Goldman: Avoiding A Recession Will Require "Something The Fed Has Never Achieved Before"

In our broad discussion about the inevitable turning of the credit cycle yesterday, we noted that the current expansion is now the second longest in US history and will become the longest if it survives another year, even as investor concerns grow that 2020 is the year when the next recession finally hits, with some starting to take proactive measures.

Still, according to some the recession risk remains somewhat overstated. Take for example, Goldman, whose recession model, which uses economic and financial data from 20 advanced economies to estimate recession odds, puts the probability of recession at under 10% over the next year and just over 20% over the next two years, below the historical average, while the bank's recession risk dashboard — a collection of the most valuable leading indicators drawn from our research and academic studies—also continues to send a comforting message.

And yet, even Goldman admits that its rosy outlook on the US economic future is starting to look somewhat shaky, noting that while the bank does not "see recession as the most likely outcome" it cautions that "by 2020 we expect growth to have dropped off sharply from its current 4%+ pace to a level somewhat below our 1.75% estimate of long-run potential growth" and gives three key reasons behind the slowdown in growth forecasts:

Fiscal growth impulse set to fade: according to Goldman economists, the boost from Trump's fiscal policy is set to diminish from +0.7pp in 2018 and +0.6pp in 2019 to a slightly negative contribution in 2020, "a passive tightening that
would become more likely if the Democrats take the House of Representatives in the midterm elections."

Tightening in financial conditions: while so far financial conditions have remained remarkably loose, Goldman expects that the recent tightening in financial conditions "should begin to slow growth later this year and through 2019, and the additional rate hikes we expect that are not yet reflected in market pricing would imply further tightening that would slow growth into 2020. These first two factors are worth a total of roughly -¼pp in 2020" as shown in the chart below.

Labor market constraints: the third key negative factor is that the natural deceleration from tighter supply constraints as the labor market moves further beyond full employment is worth another -¼pp to GDP.

Taken together, these effects suggest a growth rate roughly ½pp below potential, resulting in Goldman's 1.25% 2020 GDP forecast as shown in the chart below.

Needless to say, but Goldman does so anyway, the lower potential projected growth implies higher recession risk under the definition of negative growth, and clearly a sub-potential 1.25% growth baseline in 2020 provides even less room for error, which leads Goldman to admit that the odds of a recession, if only on paper, have risen substantially starting some time in 2020:

Historical consensus growth forecast errors a bit more than a year ahead suggest a roughly 25% probability of a 1.25pp downside miss. This implies that a recession, at least a technical one, is much more likely in 2020 than over the next year, but not the base case.

* * *

Goldman then touches on two additional topics that have gained prominence in recent months as potential recession catalysts, namely trade war and foreign spillovers, in an attempt to downplay the potential impact from each.

Addressing the trade war risk, Goldman notes that whereas as much as an additional $200BN in additional China tariffs may be implemented, the bank does not expect further tariff rounds, "implying that the trade war will only amount to a 1.5% increase in the effective US tariff rate" and adds that "the limited decline of our China-exposed US equity basket—down 6% relative to the broader market since its May peak—suggests the market largely agrees." As further evidence that trade war will have a limited impact on the US economy, Goldman notes "little evidence that the trade war has hurt US growth so far. The most trade-dependent sectors have not underperformed, and business sentiment surveys
show only modest concern."

As a tangent, Goldman also looks at the overall Economic Policy Uncertainty Index, which while still subdued, the same can not be said for its trade policy component—which is quite elevated. However, here the bank notes that in the one previous episode in which the trade policy uncertainty index truly spiked, during the NAFTA negotiations in the early 1990s, investment in factories dropped off temporarily, but overall investment was not unusually low. Here it is worth noting that Goldman discounts the potential impact of Smoot-Hawley - an example of a major trade war - on the Great Depression, although it does admit that "tariff-related fears appear to have contributed to the stock market decline."

What about the risk of "foreign spillovers", which is just another way of calling emerging market contagion, or - better yet - "importing a recession". Here too, Goldman is dismissive, noting that it sees "little risk so far: our global CAIs show that growth remains above potential in most of the world, and we remain cautiously optimistic on emerging markets. Historically the US has been fairly immune to foreign spillovers. According to our analysis of the historical causes of US recessions, it has been about a century since the US last "imported" a recession via weak global demand or financial contagion."

Yet even here, Goldman concedes that the bigger risk than a mere EM economic slowdown, is contagion via financial channels, pointing to research that global equity markets in particular have become more synchronized in recent decades, largely due to co-movement of risk premiums.

The surprisingly strong reaction of the US equity market to growth fears in China in late 2015 and early 2016 offered a reminder of this trend.

How would this look in practice? Goldman's sensitivity analysts shown below lays out how a foreign slowdown coupled with a US equity market sell-off might affect US growth. And while Goldman's estimates show that importing a recession would need to involve a significant equity market correction - something to the tune of a 30% drop in EM markets coupled with a 2.5% drop in EM GDP to slice off 2% in US GDP - it cautions that with its baseline for growth at 1.25-1.5% over the next couple years, "it would not take an extreme combination of events to knock the US economy into at least a technical recession." Incidentally, the bank also notes that its rule of thumb is that a 10% decline in the US equity market reduces GDP growth by about 0.5%.

* * *

So if the seeds of the next recession aren't planted abroad - assuming, of course, that China's economy doesn't careen into the abyss, dragging down the rest of the EM world with it and snuffs out the world's credit-fueled growth dynamo, a clear risk in light of the record drop in China's shadow loan creation ...

... what are the major recessionary risks, in Goldman's view.

The answer: there are two, both of which are completely home-grown, and are a function of the Fed's policies: the textbook "recession from overheating" and what Fed Chairman Powell has called the "financial excess" variety.

In regards to the potential of the US economy overheating, Goldman writes that "overheating recessions have occurred historically when the economy moved past potential, a tight labor market boosted wage growth, and elevated demand caused energy and other commodity prices to spike, leading to accelerating inflation and an aggressive tightening response by the Fed." And while Goldman says that it wouldn't downplay this risk too much - "after all, we expect the unemployment rate to fall to its lowest level since the Korean War next year" - it notes that overheating risk is straightforward to monitor and looks limited for now.

Meanwhile, as based on the Fed's own imprecise metrics, core inflation remains below target, as does labor cost growth, and both household inflation expectations and market-implied inflation compensation are below average, "but going forward, both a historically tight labor market and the trade war pose upside inflation risks."

Which brings us to the final topic covered by Goldman: a good, old asset bubble - such as the one observed in both stocks and bonds on the back of some $20 trillion in central bank liquidity - bursting? Here Goldman includes recessions caused by both boom-bust cycles in asset markets "as well as their real economy analogue, cycles of unsustainable debt growth to finance investment and consumption followed by protracted deleveraging." (for a tangential discussion, see The "Only Question That Matters: "Is The Credit Cycle About To Crack" - Here Is The Answer")

Not surprisingly, Goldman is complacent here as well, writing that its financial excess monitor tracks both elevated valuations and risk appetite in asset markets, as well as financial imbalances and vulnerabilities in the household, business, banking, and government sectors, whose combined resulted are shown as a heat map in which blue indicates restraint and red indicates elevated risk.

The main reason for Goldman's lack of concern is that the four main zones of risk which were flashing red in 2007, namely the housing and commercial real estate markets, as well as household and financial business debt, are seemingly far more subdued now than they were in 2007. Of course, the main trigger for this is the lack of high interest, which in turn is a function of emergency monetary policy and bloated central bank balance sheets, but for some odd reason, this did not make Goldman's risk heatmap.

Which brings us to Goldman's conclusion, which is in two parts. The first one, predictably is the optimistic one, and where Goldman suggests that fears of a recession in 2 years may be overblown:

The expansion is now just a year away from becoming the longest in US history. The good news is that age alone has not been a great predictor of recession risk, and that in any case the age of this expansion looks much less extreme when compared to the broader set of post-war developed market business cycles. In addition, we have some important advantages today, including both a lack of financial imbalances and monetary policymakers who have benefited from the lessons of past cycles.

So what's the bad news? Well, as Goldman warned up top, after the current sugar high to US economy fades, GDP in two years is set to slide substantially, dropping as low as 1.25%. Furthermore the  output gap and especially the  unemployment rate have been very strong predictors of how soon US expansions will end,

With job creation still running at double the breakeven pace, the unemployment rate—already ½pp below our estimate of the sustainable rate—is likely to fall significantly further."

This is a major problem for the Fed, which is already facing a record low, 4% unemployment, because for the expansion to continue "for many years", the Fed will first need to stabilize the unemployment rate and "eventually to nudge it somewhat higher without setting off a recession."

And here is the biggest risk according to the bank's economists: to avoid a recession will :

This is certainly possible in principle, but it is something that the Fed has never achieved before and in fact that few advanced economy central banks have achieved. The further the overshoot extends, the longer the economy will have to operate somewhat below potential to return to a sustainable place.

This, to Goldman, "implies an increasingly narrow runway for a soft landing", which coupled with an identical outlook facing the slowing Chinese economy, puts the odds of a near-term recession far higher than the S&P500, which closed above 2,800, would suggest.

"World's Most Bearish Hedge Fund" Has An Alternative View On Yuan Weakness, With "Profound Implications"

Like David Einhorn, Horseman Global had a very ugly month, in fact its 6.9% drop in June which dragged YTD performance back into the red (-2.83% YTD), was the worst month for Horseman going back to the end of 2016.

However, unlike Einhorn, who lost 8% in June bringing his YTD performance to -19% and whose woes can be mostly attributed to the relentless rise of the tech names that make up his "short basket", Horseman was hit due to something else entirely: its aggressive short dollar bet. Like so many other funds who turned bearish on the greenback at the start of the year only to suffer a violent short squeeze, Horseman was caught in the trade tug of war, in which China - for one reason or another - saw the Yuan depreciate last month by the most on record, surpassing the August 2015 devaluation. Subsequent dovish language from both the ECB and BOJ did not help, as Horseman CIO Russel Clark explains:

[I]t seems the larger consensus position in the market is to be short US dollar. More dovish than expected messages from the European Central Bank (ECB) and Bank of Japan (BOJ) led to a surge in the value of the dollar against all currencies. As the fund strategy has been built around flows into the US reversing and creating a weak dollar, our long book suffered without commensurate gain from a short book.

Due to the violent whiplash in the dollar, technicals also promptly reversed, making the long dollar trade the biggest pain trade for the hedge fund community:

Short dollar and long commodity trades had attracted a great deal of trend following money, and Commodity Futures Trading Comission (CFTC) data and broker estimates now show that CTA and trend following funds have reversed their short dollar position, and are now long dollars, while long positioning in commodities have been largely cleared out.

The concurrent collapse in emerging markets, one of Horseman's preferred trades for the past year, did not help performance.

Which, however, brings us to Horseman's key point in his latest letter to investors, as well as a major question: what is prompting the yuan devaluation? Is it merely China's stealthy, if petulant, response to the Trump's escalating trade salvos, is it a reaction to China's weakening economy, or is something else going on. To Clark, the answer is "something else."

The big question which remains unanswered is why have the Chinese become willing to let their currency fall after a period of keeping it strong? Where is there self interest in letting their currency weaken when there was little need for it, and it potentially destabilises the economy?

And the response:

The most reasonable answer to my mind is that they have tired of the endless currency devaluation policies of the BOJ, and possibly the ECB.

The reason for this is due to a structural change in the Chinese economy, which "now runs trade deficits with both Japan and Europe, so why should they allow the Euro and Yen to continue to devalue against the CNY?"

Why indeed, but if that interpretation is accurate, and if China's latest Yuan deval is the product of trade concerns and not a simplistic response to Trump, Clark believes that this has two profound implications, one for traders the other for the economies of Europe and Japan:

• Firstly, that CNY weakness is a not sign of economic weakness at all, which is shown by the underlying data. Hence investors positioning for further Chinese and emerging market weakness could be very disappointed. Especially as dollar weakness still looks a structurally sound trade in my mind.
• Secondly, if CNY is managed now to prevent either the Euro or the Yen to weakening against it, while the dollar is likely to fall against all three currencies, this has negative connotations for European and Japanese exporters, who look to be hemmed in by a trade war with the US and a new Chinese currency policy. Combined with Chinese policy of keeping commodity prices high, the environment for Japanese corporate cashflow is turning negative. As Japan cashflow weakens, less of this money is likely to find its way to the US corporate bond market, likely causing corporate bond spreads to widen. We are seeing that Japanese have become the dominant buyers of US corporate debt and leveraged loans.

And yet, in his synthesis of these trends, instead of seeing the return of some virtuous leveraging cycle, Clark comes up with a conclusion which is especially bearish for the market, as he sees the recent shift in Chinese currency policy, and the current yuan weakness, as the potential catalyst that precipitates the collapse of several "unsustainable" trends, to wit:

For a long time, I have considered the BOJ quantitive easing policy, the US corporate bond market and volatility selling markets as unsustainable, but with little idea of what the catalyst would be for these markets to unwind. This change in Chinese currency policy could be a catalyst for change.

Well, as we have said for the past 3 years, it is the world's most bearish fund for a reason, and not just before of its gross and net short exposure of -135.5 and -44.3%, respectively.

Clark's latest full letter is below:

Your fund lost 6.87% last month. Losses came from the long book and currency book.

I had thought the big consensus trade in the market was short bonds, and I had moved the fund to be largely neutral with respect to bond yields. To offset our short REIT and Pharma positions which do well with lower yields, I had taken a long bond position and short financial position (financials tend to do badly when bond yields fall). However, it seems the larger consensus position in the market is to be short US dollar. More dovish than expected messages from the European Central Bank (ECB) and Bank of Japan (BOJ) led to a surge in the value of the dollar against all currencies. As the fund strategy has been built around flows into the US reversing and creating a weak dollar, our long book suffered without commensurate gain from a short book.

With the dollar rally, markets have taken to punishing emerging market assets. Emerging markets certainly were weak during the 2013 taper tantrum, and the Chinese devaluation of 2015, so selling these assets during a dollar rally is perfectly logical. However, the differences between 2013, 2015 and today are profound, particularly for the mining sector. June saw new cycle highs for thermal coal and dry bulk shipping prices. We have also seen Chinese steel output rise to new all-time highs, at the same time Chinese domestic iron ore output has been reduced, which has led to rising imports. Major miners continue to cut capex and repay debt. Indian commodity demand continues to rise. Indian billionaire, Anil Agarwal, has looked to buy minorities out of his listed mining company, and try a buy the assets of Anglo American, as market valuations are very cheap despite an improving outlook.

Short dollar and long commodity trades had attracted a great deal of trend following money, and Commodity Futures Trading Comission (CFTC) data and broker estimates now show that CTA and trend following funds have reversed their short dollar position, and are now long dollars, while long positioning in commodities have been largely cleared out.

The big question which remains unanswered is why have the Chinese become willing to let their currency fall after a period of keeping it strong? Where is there self interest in letting their currency weaken when there was little need for it, and it potentially destabilises the economy? The most reasonable answer to my mind is that they have tired of the endless currency devaluation policies of the BOJ, and possibly the ECB. China now runs trade deficits with both Japan and Europe, so why should they allow the Euro and Yen to continue to devalue against the CNY? This seems perfectly reasonable to me and has two profound implications.

Firstly, that CNY weakness is a not sign of economic weakness at all, which is shown by the underlying data. Hence investors positioning for further Chinese and emerging market weakness could be very disappointed. Especially as dollar weakness still looks a structurally sound trade in my mind.

Secondly, if CNY is managed now to prevent either the Euro or the Yen to weakening against it, while the dollar is likely to fall against all three currencies, this has negative connotations for European and Japanese exporters, who look to be hemmed in by a trade war with the US and a new Chinese currency policy. Combined with Chinese policy of keeping commodity prices high, the environment for Japanese corporate cashflow is turning negative. As Japan cashflow weakens, less of this money is likely to find its way to the US corporate bond market, likely causing corporate bond spreads to widen. We are seeing that Japanese have become the dominant buyers of US corporate debt and leveraged loans.

For a long time, I have considered the BOJ quantitive easing policy, the US corporate bond market and volatility selling markets as unsustainable, but with little idea of what the catalyst would be for these markets to unwind. This change in Chinese currency policy could be a catalyst for change. 

Chinese Shadow Bank Lending Unexpectedly Plummets, Sparking China Growth Fears

According to most flow-tracking economists (and not their conventionally-trained peers) when one strips away the noise, there are just two things that matter for the highly financialized global economy and asset prices: central bank liquidity injections, and Chinese credit creation. This is shown in the Citi charts below.

And since it is indeed the case that just these two variables matter, then the world is set for a very turbulent phase because while global central banks liquidity is set to reverse a decade of expansion, and enter contraction some time in Q3 as the great "liquidity supernova" begins draining liquidity for the first time since the financial crisis...

... the latest Chinese credit creation data released overnight, added significantly to the risk of a "sudden global economic stop" after the PBOC reported that in June, China's broadest monetary aggregate, Total Social Financing, barely rebounded from May's 2 year low, rising to RMB1.138TN -  missing expectations of a 1.4TN print, and confirming that Beijing's shadow deleveraging campaign is accelerating and gaining even more traction, even if the threat of a global deflationary spillover is rising by the day.

A quick look at numbers reveals that there was not much of a surprise in traditional new RMB loans, which continued their rapid pace of growth, rising sharply from May's RMB1.150TN to RMB1.84TN, and well above consensus RMB1.535TN, growing 12.7% yoy in June, up from 12.6% last month

And yet even despite the 4th highest monthly increase in total new loans, Total Social Financing was still a disappointment, and for the second month in a row, was below the new loans print.

The reason is that while new loans - a core component of TSF - jumped, the drop in shadow bank was particularly sharp for the second month in a row: this has been the area where Beijing has been most focused in their deleveraging efforts as it's the most opaque and riskiest segment of credit. And, as the chart below show, the aggregate off balance-sheet financing posted its biggest monthly drop on record in June

Meanwhile, the lass granular M2 reading also posted a growth slowdown, rising only 8.0% in June, down from May's 8.3%, below consensus of 8.4%, and the lowest on record.

Commenting on the ongoing slowdown in China's credit creation, Goldman said that the latest money and credit data highlighted the challenges the government is facing in loosening monetary policy.

Specifically, while the loosening policy intention should be clear judging from the RMB lending rebound and more net fiscal spending (June fiscal expenditure accelerated to around 7%yoy from 0.5%yoy in May), the effectiveness of the policy loosening is clearly questionable.

Meanwhile, commenting on the drag of non-loan TSF - which as noted above became even bigger than it was in May - Goldman said it was "clearly not the recent policy intention but a reflection of the earlier regulations on shadow banking activities."

Here Goldman notes something curious: in recent weeks there has been a lack of emphasis on deleveraging in officials' comments.

Whenever the word leverage is mentioned, the "de-" prefix has been substituted by the word "stabilizing" or "controlling". The news on the delayed release of detailed wealth management product rules by the banking regulator is another indirect indication of the policy bias to treat this issue flexibly, especially when the trade war is on.

And while that does not mean the government is taking an U turn on this and allowing shadow bank activities to bounce back to old levels, the large falls like what we saw in May and June is not what they want to see either, at last not until the trade dispute is resolved. "The difficulty the government faces is how to fine tune the behavior of financial institutions", according to Goldman.

So what happens next?  Given this set of data and China's muted CPI inflation, it is likely that there will be a combination of policies including

1. changing the policy tone to a more dovish one, especially at the Politburo Meeting to be held in late July,
2. potentially further increasing the amount of on balance sheet RMB loans (although it could be partially offset by banks' capital constraint),
3. lower interest rates (July interbank rate fell from the level in recent months), and possibly cutting RRR further, and perhaps most crucially
4. window guide the behavior of financial institutions so the non-loan TSF activities at least become less of a drag.

But further loosening measures are affected by 3 key factors, which according to Goldman include

1. how hard activity data behave, which we will know on the 16th, in recent quarters the relationship between real and monetary variables has not been strong so it's possible that activity data holds up despite being weak though downside risks are clearly high,
2. how the markets react, especially A share, which is not knowable in advance in the short term, and
3. how the trade war proceeds, which is not fully in China's control and the 200 billion USD in additional proposed tariffs was likely a surprise judging from its reaction.

And while all these are all possible next steps by Beijing, what Goldman forgot to note is that with the Yuan more or less pegged to the dollar, as the Fed keeps hiking rates, Beijing will find itself on the bad end of an interest-rate differential, resulting in further Yuan declines, which - as recent history is a guide - can quickly mutate into a powerful capital flight, forcing Beijing to dump reserves to stabilize the currency, or alternatively, end the shadow easing process and hike rates.

But China's economy aside, the bigger question remains how long until the market realizes that between central banks and China, there is virtually no new credit - and liquidity - creation. Judging by today's push in the S&P500 above 2,800 it wont be today.

Varoufakis Blasts Europe's Remarkable Ability To Remain In Denial

Any objective assessment of the Eurogroup's recent deal on Greek public debt would conclude that it condemns Greece to permanent debt bondage...

Europe's establishment is luxuriating in two recent announcements that would have been momentous even if they were only partly accurate: the end of Greece's debt crisis, and a Franco-German accord to redesign the eurozone. Unfortunately, both reports offer fresh proof of the European Union (EU) establishment's remarkable talent for never missing an opportunity to miss an opportunity.

The two announcements did not come in the same week by accident. The Greek debt implosion, back in 2010, was the ugly symptom of the eurozone's design flaws, which is why it triggered a domino effect across the continent. Greece's continuing insolvency reflects the deep disagreements within the Franco-German axis concerning eurozone redesign. While three French presidents and the same German chancellor were failing to agree on the institutional changes that would render the eurozone sustainable, Greece was asked to bleed quietly.

In 2015, the Greeks staged a rebellion, which Europe's establishment ruthlessly crushed. Neither Brexit nor the EU's steady delegitimation in the eyes of European voters managed to convince the establishment to change its ways. French President Emmanuel Macron's election seemed the last hope for the new Berlin-Paris accord needed to prevent a suffocating Italy from triggering the next - this time lethal - domino effect.

Under Macron, new, hopeful ideas were proposed: a common budget for the eurozone; a new safe debt instrument and quasi-federal tax-raising capacities; a common unemployment insurance fund; common bank deposit insurance and a common pot from which to recapitalize failing banks. Moreover, a new investment fund would mobilize idle savings across Europe, without adding to the fiscal stress of member states. A year later, with Italy on a collision course with the EU, the Meseberg Summit between German Chancellor Angela Merkel and Macron delivered an agreement on eurozone reform. A few days later, the Eurogroup of eurozone finance ministers delivered its own "solution" to the Greek debt crisis.

In a decent universe, these two announcements would herald the end of a lost decade for Europe and the beginning of an era of rebuilding so that Europeans may face, together, the challenges posed by US President Donald Trump and the next economic downturn. Alas, that is not the universe we inhabit.

Even before the Meseberg Summit, Macron had diluted his proposals to the point of surrender. The common bank deposit insurance scheme and the recapitalization fund were pushed into an implausible future in which the eurozone periphery's banks have to shed their bad loans before a proper banking union is forged. The common unemployment insurance scheme was not even discussed. A common debt instrument to underpin a eurozone budget amounting to 2-3% of eurozone aggregate income was unceremoniously consigned to the dustbin.

Naturally, Merkel offered just enough to allow Macron to disguise his humiliation as a personal triumph. In front of an ecstatic press corps, they hailed the decision to create a eurozone budget in name, when in reality it is nothing more than a credit line from the European Stability Mechanism (ESM, the bailout fund that gave Greece its loans in 2015). They also agreed to an insubstantial "rainy day" fund, to be financed by member states, and a fictional financial transactions and digital economy tax—a "compromise" that costs Merkel nothing, given that countries like the Netherlands and Ireland are likely to torpedo it.

As for bank recapitalization, Macron and Merkel touted an ESM-funded scheme. But with all ESM decisions subject to German parliamentary approval, the German Bundestag would have veto power over the recapitalization of, say, an Italian bank. Italy's new government is unlikely to buy into this.

When bankers try to cover up bad loans on their books, they extend new loans to enable their insolvent borrowers to pretend to be servicing the original loan. When the new loan is exhausted, the client is allowed to suspend repayment for a few years, with interest accumulating. This keeps the net present value of their asset (the loan) constant while postponing the day of reckoning. Since 2010, Greece's creditors have been practising this extend-and-pretend strategy. Instead of a courageous and therapeutic haircut, or the moderate gross domestic product-indexing solution, the Eurogroup's recent decision, proclaimed as the "end of the Greek debt crisis", boiled down to the apotheosis of this cynical practice.

Technically speaking, the central pillar of the new debt agreement is a decade-long postponement of payments totalling €96.6 billion that were due to begin in 2023. The Greek state has thus been offered easy repayments until 2033 in exchange for continuing harsh austerity ad infinitum; impossible annual debt repayments from 2033 to 2060; and a debt-to-national income ratio above 230% by 2060 if the next global recession puts the plan's over-ambitious growth targets out of reach, as it surely will.

Any objective assessment of the Eurogroup's recent deal on Greek public debt would conclude that it condemns Greece to permanent debt bondage. And an impartial observer of the Merkel-Macron Meseberg Summit would conclude that the eurozone remains as macroeconomically unsustainable as it was five years ago. And yet Europe's establishment, oblivious to the Nationalist International preparing to devour the EU, is serving it appetizers.