiscal hawks.
The compromise agreed between EU member states built on original proposals from the European Commission, which sought to give countries more independence in setting debt reduction plans, yet in the end, it all again boils down to what Germany wants.
Under the framework, the commission will draw up national spending plans over four years ensuring debt is put on a declining path (which will never happen in a world where virtually all growth is now funded by debt). Countries can extend these up to seven years by committing to growth-enhancing reforms, which simply means that debt will grow to all time highs... then grow even more as politicians admit that there are no growth plans that can lead to a net reduction in debt/GDP.
Although high-debt states - which in Europe is pretty much all - were given some extra wriggle room as part of a transition period, the new framework included stricter overall limits on spending that were crucial to winning over Germany, which was deeply sceptical about the original reforms. The political deal, struck after the traditionally marathon negotiations between capitals, must still be agreed with the European parliament to become law.
Two fiscal benchmarks, which are included in EU treaties, remain unchanged: a 60 per cent debt-to-GDP ratio and a 3 per cent annual deficits limit. Ministers agreed to ditch a separate requirement to cut excess debt by 5% per year, simply because debt reduction in modern financial systems is no longer a possibility even in the realm of European political fables.
To improve enforcement, the ministers decided to introduce a yearly spending cap that will become main benchmark used to assess a country’s compliance with its fiscal plan. These plans will be flanked by two “safeguards” added at the behest of a group of countries led by Germany, who criticised the commission’s proposals as too lax.
Countries with debt ratios above 90% of GDP will be required to cut excess debt by one percentage point per year over the duration of their national spending plan. That target is halved for countries with debt ratios above 60 per cent but below 90 per cent of GDP.
Sanctions are strengthened under the deal, with countries missing spending plan targets falling into a so-called excessive deficit procedure, which would require them to reduce spending by 0.5% of GDP per year. In other words, a fiscal "debt brake" similar to the one that Germany almost had.... but quickly abandoned when it became clear that a flood of new debt is needed to kickstart Europe's economy in the aftermath of the covid pandemic.
Hilariously, the commission has already said that a large number of draft budget plans for 2024 do not comply with the required thresholds and will be sanctioned after EU elections. But - once again confirming that no European "reform" is worth the paper it is printed on - a last-minute concession won by France ensured that countries subject to such a procedure will be able to discount debt interest costs in the period 2025-2027, effectively reducing the required spending curbs.
Realizing just how toothless the whole farce is, Italy finance minister Giancarlo Giorgetti, who had earlier threatened to veto the proposals, ultimately told his colleagues he would relent “in the spirit of compromise." Translation: the new debt-reduction rules are a joke, something which wasn't lost even on Europe's career clowns bureaucrats:
“The impression is that countries such as France and Italy have accepted some commitment that would not be binding on them in the short term, in the conviction that it will never be applied,” said Lucio Pench, the author of the commission’s original proposal, now a non-resident fellow with think-tank Bruegel.
Commenting on the outcome, TS Lombard analyst Davide Oneglia is laconic: "In classic EU style, member states have reached a last-minute agreement to reform the bloc’s fiscal rules – a complex compromise brokered by Germany and France that allows everybody to claim victory, even Italy. The new framework broadly follows the European Commission’s (EC) proposal, which tried to strike a balance among simpler but more easily enforceable rules, slower fiscal consolidation and more leeway for public investment. In so far as these goals have been partly fulfilled, the compromise is a step forward compared with the old rules – so strict (especially since Covid) to prevent implementation. However, negotiations have both improved and worsened the EC proposal, favoring incumbent governments by adding some short-term flexibility at the expense of tougher long-term commitments."
- On the positive side, the deal retains the key elements of the EC framework: a long-term debt-sustainability analysis (DSA) to evaluate member states’ progress on multi-year structural plans (4 years, extendible to 7) negotiated with the EC to ensure the projected “net expenditure path” (i.e. the growth rate of government spending, netted out for factors such as interest rate payments and cyclical unemployment spending) is consistent with gradual debt reduction. While the EC will run the DSA, this will now also need to be approved by the Council. Moreover, the annual minimum requirement of debt reduction to be achieved regardless of DSA’s results was revised so to start only once the deficit falls below 3% of GDP. To enhance flexibility, countries are allowed to deviate from the net expenditure path by 0.3% of GDP annually and by 0.6% cumulatively during a monitoring period.
- On the negative side, Germany managed to impose two new “safeguards” that will haunt policymakers. First, countries reducing the deficit below 3% need to carry on with fiscal adjustments at a pace of 0.4% of GDP/year over 4 years or 0.25%/year over 7 years until the deficit falls below 1.5% to build a safety buffer. A very onerous requirement for countries like Italy, as it implies a primary structural surplus of 4% of GDP. Second, countries with debt/GDP ratio above 90% need to reduce it by 1%/year, while those with debt between 60% and 90% need to cut it by 0.5%. On paper this debt adjustment is less restrictive than that under the old rules, but tougher enforcement means constraining fiscal space in the long run.
Ultimately, high debt countries focused on short-term gains, meaning they will be allowed to build up even more debt leading to the next European debt crisis at which point Europe will pretend to make even more difficult decisions which will achieve nothing but put the continent even more in debt, requiring even bigger centrla bank bailouts and so on. As noted above, France obtained that countries with deficit above 3% will be able until 2027 (purely "coincidentally" the year of the next Presidential election) to exclude interest payments from the figures used to calculate the adjustment. Italy also obtained that the plan of investment and reforms agreed with the EC under the Recovery Plan will be enough to automatically secure a 7-year adjustment period.
Bottom line: another farcical deal that optically that papers over Europe's insolvency (oh but look how late and hard these career politicians - who are paid only to pretend they work late and hard - worked to get it done, please clap), which is only able to exist day to day thanks to the generosity of the ECB's illegal monetary financing apparatus, yet which continues to this day despite being illegal and in explicit violation of EU law.
No wonder that, as TS Lombard's Oneglia summaries, "the deal is short-term positive for the EU economy and markets, but yet another masterclass in Brussels’s depressing can-kicking."
International
Red Candle In The Wind
Red Candle In The Wind
By Benjamin PIcton of Rabobank
February non-farm payrolls superficially exceeded market expectations on Friday by…
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By Benjamin PIcton of Rabobank
February non-farm payrolls superficially exceeded market expectations on Friday by printing at 275,000 against a consensus call of 200,000. We say superficially, because the downward revisions to prior months totalled 167,000 for December and January, taking the total change in employed persons well below the implied forecast, and helping the unemployment rate to pop two-ticks to 3.9%. The U6 underemployment rate also rose from 7.2% to 7.3%, while average hourly earnings growth fell to 0.2% m-o-m and average weekly hours worked languished at 34.3, equalling pre-pandemic lows.
Undeterred by the devil in the detail, the algos sprang into action once exchanges opened. Market darling NVIDIA hit a new intraday high of $974 before (presumably) the humans took over and sold the stock down more than 10% to close at $875.28. If our suspicions are correct that it was the AIs buying before the humans started selling (no doubt triggering trailing stops on the way down), the irony is not lost on us.
The 1-day chart for NVIDIA now makes for interesting viewing, because the red candle posted on Friday presents quite a strong bearish engulfing signal. Volume traded on the day was almost double the 15-day simple moving average, and similar price action is observable on the 1-day charts for both Intel and AMD. Regular readers will be aware that we have expressed incredulity in the past about the durability the AI thematic melt-up, so it will be interesting to see whether Friday’s sell off is just a profit-taking blip, or a genuine trend reversal.
AI equities aside, this week ought to be important for markets because the BTFP program expires today. That means that the Fed will no longer be loaning cash to the banking system in exchange for collateral pledged at-par. The KBW Regional Banking index has so far taken this in its stride and is trading 30% above the lows established during the mini banking crisis of this time last year, but the Fed’s liquidity facility was effectively an exercise in can-kicking that makes regional banks a sector of the market worth paying attention to in the weeks ahead. Even here in Sydney, regulators are warning of external risks posed to the banking sector from scheduled refinancing of commercial real estate loans following sharp falls in valuations.
Markets are sending signals in other sectors, too. Gold closed at a new record-high of $2178/oz on Friday after trading above $2200/oz briefly. Gold has been going ballistic since the Friday before last, posting gains even on days where 2-year Treasury yields have risen. Gold bugs are buying as real yields fall from the October highs and inflation breakevens creep higher. This is particularly interesting as gold ETFs have been recording net outflows; suggesting that price gains aren’t being driven by a retail pile-in. Are gold buyers now betting on a stagflationary outcome where the Fed cuts without inflation being anchored at the 2% target? The price action around the US CPI release tomorrow ought to be illuminating.
Leaving the day-to-day movements to one side, we are also seeing further signs of structural change at the macro level. The UK budget last week included a provision for the creation of a British ISA. That is, an Individual Savings Account that provides tax breaks to savers who invest their money in the stock of British companies. This follows moves last year to encourage pension funds to head up the risk curve by allocating 5% of their capital to unlisted investments.
As a Hail Mary option for a government cruising toward an electoral drubbing it’s a curious choice, but it’s worth highlighting as cash-strapped governments increasingly see private savings pools as a funding solution for their spending priorities.
Of course, the UK is not alone in making creeping moves towards financial repression. In contrast to announcements today of increased trade liberalisation, Australian Treasurer Jim Chalmers has in the recent past flagged his interest in tapping private pension savings to fund state spending priorities, including defence, public housing and renewable energy projects. Both the UK and Australia appear intent on finding ways to open up the lungs of their economies, but government wants more say in directing private capital flows for state goals.
So, how far is the blurring of the lines between free markets and state planning likely to go? Given the immense and varied budgetary (and security) pressures that governments are facing, could we see a re-up of WWII-era Victory bonds, where private investors are encouraged to do their patriotic duty by directly financing government at negative real rates?
That would really light a fire under the gold market.
Government
Trump “Clearly Hasn’t Learned From His COVID-Era Mistakes”, RFK Jr. Says
Trump "Clearly Hasn’t Learned From His COVID-Era Mistakes", RFK Jr. Says
Authored by Jeff Louderback via The Epoch Times (emphasis ours),
President…
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Authored by Jeff Louderback via The Epoch Times (emphasis ours),
President Joe Biden claimed that COVID vaccines are now helping cancer patients during his State of the Union address on March 7, but it was a response on Truth Social from former President Donald Trump that drew the ire of independent presidential candidate Robert F. Kennedy Jr.
During the address, President Biden said: “The pandemic no longer controls our lives. The vaccines that saved us from COVID are now being used to help beat cancer, turning setback into comeback. That’s what America does.”
President Trump wrote: “The Pandemic no longer controls our lives. The VACCINES that saved us from COVID are now being used to help beat cancer—turning setback into comeback. YOU’RE WELCOME JOE. NINE-MONTH APPROVAL TIME VS. 12 YEARS THAT IT WOULD HAVE TAKEN YOU.”
An outspoken critic of President Trump’s COVID response, and the Operation Warp Speed program that escalated the availability of COVID vaccines, Mr. Kennedy said on X, formerly known as Twitter, that “Donald Trump clearly hasn’t learned from his COVID-era mistakes.”
“He fails to recognize how ineffective his warp speed vaccine is as the ninth shot is being recommended to seniors. Even more troubling is the documented harm being caused by the shot to so many innocent children and adults who are suffering myocarditis, pericarditis, and brain inflammation,” Mr. Kennedy remarked.
“This has been confirmed by a CDC-funded study of 99 million people. Instead of bragging about its speedy approval, we should be honestly and transparently debating the abundant evidence that this vaccine may have caused more harm than good.
“I look forward to debating both Trump and Biden on Sept. 16 in San Marcos, Texas.”
Mr. Kennedy announced in April 2023 that he would challenge President Biden for the 2024 Democratic Party presidential nomination before declaring his run as an independent last October, claiming that the Democrat National Committee was “rigging the primary.”
Since the early stages of his campaign, Mr. Kennedy has generated more support than pundits expected from conservatives, moderates, and independents resulting in speculation that he could take votes away from President Trump.
Many Republicans continue to seek a reckoning over the government-imposed pandemic lockdowns and vaccine mandates.
President Trump’s defense of Operation Warp Speed, the program he rolled out in May 2020 to spur the development and distribution of COVID-19 vaccines amid the pandemic, remains a sticking point for some of his supporters.
Operation Warp Speed featured a partnership between the government, the military, and the private sector, with the government paying for millions of vaccine doses to be produced.
President Trump released a statement in March 2021 saying: “I hope everyone remembers when they’re getting the COVID-19 Vaccine, that if I wasn’t President, you wouldn’t be getting that beautiful ‘shot’ for 5 years, at best, and probably wouldn’t be getting it at all. I hope everyone remembers!”
President Trump said about the COVID-19 vaccine in an interview on Fox News in March 2021: “It works incredibly well. Ninety-five percent, maybe even more than that. I would recommend it, and I would recommend it to a lot of people that don’t want to get it and a lot of those people voted for me, frankly.
“But again, we have our freedoms and we have to live by that and I agree with that also. But it’s a great vaccine, it’s a safe vaccine, and it’s something that works.”
On many occasions, President Trump has said that he is not in favor of vaccine mandates.
An environmental attorney, Mr. Kennedy founded Children’s Health Defense, a nonprofit that aims to end childhood health epidemics by promoting vaccine safeguards, among other initiatives.
Last year, Mr. Kennedy told podcaster Joe Rogan that ivermectin was suppressed by the FDA so that the COVID-19 vaccines could be granted emergency use authorization.
He has criticized Big Pharma, vaccine safety, and government mandates for years.
Since launching his presidential campaign, Mr. Kennedy has made his stances on the COVID-19 vaccines, and vaccines in general, a frequent talking point.
“I would argue that the science is very clear right now that they [vaccines] caused a lot more problems than they averted,” Mr. Kennedy said on Piers Morgan Uncensored last April.
“And if you look at the countries that did not vaccinate, they had the lowest death rates, they had the lowest COVID and infection rates.”
Additional data show a “direct correlation” between excess deaths and high vaccination rates in developed countries, he said.
President Trump and Mr. Kennedy have similar views on topics like protecting the U.S.-Mexico border and ending the Russia-Ukraine war.
COVID-19 is the topic where Mr. Kennedy and President Trump seem to differ the most.
Former President Donald Trump intended to “drain the swamp” when he took office in 2017, but he was “intimidated by bureaucrats” at federal agencies and did not accomplish that objective, Mr. Kennedy said on Feb. 5.
Speaking at a voter rally in Tucson, where he collected signatures to get on the Arizona ballot, the independent presidential candidate said President Trump was “earnest” when he vowed to “drain the swamp,” but it was “business as usual” during his term.
John Bolton, who President Trump appointed as a national security adviser, is “the template for a swamp creature,” Mr. Kennedy said.
Scott Gottlieb, who President Trump named to run the FDA, “was Pfizer’s business partner” and eventually returned to Pfizer, Mr. Kennedy said.
Mr. Kennedy said that President Trump had more lobbyists running federal agencies than any president in U.S. history.
“You can’t reform them when you’ve got the swamp creatures running them, and I’m not going to do that. I’m going to do something different,” Mr. Kennedy said.
During the COVID-19 pandemic, President Trump “did not ask the questions that he should have,” he believes.
President Trump “knew that lockdowns were wrong” and then “agreed to lockdowns,” Mr. Kennedy said.
He also “knew that hydroxychloroquine worked, he said it,” Mr. Kennedy explained, adding that he was eventually “rolled over” by Dr. Anthony Fauci and his advisers.
MaryJo Perry, a longtime advocate for vaccine choice and a Trump supporter, thinks votes will be at a premium come Election Day, particularly because the independent and third-party field is becoming more competitive.
Ms. Perry, president of Mississippi Parents for Vaccine Rights, believes advocates for medical freedom could determine who is ultimately president.
She believes that Mr. Kennedy is “pulling votes from Trump” because of the former president’s stance on the vaccines.
“People care about medical freedom. It’s an important issue here in Mississippi, and across the country,” Ms. Perry told The Epoch Times.
“Trump should admit he was wrong about Operation Warp Speed and that COVID vaccines have been dangerous. That would make a difference among people he has offended.”
President Trump won’t lose enough votes to Mr. Kennedy about Operation Warp Speed and COVID vaccines to have a significant impact on the election, Ohio Republican strategist Wes Farno told The Epoch Times.
President Trump won in Ohio by eight percentage points in both 2016 and 2020. The Ohio Republican Party endorsed President Trump for the nomination in 2024.
“The positives of a Trump presidency far outweigh the negatives,” Mr. Farno said. “People are more concerned about their wallet and the economy.
“They are asking themselves if they were better off during President Trump’s term compared to since President Biden took office. The answer to that question is obvious because many Americans are struggling to afford groceries, gas, mortgages, and rent payments.
“America needs President Trump.”
Multiple national polls back Mr. Farno’s view.
As of March 6, the RealClearPolitics average of polls indicates that President Trump has 41.8 percent support in a five-way race that includes President Biden (38.4 percent), Mr. Kennedy (12.7 percent), independent Cornel West (2.6 percent), and Green Party nominee Jill Stein (1.7 percent).
A Pew Research Center study conducted among 10,133 U.S. adults from Feb. 7 to Feb. 11 showed that Democrats and Democrat-leaning independents (42 percent) are more likely than Republicans and GOP-leaning independents (15 percent) to say they have received an updated COVID vaccine.
The poll also reported that just 28 percent of adults say they have received the updated COVID inoculation.
The peer-reviewed multinational study of more than 99 million vaccinated people that Mr. Kennedy referenced in his X post on March 7 was published in the Vaccine journal on Feb. 12.
It aimed to evaluate the risk of 13 adverse events of special interest (AESI) following COVID-19 vaccination. The AESIs spanned three categories—neurological, hematologic (blood), and cardiovascular.
The study reviewed data collected from more than 99 million vaccinated people from eight nations—Argentina, Australia, Canada, Denmark, Finland, France, New Zealand, and Scotland—looking at risks up to 42 days after getting the shots.
Three vaccines—Pfizer and Moderna’s mRNA vaccines as well as AstraZeneca’s viral vector jab—were examined in the study.
Researchers found higher-than-expected cases that they deemed met the threshold to be potential safety signals for multiple AESIs, including for Guillain-Barre syndrome (GBS), cerebral venous sinus thrombosis (CVST), myocarditis, and pericarditis.
A safety signal refers to information that could suggest a potential risk or harm that may be associated with a medical product.
The study identified higher incidences of neurological, cardiovascular, and blood disorder complications than what the researchers expected.
President Trump’s role in Operation Warp Speed, and his continued praise of the COVID vaccine, remains a concern for some voters, including those who still support him.
Krista Cobb is a 40-year-old mother in western Ohio. She voted for President Trump in 2020 and said she would cast her vote for him this November, but she was stunned when she saw his response to President Biden about the COVID-19 vaccine during the State of the Union address.
“I love President Trump and support his policies, but at this point, he has to know they [advisers and health officials] lied about the shot,” Ms. Cobb told The Epoch Times.
“If he continues to promote it, especially after all of the hearings they’ve had about it in Congress, the side effects, and cover-ups on Capitol Hill, at what point does he become the same as the people who have lied?” Ms. Cobb added.
“I think he should distance himself from talk about Operation Warp Speed and even admit that he was wrong—that the vaccines have not had the impact he was told they would have. If he did that, people would respect him even more.”
International
There will soon be one million seats on this popular Amtrak route
“More people are taking the train than ever before,” says Amtrak’s Executive Vice President.
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While the size of the United States makes it hard for it to compete with the inter-city train access available in places like Japan and many European countries, Amtrak trains are a very popular transportation option in certain pockets of the country — so much so that the country’s national railway company is expanding its Northeast Corridor by more than one million seats.
Related: This is what it's like to take a 19-hour train from New York to Chicago
Running from Boston all the way south to Washington, D.C., the route is one of the most popular as it passes through the most densely populated part of the country and serves as a commuter train for those who need to go between East Coast cities such as New York and Philadelphia for business.
Veronika Bondarenko
Amtrak launches new routes, promises travelers ‘additional travel options’
Earlier this month, Amtrak announced that it was adding four additional Northeastern routes to its schedule — two more routes between New York’s Penn Station and Union Station in Washington, D.C. on the weekend, a new early-morning weekday route between New York and Philadelphia’s William H. Gray III 30th Street Station and a weekend route between Philadelphia and Boston’s South Station.
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According to Amtrak, these additions will increase Northeast Corridor’s service by 20% on the weekdays and 10% on the weekends for a total of one million additional seats when counted by how many will ride the corridor over the year.
“More people are taking the train than ever before and we’re proud to offer our customers additional travel options when they ride with us on the Northeast Regional,” Amtrak Executive Vice President and Chief Commercial Officer Eliot Hamlisch said in a statement on the new routes. “The Northeast Regional gets you where you want to go comfortably, conveniently and sustainably as you breeze past traffic on I-95 for a more enjoyable travel experience.”
Here are some of the other Amtrak changes you can expect to see
Amtrak also said that, in the 2023 financial year, the Northeast Corridor had nearly 9.2 million riders — 8% more than it had pre-pandemic and a 29% increase from 2022. The higher demand, particularly during both off-peak hours and the time when many business travelers use to get to work, is pushing Amtrak to invest into this corridor in particular.
To reach more customers, Amtrak has also made several changes to both its routes and pricing system. In the fall of 2023, it introduced a type of new “Night Owl Fare” — if traveling during very late or very early hours, one can go between cities like New York and Philadelphia or Philadelphia and Washington. D.C. for $5 to $15.
As travel on the same routes during peak hours can reach as much as $300, this was a deliberate move to reach those who have the flexibility of time and might have otherwise preferred more affordable methods of transportation such as the bus. After seeing strong uptake, Amtrak added this type of fare to more Boston routes.
The largest distances, such as the ones between Boston and New York or New York and Washington, are available at the lowest rate for $20.
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