Tuesday, July 5, 2016

The EU's Inflexible Bank Rules Risk An Italian Brexit

By Melvyn Krauss
The Bloomberg View
July 5, 2016

The fears of Brexit contagion may have seemed overblown after Spain's election a week ago. But as Italy's continuing banking crisis shows, the euro zone still faces major challenges. The EU must act fast to change the vernacular of austerity that has alienated voters and restricted the ability of national governments to put together policies for growth. Italy must be allowed to take a page from the Spanish playbook.

Spanish Prime Minister Mariano Rajoy's decision in 2013 to reject EU-style austerity in favor of corporate tax cuts and some labor reforms helped pull Spain out of its economic recession. Rajoy set up a bad bank to bail out the distressed good ones like Banco Popular and Banco Santander, stabilizing the sector and unlocking lending to the real economy. His center-right Popular Party has since suffered from a series of corruption scandals. But one convincing interpretation of the recent election in Spain, in which Rajoy's party received the largest share of votes, is that the mayhem created by Britain's vote to leave the European Union proved so disconcerting that Spanish voters were not willing to risk the country's recovery -- 3.2 percent growth in 2015 -- on a political fling.

Italy needs similar medicine (and more). With Italy's non-performing loans at over 20 percent of GDP and the country's public debt at over 130 percent of GDP, Prime Minister Matteo Renzi is running out of time. An EU-approved plan earlier this year to restructure the banks through the state-backed rescue fund Atlante has stalled. With only 4.25 billion euros ($4.8 billion), against 360 billion euros of troubled loans, the rescue fund always looked too small; it has failed to attract sufficient private money. Should Italian depositors lose confidence in their banks, still a very real possibility, the chaos would not only risk a financial collapse in Italy, but would spread through the euro zone. Shares in troubled lender Banca Monte dei Paschi di Siena is down 20 percent this week, with Italy's La Stampa newspaper reporting Tuesday that the government is considering a new rescue plan.

Renzi would like to aid the banks without forcing investors to share losses -- politically explosive, given that 45 percent of bank debt is held by ordinary Italians -- but European Union state aid rules prevent that. He requested a six-month waiver of EU rules that require investors to be "bailed-in" for state aid to be given except in exceptional circumstances. Though Germany has objected, it has not closed the door entirely, no doubt recognizing that the alternatives to the current government are grim. Renzi, who has stood up to the European Commission in the past over budget restrictions, is likely to choose to break the state-aid rules rather than risk a financial collapse and defeat in the October referendum.

Renzi's dilemma is a reminder that the biggest barrier to the kind of growth-producing economic policies that both Rajoy and Renzi have advocated is not populist or left-wing opposition at home. It is, instead, the austerity orthodoxy that holds surpluses to be virtuous and deficits sinful, without considering individual circumstances and a blind adherence to growth-killing rules. This thinking forms a constraint on policy makers trying to unlock economic growth and reform and has provoked a backlash against the euro.

In its recent report, the Bank of International Settlements has argued for bringing prudential, fiscal and structural policies to the fore after a period in which monetary policy carried the burden. Germany could help by reducing its own fiscal and current account surpluses, which have contributed to rising levels of debt and unemployment in poorer euro zone economies that are unable to devalue in the face of the German exporting juggernaut. It should also show more flexibility to reformist governments in the euro zone.

Renzi has staked his job on whether voters approve his constitutional reforms in the October referendum. But the vote could easily turn into a vote of confidence in Renzi's performance in office and even on whether or not Italy should stay in the euro. Italy's second largest party, the populist, euro-skeptic Five Star Movement, which has enjoyed gains in recent local elections, is calling for a wider referendum on Europe. Major elections in France and Germany fall not long after.

In the absence of a rebalancing in the euro zone and more flexibility for stabilizing policies and growth-producing reforms, Rajoy's reprieve will be only temporary and no guide to what Renzi can expect in October.

Article Link to The Bloomberg View:

How Irrational Fears Of Robots Gets In Our Way

By Nicole Gelinas
The New York Post
July 5, 2016

In 1869, 42-year-old Mary Ward made industrial history in a gruesome way. Thrown from her cousins’ experimental steam-powered automobile in Ireland, she became the world’s first fatal car-crash victim.

This May, in Florida, 40-year-old Joshua Brown joined her, becoming the world’s first self-driving car fatality. Brown’s death has caused people to question whether self-driving cars are safe.
Answer: They will be — as long as we understand our own human limitations.

Brown, a former Navy SEAL, was an early adopter. He bought a $70,000 Tesla Model S and posted enthusiastic videos about it.

In one video, a truck nearly sideswipes “Tessy,” as he calls the car, as he drives down a highway. Brown says that he “actually wasn’t watching in that direction,” but Tessy easily avoids the truck, neatly swerving onto the shoulder.

A month later, Tessy messed up. Tesla reports that “neither autopilot nor the driver noticed the white side of [a] tractor-trailer against a brightly lit sky, so the brake was not applied” as the truck driver turned in front of Brown’s car.

Brown, or the car, drove into the truck, and Brown died.

The Times said that the death puts “the belief that computers can operate a vehicle more safely than human drivers . . . in question.”

Not exactly. The tragedy instead reminds us of what we already know: Computers don’t eliminate human error.

Brown himself made one critical mistake: using the car in a way it wasn’t ready to be used. Tesla tells its customers that drivers must “remain engaged and aware when Autosteer is enabled. Drivers must keep their hands on the steering wheel.”

That’s because the technology is still experimental. Tesla’s self-driving technology is good at maintaining speed relative to other cars, and parking.

But as Brown noted in other videos, it’s not good — yet — at doing certain things. “We’re filming this just so you can see scenarios where the car does not do well,” he says, as the car veers over a double-yellow line.

But it isn’t entirely, or even mostly, Brown’s fault that he apparently stopped paying attention.

Humans have a hard time paying close attention when nothing interesting is happening. That’s why you’re more likely to crash on a sunny day on an empty stretch of highway than on a rainy day in the big city. When nothing demands your attention, you zone out.

It may be Tesla, then, that was unwise, in asking people to do the impossible: keep watch when the car is telling them they don’t really have to.

As driverless-car technology progresses, it will probably do better than humans in most circumstances. The problem is that all circumstances are not most circumstances.

Google cars have piloted themselves more than 1.5 million miles (with human drivers aboard). Its technology has caused just one minor crash.

But Americans travel 3.06 trillion miles a year. Google is nowhere close to having absorbed every possible real-life experience.

As technology helps us avoid the most obvious crashes, the crashes that do happen will get weirder — making headlines.

That means that even if driverless cars become twice as safe as human-driven cars — as federal regulators hope — you’re more likely to hear about the exceptions.

We don’t think much about the 38,300 Americans who died last year in auto crashes because we expect people to do dumb things that lead to their or others’ deaths.

Last week, for example, the death of 84-year-old Gerald Walpin as he crossed an Upper East Side street with the light didn’t make much news — because these tragedies happen regularly. Almost every American remembers a relative or friend, or friend of a friend, who died in a car wreck.

If driverless technology someday were to cut our annual auto deaths in half, saving 19,000 lives a year, we’d hear constantly about when the technology didn’t work.

We’d want to be back in control, even if that control makes us less safe.

It’s just how like most people are still more comfortable behind the wheel rather than strapped into an airplane seat. Even though they know by now that flying is safer than driving, they like having the illusion of being in charge of their own fate.

More people will die in self-driving cars — just as tens of millions of people, worldwide, have died in automobile deaths.

Still, carmakers and regulators gradually get better at making people safe — as we learn from the deaths of the people we couldn’t protect.

Article Link to The New York Post:

Pope Francis’ Star Is Fading Back Home — And Here’s Why It Matters

By David Kaufman
The New York Post
July 5, 2016

While flying back to the Vatican after a visit to Armenia, Pope Francis declared that Christians should apologize to LGBTs and others who’ve been “offended” or “exploited” by the church. It’s the type of radical thinking that has helped Francis — the first non-European pontiff in more than 1,200 years — achieve a level of celebrity nearly unprecedented in the history of Catholicism.

But now it seems Francis’ star is swiftly falling where it perhaps matters most — his homeland, Argentina. Indeed, a recent local poll revealed that Francis — the former Jorge Mario Bergoglio, archbishop of Buenos Aires — has tumbled from the first to the ninth most “trustworthy Argentine” in just two years.

True, the pope still outranks Argentina’s pro-US/market-friendly new president, Mauricio Macri. And, yes, a recent international Gallup poll found the pope more popular than any other world leader. But despite the accolades, the pope’s own people actually view him as less honest than a host of Argentine national icons.

The data marks a stark volte-face for Francis. And while the pope’s leftist, humanist, populist views may delight progressives abroad, back in Argentina they’re coming under fire for increasingly influencing policy.

The pope’s most serious problems stem from his relationships with President Macri and his predecessor — the anti-Western/pro-Iran Peronist, Cristina Fernández de Kirchner, who was elected out of office last year. Francis enjoyed warm relations with Kirchner, who visited him at the Vatican some half-dozen times — often treated to long lunches hosted in Francis’ private residence. It was the type of hospitality provided to other similarly leftist leaders, like Ecuador’s Rafael Correa and Evo Morales of Bolivia.

Macri, however, has met with Francis just once — a brief, chilly February get-together in the Vatican library culminating with a frowning Francis glumly posing for the press with the president and his wife. There was no warmth, little laughter and — most crucially — no promise of an official visit by Francis to the nation of his birth.

The optics may have been a disaster, but their meaning was clear: Macri might be loved by international counterparts like President Obama — who visited him in Argentina in March — but Pope Francis will not be joining his growing chorus of global cheerleaders.

Since the winter, the pope has only become frostier toward Macri — while continuing to court Kirchner and her surrogates. In May, he received activist Hebe de Bonafini, a fierce Macri critic who once applauded the 9/11 attacks. And this month, the pope-affiliated charity Scholas Occurrentes declined a $1.2 million grant from the Macri government.

The pope said the gift could be viewed as corruption. But many Argentine politicians and intellectuals saw the move as yet another public swipe at the new president. Indeed, despite Francis’ mandate for political neutrality, leading local newspaper columnist Jorge Fernandez Diaz suggested that anti-Macri forces are quietly hoping the pope will emerge as Argentina’s “opposition leader.”

Considering Kirchner basically bankrupted her country, the pope’s support for her is curious at best — and destructive at worst.

True, Macri’s economic-stabilization programs have caused inflation to spike, increased utility prices and led to sizable job losses. But with its currency stabilized and debt markets reopened, Argentina is now poised to finally (and fully) re-enter the global economy after decades of painful belt-tightening.

If corruption subsides — admittedly, a big if — the resulting foreign investment could improve living conditions at every level of society. Thus, Francis’ actions are a direct threat to Argentina’s long-overdue normalization. And his falling popularity suggests that many Argentines — despite their strong faith — are willing to choose prosperity over pontificating.

Here’s why it matters: Should the pope’s interfering eventually go global, Catholics worldwide may soon face a similar choice.

For Argentina, such additional soul-searching may be needed soon. A new scandal is currently brewing linking a local Catholic monastery with efforts by a former Kirchner-era official to hide millions in potentially stolen public funds. So far, the findings have yet to extend beyond the diocese level.

“But things could get worse,” says Jorge Lanata, Argentina’s most important investigative journalist, who’s now digging deep into these accusations. True, Lanata has been highly critical of his country’s former regime. But he’s also Argentina 10th most respected person — just one notch below Pope Francis.

Article Link to the New York Post:

Will Class Ever 'Trump' Race?

The poor whites flocking to Trump have more in common with black folk than they do with Trump. Not that they’re likely to act on it.

By Keli Goff
The Daily Beast
July 5, 2016

Donald Trump’s presidential candidacy has provoked one of the largest splits along educational and class lines among white voters in modern history. His success with poorer, less educated white Americans (particularly white males without college degrees) represents the culmination of a longstanding trend whereby less educated white voters have traditionally voted Republican. By contrast, racial minorities are solidly in the Democratic camp – even more so this election cycle. Call it the Trump effect.

And yet if there are two groups that theoretically have more in common with each other than they do with the two multi-millionaires seeking the presidency this time around, it is the white working poor and racial minorities. For instance, the daughters and sons of white male Trump supporters are much more likely to share the uncertain economic existence of the children of a poor black Hillary Clinton supporter than they are to share the promising and extremely privileged future of Chelsea Clinton or any child with the last name Trump. So will there ever be a time when the poor and working class will unite across racial lines?

I have been pondering that question since seeing the film Free State of Jones, based on the true story of Newton Knight. Knight was a Confederate soldier who became fed up with the exploitation of poor Southerners by the Confederate leadership and subsequently led a band of rebels against the Confederacy that included runaway slaves. A key turning point for Knight came when he learned that the sons of wealthy plantation owners would be excused from battle based on the number of slaves their fathers owned. Shortly afterward, a young man from Knight’s less privileged family was killed in the Civil War. (Wealthy kids being able to dodge military service? Hmmm. That sounds familiar.)

We all know that the alliance between poor whites and poor blacks in the South didn’t last long. Because as the film reminds us, the era of Reconstruction following the Civil War was in many ways just as bad as the era that preceded it. There may not have been chains anymore, but thanks to a slew of unjust laws and the culture of fear that accompanied them (often in the form of Klan hoods), black Southerners found themselves enslaved economically, emotionally, politically and psychologically. Meanwhile, poor whites found themselves poor. But in comparison to their black counterparts at least they rarely found themselves lynched.

Over the ensuing decades, it seems, this would come to embody the great divide between poor Americans of different races. As a poor white character on the civil rights-era series I’ll Fly Away once lamented, skin color was the only thing that kept him from being at the bottom of society’s barrel.

While being poor is not easy for anyone (hunger pains don’t discriminate), historically speaking, a poor white person didn’t have to presume his poverty came with a death sentence. By contrast, being born poor, black, and particularly male, and particularly in the South, was more than enough to know that you were a walking target. And as countless victims of lynching throughout history have proved if you were black, male and poor and encountered the criminal justice system in any way, shape or form you were more likely to pay with your life.

Of course there is a strong case to be made that not much has changed. Yes, lynching is no longer a norm, but paying with your life has simply taken on new forms. Studies confirm that racial inequity continues to permeate our justice system, condemning countless black men to the revolving door of the prison system, or worse, a gurney. Black men are more likely to be sentenced to prison terms 20 percent longer than whites for the same crime and are twice as likely to be sentenced to the death penalty.

There has been change, yes. But a lot of it hasn’t been for the better.

Increasingly, poverty has become a death sentence for poor whites as well. In recent years the death rates of poorer, less educated, middle-aged whites has skyrocketed. The causes include substance abuse and suicide. But something else has begun to change.

The role of class in our criminal justice system has finally begun to get the attention it deserves. The outrage directed at the ridiculous slap on the wrists given to “affluenza” teen Ethan Couch, and Stanford rapist Brock Turner, has triggered a long overdue conversation among Americans of all races about our country’s two-tiered justice system – one for the privileged and one for the rest of us -- that racial minorities have long known exists.

And more prominent white Americans have begun to join calls for criminal justice reform.So if black Americans and poor white Americans are increasingly finding themselves in the same boat, then what explains the Trump divide?

Well in the same way that there were Southerners who didn’t realize that freedom-seeking slaves weren’t to blame for the war, there are still working-class whites today who don’t realize that racial minorities are not to blame for their woes. A system of social and political inequality not created by poor people or minorities is. But the Donald Trumps of the world are doing a brilliant job convincing many desperate people that other desperate people are to blame for their circumstances.

So will we ever experience another Free State of Jones style multi-racial coalition of rebellion built on economic interests? In a brief interview the film’s director Gary Ross, said the current presidential election is proof that “a tragedy of America [is] that cultural divisions can prevent economic alliances.” But he added that, “The film shows us that one can engage racial and economic issues simultaneously, and that the first step toward an economic alliance is to deal with the racial issues that divide us.”

Hopefully it won’t take another actual war to do that and to get lower-income Americans to unite across racial lines. But I suspect that as this election goes on, Trump’s less privileged supporters may soon come to realize that a man born into privilege who will never truly understand their plight and has not lifted a finger to raise any person out of poverty besides his wives, is simply using them to do his dirty work – much like the plantation owners did a century and a half ago.

Article Link to The Daily Beast:

Trump Is Turning The GOP Into Anti-Vaxxers

Study after study has shown no link between anti-vaxxers and party affiliation. Until now.

By Betsy Woodruff
The Daily Beast
July 5, 2016

Republicans are more skeptical of vaccine science than we may have previously realized—and Donald Trump may bear some of the blame.

A new study, conducted for The Daily Beast by a researcher at Washington State University, found a relationship between Republican party affiliation and anti-vaccine sentiment. Survey participants who didn’t plan to vaccinate themselves or their families most often named Donald Trump as a public figure they thought shared their views.

Anti-vaccine sentiment was also disturbingly high among Democrats who participated in the study, though not as prevalent as among Republicans.

Donald Trump, the presumptive Republican nominee, has expressed significant skepticism about vaccine science over the years, even going so far as to suggest vaccines cause autism. As a result, he’s become a hero to many in the anti-vaxx movement—the rare public figure willing to champion their dangerous and incorrect beliefs.

The new data runs counter to the prevailing public view on the relationship between political affiliation and vaccine skepticism—that there is little to no relationship—and suggests that Trump’s ascent in the Republican Party is related to doubts about vaccines among its members.

Researchers ran an internet survey of 400 people in the United States on June 29 using Amazon’s Mechanical Turk. It’s a tool academics commonly use to survey large numbers of people, including those researching political psychology, consumer behavior, and social psychology. Participants answered one series of questions on their intentions to vaccinate themselves and their families, and another on their political views. Half the participants got the vaccine questions first, and the other half got the political questions first. After answering those questions, participants were asked to name public figures who they thought shared their views on vaccines.

SUNY-Albany marketing professor Ioannis Kareklas and Washington State University Ph.D. candidate T.J. Weber analyzed the data. They found that 25 percent of respondents affiliated with the Republican Party said it was more likely they would not vaccinate themselves and their families than that they would. Meanwhile, 15 percent of respondents who identified with the Democratic Party gave the same answer.

And Trump’s supporters were substantially more likely to have a negative view of vaccines than Hillary Clinton’s. Of the respondents who said they would vote Trump, 23 percent said they were unlikely to get vaccinated. Of the pro-Clinton respondents, 13.5 percent felt the same way.

Overall, researchers found that having a low intention to vaccinate correlated most strongly with affiliation with the GOP.

The follow-up questions also provided interesting answers. The respondents who said gave positive answers about vaccines most often listed Barack and Michelle Obama as the public figures who agreed with them.

Pro-vaccine respondents also said Bill and Hillary Clinton and Ted Cruz shared their views.

Of the respondents who were negative about vaccines, Trump’s name got mentioned the most; 12 percent of vaccine skeptics said they thought he shared their views. No other anti-vaxx celebrity got named as often as Trump.

Jonah Berger, a professor of marketing at the Wharton School at the University of Pennsylvania and the author of “Contagious: Why Things Catch On”, said the results were “interesting, and consistent with the notion that conservatives in general, and trump voters more specifically, are less likely to vaccinate.”

Trump’s rapid rise in conservative politics has given credence to the theory that Republican voters may be less disturbed by vaccine skepticism than their Democrat counterparts. But currently available evidence didn’t seem to undergird that theory.

Previous studies haven’t found a correlation between political affiliation and anti-vaccine views. In February of last year, 538.com downplayed any partisan divide on vaccines, calling it “relatively small.” That piece noted that Pew data found the inter-party gap grew slightly from 2009 to 2014. And a Huffington Post/YouGov poll conducted Feb. 2-4 2015 found only a “modest ideological divide,” and found only one percentage point difference between the percent of Republicans and of Democrats who believed the science on vaccines is beyond debate. That’s very different from our data, which suggests Republicans are more likely than Democrats to harbor skeptical views of vaccines.

Correlation isn’t causation, of course. And causal links are notoriously hard to prove. But this data suggests that a growing percentage of Republicans may be disinclined to vaccinate themselves and their family members, and may hold negative attitudes about vaccination.

Again, causal links are tough to prove. But the past year has seen one of the country’s most notorious vaccine skeptics ascent to the top of the Republican ranks. Donald Trump has long expressed doubt about settled science on vaccines. On March 30, 2012, he sent out a tweet indicating he believes there is a link between vaccines and autism—a view that is 100 percent false.

And he tweeted on Oct. 22, 2012 that Obama needs to “do something about doctor-inflicted autism,” another anti-vax trope with no basis in reality. And at the CNN debate on Sept. 16, 2015, he shared his baseless views with an audience of millions.

“We’ve had so many instances...a child went to have the vaccine, got very, very sick, and now is autistic,” he said at the time. “Autism has become an epidemic. It has gotten totally out of control.”

And Ben Carson, the only real doctor participating in the debate, condoned Trump’s trutherism.

“We have extremely well documented proof that there’s no autism associated with vaccinations,” he told the debate moderators. “But it is true that we’re giving way too many in too short a period of time. And a lot of pediatricians now recognize that, and they’re cutting down on the number and the proximity.”

There is no scientific evidence that giving babies multiple vaccines at once has any adverse health effects. Zero. Nada. Zilch. But that didn’t stop Carson and Trump from peddling fact-free claptrap to CNN’s massive audience.

Our new data suggests that their words may be having influence—and in a chilling way.

Tuesday, July 5, Morning Global Market Roundup: Asian Shares Slide As Investors Ponder Stimulus Outlook

By Nichola Saminather and Hideyuki Sano
July 5, 2016

Asian shares snapped a five-day winning streak on Tuesday as nervous investors took some profits despite hopes of increased central bank stimulus to offset a likely downturn triggered by Brexit.

European markets were also set for a lower start, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 .FTSE to open flat, and Germany's DAX .GDAXI and France's CAC 40 .FCHI to start the day 0.3 percent lower.

Trade was thin in Asia, as financial and commodities markets in the United States were closed on Monday for Independence Day. S&P futures ESc1 were down 0.2 percent on Tuesday, suggesting a softer open when Wall Street reopens later in the day.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.8 percent, but was still within reach of its June 9 peak, having risen 5.6 percent from its low after the Brexit vote on June 23.

Japan's Nikkei .N225 ended the day down 0.7 percent.

In China, the Shanghai Composite .SSEC rose 0.6 percent after a private business survey showed growth in the services sector jumped to an 11-month high. But Hong Kong's Hang Seng .HSI retreated 0.6 percent.

Australian shares and its currency were little changed after the central bank held interest rates at a record-low 1.75 percent on Tuesday, as expected.

The S&P/ASX 200 index fell 1.1 percent, while the Australian dollar slightly extended losses to trade 0.3 percent lower at $0.7516. On Monday, the currency shrugged off political uncertainty caused by Australia's undecided general election to rise to $0.7545, its highest level since June 24, helped by an advance in commodities.

In Europe, the FTSEurofirst 300 index .FTEU3 fell 0.6 percent, snapping a four-day winning streak, led by a 1.6 percent decline in bank shares .SX7P.

Shares in Italian banks .FTIT8300, saddled with a mountain of bad loans, dropped 3.7 percent after Italian Prime Minister Matteo Renzi's spokesman said the country had no plans to pump public money into its banks, a move that could be seen as defying EU rules.

Britain's vote to leave the European Union has ramped up the urgency for some Asian central banks to ease monetary policy, as a prolonged period of uncertainty threatens a wider downshift in trade and investment.

Many investors expect the European Central Bank and the Bank of Japan to expand their monetary easing. Base metal prices were also bolstered by talk of stimulus in China.

The euro EUR=EBS slid 0.2 percent to $1.1130, but retained most of the gains made since its 3 1/2-month low of $1.0912 hit in the wake of the UK referendum.

The Bank of England has indicated it could provide stimulus measures to support the economy in coming months.

That kept the pound close to its 31-year trough hit in the wake of the Brexit decision. Sterling dropped 0.3 percent to $1.3253 GBP=D4, just 1 percent above its June 27 low of $1.3122.

The yen JPY= strengthened 0.4 percent to 102.16 to the dollar.

But some fear such stimulus may not be sufficient. Much of Asia's current malaise has been due to external factors such as a prolonged slump in global demand for its exports, leaving authorities with the task of how to shore up domestic demand.

"The question is, will monetary easing make any real difference to growth?" Frederic Neumann, co-head of Asian economics research at HSBC, wrote in a note.

"Central bankers may certainly do whatever they can, but the heavy lifting should fall on the shoulders of fiscal authorities."

Oil prices retreated as analysts predicted demand will weaken amid concerns about the global economic outlook.

Brent crude LCOc1 slipped 1.2 percent to $49.52 a barrel, after gaining 6.2 percent over the week through Monday.

U.S. crude CLc1 tumbled 1.7 percent to $48.15, eating into the 5.7 percent advance made over the prior week.

Overnight the price of precious and base metals hit multi-month highs before giving up gains as traders bet on more stimulus.

"Various commodities are rising even though there is no clear sign of sudden improvement in demand in each market," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

"Their rally seems to be driven by hopes of stimulus.

Silver XAG= relinquished some of its gains from the past few sessions that had sent it to a two-year high of $21.107 an ounce on Monday. The metal, which rose 14.6 percent over the week ended Monday, fell 1.7 percent to $19.9610.

Gold XAU= also closed at a two-year high of $1,357.40 per ounce on Monday and last stood at $1,341.93.

The price of copper CMCU3 and aluminum CMAL3 hit two-month highs on Monday while lead CMPB3 hit a four-month peak.

Article Link to Reuters:

Oil Prices Dip On Economic Concerns, Demand Worries

By Henning Gloystein
July 5, 2016

Oil prices fell on Tuesday, with Brent dropping back below $50 per barrel as economic concerns took center stage with many analysts saying crude demand will stall later this year.

International benchmark Brent crude oil futures were trading at $49.60 per barrel at 0044 GMT, down 50 cents, or 1 percent, from their last settlement. U.S. West Texas Intermediate (WTI) crude futures were down 77 cents, or 1.57 percent, at $48.22 a barrel.

Analysts said that concerns over the global economy were weighing on the outlook for oil demand and on prices.

"The deterioration in the global economic outlook, financial market uncertainty and ripple effects on key areas of oil demand growth are likely to exacerbate already-lackluster industrial demand growth trends," British bank Barclays said in a note to clients.

A flurry of data from China in coming weeks is expected to show continued weakness in trade and investment, sluggish industrial output and another drop in foreign reserves, reinforcing views that Beijing will roll out more economic support measures soon.

JPMorgan said in its latest oil market outlook that "macro-economic risks may weigh on oil prices", although the U.S. bank added that oil prices would still likely rise between this year and the next as stocks are drawn down, and political risk and maturing oil fields tighten the market.

JPMorgan said it expected Brent and WTI to average $47.30 and $46.66 per barrel respectively this year and $56.75 a barrel for both in 2017. That's an increase of $2 each for 2016 and $1.75 a barrel for both benchmarks for 2017, compared with the bank's previous forecast.

In the latest sign of a glut in refined products, which traders say will reduce orders for crude oil, which is the most important refining feedstock, several tankers carrying gasoline-making components have dropped anchor off New York harbor, unable to discharge as onshore tanks are full.

Article Link to Reuters:

Oil Prices Dip On Economic Concerns, Demand Worries

EU Authority Fraying In Reaction To Brexit Vote

By Paul Taylor
July 5, 2016

The European Union's authority is fraying as governments and politicians in many members challenge EU policies and take aim at "Brussels bureaucracy" in the aftermath of Britain's vote to leave the 28-nation bloc.

The Czech president and some contenders for the French presidency have called for their own referendums on continued membership of the pan-European economic and political community, although no such plebiscite is on the cards in the near future.

Verbal assaults on the role of the European Commission and the European Parliament since the British shock almost two weeks ago look more like an attempt to appease domestic public opinion than a concerted drive to strip Brussels of its main powers.

But they could further undermine the legitimacy of the EU's common institutions in the eyes of citizens.

France, facing a presidential election next year, has threatened to stop obeying EU rules on workers posted from one member state to another, which it says undercuts the jobs of native employees. President Francois Hollande has also demanded a rewriting of EU merger control rules and restrictions on state aid to industry to enable the creation of "European champions".

Socialist Prime Minister Manuel Valls said on Sunday an EU regulation allowing employers to pay seconded workers less than their local counterparts must be changed soon or Paris would stop applying it.

Employers are not now obliged to pay posted workers more than the minimum wage of the host country - often well below the average wage in the sector - and they pay social contributions in their home country welfare systems which are usually far lower than those in western Europe. Central and east European governments oppose moves to reduce the gap.

"There must be equal treatment upwards to fight social dumping," Valls said.

Spooked by a surge of support for anti-EU nationalist Marine Le Pen, conservative candidate Alain Juppe called on Monday for a new balance of power between Brussels and member states and a halt to further EU enlargement, ending Turkey's membership bid. He called last week for a referendum on a "new Europe".

Italy is demanding a loosening of recently adopted EU regulations that make shareholders, bondholders and depositors liable for the losses of failed banks before taxpayers.

"Soulless Technocracy"

Italian Prime Minister Matteo Renzi, who has fought to bend EU budget deficit rules and now seeks to pump billions of euros into his country's ailing banks if needed to shore them up, said on Monday the EU was run by "a technocracy with no soul".

He also opposed sanctions against fellow southern members Spain and Portugal for violating the EU's deficit limits last year - a step the Commission is due to consider on Tuesday in a German-backed drive to uphold the much-abused budget rules.

Italy's banks are saddled with 360 billion euros ($401.18 billion) in bad loans and their share prices plunged after last month's Brexit vote. Rome is in talks with the EU Commission to devise a plan to recapitalize its lenders with public money limiting losses for bank investors.

Dutch and German ministers have attacked a Commission decision that the European Parliament can approve a trade pact with Canada without referring it to national parliaments. The Dutch parliament was assured it would have a chance to weigh in on the treaty.

But perhaps most worryingly for the EU, senior ministers in Germany, the bloc's reluctant hegemon, are advocating shrinking the executive Commission, trimming its powers, and bypassing common European institutions to take more decisions by intergovernmental agreement.

A call from veteran German Finance Minister Wolfgang Schaeuble, long an advocate of closer integration, to shift more policy decision-making to governments for expediency's sake was among the most striking indicators of the mood around Europe.

"If the Commission doesn't get involved, then we should take the matter into our own hands and solve problems between governments," Schaeuble told Welt am Sonntag newspaper, saying now was a time for pragmatism.

"This intergovernmental approach proved successful during the euro zone crisis," he added.

Berlin insisted on setting up the euro zone's rescue fund as an intergovernmental body outside the control of the EU's common institutions, giving itself a veto on each stage of bail-outs for distressed states and the decisive say on fiscal policy conditions.

Many experts say further moves towards intergovernmentalism would accentuate German dominance and increase resentment among other EU members.

Among some former communist countries that joined the bloc in 2004, there is resentment at perceived meddling by Brussels, notably on issues concerning the rule of law and media freedom, as well as environmental regulation.

The Polish and Czech foreign ministers called last week for European Commission President Jean-Claude Juncker to resign as a scapegoat for the June 23 British vote.

The Visegrad Group of four central European countries - Poland, Hungary, the Czech Republic and Slovakia - demanded that the powers of the EU executive be reined in and more competences be returned to capitals.

"We need to change the overall functioning of the EU and I think it is needed to change the functioning of the European Commission," said Czech Prime Minister Bohuslav Sobotka.

Article Link to Reuters:

EU Authority Fraying In Reaction To Brexit Vote

Chinese Paper Says To Prepare For South China Sea Armed Clash

By Ben Blanchard
July 5, 2016

China should prepare itself for military confrontation in the South China Sea, an influential Chinese paper said on Tuesday, a week ahead of a decision by an international court on a dispute there between China and the Philippines.

Tensions have been rising ahead of a July 12 ruling by an arbitration court hearing the argument between China and the Philippines over the South China Sea in the Dutch city of The Hague.

In joint editorials in its Chinese and English editions, the state-run Global Times said the dispute, having already been complicated by U.S. intervention, now faces further escalation due to the threat posed by the tribunal to China's sovereignty.

"Washington has deployed two carrier battle groups around the South China Sea, and it wants to send a signal by flexing its muscles: As the biggest powerhouse in the region, it awaits China's obedience," it said.

China should speed up developing its military deterrence abilities, the paper added.

"Even though China cannot keep up with the U.S. militarily in the short-term, it should be able to let the U.S. pay a cost it cannot stand if it intervenes in the South China Sea dispute by force," it said.

"China hopes disputes can be resolved by talks, but it must be prepared for any military confrontation. This is common sense in international relations."

The newspaper is published by the ruling Communist Party's official People's Daily, and while it is widely read in policy-making circles it does not have the same mouthpiece function as its parent and its editorials cannot be viewed as representing government policy.

It is also well-known for its extreme nationalist views.

China, which has been angered by U.S. patrols in the South China Sea, will be holding military drills in the waters there starting from Wednesday.

China's Defence Ministry said the drills are routine, the official China Daily reported.

Manila has sought to dial down tensions with its powerful neighbor ahead of the decision but resisted pressure to ignore the ruling.

"The reality is that nobody wants a conflict, nobody wants to resolve our conflict in a violent manner, nobody wants war,” Philippines Foreign Minister Perfecto Yasay, told ANC television on Tuesday.

"It is my understanding that the President would like to maintain stronger, better relationships with everybody, including China, including the United States, including Japan and all," Yasay said, adding that a "special envoy" was needed to help resolve the dispute.

U.S. officials have expressed concern that the Hague court ruling could prompt Beijing to declare an air defense identification zone, or ADIZ, as it did over the East China Sea in 2013, or step up the pace of reclamation and construction on its holdings in the disputed region.

What response China takes will "fully depend" on the Philippines, the China Daily added, citing unidentified sources.

"There will be no incident at all if all related parties put aside the arbitration results," one of the sources told the English-language publication.

"China has never taken a lead in ... stirring up regional tension," another of the sources added.

About $5 trillion in ship-borne trade passes every year though the energy-rich, strategic waters of the South China Sea, where China's territorial claims overlap in parts with Vietnam, the Philippines, Malaysia, Brunei and Taiwan.

Article Link to Reuters:

The Democrats’ ‘Emergency’ Assault On The Second Amendment

Schumer and Obama misunderstand the Constitution.

By Andrew C. McCarthy 
The National Review
July 5, 2016

To hear the Democrat-media complex tell it, guns themselves are responsible for last month’s carnage at a gay nightclub in Orlando — not the jihadist (a registered Democrat) who pulled the triggers again and again while screaming “Allahu akbar” and pledging allegiance to ISIS. This “blame the guns” meme spearheads the Left’s latest campaign against the Second Amendment.

President Obama and his allies in Congress seek to deny the constitutional gun-ownership rights of Americans merely suspected of terror ties — even as the Left champions the non-existent immigration rights of aliens from regions notorious for terror ties. The backbone of the Democrats’ stratagem is a specious “constitutional” claim, one whose logic would empower the government to strip every civil right the Constitution is designed to protect against government encroachment.

As posited by Senator Chuck Schumer (D., N.Y.) at a Judiciary Committee hearing last week, Democrats claim that many constitutional liberties are routinely restricted in emergency circumstances — in particular, Fourth Amendment rights against warrantless search and arrest. Hence, the argument goes, Second Amendment rights, too, may be stripped away if Democrats can concoct an emergency — such as the ongoing crisis in which guns, apparently with minds of their own, mow down infidels.

At the hearing, Republicans, led by Senator John Cornyn (R., Tex.), made the point that the right to keep and bear arms is rooted in both self-defense and insurance against government’s propensity toward tyranny. The right pre-existed the Constitution. Thus, the Second Amendment is not its source. The right to keep and bear arms is natural and inalienable; the Second Amendment protects it, and Congress has no legitimate power to restrict it.

That does not mean the right is without limitations. As we shall see, like “the freedom of speech” safeguarded by the First Amendment, the right to keep and bear arms had well-known limitations at the time it was adopted. Unquestionably, Congress and state governments have the power to enforce those limitations. But those limitations are part and parcel of the right as originally enshrined in the Constitution. They do not imply a government power to enact additional restrictions in response to “emergencies” or other modern conditions.

It is black-letter law that a statute cannot limit a constitutional safeguard. Not only is the Constitution the higher-ranking source of law; the safeguard in the Second Amendment is a safeguard against government action. If government action could undo such a safeguard, the purpose of having the safeguard in the first place would be defeated. The Second Amendment, and indeed all constitutional guarantees against governmental abuses of power, would be null and void anytime government came up with an “emergency” pretext.

In rebuttal, post-constitutional Democrats tut-tut that they just want heightened procedural scrutiny to ensure that guns do not fall into the hands of people who — in the government’s considered judgment — should not have them. No matter how you slice it, though, what they urge not only collides head-on with a Bill of Rights safeguard against government’s power to disarm citizens; there is also no intellectually consistent way to rationalize this proposed abridgment of Second Amendment rights without empowering Washington to attrit (and thus, gradually to repeal) every other constitutional right.

Senator Schumer contends that this inconvenience can be gotten round by the purported recognition of an “emergency powers” doctrine. While history and common sense say the Framers’ idea of a crisis was the specter of government usurpation of the people’s liberties (that’s the reason we have a Bill of Rights), the Left turns this notion on its head: A crisis becomes the reason for government to restrict our liberties — for our own good, of course.

In support of this proposition, Schumer cited the the Fourth Amendment. He claims that its protections are not fully enforced in various emergency situations. By this, he means that there are times when police are not required to obtain judicial warrants or show probable cause of a crime before conducting a search or seizure. The Second Amendment, he contends, must be similarly flexible.

Schumer could not be more wrong. At its core, his argument misreads the Fourth Amendment safeguard, which protects citizens against unreasonable searches, not warrantless searches. The latter are permitted in many contexts because, in those contexts, it is not unreasonable to search without a warrant.

The Fourth Amendment states:

"The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

The touchstone of the Fourth Amendment guarantee is reasonableness. Democrats misleadingly focus on the amendment’s collateral instruction regarding the burden of proof (viz., probable cause) that must be satisfied before a search or arrest warrant may be issued. But this conflates two separate concepts. Reasonableness is required in all search-and-seizure situations. Warrants are required in only some of them — essentially, routine, non-emergency law-enforcement situations, in which police seek to apprehend a criminal suspect or obtain evidence of a crime for use in a prosecution.

Pace Schumer, reasonable warrantless searches are not emergency-based exceptions to the Fourth Amendment. They are straightforward applications of the Fourth Amendment. Moreover, they could not be, as Schumer implies, post-constitutional restrictions on the Fourth Amendment imposed by statute or judicial decision. The Framers’ very point in enshrining certain rights in the Constitution is to prevent the government from restricting them.

Let’s put legal theory aside and consider, using commonsense terms and concrete examples, why it would be unreasonable to require a warrant in all search or arrest situations.

Imagine, for example, that a police officer on the beat sees a bank being robbed. How could we possibly require an arrest warrant in such a scenario? As the Fourth Amendment dictates, getting a warrant is a time-consuming process: An officer must submit to a judge a sworn statement that (a) explains the probable cause to believe a crime has been or is being committed, and (b) describes with specificity what location is to be searched and/or what persons or things are to be seized.

This warrant process perfectly suits a situation in which a bank was robbed several hours ago and the police now believe the suspected robber is hiding in his home, where he has stashed the cash. In most non-emergency law-enforcement scenarios — i.e., situations in which the police are seeking to arrest a suspect or gather evidence to prove the suspect’s guilt in court — we want police to get a court’s permission before demanding or forcing entry into someone’s home.

By contrast, when the robbery is happening before their eyes, it would be absurd to require police to run to the courthouse and seek an arrest warrant, rather than simply arrest the suspect and seize the cash on the spot. The Fourth Amendment permits the police to make such a warrantless seizure and search because doing so is reasonable. This is not a suspension of the Fourth Amendment; it is the Fourth Amendment in action.

Similarly, if police have probable cause& to believe a bomb has been planted and will soon detonate, it would be unreasonable to require them to get a warrant before breaking down the door. Such a requirement would gravely endanger public safety. Again, the warrantless search is an application of the Fourth Amendment, not an emergency-based exception to it.

Once you grasp this, it becomes easy to see that Schumer’s campaign against the Second Amendment derives no help from the Fourth Amendment. He wants to limit gun rights whenever the government claims that there is an emergency or that some proposed restriction is reasonable. The example du jour is when the government places a person on a terrorist watch list without giving him due process (i.e., prior notice of the government’s intended action and a right to be heard in opposition).

Yet, notice the pertinent language of the Second Amendment: “The right of the people to keep and bear Arms, shall not be infringed.” In stark contrast to the Fourth Amendment, the Second Amendment does not say gun rights “shall not be unreasonably infringed.” Reasonableness has nothing to do with the matter, nor does crisis management. How could they? The Second Amendment aims to maintain the people’s power of self-defense, including against the government. Since that is the point of the right, nothing could be more unreasonable than to allow its restriction by the government.

Statists like Senator Schumer and President Obama, especially when they are in power, view the government as a well-meaning extension of themselves. They never see themselves as tyrannical. When they want to restrict our liberties, it is out of the conviction that they will make better choices for us. The Framers understood, though, that the road to tyranny was paved with the good intentions of those who, to paraphrase Dostoyevsky, loved humanity in the abstract but held individual humans in contempt.

Of course, none of this means gun possession is without limitation. As the Supreme Court explained in Heller (op. at p. 54 & ff.), “the right to keep and bear arms” that pre-existed the Constitution had certain longstanding, well-known limitations on it. Those exceptions were understood to be incorporated in the right guaranteed by the Second Amendment. Convicted felons and the mentally ill, to take the two clearest examples, may be denied the right to keep and bear arms. Nothing prevents Congress from codifying these longstanding limitations, and federal law has long done so. But again, these are limitations understood to be built into the Second Amendment, not additional, emergency-based restrictions that erode the Second Amendment.

If Democrats really want to find an edifying analogy to the Second Amendment elsewhere in the Constitution, they might look to the First Amendment.

“The freedom of speech,” like “the right of the people to keep and bear Arms,” appears unrestricted at first blush. Yet, at the time of its adoption, there were various longstanding and well-known limitations on it. As the Supreme Court explained in Chaplinsky v. New Hampshire (1942), “these include the lewd and obscene, the profane, the libelous, and the insulting or ‘fighting’ words — those which, by their very utterance, inflict injury or tend to incite an immediate breach of the peace.” Consequently, laws limiting speech on these grounds are not post-constitutional exceptions to the First Amendment justified by government’s purported need to react to some emergency or other. They reflect the First Amendment as it was designed to operate.

No one is more aware than I am of the dangers of jihadist terror. But after many years of working in both government and counterterrorism, I am equally well aware of two other things. First, our counterterrorism laws are extremely expansive, empowering the government to arrest and convict terrorists on evidence well short of actual attacks (broadly defined conspiracies, attempts, threats, incitements, material support, etc.). Second, the government is notorious for both errors and arbitrary suspicions, such that any list it compiles — in the absence of a requirement that it prove its suspicions — will be vastly over-inclusive.

If the government wants to be appropriately aggressive about keeping guns away from terrorists, it should be more aggressive in prosecuting terrorists — which means exploiting the expansive counterterrorism laws and shedding the political correctness that turns a blind eye to radical Islamic ideology. But a vague, unproven suspicion that a suspect is given no opportunity to challenge is no basis to deprive an American of a fundamental right that does not come from government, that is actually a protection against government, and that government has no legitimate power to restrict.

There is no “emergency powers” doctrine that authorizes the government to restrict Second Amendment rights. Such a doctrine would advance the Democrats’ statist objective: an omnipotent government#…#run by Democrats. In the short term, however, it would undermine our natural right to defend ourselves when government cannot. In the long term, it would fatally wound the Constitution, our defense against omnipotent government.

Article Link to The National Review:

Entebbe And The Price of Freedom

July 5, 2016

Forty years ago today, Americans were in the midst of celebrating the bicentennial of the birth of their country when a contemporaneous event stirred the imagination of free people around the world. On July 4, 1976, Israeli troops traveled all the way to the middle of Africa to rescue more than 100 hostages held by Palestinian and radical German terrorists. At the time, the effort seemed a miraculous reaffirmation not only of Israeli courage but also of the will of free people to resist those elements that seemed determined to destroy all that the bicentennial symbolized to Americans. While Americans spend this day celebrating the anniversary of their freedom, they and other free peoples do well to remember the miracle of Entebbe and ponder the high price that was paid then and must continue to be paid if liberty is to survive.

The story of Entebbe is well known. Terrorists had hijacked an Air France plane and flew it to Uganda where the notorious dictator Idi Amin welcomed the terrorists and allowed them to use the Entebbe airport terminal to hold their captives. The prisoners, who had been separated Jew from non-Jew in an eerie echo of the Holocaust made all the more sinister by the presence of German terrorists, were threatened with death if Israel did not release other terrorist killers held in prison. While contemplating the possibility of complying with those demands, Israeli leaders also pondered the possibility of a rescue operation. In the end, Prime Minister Yitzhak Rabin and Defense Minister Shimon Peres ordered a seemingly improbable rescue attempt. The daring commando raid that followed succeeded against steep odds. Though three of the hostages were killed during the rescue (and one, an elderly woman who had been taken to a hospital, was subsequently murdered on the orders of Amin) more than 100 people were saved. Israeli forces suffered only one fatality—Lieutenant Colonel Yonatan Netanyahu—the commander of the ground forces who had bravely led the assault on the terrorist stronghold.

Unfortunately, Entebbe was just a foretaste of the long terrorist war waged against both Israel and the West that continues to this day. That conflict has been marked by some other victories—notably among them, the Navy SEAL operation that led to the killing of 9/11 mastermind Osama bin Laden stands out—but also many defeats and setbacks suffered by Americans and Israelis.

Indeed, since then belief in our ability as free people to defend ourselves against those who wish to tear down the edifice of liberty has wavered at times. That is as true of Israelis as it is at times of Americans. Both nations have grown tired of the generational war that is being waged against the American “Great Satan” and the Israeli “Little Satan” by the new and more successful generations of terrorists that followed in the footsteps of the radical groups of the 1970s. Amidst the pessimism that so many of us feel about a struggle that has no end in sight, the celebrations that greeted the news of the spectacular heroism of Entebbe can seem like a lost dream.

Even in Israel, the commemoration of Entebbe is tarnished by the desire of many on the left to besmirch the Netanyahu name. For the opponents of Prime Minister Benjamin Netanyahu (the younger brother of the Entebbe hero and himself a decorated veteran of the same celebrated Sayaret Maktal unit that Yoni commanded), the celebration of the Entebbe anniversary is an excuse to engage in partisan backbiting and historical revisionism. Criticisms of his visit this week to the place where his brother died as well as to demonstrate Israel’s growing ties in Africa demonstrates the depth of the derangement that Netanyahu inspires on the left, especially inthe opinion columns of a newspaper like Haaretz.

But there is good reason to burnish the memory of that intrepid operation and the man who led the mission and selflessly stepped forward to face the fire of the enemy and fell in combat. It’s a reminder that even against steep odds, the forces of hate can be beaten even if the price of that victory is high. Just as America’s Founding Fathers were prepared to pledge their lives, their fortunes, and their sacred honor for the defense of liberty, so, too, must each subsequent generation be prepared to make such sacrifices. Forty years ago, the Entebbe rescue seemed to many to be a reaffirmation of that same spirit of courage that created the United States. Today, we should take similar comfort from the memory of that victory. The sinister forces that threaten the liberties of free people have gained strength and the hate that nourishes their malice is also on the rise. But Entebbe should give all people of good will confidence to pay no heed to the voices which assert that liberty is in retreat and to carry on with the great and difficult work of defending the freedom that we Americans celebrate today.

Article Link to Commentary:

Brexit Or Not, France And Britain Deepen Military Alliance

Politics may cause problems for the Entente Militaire.

By Pierre Briancon
Politico EU
June 5, 2016

PARIS — Britain may have declared its “independence” on June 23 but the soldiers of one of its elite military units are about to start taking orders from a Frenchman.

Within the next few months, an as-yet-unnamed French brigadier general will be appointed deputy commander of the British armed forces’ 1st (UK) Division in York. Some time later, a British officer of the same rank is poised to become deputy commander of the French first armored division.

British voters didn’t hear much about that historic swap during the referendum campaign, even as they were warned about a supposed secret project to build a “European army” hatched by Brussels bureaucrats. But it wouldn’t have mattered even if Leave campaigners had decided to make it an issue: French-British military cooperation, anchored by the 2010 “Lancaster House” treaties, is set to increase in coming years and is unlikely to be much ruffled by Brexit.

That, at least, is the consensus for the near future. French and British diplomats say the bilateral agreement to increase cooperation between both countries’ military establishments — from politicians and generals to industrialists — is moving forward, even post-Brexit.

In the longer term, diplomats and security experts see a risk that the partnership — which was based on the idea that France and Britain, the only true European military powers able to project force abroad, can trust each other on the most sensitive of issues — could be affected by a souring of overall relations between the U.K. and the rest of Europe.

“Formally nothing changes with Brexit,” said Camille Grand, head of the Paris-based Fondation pour la Recherches Stratégique, adding that the Franco-British treaties have little to do with the EU. “Both countries have a vested interest in pursuing their implementation.”

“This is a day-to-day, intense partnership that has never been affected by whatever French or British-bashing was going on in either country in the last five years”— Claire Chick

For the last six years, the alliance has become routine between the two countries’ military establishments — moving forward largely under the political radar.

“This is a day-to-day, intense partnership that has never been affected by whatever French or British-bashing was going on in either country in the last five years,” said Claire Chick, head of defense at the Franco-British Council in London.

The French and British defense ministers meet once a month, amid countless meetings of military and civilian experts, industrialists and scientists from both sides. The two countries now have an operational joint action force — the setting of which necessitated working out such minute details as soldiers’ ignorance of their colleagues’ language and the French preference for written orders, different from the U.K.’s oral tradition.

But the treaties — one on military, the other on nuclear cooperation, both signed for 50 years by David Cameron and then-French President Nicolas Sarkozy — mostly look Brexit-proof. That’s because they were aligned with both countries’ strategic, industrial and financial interests.

Stronger In?

Pooling resources in a time of austerity was seen as a means for both of Europe’s nuclear powers to keep a global military standing commensurate with their aspirations. That was made possible by the gradual fading of decades-old divergences and mistrust between Paris and London. The French had rejoined the North Atlantic Treaty Organization as a full-fledged member after 43 years; and the new British government was getting closer to Europe after William Hague, who would later become foreign secretary, called for a “solid but not slavish” relationship with the U.S. during the 2010 U.K. general election campaign.

The Lancaster treaties were rooted in pragmatism — in sharp contrast to another Franco-British initiative that Tony Blair and Jacques Chirac had undertaken in 1998 by signing the so-called Saint-Malo declaration. The mood back then, with a British premier who didn’t hide his enthusiasm for all things European, was about making grand political and strategic aspirations with the aim of shaping the whole EU defense policy. The agreement produced some limited results but ultimately didn’t change the rules of the game in European defense.

The agreement by Cameron and Sarkozy 12 years later focused less on grand statements and more on action. On the military front, the Lancaster treaties initiated the launch of joint programs, such as tighter cooperation on naval warfare, research on the next generation of fighter aircraft, and the joint deployment of ground troops. After six years of preparation, the Combined Joint Expeditionary Force became operational last April, with the aim of mobilizing up to 10,000 troops for a range of operations either NATO-sanctioned or strictly bilateral.

The nuclear treaty set up a 50-year cooperation that sees both countries investing in huge computing capabilities to experiment on warhead material and equipment they both can use — albeit separately.

The political changing of the guard in France in 2012 did nothing to slow the rhythm of the treaties’ implementation. Socialist François Hollande picked up where conservative Sarkozy had left off. Last April Hollande and Cameron — as the Brexit campaign was in full blast — even launched a new series of bilateral projects.

Political Clouds

However strong the reasons for the Entente Militaire to continue its forward march, politics may soon intrude.

“The Lancaster Treaties were predicated on Paris and London trusting each other in strategic matters after years of divergences and rivalries,” said one French diplomat.

That’s no longer a given, especially if a drawn-out Brexit negotiations process starts to get ugly.

Another possible unknown related to the British vote, said François Heisbourg, the chairman of London-based International Institute for Strategic Studies, is the renewed possibility that Scotland will secede from the U.K. The U.K.’s only naval base for the country’s Trident nuclear submarines is in Faslane, northwest of Glasgow, and London might have to negotiate a deal with an independent Scottish government if only to buy the time to build another base. “That might at least throw some doubt on the nuclear modernization program agreed with the French,” Heisbourg said.

France isn’t insisting any longer on the absolute priority of Europe defining its own strategic identity. “I don’t speak of European defense, I speak of the defense of Europe,” French Defense Minister Jean-Yves Le Drian once quipped. As for the British, France’s return to NATO’s military structures has assuaged longstanding fears that Paris harbored designs to circumvent the alliance.

The Pentagon likes the arrangement, too. A European diplomat said the Franco-British relationship has always been warmly supported by the U.S., for good reasons. Washington sees two European allies willing to increase their defense commitments who have stopped shrinking their defense budgets. France’s, for one, is still hovering slightly below the 2 percent of GDP pledged by NATO members, but Hollande put an end to years of defense cuts last year. France’s military spending is on track to overtake Russia’s in the next couple of years, according to Jane’s 360. The British government similarly decided in 2015 to spare defense from its general austerity policy.

No one knows what the next British government will look like, or when or if or how a Brexit from the EU will play out. But the U.K. remains shackled to its defense commitments. Staying a full-fledged, committed member of NATO, while being anchored to the continent by its French alliance, and possible future collaboration between the two countries and Germany, amounts to what a French defense ministry adviser called “a lock of mutually intertwined interests” that any government would “find hard to pick.”

Article Link to Politico EU:

Brexit Or Not, France And Britain Deepen Military Alliance

What Did China Just Launch Into Space?

The Chinese say the high-tech satellite they launched will clean up space debris, but its extendable robotic arm has some wondering whether it could have a more sinister purpose.

By David Axe
The Daily Beast
July 5, 2016

China just boosted a high-tech, mysterious new satellite into orbit. It might a weapon. It might not be a weapon. There’s no way to be certain, either way—and that’s a problem for all spacefaring countries.

Especially the United States and China. Washington and Beijing are lofting more and more of these ambiguous satellites into orbit without also agreements governing their use. In failing to agree to the proverbial rules of the orbital road, the two governments risk ongoing suspicion, or worse—a misunderstanding possibly leading to war.

The Roaming Dragon satellite rode into space atop a Long March 7 rocket that blasted off from Hainan in southern China on June 25. Officially, Roaming Dragon is a space-junk collector. Its job, according to Beijing, is to pluck old spacecraft and other debris from Earth’s orbit and safely plunge them back to the planet’s surface.

For sure, orbital debris poses a real hazard to the world’s spacecraft. In the summer of 2015, astronauts aboard the International Space Station—including two Russians and an American—sought shelter inside an escape craft when a chunk of an old Russian satellite appeared to be on a collision course with the station.

Luckily, the debris missed the space station. All the same, NASA and other space agencies have voiced their concern over the accumulation of man-made junk in space—and have taken initial steps to remove the most dangerous chunks.

Hence Roaming Dragon’s official mission. “China, as a responsible big country, has committed to the control and reduction of space debris,” Tang Yagang, a scientist with the China Aerospace Science and Technology Corporation, wrote on the Chinese space agency’s website.

But the Roaming Dragon’s design—specifically, its maneuverability and its nimble, extendable robotic arm—mean it could also function as a weapon, zooming close to and dismantling satellites belonging to rival countries.

Stephen Chen, a reporter for the Hong Kong-based South China Morning Post—which has historically has been critical of the Chinese central government in Beijing—quoted an unnamed “researcher with the National Astronomical Observatories in Beijing” calling into question the satellite’s purported peaceful mission.

“It is unrealistic to remove all space debris with robots,” the anonymous researcher allegedly stated, implying that Roaming Dragon would, in reality, be doing something else up there in orbit.

But there’s no way to prove that Roaming Dragon is a weapon until it actually attacks another satellite. And at that point, the world would surely have much bigger problems than mere spacecraft taxonomy, as an orbital ambush would almost certainly be a prelude to a much more destructive conflict on the surface.

“Space robotic arms, like many other space technologies, have both military and non-military applications, and classifying them as a space weapon depends on the intent of the user, not on the inherent capabilities of the technology,” Kevin Pollpeter, deputy director of the Study of Innovation and Technology in China Project at the University of California, San Diego, wrote in a widely cited 2013 research paper.

“China’s space robotic arm technology is thus a case study in the challenges of defining ‘space weapon’ and the difficulty in achieving space arms control,” Pollpeter added.

It’s an old problem, by space standards. Jeffrey Lewis, a strategic-weapons expert who blogs at Arms Control Wonk, pointed out in an email to The Daily Beast that NASA’s space shuttle, which first launched into orbit in a dramatic test in 1981, inspired the same worry in Moscow that Roaming Dragon could inspire in Washington.

Specifically, Russian analysts questioned the purpose of the shuttle’s famous “Canadarm”—the Canadian-made “Shuttle Remote Manipulator System” that prominently appears in many photos of the now-retired shuttle’s cargo bay. American analysts are not wrong to point out the potential military applications of Roaming Dragon’s robotic arm. But “the Russians said the same thing about the Canadian arm on the space shuttle,” Lewis told The Daily Beast.

As far as we know, the space shuttle, which last flew in 2011, never attacked another spacecraft. Nor, apparently, have any of the many other spacecraft that possess arms and maneuverability similar to Roaming Dragon—the majority of which, it’s worth noting, are American.

The proliferation of these spacecraft underscores a failure on the part of the world’s governments to agree to orbital codes of conduct. “All the spacefaring countries are developing small satellites capable of conducting so-called autonomous proximity operations—and there are absolutely no rules about this,” Lewis explained.

“If China wants to build an inspector satellite to shadow one of our warning satellites, that’s just ducky as far as space law is concerned. In such an environment, even innocent programs will engender suspicion and initiate the basic arms race dynamics that threaten the use of space for everyone.”

That suspicion is already having a very real effect on the U.S. defense establishment. Growing ever more fearful of a possible ambush in space, in early 2015 Deputy Defense Secretary Bob Work instructed John Hyten, the four-star general in charge of U.S. Air Force Space Command, to prepare his space operators and their satellites for a possible war in orbit.

But to a great extent, the paranoia is unjustified, according to Brian Weeden, a former Air Force space operator who is now a technical adviser to the Secure World Foundation in Colorado. “A lot of the so-called space weapons technologies that have been hyped by pundits or the media for decades are not actually very good weapons,” Weeden told The Daily Beast in an email.

For starters, it’s hard for a killer satellite to sneak up on one of America’s own spacecraft, what with NASA and the Air Force constantly monitoring Earth’s orbit via radar and telescope. “We would notice it maneuvering to match orbits with the target hours [or] days in advance,” Weeden said.

For that reason, “there are better, faster, or cheaper ways to accomplish the same goal” of knocking out a satellite, Weeden added.

Ground-based rockets, for example. The same boosters that propel satellites into orbit can, if aimed carefully, strike and destroy spacecraft in certain orbits. China famously tested a so-called direct-ascent satellite-killing rocket in 2007, striking an old weather sat and scattering thousands of pieces of debris—ironically, the same kind of debris Roaming Dragon ostensibly was designed to help clean up.

“I still worry a lot more about China’s direct-ascent ASAT,” Lewis said, using a popular acronym for an anti-satellite weapon.

Contrary to the South China Morning Post’s reporting, it’s entirely possible that Roaming Dragon is what Beijing claims it is—an orbital trash-collector. “It’s not crazy to think about trying to pull large pieces of junk out of high-traffic orbits, since those are potential sources of thousands of pieces of deadly smaller debris if the piece breaks up,” Gregory Kulacki, a space expert with the Massachusetts-based Union of Concerned Scientists, told The Daily Beast in an email.

And to China’s credit, it apparently has been fairly transparent about Roaming Dragon—more transparent, in fact, than the United States is with many of its own spacecraft. Weeden said Chinese officials could go a step further in reassuring the world about Roaming Dragon’s mission. “They could release details of its orbit and provide advance notification of any maneuvers. That would set a very good example for other countries testing similar capabilities to follow, including the United States.”

As long as there’s such a fine line between war and peace in space, bold acts of transparency are the only way to prevent suspicion and conflict. That applies to Roaming Dragon and any other satellite—be it Chinese, American, Russian, or other—that can transform from an instrument of science to a weapon of war with the flip of a few switches.

“We should probably try talking to each other about it,” Lewis advised.

Article Link to The Daily Beast:

Will Leaked Payslips Scandal Bring Down Rouhani?

Iranians are more outraged by the day over revelations of exorbitant pay for executives at state-controlled banks and insurance firms as the fallout from their leaked payslips continues.

July 5, 2016

TEHRAN, Iran — The trickle of leaked payslips of executives at state-controlled banks and insurance companies in Iran has become an avalanche, claiming careers and threatening the prospects of President Hassan Rouhani only 11 months before the country’s next presidential vote.

The scandal began on May 7, when leaked wage slips from Central Insurance of Iran showed that top officials at the state-owned insurer had received monthly compensation of up to 875 million rials ($28,600). The subsequent media frenzy forced the company’s president to quit.

Soon afterward, on June 2, the payslip of Ali Sedghi, chairman of Bank Refah Kargaran (Workers Welfare Bank), suddenly surfaced on social media, showing that he had earned some 2.34 billion rials ($76,500) in the Iranian month ending March 20. Meanwhile, conservative media outlets began reporting on alleged ties between Sedghi and Rouhani’s brother, Hossein Fereydoun.

With anti-government media outlets extensively covering the leaks, public outrage grew over a bank executive receiving some 300 times more than the minimum wage of a common worker.

In an attempt at damage control, Rouhani ordered Vice President Eshaq Jahangiri to take decisive measures by identifying the violations, obtaining refunds and dismissing irresponsible managers. Rouhani said June 12, “Unusual payments, … bonuses and loans … [are] not compatible with standards of justice or commitment to the public money … [and are] considered a misuse of the government’s trust.”

Government spokesman Mohammad Bagher Nobakht also offered an apology to the public, but asserted that nothing illegal had happened, as some state bodies had used legal loopholes to exorbitantly compensate senior managers. Of note, paragraph 6 of Article 76 of Iran’s Civil Service Management Law — ratified in 2013 — states that the maximum wage of a civil servant can only be seven times the minimum wage.

Only four days after Rouhani’s order to address excessive pay, another document emerged claiming that Seyed Safdar Hosseini, the head of the National Development Fund — a key state body — had been receiving monthly pay of 570 million rials ($18,600), with additional bonuses and grants for his children’s vacation expenses, books and sports activities. Of note, Hosseini’s daughter was elected to parliament on Feb. 26 as part of the pro-Rouhani List of Hope.

Amid the storm of criticism, Prosecutor-General Jafar Montazeri accused Rouhani’s opponents of using the payslip scandal to settle political scores. Separately, the head of the General Inspection Office, Naser Seraj, warned against attempts to magnify the scandal and paint things in black and white.

On June 28, in what seemed to be an act of retaliation, government-run Iran newspaper ran a report that claimed that former hard-line parliamentarian and editor-in-chief of the anti-Rouhani newspaper Vatan-e Emroz, Mehrdad Bazrpash, had received 6 billion rials ($196,000) in “executive awards” while serving as CEO of SAIPA Automotive Group. Bazrpash denied the accusation and filed a lawsuit against the newspaper. Things took another turn when Seraj dropped the bombshell that Fereydoun had lobbied for the appointment of Sedghi, even though the latter apparently faced corruption charges dating back to his time as chairman of Bank Melli.

Al-Monitor asked longtime conservative political strategist Amir Mohebbian about the reasons for the sudden emergence of the leaks. He told Al-Monitor he believes that the leaks “definitely have a political purpose,” but added, “At the same time, they are aimed at creating more economic transparency.” Mohebbian added, “Various political factions jumped on the bandwagon and began the blame game when they saw the public backlash.”

A great portion of the Rouhani administration’s response to the public outcry has been to heap blame on previous administrations. But will this be enough? Mohebbian told Al-Monitor, “The wrong culture of high salaries undoubtedly stems from the past, but because the current government showed no opposition to that trend, its excuses are unacceptable.”

Mohammad Kajbaf, a telecommunications engineer, told Al-Monitor that he doesn’t see the leaks as a scandal because “If it were, the government would have felt ashamed of it.” Kajbaf expressed anger, noting that he's saddened to see excessive executive pay “while there is rampant injustice, discrimination and poverty in society.” He also blamed former President Mahmoud Ahmadinejad for not spilling the beans on such officials sooner.

Masoud Sadeqi, an entrepreneur in Tehran, expressed sorrow to Al-Monitor but said neither the incumbent government nor the previous one is responsible for the situation. Sadeqi said he thinks the problem lies with the lack of transparency and oversight, and believes the recent embarrassment is not the first nor will it be the last unless legislators take the issue of supervision and inspection seriously.

In the latest turn of events, the CEOs of four major banks — Refah Kargaran, Mellat, Saderat and Mehr — have been dismissed from their positions. The entire management team of the National Development Fund — including Hosseini — has been forced to resign. In addition, Minister of Economic Affairs and Finance Ali Tayebnia has set a salary cap of $5,500 monthly for bank executives, with wider regulations for public firms to be announced.

It is not yet clear whether these measures will be enough to calm the popular outrage. The president’s cultural adviser, Hesam al-Din Ashna, has acknowledged that the leaks have stirred public opinion against the Rouhani administration, striking a heavy blow to its social prestige. Mohebbian, the conservative political strategist, told Al-Monitor, “The leaks have put the government in hot water. In addition, the lack of an appropriate media strategy to address the revelations and deal with their reverberations has further weakened the Rouhani administration’s position.”

Mohebbian also said there may be profound adverse effects from the revelations of excess pay, which he described as causing “unjustifiable rifts between high-ranking officials and members of society.” He emphasized, “The [revelation of the] exorbitant salaries exposed an important social harm: a new social class that was formed after the 1979 Islamic Revolution. Members of this new class enjoy prosperity and certain social and economic benefits while marching under the banner of revolutionary slogans. The presence of this group could have serious political ramifications, because it would divide the society into two categories: the minority high-ranking managers, or ‘haves,’ and the majority masses, or ‘have-nots.’ The creation of another social gap would disappoint the oppressed people who have been supportive of the revolution.”

Mohebbian concluded, “Although the people don’t necessarily see the government as the guilty party, the scandalous financial leaks will have their social effects and in the long run could tarnish the image of the entire political establishment in Iran.”