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Simon Nixon says progress was made in the eurozone crisis, but complacency remains as a lot needs to be done. The problems include little or no growth under austerity measures, the rising yields on Spanish bonds, and the slow reform of the Spanish banking system. This will keep the eurozone crisis at the forefront for the rest of 2012.

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A 3 page July 14, 2015 update on the IMF's July 2015 debt sustainability analysis paper on Greece, points to severe damage to the Greek economy in the last year, especially under the uncertainty and closing of the banking system, making debt unsustainable without haircuts or extension of maturities and grace periods. About 85 billion euros is the additional financing needed as a result of the mismanagement under the Syriza government and closing of the banking system. It draws the conclusion that "haircuts could be avoided if instead there was a significant further extension of the maturities of the entire stock of European debt (GLF, EFSF) , in the form of doubling of grace and repayment periods, with similiar concessional terms on new financing." The paper adds that the maturity extension would have to be "very dramatic extension with grace periods of say, 30 years on the entire stock of European debt, including new assistance." One shocking part of the analysis is that within the space of one year from July 2014 to July 2015 the Greek economy went from reaching Debt to GDP ratio of 105% in 2022, to 170% after the closing of the banking system by July 12, 2015, according to the IMF. In 2014 it was at 177% of GDP....

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Krugman points out that the prevailing bias in the US distorts the facts about Europe's performance. Frankfurt, London and Paris he says are just as lively and modern as New York and Chicago. They are not poor and backward. When you factor out population growth in the USA, since 1980 per capita real GDP which is what affects living standards has grown in America at about the same rate as the 15 European Union countries: 1.95 percent in the USA vs. 1.83 percent for the EU. And for the 25-54 years working age group unemployment in the EU 15 countries in 2008 was 80% of adults (83% in France), which is about the same as in the USA. The French and Germans work fewer hours but output per hour is close to American levels.

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The WSJ's Alessandra Galloni speaks with Mario Monti, the Italian premier, for in-depth interviews. Here Galloni and Walker provide an account of what happened during and after the June 28, 2012 summit of European leaders. Monti described the comments of ECB president Draghi in early August- about ECB buying of bonds of Italy and Spain being within the mandate of the ECB if monetary transmission channels were not working properly to reduce yields- as a bold effort following the agreement made at the June 28 summit to support Italy and Spain. Monti expressed the idea that Draghi should feel morally and politically justified if and when he makes the bold moves to rescue the euro. The only problem he says is whether one has to wait till the night before the euro is about to disintegrate for this to happen. This is the first time Monti has publicly expressed the possibility of this happening.

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Trust bank is rescued with a $530 million injection by Russia's central bank in Dec. 2014. The bank was taken over by the Deposit Insurance Agency which guaranteed the deposits of customers. As Russia raises interests by 17%, the ruble stabilizes with a 5% gain on Dec. 22, 2014. Alexei Kudrin, former finance minister and the architect of Russia's improved finances during Putin's previous terms in office, told a news conference that Russia now faces a full fledged economic crisis that will be painful in 2015. He expects a drop of 40% in imports, inflation at 12 to 15%, and decline in living standards. He also said Russia's credit rating could fall to junk status making it difficult to obtain financing. Kudrin was critical of the way the Russian government handled the crisis, saying action was slow and the government did not act as one team. He called for improved relations with western partners- "For a way out of the crisis, it is of high importance to regulate relations with our foreign partners- first of all with Europe, the U.S. and other partners."...

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Anne Applebaum of the WP describes the effect of a Dutch referendum on a 2014 European Union trade and cooperation treaty with Ukraine which taps into Dutch anti-immigrant sentiment of right wing parties and anti-corruption sentiment of left wing parties. It passed with a two thirds majority and 32 % of people voting. Applebaum says the centre right government in the Netherlands has not commented on the referendum which is "consultative." She says officials in the Dutch government told her they did not want to become the focus of anti-government sentiment in the media, because of the small majority in parliament.

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Italy's major problem is lack of growth, with growth averaging 0.3% in 2001-2010 compared to 1.1% for the eurozone area. In the 1st quarter of 2011 growth was only 0.1%. Italian bonds yield two percentage points above the yield on German bunds. With growth at the present level, Italy's would see an increase in debt to GDP ratios, according to Barclays Capital. Debt to GDP is currently at 119%.

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John Taylor looks one step ahead of the March 2012 Greece bailout and sets up the most plausible scenario for the future. He says the risks of contagion were always exaggerated from the beginning- a planned default or restructuring of debt such as happened in Argentina in 2001, does not have the contagion risks associated with a chaotic and unplanned default as in Russia in 1998. Predicability in policy makes a huge difference, says Taylor. The European banks which stood to lose from writedowns exaggerated the fears of contagion- a process that always occurs for people who are adversely affected by writedowns- resulting in top officials in the European Union delaying the unavoidable serious restructuring. It was not until Chancellor Merkel handed Charles Dallara, who negotiated for the European banks, a note stating a demand for 50% bondholder writedown, on October 27, 2011, at EU headquarters in Brussels, did any serious writedown of debt begin. Merkel told Dallara: "this is my last offer." The July 2011 summit by contrast had only a 10% bondholder writedown in the agreement, when insolvency not illiquidity was the real issue. Walker Forelle and Meichtry, give a detailed account of what happened in the Wall Street Journal, Dec. 30, 2011. The important thing for Greece, says Taylor, is for what the IMF calls "growth enhancing structural reforms" - greater reliance on private markets, incentives, rule of law. He says this bailout won't work because IMF growth forecasts do not reflect the rapid shrinking of the Greek economy. Antonis Samaras, leader of the major opposition party, is in favor of pro-growth measures and has stated his desire to change the agreement. The 130 billion euro bailout provides 90 billion euros for recapitalizing Greece's banks, and financing the budget. This puts Greece in a situation where the political leaders win voter support by discarding the conditions from the Northern EU nations and come with a plan that is better suited for Greece. The EU in this scenario would cut off further bailout funds to Greece. Taylor sees this as the better outcome for Greece than the current situation, which leaves Greece no hope for growth, and also for the EU by getting out of bailouts that have little prospect of working. It would be difficult but doable for Greece says Taylor, because interest payments would be low and Greek banks would be recapitalized after the current March 2012 bailout. ...

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Defense Secretary Ashton Carter, says the allies and NATO can improve their response to Russian president Putin's intervention in Eastern Europe by developing better intelligence sharing capabilities, and getting partner nations to invest more in their military capabilities. In an interview with an Italian newspaper on a visit to Europe. Carter said ceasefire terms in Ukraine should be implemented, and that the U.S. should exert more pressure on Ukrainian officials whom he blamed for the breakdown. He said about "Operation Atlantic Resolve," military exercizes in Europe, conducted to support Eastern European allies through training, cooperation and increased presence since 2014- "Our exercize and training programs, which are tremendously successful, they're tremendously popular- we need to do more of that, get more allies involved."

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The European Union Commission president Manuel Barroso announced a multiyear $15 billion package of loans and grants for the new Ukrainian government on March 4, 2014. No immediate conditions were specified. Barroso said, this is "designed to assist a committed, inclusive and reforms oriented government in rebuilding a stable and prosperous future for Ukraine." This is meant to replace the help offered to the previous pro-Russian government by Russia and now cancelled with the ouster in street protests of that government. The U.S. has offered $1 billion in loan guarantees. For Ukraine this offers the prospect of making a new start under EU and possibly IMF guidance. The needs are estimated at $35 billion in international assistance loans over 2 years by the Ukrainian government, because of the dire state of the Ukrainian economy.

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The head of Italy's statistics agency Istat, Enrico Giovannini, says Italy's manufacturing sector has performed quite well, and the problem is with the services sector, in lagging sectors such as transport, communications, tourism, retail and social services. The manufacturing sector is only one sixth of the economy. He says productivity is poor and there is lack of investment in human capital and information technology for the services sector. IT's contribution to growth in Italy's labor productivity is the lowest in Europe, according to the European Investment Bank. Italy's total efficiency gains declined one half percentage point from 1995-2005. Retail and tourism sectors lack the needed productivity gains. This means actions taken by prime minister Monti to change labor laws and related changes will not be enough to generate confidence in the economy and economic growth. Giovannini says investment in human capital and productivity is badly needed, and shifting education and training to where there are new job opportunities....

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About $229 billion, three fourth of Greece's debt, is now held by the European Central Bank, the IMF and the European Commission. This is taxpayer money and the governments are making sure that they get back bailout loans in the form of interest payments. About two thirds of the $177 billion given to Greece as bailout loans since May 2010 actually came back to the ECB, IMF, and the EC, in the form of interest. The ECB is keen on recovering taxpayer money. The money route has been setup with an escrow account in Greece for bailout loans so that interest payments get paid, and this money cannot be used for any other purpose. Banking experts say this is a practice in risk management, and with Greece's poor record in finances the controls have been put in place to recover money the ECB invested in Greek bonds in an effort to calm nervous financial markets and now gets about 10% in annual interest payment. Under earlier debt restructuring for private creditors to Greece a haircut of over 50% on Greek bonds was taken, with the ECB insisting on receiving full payment. If Greece were to repudiate the loans under a new elected government losses would have to be taken by the ECB, IMF, and EC, and by private creditors. The ECB has Greek bonds in the range of $44 billion to $69 billion, and the European Financial Stability Facility $88 billion, by some estimates. Greece's exit from the euro would result in losses on these bonds .for the ECB and the EFSF, ultimately European taxpayers. It would also make the new bonds to private creditors under the restructuring of little value which is why European banks would not favor that outcome. Greece's tax receipts at some point, possibly 2013, would exceed basic operating expenses of the government, at which point a future Greek government might decide to exit the euro and stop interest payments on debt in its best interest....

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The Social Democrats leader Sigmar Gabriel is Economics Minister in the coalition government of Angela Merkel in Germany. He is sympathetic to French premier Manuel Valls effort to reduce austerity in the 2015 French budget now being reviewed by Brussels. Here he takes the initiative to call for discussion on the issue of growth and austerity facing the European Union, by joining French Economics minister Emmanuel Macron in asking two economists Pisani-Ferry and Enderlein at the Berlin Institute of Governance for advice on generating growth. The process started in late summer with the defeat of the centre right government in Sweden which supported Merkel's strict austerity policies for balanced budgets. The elections to the European parliament showed the dire situation facing Cameron in Britain and Hollande in France with the unpopularity of austerity policies, higher taxes and cutbacks. The Socialist Hollande government has the lowest public opinion ratings of any postwar government in France, at 18%, and it is unwilling to go further down the road with austerity. At the same time Valls has found a partner in Italy with the growing popularity of Matteo Renzi in Italy who won 40% of the vote in Italy for the EU parliamentary elections of 2014. ECB president Mario Draghi, has generated the debate by saying at a October 2014 Brookings Institution conference in Washington D.C. that countries that have fiscal space (referring to Germany) should use it. He added that governments that did not take action in the economic crisis facing the eurozone of no growth will be swept away by public opinion. IMF president Lagarde, a former French Finance Minister under Sarkozy, has also questioned policy of strict austerity. For the first time since the start of the eurozone crisis in 2010 there is an opportunity for open discussion on future policies for renewal in the eurozone....

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Italy's debt sustainability analysis shows how critical it is to improve prospects for growth and competitiveness and avoiding any lowering of growth from current forecasts. Equally critical is lowering of borrowing rates. And vital to setting the right tone for this is the future of the Monti government and nature and committment of the new government after spring 2013 elections.

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Different estimates on how quickly and how much additional oil would come into world oil markets if sanctions are lifted. The time estimates range from quickly to 6 months for additional new supplies into world oil markets. Estimates of how much production can be added range from 500,000-800,000 barrels a day from private estimates to 1 million additional barrels a day from Iran's oil company, if sanctions are lifted. UK foreign secretary, Philip Hammond, says "there is still a long way to go if we are going to get there." He told a parliamentary committee that the nonnegotiable part is a window of one year advance notice if Iran were to break out and go for a nuclear weapon, which would be based on technical expert opinion of how long it would take Iran to build a nuclear weapon using its knowhow and materials at that Mr Zanganeh took over as oil minister after the election of Rouhani as president 18 months ago. Zanganeh calls the effect of sanctions and the mismanagement of the previous government as "a catastrophe," and he has tried to instill anew discipline in the oil sector. Iran currently produces about 1-1.2 million barrels a day under sanctions, half of earlier levels before sanctions were tightened in 2012 because of the nuclear weapons development issues....

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Speaking at the annual meeting of Italy's banking association on July 11, 2012, prime minister Mario Monti calls the struggle he is leading to change the economic performance of Italy, and especially against structural vices in the economy, "a very tough war." He added that the plan to reduce Italy's borrowing rates with the agreement to use the ESM or EFSF, the EU's rescue fund, "must be consolidated both in its substance and the way it is communicated." Bank of Italy governor, Ignazio Visco, said the spread between Italian and German bonds and the borrowing rates approaching 7% for Italy compared to about zero for Germany and France, were "far above what would be justified by the fundamentals of our economy." Deputy finance minister, Vittorio Grilli, is taking over the role of finance minister which Monti had assumed earlier. Monti will lead a new economic and financial policy committee which includes Mr. Grilli and development minister Corrado Passera.

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The huge risks the misallocated stimulus capital from real estate speculation poses for the Chinese economy. China's government rapidly expanded lending after the 2008 global financial crisis. One estimate is that about 10 trillion yuan in new loans were made in 2009, over twice the amount of 2008, expanding the loan portfolio and money supply by one third. A major problem is vacant homes as Chinese put their money in second homes as an investment. Chinese are not investing in the stock market because of the volatility, and with the low yields in bonds and banks money is going into real estate. According to a Morgan Stanley economist, about 25-30% of private commercial and housing space is vacant. This happens just as middle class Chinese are being priced out of the housing market. Prices went up by 12% in the housing market this year according to the China National Bureau of Statistics. Couples wanting to leave their parent's homes find it difficult to do so. It was the topic for a Chinese TV series "Dwelling Narrowness." ...

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Krugman questions whether the assumptions behind the austerity policies are true- that they would inspire confidence in economic recovery, or that in the absence of austerity policies borrowing costs would go through the roof. The recent events in Holland with the collapse of the government in the Netherlands- when a party leader supporting the government said he did not want to hurt pensioners in the Netherlands just to satisfy German opinion- and the mood in France with economic anxiety vote going to Marie Le Pen and Francois Hollande in the first round of presidential elections, shows that very little confidence has been created. High unemployment and economic anxiety are leading to a reappraisal of austerity cuts that depress the economy and reduce tax revenues, but Krugman says no changes are taking place to correct these policies. This is true for Spain with its high unemployment, and Britain which now has two quarters of negative growth.