Sun burned

German solar firms go from boom to bust

By Sarah Marsh and Christoph Steitz

When Tino Blaesi joined the solar sector gold rush, he thought his career was made. Seven years later, he is looking for a job outside the industry after his company slashed more than a third of its workforce in one day.

Workers in Germany’s once booming solar energy industry face a shakeout of major proportions following declines in the price of solar panels over the past year.

Cuts in subsidies for solar energy, weaker demand for panels and fierce competition from cheaper Asian rivals are eating into what was once the world’s biggest hub for the production of solar cells, taking the shine off an industry that was effectively born in Germany.

A decision by the German government earlier this year to phase out nuclear energy has done little to reignite the sector. The resulting power gap is likely to be filled by coal and gas rather than solar and wind energy.

“I don’t want to work in this sector anymore, I’m sick and tired of it,” said 44-year old Blaesi, who worked for seven years at Vogt Group, a German support services firm that deals with the planning and logistics for solar plants.

Vogt had some 160 employees in its heyday in the mid 2000s, Blaesi said, but has shriveled as the young industry matured. It was forced to carry out a large round of lay-offs earlier this year after price declines and weaker demand dampened growth.

Subsidies, or so-called feed-in tariffs, through which operators of solar panels receive a guaranteed price for the electricity they generate, made Germany the world’s largest solar market and had created 150,000 jobs by 2010.

But over the past two years, Germany has sharply reduced the tariffs, and a recent proposal to limit subsidies for new solar installations may seal the industry’s fate.

Now, German solar companies are either laying off staff or putting them on reduced working hours. The contrast with the broader economy is stark. Overall, German unemployment has steadily declined in recent years as Europe’s biggest economy outperforms its rivals in Europe.

Since the end of last year, roughly 5,000 companies involved in the solar business have shut up shop, shedding about 20,000 jobs, according to German solar industry group BSW.

BIGGEST CASUALTY

Berlin-based Solon , Germany’s first solar energy company to go public, said late on Tuesday it would file for insolvency, becoming Germany’s biggest casualty so far.

SMA Solar , Germany’s top solar group, said last month it would lay off up to 1,000 temporary workers by the end of the year, citing weak demand for its invertors, a vital piece of equipment in solar systems.

“It’s the worst year the industry has seen in its short history,” Andreas Haenel, chief executive of German solar company Phoenix Solar said.

The bloodletting is particularly bitter since most of the industry’s jobs are located in the formerly communist eastern part of the country, a region that has suffered from an exodus of young, educated people for two decades.

The area around Bitterfeld-Wolfen, about an hour’s drive southwest from Berlin, was a major beneficiary of Germany’s solar boom. A location for solar cell production, it became known as “Solar Valley.”

Andreas Kind recalls the stability that existed before German reunification when the region used to be the hub of former East Germany’s polluting chemicals industry.

Since then, he has been forced to jump from job to job. First the power plant where he worked was decommissioned. Then a few years later a building materials factory he joined was torn down and rebuilt in Poland, where wages are lower.

When he signed up with German solar company Q-Cells in 2005, he thought the rocky ride was over. Back then, Q-Cells was the world’s largest maker of solar cells. In mid-November the company said it would lay off 250 employees. It has also warned that it might not be able to repay a convertible bond due in February 2012.

“People are afraid they could lose their jobs. Many have passed a critical age for finding a new job, including me,” 50-year-old Kind said.

“The nuclear exit meant an energy shift for Germany. But where’s the solar piece of the cake?”

THE CURSE OF GLOBALISATION

Legislation introduced a decade ago by a centre-left coalition of Social Democrats and Greens led by then-Chancellor Gerhard Schroeder offered generous incentives and turned Germany into the world’s largest market for solar panels, sparking thousands of start-ups, some of which became global leaders.

But the incentives, because they were focused on energy production rather than panel manufacturing, also benefited cheaper Asian rivals, which elbowed their way into the market and drove down prices.

Companies in China and Taiwan have dislodged their German peers as the world’s biggest suppliers of solar cells.

This has caused a major geographic rift in the industry. The U.S. International Trade Commission earlier this month approved an investigation into charges of unfair Chinese trade practices in the solar energy sector, ratcheting up tensions with Beijing on the green trade front.

The crisis has led to a wave of bankruptcies in the United States, notably of panel maker Solyndra LLC, showing that European solar players are not the only ones suffering from the industry glut.

“Considering the large direct financial support and the indirect help due to exchange rates, it’s hard to see this as a level playing field,” said Carsten Koernig, managing director of BSW, referring to Asian rivals.

Q-Cells had to take massive writedowns this year for cutting production at expensive European plants, while peer SolarWorld shut down production at one of its U.S.-based solar plants to save costs.

Industry analysts say the shakeout in the German solar sector is unlikely to kill it off altogether. But it will force uncompetitive companies out of the market and push those that remain to lower their costs more rapidly.

“There is clear overcapacity across the whole solar value chain, and we believe many companies may go out of business over the next year,” Jefferies Equity Research analyst Gerard Reid said.

In the long run price declines will be healthy for an industry that relies on government subsidies and wants to become cost-competitive with fossil fuels.

In the meantime, though, workers lured into the sector by its promise will leave disillusioned and empty handed, and Germany will lose some know-how, one of its key resources.

Vogt’s Blaesi says some of his colleagues are heading for southern Germany where there are more jobs to be had in the engineering sector, while others are moving to work for more thriving solar firms abroad.

“It’s a shame because that know-how is disappearing now, many people are no longer working in solar energy because there are fewer jobs and others are emigrating,” he said.

Everything depends on the motives of the sovereign

Lessons from Argentina on the Outcomes of a Possible Greek Default

By R. Thies
In the world of sovereign debt settlements, things have come a long way since Peru settled its 1889 default in part by offering creditors two million tons of guano. While making a great fertilizer, investors were understandably a little disappointed with this outcome. Luckily, the era of debt-restructuring via barter is long past and in its wake settlement terms and processes have rapidly evolved. The largest sovereign default in history, Argentina's in January 2002, is very close to being settled just 8 years and 5 short months later. Looking at the recent history of sovereign defaults gives some clues as to the outcome of a possible Greek restructuring/default, were it to happen, but leaves many questions unanswered.

Intuitively, the Argentina default is the most instructive for the current situation as it is both the most recent debt collapse by an industrialized country (last year's Jamaican default didn't attract much fanfare) and the largest in history at $82 billion. For comparison, Greece will need to roll-over roughly €104 billion ($130 billion) between now and 2013, which does not include additional deficit-financing as needed. Regardless, the scope is comparable. Despite the similarities, the ongoing Argentine restructuring process has been unique, though some of the idiosyncrasies of the process do shed some light.

The Argentine Default and Settlement

Argentina defaulted on $82 billion of principal in January 2002 and did not even meet with its private creditors for more than a year after that time. During this time Buenos Aires government made the bold assertion that they would be settling with different bondholders on different terms, depending on the holder. The first offer from Argentina came at the end of 2003 and amounted to a 75% haircut on debt principal and no compensation for interest arrears. This was considered an egregious, unprecedented offer and was summarily rejected. In the years that followed, even the IMF (who was giving the government billions) spoke out about the fact that Argentina could afford to pay a higher percentage and eventually made settling with creditors a precondition to continuing to receive IMF funding. Eventually, a second offer was made in 2005 that was subscribed to by 76% of creditors which had various components including: swaps for US dollar denominated steep-discount bonds, US dollar-denominated bonds issued at par with steep reductions in coupon payments and some peso bonds with a combination of both. In this way, the Argentine case is relatively typical of modern sovereign restructurings in that the settlement is in the form of swaps for deeply discounted instruments.

In the five years that have followed, Argentina has made various efforts at settling with the remaining holdouts, but the one constant throughout the process has been the stark reality that it is the country that holds the power. As long as the default-country is willing to be locked out of international capital markets, the bondholders hold few cards and may only end up holding guano. The Argentina holdouts will likely settle some time this month and will receive no better terms than they were offered five years ago. While Argentina has held the cards during this process, its economy has certainly suffered as a result of the prolonged nature of the lockout. The other debt restructurings from the late 1990s- early 2000s were all settled within months, even Russia settled up within three months of its 1998 default (albeit at a steep discount). In this regard, Argentina was a special case.

What lessons can be drawn about sovereign restructuring?

Everything depends on the motives of the sovereign. Argentina low-balled investors because it could and was not terribly afraid of the consequences. Further, domestic political pressures encouraged stiffing foreign investors. In the Greek case, foreign could imply everyone outside of Greece, everyone outside of Europe, or theoretically, everyone outside of Germany.

Incomplete legal authority governs sovereign debt restructuring. Laws vary widely by the country in which the debt is held. For example, in the UK a majority of bondholders can agree to a settlement that the minority opposes - not so in the US or the rest of Europe.

If a sovereign wants to discriminate amongst holders, it can.  This comes at a cost to the future perceived creditworthiness of the country, but in the right situation, this is an option. One can easily imagine various situations where a restructuring country protects domestic investors or the banking system of continental Europe, for example.

The IMF will continue to lend to a country after it has defaulted as long as it is making a 'credible' effort to adhere to austerity. This is particularly important because IMF programs, aimed at long-term solvency, may even mandate a maximum percent of GDP that can be devoted to interest payments. In this way, the IMF has been viewed as a sponsor of a default, usually at the expense of private creditors.

Recovery rates vary widely. The average weighted sovereign recovery rate for the period 1985-2002 was 41%, according to Moody's. Recovery rates are further affected by the cohesiveness of the bondholders. S&P estimated the recovery rate in the event of Greek restructuring to "average" 30-50%.

What does this mean for Greece?

If a restructuring were necessary, the dynamics would be much different than they were in Argentina and other recent defaults. Namely, there is broad cohesion amongst holders of the debt, specifically in this case, French and German banks. Bargaining power of this nature would be expected to improve the terms creditors receive. Further, the ability of sovereigns to discriminate and settle with different holders on differing terms would seem to support the possibility of a Greek restructuring. In light of European central banks continuing significant purchases of Greek (and other euro-zone peripheral country) debt, a situation could be envisaged where private holders are largely protected in a restructuring and central banks receive the discounted swaps.

A key issue to monitor is the status of IMF lending to Greece. Early rumors were that the IMF would forfeit its preferred creditor status in this instance and subsequent comments from the Fund seem to confirm that is a possibility. If this multilateral debt is subordinate, it is a good indication that, at least in the eyes of the IMF, the package will be sufficient to stave off default/restructuring.

The most important thing to keep in mind when considering the possibility of a Greek restructuring is that every episode of sovereign default has looked different and with the advent of the EU's massive $950 billion package announced over the weekend, this is true now more than ever. Further, as a member of a currency union, Greece cannot pair a restructuring with a large currency devaluation, two things that have usually gone hand in hand. That factor alone is enough to conclude that a Greek default would be hugely different than anything we've witnessed. A final point to keep in mind, as the Argentina case demonstrated, as much as it may look like the IMF or other countries (Germany) are pulling all the strings, the decision at the end of the day is in the hands of the country's government. If the outlook for fiscal austerity is even more unpalatable than the consequences of a default/restructuring, then it's just a matter of time.

Extend and pretend

Debt crisis lessons from Latin America

By John Paul Rathbone

It is only vanity that makes anyone believe they are special or “different”. Asia didn’t think Latin America’s long history of financial crises held many useful lessons in 1997; it did. The same is true of Europe. It risks falling victim to the same vanity today.

Take UK Prime Minister David Cameron’s much touted “big bazooka”. In 1980s Latin America, such comprehensive packages were simply known as “el paquete”. Of course, “el paquete” is only the beginning of the end of a crisis. The real challenge is implementation. This requires leadership.

Technocratic governments (like in Italy and Greece) can work. Fernando Henrique Cardoso, for example, was an academic before he became Brazil’s finance minister and twice president. But bear in mind that Mr Cardoso had a popular mandate. Without that, any government is just a caretaker.

Argentina is a case in point. In 2001, it ran through a series of governments before triggering the world’s then-biggest default ($100bn; so small compared to Italy’s €1.9tn bond market). Even the brilliant economist Domingo Cavallo failed to turn the tide. To restore competitiveness without breaking Argentina’s euro-like currency peg, he engineered a “synthetic devaluation”. Across-the-board export subsidies and import duties came straight out of the textbooks, but didn’t work. Just as they often do in Europe today, investors saw the country’s debt dynamics still working against it.

Default fears led to higher bond yields, which led to lower growth and smaller government revenues. This made default more likely in a process that soon became self-fulfilling. After three years of recession, much of southern Europe may already be at this point.

Even loan support from a multilateral – be that the International Monetary Fund or the European Central Bank – can make matters worse. Why? Because one condition of their help is seniority in a sovereign’s debt structure. This converts private investors into “junior bond holders”. Large official interventions can thus produce the opposite of what they mean to do: an investor rush for the exit.

The next stage is all too familiar. Citizens also withdraw their savings before they are converted into devalued pesos, drachmas or liras. A bank run ensues. To prevent a collapse of the payments system, the government announces a devaluation – often over a long weekend. The next day, all hell breaks loose.

These scenes are not out of the question in Europe, and to prevent them, a workable plan is required. Another pre-condition for success: it cannot be seen to be imposed from abroad. Without national support, failed adjustment plan follows failed adjustment plan.

Fresh money to support each new package is loaned under the rubric: “extend and pretend”. Finally, a plan gains traction. But in the intervening period, strange political fauna can emerge. This was particularly true in Latin America, where democracy was then only ankle deep. Yet is it odd that the new Italian defense minister is a military man rather than a civilian? Spanish democracy is less than seven years older than Brazil’s, and unified Italy is two-thirds the age of most Latin republics.

Finally, of course, bear in mind that the adjustment is very painful. Latin America’s “lost decade” meant years of falling real wages and rising unemployment. As social unrest grows, old scapegoats are often resurrected. In Latin America, with its colonial history, the backlash was against the “Washington Consensus”. In Europe, where Germany is the banker, it may be 20th-century history. But rising anger is hardly surprising. When has a debtor ever said anything nice about its creditor?

Europe, of course, is not Latin America. If anything it is in a worse situation. It is more indebted and probably less able to stomach tough adjustment programs. “They don’t know how to suffer,” Ernesto Zedillo, the former Mexican president, has said of southern Europe.

European banks are also part of the crisis, which is as much a problem of over-lending as over-borrowing. At least in Latin America, the banks were mostly abroad. Europe should have one factor in its favor. With stronger institutions, it could reach the right solution faster. But higher economic costs always follow poor and tardy policy making.

Exposed

The snobbery and intolerance of the EU elite

The chattering classes’ hysterical reaction to David Cameron’s veto of a revised Lisbon Treaty reveals the dark heart of pro-EU sentiment.

By Frank Furedi

As I drive along listening to the BBC Radio 4 show, The World At One, I am left in no doubt as to this programme’s deep hostility to prime minister David Cameron’s decision to veto changes to the EU Lisbon Treaty.

When the presenter, the usually sensible Martha Kearney, asks Andrus Ansip, the prime minister of Estonia, if he thinks there is increasing anger in the EU over Cameron’s actions, I realise that something very weird is going on. Why ask the leader of a small Baltic state how he feels about the prime minister of Britain? Since when have the emotions of foreign political leaders been a serious topic of concern for a programme titled The World At One?

Kearney does not simply pose the question to Ansip; she prefaces it with comments about how other EU leaders are very angry at Cameron. Nevertheless, her attempt to incite her interviewee to reinforce the BBC consensus on the state of European emotionalism doesn’t quite succeed. ‘I am not angry’, replies Ansip. Possibly he is too ‘old Europe’ and too old school to be conversant in the values of today’s communications clerisy, which cleaves to the doctrine of emotional correctness. Ansip disagrees with Cameron but he does not suffer from the emotional incontinence demanded of him by the BBC.

At first sight, it is difficult to understand the intense level of anger and outrage directed at Cameron by opinion formers and cultural entrepreneurs. Since when have the EU and the Lisbon Treaty acquired such a sacred status among the clerisy? The EU is many things, but it has never been a much-loved institution. So why is it that, all of a sudden, scepticism towards this institution is treated as the moral equivalent of Chamberlain’s act of treachery in Munich in 1938?

It is one thing to accuse Cameron of committing a diplomatic faux pas or the Foreign Office of ineptitude. But the criticisms currently being made of Cameron verge on the hysterical. When I listen to the hyperbole about what will apparently be the consequences of his destructive behaviour, it almost sounds as if he has committed an act of political betrayal in order to appease a handful of incorrigible reactionary Eurosceptics.

Why this over-the-top reaction to what could turn out to be a relatively minor case of diplomatic miscommunication?

Outwardly, the anger of the cosmopolitan clerisy is directed at Cameron’s alleged appeasement of Tory Eurosceptics. The term Eurosceptic has a special meaning for the adherents to cosmopolitan policymaking. In their view, Euroscepticism is associated with values they abhor: upholding national sovereignty, Britishness and a traditional way of life. The moralistic devaluation of these values was vividly communicated by the New York Times columnist Roger Cohen, who this week characterised Tory Eurosceptics as the ‘pinstriped effluence of an ex-imperial nation’. He seeks to dehumanise these people by arguing that this ‘specimen’s ascendancy’ was reflected in Cameron’s behaviour during the treaty negotiations. Cohen’s moral devaluation of Eurosceptics, his dismissal of them from the ranks of humanity, is captured in his description of them as a ‘bunch of insular snobs who seem to have a hard time restraining their inner fascist’.

The intemperate language suggests that the venomous anger directed at Eurosceptics cannot simply be driven by the clerisy’s love affair with the European ideal. Rather, what is at issue here is the clerisy’s preference for the technocracy-dominated and cosmopolitan-influenced institutions of Brussels. From their standpoint, the main virtue of the EU is that its leaders and administrators speak the same language as the UK clerisy. They read from the same emotional and cultural script, which they believe to be superior to the script and values associated with national sovereignty. That is why it isn’t surprising that a BBC journalist can casually ask the Estonian prime minister to have a go at her own national leader. The UK-based communications clerisy has a greater affinity with the outlook of EU technocrats and political administrators than it does with the outlook of its own people.

Of course, Cameron may be isolated in the corridors of power in Brussels - but the clerisy is more than a little out of touch with popular sentiments in Britain. Indeed, their visceral castigation of Eurosceptics is actually a roundabout way of morally condemning what the old oligarchy used to call ‘the little people’. The main sin of Euroscepticism is that it has the potential for mobilising popular sentiment. And certainly, the anger of the cosmopolitan elite does not resonate with people getting on with their lives in Birmingham, Newcastle or Leeds. Those who want to expose the heinous Eurosceptic plot to undermine the EU should remember that opinion polls demonstrate that the majority of the UK electorate does not like the EU, and when the Mail on Sunday carried out a poll asking ‘was Cameron right to use the veto?’, 62 per cent of respondents said ‘yes’.

In Britain, even at the best of times the EU has rarely been conceptualised as anything more than a pragmatic convenience. Historically, significant sections of both the left and the right have been critical of the bureaucratic ethos of this institution. Even those of us who love Europe, its history and its culture, and who strongly value the coming together of European peoples, have never had much affection for the institutions of the EU.

One final point: the cosmopolitan values of the clerisy have no progressive content. They contain no real universalist aspirations but rather reflect the sectional outlook of a cultural oligarchy which revels in drawing distinctions between itself and the great unwashed. The clerisy’s alternative to national sovereignty is not some other form of democratic decision-making; on the contrary, it is the fervent advocacy of insulated decision-making. The pro-EU elite continually tries to establish institutions that insulate decision-makers from citizens, and it prefers the rule of technocrats and experts over elected representatives.

Scepticism towards the EU is a legitimate, democratically informed standpoint. Scepticism towards Europe is not, of course. Some of my German friends are more than a little astonished to have discovered that a small number of English towns have decided to cancel twinning arrangements with local authorities on the continent. Yes, some of these arrangements were administratively orchestrated and did not genuinely bring together the peoples of Europe. But on balance, we need to be reaching out to our fellow citizens across the continent, to show that Europe is not an artificially constructed institution but is its people!

Poverty Cure

From Aid to Enterprise

There is no such thing as a Free Market without Free Banking

Larry White Explains Free Banking

Production for people, not profit!

The Social Function of Profit-and-Loss Accounting

by Robert P. Murphy

Many naïve observers of the market economy dismiss concern with the "bottom line" as a purely arbitrary social convention. To these critics, it seems senseless that a factory producing, say, medicine or shoes for toddlers stops at the point when the owner decides that profit has been maximized. It would certainly be physically possible to produce more bottles of aspirin or more shoes in size 3T, yet the boss doesn't allow it, because to do so would "lose money." On the other hand, many apparently superfluous gadgets and unnecessary luxury items are produced every day in a market economy, because they are profitable. Observers who are outraged by this system may adopt the slogan: "Production for people, not profit!"

Such critics do not appreciate the indispensable service that the profit-and-loss test provides to members of a market economy. Whatever the social system in place, the regrettable fact is that the material world is one of scarcity — there are not enough resources to produce all the goods and services that people desire. Because of scarcity, every economic decision involves trade-offs. When scarce resources are devoted to producing more bottles of aspirin, for example, there are necessarily fewer resources available to produce everything else. It's not enough to ask, "Would the world be a better place if there were more medicine?" The relevant question is, "Would the world be a better place if there were more medicine and less of the other goods and services that would have to be sacrificed to produce more medicine?"

In standard introductory textbooks, they often define the economic problem as society's decision on how to allocate scarce resources into the production of particular goods and services. In reality, "society" doesn't decide anything; individual members of society make decisions that interact to determine the ultimate fate of all the resources at humanity's disposal. In the pure market economy, everyone in society obeys the rules of private property, which assign ownership claims to particular units of resources.

In this context, market prices are formed when individuals engage in voluntary exchanges with each other. The resulting prices in turn give entrepreneurs the ability to calculate (expected) profits and losses from various possible activities. It is the interaction of property owners in voluntary trades that "determines" what goods and services get produced, but the signals provided by market prices — and the resulting calculations of profit and loss — help the property owners make informed decisions.

It might be useful to step back and look at the big picture. The entrepreneurs offer money to the owners of labor services, capital goods, and natural resources. The entrepreneurs then use these inputs to produce goods and services which they sell to consumers for money (see figure below).

When a particular entrepreneurial venture goes "out of business," what that ultimately means is that consumers were not willing to spend enough money on its finished output to cover the offers the entrepreneur needed to make in order to bid the scarce inputs away from otherentrepreneurs who wanted the inputs for their enterprises.

To see this principle more concretely, let's work with a silly example. Suppose a successful builder dies and passes on his business to his foolish son. The son gets the bright idea to build new apartment buildings covered with pure gold. He correctly estimates that there would be high demand for apartments where the elevator, hallways, and kitchen shelves were coated with gold. In fact, the son can rent his units for much higher monthly fees than the owners of normal apartments in similar locations.

Of course, this isn't the whole story. Even though his revenues are very high, the foolish son's production costs are astronomical. In addition to the labor, wood, concrete, and other items, he must spend hundreds of millions of dollars buying large quantities of gold. His accountants inform him that despite the higher revenues, he is losing incredible amounts of money because of his decision to coat the apartments with gold. The son will have to either wisen up quickly, or he will squander all of his wealth. Either way, he won't be building apartments coated with gold for very long.

Now if we were to interview the son and ask him what happened, he might say, "It's too expensive to use gold in my business." But notice that this can't be true for all entrepreneurs. After all, the reason gold is so expensive is that other buyers are paying such high prices for it. For example, jewelers still find it profitable to buy gold in order to make necklaces and earrings, and dentists still find it profitable to use gold for fillings. No jeweler would say, "It's too expensive to use gold in my business."

Loosely speaking, the profit-and-loss system communicates the desires of consumers to the resource owners and entrepreneurs when they are deciding how many resources to send into each potential line of production. It's ultimately not the owners of gold mines nor the captains of industry who determine how gold will be used in a market economy. Instead, these decisions are largely guided by the spending decisions of the consumers. It is the consumers' demands for normal versus gold-coated apartments, in conjunction with their demands for silver- versus gold-coated necklaces, that leads to the outcome that gold-coated apartments are ridiculously unprofitable while gold-coated necklaces are perfectly sensible.

The profit-and-loss test provides structure to the free-enterprise system. People are free to start new businesses and to sell their resources (including the labor services of their bodies) to whomever they wish. In a market based on the institution of private property, profits occur when an entrepreneur takes resources of a certain market value and transforms them into finished goods (or services) of a higher market value. This is the important sense in which profitable entrepreneurs are providing a definite service to others in the economy. Without the feedback of profit-and-loss calculations, entrepreneurs would have no idea if they were making economical use of the resources used up by their business operations.

Enriching the people who cause poverty

Government to government aid is a reward for being better than anyone else at causing poverty

By Marc Morano

DURBAN, South Africa – South African development activist Leon Louw declared the UN's “Green Climate Fund” nothing more than an attempt by wealthy nations to keep the poor nations from developing.

In an exclusive interview with Climate Depot at the Durban UN climate summit, Louw declared foreign aid or “government to government aid” is simply a way for rich countries to reward poor countries who are “best at causing poverty.” Louw is the Executive Director of South Africa's Free Market Institute which is considered the “3rd ranked most influential think-tank in Africa.”

“What the government of rich countries are saying to poor countries is: 'Those of you who are best at causing poverty, we will enrich you, we will give you money,'” Louw told Climate Depot while attending the UN climate summit.

“Government to government aid is a reward for being better than anyone else at causing poverty. Countries that get more government to government aide have lower economic growth rates. Countries with less aid, have higher growth rates. If you subsidize failure you get failure and foreign aid does exactly that. It rewards people for being unsuccessful,” Louw stated.

The Associated Press described the UN climate fund as a method to “distribute tens of billions of dollars a year to poor countries to help them adapt to changing climate conditions and to move toward low-carbon economic growth.”

But Louw, says the UN climate fund will wreak havoc on the developing world's poor. Louw explained: “The money goes to government and governments spend it on of course on themselves, meaning various government projects, creating bigger departments -- bigger bureaucracies, it's called big bureaucratic capture. They build empires, they build conference centers, and they buy political support. They go and distribute the money to communities where they want support and votes.”

Louw was at the Durban summit to oppose the UN climate fund to poor nations. According to Louw, the entire UN foreign aid process is aimed at keeping the developing world's poor – poor.

“The money goes to the people who then are better at causing poverty. They can hire more bureaucrats, pass more laws have more regulations. If you are good at causing poverty, we will give you more money to do what you do more of, which is to cause poverty. So they enrich the people who cause poverty, they compliment them on how good they are at causing poverty,” Louw said.

Louw said the entire premise for the UN's climate fund is an admission that their goal is to keep poor nations poor.

The UN is admitting -- this is implicit in the fund -- that combating climate change is very costly, especially for poor people, its devastating for poor countries. What the UN is saying is: 'We want you to indulge our opinion of climate change and if you do so it's going to cause a great deal of poverty and unemployment in poor counties.' You cannot, as a poor country, subscribe to the Kyoto Protocol and grow. The two are mutually exclusive,” Louw explained

Louw continued: “So What the rich counties say is 'don't worry, we will reward you for again causing poverty, if you adopt our climate policies that will cause poverty.' That is why there is a UN fund, in other words, they admit it. So having environmental policies causes poverty and they say 'we will enrich you for doing so, we will reward you for causing poverty.'”

“The UN is saying to poor countries: 'Those of you who adopt more anti-prosperity, anti- jobs, and anti-growth policies, under the pretense of environmentalism, we will enrich you. It doesn't matter -- as long as you cause poverty -- we will enrich you.'”

Louw asserts that the developing world does not need the wealthy Western world to achieve riches.

“Poor countries can become rich very quickly, like China, India, and in Africa, Ghana. Ghana, which has moved more than any other country in the world from being un-free to a free economy, is having 12 percent growth. It's now one of the highest growth counties in the world.

"Africa itself, Sub-Saharan, what used to be called black Africa, is now the highest sustained growth region of the world. The highest growth country in the world over the last 30 years is Batswana. So they don't need the rich countries to help them. All they need is for the rich counties to leave them alone.”

Louw says that if left alone, the developing world can gain wealth and freedom.

“They can actually overtake the rich countries like Hong Kong did. They become richer than the rich countries. China and India are headed that way. So now what the rich counties do is a kind of eco-imperialism. The rich nations say to the poor nations: 'Now you have to stop growth, you have got to stay poor. If you -- the government -- manage to keep your country poor, undeveloped and backward, we will then compensate you.' It is not a compensation for what the rich countries have done, it's a compensation for the ability of the governments of the poor countries to stop them from becoming rich,” Louw concluded.

Plundering other peoples money

Free Market Hostility

A quick getaway to the islands

Greece - No PSI

by Tyler Durden

As expected banks couldn't agree to a haircut.  Now Greece, the EU, the IMF, and taxpayers, will pay out about about $11 billion of principal and interest before the end of the year.  I don't know who holds the bonds maturing this year, but some of that money is probably finding its way into banks that survive solely on the grace of central bank funding.

The next big payout is due in March.  I suspect banks will once again get a nice trip to Athens.  Enjoy some food, some sightseeing, and "in spite of great efforts" once again fail to reach a deal, and wait for the Troika to pay Greece so that they can get paid again.  If my travel brochures are accurate, it will be more junior bank negotiators then because the senior people will save themselves for the May negotiations when the weather should be just perfect for a quick getaway to the islands.

Why would any bank agree to a haircut when they are getting unlimited virtually free funding on the one hand, and the Troika has shown zero willingness to stand its ground and force a default?

Just as we wrote back in June, we suspect the banks willingness to offload as much of their GGB exposure in basis packages has lead to a significant amount of the non-Troika-owned GGBs being held in hedged positions and at the mercy of hedge funds earning from the Bond-CDS position (and of course unwilling to accept non-CDS-triggering haircuts voluntarily). We also note that over the last week or so has seen the basis package cost rise modestly as demand for that pair has picked up.

10 trillion reasons to weep

OECD warns on global funding struggle

By David Oakley

Markets and governments face an uphill struggle to fund themselves next year amid extreme uncertainty over the eurozone and the global economy, as new figures reveal that the borrowing of industrialised governments has surged beyond $10tr this year and is forecast to grow further in 2012.

The Organisation for Economic Co-operation and Development, which represents the leading industrialised nations, will warn in its latest borrowing outlook, due to be published this month, that financial stresses are likely to continue with the “animal spirits” of the markets – their unpredictable nature – a threat to the stability of many governments that need to refinance debt.

Hans Blommestein, head of public debt management at the OECD, said: “[On occasion], market events seem to reflect situations whereby animal spirits dominate market dynamics, thereby pushing up sovereign borrowing rates with serious consequences for the sustainability of sovereign debt.”

For the foreseeable future it will be a “great challenge” for a wide range of OECD countries to raise large volumes in the private markets, with so-called rollover risk a big problem for the stability of many governments and economies.

Rollover risk is the threat of a country not being able to refinance or rollover its debt, forcing it either to turn to the European Central Bank in the case of eurozone countries or to seek emergency bail-outs, which happened to Greece, Ireland and Portugal. The OECD says the gross borrowing needs of OECD governments is expected to reach $10.4tr in 2011 and will increase to $10.5tr next year – a $1tr increase on 2007 and almost twice as much as in 2005. This highlights the risks for even the most advanced economies that in many cases, such as Italy and Spain, are close to being shut out of the private markets.

While borrowing was higher in 2009 and 2010, the risks are greater than ever because of rising borrowing costs in turbulent, unpredictable markets.

The OECD says that the share of short-term debt issuance in the OECD area remains at 44 per cent, much higher than before the global financial crisis in 2007. This, according to some investors, is a problem as it means governments have to refinance, sometimes as often as every month, rather than being able to lock in more debt for the longer term that helps stabilise public finances.

The OECD also warns that a big problem is the loss of the so-called risk-free status of many sovereigns, such as Italy and Spain, and possibly even France and Austria. The latter two have triple A credit ratings but investors no longer consider them risk-free.

Path to agrarian poverty

It’s not dead yet

Green thinkers are plain wrong to claim there are natural limits to how much we can expand our economies.

By Colin McInnes

Just before the advent of agriculture during the Neolithic revolution - about 10,000 years ago - the global population is estimated to have been a few million souls. If those present-day souls who obsess about resources are correct, then our Neolithic ancestors were the super-rich of human history. The entire planet and its resources were at their disposal, shared amongst their small number. In comparison, now that there are seven billion of us walking the Earth, surely we should be much worse off? After all, all that land and all those resources need to be spread so much thinner?

Of course, we’re now more prosperous than our Neolithic ancestors could possibly have imagined. We have used innovation to multiply the utility of the physical resources of the finite Earth. A handheld Neolithic stone axe contains atoms of silicon and aluminium amongst others. Using modern innovation, we can now rearrange those same atoms to produce a smartphone, which some argue has better utility than an axe. This is the true historical meaning of growth: it involves complexity not just consumption. And there are no practical limits to such growth.

For many commentators, however, economic growth will soon be ancient history, just like those stone axes. For example, in a recent article, Richard Heinberg, author of The End of Growth, claimed that growth has come to an end. Millennia of growth have now apparently come to a crashing end. We have gone from the slow-burning Neolithic revolution, which re-arranged nature to our liking, to the expansion of agriculture, and the great Industrial Revolution, which eventually freed us from the land. However, growth sceptics such as Heinberg are positing why economic growth should end right now, in the early twenty-first century, when we are more prosperous and resourceful than at any time in the past.

Human history is littered with economic and physical bottlenecks that were eventually overcome. The Elizabethans worried they were running out of wood - they spoke of ‘peak wood’, no less - and began to use coal as a substitute. In so doing, they unwittingly precipitated the Industrial Revolution. They even had their own growth sceptic in agricultural writer Arthur Standish. In 1615 he claimed that ‘there may be as much timber raised as will maintaine the kingdome for all uses forever’, while advocating a sustainable, wood-burning society as an alternative to the use of energy-dense coal. We can be thankful that Standish was politely ignored. The Industrial Revolution was just around the corner, leading to an escape from millennia of near-Malthusian stagnation and a decoupling of the costs of energy and labour.

While innovation-driven growth has delivered immense improvements to the human condition, it is also the means through which human needs can be gradually decoupled from the environment. Growth emerges from productivity, doing more with less. For example, new additive manufacturing technologies, so-called ‘3D printers’, look set partly to replace the wasteful subtractive manufacturing of machine tools. In contrast, in coming down from our oil high, as advocated by Heinberg, we could regress to using whale oil for lighting, as was the case prior to commercial oil production. But this hardly constitutes progress, economic or environmental.

The key point to Heinberg’s argument is that growth is constrained by the availability of energy. In this, he is correct. Physics tells us that we can put order into disordered matter using high-grade energy, generating low-grade waste heat in the process. Consider, though, that since the formation of the Earth, its finite mass has not changed, but self-organising systems such as rain forests have evolved to manufacture wonderfully complex structures from dead matter. Energy from the sun is used to photosynthesise complex molecules, while waste heat is radiated to cold space through the leaf canopy. But while unthinking biology can evolve impressive feats such as giant redwood trees, thinking humans can conceive and create artificial structures such as the sensational Burj Khalifa tower in Dubai, reaching almost 10 times as high as the forests.

In the same manner, a growing economy does not necessarily mean a garage of sports-utility vehicles for every man, woman and child on the planet. But it does mean a perpetual motion of innovation that can liberate us from the physical constraints of our environment. Mechanical excavators liberated us from back-breaking labour, rapid transportation freed us from the insularity of village life, and spaceflight recently freed us from the limitations of gravity. Just as the directed random walk of evolution seeks out new arrangements of matter in biology, human innovation can continue to rearrange matter in more useful forms through engineering.

However, Heinberg argues that high-grade energy is becoming scarce, that we have eaten the low-hanging fruit. Consequently, growth must end as we lack sufficient energy to rearrange matter into more useful forms, whether smartphones, tractors or vaccines. In reality, high-grade energy is anything but scarce.

Fossil fuels represent energy which is not of our time; they represent energy from the sun stored in compacted dead plant matter. But nuclear fuels represent energy which is not of our place. Their immense energy density, about a million times greater than fossil fuels, comes from the final moments of collapse of ancient stars which fused lighter elements into uranium and thorium. Even the prophet of ‘peak oil’, M King Hubbert, a man beloved of growth sceptics, cleverly recognised that while fossil-fuel use will no doubt ultimately peak, nuclear fuels are essentially forever, because they are so energy dense.

Let’s be clear: there is no shortage of high-grade, carbon-free energy to deliver a future of shared prosperity. But we need the will, ambition and inventiveness to exploit it. We also need to recognise that we have only scratched the surface of nuclear energy. Even modern light-water reactors are woefully inefficient at turning the energy of collapsing stars stored in nuclear fuels into useful work. But through future innovation, we can tap almost all of that clean, compact energy considerately provided by nature.

The real worry of Heinberg’s vision of a post-growth world is his straight-faced assertion that ‘there should be [an] increasing requirement for local production and manual labour’. This chilling claim is more Year Zero than zero growth. A return to carbohydrate-fuelled manual labour may be appealing to Heinberg and others as a means of powering down our lives and reconnecting with the land. But he shouldn’t expect a long queue of volunteers.

Ultimately, Heinberg’s thinking - and that of many other anti-growth writers - represents a needlessly limit-setting view. It would deliver a future of material poverty and intellectual stagnation with hard-won advances in human welfare abandoned. It is unlikely that future generations would thank us, and we simply have no right to inflict it upon them. Indeed, unilaterally proclaiming that growth should cease at this entirely arbitrary juncture of human history displays a degree of apocalyptic angst. Ironically, while environmenalists love to bang on about saving the planet for the sake of the children, insisting that we must regress to a simpler way of life displays a degree of contempt for future generations.

To be taken seriously, Heinberg and others need to articulate a long-term vision of a post-growth sustainable society. Is it a future of permanent energy austerity, but somehow unlimited cultural growth, or is it really a return to agrarian poverty? Fortunately, just like Elizabethan writer Arthur Standish, Heinberg’s own growth-sceptic views are unlikely to prevail. Even if some faction of humanity were to choose a future of economic stagnation, they would simply be outcompeted by others who pursue innovation and growth. Thankfully, there will always be some smart ass who wants to fly to the moon.