Brexit Post-Mortem

The reason the neoliberal status quo has been around for as long as it has -- 40 years and counting, ten years longer than the social democratic consensus following World War Two -- is that it has proven agile at quickly adapting to threats.

Two recent examples. First, the Arab Spring, which, after stunning victories in Tunisia and Egypt, was completely rolled back thanks in large part to the export of jihad by the U.S. client states of the Gulf Cooperation Council. Next, the Occupy Wall Street movement, which was easily co-opted by Obama's 2012 presidential campaign, with a hefty assist from New York City's Finest.

What is happening in the case of Brexit is more of the same. The neoliberal status quo lost the vote last Thursday but has been winning ever since. The first significant casualty might have been Podemos in Spain's parliamentary elections on Sunday. Going into the vote, many predicted that Podemos would replace the Socialists as the number two party behind the ruling conservatives. It didn't happen. While Podemos didn't lose ground, neither did it gain any. The Popular Party actually picked up seats. The reason for Podemos' lackluster showing is being explained as voter risk-aversion following the currency and equity markets turmoil on Friday following the Brexit vote.

The markets have calmed since. Brexit will not be another Lehman Brothers. The narrative that is cohering to the point that it is close to being chiseled in stone is that the successful Leave campaigners, leaders like UKIP's Nigel Farage and Tories Boris Johnson (BoJo) and Michael Gove, have not a clue what Britain is to do now that its people have actually voted to separate from the European Union. This confusion is crystallized in a much-cited column written by BoJo for The Telegraph, "I cannot stress too much that Britain is part of Europe – and always will be," where he basically dismisses the reasons for a Leave vote by both the right and the left: Immigration will continue and so too will free trade. Britain will negotiate for itself a Norwegian membership in the common market.

Cameron must have been mindful of this dearth of leadership atop the Leave campaign. His 90-day exit is looking like the smart move at this point. Given another week like the last one, the Leave Tories will be so discredited they will not be able to govern. Cameron's Remainers will keep control of the Conservative Party, better able to join Labour's parliamentary putschists -- assuming they are somehow able to rid themselves of the troublesome Jeremy Corbyn as party leader (which I don't think they will be able to do) -- to finagle avoidance of Article 50, whether through a re-vote or artful negotiation.

The problem in all of this are those hard-shell anti-neoliberal voters, both left and right, who have grown deaf to the mellifluous hymns sung in praise of unfettered markets. Bigger is not better. And I would argue that a solid majority of voters in countries throughout the West have come to believe this, which is a real problem for the governing elite. This majority can be tamped down here and there by means of fear and focusing on division within its ranks, but it will not go away.

I would guess that over the next few years the major parties in the capitalist core will continue to splinter.

Sanders Must Win Arizona

Before turning to two interesting posts -- Lambert Strether's "The Democrat Establishment Plan for a Three-Front Anti-Trump, Republican-Splitting, Anti-Left Campaign" and this morning's FiveThirtyEight chat "The Most Important States On Trump’s Path To 1,237 Delegates" -- let's get the latest on the terror attack in Brussels from the early morning Foreign Policy "Situation Report" by Paul McLeary and Adam Rawnsley:

BREAKING: At least 13 people were killed and dozens more wounded at the Brussels international airport on Tuesday after two explosions rocked the departure area,collapsing part of the ceiling and spreading chaos. The attack -- which Belgian authorities said was a suicide strike -- came at the same time as another bomb went off at the city’s Maelbeek subway station. Belgian officials are reporting 15 dead and 55 injured in the subway blast. All flights and train service in and out of the country have been cancelled.

The attacks come just days after the main suspect in the November Paris attacks that killed 130 was arrested in Brussels, FP’s Lara Jakes and Alicia P.Q. Wittmeyer write. The arrest on Friday of Salah Abdeslam heightened fears of more terror attacks in the country, as European officials warned that many people who were involved in the Paris attacks people were still at large. No group has claimed responsibility for the Brussels strikes, but the Paris attackers were affiliated with the Islamic State.

Belgian federal prosecutor Frederic Van Leeuw called all three explosions “terrorist attacks,” and Prime Minister Charles Michel said, "we were fearing terrorist attacks and that has now happened." Witnesses to the attack at the airport described a bloody scene where water pipes burst, mixing with the blood of the wounded and dead as dazed survivors staggered from the building. Security at airports and train stations around Europe has been heightened in the wake of the attack.

Brussels is a batting-practice fastball right to Trump's wheelhouse. He is the only candidate who viscerally addresses the fear and loathing the masses feel towards the establishment in regards to the perpetual war on terror. Joe the Plumber and Brittany the Burger Flipper are more hip to how the game of global jihad works than the power elite and the mainstream press care to acknowledge. The masses might not be able to describe how Pakistan runs the Taliban with Saudi input or how Islamic State, Ahrar al-Sham and Jabhat al-Nusra are main players in Syria thanks to the generous support of the Gulf shiekhdoms, but they know the United States and our European cousins are getting played. Trump, all bluster and braggadocio, says it has to stop, that we need to bar all Muslims from entering the country until we can address the problem, and people listen. People listen because they are tired of the never-ending, ever-expanding war on terror.

So expect Trump to benefit in the near term and every time there is a bombing or gun battle in a Western city.

The FiveThirtyEight chat susses out the real estate mogul's chances of locking up the GOP nomination after the primary season ends June 7. The long and short of it depends on how he does in California. A native of the Golden State myself, I think Trump will do quite well.

An interesting exchange in the FiveThirtyEight chat has to do with Trump's potency among blacks in traditionally Democratic enclaves:

dave: Trump seems to be benefiting a great deal from the fact that there are many places where neither Cruz nor Kasich has much natural appeal. For example, Trump has won a lot of delegates in African-American-majority congressional districts in places like St. Louis and Chicago where there aren’t many evangelicals, wealthy whites — or for that matter, Republicans period. So I see Trump winning a lot of delegates in minority-majority districts in places like California and New York, and that’s a big problem for #NeverTrump right now.

This was brought home to me by a clip on Democracy Now! of a black guy beating the shit out of a Hippie protester at a Trump rally in Tucson.

Hillary's overwhelming support among African Americans is due to her being a known, familiar figure. Well, black people feel like they know Trump too. As long the billionaire can keep the spotlight off the crackers who constitute the base of his support and keep it focused on a cartoon version of a bloodthirsty Muslim, he will win his fair share of African American votes.

What blacks and Bernie supporters need to come to grips with is that we will be consigned to the scrap heap by the end of spring. Lambert Strether lays it all out clearly. There will be no role for Bernie in the Hillary general election campaign and his supporters will not be catered to. The reasoning is well known to progressives and peaceniks. You got no place to go. Team Clinton will happily wave goodbye to all the Hippies and Punks who leave the Dem rez to vote for Jill Stein. The big-game hunt for Hillary is the mythical soccer mom ensconced in her exurb McMansion.

As Strether convincingly argues, Trump v. Clinton is going to be a horrendously negative, epically brutal, low turnout campaign. Hillary will pitch her message to moderate Republicans. By September Bernie Sanders will be a memory as distant as a Nader Super Rally in Y2K.

Bernie is not even mentioning Hillary, choosing instead to inveigh against Trump. He had an opportunity to score points when he was in Seattle over the weekend by mentioning that David Plouffe, Obama's campaign manager who is part of Hillary's brain trust, is an Uber executive who spoke out against the company's drivers unionizing with the Teamsters. Top Dems now openly advocate union-busting knowing there will not be a peep from AFL-CIO headquarters. It is truly pathetic.

Bernie shit the bed last Tuesday by losing all five contests -- Missouri, Illinois, North Carolina, Florida and Ohio. He is running significantly behind in Arizona. The way I see it he has to win everything from here to California to prove he is something more than a progressive boutique candidate. Sanders has to beat Hillary in Arizona to take the narrative back.

Shocks to the European Union

The European Union is facing a wide array of challenges, and not just the blow back from the cracking apart of the Middle East. Several developments this past week point to a series of shocks ahead for the continental union.

First, I should say that I think that the EU is an institution that serves the United States. The way it works is that you create a political union that is subordinate to the economic union, and the economic union answers to Germany. Germany answers to the United States in foreign policy matters. So in a series of short steps you have a huge continent-sized economy that eclipses the U.S. but is politically supine at its feet.

The left has to give up for the time being on its European Dream of progressive government in Brussels. It is not going to happen before several shocks shake the shack.

Shock #1: Anti-austerity government is coming to Portugal.  Despite headlines early last month touting the first-place finish of the coalition of Portuguese prime minister Pedro Passos Coelho as a great vindication of austerity, the conservatives were unable to form a government. Now it will be up to the left anti-austerity bloc, led by the Socialists but also including the long-resistant-to-left-leaning-coalitions Communist Party, to form a government, assuming that conservative president, Aníbal Cavaco Silva, allows them to. He might ask Passos Coelho to remain at the head of a caretaker government until new elections can be held next year.

Waiting until new elections is likely the preferred outcome for the elites who preside over governance in Brussels. Despite the object lesson that Greece was supposed to provide for all the restless natives who didn't wanted to accept a pauperized future of ever-increasing austerity, it is apparent the citizens of another European nation are ready to tilt again at the neoliberal consensus.

As Raphael Minder pointed out last week, "Rising Left Bloc in Portugal Could Threaten Austerity Drive," if the left bloc is successful at forming a government in Portugal, this points the way to a fall of the conservative, pro-austerity Popular Party in Spain:

Prime Minister Mariano Rajoy of Spain, who champions austerity, hopes to get re-elected, but most polls show his Popular Party falling short of keeping its parliamentary majority. That raises the possibility that the Spanish could end up in a similar situation to that of the Portuguese. 

“The Iberian left is forming alliances against those in power and trying to create governments of losers,” said Pablo Casado, a conservative lawmaker who is spokesman for Mr. Rajoy’s Popular Party. “This could also happen in Spain.” 

At the very least, Portugal’s political deadlock has signaled the deep divisions the austerity debate continues to generate. 

“You can have an election where there is no winner, only losers,” said Mr. Cabral, the economics professor. “Which is an odd situation in a democracy.”

Shock #2: Spain Splits Over Catalan Independence. Despite a ruling from the Spanish constitutional court, the parliament of Catalonia is moving full speed to independence. How is that for a shock to the system?

Shock #3: Greece Burns. Today the first general strike directed at the once "great leftist hope" Syriza government shows that Alexis Tsipras' capitulation to the troika bought Brussels maybe six months.

Shock #4: Brexit. Cameron published the list of demands that Conservatives need met in order to support remaining in the EU. Wishy washy and ready-made for fudging is how I would characterize them. The main item garnering attention is reduced welfare payments for immigrants. I don't see how the referendum on remaining in the EU passes.

Shock #5: Walls Go Up. Slovenia is the latest country to erect a border wall in Europe. So much for the promise of an "ever closer union."

Deadlines: Greek Debt Negotiations & P5+1 Talks

So we're back to deadline watch in the Greek debt drama. The new make-or-break deadline we're supposed to stay focused on is July 20. That is when 3.5 billion euros that Greece owes to the European Central Bank comes due. If Greece fails to make repayment by July 20, the ECB will be hard pressed to find a way around cutting off liquidity to already cash-strapped Greek banks.

James Kanter publishes a helpful story this morning, "Greece Expected to Offer Proposals as Eurozone Leaders Prepare to Meet," that precedes yet another emergency summit of eurozone leaders in Brussels today. Kanter tilts towards the neoliberal consensus. So his writing is a helpful prism to understand how the U.S./EU elite view recalcitrant Greece:

BRUSSELS — The Greek government was expected to make proposals to eurozone leaders on Tuesday to support its battered economy and keep the country in the single currency area, as Athens and its creditors resume their struggle over an elusive solution to Greece’s long-running economic crisis. 

But a quick fix for Athens looked extremely difficult to achieve. The stakes were rising on Tuesday ahead of the latest emergency summit meeting of European leaders. None of them wants to take the blame for a possible sudden, chaotic departure from the eurozone by Greece. That means that all sides could agree to keep talking even as the crisis reaches new levels of intensity, and even as Greece hurtles toward a deadline — a payment of 3.5 billion euros, or about $3.9 billion, to the European Central Bank on July 20 — that most observers think it cannot miss without leaving the eurozone.

The Eurogroup of finance ministers is scheduled to convene at 1 p.m. in Brussels, followed by an emergency summit meeting of the 19 leaders of eurozone countries at 7 p.m. that is expected to include Mario Draghi, the president of the European Central Bank, and Jeroen Dijsselbloem, the president of the Eurogroup.

*** 

A failure to make good on the July 20 bailout payment to the European Central Bank would make it almost inevitable that Greece would have to cut a lifeline for the country’s cash-drained banks. And that could force the country to print a parallel currency that would hasten its departure from the currency bloc. 

That prospect could add pressure on the Greeks this week to commit to a number of short-term changes for bridge financing to avoid defaulting on the European Central Bank, and then conclude a wider program, with debt relief, later in the year. 

But one analyst emphasized on Tuesday that the track record of the government in Athens would make it extremely difficult to take any of its commitments at face value. 

“It remains very unclear whether the Greek government is really trying to avoid an exit from the euro area, or whether it only wants to avoid being held responsible for it by its domestic public opinion,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels.

I used to be of the opinion that what Tsipras was up to was transforming consciousness in Greece -- enlightening the Greek voter -- to accept the reintroduction of the drachma. But I no longer believe that. I think that Syriza, true to what Tsipras and Varoufakis have long said in public, has no intention of leaving the eurozone. The strategy of Tsipras has been to wear down the members of the troika, and in this he has been successful. France has moved away somewhat from Germany. The IMF has broken with other members of the troika and issued a report declaring Greece's debt load unsustainable.

The problem for Tsipras is that despite the landslide "Oxi" win, the July 20 ECB repayment deadline looms large. For the hardliners in the Eurogroup who want to collapse Greek banks and be done with it, two weeks is a short time to wait. There is no need for Schauble and Dijsselbloem to offer any concessions, particularly on debt forgiveness. It appears that Tsipras will run out of time and no cavalry will ride over the hill to the rescue.

And not one but two deadlines have now been breached in the P5+1 talks in Vienna: first, the June 30 deadline, and today's July 7 deadline. The significant one for Kerry and Obama is Thursday July 9. If no agreement is reached with Iran on its nuclear program in two days then the U.S. Congress will get an additional 30 days to skewer the agreement. USG scribe Michael Gordon reports in "Iran Nuclear Talks Are Extended Once Again":

VIENNA — The talks to complete a landmark accord limiting Iran’s nuclear program have been extended for several days after negotiators acknowledged that they would be unable to meet a Tuesday deadline.

To give negotiators more time to pursue a final accord, the diplomats agreed to extend through Friday an interim nuclear accord called the Joint Plan of Action. That interim agreement, which had been set to expire on Tuesday, freezes much of Iran’s nuclear program in return for modest sanctions relief.

“We are continuing to negotiate for the next couple of days,” Federica Mogherini, the foreign policy chief for the European Union, told reporters here.

This is the second time the talks have been extended since Secretary of State John Kerry arrived here in late June. The original goal was to complete a final accord by June 30.

Ms. Mogherini said that the negotiations had entered “a difficult and sensitive” phase, but she did not discuss the remaining issues.

The unresolved issues in recent days have included what limits would be placed on the development of more efficient types of centrifuges after the first decade of an accord, what steps would be taken to address suspicions about Iran’s past nuclear activities, and the timeline for removing sanctions.

The Obama administration hoped to finish the accord by Thursday, so that it could be submitted to Congress for a 30-day review. If the agreement is finished this summer, the duration of the review period will double.

I don't see Obama walking away from the table. He wants an agreement, not only for his "legacy"
but for the future electoral viability of the Democratic Party. Not much is made of it in the media, but the Democrats' nominal association with a less bellicose foreign-policy perspective is a huge vote-getting advantage. A Democratic administration does not want to squander this.

But give the media monopoly and a Saudi- and Israeli-dominated Congress two months to inveigh and fear-monger, and the chances are high any agreement will be scuttled, which puts the feckless Obama in the difficult position of having to veto a Congressional override to protect his "legacy" agreement. 

It is hard to say at this point which is a stronger character trait in Obama: his desire to go-along-to-get-along or his lust to be inscribed in the history books. Probably the latter. So maybe there is hope for a Iranian nuclear accord after all.

Greek Debt Negotiations to Muddle Along, But Things Actually Looking Up for Syriza

It is Monday morning which must mean that there is a meeting in Brussels between eurozone finance ministers and Yanis Varoufakis' Greek negotiating team. Tomorrow is the deadline for repayment of 750 million euros to the IMF. Last week Varoufakis said Greece would make the repayment. The ever-skeptical Yves Smith of Naked Capitalism is not so sure. As she argues in her post today, "Greece Finally Threatens Default as Deal with Creditors Remains Remote,"

The ruling Greek coalition appears to have finally woken up to the fact that it it cornered. As we indicated, the longer the creditors keep Greece in the sweatbox, the more its popularity is destined to decline. 

While the latest polls still show Syriza as the most popular party, its support is now at 36%, a round trip from a huge surge after the government took office to back to where it stood when it was voted into office. Approval ratings of the government’s strategy have dropped precipitously from the very high levels reached shortly after the new government took office. As e pointed out early on, the best strategy for the creditors was simply to remain non-negotiable. Either Syriza would capitulate to their demands, or the government would lose support, paving the way for the return of a more complaint coalition. Syriza appears to realize that following the inertial path of trying to extend its negotiating runway does not work in its favor. Even if Greece were to pull a rabbit out of the hat and make the €750 million IMF payment, it has a total of €1.5 billion coming due to the IMF in June, which it almost certainly can’t satisfy if it fails to unlock the bailout funds.

Yves Smith seems to think that Syriza can either make the IMF payment tomorrow and risk having to issue scrip to pensioners and government workers at the end of the month, or it can stiff the IMF, a course of action that would not immediately precipitate default and Grexit. As Smith explains:

The situation is more fluid than it appears. The odds are high that blame game political calculations will win over sound policy. We’re already seeing jockeying starting to take place. Notice Schauble’s “justifiable conditions” caveat. He’s made clear repeatedly that he’d just as soon see Greece leave the Eurozone, but no one, particularly Merkel, wants to be seen to have pushed Greece out. Thus if Greece plays its cards so it can be depicted to have brought the default (and if it comes to that, an exit), that works to the advantage of the hardliners who see Greece as disposable and believe a default/possible exit can be made painful enough for the Greek people so as to make any other country that might contemplate leaving the Eurozone to see that alternative as too costly.

Despite the continued impasse, and virtual certainty of a default on Tuesday [!], the creditors have quite a lot of choices and options. For instance, despite the IMF’s tough talk about not giving Greece any grace period on a default, an IMF default is not as fine a trigger event at a private sector bond default. As the Financial Times explains:

But that hard line masks a little wiggle room created by the IMF’s own procedures. Under the official timeline plan, it is not until a month after a missed payment that the managing director formally notifies the board and not until three months afterwards that a formal statement to the outside world is expected to be made.

In other words, even if Greece defaults on the loan repayment to the IMF, things can continue to muddle along as they have. The June repayments are larger than this month's. But if missed payments can play out over months before a default is officially declared, there is no reason why this can't repeat itself next month.

In the Business section of today's "newspaper of record" is a slightly more sanguine treatment of the Brussels negotiations. Peter Eavis, Jack Ewing and Landon Thomas, "I.M.F. and Central Bank Loom Large Over Greece’s Debt Talks," see a chink in the troika's armor, and it is not the wiggle room on IMF repayments; it is the risk aversion of the European Central Bank:

It would of course also be a high-stakes gamble for Greece to do anything that could undermine relations with the central bank, which is shoring up Greece’s banking system. It has lent Greek banks more than €110 billion, cash the lenders need to operate but would have trouble raising on international money markets. 

The support to the banks is not the debt that the officials in the Greek government would consider for default. Instead, the idea would be to not repay Greek government bonds held by the central bank. Greece is scheduled to repay nearly €7 billion on those this summer. 

If the Greek banks could not repay their central bank loans, the losses would be passed on to other eurozone countries. An outcry would come from Germany and other countries already fed up with what they regard as Greece’s misbehavior. The central bank’s credibility — probably a central bank’s most important asset — could be damaged. 

Still, the central bank’s deep caution about financial stability would most likely limit how hard it pressed Greece. As the guardian of the single currency, the central bank may not want to do anything that could set off a chain of catastrophic events in Greece’s banking sector that could lead the country to quit the euro. 

“The E.C.B. does not want to be responsible for precipitating a crisis,” said Mujtaba Rahman, practice head for the European Union at Eurasia Group, a political consultancy. “They are very, very concerned about having blood on their hands.”

I know at the end of April when last I wrote about this I said climax was near. Then it looked impossibile that Varoufakis could scrape together the 750 million euros due the IMF on May 12. At the time there was the brouhaha over Varoufakis' obstreperousness; things seemed to be at an unbridgeable impasse and something was going to fracture. But then Tsipras organized a deft cosmetic reshuffling of the bargaining team, with Varoufakis nominally sent to the sidelines, and that seemed to cool things down. Also, I had no idea just how wide the nonpayment wiggle room to the IMF is. Things can continue to go on as they have for months.

Syriza will get some rhetorical help from the Scottish National Party blasting away at austerity. And there is evidence that the U.S. is extremely jealous of Russian pipeline overtures to Greece. So all in all I am more hopeful of some sort of resolution that favors Greece than I have been in months.

In Minsk and Brussels a Maintenance of the Status Quo

Neil MacFarquhar writes this morning in "Leaders Announce Plan for Ukraine Cease-Fire" that the negotiations in Minsk succeeded in restoring the status quo prior to the junta losing the Donetsk airport, minus any territory lost by the Ukrainian Army:

The [late night] return to the negotiating table was accompanied by a flurry of Russian news agency reports that Mr. Poroshenko had declined at the last minute to accept the outlines of the deal that addressed the independent status of the breakaway areas of Donetsk and Luhansk, as well as the demarcation line meant to form the spine of a demilitarized zone.

The separatists and their Russian patrons want a federal system that gives the breakaway regions independence over their foreign and economic policies, while Mr. Poroshenko had vowed that only some manner of decentralization was acceptable.

In addition, the truce line has shifted since an original deal was signed in September, creating a more cohesive whole from the two breakaway regions. The town of Debaltseve remains a point of contention, with the Ukrainian troops holding it now surrounded.

Much of the negotiations overnight were believed to have been consumed by discussions over each of the 12 points of the protocol agreed last September, and efforts to come up with a working plan on how each might be implemented.

As the peace talks stalled, fighting continued in the disputed areas of southeastern Ukraine.

Pro-Russian rebel forces mounted a counterattack on areas east of the coastal city of Mariupol, trying to retake some of the ground seized in recent days by the volunteer, right-wing Azov Battalion.

Residents of the industrial port on the Sea of Azov, widely expected to be the next target of rebel attacks if the Minsk peace talks do not produce a truce, could hear heavy shelling throughout the morning. 

City and military officials said the fighting did not hit civilian areas in the city, but was confined to small villages to the east.

Moon of Alabama is calling the new deal "Minsk 2.0" ("Minsk 2.0 Is Just The Pause Button"), which so far seems the accurate way to describe it:

The actual ceasefire will start on February 15. We can expect some heavy fighting up to the last minute as each side will try to consolidate its position. There will surely be different interpretations of the clauses on both sides. It is also questionable if the paramilitary groups, especially on the Ukrainian state side, will follow orders to cease fighting.

The Ukrainian President Poroshenko seems to have severe illusions. As the Russian President Putin mentioned in his short press conference (video) Poroshenko does not believe that his several thousand troops in Debaltsevo are surrounded and cut off. That is ludicrous as even major, though unofficial sources on the Ukrainian side had confirmed the closing of the cauldron two days ago. It seems that the military leaders of the Ukrainian army do not tell him what is really happening in the field. Putin also said that the federalist expect the Ukrainian troops in the cauldron to put down their arms. Will they be given orders to do so or will they be ordered to fight on?

The U.S. inserted itself into the negotiation via the International Monetary Fund which it controls. The IMF announced new $17 billion plan for Ukraine, over four years, two hours before the negotiations ended. That was the U.S. joker telling Poroshenko that he would get enough money to continue fighting and does not have to give up any position. Merkel and Hollande, who tired to wring more concessions out of Poroshenko, must have fumed at that news.

For the moment the Minsk 2.0 plan is welcome relief. This certainly for the people in Donetsk and Luhansk who are under constant Ukrainian artillery fire. The EU countries will be happy that the pressure for new sanctions is off and the U.S. hawks will have to shelf their "arm Ukraine" campaign for now. But the ceasefire does not solve the main questions. The radical constituency of the Ukraine coup government will demand more "punishment" of the east while the people there will, without more representation, reject any demands from the central government.

We can therefore expect that the fighting will stop in the short term only. The violent conflict will likely resume in a month or two or so.

Germany and France were successful in at least restoring the Minsk status quo -- a lower level of warfare which allows the junta, with its infusion of money from the IMF, to muddle through. We know from Minsk 1.0 that the earlier ceasefire saved Kiev from total defeat in the Donbass; with three days of fighting left before Minsk 2.0 takes effect, it remains to be seen if the Novorossiyan Armed Forces can take Mariupol from the neo-Nazi Azhov Battalion.

As for talks in Brussels between finance minister Yanis Varoufakis of Greece and the eurogroup a planned announcement apparently was shelved because of a dispute over language. James Kanter reports in "After Talks, Eurozone and Greece Fail to Settle Differences Over Debt":

Over the course of the evening, the ministers had been expected to release a joint statement in which the Greeks pledged to keep most of their previous commitments, and that laid out plans for technical discussions to continue on Friday and during the weekend. But that plan had to be dropped at the end of the meeting after ministers could not agree on additional language, demanded by Greece, on the gravity of social conditions in the country.

The goal was “to successfully conclude the plan” but “it’s not done,” Pierre Gramegna, the finance minister of Luxembourg, told reporters at the end of the meeting.

Talks will resume on Monday. Yves Smith, "Greece, Eurozone Ministers at Fundamental Loggerheads," is more pessimistic than the Gray Lady's reporter. She sees no common ground between Greece and the eurogroup and says Greek default by June is the likely outcome at this point.

So in both sets of negotiations -- Minsk and Brussels -- we have no evidence of a dramatic break with the status quo; rather, we have a continuation of the status quo, a muddling through, which is always the safe bet of the dominant powers.

Zero Hour of European Union's Demise Has Arrived

Yesterday I opined that today would be a momentous one for the future of Europe. Two sets of negotiations begin: one in Brussels between Greece and the eurogroup on bailout terms; the other, in Minsk between Russia, Ukraine, LPR/DPR, Germany and France on a new ceasefire.

I haven't seen anything since yesterday that changes my opinion: in neither case is an agreement forthcoming.

Yves Smith's post this morning says it all -- "Eurogroup Ministers to Syriza: Drop Dead":

I have heard today from a source with knowledge of the US discussions with Germany that they see signs of movement, and that Greece has supporters in other Eurozone bureaucracies. This is not inconsistent with what we’ve said, that there is a contingent that recognizes that austerity has failed and might use the Greek negotiation to advance their cause, and they could ride in and help rescue Greece. But that was before so many parties staked out hard line positions against Syriza’s proposals. The sympathizers don’t appear to be close enough to the negotiations to push for a climbdown, even if the principals could find a way to finesse what would otherwise look like a big loss of face.

It would be better if I were wrong, but what I am hearing of the US reading sounds like a classic American projection of our worldview. First, the Administration contingent seems to believe if it can get Germany to agree to a deal, the rest of the Eurozone will follow. But that isn’t how its structure works. If Greece continues to reject the bailout framework, Germany would need to lead some sort of funds extension outside the Eurozone structure. That has far more moving parts that just trying to settle differences over, say, how much of a break if any Greece gets on its fiscal surplus requirement. The White House/Treasury assumption seems to be that the two sides will negotiate within the current bailout framework, when Varoufakis keeps insisting that that is not on. If he does not budge tomorrow, the basic premise of the US view that the two sides can be pushed to come to a deal would seem to be far from the mark.

Watch the equity markets today. I'm sure they will be quite roiled.

As for the Minsk talks, unless Poroshenko can transform himself Popeye-like with a can spinach, there is no way he will accept the bottom line of Novorossiya, acceptance of the territorial gains it has made since the last ceasefire.

Kiev, backed by the United States, is a pestilential fiction; it cannot exist without war; it has no steady state other than terror; it masquerades, thanks to the support of the West, as a democratic movement striving for a closer union with Europe, but it is really more akin to Islamic State, a terrorist predator that must feed on a civilian population to survive.

Since the Novorossiyan offensive that nearly took Mariupol last summer is what forced Poroshenko's hand in signing the original Minsk ceasefire, my guess is that the junta will be routed there once the current Minsk talks end in impasse. Rick Lyman writing in "Battered Ukrainian City of Mariupol Braces for Worst as Rebels Close In" outlines what is at stake:

Mariupol is a bustling port in a strategic location on the Sea of Azov, near the Russian border. The rebels control the territory to the north and east, and Russia controls the Crimean Peninsula to the southwest. Mariupol is the only major obstacle to their realizing a long-held goal of opening a land route between Russia and Crimea and taking complete control of the Sea of Azov and its rich industrial infrastructure. Russia, which denies playing any role in the conflict here, says it has no such intention.

Even so, Mariupol has been a target almost since the fighting began early last year. The rebels briefly took control of it in the spring, and it was the scene of fierce fighting in the late summer, when the rebels drove to within 10 miles of the city limits.

“In September, Mariupol was very weak and poorly defended,” said Andrey Dzyndzya, who was a prominent activist during the protests that toppled Ukraine’s previous, pro-Russia government and is now a fighter with the Azov Battalion. “There was a kind of panic in the city,” he recalled. “In September, we managed to stop them only by luck.”

But he and other local military and government leaders said the situation was different now, with a complete ring of defensive lines, rather than just positions on the main roads.

“I feel confident that we have enough troops and enough weaponry in place to successfully protect the city now,” Mr. Dzyndzya said.

If the junta is relying on the Azov Battalion to defend Mariupol it is good indication that Kiev is in dire straits. The Ukrainian Army can't fight. So neo-Nazi battalions are pieced together to do the dirty work, like shelling city centers.

Once Mariupol falls things are going to look very different.

U.S. Case Against Russia in Downing of MH17 Collapses

I think the biggest story pertaining to the Ukraine yesterday did not come from Kiev or Donetsk but Washington D.C. and Brussels. First, in the U.S., unnamed intelligence officials provided a briefing to reporters where they basically walked back all the strident accusations by the Obama administration blaming Russia for the destruction of Malaysia Airlines MH17. Ken Dilanian of the Associated Press reports in "US: No link to Russian gov't in plane downing" that

Senior U.S. intelligence officials said Tuesday that Russia was responsible for "creating the conditions" that led to the shooting down of Malaysia Airlines Flight 17, but they offered no evidence of direct Russian government involvement.

The intelligence officials were cautious in their assessment, noting that while the Russians have been arming separatists in eastern Ukraine, the U.S. had no direct evidence that the missile used to shoot down the passenger jet came from Russia. 

The officials briefed reporters Tuesday under ground rules that their names not be used in discussing intelligence related to last week's air disaster, which killed 298 people. 

The plane was likely shot down by an SA-11 surface-to-air missile fired by Russian-backed separatists in eastern Ukraine, the intelligence officials said, citing intercepts, satellite photos and social media postings by separatists, some of which have been authenticated by U.S. experts. 

But the officials said they did not know who fired the missile or whether any Russian operatives were present at the missile launch. They were not certain that the missile crew was trained in Russia, although they described a stepped-up campaign in recent weeks by Russia to arm and train the rebels, which they say has continued even after the downing of the commercial jetliner.

Robert Parry posted yesterday in "The Mystery of a Ukrainian Army ‘Defector’" that his Sunday bombshell, that a source within the intelligence community told him that U.S. satellite imagery exists showing Ukrainian troops operating a missile battery at the time that MH17 went down, was obliquely addressed during the briefing when officials opined that the SA-11 could have been operated by a defector:

After last Thursday’s shoot-down, I was told that U.S. intelligence analysts were examining satellite imagery that showed the crew manning the suspected missile battery wearing what looked like Ukrainian army uniforms, but my source said the analysts were still struggling with whether that essentially destroyed the U.S. government’s case blaming the rebels. 

The Los Angeles Times article on Tuesday’s briefing seemed to address the same information this way: “U.S. intelligence agencies have so far been unable to determine the nationalities or identities of the crew that launched the missile. U.S. officials said it was possible the SA-11 [anti-aircraft missile] was launched by a defector from the Ukrainian military who was trained to use similar missile systems.” 

That statement about a possible “defector” might explain why some analysts thought they saw soldiers in Ukrainian army uniforms tending to the missile battery in eastern Ukraine. But there is another obvious explanation that the U.S. intelligence community seems unwilling to accept: that the missile may have been launched by someone working for the Ukrainian military. 

In other words, we may be seeing another case of the U.S. government “fixing the intelligence” around a desired policy outcome, as occurred in the run-up to war with Iraq.

Then there was the decision in Brussels at a meeting of European foreign ministers to draw up a new list of sanctions without actually imposing any. Thomas Erdbrink reports in "Despite Anger Over Downed Jetliner, Europe Shies Away From Sanctions on Russia" that

At Tuesday’s meeting, the foreign ministers agreed to draw up a new, broader list of targets for sanctions, including Russian individuals and entities, said Catherine Ashton, the European Union’s foreign affairs chief. 

But no new additional measures were imposed, reflecting fears among some Europeans that tougher sanctions would invite reprisals by Russia against countries dependent on its energy supplies, harming the Continent’s economic growth.

With the exception of ghoulish updates, seemingly every 45 minutes, on the location of the MH17 passenger corpses as they are returned to Holland, the U.S. sponsored information war that began last Thursday when the Boeing 777 was shot down over Donbass has fizzled.

David Herszenhorn's "Ukrainians, Awaiting International Action After Crash, Fear Complacency" gives vent to the junta's anger that its attempt to pin the blame on Russia and Novorossiya have so far fallen flat:

Even President Petro O. Poroshenko, reluctant to offend allies in the West, has subtly expressed growing exasperation in recent days. He has urged the United States Congress to designate the main separatist groups in eastern Ukraine as terrorist groups, a step he took without first seeking approval from the White House. 

And after a call on Tuesday with the prime minister of Finland, Alexander Stubb, Mr. Poroshenko urged an additional international response. “The Ukrainian president emphasizes that further efforts must be focused on preventing Russia from supporting terrorists,” Mr. Poroshenko’s office said in a statement, adding that he “hopes for international contribution.”

The junta's petulance is nearly identical to the reaction displayed by the Syrian National Coalition when Obama decided at the last moment not to bomb Damascus, choosing instead to go with the Russian-brokered deal to rid Syria of her chemical weapons in the wake of the Ghouta sarin attack.

Then, the Ghouta sarin attack was almost certainly orchestrated by jihadis operating with the support of foreign governments with the intention of blaming the Syrian government and thereby justifying direct Western military intervention. Now, with the destruction of MH17, a similar attempt is being made. The junta has orchestrated an atrocity that it is attempting to blame on Russia in order to elicit greater Western intervention. And the junta is failing.

Novorossiya is Being Born + Netanyahu in Trouble

It is is easy to get discouraged nowadays. Global order, what of it that there was, is coming undone. Regardless of who is to blame for blasting Malaysia Airlines MH17 out of the air -- and I am not convinced that Russia's guilt is a foregone conclusion, which is the position espoused in the main American news organs as they parrot the Obama administration -- it seems to me unbalanced, dangerously divisive, and potentially catastrophic to pin the whole thing on Moscow as part of a strategy to commit Europe to tougher sanctions.

The hope that more and greater sanctions will somehow lead to the Kiev junta's victory seems to me an illusion. If anything, generalized sanctions could have the opposite effect -- committing the Kremlin to go all in and wipe out the fascists once and for all. And there is much to the idea that planners in Washington see this as the ultimate jackpot: dividing Europe from Russia, keeping the military North Atlantic alliance firmly in control.

I think Germany is mindful of this, as is France. Trade with Russia and China represents the future. The United States is the past. That is why it is a safe prediction that no new sanctions will be immediately levied at the outcome of the meeting of foreign ministers in Brussels today. There will be a reprise of last month's performance where tough new sanctions will be threatened in order to appease the U.S. warpig but nothing will actually be done.

In the meantime, the U.S. will have to cast about for new targets of its over-the-top invective. The black box is in possession of Malaysia. The bodies are in transit, allowing for another ghoulish lede in the Gray Lady. But already the story of junta military excess in Donetsk is surfacing. The headlines obscure the real import of the reports, which is that the junta is indiscriminately slaughtering its own civilians.

There is a price to pay for such atrocities. Novorossiya is being born out of all that innocent blood. It is hard to see how Donetsk and Luhansk can ever be reintegrated into the Ukraine other than as a territory subjected to open-ended occupation like Palestine.

It appears that Israel is looking at another failed operation. Each day that passes -- particularly now that Hamas has taken an Israeli soldier prisoner -- Israel's invasion of Gaza is looking more like its botched war with Hezbollah in 2006.

Netanyahu has overreached. How will he get out of the box he has created? The Israelis talk of a deal the likes of which Assad signed in giving up Syria's chemical weapons. They want international inspectors to search out and confiscate Hamas' rockets and close down the tunnels. This is not going to happen. Hamas fighters are proving more worthy adversaries than the IDF anticipated. Western governments are broadcasting their duplicity, constantly hectoring China and Russia and other official enemies about human rights while they defend Israel's slaughter of innocent women and children. Now Kerry, a clown out of Hogarth print, is in Cairo trying to get the Egyptians to craft a ceasefire. But the Sisi dictatorship is a sworn enemy of Hamas. Why would Hamas trust anything that Sisi comes up with? No, Netanyahu is in trouble. His only way out is to yield ground; something he better do quickly because the earth is shifting under his feet. It might be another tunnel.