Saturday, July 18, 2015

How We Know Russia Shot Down MH17 - TIME

July 18, 2015 at 2:56pm
http://www.thedailybeast.com/articles/2015/07/17/how-we-know-russia-shot-down-mh17.html


FORENSIC DETAIL07.17.151:00 AM ET
How We Know Russia Shot Down MH17
One year after 298 civilians fell to earth over eastern Ukraine, Putin’s regime is still denying culpability. Here’s definitive evidence to the contrary.
It’s been a year since Malaysia Airlines Flight MH17 was shot out of the sky, killing all 298 civilians onboard. The results of the official inquiry have yet to be released, and while the fact that this Boeing 777 was immolated has not been disputed, various theories have been floated by the Ukrainian government, the Russian government, and other interested parties as to how it was and who ultimately bears responsibility for this tragedy.

The vast majority of the evidence adds credibility to the theory that an anti-aircraft Buk missile launcher, controlled by either Russian soldiers or Russian-backed fighters and fired from a field south of the town of Snezhnoye, destroyed the commercial airliner. The Buk is an advanced weapons system capable of destroying military aircraft or even ballistic missiles at an altitude up to 82,000 feet, and so its presence on Ukraine’s battlefield was always set to change both the scope and intensity of the conflict. But it suspiciously arrived in the arsenal of the Russian-backed fighters at a time when the Ukrainian military was making rapid gains and was perhaps closing in on a military solution to the conflict.

Before MH17

After Russia’s illegal annexation of Crimea in March 2014, bands of pro-Russian fighters began to seize police stations, government buildings, and other strategic areas across eastern Ukraine. Even at that time there was evidence that these raids were organized or led by men who were associated with or members of the Russian military. Initially, the Ukrainian military, left in serious disrepair by the ousted Yanukovych government, was hesitant to respond to this threat. It’s likely that the Ukrainian interim government was initially concerned about a possible counter-revolution launched by disloyal members of the police, military, and security apparatus. Whatever the cause, the “separatists” began to take control of large parts of eastern Ukraine.

The Ukrainian military began its “Anti-Terror Operation,” or ATO, in April to reclaim territory that had been seized by the pro-Russian insurgents, many of whom were operating under the command of Russian citizens (and probably Russian soldiers) who arrived to fight against the new government in Kiev. On June 7, Ukraine elected its first post-revolution president, Petro Poroshenko, who won partially as a result of his pledge to restore order quickly to eastern Ukraine. The ATO had already started to gain momentum throughout May but, perhaps feeling that it had survived the aftermath of a sometimes violent revolution and now had a public mandate to act, the Poroshenko government mobilized the military to confront the separatist threat even more forcefully.

And for a while, it worked. By early July, the Russian-backed fighters had begun to lose considerable ground, including the key coastal city of Mariupol. On July 5, the Ukrainian military regained control of Slavyansk and nearby Kramatorsk, two major separatist bases. The next day Ukraine regained control of Artemivsk; by July 7 the majority of separatists in the northwestern area of their control zone had retreated to the city of Donetsk, their de facto “capital,” which was also soon besieged by the ATO.

If the rate of Ukrainian victories continued unabated, the Ukrainian military would soon be in a position to isolate the separatists from Russia, which Kiev had maintained from outset was supplying them with fighters and materiel. In less than a month the ATO had drastically shrunk the size of the self-proclaimed “People’s Republics” of Donetsk and Lugansk, and were creeping up on the command centers of both.

A part of the wreckage is seen at the crash site of the Malaysia Airlines Flight MH17 near the village of Hrabove (Grabovo), in the Donetsk region July 21, 2014. Russia's Defence Ministry on Monday challenged accusations pro-Russian rebels were to blame for shooting down a Malaysian airliner and asked the United States to produce satellite images to support its assertions. REUTERS/Maxim Zmeyev (UKRAINE - Tags: DISASTER TRANSPORT TPX IMAGES OF THE DAY) - RTR3ZJU5
Maxim Zmeyev/Reuters
These battlefield victories are crucial to understanding the context of the MH17 tragedy because all available evidence suggests that this is the exact period in which Moscow increased its direct support for its proxies in the area. By late August, the momentum of this war had quickly turned, the ATO was rapidly losing territory, and Kiev and Western governments declared that this was only made possible because of a massive influx of Russian military hardware—and conventional Russian soldiers. Indeed, the “Russian invasion” of eastern Ukraine became an established fact as of August 2014.

Among the weapons imported into eastern Ukraine in this period were advanced anti-aircraft systems including the Strela-10, Pantir-S1, and the Buk.

The Anti-Aircraft War

In November 2014, the weapons and munitions experts from Armament Research Services published the most comprehensive catalog of weapons used in this conflict to date. In the report, they note that advanced anti-aircraft systems like the Strela-10 (9k35) and 9k33 Osa were first seen in this conflict in early July. The influx of advanced anti-aircraft systems during this period corresponded to a growing number of Ukrainian aircraft that were shot down in combat.

Curiously, while most of the separatist weapons were supposedly captured from the Ukrainian military, these weapons showed up on Ukraine’s battlefields at a time when the Russian-backed fighters were on the defensive. So where were they captured from?

The first video showing one of the weapons, the Strela-10, in a tracked and armored vehicle designed for front line combat support, may provide a clue.

It was reportedly filmed on July 2, 2014. In that video, the Strela-10 is seen traveling on a road that is well-known to Ukraine researchers because the Buk missile launcher was seen traveling on it after MH17 was blown up 15 days later, but in the opposite direction and minus one missile.

The rate at which Kiev lost aircraft escalated quickly. According to ARES, from late April to early May, five Ukrainian helicopters were shot down near Slavyansk and Kramatorsk. However, soon the separatists began targeting Ukrainian military planes. On June 6 the Russian-backed fighters shot down their first fixed-wing aircraft, an Antonov An-30 surveillance craft northeast of Slavyansk, near Drobyshevo. On June 14, a Ukrainian Ilyushin Il-76 strategic airliner was shot down over Lugansk. One month later, on July 14—three days before MH17’s immolation—a Ukrainian Antonov An-26 was downed over the Izvarino border crossing. Remarkably, Russian media reported that this aircraft was shot down by a Buk that had been captured weeks earlier from the Ukrainian military.

Our team at The Interpreter reported on the claim that separatists had captured a Buk, and pointed out that this story only ran on TV Zvezda, a network run by the Russian Defense Ministry. No other sources appeared to carry this newsworthy information except for a curious tweet from the Twitter fan account for Natalya Poklonskaya, the pro-Moscow Crimean prosecutor who became a celebrity after Russia’s Anschluss of the peninsula, saying the separatists had received some “cookies” in the form of the Buk. Was it possible, therefore, that TV Zvezda was already creating a cover story to explain how the Russian proxies managed acquire such a recherché Russian weapon?

The Day Before

On July 16, two new milestones were reached in what can feasibly be called the Ukraine-Russian War. First, a Ukrainian Sukhoi SU-25M1 close air support jet fighter was shot down over the border. In that incident, the spokesperson for the Ukrainian National Security and Defense Council claimed that an air-to-air missile fired by one of Russia’s jets was likely responsible.
Second, The Interpreter was able to definitively document through geolocated YouTube videos that a group of Grad rocket launchers positioned on the Russian side of the border were firing into Ukrainian territory.

The Day Of

On the morning of July 17, news surfaced that another plane, possibly a Ukrainian military cargo plane, had been shot down near Torez. Citizens and reporters near the crash site had already begun to post pictures and videos of the smoking debris. We now know that the only plane that crashed in this area was a civilian airliner, Malaysia Airlines Flight MH17.

The separatists, it seems, were also confused. A social media page associated with the then-military leader of the Russian-backed fighters, Colonel Igor Strelkov (aka Igor Girkin), took credit for the shooting down of an aircraft near Torez. At 17:50 Moscow time—approximately 30 minutes after the aircraft was struck but well before most of the world was aware that a civilian airliner had vanished from the sky—a group on the Russian social-networking site VKontakte called Strelkov’s Dispatches posted the boast of the downing of the plane (with some of the same videos The Interpreter had already posted, used as corroborating evidence), adding: “We warned them—don’t fly ‘in our sky.’”
When the darker truth was eventually discovered, the post was deleted, although we had already captured screenshots. Titled “Report from the Militia,” it had in fact been copied from another forum where Strelkov was the moderator, called Antikvariat.ru, at 17:37 Moscow time.

While Strelkov’s Dispatches has been challenged as “inauthentic,” in fact it was used by Strelkov and other separatist leaders before July 17 and since to post official information about the war. It’s also been cited by Russian state media on several occasions and has never been disavowed by Strelkov personally. He continues to allow the group to use his name and likeness, despite the renaming of the VKontakte group the “Novorossiya Militia Dispatches.”

The Buk missile launcher was seen traveling on that road after MH17 was blown up 15 days later, but in the opposite direction and minus one missile.
More revealing, the Russian media, including ITAR-TASS, RIA Novosti, and Vzglyad.ru, cited this forum and other sources that claimed the separatists had shot down a Ukrainian cargo plane—until, of course, it was learned that the crashed plane was a civilian airliner.

But Vzglyad.ru added another important detail:

“Ukrainian military claim that the losses were caused by actions by Russia. The militia refuted this information, correcting that they had shot down the plane from a ZRK ‘9K37M1’ (better known as a Buk).”

In Putin.War, Russian opposition leader Boris Nemtsov’s posthumously published report on Moscow’s military involvement in Ukraine, he points out that Russia’s ambassador to the United Nations, Vitaly Churkin, tried to excuse the fact that the separatists claimed responsibility for the attack thus:

A group of Ukrainian miners assist rescue workers in the search for bodies of victims in a wheat field at the site of the crash of a Malaysian airliner carrying 298 people from Amsterdam to Kuala Lumpur in Grabove, in rebel-held east Ukraine, on July 18, 2014. Pro-Russian separatists in the region and officials in Kiev blamed each other for the crash, after the plane was apparently hit by a surface-to-air missile. Members of the UN Security Council demanded a full, independent investigation into the apparent shooting down of a Malaysia Airlines jet over Ukraine.
Dominique Faget/AFP/Getty
“People from the east [of Ukraine] said that they had shot down a military plane. If they believed that they had shot down a military plane, it was confusion. If it was confusion, then it was not an act of terrorism.” In other words, a high-ranking Russian diplomat was trying to account for why separatists shot down MH17—a disclosure that, as we shall see, was ignored and then vehemently rejected by Churkin’s superiors.

The Missile

One problem was immediately apparent after MH17 was reduced to a scattered pile of wreckage. Details began to emerge about the altitude it was traveling at before it fell from the sky—33,000 feet.

Each anti-aircraft missile has a rating for how far away and how high it can hit a target. This relatively high altitude ruled out multiple missile systems that had so far been documented on the battlefield in Ukraine. But Associated Press journalist Peter Leonard reported after the incident that one of his reporters saw a Buk missile system moving through the town of Snezhnoye.


The Buk is capable of hitting targets more than twice as high as MH17 was traveling. Furthermore, as The Interpreter’s original report on the incident catalogs, multiple pictures, videos, and eyewitness reports have emerged that place the Buk missile launcher in several of the surrounding towns. A significant amount of evidence puts the Buk clearly within range of MH17 when the aircraft was hit.

The Incriminating Tweet

In the hours that followed the announcement that a civilian airliner, not a military cargo jet, had been destroyed, the Russian-backed separatists took several steps to hide some of their previous statements. As we noted above, the claim by “Strelkov’s Dispatches” that the pro-Russian fighters had shot down a Ukrainian plane with a Buk was removed. But it was not the only incriminating Internet post that was removed.

On June 29, the official Twitter account of the press office for the Donetsk People’s Republic had tweeted a picture of a Buk missile system that they said their troops were now controlling (the origin of the missile is left unclear in the language of the tweet). This tweet, too, got deleted, and when Time magazine reporter Simon Shuster later queried the separatist leadership about whether they ever possessed a Buk, they said they didn’t.

Separatists were perhaps too eager to claim that they, and not the Russian military, were responsible for the downing of what they assumed was another Ukrainian military plane—a media strategy that quickly backfired once it became clear that a commercial jet was hit.

In an interview with the radio station Echo of Moscow, Dmitry Muratov, the editor of the well-respected independent Russian newspaper Novaya Gazeta, said Alexander Boroday, the self-appointed head of the self-declared “Donetsk People’s Republic,” told Russian journalists that his troops shot down MH17. Muratov was vague about his sources for the story, suggesting that they were reporters for other news agencies. Muratov told the radio station: “I know that Alexander Boroday called the head of one of the main media organizations that covers events in Ukraine approximately 40 minutes after the Boeing perished and said, ‘Likely we shot down a civilian airline.’ I was told this and people talked about this whose words I am accustomed to taking seriously.”

Ukraine’s Intercepts

Eyewitness and journalist accounts placed a Buk near MH17 on July 17, and the Russian media and the separatists themselves acknowledged, in multiple outlets, that they shot down an aircraft—with a Buk. Notably, the Ukrainian government was also quick to adopt this narrative.

Only hours after the plane crashed, Kiev released what it said was a leaked audio recording, reportedly an intercepted phone call, reportedly between Igor Bezler (Bes, or “Demon”), a commander of the Russian-backed fighters, and Vasily Geranin, who is described as a colonel in the Russian Federation’s GRU (military intelligence). In that conversation, the two men confirm that “a plane has just been shot down” outside Enakievo, a town 62 miles northwest of Snezhnoye, by one of the separatist militias. After this, two men who are identified as “Major” and “Geek,” presumably two of the fighters, sound shocked as they learn that the plane was filled with civilians.

In a separate release by the Ukrainian Security Service (SBU) later in the day, another separatist leader, Mykola Kozitsin, reportedly has a conversation with one of his fighters in which he is audibly unnerved that a civilian airliner, not a Ukrainian cargo plane, that was shot down. “What the fuck were they flying in here for? There’s a war on,” a frustrated Kozitsin told the man on the other end of the line.

The next day, the SBU released another allegedly intercepted conversation, this time between a separatist commander and a GRU officer who goes by the callsign “Oreon.” In this exchange, which can be read in English here, the separatist commander says: “We already have the Buk and we will shoot them [Ukrainian military planes] down.” Oreon replies: “Yes, I know that.”

In the same release, a separate conversation between two separatist commanders can be heard in which the fighters admit that they have “received” a Buk anti-aircraft system and that it came “through the stripe”—code for the security cordon on the border between Russia and Ukraine.

The Kremlin narrative has been ever-changing, woefully substantiated, and largely contradictory.
On July 25, eight days after the downing of MH17, the SBU released a fourth audio tape that it claimed was recorded just two minutes prior to the Boeing’s being hit. A man the SBU identifies as Igor Bezler speaks to a man called Naymanets (“hired hand” in Russian). Naymanets tells Bezler that a “birdie” is flying in his direction.
Bezler: “A ‘birdie’ has flown to us?”

Naymanets: “Yes, one, for now.”

Bezler: “A scout or a big one?”

Naymanets: “It's not visible behind the clouds. It’s really high.” [Emphasis added.]

Bezler: “That it’s—I understand. Got it.”

Naymanets: “Uh-huh.”

Bezler: “Announce up top [‘report up the chain].”

The Russian government and the Russian-backed separatists have denied the authenticity of the tapes. Can they be authenticated?

The first clue that the tapes were real came from the speed with which they were released and the integrity of the details and narratives on them. The first two tapes were disclosed soon after MH17 was shot down; a third was released the next day, as the world struggled to piece together what had just happened and how. The tapes conform exactly to the narrative put forth by the Ukrainian government and are supported by a large body of empirical evidence.

But the most important confirmation of the tapes’ authenticity comes from none other than the separatists themselves.

Soon after the first audio leaks were released, and perhaps in a hurry to deny responsibility for an incident that had killed so many innocent civilians, Igor Bezler released a statement in which he admitted that it was indeed his voice on the recording with Geranin. But that conversation, Bezler insisted, happened before July 17, when a different plane was shot down. Bezler accused the SBU of editing the recording to make it sound like he was referring to MH17.

So Bezler confirms the authenticity of the conversation but denies its context. Yet in his confirmation is an important revelation: In his phone call with Geranin he describes a plane traveling over Enakievo, a town MH17 passed over before it was struck above Snezhnoye. This plane is described as flying at a high altitude (as was the one discussed between Bezler and Naymanets in the other intercepted conversation).

And yet according to the ARES analysis of all downed Ukrainian military aircraft until November 2014, no plane or helicopter was hit anywhere near Enakievo before July 17. (A MiG-29 fighter jet was downed close to the town on August 7.) Bezler cannot have been right in claiming that his conversation with Geranin occurred before MH17 was blown up

Members of a group of international experts inspect wreckage at the site where the downed Malaysia Airlines flight MH17 crashed, near the village of Hrabove (Grabovo) in Donetsk region, eastern Ukraine August 1, 2014. International experts started recovery work at the wreckage site of the downed Malaysian airliner in east Ukraine on Friday despite clashes nearby between government forces and pro-Russian rebels.
Sergei Karpukhin/Reuters
Buk at the Scene of the Crime

Before we consider some of the more technical aspects of this incident, it’s worth considering a more basic fact. Before July 17, several anti-aircraft missiles were documented as being in the possession of the Russian-backed fighters. The earliest examples of these are shoulder-launched MANPADS, which are more than capable of shooting down low-flying aircraft such as helicopters. Some of the newest additions, as explained above, were vehicle-based systems like the Osa and the Strela-10. These weapons are far more advanced, capable of downing helicopters but really designed to shoot down faster-moving aircraft like ground-attack jets. The presence of these weapons could explain the destruction of some of the Ukrainian aircraft that were shot down earlier in July. But none of these weapons is capable of shooting down an aircraft flying as high as MH17 was on that fateful day.

The only weapon in the area capable of shooting down MH17 and spotted by journalists, dozens of eyewitnesses, and many videos and pictures taken by citizen journalists was the Buk.

Proof that at least one Buk missile launcher was within range of MH17 when the aircraft was shot down:

■   Journalists from the Associated Press saw a Buk missile launcher in Snezhnoye before MH17 was shot down.

■   In a detailed report, Roman Bochkala, a journalist for TV Inter in Ukraine, wrote that he witnessed the Russian-backed separatists in possession of a Buk missile system, driving in a convoy from Torez toward Snezhnoye.

■   A geolocated video posted on July 17, the day of the incident, shows a Buk missile launcher in the center of Snezhnoye, driving south.

■   The Guardian interviewed residents of Torez who positively identified the Buk missile launcher and said it traveled in a convoy toward Snezhnoye.

■   A geolocated picture shows a Buk launcher in Torez, moving in the direction of Snezhnoye. BuzzFeed journalists later visited Torez, confirmed the details of the picture, and spoke to residents who saw the Buk travel through the town toward Snezhnoye.

■   Journalists from Novaya Gazeta traveled to the area around the crash site and interviewed witnesses to the MH17 disaster. One resident of Grabovo, where MH17 actually crashed, claims a “‘ball’ flew at high speed from the southeast [from the direction of Snezhnoye]” and disappeared behind the clouds before an explosion was heard. Novaya Gazeta also interviewed citizens of Pervomaiskoye, just south of Snezhnoye, where some suspect the Buk actually fired the missile. The reports of these citizens—many of whom were afraid to talk for fear of repercussions from the separatists who still control the area—are confused and somewhat contradictory (more on this in a minute), but they all seem to agree that a projectile or projectiles fired from the ground shot down the aircraft.

There is also a clear pattern to the data. Before the missile launch, multiple eyewitnesses, journalists, pictures, and videos describe the Buk as moving from Torez toward Snezhnoye, and from there south toward Pervomaiskoye. We also see that some eyewitnesses described the missiles as flying from somewhere south of Snezhnoye. This theory is backed up by open-sourced forensics and investigations launched by journalists.

A further clue about the launch site of the Buk was furnished by an obscure picture released by the Ukrainian government on July 18. Revealed later to have been taken by a Torez photographer from his roof, the image allegedly shows a smoke trail created by the missile as it traveled toward MH17.

The Ukraine at War blog was able to use landmarks in that picture to estimate where the picture was taken. The launch site, then, was somewhere south of Snezhnoye and west of Pervomaiskoye, just as was indicated by some of the eyewitnesses.

BuzzFeed’s Max Seddon confirmed where that picture was taken, from a vantage point looking toward the field in question. The Telegraph’s Roland Oliphant visited that field and found scorch marks on the ground, likely the backfire from a missile launcher, as well as other debris that suggests that Russian-backed separatists were operating there. Those reports match interviews conducted by The Guardian’s Shaun Walker and others.

Ukraine at War then pinpointed the location of the possible launch site and compared satellite images taken three days after the incident with images taken before it to confirm that unusual tracks were visible in the fields, as if a tracked vehicle—perhaps a Buk—had traveled through the fields.

In December 2014, Dutch photographer Olaf Koens found the man who took the photo, and several others that were never published. Soon after, so did Russian blogger Sergei Parkhomenko, whose report was republished by Putin.War, the Nemtsov report. According to the photographer, he heard a loud missile launch, much louder than anything he had heard before, snapped a picture of the smoke trails, and then noticed the black smoke rising from the opposite direction, from Grabovo—the area where what was left of MH17 eventually crashed. This description matches exactly multiple other reports of the incident pieced together by various sources.

The Story Told by Debris

Investigators have access to an even more definitive forensic body of evidence—the debris field from the aircraft.

The Buk has a very different signature than many other types of missiles. Infrared tracking missiles, like the Strela-10, fire a missile that is attracted to the heat-generating engines and explodes on contract. Similarly, infrared homing air-to-air missiles fired by aircraft also target the engines.

Not so with the Buk, which uses radar-proximity missiles. These missiles travel toward the target and then explode when they get within adequate range. The explosions send fragmentation into the targeted aircraft, often ripping it apart. A defense analyst with IHS Jane’s noted that the pattern of damage seen on the fuselage of the plane was consistent with the theory that a Buk surface-to-air missile was used. A ballistics expert and lecturer at ANU Strategic Defence Studies Centre, Stephan Fruhling, agreed, noting that the damage was consistent with a fragmentation device such as a Buk, not a weapon such as an air-to-air missile, which targets the engines and does not send fragmentation rounds into the aircraft. A spokesperson for the SBU noted that some of the bodies of the victims of MH17 contained metal fragments not consistent with the aircraft itself. A journalist for Dutch broadcaster RTLNieuws discovered a fragment at the crash site that arms experts say is part of the explosive charge of a Buk missile.

Indeed, the Russian state-operated manufacturer of the Buk, Almaz-Antey, claims that a Buk was responsible for the shooting down of MH17, although it claims the missile was fired from Ukrainian government-held territory (a theory we will examine in a moment).

Perhaps most critically, the Dutch Safety Board’s initial investigation stated that the aircraft was “penetrated by a large number of high-energy objects” which “originated from outside the fuselage,” a description consistent with a Buk. This week sources working with the official Dutch investigation conducted by the Dutch Safety Board told CNN that their official findings will definitively say that a Russian Buk, fired from territory controlled by Russian-backed fighters, shot down MH17.
Russian Disinformation

There have been two alternative theories put forth by the Russian government. The first is that a Ukrainian Su-25 fired an air-to-air missile at MH17 and the second that a Buk fired from ATO-monitored terrain shot down the airliner.

The Su-25 theory was put forth by the Russian government four days after the grim event (but after significant, often contradictory, and widely conspiratorial speculation by the Russian state-owned media). It was immediately dismissed by experts who pointed out that the Su-25 is not capable of flying the flight plan described by the Russian government nor, in all likelihood, was it capable of shooting down a plane flying at over 33,000 feet. Furthermore, the Dutch Safety Board’s initial finding was that the missile which shot down MH17 exploded “from above the level of the cockpit floor,” not at the engines or below the aircraft, which is what we would expect to see from missiles fired by a Su-25. As the investigative bloggers at the citizen journalist website Bellingcat noted the problems with this theory are legion.

Even the Russian government seemed to abandon this line of thinking quickly. Engineers for the Russian manufacturer of the Buk missile claimed that, yes, the airliner was shot down by a Buk, but the specific missile in question is not used by Russia, and the missile that was used was not fired from near Snezhnoye, but rather from Zaroshchenskoye, territory controlled by the Ukrainian government.

All of these points were debunked.

A rebel commander arrives at the scene expecting to find the remains of a Ukrainian Su-25 fighter jet that he seems to believe his troops have just shot down.
The first problem with the engineer’s report: Even the separatists claimed at the time that Zaroshchenskoye was controlled by the Russian-backed fighters, not the Ukrainian military.

The second problem: Novaya Gazeta’s Pavel Kanygin went to both Zaroshchenskoye and the area around the MH17 crash site. While those near the crash site gave contradictory and somewhat confusing statements, they did see a surface-to-air missile fired at MH17, while no one interviewed in Zaroshchenskoye saw either the Ukrainian military nor a Buk missile launcher.

The third problem: The missile in question is used by the Russian military, and multiple missiles of this variety were documented in convoys moving on the Russian side of the border close to Ukraine.

The core absurdity with Moscow’s alternative theories—conspiracy theories, really—is even more basic. The Ukrainian government, citing intelligence sources, swiftly put forth a narrative whereby a Buk missile launcher was transported from the Russian border to the area where MH17 was downed; then the missile was fired and destroyed the civilian airliner before the launcher was evacuated back across the Russian border.

The Ukrainian narrative has been consistent from the start, and although Kiev made at least one mistake in its initial press release, a significant body of subsequent evidence supports this narrative. The Kremlin narrative, on the other hand, has been ever-changing, woefully substantiated, and largely contradictory—and many of the various theories put forth by its surrogates in the state-controlled media have been risible.

Who’s to Blame?

How did the separatists get a Buk anti-aircraft missile? Did they capture one from the Ukrainian military, or were they given a Buk by the Russian government? Is it even possible that Russian soldiers pulled the trigger?

The first key to answering this question is to track the movement of the Buk on the morning on July 17, 2014. In The Interpreter’s first comprehensive report on this issue we published a timeline of events that combines our own work with a timeline posted by the Associated Press, which also includes claims from the Ukrainian intelligence assessment. An updated version is below:

■   01:05—Buk enters Ukraine on flatbed truck. (AP—Ukrainian counterterrorism chief Vitaly Nayda)

■   09:00—Buk reaches Donetsk, disembarks flatbed truck. (AP—Ukrainian counterterrorism chief Vitaly Nayda). A picture of the Buk was taken that places it in Donetsk at approximately 11 a.m. (read more on this here.
■   Approximately 11:40—Picture places Buk in Zuhres, between Donetsk and Torez. (Bellingcat)

■   Approximately 12:00 to 13:00—Social media posts place Buk in Torez, then moving toward Snezhnoye. (Bellingcat)

■   Approximately lunchtime—Buk reaches Karapetyan Street in Snezhnoye. (AP—eyewitnesses)

■   13:05—AP journalists see Buk moving through Snezhnoye in convoy with two civilian cars. This was reported by AP before MH17 was shot down. (AP)

■   16:18—Intercepted audio released by Ukrainian SBU has separatist commander Igor Bezler speaking, told by rebel spotter that a “birdie” flying “really high” was moving into range. (The Interpreter)

■   16:20—Locals in Snezhnoye report one or two loud blasts. One minute to a minute and a half later, a second blast is heard. MH17 falls from the sky after this. (AP)

■   16:33—Intercepted phone call has separatists realizing that they shot down a civilian airliner, not a military transport plane. (The Interpreter)

■   16:40—An intercepted phone call has Bezler speaking to Vasily Geranin, who is described as a colonel in the Russian Federation’s GRU, indicating that an aircraft has been shot down. There is a discrepancy with the time stamp since only one aircraft was shot down in this area. Bezler says it was “30 minutes ago,” but it was really only 20 minutes earlier. (The Interpreter)

■   16:50—The VKontakte community “Strelkov’s Dispatches” posts a report “from the militia” about the downing of “an AN-26″ in the “region of Torez.” (The Interpreter)

■   17:14-17:42—Separatists see that the wreckage of the what they shot down is indeed a civilian aircraft, not a military one. The “Mayor” admits that they have shot down a “a super big civilian craft,” and a separatist reports “fragments right in the yards” and “civilian stuff, medicine, toilet paper, towels.”

■   17:18—Pro-Kremlin outlet Vzglyad.ru reports separatists taking credit for downing “an AN-26” (actually MH17) with a Buk; admissions of possession of Buks also covered on July 14. (The Interpreter)

■   Approximately 20:00-21:00—Video released by the Ukrainian government shows a Buk, missing one missile, in Lugansk on the road to Krasnodon, which leads to a key border crossing, likely approximately at sunset.

■   02:00-04:00 on July 18—The Buk launchers reportedly cross the border into Russia. (Ukrainian government)

Even more evidence has come to light since that fleshes out the Buk’s travels before and after MH17 was shot down. The investigative bloggers at Bellingcat were able to analyze a photograph, originally published by Paris Match, which places the Buk in Donetsk at approximately 11 a.m on July 17. The numbering on the side of the Buk in that picture, 3x2, with the “x” being a missing number, matches precisely a video of a Buk located in Stary Oskol, Russia, on June 23. Other investigations by Bellingcat suggest that the vehicles in the June 23 convoy were part of Russia’s 53rd Anti-Aircraft Missile Brigade.

There is another far more basic reason to believe that the Russian military either directly controlled the missile that shot down MH17 or helped the separatists conduct the attack: the sheer complexity of the weapon, which mere “volunteers” could not operate by themselves. (See The Aviationist for a brief view of how complex the controls for this weapons system are.)

Evidence Still Emerging

Though MH17 was destroyed one year ago Friday, even more new evidence is coming to light. News Corp Australia has just released a new video that shows the Russian-backed fighters arriving at the scene of the crash site. In the video, the voice of a rebel commander can be heard issuing orders and communicating with other Russian-backed fighters by both radio and phone. He arrives at the scene expecting to find the remains of a Ukrainian Su-25 fighter jet that he seems to believe his troops have just shot down. Instead, he finds nothing but a civilian airliner.

News Corp also says that their investigation has unearthed evidence that the locals on the ground were being instructed to say that a Ukrainian jet shot down the civilian airliner.

The video is disturbing. Russian-backed fighters rummage through the luggage of the recently deceased in search for the aircraft’s black boxes and other identifiable paperwork and USB sticks. The commander continues to repeat that “they [the Ukrainians] brought down the passenger plane [with a fighter jet] and we brought down the fighter.” The problem—there is no fighter. This commander's troops have just shot down a civilian aircraft, a fact that begins to dawn on them over the course of the 17-minute video.

The commander can be heard off camera saying: “They say the Sukhoi [fighter] brought down the civilian plane and ours brought down the fighter…But where is the Sukhoi? There it is…it’s the passenger plane.”

Putin’s Cover-up

The last year has seen Moscow lie, fabricate, and insult the intelligence of all thinking people by tossing up self-evidently absurd “explanations” for how almost 300 innocents met their end. The Kremlin has also conducted a concerted smear campaign against journalists and investigators trying to unearth the truth in every damning detail. Most recently, President Vladimir Putin has rejected a Dutch attempt to convene an international tribunal seeking to find out who was responsible for the MH17 tragedy, saying it would be “counterproductive.” In short, in trying to hide its culpability for a horrific accident, the Kremlin has disparaged the memory of the victims and mocked the suffering of their survivors. It has therefore compounded a crime of sheer negligence with the greater one of obstruction of justice.

Friday, July 17, 2015

The Greek Politicians Who Flagged Structural Problems—but Were Ignored - Wall Street journal

July 11, 2015 at 10:17pm
http://www.wsj.com/articles/the-greek-politicians-who-flagged-structural-problemsbut-were-ignored-1436612782?=e2fb

The Greek Politicians Who Flagged Structural Problems—but Were Ignored
Lawmakers’ proposals were savaged by media and labor unions

By MATINA STEVIS
July 11, 2015 7:06 a.m. ET

ATHENS—A note from Greece’s finance minister to his prime minister warned that the country needed tough economic overhauls if its economy was to live up to its European aspirations.

“We can take on the task to truly lead the country to a European direction, on condition that the Greeks—those who are living well, not those who are suffering—will make the necessary sacrifices,” the finance minister wrote.

That was in September 1996. The finance minister was Alekos Papadopoulos and the prime minister was Konstantinos Simitis, but the letter could have been written today.

In the past quarter century, Greece has had a handful of reformist politicians who foresaw the problems that are now threatening the nation with bankruptcy.


Their reform proposals were fought by their colleagues in parliament and savaged by the media and labor unions. They invariably found themselves sidelined.

Greece’s international creditors, the eurozone and the International Monetary Fund, have long been insisting that the country push forward, ignoring vested interests, with “structural” reforms.

They are demanding deep changes to the rules and habits of government, both within the state apparatus and in its interactions with citizens and the private sector, for example via taxation, professional licensing or pensions.

Since the eruption of Greece’s debt crisis in 2010, successive governments have prioritized fiscal austerity—trying to raise government revenue and cut expenditure—instead of tackling deeper reforms of the system head on.

Many foreign officials involved in Greece’s ill-starred bailout efforts over the past five years say they have learned what Greece’s past would-be reformist politicians always knew: In Greece, hurting vested interests is harder than taxing citizens to death.

Mr. Papadopoulos learned that early on.

He held three senior cabinet positions between 1993 and 2002, and passed key reforms as finance, home affairs and health minister.

As finance minister, he brought in a team from the U.S. Internal Revenue Service, which consulted Greece on how to set up its own tax-crime squad.

He introduced Taxis, the digitized tax platform Greeks still use today. His tenure marked some of the first important steps Greece took toward a modern tax system. They were also among the last. Tax avoidance, evasion and fraud are now fingered by Greece’s international creditors as chronic problems keeping Greece from recovery and growth.

By 2002, Mr. Papadopoulos, who was elected with the center-left Pasok party, could see Greece was veering off the track he had try to put it on as finance minister. He had been part of the Pasok effort to lead Greece into the euro area, and felt at the time that the country was bingeing on the cheap credit that had come with the common European currency.

Just as the euphoria of spending euros was spreading through Greek society, Mr. Papadopoulos told Mr. Simitis the country’s finances were out of control. They fell out and Mr. Papadopoulos resigned from the cabinet.

“My fight with Simitis came because in 2002, instead of accelerating reforms within the euro, they stopped completely. The way things were being managed in the economy was leading us straight to bankruptcy,” he said, resting his head on his hand at a quiet cafe in central Athens.

Mr. Papadopoulos’s cotton-white hair is testament to his battles: “I was attacked in brutal ways even by my comrades inside Pasok whose constituents were upset because of the reforms I was passing. It came at an enormous personal cost.”

Tassos Giannitsis is no stranger to this kind of war: His tenure as labor minister was more short lived, and the battles against him even more visceral. Mr. Giannitsis in 2001, again in the Pasok government led by Mr. Simitis, put forward a comprehensive proposal to reform the pension system.

Trade unions, opposition parties and Pasok itself unleashed menace on Mr. Giannitsis.

‘They called me ‘the Cassandra’’
—Former Greek Labor Minister Tassos Giannitsis
“Giannitsis was annihilated after his pension-reform proposals. There are few precedents for this kind of universal attack on a politician,” said Loukas Tsoukalis, a prominent economics professor here.

Mr. Giannitsis’s proposals, which would have reduced the pension levels Greeks receive and made the system overall more sustainable given the country’s demographic and labor-force trends, were never taken to parliament.

“From the fridge to the bin!” said the front page of newspaper To Vima on April 28, 2001, as the frozen pension-reform plan was scrapped for good.

“When I told my colleagues in the cabinet about the reforms I was proposing—which mind you were not the toughest available—the attitude I got was that I was spoiling the party,” Mr. Giannitsis said in an interview.

“They were, like, ‘everything is going great right now, why are you bothering us with a problem that may implode in a decade?’”

Mr. Giannitsis had one supporter in that cabinet meeting: Mr. Papadopoulos, who not only agreed that the reforms were necessary, but famously added that they should be tougher, with deeper cuts to pensions and an overhaul of benefits, because what Mr. Giannitsis was proposing was “peanuts” compared with what was needed.

Stefanos Manos, a market-oriented politician on the conservative end of the political spectrum, came before Messrs Papadopoulos and Giannitsis and left a legacy of overhauls in privatizations, tax administration, opening of closed markets like mobile telephony, and reforms of the murky land registry—a key institution in any modern economy that however continues to be a problem in Greece.

Few senior politicians in Greece have been as unpopular as Mr. Manos, Mr. Tsoukalis said. In 1998, Mr. Manos was kicked out of the conservative New Democracy party for supporting a proposal by the opposition, Pasok.

“He was the one key person who so early on talked about the bloated state, the unsustainable pension system, and was blocked repeatedly because of resistance from his own party and from society,” says Mr. Tsoukalis of Mr. Manos.

“I couldn’t understand how so many people would want to have so much, to the detriment of the public good,” Mr. Manos wrote in the foreword of his book. “I made an army of enemies.”

The firebrand Mr. Manos has since been involved in liberal politics in Greece, with parties that seldom get more than 1.5% of the popular vote.

Today, more so than in their times in government, these three politicians and a few others are coming to be seen as among the minority of officials who spotted and attempted to change early on some of the core problems that have led to Greece’s almost intractable crisis today.

“They called me ‘the Cassandra’” said Mr. Giannitsis of the headlines during his unpopular push for reforming the pension system.

Cassandra, in the Greek myth, was a clairvoyant doomed to always be right, but never believed. She went crazy.

Write to Matina Stevis at matina.stevis@wsj.com

Thursday, July 16, 2015

Brussels proposes using EU rescue fund to help Greece - Financial Times

July 15, 2015 at 7:58pm


http://www.ft.com/intl/cms/s/0/7631e6d2-2ac9-11e5-8613-e7aedbb7bdb7.html?ftcamp=published_links%2Frss%2Fhome_us%2Ffeed%2F%2Fproduct#axzz3fx7VuA00



Brussels proposes using EU rescue fund to help Greece
Peter Spiegel and Alex Barker in Brussels and Elizabeth Rigby in London


Members of the anti-European Greek Communist party, the KKE, take part a march against austerity in front of the Greek Parliament in Athens on July 10, 2015. Greek Finance Minister Euclid Tsakalotos said on June 10 he believed "many" of his country's demands for debt relief will be accepted by eurozone partners, which are weighing a bailout proposal. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)©AFP
The European Commission has submitted a formal proposal to use an EU-wide rescue fund to rush aid to Greece to ensure Athens does not default on Monday, a proposal that will force Britain’s prime minister, David Cameron, to rally allies if he wants to block it.
According to an EU official, the commission submitted the plan late on Tuesday after determining it was the best option to avoid Greece defaulting on a €3.5bn bond Athens owes the European Central Bank. If Athens were to default on that bond, the ECB would be forced to pull emergency loans keeping the Greek banking sector afloat.

“It’s the most European, politically and economically sound, readily available option,” said the EU official. “Without it, there is a risk the euro summit [agreement] won’t work.”
The commission’s decision comes despite angry objections to the plan by George Osborne, the UK chancellor, who at a meeting of EU finance ministers in Brussels on Tuesday called the plan “a non-starter”.
Downing Street is furious that the commission is risking inflaming British public opinion ahead of the UK’s referendum on EU membership, which will be held by 2017.
Under the EU’s Byzantine voting rules, Mr Osborne must now rally a weighted majority of fellow EU members to block the proposal. Although he has the support of some other non-euro countries — both Denmark and Sweden registered their objections at Tuesday’s meeting — it is unlikely that at present Downing Street has sufficient allies to block the plan.
Even the formal attempt by Brussels to use this fund is a big political setback. Mr Cameron has trumpeted securing a “black and white” promise in 2011 that the fund would be mothballed so British taxpayers would not be part of eurozone bailouts.
The EU-wide fund, the European Financial Stability Mechanism, was set up at the outset of the eurozone crisis with €60bn in lending capacity.
When the eurozone moved to set up a new, permanent rescue fund for the currency union’s 19 members, Mr Cameron won agreement at an EU summit that the EFSM would never be used again for eurozone rescues.
But EU lawyers have argued that the 2012 deal was a political agreement, not a legal one, allowing them to re-tap the fund.
This commission approach potentially undercuts one of the legal avenues British officials are exploring to enshrine reforms to Britain’s EU membership terms. Given formal treaty changes are unlikely before the referendum, Britain may need to rely on a decision by EU leaders, exactly the type of political promise the commission are disregarding in the case of the EFSM.
A government figure said on Wednesday that the UK remained firmly opposed and that the chancellor was “immovable” on principle that British taxpayers’ money would not be used to bail out Greece. “We are not trying to be obstructive but it us a eurozone issue.”
One official involved in negotiating the EFSM decision in 2011 said the commission’s proposal demonstrated that joint declarations by EU leaders “are worthless” until the laws and treaties are changed.
The EFSM distributed €48.5bn as part of Ireland’s and Portugal’s rescue, meaning it has about €11.5bn remaining. Greece needs €7bn by Monday to make the ECB bond payment plus interest, and reimburse the International Monetary Fund for €2bn in arrears.

Wednesday, July 15, 2015

Greece must rediscover the spirit of Marathon to burst its euro shackles - The Telegraph

July 13, 2015 at 6:37pm
http://www.telegraph.co.uk/finance/economics/11734869/Greece-must-rediscover-the-spirit-of-Marathon-to-burst-its-euro-shackles.html

Greece must rediscover the spirit of Marathon to burst its euro shackles
German proposals to take over Greek state assets are tantamount to tyranny and must be resisted
   

Boris Johnson By Boris Johnson9:09PM BST 12 Jul 2015
There is a moment in most action-adventure movies when the hero is surprised by something nasty. There he is, trying to sneak his way into the enemy HQ when he hears a terrifying noise in his ear.
• Greece news live: agreement at last
It is an oily little click. It is the unmistakable sound of a gun being cocked. His eyes widen; he holds his breath – and he knows he is being given a choice: surrender, or I will blow you away. That is the choice that faces Greece today, and the man with the gun is the German finance minister, Wolfgang Schäuble.
On Friday, the Germans tabled a document that is breathtaking in its candour and brutality. It marks a new departure in modern European diplomacy; indeed, at first I thought it must be a spoof. It cynically abandons the old pretence about the euro – that it was irreversible, a marriage for life. On the contrary, it turns out that divorce is very much on the cards, unless the Greeks submit.
If Greece wants to stay in the single European currency, Athens must prostrate herself in an act of doglike self-abasement that the ancients called proskynesis. If the Greeks want more of our money, says Schäuble as he waves his Glock/Schmeisser/Walther, they will have to do as follows.
First, they must simply hand over “valuable Greek assets of €50 billion” to be privatised – flogged off to decrease the debt. Who will do the privatising? Schäuble proposes that these Greek state assets – airports, electricity companies, whatever – should be surrendered to a body called the “Institution for Growth in Luxembourg”. And who is in charge of this institution, eh? Jawohl, meine Freunde! It turns out to be a front for the German KfW, the Kreditanstalt für Wiederaufbau, the state development bank that was set up, ironically, as part of the postwar Marshall plan to rescue the bombed-out German economy.
These Greek state assets may be tarnished, they may be indebted, but they belong to the Greek people; and now the 72-year-old Schäuble is seriously proposing that this family silver should be taken and sold by the Germans. Why the Germans? Because it is obvious from Schäuble’s proposals that he has complete contempt for the Greeks’ ability to run their own affairs.

His next two conditions are that there should be “capacity-building and depoliticizing Greek administrative tasks under hospices (sic) of the COM for proper administration of the program; (c) automatic spending cuts in case of missing deficit targets”. The arrogance is amazing. What does he mean by “capacity-building”? He means sending in natty-jacketed Eurocrats to take over the country. What does he mean by “depoliticizing”? He means telling Greek voters and politicians to get stuffed, because it is the Germans who are now running the show.
It is fitting that the draftsperson was confused about “hospices” and “auspices”. The eurozone is indeed turning into a hospice, and the dying patient is democratic self-government. That is what Germany wants Greece to do, as the price of staying in the euro. The only alternative, says Schäuble, is a “time-out” from the eurozone for at least five years: in other words, expulsion.
As the hours have passed since this document was leaked over the weekend, I have waited for the repudiation from Berlin. I had assumed that Angela Merkel would somehow distance herself from the demands of her finance minister – perhaps even issue a formal démenti. On the contrary, it has become ever clearer that this ultimatum has her support, and the support of the German government.

The message from Berlin is clear: either we take over the economic government of Greece, or we kick Greece out of the eurozone – and what is even more astonishing is that no one, in any other European country, is rallying to the side of the Greeks.
After five years of crisis, the European Union has reached such depths of intellectual and spiritual exhaustion that ministers are willing to contemplate two appalling options: the immolation of Greek democracy or a Grexit that would almost certainly prove contagious to other eurozone members – including, ultimately, the French themselves.
What will the Greeks do? My heart says they should tell Schäuble to get stuffed. Five years ago, I said they should go for freedom, and I think the same today. What have they gained, by staving off the inevitable? More unemployment, more misery, more poverty. What have they got to lose? Nothing but their chains – the servitude that goes with a cruel monetary version of the Ottoman empire.
Now is the time to rediscover the spirit of Marathon, to fight for the things that made Greece great, to burst the shackles of the Great King of Brussels. Now is the time for what they used to call arete – the full expression of their independent moral virtue.

Will they? Alas, I doubt it. The tragedy of modern Greece is that they don’t really trust themselves – any more than Schäuble does – to run their own affairs. There are still large public majorities for staying with the euro, for sticking with nurse – in spite of the toxic medicine she dispenses. I expect that the agony will go on, with endless deadlines and fudges and semi-disguised bailouts.
But the lessons from the Schäuble paper are clear. They apply to Britain as much as to Greece. The first lesson is that this is what happens when a nation gives up economic sovereignty, in the hope – accurate or deluded – of somehow becoming richer. The Greeks thought they were being smart to sacrifice their monetary independence; they thought they could free-ride. They didn’t appreciate that this autonomy might be something valuable in itself – something they would one day yearn for again.
The second lesson is that whatever they say in Brussels, there is nothing inevitable about any of this process of “integration”. It is all up for grabs. This is no time to moderate UK proposals for reform; quite the reverse, and David Cameron is dead right to open a new front on employment law.
No one can read that German paper, and conclude that the EU is still meant to be an association of sovereign nation-states. These Schäuble proposals are tyrannical. They should be bitterly resisted.

Tuesday, July 14, 2015

Three unedifying lessons of the Greek deal - Financial Times

July 13, 2015 at 11:01pm
http://www.ft.com/intl/cms/s/2/04312dc0-2729-11e5-bd83-71cb60e8f08c.html#axzz3fmALeE8V



July 13, 2015 10:38 am
Three unedifying lessons of the Greek deal
Martin Sandbu


Gasp at hubris of EU leaders who think they can overrule domestic politics, writes Martin Sandbu


Greek Prime Minister Alexis Tsipras (centre) talks with German Chancellor Angela Merkel (left) and French President François Hollande
At least Alexis Tsipras avoided having to send Greece’s fairest one hundred maidens in tribute to Berlin. Apart from that, the Greek prime minister has had to concede on pretty much everything the other members of the euro demanded.
The details are still trickling out about the political agreement struck by the all-night eurozone summit, and there are a lot more decisions to be made in the coming days. But we can already draw three lessons. None is particularly edifying.

First, the decisions Europe’s busiest politicians find it appropriate to make are outright bizarre. The draft document that the eurogroup of finance ministers prepared for leaders on Sunday contains, among other things, a specific requirement to improve competition among . . . bakeries.
Perhaps the bakers of Greece need more competition. Perhaps, at a stretch, we can find some reason why this would contribute to a higher Greek growth rate. But we should gasp at the hubris of a class of European politicians who think both that their time is well spent doing this kind of micromanagement and that their preferred micro-policies are so conducive to growth they can overrule the domestic political process.
Greece unquestionably needs reform. But remember where the country was just a year ago. Austerity was paused in 2014, which allowed growth to return. Athens was in a primary surplus and needed no further financial aid — only extensions to smooth out the steep repayment cliffs in 2015 and 2016 that the eurozone and the International Monetary Fund recklessly left unchanged in the 2012 restructuring. Would it really have been so hard to simply grant the extensions (without haircuts), let the growth rebound continue (which would have increased the ability to service the debt) and leave Greeks to fight out whether and how to fix their country (or not)?
Second, the one constructive party in the past few weeks has been France. After five years of playing second fiddle to Germany — and to Berlin’s tune at that — Paris rediscovered its status as coequal leader of the European project. For all its sternness, Germany does not want to go it alone. The health of the euro would have been stronger today had France retrieved its confidence sooner.
But note what it took. Once Grexit was publicly contemplated at the highest levels in Berlin, the scene was being set for a return to speculative attacks on France itself — not tomorrow, not the day after, but certainly one day. This, we must recall, was the main French motivation for monetary union in the first place. Grexit would have eliminated the main raison d’être for the single currency as seen from Paris.
Finally, Greece capitulated because the European Central Bank forced it to do so. In flagrant defiance of its treaty obligation to support the general economic policy of the eurozone — which includes since June 2012 a requirement to separate the health of the banking system from the solvency of sovereigns — the ECB forced a shutdown of the Greek banking system and made clear it would only let it function again once a deal on sovereign finances had been struck.
This has established beyond any doubt that the independence of the eurozone’s central bank from politicians is nothing of the sort. Far from being independent, the ECB does governments’ bidding. But its dependence is selective — and that is something that should worry the citizens of eurozone nations beyond Greece.
martin.sandbu@ft.com

Monday, July 13, 2015

Greek Debt Crisis: Germany Flexes Its Muscles in Talks With Bailout Ultimatum - Wall Street Journal

July 13, 2015 at 5:56pm
http://www.wsj.com/articles/greek-debt-crisis-europe-pushes-athens-to-brink-with-bailout-ultimatum-1436745387?mod=e2fb


Greek Debt Crisis: Germany Flexes Its Muscles in Talks With Bailout Ultimatum
Standoff’s telling factor may be that Greece fears its exit from the euro more than Germany does

By MARCUS WALKER
Updated July 12, 2015 10:32 p.m. ET

ATHENS—Europe’s ultimatum to Greece, demanding full capitulation as the price of any new bailout, marks the failure of a rebellion by a small, debt-ridden country against its lenders’ austerity policies, after Germany flexed its muscles and offered Athens a choice between obeisance or destruction.

Sunday’s statement on Greece by eurozone finance ministers will go down as one of the most brutal diplomatic démarches in the history of the European Union, a bloc built to foster peace and harmony that is now publicly threatening one of its own with ruination unless it surrenders.

The weekend’s power play also highlights the cracks among Greece’s creditors—especially Germany and the International Monetary Fund—as the cost of keeping Greece in the euro spirals out of control. The IMF has urged Europe to give Greece some debt relief, something Berlin has opposed. Part of the reason for Germany’s hard line now is that maximally tough austerity in Greece could reduce IMF pressure to write off Greek loans.

The other 18 euro members were continuing early Monday to push Greece to implement all of the austerity measures and broader economic overhauls its voters have twice rejected—in elections in January and in a referendum on July 5—not in return for new rescue loans, but as a precondition for even talking about them.


The Greek government of left-wing Prime Minister Alexis Tsipras, which has spent all year trying to challenge Europe’s bailout policies, has ended up a near-powerless pariah in Europe—even though Mr. Tsipras is politically dominant inside Greece. Its only remaining option for disobedience—to default and leave the euro—would satisfy rather than horrify many of its European critics, led by German Finance Minister Wolfgang Schäuble.

The fall of the Tsipras government under the creditors’ heavy pressure would please many European policy makers. In Berlin and other northern European capitals, officials have made little secret of their view they can’t trust Mr. Tsipras to deliver his side of a bailout deal, even if he were to sign one. But most officials know that Mr. Tsipras’s fall after only six months would raise awkward questions about the scope for democracy in an EU that presents itself as a beacon of popular sovereignty for the world.

Greece hasn’t complied with creditors’ demands yet. But its only alternative appears to be the gamble of a euro exit, which most Greeks fear would bring worse economic devastation.

In the end, the telling factor in the standoff may be that Greeks fear their country’s exit from the euro more than Germany does. That gives Berlin the stronger hand to impose its austerity-and-reforms prescription.

The demands from the so-called “Eurogroup” of finance ministers range from handing Greek public assets to a fund in Luxembourg to auction off to giving international technocrats powers to approve or veto draft laws in Athens.

“The Eurogroup is pushing Tsipras to effectively hand over the keys to the country; he may have neither the will nor the authority to do so, opting to walk out and resign instead,” Wolf Piccoli, managing director of political-risk consultancy Teneo Intelligence, wrote in a research note Sunday.


Since his election in January, Mr. Tsipras has oscillated between his hard-line and pragmatic advisers, Greek officials say. The pragmatists urged him to sign a bailout deal early, even if it meant accepting politically hard-to-sell austerity measures, because the terms of any deal would get tougher as the months passed and Greece’s economy deteriorated.

Nonsense, argued others such as now-ousted finance minister Yanis Varoufakis: Greece would get the best bailout terms, including less austerity and more debt relief, if it waited until the last moment before debt default. Europe would get scared of the destabilizing fallout from a Greek euro exit, this camp argued.

Mr. Tsipras went with the second school of thought, figuring also that his left-wing Syriza party would only swallow a bailout deal involving austerity if the alternative were imminent economic meltdown.

For months, Mr. Tsipras saw to it that Europe’s normal channels for negotiating bailout terms—the Eurogroup, and teams of EU-IMF inspectors—were paralyzed. He instead bet on face-to-face talks with German Chancellor Angela Merkel, believing that she would make a fundamentally political decision to keep Europe united, even at the expense of German economic orthodoxy.

It proved an epic miscalculation. Backed into a corner by Mr. Tsipras’s referendum, in which Greeks overwhelmingly rejected their creditors’ austerity demands, Ms. Merkel hardened her line. A deal with Athens that let Greece off tough economic reforms would be worse for Europe than splintering the eurozone, she argued.

Ms. Merkel’s openness to Greek euro exit—an outcome she had previously resisted as too hard to calculate or control—has allowed her finance chief, Mr. Schäuble, free rein. Long convinced that Greek politicians simply aren’t up to running their country well enough to be a euro member, Mr. Schäuble stunned Greece on Saturday by proposing that the country take a five-year “timeout” from the common currency.

Official Europe, it appears—at least this weekend—can play chicken better than Mr. Tsipras. Germany, once provoked, has proved more willing than Mr. Tsipras expected to contemplate a Greek euro exit, or “Grexit.” That makes the eurozone’s German-inspired ultimatum more credible than Syriza’s implicit threat of euro exit—which Mr. Tsipras knows his nation overwhelmingly fears.

Greek Finance Minister Euclid Tsakalotos, left, and European Commissioner for Economic and Financial Affairs Pierre Moscovici on Sunday/ ENLARGE
Greek Finance Minister Euclid Tsakalotos, left, and European Commissioner for Economic and Financial Affairs Pierre Moscovici on Sunday/ PHOTO: OLIVIER HOSLET/EUROPEAN PRESSPHOTO AGENCY
Yet the weekend’s unequal test of strength in Brussels can’t be counted as a simple victory for Germany and its eurozone allies. Ms. Merkel wanted to lend Greece money while it overhauled itself, and to get the money back in a reasonable time. Now the cost of keeping Greece afloat in the euro is reaching a multiple of what Ms. Merkel originally expected. Not only does Greece need as much as €86 billion more in financing, but the European part of the roughly €216 billion in funding that Greece has received so far needs restructuring.

Regardless of whether the German stance prevails, Ms. Merkel also faces one of the deepest political crises of her decadelong tenure. Her coalition partner, the left-of-center Social Democrats, has criticized her for being prepared to kick Greece out of the euro. Meanwhile, many of her conservatives are balking at any further aid for Greece at all.

How much restructuring is the subject of tug of war between the IMF and German-led Europe. The IMF insists that comprehensive debt relief is needed to make Greece solvent again, such is the damage that the recent weeks’ events have done to the country’s economy and banking system. The Germans insist outright debt forgiveness is unacceptable to them and illegal among EU nations.

The IMF says that the less debt relief Greece gets from Europe, the harsher the terms of Greece’s overhauls-and-austerity program have to be. Greek taxpayers have to carry the full cost of repairing the country’s solvency if Germany and the rest of the eurozone won’t. Ms. Merkel needs to keep the IMF on board to sell further aid for Greece to her increasingly skeptical parliament. That—as well as her finance minister’s anger at Greek politicians—is why the chancellor is now tightening the screws on Mr. Tsipras.

Write to Marcus Walker at marcus.walker@wsj.com

Sunday, July 12, 2015

Greece's economy The economic consequences of Syriza - Economist

July 12, 2015 at 1:06am
http://www.economist.com/blogs/freeexchange/2015/07/greeces-economy?fsrc=rss


Greece's economy
The economic consequences of Syriza
Jul 6th 2015, 14:54 BY C.R. AND S.N. | LONDON AND ATHENS
Timekeeper

AFTER the party in Syntagma Square celebrating the landslide victory for the "no" campaign in Sunday's referendum comes the hangover. They went wild "because we are tired of everything, from all the lies, from paying for the rich, and from years of austerity, especially for young", as one partying Athenian told us. To be fair, with youth unemployment rates of over 50%, many have had little to celebrate for a long time. Young Greeks support the aggressive stance taken towards the country's lenders by Syriza and its leader, the Greek prime minister Alexis Tspiras, whose position in domestic politics has been strengthened as a result of the referendum.


But two days after the close of the polls the fact remains that Greece's real economy is in a mess. Capital controls imposed after Mr Tsipras called the referendum on June 26th have kept banks closed. Ordinary Greeks have been limited to cash withdrawals from ATMs of just €60 ($67) a day (which is now in effect down to €50 as smaller notes have disappeared from circulation). Many cash machines in Athens have run completely out of money.

Firms have also been hit particularly hard. Foreign bank transfers have been banned by the Greek government, with few exceptions. Greek credit is no longer accepted outside the country. That has hit firms that rely on foreign credit to import goods, as well as the Greek tourists who found themselves stranded when their credit cards stopped working. Supplies of food and some medicines are running short (see picture); a black market for cancer drugs has even emerged. As we reported on Sunday:

Greece relies almost entirely on foreign imports for its pharmaceutical supplies. But since capital controls imposed last Sunday brought the country’s banking system to a sudden halt, some suppliers have stopped delivering key medication because they cannot get paid...As things stand, she has another week’s worth of insulin in stock for diabetics but will then have to start turning her patients away. “Do you know what that means?” she asks, trying to keep a proud face, “Do you know what insulin does?”
Unsurprisingly, as a result, Greek economic growth—which began to falter shortly after Syriza came to power in January—has collapsed. Consumption has slumped by 70% since capital controls were imposed, according to the National Confederation of Hellenic Commerce, a business group. Individuals and firms are hoarding cash at the same time that essential goods are becoming unavailable—a toxic mix for any economy. The decision taken yesterday by the European Central Bank—to keep in place the cap on emergency lending to Greek banks, and to increase the discount applied on Greek bonds accepted as collateral—will tighten the short-run financial crunch.

Greece is running short of time; in the next few days either a new deal will be done that allows the ECB to reopen the liquidity spigots or bank failures will lead to Grexit. In either case, the damage done by this period of uncertainty and financial drought will be severe.

Economic history suggests that economies can be surprisingly resilient when hit by shocks, such as the temporary imposition of capital controls or a reduction in the supply capacity of the economy. The Cypriot economy, for instance, started to grow again just one year after it imposed capital controls in 2013. And as Britain's experience of general strikes indicates, temporary one- or two-week supply disruptions do not tend to have much impact on output after about a year. Leaving a single currency may also not be a complete disaster; countries such as Ireland (which left the British pound in 1928) have managed it before. And many countries ditching fixed-exchange rates—such as Britain in 1931 and 1992—exited long recessions almost immediately after they bit the bullet.

But there are three main reasons why economists think that the Greek economy will be wounded for far longer than other unfortunates. First, current uncertainty is probably damaging future demand as well as current demand; future tourist bookings have fallen by around a third since capital controls were imposed, for instance, which matters greatly given that the sector produces almost one-sixth of the country's GDP. And with summer bookings so vital, the likely conclusion of the crisis in early July could not have been timed worse. Second, most countries that experience fast recoveries from supply-side shocks and fixed-exchange rate exits are able to count on a solvent and liquid banking system, which is needed in order to fund investment and growth through loans.

But Greece's, which is about to collapse because of capital controls and deposit flight, is in a less comfortable position. The speedy introduction of new economic reforms post-Grexit, combined with capable macroeconomic management, could nonetheless cushion the Greek economy against the worst effects of exit and lead to a rapid bounceback. Yet few outside Greece reckon that the Syriza government has the inclination or competence to execute the transition smoothly and responsibly. Whatever Greece's political fate, its economy is bound to get much worse before it gets better.

Saturday, July 11, 2015

Greece The way ahead - Economist

July 11, 2015 at 2:24am
http://www.economist.com/news/leaders/21657394-deal-between-greece-and-its-creditors-would-be-best-if-there-has-be-grexit-here?fsrc=scn/tw/te/bl/ed/thewayahead
Greece
The way ahead

A deal between Greece and its creditors would be best. But if there has to be a Grexit, here is how to do it
Jul 11th 2015
Timekeeper

IN A crisis studded with missed deadlines, Sunday July 12th really could mark the denouement of the Greek debt drama. The leaders of the euro zone along with those of all the EU’s 28 member countries will gather for a set of meetings in Brussels. If Alexis Tsipras, Greece’s prime minister, can strike a deal with his creditors that day, his country will stay afloat inside the euro. If there is no such deal, Greece is heading inexorably towards the whirlpool of Grexit. Donald Tusk, the president of the European Council—a Pole not prone to hyperbole—calls it “the most critical moment in the history of the EU”.


All sides insist that their aim is not to eject Greece from the euro, but rather to find a way to keep it in. But the more honest European politicians admit that the likelihood of Grexit has never been higher. Betting now puts it at around 50%. Shockingly, for something so imminent, probable and with such dramatic consequences, there has been remarkably little public debate about how Greece would leave the euro. The best outcome for Europe would still be a deal on July 12th that keeps Greece in. But it is also time to make contingency plans for the sort of Grexit that does the least harm.


In principle, a deal between Greece and its creditors should not be hard. The reforms Mr Tsipras promises are tantalisingly close to those demanded by the other euro-zone countries and the IMF. No one, from Angela Merkel, Germany’s chancellor, to Mario Draghi, the president of the European Central Bank (ECB), wants to be held responsible for pushing the Greeks out. The need for debt relief, the totemic issue for Mr Tsipras, is underscored by the IMF, and—privately, at least—acknowledged by most European politicians who can count. Rational self-interest should also push both sides towards a deal. Grexit will hit Greece’s economy harder than staying in and it will cost the creditors a lot more money. If it leaves the euro, Greece will not just default on its loans from European governments but also its liabilities to the ECB. The total—€340 billion ($375 billion) or more than 3% of euro-zone GDP—is far more than the relief needed to make Greece’s debt burden sustainable.

But rational actors would never have got this far. The Greek government’s erratic behaviour—it arrived at a last-ditch meeting this week with old, handwritten proposals—and its inflammatory statements have generated the sort of ill-will that can make small obstacles insurmountable. Germany’s attitude towards debt repayment has its roots in moralising sermons and an obsession with rules rather than economic self-interest. Political constraints bind, too. Mr Tsipras cannot shout defiance in Athens one week, and roll over in Brussels the next. If northern European taxpayers voted on whether to hand money to Greece without conditions, they would vote No, too. For all these reasons, the meeting on July 12th could well fail.

What then? Greece will probably drift towards Grexit by default. Banks will stay closed. One member of the ECB governing council has said emergency liquidity will be cut off on July 13th. Without cash to pay wages and pensions, the Greek government will have to issue IOUs, which will quickly become an informal parallel currency, trading at a huge discount. From essential medicines to energy, there will be shortages of vital imports. A new currency will be introduced amid chaos.

Some of that chaos can be avoided, but doing so will demand forward planning and generosity from the creditors, two virtues that have been in short supply. One task is to clarify the legal uncertainties. (Is Greece permanently out of the euro or just temporarily issuing IOUs? Can it remain in the EU if it is not in the euro?) The second is to ensure that an exiting Greece has both the policies to stabilise its economy and avoid high inflation and the cash to pay for critical imports.

Pulled by the current
Some Europeans suggest the legal tangles of Grexit can be avoided by pretending that Greece is not actually leaving. Wolfgang Schäuble, Germany’s finance minister, has spoken of a “temporary” Grexit. If the Europeans allowed the Greeks to issue scrip or temporarily to introduce an emergency parallel “currency”, Greece might in effect suspend its membership of the single currency without technically leaving (see article). Such a non-Grexit exit would allow European politicians to put off pesky problems such as how to deal with the losses on the ECB’s balance-sheet. Technically, it could also be reversed if Greece struck a deal with its creditors at a later date.

This halfway house might buy time, but it cannot be a permanent solution. And the longer Greece lives with such a dual currency, the less likely it is to return to the euro. But even if the door to the euro zone closes, other doors need not. Greece should be allowed to stay in the EU. Domestic support for Mr Tsipras since his election in January has been animated above all by a sense that Greece’s dignity has been trampled upon. The humiliation of Grexit would be compounded if Greece found itself cast out of the wider union as well. EU law is woolly on the subject, but preserving easy access to European markets for Greek exporters and visa-free access to Greece for European holidaymakers would be a huge boost to the post-lapsarian Greek economy. It would also enable EU funds for poorer regions to keep flowing and help prevent Greece from becoming a failed state on the EU’s flank.


The Greek crisis, in Economist covers
To maximise its chances, Greece would need to match a euro exit with budget discipline and an independent central bank credibly targeting low inflation. Europe should provide humanitarian aid and balance-of-payments support for the fledgling drachma. This could either be direct (just as the EU helps Ukraine) or more creative—for instance, euro-zone states could put themselves at the back of the queue of Greece’s creditors, helping the country tap private markets again.

The irony is that the new lending and debt-forbearance by Europe needed to prevent Grexit from causing a catastrophe are the elements needed to keep Greece in the euro. Equally, a sundered Greece would have to resort to much the same austerity it is resisting. That is all the more reason for both sides to cut a deal. But it is no excuse to put off planning for the worst.