Financial Mirror 2015 03 18

FinancialMirror JIM LEONTIADES

MOHAMED EL ERIAN

Greece crisis continues: Driving to bankruptcy in a Merc - PAGE 17

The messy politics of economic diversity - PAGE

Issue No. 1126 €1.00 ªarch 18 - 24 , 2015

20

Coop bank to focus on farming, energy INSURANCE SECTOR UNUTILISED, SAYS CEO Facebook’s attempts at E-Commerce (again)

By Oren Laurent PAGE 14

- INTERVIEW PAGES 10-11

March 18 - 24, 2015

2 | OPINION | financialmirror.com

FinancialMirror

If only we had snap elections...

Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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The elections period is officially underway with the first public opinion poll, just 14 months away from the parliamentary vote, suggesting what the parties fear most – total apathy towards the establishment.

All this time, party leaders had perched themselves on their pedestals of power and thought they were untouchable, that their childish bickering on (taxpayer-sponsored) public airtime would help them last a few more months and blame anyone else for their shortcomings and incompetence.

By burdening the President with every decision possible, the establishment (parties, unions, civil service and media) sought to pass the buck to whoever is sitting in the Palace today, until their own time of executive control came around.

But they seemed to have gotten it all wrong. The Sigma TV poll this week showed that all party support has diminished to half, “no one” would win 28% of the vote, President Anastasiades’ rule is neither positive nor negative, no single person makes it to the half-way threshold of “who do you trust”, two-thirds want to renegotiate the MoU with the Troika, and all institutions have a poor image (including the Church, the judiciary and the media).

Worse still, DISY chief Averof Neophytou ranks below communist AKEL’s Andros Kyprianou, which suggests that it is about time for a

leadership change at the ruling party, while MP Nicos Tornaritis has already suggested that the only way for the parties to regain the trust of the poeple is to hold elections immediately. Already, MEP Eleni Theocharous, a highly popular personality who was shunned by the ambitions of Anastasiades and Neophytou, has hinted she would break away if there is no radical change in the party, which she says is controlled by selfserving, corrupt and egotistical politicians.

Society needs to be cleansed of the stench in the political system, and just because someone might claim he or she has just arrived on the scene, does not absolve them of the sins of their comrades – far from it, many are or have long been aware of the dirt within their own parties and did nothing about it.

Evidence of this is the growing list of corrupt municipal officials (all elected after party vetting) and the fact that MPs are moaning about the fact that more than half the House members have nonperforming loans, with just one bank. The only way for deputies to put up a smokescreen around their privileged finances is to demand that the Central Bank Governor be sacked, simply so that they could appoint another person who will cover up their NPLs. True, the Governor has not done her job properly, because these revelations of MPs’ NPLs should have come to the fore a long time ago and ordered to pay, just as every ordinary citizen is faced with excessive pressure from the banks who want to recover assets or restructure loans.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

BOC, Laiki profits up 50-70% in 2005 The two main lenders, Bank of Cyprus and Laiki, are forecast to report profit increases of 55-74% in 2005 with a spectacular performance, but the only setback being the rising level of non-performing loans, according to the Financial Mirror issue 611, on March 9, 2005.

BOC, Laiki profits: Bank of Cyprus and Laiki Bank are forecast to boost their 2005 profits by more than 50% on top of a spectacular performance in 2004, with Hellenic Bank also seen over-turning its losses and returning to profit this year. The average of forecasts by Sharelink, CLR and Egnatia sees BOC

20 YEARS AGO

Seeking foreign investors, Cyta privatisation talk The arrival of foreign investors is expected to boost local share prices, a veteran broker said, while Cyta launched its GSM mobile telephony service amid calls for its privatization, according to the Cyprus Financial Mirror issue 103, on March 22, 1995.

Foreign investors: the participation of foreign investors in the local stock market will give a major boost to share prices and also bring a new dimension to

lifting profits by 55% to CYP 58 mln from 37.5 mln in 2004 and Laiki by 74% to CYP 36.6 mln from 21.1 mln in 2004. Hellenic is seen returning to profits of CYP 9.3 mln from 15.3 mln losses in 2004. The only problem confronting the major banks is the level of nonperforming loans which at around 10.5% of total loans is stubbornly high(!) and possibly a major factor that will force rating agencies to maintain their low rating or even proceed with possible downgrades.

(Ed: We told you so…)

Church to sue: The Church of Cyprus may sue the board of Hellenic Copper Mines Ltd., including its chairman Constantinos Loizides, for mismanagement, in an attempt to reduce its obligations, reportedly at CYP 7 mln. HCM, in which

the Church holds a 40% stake, has ceased production and owes CYP 17 mln, of which 7 mln to banks and 5 mln to Iacovou Bros. If it folds, then the shareholders’ obligations amount to CYP 7 mln.

Inflation down: The annual consumer price inflation rate inched down to 2.8% in February, compared with 2.9% in January. On a monthly basis, prices remained almost the same, rising by just 0.03%, with increases in petroleum products and medical care, and decreases in telephone rates.

Jobless at 5.3%: The number of unemployed persons in February remained at the same level as January, at 18.401 persons or 5.3% of the labour force.

SocGen at 20: Societe Generale Cyprus celebrated its 20 years of operations on the island, with GM Jean Claude Boloux saying the bank had four branches with plans to expand the business.

the way the market trades, said a leading broker, Nicos Efrem. He said he was convinced that “soon our market will be flooded with Greek investors.”

Cyta GSM and sale: Representatives of worldwide telecom players are calling on Cyta to liberalise the island’s mobile phone network on the eve of the launch of the new Global System for Mobile Communications (GSM) on April 5, that will provide sharper sound than the congested NMT network that already has 20,000 users. The new system will be called CYTAGSM. The mobile players have also called for the government to allow the

privatisation of the utility and let foreign investors enter, as well as open up to new players.

BOC offshore factoring: Bank of Cyprus Factors has extended its export factoring service to cover offshore companies based in Cyprus for both goods and services.

Sigma TV: Another television station will go on the air as from April 3, bringing to five the number of stations. Sigma TV is being launched by Costis Hadjicostis, owner of the daily Simerini, Periodiko magazine and Radio Proto.

BOC metamorphosis: Bank of Cyprus inaugurated its first branch with the new Metamorphosis image in Nicosia which part of the major facelift of over 200 branches.

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March 18 - 24, 2015

financialmirror.com | CYPRUS | 3

Noble to declare Aphrodite ‘commercially viable’ within weeks Cyprus has entered the stage of development and commercial exploitation of its hydrocarbon reserves, with Energy Minister Yiorgos Lakkotrypis saying that Noble Energy will submit a development plan for the Aphrodite gasfield that holds a gross reserve of natural gas of 4.5 trillion cubic feet (tcf) and will declare it commercially viable within the next few weeks.

President Nicos Anastasiades met with Noble’s Senior Vice President for the Eastern Mediterranean Keith Elliot on Tuesday, after which Lakkotrypis said that it will be the first time that the country will pass from the stage of exploration to the stage of development and exploitation.

Asked if the declaration means that Cyprus will begin exporting natural gas to Egypt, Lakkotrypis said the declaration sends the message abroad that we have gas for sale. This means, he added, the export of natural gas, its exploitation in Cyprus, or a combination of both.

Elliot said that as regards the next phase of exportation, “it is something that we have been looking forward to for some time now and it is a tremendous opportunity that we hope to bring prosperity to the people of Cyprus and the government of Cyprus as well as the other countries of the region.”

Four years after the initial exploration well in block 12 in

Trade deficit narrows from €300 mln to at €95 mln in January The trade deficit narrowed to EUR 94.8 mln in January, compared to 300 mln in December, which saw the past year close at a wider EUR 3.7 bln.

On the basis of preliminary estimates for foreign trade in January 2015, total imports and arrivals reached EUR 352.3 mln, of which EUR 255.3 mln were arrivals from other member states of EU and EUR 97.0 mn imports from third countries, the statistical service Cystat said.

It added that total exports/dispatches reached EUR 257.5 mln of which EUR 213.2 mln were dispatches to other member states of EU and EUR 44.3 mln exports to third countries.

In an earlier report, the trade deficit for the whole of 2014 widened to EUR 3.69 bln compared to EUR 3.22 bln in the year before, with imports continuing to rise and exports steadily falling.

The foreign trade statistics report for December by Cystat showed total imports/arrivals in January-December 2014 amounted to EUR 5.13 bln compared to EUR 4.83 bln in the year-earlier period. Total exports/dispatches reached EUR 1.44 bln compared to EUR 1.61 bln in January-December 2013.

Cystat said that during December 2014 total imports/arrivals were valued at EUR 379.9 mln while total exports/dispatches reached EUR 111.7 mln.

Exports/dispatches of domestically produced goods, including stores and provisions, were EUR 57 mln, whilst exports/dispatches of foreign goods, including stores and provisions, were EUR 54.7 mln.

4Q employment down 0.6% The number of persons employed dropped by 0.6% in the fourth quarter of last year, compared to the previous quarter, and by 1.5% compared to year-earlier quarter.

This was in contrast to the number of persons employed in the euro area that rose by 0.1% and 0.2% in the EU28 in 4Q 2014 compared to the previous quarter, according Eurostat. In the third quarter of 2014, employment increased by 0.2% in the euro area and 0.3% in the EU28.

Compared with the same quarter of the previous year, employment increased by 0.9% in the euro area and by 1.0% in the EU28 in the fourth quarter of 2014 (after +0.7% and +0.9% respectively in the third quarter of 2014).

Among EU member states, Spain and Latvia recorded the highest increases in the fourth quarter of 2014 (both +0.7%), and Ireland and Slovakia (both +0.6%), while Portugal (-1.4%), Cyprus (-0.6%), Poland (-0.3%), Italy (0.2%) and Malta (-0.1%) recorded decreases.

Cyprus` EEZ, US Noble Energy will submit its development plan for the Aphrodite well that holds a gross reserve of natural gas amounting to 4.50 trillion cubic feet. Cyprus has already engaged in talks with Egypt to explore ways of exporting natural gas in the neighbouring country.

“Cyprus is at a turning point as f we are progressing from exploration to exploitation,” Lakkotrypis told the Eastern Mediterranean Gas Conference in Nicosia later in the day.

He referred to the meeting between President Anastasiades and Noble’s Keith Elliot and also referred to the MoU signed between the governments of Cyprus and Egypt as well as between the two countries’ natural gas companies to explore ways to export natural gas from Aphrodite via a pipeline.

The Cyprus Hydrocarbon Company is also exploring ways to import natural gas to cover the island’s domestic demands.

Finance Minister Harris Georgiades told the conference that the revenue stream generated by natural gas will complement but will not substitute the efforts to consolidate and reform the economy.

Energy has been elevated to a major government policy, Georgiades said, noting that gas reserves are very important for the local economy and the region.

Georgiades said that in anticipation of the revenues, the Ministry is ready to bring forward a proposal to establish a sovereign investment fund, with the objective to ensure that revenues are managed through credible and transparent procedures.

Georgiades stressed that Cyprus is promoting such an agenda involving all regional actors and that this “network cooperation includes Turkey”, which could “gain significantly if it were to adopt a stance based on engagement and cooperation”.

March 18 - 24, 2015

4 | CYPRUS | financialmirror.com

€50 mln shortfall in SIF, says Auditor General Unemployment benefits and payouts exceeded contributions

The Auditor General’s report for the Ministry of Labour found a EUR 50 mln deficit in the Social Insurance Fund for 2013, compared to a 156 mln surplus in 2012.

Speaking at the House Audit Committee in the presence of the Labour Minister Zeta Emilianidou, Auditor General Odysseas Michaelides said that the amount of payments for unemployment benefits have recently exceeded the total revenues and the reserve for this account (unemployment benefits), and therefore as at 31/12/2013 this fund had a debit balance of EUR 77 mln.

Also the account of other benefits as at 31/12/2012, showed a debit balance of EUR 10 mln, because the amount of payments (grants, aids, benefits) significantly exceeded the total revenues and reserves. On 31/12/2013 this debit balance increased to EUR 26 mln.

Regarding the outstanding debt, Michaelides said that on 31/12/2013 this was EUR 97 mln owed to the Social

Insurance Fund and EUR 38 mln to other funds. In terms of current liabilities, he noted that on 31/12/2013, EUR 73 mln were pending for collection from employers and selfemployed for the SIF and EUR 25 mln for other funds.

He said that Audit Office has recommended to the Ministry of Labour to determine a timetable for establishing an action plan that will make it possible to recover these debts. He also referred to the investment policy of the SIF, indicating that for many years the state borrowed the surpluses of the und and other funds on favourable terms, and that this policy does not ensure the interests of the funds. As he noted, the balance of the Fund on 31/12/2013 was EUR 7.43 bln.

“Of this amount 99.2% was deposited to the State of which 98.6% was deposited into the General Government Account in the form of deposits with very low interest rate of 0.5% (31/12/2013) and 1.25% (31/12/2012”, he explained.

Emilianidou said that the Ministry was not yet ready to face all the problems from the economic crisis, as a few years ago there was full employment with an unemployment rate at only 2.8%, while today unemployment stands at 16%.

She said she agreed with the Auditor General, however it was important that in 2014 the SIF deficit has been reduced to EUR 19.9 mln.

As regards the recovery of debts, the Minister of Labour said that in 2013 the House approved a bill which provided that the Ministry would not proceed to criminal prosecution and would even suspend fines for a period from September to December.

On the investment policy of the Fund, she said that the Ministry has sent a letter to the Ministry of Finance, which replied that at this stage the only thing that government could do was to find the best possible interest rate for the deposits of the Fund to the government.

Eurobank Cyprus profits rise 10% to €38.6 mln

President seeks legal advice in Central Bank fracas President Nicos Anastasiades will seek legal advice from the Attorney General to see how Central Bank Governor Chrystalla Georghadji can be sacked, if at all, a year after a similar case forced the previous centralbanker out of office.

Political party leaders pressed the President on Sunday to fire Georghadji, citing a conflict of interest, but clearly miffed that the names of 29 MPs were leaked to the press as having bad loans which they have not repaid.

But the plot thickened after one of the two executive directors of the central bank quit last week saying that Georghadji was using the list to blackmail members of parliament and that she had allegedly claimed at a central bank board meeting that the Deputy Attorney General was on the take from a leading law firm in Limassol, one that was representing the state in reclaiming assets from the biggest shareholders of the now defunct Laiki Bank.

The conflict of interest that politicians alluded to was that Georghadji’s former husband continued to represent the Laiki mega shareholders, Andreas Vgenopoulos, a matter that seems to have been resolved on its own after Andreas Georghadji reportedly said on state radio on Monday morning that he would stop representing Vgenopoulos.

Government Spokesman Nicos Christodoulides said that European Central Bank President Mario Draghi had been informed of Anastasiades’ intentions, having learned the hard way last year that he could not easily sack former Governor Panicos Demetriades, charged with allowing the economy and the banking system to melt down on his watch.

Meanwhile, Chrystalla Georghadji said that she will continue in her duties, while the remaining members of the Central Bank board said that it was very awkward to work with her as long as there was a conflict of interest.

Retail trade value and volume up in 2014 The value of retail trade increased 0.3% in 2014, according to provisional estimates by the statistical service Cystat, with the monthly Turnover Value Index of Retail Trade for December 2014 up by 19.6 units or 23.7% to 102.2 units compared to the previous month.

For November 2014 the Index stood at 82.6 units, recording a decrease of 5.4 units or 6.1% compared to October, whereas it declined by 0.1 units or 0.1% compared to November 2013.

For the period January-November 2014 the Index recorded an increase of 0.9% compared to the corresponding period of 2013. The volume of retail trade also increased last year, according to Cystat. The Turnover Volume Index of Retail Trade is provisionally estimated to have risen 2.0% compared to the corresponding period of 2013, while for December alone, the Index increased by 23.5 units or 29.4% to 103.3 units, compared to the previous month.

Eurobank Cyprus Ltd, the wholly-owned subsidiary of one of the ‘big four’ banks in Greece, recorded a 10% rise in profits to EUR 38.6 mln in 2014, up from EUR 35 mln the previous year, defying the negative economic climate in both countries. That is a steady improvement on the 2014 half-year profits of EUR 26.3 mln.

Considered a merchant bank that focuses on international business, wealth management, large corporate and capital markets, Eurobank Cyprus enjoyed a 34% rise in deposits to EUR 3.31 bln (1H 2014: EUR 2.83 bln), with its capital surplus at over EUR 2 bln. This helped maintain a healthy loans to deposits ratio of 28% and capital

adequacy ratio of 20%.

On the issue of bad loans, the scourge of the Cyprus banking system where nonperforming loans account for about 50% of the national loans book, Eurobank Cyprus’ NPL ratio was at an enviable 7.2%. The bank also maintained its expenditure under control, with its cost to income ratio at 24%.

Established in 2007, Eurobank Cyprus said in an announcement that it is confident of the future, based on the improving climate and fiscal economics in Cyprus and that with its strong capital base and liquidity, it will continue to support viable business ventures and development opportunities that will ultimately help create more jobs and growth.

Any chance of passing insolvency bill this week?

House Finance Committee Chairman and opposition DIKO party leader Nicolas Papadopoulos said that there is “little chance” that parliament would vote on the final bills on insolvencies by March 19, when the present suspension of laws on foreclosures ends.

The Committee, in a joint session with the House Interior Committee, started reviewing the fifth and final pieces of legislation on Wednesday, part of the muchdelayed framework that has held up the next tranches of bailout funds from the Troika of international lenders.

The bills are necessary to help banks

recover assets or other securities from the non-performing loans that account for about 50% of the national banking system’s loanbook, caused by relentless lending by bankers and the collapse of developers when property prices came crashing down.

During Wednesday’s first read of the bills, that relate to the insolvency of natural persons and regulates the restructuring of loans by borrowers and their guarantors, as well as the process for auctions, the opposition parties of communist AKEL, socialist EDEK and the single-seat Greens, said they would not approve the bills as they were.

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March 18 - 24, 2015

financialmirror.com | CYPRUS | 5

Impact of Russia will delay recovery until 2016, says EY report Weak tourism will mean another year of contraction in 2015 After three years of recession, the Cypriot economy had appeared on course to return to growth in 2015, helped by lower oil prices, but the impact of the deep recession expected in Russia on tourism and the banking sector will defer the recovery until 2016, according to the EY Eurozone Forecast (EEF) Spring 2015.

Although the quarterly drop in GDP slowed to 0.3% in Q3 last year, a larger fall of 0.7% in Q4 meant that the contraction in 2014 overall was 2.4%. And due to the mounting external headwinds, EY’s forecast for 2015 GDP is now for a decline of 0.4%, compared with the 0.3% growth seen in the previous report in December.

The problems in Russia will weigh on the improvement in exports of goods and services, which cut Cyprus’ current account deficit to just 0.5% of GDP in 2014, a sharp fall from almost 7% in 2012 and double-digit deficits in 2008–10, the report said, adding that another factor weighing on the economy will be restraint on public spending as the bailout conditions imposed by the Troika of international lenders in 2013 force the government to target a return to primary budget surplus in 2016. As a result, investment growth will remain subdued in 2015, the EY report said, rising by just 1% after a rise of nearly 6% in 2014, but declines in the five years prior to that. At the same time, consumer demand remains subdued, held down by the need for fiscal austerity, and the high unemployment rate, which is expected to remain close to 16% this year.

Private consumption is forecast to be broadly unchanged for a second successive year in 2015.

However, the relaxation of budget pressures from 2016

will allow an acceleration of investment growth. At the same time, exports and tourism should begin to improve more strongly as Eurozone demand picks up steadily and the Russian economy returns to growth.

These factors should lead to a fall in unemployment and a rise in personal incomes, helped also by low world oil prices, in turn leading to stronger private consumption growth. As a result, GDP growth is seen at 1.1% in 2016, picking up to 2.5% in 2019.

But the growth forecast is fairly subdued due to the severity of the 2008–09 recession and the brevity of the recovery that followed it before the renewed downturn in 2011. GDP (in real terms) in 2014 was still some 10% below the pre-crisis 2008 level, and the latter is not expected to be regained until 2020. Moreover, in the short term, the risks to our forecast remain on the downside.

ON the negative front, the recession in Russia and the steep fall in the rouble have cast doubt over the prospects for exports of goods and services from Cyprus in the near term.

The island’s tourism industry accounts for over 10% of GDP and relies heavily on Russian visitors, who normally make up 25% of the total number of tourists (second only to those from the UK) and some 30% of revenues for the sector.

Overall tourist arrivals rose 1.5% in 2014, but, as the situation in Russia worsened toward the end of the year, the number of Russian visitors to Cyprus fell by over 18% from a year earlier for November and December. And with the

economic climate in Russia worsening, local industry sources suggest that Russian arrivals could fall by 15–20% this year, after rising almost 5% in 2014.

There should be some offset from a higher number of visitors from the UK (up 5% on the year in December but down by 2% in 2014 overall) where growth and incomes are rising faster and the weakness of the euro will encourage foreign holidays to Eurozone countries. Visitors from Greece have also started to pick up as its economy begins to improve. But the continued sluggish recovery seen in the Eurozone as a whole will mean there will be little overall boost to exports of goods and services from this source.

The recession in Russia will also hit the Cypriot banking sector further. And the current problems in Russia mean that companies there have been instructed to reshore some of their assets from the island as capital controls are gradually removed, which will also have implications for government tax revenues in Cyprus.

So even though three of Cyprus’ biggest four banks passed the EU stress tests last October, and the fourth was required to raise a modest level of capital, the gradual pickup in GDP growth that we are forecasting means that the level of bad debts will fall only slowly in 2015–17 and will deter any rapid resumption of credit growth to non-financial businesses.

Moreover, the sharp drop in real incomes in the past two years will also constrain the rate of recovery in domestic bank deposits even when trust in the system is fully restored, with non-resident deposit growth held back until the Russian economy starts to grow again in 2016.

March 18 - 24, 2015

6 | CYPRUS | financialmirror.com

Cap on Croatian workers, EU labourers exceed jobless The Cyprus government is implementing limitations on employing Croatian citizens, at a time when unemployment remains at a record high of 16% and an independent study called for a ban on all foreign workers.

“The government is very sensitive on the issue of unemployment,” Labour Minister Zeta Emilianides said on Friday after a damning report by the Institute of Demographics and Migration Policies claimed that 200,000 EU and third country workers are depriving local of jobs.

Emilianides refuted allegations that EU citizens were getting benefits. She said that 5,000 households, all Cypriots, are receiving the Guaranteed Minimum Income welfare package introduced last year, and that only EU citizens with an at least five-year permanent stay on the island are eligible for GMI. She added that the Ministry has just concluded a bill on undeclared work, that foresees high administrative fines and even suspension of the business activity, in some cases.

The Institute report suggested that 4,142 EU citizens received unemployment benefit from the Social Insurance Fund in the first half of last year, adding that in July 2014 the total number of foreign workers, from the EU and third countries, was 99,972, while the number of Cypriot registered unemployed was 46,727.

However, bith figures were in decline as in July 2013 foreign workers were 103,278, while jobless Cypriots were 48,001.

Vice Chairman of the Institute Andreas Morphitis invoked a European Court of Justice ruling that EU member states must have the possibility of refusing social benefits to economically inactive EU citizens.

The report included a series of proposals, among which a comprehensive study by the Government over the employment of foreign workers, based on the conditions prevailing in the economy and the labour market.

‘We are ready to host regional forum,’ Anastasiades tells Egypt Gulf donors pledge $12 bln to Cairo President Nicos Anastasiades said that Cyprus would be willing to host a regional political and economic conference in an effort to build a bridge between Europe, North Africa and the Middle East, at a time when racial and religious conflict is tearing countries apart.

Speaking at the International Conference on Egypt’s Economic Development in Sharm El Sheikh on Friday, Anastasiades said that the mutual benefit is potentially of much higher importance and collectively more rewarding compared to any singular interest.

Gulf Arab allies pledged a further $12 bln of investment and central bank deposits for Egypt at the international summit, a big boost to President Abdel Fattah al-Sisi as he tries to reform the economy after years of political upheaval “Joint cooperation in promoting our shared objectives of stability, security and prosperity by addressing the complex challenges the Eastern Mediterranean is facing can have a positive spill-over effect in building the foundations for regional peace,” Anastasiades said, adding that “economic partnerships create common interests and form an integral part of political synergies.”

Anastasiades congratulated the Egyptian President and his government for the measures already taken to initiate structural reforms and promote investment, noting that their efforts are already bearing fruit. He stressed that Cyprus, from the very beginning, strongly supported Egypt’s political reforms and economic development initiatives, which, as he noted, are in the same line of thought as the current policies of the Cyprus government.

Noting that the actions of the extremist organisations in the region aim in the destabilisation of the region, Anastasiades said that “it is for this reason we welcome the increasing international cooperation for combating extremist groups that barricade themselves behind religious fundamentalism,” and assured that Cyprus, “despite being a small island state, is actively supporting this effort.”

Anastasiades was the only EU head of state who attended al-Sisi’s inauguration ceremony and ties have improved further in recent months with bilateral agreements signed on energy cooperation, especially as the Cyprus offshore oil and

gas prospects are neighbouring to Egypt and the North African state is willing to join a pipeline venture to transport any hydrocarbons extracted from the Cyprus Exclusive Economic Zone (EEZ).

During the Sharm El Sheikh meeting, a memorandum of understanding was signed to examine the transport of natural gas through an underwater pipeline from Cyprus’ offshore Block 12, explored and operated by US-based Noble Energy and junior partners Delek and Avner from Israel.

The agreement was signed by officials from the Cyprus Hydrocarbons Company and Egypt’s Natural Gas Holding Co. The MoU will facilitate cooperation between the two countries for the development and exploitation of “Aphrodite” gas field in block 12 of the Cyprus EEZ by exploiting existing gas infrastructures in Egypt to the mutual benefit of the two countries.

Egypt is reported to want as much gas as Cyprus can provide, the Minister of Petroleum and Mineral Resources of Egypt Sherif Ismail had said in Nicosia last November.

In joint statements with Energy Minister of Cyprus Yiorgos Lakkotrypis, Ismail noted that the possibility of reexporting Cypriot natural gas from Egypt “is an option that we are considering,” adding that “we discussed the details of how we are going to move forward with exporting natural gas from Aphrodite (block 12 of Cyprus’ EEZ) to Egypt.”

President Anastasiades’ visit to Moscow – theses and antitheses

By Dr Andrestinos Papadopoulos Ambassador a.h.

If we take into account the comment and reactions generated by the visit of President Anastasiades to Moscow, the first of an EU leader while the crisis in Ukraine continues, it will be characterised as very successful. It proved, despite various challenges, the resilience of the traditionally friendly relations between Cyprus and Russia and the strong political commitment to strengthen and deepen these relations in a variety of fields.

The U.S. and the U.K., in view of the Ukrainian crisis, reacted, the first expressing complaints over the timing of the visit, and the second concern over a deal that formalised the use of Cypriot ports by the Russian navy, although later on, Minister for Europe David Lidington tried to play down criticism of the visit.

The argument was that the importance of unity and of pressing Russia was jeopardised. Antithesis to this thesis is that Turkey, a NATO member and EU candidate, does not apply sanctions against Russia and received President Putin in Ankara, as Hungary did in Budapest, without any reaction either from the U.S. or the EU. However, Turkey’s invasion of Cyprus and violation of its EEZ are not a matter of concern!

Within the framework of the theses and antitheses projected by the President’s visit to Moscow, the following are of particular interest: In the first place, the relations between the EU and Russia

acquire, at this stage, a particular importance. In contrast to the policy of sanctions, Cyprus supported constructive dialogue and milder sanctions. Cyprus’ voice in the EU had a balancing effect and its involvement in the efforts to contain the Ukrainian crisis was very much appreciated by President Putin.

President Anastasiades expressed the position of the EU and conveyed messages from France and Germany, thus concurring with the Franco-German opening towards Russia. The telephone call to Chancellor Merkel after his return to Cyprus, testifies to the fact.

The geographic position of Cyprus and the particular interest of Russia in the eastern Mediterranean, as witnessed by its naval base in Tartus (Syria), put forward another issue conducive to cooperation between the two countries, with a view to solving the problems of the region through diplomacy and negotiations. The role of Cyprus in the stability of the eastern Mediterranean is confirmed by the excellent relations it entertains with all the countries of the region, and the fact that it can serve as a bridge between Europe, North Africa and the Middle East. A good example is the tripartite cooperation between Cyprus, Egypt and Greece which resulted in the “Cairo Declaration” of November 2014.

At this time of upheaval in the region, the signing of a series of agreements between Russia and Egypt offers yet another framework of cooperation between Cyprus and Russia, so as to fulfil the vision of stability, peace and prosperity in the eastern Mediterranean.

The antithesis comes again from Turkey, which on the basis of the Neo-Ottoman dogma of Davutoglu aspires to dominate the eastern Mediterranean, violating every principle of international law.

As far as the Cyprus problem is concerned, Russia played, and can still play, an active role. It has always supported the

efforts to solve the Cyprus problem on the basis of international law, the UN Charter and the resolutions of the Security Council. The good Putin-Erdogan relations prompted President Anastasiades to ask the Russian President to convey to Turkey those messages which will help to revive the inter-communal negotiations and their successful completion. This, however, does not prohibit Cyprus to continue asking its “strategic partner”, the USA, to intervene in the direction of Turkey with a view to changing its negative stand on the Cyprus problem. In this connection, it should be mentioned that Russia did not complain for having our relations with the U.S. upgraded.

Finally, the signing of 11 agreements relating to important issues of mutual interest proves the existence of political will to further strengthen the bilateral relations, which are not directed against any third country.

The outcome of our friendly relations with Moscow is the restructuring of the 2.5 billion euro loan with favourable terms and the perspectives of a more enterprising cooperation in the field of energy. The political meaning of the signing of these agreements is that it confirms the statehood of the Republic of Cyprus, which by contrast is not recognised by Turkey. This point has been taken up by Eroglu who rushed to state that the agreements are not binding for the Turkish Cypriots.

In view of the above, the conclusion is that the visit of President Anastasiades to Moscow was a resounding success, and by its substance created the political framework within which the further strengthening and deepening of the Cyprus-Russia relations will be sought, despite the reaction of third parties and their efforts to isolate Moscow. On the basis of reciprocity, Cyprus does not forget and in need is a friend indeed.

March 18 - 24, 2015

March 18 - 24, 2015

8 | COMMENT | financialmirror.com

Draghi calls for ‘quantum leap’ in eurozone integration Describing the eurozone economy as “steadily recovering”, European Central Bank President Mario Draghi has called for a “quantum leap” in institutional convergence of the eurozone, according to the EU news and policy site EurActiv.com.

A week after the ECB embarked on its quantitative easing programme to print money and buy sovereign bonds, Draghi said the bank’s stimulus, lower oil prices and structural reforms in eurozone economies were helping support growth in the 19-country bloc.

“We are meeting against the backdrop of a steadily recovering economic situation in the euro area,” he said in a speech at a finance conference.

“Most indicators suggest a sustained recovery is taking hold,” he added.

“Confidence among firms and consumers is rising. Growth forecasts have been revised upwards. And bank lending is improving on both the demand and supply sides.”

The ECB had helped generate this upturn, said Draghi. Earlier on Monday, the ECB said it settled EUR 9.75 bln of public-sector bond purchases in the first week of the programme to pump more than EUR 1 trln into the eurozone economy.

Under QE, the ECB intends to buy EUR 60 bln a month of mainly sovereign bonds until September 2016, or beyond if needed to see a sustained adjustment in inflation back towards the ECB target.

The central bank projects its plan will invigorate a frail eurozone recovery, already helped by lower oil prices and a revival in bank lending.

But Draghi warned the currency area’s economies and institutions have not converged sufficiently.

“This is why, whenever there is a serious shock in any part of the euro area, questions about the sustainability of the union still arise,” he said, pressing countries to reform their economies to stand on their own two feet.

Eurozone countries had not yet converged sufficiently to dispel doubts about the bloc’s cohesion, said Draghi, stressing: “We have now integrated too much to even entertain reversing the process - our economies are far too intertwined.”

Draghi has been pushing deeper integration since early 2012, when the eurozone debt crisis led him and other top crisis-fighting figures to work on a roadmap towards a banking union, fiscal union, economic union and political union.

The ECB president noted Europe’s fiscal rules have repeatedly been broken, straining trust among countries.

In response, he proposed deeper institutional integration, with more shared sovereignty and strengthened accountability of the EU towards its citizens.

“We need to move from a system of rules and guidelines for national economic policy making, to a system of further sovereignty sharing within common institutions,” he said.

EU member states reassert sovereignty over energy mix

Leaders to discuss Energy Union on Thursday-Friday

By James Crisp EurActiv.com European Union governments have reasserted their authority over their national energy policies, before leaders meet to discuss the bloc’s plans for Energy Union on Thursday.

A more effective, flexible market design is needed that will integrate renewables, according to draft summit conclusions, obtained by EurActiv.

Any public energy subsidies at national level must not unbalance the internal market, the text says.

But the new design should ensure “the right of member states to decide their own energy mix is respected,” states the leaked paper.

In the weeks before the summit, diplomats thrash out a draft agreement, which is subject to change. EU heads of state and government usually agree on a set of political conclusions at the end of each European Council. The reference to national sovereignty, added since the last draft, is significant. Especially as the latest conclusions now stress that national resources can add to energy security.

“Energy security can also be increased by having recourse to indigenous measures, as well as safe and sustainable low carbon technologies,” the new conclusions say.

Environmental campaigners fear this keeps the door open for national governments to frack for natural gas, and mine and use other fossil fuels.

Safe and sustainable low carbon technologies could be code for nuclear power or natural gas, they warned. NGOs Friends of the Earth Europe and Greenpeace EU told EurActiv the conclusions were a backwards step.

EU SUPERVISOR The European Commission’s proposals for an Energy Union, tabled in February, aims to bolster the EU’s resilience to supply shortages by moving energy around the bloc to make up for shortfalls. The initiative gained political impetus after the Ukraine crisis brutally exposed the bloc’s dependence on Russian gas, but will require an unprecedented level of cooperation between member states.

A future governance framework, to be developed in 2015-16, will likely give some supervisory powers to a pan-EU authority.

The framework must be “reliable and transparent”, according to the draft conclusions. While dominated by Energy Union, the paper also outlines positions on Russia and Ukraine, Libya, Syria, the Transatlantic Trade and Investment Partnership, and boosting growth and jobs in the bloc.

UK AND POLAND MEP Claude Turmes, a Green from Luxembourg, named the United Kingdom, France, the Netherlands and Poland as the biggest culprits among member states jealously guarding their energy mix. Poland, whose former premier Donald Tusk is now European Council President, is keen to protect its coal and investigate fracking.

France has an influential nuclear industry.

The UK government has agreed to expand its Hinckley nuclear power plant and is keen to look into fracking. It also does not want to be seen as ceding any more powers to Brussels, especially in the run up to May’s national elections. The UK’s relationship with the EU is a major issue in that vote, which could lead to a “Brexit” referendum.

“The latest draft looks like a UK/Polish wish list for nuclear and fracking,” Brook Riley, campaigner for Friends of the Earth Europe, said.

“EU leaders will need to make big changes in favour of efficiency and renewables if they want to walk their talk on climate action and cost-effective energy policies,” he added.

“The Netherlands and the UK have failed in their national renewables policies,” said Turmes. “Why should the bloc now follow

them?” he asked.

PRECEDENT EU leaders, notably David Cameron, refused to accept binding national targets for renewables and energy efficiency at the October 2014 summit, in order to agree to the bloc’s 2030 climate and energy targets.

Non-binding 27% goals were adopted in the conclusions instead.

Countries such as the U.K. and Poland insisted that national binding targets, beyond the 40% greenhouse gas emission reduction, were unacceptable infringements of their jurisdiction over their energy mixes.

Renewables and efficiency targets were made binding at EU-level, creating a need for an effective governance framework. That is expected to be part of the Energy Union project, which has developed beyond just security concerns to include the fight against climate change.

At this week’s summit, the leaders will discuss the possibility of some member states buying gas collectively, as EurActiv has previously reported.

But the new conclusions stress that any such joint buying, must be “in full accordance with competition and World Trade Organisation rules”.

Western member states have made that point before, but the inclusion of the condition in the conclusions is new.

The draft also calls on the European Commission to develop an energy and climate related technology development strategy, including in the next generation of renewables.

ECB’s QE unable to stop decline in February’s high yield issuance High-yield bond volumes of $6 bln were down from $16 bln in January, and $11 bln in February 2014 as larger M&A-driven activity subsided, despite the announcement of quantitative easing in Europe, Moody’s said. In addition, the rating agency downgraded 16 Russian corporates following the sovereign action, causing the downgrade-to-upgrade ratio to increase in the region.

“Although high-yield markets have seen renewed capital inflows that improve market liquidity, capital inflows did not translate into increased primary activity in February”, said Peter Firth, Moody’s Associate Managing Director.

“However, the pipeline for mid-March has begun to fill with a number of sizeable refinancing-driven deals”, added Firth.

The downgrade-to-upgrade ratio rose in February 2015 following

a large number of negative rating actions on Russian corporates, but Moody’s does not expect a broad weakening of aggregate credit quality among EMEA corporates in 2015.

Market access at the bottom of the rating scale at B3 and lower is not a given, despite good liquidity in the market. Issuance remains firmly at the B2 and higher rated level, with no lower-rated issuers accessing the markets in February. Investors continue to discriminate for credit quality and raise concerns about the most aggressive deal terms.

The challenge for concerned investors lies, however, with the QEfuelled spread compression and improving market liquidity, which could lead to deals with weaker credit profiles and weaker covenants still being completed.

March 18 - 24, 2015

financialmirror.com | COMMENT | 9

How far will the Euro fall?

By Anatole Kaletsky The US dollar is hitting new 12-year highs almost daily, while the euro seems to be plunging inexorably to below dollar parity.

Currency movements are often described as the most unpredictable of all financial variables; but recent events in foreignexchange markets seem, for once, to have a fairly obvious explanation – one that almost all economists and policymakers accept and endorse.

French President François Hollande, for one, has ecstatically welcomed the plunging euro: “It makes things nice and clear: one euro equals a dollar,” he told an audience of industrialists. But it is when things seem “nice and clear” that investors should question conventional wisdom. A strong dollar and a weak euro is certainly the most popular bet of 2015. So is there a chance that the exchange-rate trend may already be overshooting?

In one sense, the conventional explanation of the recent euro-dollar movement is surely right. The main driving force clearly has been monetary divergence, with the Federal Reserve tightening policy and the European Central Bank maintaining rock-bottom interest rates and launching quantitative easing. But how much of this divergence is already priced in? The answer depends on how many people either are unaware of the interest-rate spread or do not believe that it will widen very far.

Last year, many investors questioned the ECB’s ability to launch a bond-buying programme in the face of German opposition, and many others doubted the Fed’s willingness to tighten monetary policy, because doing so could choke off the US economic recovery. That is why the euro was still worth almost $1.40 a year ago – and why I and others expected the euro to fall a long way against the dollar.

But the scope for dollar-bullish or eurobearish surprises is much narrower today.

Does anyone still believe that the US

Countries that jail the most journalists worldwide By the end of 2014, the Committee to Protect Journalists (CPJ) had identified 221 journalists in prison across the world, the second highest number since the organisation started recording these figures in 1990.

China and Iran were the worst offenders, holding a third of all journalists jailed globally. In 2013, China imprisoned 32 journalists for their work and this increased to 44 by December 2014. Beijing has imposed strict rules on what can be covered by reporters and has denied visas to international journalists. According to the CPJ, almost half of those jailed are Tibetan or Uyghur. Iran is the second worst offender worldwide; 30 journalists are currently being held in Iranian prisons, including Washington Post reporter Jason Rezaian. Eritrea comes third overall with 23 imprisoned journalists while Ethiopia and Vietnam round off the top five with 17 and 16, respectively.

economy is on the brink of recession? Or that the Bundesbank has the power to overrule ECB President Mario Draghi’s policy decisions?

With so much of the monetary divergence now discounted, perhaps we should focus more attention on the other factors that could influence currency movements in the months ahead.

On the side of a stronger dollar and weaker euro, there seem to be three possibilities. One is that the Fed could raise

First, there is the effect of the strong dollar itself on the US economy and its monetary policy. If the dollar continues to rise, US economic activity and inflation will weaken. In that case, the Fed, instead of raising interest rates faster than expected, will probably become more dovish.

Second, there must be serious doubts about whether Asian and Middle Eastern governments will in fact want to shift more reserves into dollars, especially if this means converting the euros they have acquired

interest rates substantially faster than expected. Another is that investors and corporate treasurers could become increasingly confident and aggressive in borrowing euros to convert into dollars and take advantage of higher US rates. Finally, Asian and Middle Eastern central banks or sovereign wealth funds could take advantage of the ECB’s bond-purchase program to sell increasing proportions of their German, French, or Italian debt and reinvest the proceeds in higher-yielding US Treasury securities.

These are all plausible scenarios. But at least four factors could push the dollar-euro exchange rate the other way.

since 2003 at a loss and far below their purchasing power parity. Many countries have spent decades diversifying their wealth away from dollars, for both financial and geopolitical reasons. With the US increasingly prone to using its currency as an instrument of diplomacy, even of warfare – a process known in Washington as “weaponising the dollar” – China, Russia, and Saudi Arabia, for example, may well be reluctant to shift even more of their wealth into US Treasury bonds.

A third factor suggesting that the euro’s downward trend against the dollar may not last much longer is the trade imbalance between the US and Europe. The gap is

already wide – the International Monetary Fund forecasts a $484 bln deficit this year for the US, versus a $262 bln surplus for the eurozone – and is almost certain to widen much further, owing to the euro’s 20% depreciation since the IMF released its estimate last autumn.

The implication is that hundreds of billions of dollars of capital will have to flow annually to the US from Europe just to maintain the present euro-dollar exchange rate. And as the transatlantic trade imbalance widens further, ever larger capital flows will be needed to keep pushing the euro down.

Such huge capital flows are entirely possible, but what will drive them?

That question leads to the final and most important reason for expecting the euro’s decline to reverse or at least stabilise. While higher US interest rates will attract some investors, others will move away from the dollar if the combination of a more competitive euro, the ECB’s enormous monetary stimulus, and an easing of fiscal pressures in France, Italy, and Spain generates a genuine economic recovery in Europe. The resulting flows of global capital into European shares, property, and direct investment – all of which are now substantially cheaper than corresponding US assets – could easily outweigh the cash and bond investments attracted by rising US interest rates.

What, then, can strike a balance between the opposing forces operating on the eurodollar exchange rate? No one can say for sure, but one thing is certain: Whereas the profits from playing transatlantic interestrate differentials may run to 1% or 2% per year, investors can easily lose that amount in a single day – or even an hour – by buying the wrong currency when the trend turns. As we know from decades of Japanese and Swiss experience, selling a low-interest-rate currency simply to chase higher US yields is often a costly mistake.

Anatole Kaletsky is Chairman of the Institute for New Economic Thinking and the author of Capitalism 4.0, The Birth of a New Economy. © Project Syndicate, 2015. www.project-syndicate.org

March 18 - 24, 2015

10 | INTERVIEW | financialmirror.com

Coop bank to focus on farming, energy and insurance business CEO Marios Clerides says market share at 30-40%

Insurance business to get a boost with Allianz products

“Is this the weekend that we will have a haircut, or the next?”

This was the talk that drove thousands of depositors at the Cooperative credit societies (SPI) last year to fear a new bailin on savings, similar to the fate of the island’s two biggest lenders in 2013, a rumour that pushed many to withdraw their money, even from the safety of their local Coop.

But the ECB stress tests, which the state-bailed out Cooperative Central Bank passed with flying colours last October, acted in a catalytic way to put an end to the rumours and lay depositors’ fears to rest. The CCB had shown to have a surplus of 331 mln euros in the ‘worst case’ scenario, meaning it had enough capital to start lending again and try to revive the economy.

Gradually, deposits started to trickle back and with the bank’s biggest challenge being its responsibility towards small savers and agrarian communities, it had to juggle between its radical restructuring plan on the one hand and on the other, projecting an image that it was still the “peoples’ bank”.

When the Troika of international lenders insisted that the once-rural behemoth – that used to operate like a piggy bank for anyone who was turned down by commercial lenders – had to undergo a drastic change in culture and banking practices, it lay the foundations for the creation of a giant that is on track with profitability and can now afford to lower its rates below those of its rivals.

But it was not an easy accomplishment.

The bank, that is the owner of the formerly sprawling network of sister ‘housing and loan’ Coops that have been merged into 18, is now returning to its roots, literally, by refocusing its efforts on its biggest customer base, rural societies, and building new businesses, such as financing of renewable energy ventures and reviving its association with the global insurer Allianz.

Marios Clerides, the veteran banker who took the reigns of the Cooperative Central Bank just eight months after the economic meltdown in 20013, recalls trying to deal with the rumours of a rumoured bail-in, spreading every Friday and dissipating by Monday.

“It was a terrible environment for the public to work under conditions like this. The stress tests acted in a catalytic way,” to put an end to the rumours, he told the Financial Mirror in an interview.

And so, the new era for the Cooperatives started at the end of October.

“October were the results (of the stress test) and in November, a relief that that part was concluded. We saw a positive inflow of deposits, that is deposits which we had lost to competitors, coming back, and the (environment) calmed a lot.”

So, is the CCB free of stress tests for another year?

“We must understand, first of all, that the stress tests are now part of the way of life of the banks. It is like when the doctor tell you that every two or three years you need checkup. It is a preventive part to see, for example, if the building has any cracks, to give you time to bring in the right engineers to fix them.

“Unfortunately, for us in Cyprus, the stress tests, became associated with (asset valuers) PIMCO and the closure of Laiki and this is why the public has the wrong impression of what a stress test is all about,” Clerides said, adding that a bank does not change drastically from one year to the other.

Unless of course if something fundamental happens, such as Greece returning to the drachma.

CEO Marios Clerides: SMEs and rural banking “is in our DNA”

GREEK EXIT WAS GOOD “An unintended consequence of the MoU (when Cyprus banks were forced to sell their Greece operations), was that as a decision at the time it may have been wrong because the Cyprus banking system lost its diaspora it had in other markets. At the end, though, it seems to have benefitted us, because if we had any exposure to Greece today, we would see a similar deposit flight we are witnessing in Greek banks.”

Simple folk, who used to be the depositors, and subsequently ‘members’ of the local Cooperatives, now want to know if they will ever ‘own’ their old savings banks, again, with the government, that pumped in 1.5 bln euros to prop up the CCB, ever selling its shares back to the public.

“The government has given first option to the old Cooperative members, who were the owners of the local Cooperative credit societies, to buy back their SPI five years after the MoU. After those five years, there is no obligation to leave for another 10 to 15 years. Thus, the government may leave, but it is not obliged to do so,” Clerides said.

Does this mean that the present management has five years to restructure the Cooperative bank and turn it around?

“To return to profitability, yes, but for us the target is not necessarily to prepare for an exit. Actually, some of the targets we have are determined by the restructuring plan we signed for the Cooperative to gain state support. We have given some commitments to the European competition commission that we will close branches, and lower our cost to income ratio. Thus, it is not only to prepare for an exit, but also to comply with all these commitments. Parallel to all this, we are now under the supervision of the SSM (single supervisory mechanism of the European Commission), that demands that we must all have governance and a risk policy, and these are also included in the big picture of things to do.

“In March, this time last year, we were still merging. The Cooperative always existed, but the present form as we see it today did not, with the Cooperative Central Bank at the top and 18 subsidiaries.”

Clerides also believes it is important to clarify the bank’s current status, as a major publicly owned bank with subsidiaries.

“Publicly owned, yes, but allow me to make a differentiation, because there still seems to be some confusion in public opinion, MPs, politicians and others. We are a ‘state-aided’ bank and not necessarily governmentowned. It is a different concept. There is a 40-page document which determines our relationship with the owner. It is not like we are a state bank and we are obliged, thus, to lower rates. We are not obliged, unlike like semi-government organisations, to follow state policy.

“And this stems from an effort of the competition commission to regulate any potential conflicts of interest.

Now, any transactions we have with the state are controlled by third parties. For example, the suspicion was that if the government wanted to borrow it would resort to the Cooperative. It no longer works this way. There are controls all around.”

NO INFLUENCE Which is why the government has no influence over the CCB, either.

“It cannot force us, but because we are the Cooperative that has never had the ultimate goal of profitability, we also have some development aspects. It is part of our mission to see some actions to restart the economy. Some parts that will help the local communities, which was always part of our DNA. Local communities used to go the Coop to get financing for a public project, not worried if anyone could repay that loan. Now we must continue to do this but in a more structured way.”

Clerides said that the CCB’s traditional market is still the small to medium-sized enterprise (SME).

“This is community-based banking, also the traditional ‘green banking’ for the agriculture sector. When no one

March 18 - 24, 2015

financialmirror.com | INTERVIEW | 11

Cyprus could create bad bank to help borrowers

wanted to touch the farmers, we were always there for them and we were always more fair to our clients. Our rates were better, with no hidden charges. But we don’t want to be a lender without control.

“Now we must do all these within an environment of proper banking. At some stage, we misunderstood our social responsibility and we became a lender of last resort. Whoever had a problem with commercial banks used to go to the Coops. That is not our role. We need to be more responsible.

For example, if you want a new car and you are also preparing to send a child to study, with two more to follow, we will ask you, ‘can you carry the burden?’ ” The CEO of the CCB said that the size of non-performing loans (NPLs) is smaller than others.

“This has its advantages as well as disadvantages. The advantage is that our diaspora is much wider, and much more difficult to manage. The other banks may recover a major NPL from a leading property developer and could, say, resolve in one go the 10% of their problem loans. For us to do that we need to resolve thousands of cases. So our solutions are geared to other directions.”

The CCB, however, is often accused, like all commercial banks, that its is not providing sufficient lending from the pool of EIB financing to kick-start the backbone of the island’s economy.

“Our SME clients are much smaller than at other banks,” Clerides said, explaining that the problem with these funds is that the public feeling is that “they took the funds and lost them.”

“The reality, however, is that we have taken those funds, and if we do not give out loans, we are losing because we are paying interest on them. At the moment, we have taken those funds, we are paying interest, we are trying to lend, and we cannot find the demand.

“The demand, unfortunately, is either someone who is distressed at other banks and comes to us, or one who has a good project but does not have equity. So, bank financing should in actual fact have been equity financing. The classic example is all those who want to do start-ups or solar parks.

They expect the government to put up the land and the bank to give the money. I’m afraid the system does not work this way. The borrower must also take part of the risk and put up some equity,” Clerides said.

He explained that what is needed is low-interest lending.

“The state should also find a way to enter with equity, but we cannot wait for this to come from the banks, just as we suffered in the property market. Everybody put up real estate, the system collapsed and we were stuck with the equity.”

However, Clerides said now is the time regenerate businesses and restructure their finances to get them up and running again, with part of the solution being to allow investors to enter, as is the case with property developers and what happened with the banks.

“The issue of Cyprus is equity and I don’t see this problem being addressed in a systematic manner. And because in the past we had confused the banks with equity finance (you put up your home and started the company, which I financed), now you put up the home, the business flops and the mortgaged asset is stuck in the system.”

Recalling that at some time in the past banks had venture capital divisions, Clerides said that “we all closed (those divisions) because we have all learned. We had some bad experiences. To have a VC is good, but it needs a lot of control, and we did not have that. Part of the problem in our banking system is expertise.”

SHARED RESPONSIBILITY But even the borrower must now have a greater share of the responsibility. “The average Cypriot company owner does

know how to do cash flow analysis. They only realise they are in trouble when the overdraft gets out of control.”

However, there are also some positive aspects, as long as some easier and some simple rules are followed, even by the banks. When lending, the repayment must not exceed 35% of the borrower’s annual household earnings. In Cyprus, we have to decide what a household means. In the UK, you have to consider the different purses of a couple, here it includes the entire family.”

Clerides admitted that, for now, there are no plans to create a dedicated SME unit, or even a semi-partnership to provide advice.

“Not right now. The advice is given when we are discussing with the client. Unfortunately due to our restructuring plan, we cannot create new units, with new risks and additional staff.”

The CCB’s biggest advantage remains that some staff know the farming sector very well.

“We know the cycle of the farmer and we understand their needs. At the same time, we are trying to set up through third parties the infrastructure for alterative energy which we do want to do on our own. For example, we did now know that the biggest risk to solar panels were frustrated hunters who would shoot at the panels and destroy them.

“The financing side is relatively easy. But the operational risks you learn the hard way. This is where the banks get lost.”

Looking ahead, Clerides said that the banking scene will change.

BANKING SPECIALISATION “I believe we will have more specialisation. You can see some specialisation with one team, say, working exclusively with developers. We thought we know about this stuff, but discovered many problem along the way. These are experiences you build and change your policies. There needs to be a thorough inspection of costal projects and follow where the money went,” he said.

Fortunately, the CCB has a very low exposure to property developers, with the portfolio no more than about 20-30 mln euros.

The Coops had always been inbound market. Not much trade financing and mostly consumer loans to SMEs, restaurants, shops and micro businesses.

For the other banks, the boom will come from the international business units (IBUs), Clerides said, but as the CCB does not have such a division, they hope to benefit from the spillover effects in the economy.

“The Cooperative will stay focused on its own strengths, in traditional markets, and expand only where we can find a niche and do this very carefully. The biggest mistake of all banks is when you believe you can do everything,” he added.

As regards new technologies, “online banking is one of the things we have to look at seriously. Others may have surpassed us, but we have to work on the morphology of our clients, if they can or want to use it, because they want the personal contact, they don’t want the faceless contacts.”

There is also a new dynamic, he said, from a lot of young customers. “If we don’t have this infrastructure, we will stay with the old clients and we will die with them.”

As regards other activities, Clerides said that the CCB plans to dispose of non-core assets, such as the fertilisers divisions, petrol stations, stores and that there is a deadline for the disposal of these commercial activities, including those where the CCB has shares, say, in the Cooperative gas distributor Synergas. “We must sell them and there are timeframes for deleveraging.”

One of the biggest unutilised strengths is the insurance sector.

Cooperative Central Bank chief executive Marios Clerides said last month that the state could buy nonperforming loans from Cypriot banks to help smaller borrowers by establishing a bad bank.

“For us it is convenient because we have a lot of loans of this type,” Clerides said in an interview to state-radio CyBC. “The problem is whether there are sufficient funds to support this effort”.

He added that the Cooperative saving banks were slow in restructuring non-performing loans as their staff has to deal with “a large number of smaller loans”.

Cyprus could also use 1 bln euros in bailout money initially earmarked for the recapitalisation of the cooperative banking sector, but remains unused after the CCB successfully completed the European Central Bank’s asset quality review in October.

Cyprus could introduce a scheme similar to that of Ireland which established the National Asset Management Agency in 2009 which bought problematic loans from banks, or a similar structure Greece is about to introduce, Clerides said, adding that this would also require the introduction of an effective legislative framework.

The general manager of the CCB said the organisation saw its deposits following the completion of the ECB’s stress tests increase by 330 mln euros.

Cooperative CEO since 2013 Marios Clerides, a well respected banker and economist and former chairman of the Cyprus Securities and Exchange Commission was appointed the new chief executive officer of the nationalised Cooperative Central Bank in December 2013.

The island’s Cooperative banks are now 99%-owned by the state following a 1.5 bln euro capital injection as part of the 10 bln bailout for Cyprus agreed with the Troika of international lenders (EC, ECB and the IMF).

Clerides, 62, until then Group Senior General Manager, Risk Management & Strategy of the Hellenic Bank, joined the island’s second biggest lender 31 years earlier in charge of planning and economic research. He was involved in various projects such as the introduction of ATMs in the bank, feasibility studies for the establishment of group subsidiary companies as well as in capital and bond issues of the bank.

In July 2001, he left Hellenic Bank to become chairman of the Securities and Exchange Commission (CySEC) on a five-year contract and returned to the bank as Group General Manager, Risk Management. Thereafter he also assumed responsibility for Group Strategic Development, Economic Studies and Corporate Governance & Compliance.

At the same time he was teaching part-time at the University of Cyprus where he served on the council for the Centre for Economic Research and was Chairman of the Cyprus Banking Association. In April 2013, he was appointed to the National Council for the Economy, headed by economics Nobel laureate Dr Christoforos Pissarides that advises the President of Cyprus on economy issues and future policy.

Marios Clerides studied Economics (B.Sc. / M.Sc.) at the London School of Economics and in 1982 he was awarded the Doctorate of Philosophy from the same University (Ph.D. in Labour Economics).

“We are brokers of Allianz. This is a very strong brand and actually undeveloped within the Coop network. It is unheard of that the Cooperatives with a 30-40% retail market share in banking to have a very small share of the insurance sector.

We can provide home, fire, car insurance. Allianz has life policies as well, and some of our members also have group policies, such as specialised groups, say the police, with different risks involved.”

Staff cutbacks at the CCB have stopped.

The priority now is some projects, such as disposals. “We have issues to resolve after we merged the 18 local Coops, as they are working as separate legal entities, and you have different working hours and labour issues.”

Clerides conclude that the aim to maintain the sense of local involvement. “For example, some Coops are open on Saturdays, but in rural areas Saturday banking is essential, there we will insist on keeping them all open.”

March 18 - 24, 2015

12 | COMMENT | financialmirror.com

Memories are made of this...

A few weeks ago, I wrote about my first, mainly business, visit to Cyprus in 1968. I wanted to come back for a holiday, but it took three years to do so. As the tale goes, it was about 7pm on a dark and stormy night, in 1971, when we arrived. There were very few tourists on the flight and no-one else had hired a self-drive.

The car hire company, with whom I had communicated by air-mail letter, had told me a Vauxhall Viva would be waiting for us in the car park, with the ignition key under the floor mat on the driver’s side. (We paid for the three weeks’ hire when we returned it to the company near Metaxas Square – no forms or agreements had been signed).

We – my wife, her mother, and two of our children aged 6 and 8 - blundered out into the wind and rain. And there it was, some distance away, alone in the centre of the Nicosia airport car park, with its side painted with a broad white “Tourist” strip. It was not a Viva in the first flush of youth; indeed I wrote in my diary that it was “grotty”. After six goes at starting it, the battery seemed about to expire, so the family pushed hard, to turn the car down the slope, where eventually it jump started. Wet and cold, we took several wrong turnings, once going through Turkish Army lines, eventually driving “the long way round” to Kyrenia.

We had rented a good sized house in the centre of the town, but couldn’t find it. A kindly coffee shop owner, “Call me Peter”, he said, guided us. The owners had put heaters on, so we were soon warm and appreciative of provisions they had thoughtfully provided. We dined well on eggs and bacon and fresh bread. Fed and watered, we soon were warmly a-bed.

The next morning was clear, crisp and sunny. Just around the corner was one of those lovely shops you used to find in Cyprus – and indeed all over the Middle East – a store that had everything, called Theo Papas. The owner stocked us up with vegetables, fruit and all kinds of food stuffs, and told us where to get the best lamb – we had a superb gigot d’agneau that night – and bread, from a Turkish bakery, which was warm and yeastily lovely. KEO and ETKO red and white wines in 5-litre flasks were 800 mils (Euro 0.75) and when you took back the empty Peter gave you 400 mils back. The wheels were well oiled for the duration of our stay.

The old Viva shook, rattled and rolled its away for hundreds of miles along the single track tarred roads, with gravel and stones at the sides to drive on when a local farmer came along the other way and refused to give way. We had Mezze for a Cyprus Pound a head by the sea-

Patrick Skinner

side, in hill villages and towns. We spent evenings at the Tree of Idleness at Bella Pais, where the cooking was simple and home-style: delicious Trachanas, kebabs (of course, but only made from lamb), and Tavvas, the like of which I have not had since. All for a little more than a Pound each, which covered expert Cypriot dancing, with water glasses (full) balanced on the swaying heads of the performers as a finale…

All this started our love affair with Cyprus and its food and wine, which culminated in taking up residence in 1992. They were good times.

News from Orexi One of my few regular contributors, who is not only a good business-woman and splendid cook but is good at PR, too, is Elena at Orexi Catering, Droushia. She does so much to promote our local food culture, she deserves all the success she gets and I am happy to quote her press release on her next event: Koulla’s goat Farm – Tuesday 24th March. This has become a much-loved event in the ‘Orexi’ diary. It’s a fabulous day out and a chance to see a traditional Cypriot farm in all its glory! The timetable is: 9.30am - Meet at Orexi HQ for breakfast – freshly baked savoury and sweet accompanied by pots of filter coffee or tea (builders’/herbal).

10.30am - Koulla’s Farm is just a short drive away – we will watch the goats being milked, then have the chance to observe the cheese-making process closely. Halloumi and the ricottalike cheese Anari. You’ll get to sample Koulla’s wonderful cheeses, have a walk round the farm and learn about rural life in Paphos.

1pm - Return to base for lunch at ‘Orexi’ HQ – enjoy our much talked-about Orexi lunch: Seabream baked and dressed with oregano, lemon and garlic and a couple of other tasty dishes to fill you up after a hard morning at the farm, accompanied by a glass of our finest local wine. The cost for the day is 30 euros which includes breakfast, lunch and the trip to the farm. Space is limited, so call Elena on 99887293 if you’d like to join the group.

Send me your news! To be published in Cyprus Gourmet, here and on-line. Email: editor@eastward-ho.com

Kouyialis seeks EU-wide support for halloumi PDO

Zambartas Rosé 2014 wins gold medal

Agriculture Minister Nicos Kouyialis continues to promote the legal claim on halloumi and the efforts underway for the application for the protected designation of origin (PDO), meeting in Budapest with EU officials where he told delegates that it is unacceptable and unethical for EU member states to act against other member states.

He was speaking, on the sidelines of a meeting on genetically modified organisms, in reference to the actions by some countries that have succumbed to lobbying in favour of demands by the Turkish Cypriots in the case of halloumi designation.

The working breakfast was attended by the Ambassadors from Visegrad 4 - Czech Republic, Hungary, Poland, Slovakia - who are being called to exert pressure along with the United Kingdom, Sweden and Finland to establish a production control mechanism for halloumi at the Turkish Cypriot Chamber of Industry.

Zambartas was awarded a gold medal at the Thessaloniki International Wine Competition in Greece for its Rosé 2014 which was one of the three best Rosé wines of the competition and received a special mention, as “The Best Rosé Blend of a Greek and a Foreign Grape Variety”.

The competition is held under the auspices of the International Organisation of Vine and Wine where renowned Greek and foreign experts assessed wines and spirits from Greece and abroad.

“It is an honour to receive a gold medal from a very challenging tasting event like the Thessaloniki Wine Competition where more than 550 sines were sampled,” said winemaker Marcos Zambartas.

“Our Rosé has been a favourite of wine aficionados for many years and this distinction justifies their choice.”

March 18 - 24, 2015

financialmirror.com | COMMENT | 13

‘The Art of Reggae’ poster exhibition in Nicosia

Pantelis Leptos (second left) with the organisers of the 12th International Reggae Poster Exhibition

The International Reggae Poster Contest (IRPC), an initiative designed to celebrate the cultural diversity and richness of reggae music, is being exhibited at a special event in Nicosia until the end of the month.

The theme of the contest, “Toward a Reggae Hall of Fame, Celebrating Great Jamaican Music”, emphasises the globalisation and pervasiveness of reggae and the positive impact of its message on the world. The umbrella term “reggae” encompasses all the popular Jamaican musical genres: Ska, Rocksteady, Roots Reggae, Dub, Dancehall and the unique Jamaican Sound System.

The IRPC’s success is reflected in the number of posters submitted in the two years of existence, which includes over 3,000 posters from 101 countries, including three award-winners from Cyprus.

The primary reason for the poster contest is to help build a world-class Reggae Hall of Fame Museum and Performance Centre in Kingston, Jamaica that celebrates the voice,

vision and vocabulary of Jamaican popular music.

The other objective is to help raise awareness for the Alpha Boys’ School, a vocational institution for underprivileged youths, located in the heart of Kingston and founded in 1880 by the Sisters of Mercy. This school is a great Jamaican success story, producing some of the most notable legends in the history of reggae. The IRPC is the 12th consecutive report since the founding of the competition.

Three Cypriot graphic designers where included among the 100 best posters of 2014: Georgia Charalambous won 28th place, Maria Agathokleous won 53rd position, and Darina Andreyeva received an honorary award.

The exhibition which is open until March 28 at the exhibition hall of Politis newspaper in Nicosia, was organised with the sponsorship of Pantelis Leptos, Vice Chairman of Leptos Group of Companies and Honorary Consul of Jamaica in Cyprus.

After-work party becomes an art form

Haze Team launches Spring Season events with ‘Galleria d’Arte’

The Haze Team, organisers of the popular ‘Milano Da Bere’ after-work parties in Nicosia for the past three years, are continuing with their themed-events, catering to the hundreds of young execs seeking to unwind after a stressful day at work, while also networking with other like-minded professionals in a more relaxed atmosphere, and away from the drab of the office.

Now preparing for the next event at the Patio Lounge and Bar off Ledra Street on Thursday, named “Milano da Bere Galleria d’Arte”, the organisers believe they have come a long way in creating such a concept that has, admittedly, been imitated by others, often poorly, and never of the same standard.

“Haze Team has been operating in Cyprus for the past five years. Being young professionals in our mid-twenties, we felt the need that Cyprus was lacking when it came to innovative entertainment events that can offer young people quality entertainment,” said one of the co-founders.

“It all started on an amateur basis for event organising among friends, but very soon and due to growing demand it escalated into a fully professional event management team, nowadays being able to fulfil even the most demanding client needs. Currently, we cover a wide variety of event management services, from hosting our signature events to organising external corporate events.”

Looking back to when the after-work party idea was first conceived in 2012, the ‘Hazers’ as they findly call themselves, were influenced from the latest trends in the leading business centres across Europe and the US. “We felt that something was missing from the Cyprus entertainment market. What was needed was a classy, professionally organised event that could fulfil the entertainment needs of young professionals, giving them the opportunity to network with fellow-professionals, often from rival companies, and bonding with their colleagues from work, while having a more relaxed mid-week entertainment.”

“Inspired from Italy, and more specifically from Milano and the aperitivo concept, we came up with the idea of afterwork events and the name of Milano Da Bere.”

The after-work event has been a phenomenal success “and now we have already reached the third consecutive season of Milano Da Bere. There are many reasons for this success.

However, the key is the quality and value for money entertainment we rpovide.”

The Haze Team also incorporate in their events everything that has to do with art and live performances, whether this means music, dancing, acting, painting or any other form of art and expression.

Helping them along the way has been sponsor Cosmos Trading Ltd. that has identified the Milano Da Bere with its premium Chivas Regal. The events are supported by events marketeers MediaPro and the Financial Mirror if the media partner.

Milano Da Bere - Galleria d’Arte The Milano Da Bere Spring Season kicks off this week with the newest artistic theme “Galleria d’Arte”!

On Thursday, March 19, Haze Team and Bizart Galleries will transform the Patio Cocktail Bar in the heart of Nicosia into a live art exhibition, presenting modern paintings, art deco ceramics and other decorative items.

Bizart Galleries will provide 15% discount cards and the same discount will apply during the event for all the art items presented. In addition, Haze Team will offer the following three gifts from the Bizart Galleries to be drawn among the guests.

1) A handmade ceramic creation; 2) A metallic car replica; 3) A 50X50cm painting.

The Haze Team’s resident DJ, Andrew P, will once

again entertain along with live saxophone tunes, while guests are urged to be ready for a surprise of an artistic performance.

Doors open at 6.30pm. The reservations must be strictly attended by 7.30 while the open buffet will be available until 8.30. The dress code is ‘business, smart’. A limited number of reservations is still available. In addition, the organisers say that for safety reasons and to avoid any inconvenience during the event, the number of people per reservation will be strictly preserved at the door. Guests are urged to reserve their table stating the number of people to attend, as soon as possible.

To reserve a table contact Haze’s maitre, Andreas Christodoulides on 99 306254 and 99 092932.

For information visit www.hazeteam.com . Gold partner: Chivas Regal Cyprus; media partners: Financial Mirror and MediaPro.

March 18 - 24, 2015

14 | WORLD MARKETS | financialmirror.com

Facebook’s attempts at E-Commerce (again)

By Oren Laurent President, Banc De Binary

As online shopping becomes the norm for a growing number of today’s Internet users, Facebook wants in on the action. The social platform acquired TheFind last week, a retail search engine, which is its latest buy in the profitable e-commerce space.

Shopping addicts had better watch out: when innocently browsing friends’ photos, you could soon be tempted to indulge in purchases that you didn’t previously know you wanted.

With a handsome $12.6 bln in annual ad sales in 2014, Facebook is already a dominant player in the online retail industry.

The newest acquisition shows that it sees further potential in ecommerce. We only need to look at the tech giant’s statement for a clear indication of its motives and future plans: “TheFind’s talented team has built a successful search engine that connects people to products. Together, we believe we can make the Facebook ads experience even more relevant and better for consumers.”

In other words, TheFind’s e-commerce search features will soon be integrated into the social platform; the advertisements that you see will be customised to your interests and previous online activity. Facebook may also adapt TheFind’s algorithms to stop displaying products which were already purchased. Facebook hopes that by suggesting relevant and appealing items, you’ll be more likely to splash your cash. Of course, following this improved user experience, a percentage of the payment will go straight into their pocket. That’s smart marketing - if it works.

Following the announcement on Friday, Facebook shares slid 5 cents after the stock market closed. Investors are clearly mindful of the fact that this isn’t Zuckerberg’s first attempt to expand his search and digital advertising services. He unveiled GraphSearch in 2013 but the search engine failed to live up to the hype, his plan to

encourage retailers to sell goods via their Facebook page crumbled, and Facebook’s birthday gift shop was shut down last year after a heavily publicised launch.

Can his new venture procure better results? Although you may be right to be skeptical, it’s worth noting that Zuckerberg has finally switched his strategy. He has now bought out what he failed to successfully build in-house, and will employ many of the leading contributors and programmers in TheFind’s experienced team. At the same time, Facebook is currently testing a ‘Buy’ button on brand pages which facilitates direct purchases and has already been keenly adopted by many advertisers.

Facebook knows from its rival, Google, just how much money

can be made via online search and shopping, and the tech giant is determined to maximise its vast market share.

The saying goes that business success often comes after several failures and lessons learnt; Zuckerberg and his investors must be hoping that’s the case here.

Should investors buy these 4 ‘bad news’ stocks for big gains?

By Lee Jackson Often when a company presents bad news, it is for a real reason, and it may indeed be a harbinger of worse things to come. Sometimes, though, bad news is misconstrued by Wall Street, and what may very well be a temporary or transitory incident is plugged into the long-term thesis and a good stock goes the wrong way.

A new research report from Jefferies about one large-cap blue-chip tech giant that recently posted some news that Wall Street did not like got us to examine other similar stories that have occurred recently. We found four good examples of blue-chip stocks that got a little tarnished recently for one reason or another that investors may want to reexamine. They are AbbVie Inc. (NYSE: ABBV), American Express Co. (NYSE: AXP), EMC Corp. (NYSE: EMC) and Intel Corp. (NASDAQ: INTC).

ABBVIE Here is the classic big pharmaceutical stock that was sold because of competition within the marketplace, which may not turn out to be a factor at all. Trading at over $70 last December, the stock bottomed out recently, down almost 20%. After backing out of a deal with Shire PLC (NASDAQ: SHPG) as tax inversion transactions became unworkable, the company shot up to the December highs as arbitrage accounts covered the short positions on the stock.

After the quick rise at the end of the year, the stock was sold off in a big way when Wall Street started to become concerned over lower expectations for the company’s new hepatitis C therapy, Viekira Pak. In reality, the biggest concern was really a price war with competitors. Toss in a $21 bln purchase recently of Pharmacyclics Inc. (NASDAQ: PCYC), and you now have what can be called the return of the risk arbitrage zombies.

The bottom line is the company has a killer pipeline, and the Jefferies team is very positive on the stock, citing numerous drivers that they dub an “iceberg” of positive catalysts for the stock in 2015 and beyond, especially after the sell-off.

AbbVie investors are paid an outstanding 3.55% dividend. Jefferies has a price target for the Buy-rated stock that is a whopping $80. The Thomson/First Call consensus price target is $68.64. AbbVie closed Friday at $58.00 a share.

AMERICAN EXPRESS The company was hit hard when the exclusive deal it had with warehouse retail giant Costco Wholesale Corp.

(NASDAQ: COST) recently ended. In fact, not only did the stock drop almost 17% from highs in January, but many of the top firms on Wall Street cut the ratings they had on the credit card giant. After posting outstanding results on the Fed’s stress test, many of the top firms on Wall Street are reconsidering the recent downgrades, as the share buyback will now be more than expected.

American Express’s 2014 capital plan allowed repurchases of up to $4.4 bln, plus

an additional $1.0 bln in the first quarter 2015. The company’s fiscal 2015 plan includes $6.6 bln of stock repurchases from the second quarter through the second quarter 2016. The company is also increasing the dividend paid to shareholders by a sizable 12%.

American Express shareholders are currently paid a 1.3% dividend. Jefferies has the stock rated Hold, with an $85 price target. The consensus target is $87.40, and shares closed Friday at $80.60.

EMC Shares are trading at an incredibly low 14.5 estimated adjusted 2015 earnings, versus 15.1 for 2014. The company is the leader in storage, and the constant increase in data makes the stock a core holding for technology investors. EMC missed revenue estimates for the fourth quarter and just squeaked by on the bottom line, beating estimates by a penny.

With the company expected to buy back $3 bln of stock in 2015, and the lower VMware Inc. (NYSE: VMW) numbers baked into future calculations, now may be a good time to add shares of this outstanding technology stock. EMC owns 80% of the cloud software company, and activist investors have urged a spin-off, which does not seem likely in the near future.

This past week a Wall Street analyst from Wells Fargo was not thrilled with the progress the company is making and said the stock was “dead money.” The analyst argued that until numerous catalysts kick in, the stock will go nowhere. The stock, which already had rolled over to start March, was hammered. This may give investors the best

entry point in some time to this quality oldschool tech stock.

EMC investors are paid a 1.8% dividend.

The Jefferies price target for the Buy-rated tech giant is $31, and consensus target is posted at $30.74. EMC closed Friday at $26 a share.

INTEL This is the stock that got us to looking for the other bad news bears that Wall Street was taking to the woodshed for a beating. The iconic chip giant had a stellar 2014 on the tailwind from continued PC and notebook sales. The stock has underperformed the S&P 500 by a massive 14% year-to-date, and last week the company dramatically lowered estimates for the first quarter, an event that was not altogether unexpected.

The Jefferies team points out that earnings confessions are not that unusual in the chip world, and history suggests buying the confession pays off in semiconductors.

They are of the opinion that last week’s announcement is a stellar opportunity for investors to buy a quality stock.

Intel investors are paid an outstanding 3.13% dividend. Jefferies has the stock rated a Buy and dropped the price target slightly from $50 to $48. The consensus target is much lower at $35.75. Shares closed trading on Friday at $30.93.

It is one thing to try to grab the proverbial falling knife when buying beaten down stock.

It is quite another to get the opportunity to buy blue-chip market leaders on the cheap, especially with the stock market still close to all-time highs.

(Source: 24/7 Wall St.com)

March 18 - 24, 2015

financialmirror.com | MARKETS | 15

A petty and short-sighted hissy fit Officials in Sri Lanka’s new government insist they blame Rajapaksa’s government for creating an environment in which Chinese companies were obliged to pay massive backhanders to secure deals. But they recognise that Sri Lanka became too reliant on Chinese dollars and that this was an important factor in the country’s general governance deficit. Now, in addition to seeking to restructure its Chinese debts, they are actively inviting other countries to play a greater role. Last week Narendra Modi visited the island—the first state visit by an Indian prime minister for a remarkable 27 years—and Colombo is normalising economic relations with Europe and the US. As Beijing found in Myanmar—where Chinese investment

Marcuard’s Market update

by GaveKal Dragonomics The UK’s decision to join China’s new Asian Infrastructure Investment Bank is turning into a diplomatic triumph for Beijing and a disaster for Washington. France, Germany and Italy say they will follow the UK’s lead. South Korea and Australia, which the US urged not to sign up when the bank was established last October, are reconsidering. Even Japan, the most stalwart US ally in Asia, is rumored to be wavering.

Washington fears that China is trying to reshape the economic architecture of Asia. It rightly views the AIIB as a potential competitor to the Asian Development Bank and World Bank, and is concerned about China’s willingness to adhere to rules of good governance and environmental protection. But US attempts to undermine an institution that could improve lives across Asia are both petty and short-sighted. Far from dissuading its friends from joining a multilateral institution it does not trust, Washington should welcome their ability to influence it from the inside. This would be positive not only for the US but for China, too, which is struggling to convince its neighbors that it can be trusted to deliver regional development.

For its ‘New Silk Road’ to be a success, Beijing needs to rethink its policy of offering loans to corrupt regimes. From Zambia to Liberia, South Sudan to Myanmar, its policy of working with unsavory governments has backfired. The latest example is Sri Lanka, a key link in the ‘Maritime Silk Road’, where voters recently threw out the thuggish government of Mahinda Rajapaksa. Under Rajapaksa’s nineyear administration, China financed investments of more than $5 bln. It built a much-needed highway and power station, but also a port and airport in Rajapaksa’s hometown that have proved expensive white elephants. Worse, these investments were financed at extortionate interest rates with a cut of the funds apparently siphoned off to Rajapaksa and his cronies.

The new government, a coalition of the main opposition and other parties, has been elected on a mandate to clean up government. Last week senior ministers told us they are revaluating several Chinese-funded projects and that it has suspended work on a $1.5 bln land reclamation and real estate development next to Colombo port. It says it will renegotiate a number of hefty loan repayments due to Chinese banks, some with an interest rate as high as 9%.

“The high costs come from nothing other than corruption, but we do not want taxpayers to pay for the past decisions of a corrupt regime,” Ravi Karunanayake, Sri Lanka’s finance minister, told us at his home in Colombo. “What we’re saying to the Chinese is this: ‘We’re in a tough spot. Please help us by taking a haircut on our debt’.”

has collapsed since the military junta dissolved itself in 2011—the willingness of China’s state-owned firms to work with corrupt elites and ignore international codes of conduct can be self-defeating. Ill-advised lending by Chinese policy banks also undermines international attempts to support good governance in developing countries where legal infrastructure and state capacity are often weak. So, as China steps up its policy of ‘going global’, it is clearly in the interests of both Washington and Beijing to help Chinese companies and banks improve their record overseas.

Just how much influence the UK and other western countries will wield within the Chinese-led AIIB remains to be seen. London’s decision to sign up is primarily motivated by commercial considerations, despite its po-faced protestations about ensuring the bank is ethical, transparent and environmentally sound. But if the presence of the UK and other allies can prod China to respect international lending standards, then the US should throw its weight behind their membership. Rather than seeking to contain China, Washington should accept Beijing’s legitimate attempts to carve out a global role—and help it to do so in a constructive way. Perhaps it could start by applying to join the AIIB itself.

The Financial Markets Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

0-0.25% 0.50% 0.05% 0-0.10% -0.75%

The National Association of Home Builders (NAHB)/Wells Fargo housing market index for March slipped two points from a prior reading of 55 in February to 53. The reading was well below a consensus forecast of 56 from a Bloomberg survey.

An index reading above 50 indicates that more builders view sales conditions as good than view them as poor.

The current sales conditions subindex slipped three points in March to 58, and the sales expectations subindex remained unchanged at 59. The subindex that estimates prospective buyer traffic dropped from 39 to 37. The buyer traffic subindex remains stubbornly below 50 and has for months, and the NAHB noted that the overall downturn in the index this month is expected to reverse as the spring buying season heats up.

NAHB’s chief economist said: “The drop in builder confidence is largely attributable to supply chain issues, such as lot and labor shortages as well as tight underwriting standards.

These obstacles notwithstanding, we are expecting solid gains in the housing market this year, buoyed by sustained job growth, low mortgage interest rates and pent-up demand.”

The NAHB/Wells Fargo housing market index has remained in positive territory since last July, but the buyer traffic subindex could indicate more than just a seasonal downturn: first-time buyers may be staying away because lending requirements are stiffer and home prices have continued to increase, even if the increases are moderating. (Source: 24/7 Wall St.com) WORLD CURRENCIES PER US DOLLAR

Disclaimer: This information may not be construed as advice and in particular not as investment, legal or tax advice. Depending on your particular circumstances you must obtain advice from your respective professional advisors. Investment involves risk. The value of investments may go down as well as up. Past performance is no guarantee for future performance.

Investments in foreign currencies are subject to exchange rate fluctuations.

Marcuard Cyprus Ltd is regulated by the Cyprus Securities and Exchange Commission (CySec) under License no. 131/11.

www.marcuardheritage.com

U.S. homebuilder confidence drifts lower in February

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.18 0.51 -0.01 0.07 -0.84

0.22 0.53 0.00 0.09 -0.83

0.27 0.56 0.02 0.10 -0.80

0.40 0.68 0.07 0.14 -0.71

0.71 0.98 0.20 0.26 -0.60

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.92 0.93 0.09 0.15 -0.69

1.26 1.13 0.14 0.17 -0.57

1.51 1.28 0.21 0.22 -0.44

1.69 1.40 0.28 0.27 -0.30

1.94 1.57 0.42 0.39 -0.07

2.15 1.73 0.61 0.57 0.17

CURRENCY

CODE

RATE

EUROPEAN Belarussian Ruble British Pound * Bulgarian Lev Czech Koruna

BYR GBP BGN CZK

15060 1.4763 1.8429 25.6631

Danish Krone Estonian Kroon Euro * Georgian Lari Hungarian Forint Latvian Lats Lithuanian Litas Maltese Pound * Moldavan Leu

DKK EEK EUR GEL HUF LVL LTL MTL MDL

7.0334 14.7456 1.061 2.18 286.62 0.66234 3.254 0.4046 18.2

Norwegian Krone Polish Zloty Romanian Leu Russian Rouble Swedish Krona Swiss Franc Ukrainian Hryvnia

NOK PLN RON RUB SEK CHF UAH

8.2973 3.9017 4.1821 61.7007 8.6439 1.0025 22.2

AUD CAD HKD INR JPY KRW NZD SGD

0.7646 1.2774 7.7639 62.695 121.24 1128.7 1.3577 1.39

Bahrain Dinar Egyptian Pound Iranian Rial Israeli Shekel Jordanian Dinar

BHD EGP IRR ILS JOD

0.3770 7.6276 27669.00 4.0081 0.7079

Kuwait Dinar Lebanese Pound Omani Rial Qatar Rial Saudi Arabian Riyal South African Rand U.A.E. Dirham

KWD LBP OMR QAR SAR ZAR AED

0.2993 1513.00 0.3850 3.6413 3.7504 12.3605 3.6729

AZN KZT TRY

1.047 185.35 2.6140

AMERICAS & PACIFIC Australian Dollar * Canadian Dollar Hong Kong Dollar Indian Rupee Japanese Yen Korean Won New Zeland Dollar * Singapore Dollar MIDDLE EAST & AFRICA

Exchange Rates

ASIA Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

1 USD

Opening Rates

1 EUR

1 GBP

1 CHF

100 JPY

1.0614

1.4767

0.9978

0.8248

1.3913

0.9401

0.7771

0.6757

0.5585

0.9422 0.6772

0.7188

1.0022

1.0637

1.4799

121.24

128.68

179.04

0.8266 120.97

Weekly movement of USD

CCY\Date

17.02

24.02

03.03

10.03

17.03

CCY

Today

USD GBP JPY CHF

1.1303

1.1273

1.1142

1.0746

1.0507

0.7350

0.7302

0.7245

0.7123

0.7087

GBP EUR

133.80

134.12

133.19

130.69

127.43

1.0524

1.0704

1.0643

1.0628

1.0583

1.4767 1.0614 121.24 1.0022

JPY CHF

Last Week %Change 1.5163 1.0746 121.62 0.9890

-2.61 -1.23 -0.31 +1.33

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira

Note:

* USD per National Currency

March 18 - 24, 2015

16 | WORLD | financialmirror.com

A global strategy for disaster risk

By Ban Ki-moon Current disaster-risk levels are alarming.

The cost of damage to commercial and residential buildings worldwide is averaging $314 bln each year, with the private sector bearing as much as 85% of that price tag. At the same time, a new United Nations report shows that annual investments in disasterrisk reduction of $6 bln can result in savings of up to $360 bln.

Hundreds of business executives, aware of the dramatic costs – and potential benefits – at stake, are now preparing to attend a UN conference on disaster-risk reduction in Sendai, Japan. A decade ago, when the last such gathering was held, the private sector was scarcely represented. This time, companies and entrepreneurs will be there in full force to explore a range of valuable opportunities.

The Tohoku region of Japan, where the meeting will take place, is a vivid reminder of how a disaster’s economic impact reverberates far beyond its epicenter.

Devastated four years ago by the Great East Japan Earthquake and tsunami, Japan’s automobile production was cut by nearly half. The financial damage did not stop at the country’s borders; as a direct result of the slowdown in Japan, automobile production dropped by some 20% in Thailand, 50% in China, and 70% in India.

The risks inherent in globalised production carry great rewards for those who know how to manage them properly. That is why major businesses such as PricewaterhouseCoopers, Hindustan Construction Corporation, AbzeSolar, Swiss Re, AECOM, AXA Group, IBM, and others – spanning many sectors and encompassing all regions – are engaging with UN experts to improve global strategies for disaster-risk management and reduction.

This level of business engagement bodes well for pioneering a new planet-friendly and people-sensitive approach to global prosperity. Indeed, the disaster-risk reduction conference in Sendai is the first in a series of major international gatherings this year.

Beyond Sendai, world leaders will convene in Addis Ababa in July to discuss financing for development, in New York in September to adopt a new development agenda, and in Paris in December to reach a

meaningful climate-change agreement.

Taken together, these meetings promise to generate transformative action that can set the world on a safer, more prosperous, and more sustainable path.

development and climate change.

Over the last 12 months, thousands of lives were saved in India, the Philippines, and elsewhere by improved weather forecasting, early-warning systems, and evacuation

Sustainability starts in Sendai for three major reasons. First, by its very nature, disaster-risk reduction requires forward planning. Second, investment in this area advances both sustainable development and climate action. And, third, helping those who are most vulnerable to disasters is the ideal starting point for the effort to aid all people by establishing universal targets for

plans. Advances in risk reduction that safeguard development gains and business investments must match this progress in disaster preparedness, and we must make wise choices that create greater opportunities in the future.

For example, experts estimate that 60% of the land that will be urbanised by 2030 has not yet been developed. Enterprises that

factor disaster risk into their construction plans will avert the much higher costs of retrofitting later. More broadly, over the next 15 years, the world will make major investments in urban infrastructure, energy, and agriculture. If this spending is directed toward lowcarbon goods, technologies, and services, we will be on our way to creating more resilient societies.

More and more industries appreciate this. At the Climate Summit that I convened last September at the UN in New York, financial institutions, commercial and national banks, insurance companies, and pension funds vowed to mobilise more than $200 bln by the end of this year for action to address climate change.

They envisioned a host of new initiatives, including issuing socalled green bonds and shifting assets to clean-energy portfolios. In a particularly important move, the insurance industry, representing $30 trln in assets and investments, committed to creating a Climate Risk Investment Framework for industry-wide adoption by the end of the year.

It is time to stop addressing development and humanitarian emergencies separately.

Disaster-risk reduction lies at the nexus of development assistance, which seeks to advance better living conditions, and humanitarian aid, which begins after a disaster hits. Starting our international calendar with the Sendai meeting on disaster-risk reduction sends a clear signal that the world is ready to integrate its strategies.

I have seen the human toll of disasters – from earthquakes in China and Haiti to floods in Pakistan and Bangladesh to Superstorm Sandy, which affected the Caribbean and North America, even inundating the lower floors of the UN facilities in New York.

When business, civil society, and government team up to help countries withstand disasters, they save lives, boost stability, and create opportunities that enable markets and people alike to flourish.

Sustainable profits.

Sustainable livelihoods. Sustainable development. It all starts in Sendai.

Ban Ki-moon is Secretary-General of the United Nations. © Project Syndicate, 2015. www.project-syndicate.org

March 18 - 24, 2015

financialmirror.com | WORLD | 17

Greece crisis continues: Driving to bankruptcy in a Merc Chief among these is the intention for a more efficient tax collection system and more specifically, an intention to go after the big tax evaders. That’s fine, but the big fish, those with the foreign bank accounts, have long ago taken their money out of Greece. Hopefully, it will be possible to retrieve some of it but that will take years. As for the more middle and lower income groups, modernising the tax collection system is clearly something Greece has long needed. This requires records and factual evidence. In other words it requires restructuring present institutions and systems and a lengthy time period.

By Dr. Jim Leontiades Cyprus International Institute of Management When Alex Tsipras’s party won the recent Greek election he urged his newly elected members of parliament not to follow the practice of previous governments. He asked them to forego their right to a luxury car on the grounds that their party, a people’s party, would be different. Approximately 90% of the new parliamentarians opted for a new saloon.

This is a small point but it illustrates a general truth. What seems readily attainable in theory often proves much more difficult in practice.

TIME RUNNING OUT

A CLASH OF CULTURES The more recent negotiations between the Greek government and the Eurogroup show that real problems are emerging in implementing the Athens government’s intended reforms to its bailout agreements. Greek negotiations with the Eurogroup are plagued by difficulties of communication, a clash of cultures. For the Greeks politicians, politics are decisive, they are “the will of the people”, the ultimate source of power. This is not what the Eurogroup is about. Its two most influential members — the ECB and the IMF — are banks. The Eurogroup, in the context of its negotiations with Greece, is essentially a lender with a banker’s mentality. The decisions to be made are those between a lender and a borrower. The lender has received a loan based on a promise to repay. Honoring this promise is a matter of principle.

The submission submitted by Yianis Varoufakis to the

Eurogroup on March 4, setting out the Greek plans for meeting its financial obligations, revealed the gap between the two parties.

The mental model the Greeks have of such negotiations is quite different from that of the Eurogroup. Banks require detailed, quantified plans for repayment. A two-page letter from Varoufakis was obviously not what the Eurogroup expected.

The French finance minister voiced the view of many in the Eurogroup: “The time comes when what’s needed is not declarations or slogans, but figures and verifiable data.”

What it got was more in the nature of a “wish list”, an incomplete outline of hoped-for results and intentions.

Time is something Greece does not have. Tax receipts are down. Capital is fleeing the country.

Billions are due to be paid to the Eurogroup this month. An air of desperation permeates the Greek government’s recent actions, such as raiding pension funds to meet March payments.

From the outset, the Eurogroup strategy was to avoid being the bully of Greece. That was the game plan for the first round of negotiations. But no more.

A number of the Eurogroup members are losing patience.

Having played the kind, understanding negotiator for the first round of negotiations, the gloves are now off. Don’t be fooled by Angela Merkel repeating over and over that “we want to keep Greece in the euro”. She is really preparing for just the opposite.

The Eurogroup will henceforth negotiate as what it really is – a banker dealing with a potentially delinquent borrower.

Moreover, there is a distinct possibility that the banker may be reaching the point where he is willing to cut his losses and write the whole exercise off as a bad debt.

DBRS upgrades Ireland to A, public debt improved DBRS, Inc. has upgraded the Republic of Ireland’s long-term foreign and local currency issuer ratings to A from A (low) and changed the trend to ‘stable’ from ‘positive’, while confirming the short-term foreign and local currency issuer ratings at R-1 (low) with a stable trend.

The ratings are underpinned by Ireland’s openness to trade and investment, young and educated workforce, flexible labour market, and access to the European market, all of which support the economy’s competitiveness and solid medium-term growth prospects, DBRS said.

The upgrade also reflects the assessment that the outlook for public debt sustainability in Ireland has improved. This is the result of a strengthening economic recovery, progress on reducing the fiscal deficit, and diminished risks stemming from contingent liabilities.

The New York-based rating agency said its expectation is that public debt ratios will trend downwards in the coming years, with improvements in the “Fiscal Management and Policy” and “Debt and Liquidity” sections of its analysis as key factors in the decision to upgrade the ratings.

“The Stable trend reflects our view that risks to the ratings are broadly balanced. If sustained improvement in the fiscal accounts place public debt ratios on a firm downward trajectory and create greater policy space to accommodate adverse shocks, the ratings could be upgraded,” DBRS said.

“On the other hand, Ireland’s growth outlook is subject to a high degree of uncertainty and spending pressures could intensify. If debt dynamics deteriorate – due to either a markedly weaker growth performance than currently expected or fiscal slippage – the ratings could face downward pressure.”

DBRS explained that the recovery in

Ireland is gaining momentum. The IMF estimates that GDP grew by 4.7% in 2014 driven by exports, which benefited from strengthening demand in the United States and United Kingdom.

Robust export expansion was accompanied by a revival in domestic demand, which made its first positive contribution to GDP growth since 2007.

Private consumption was supported by an improving labor market, positive wealth effects driven by rising home prices, and strengthening consumer sentiment.

Machinery and equipment investment also accelerated at a solid pace.

The recovery is expected to continue this year. The IMF forecasts GDP growth of 3.3%.

However, the near-term growth outlook faces upside and downside risks. Lower energy prices, a weaker euro, and a pick-up in residential investment as the market starts to address a housing shortage could act as tailwinds, providing further support to the recovery. On the other hand, economic weakness in the euro area and debt overhang among Irish households could pose obstacles to stronger growth.

Ireland has made substantial progress putting its fiscal accounts on a sustainable

path. The fiscal results for 2014 outperformed targets. The headline deficit narrowed to an estimated 4.0% of GDP, well below the Excessive Deficit Procedure (EDP) ceiling of 5.1% as well as the government’s initial deficit target of 4.8%. With the recovery strengthening, Ireland appears wellpositioned to reduce the deficit below 3.0% of GDP this year and exit the EDP on schedule.

Supported by rising property prices and strong interest from international investors, the National Asset Management Agency (NAMA) had redeemed ?16.6 bln out of ?30.2 bln in government-guaranteed bonds by the end of 2014, and now expects to wind up operations by 2018, two years ahead of schedule. The liquidation of Irish Bank Resolution Corporation (IBRC) could generate a surplus sufficient to repay unsecured creditors, including the Irish government. In addition, Ireland’s two pillar banks passed the ECB/EBA comprehensive assessment in October 2014 without requiring additional capital. This, combined with fact that both banks returned to profitability in 2014, suggest that financial sector-related risks to public finances have diminished.

The outlook for public debt sustainability

in Ireland has improved. Gross general government debt is estimated to have declined to 111% of GDP in 2014. With additional improvements in the fiscal position as the economy recovers, the primary surplus should increase sufficiently to put debt ratios on a clear downward path over the medium term. Debt dynamics also benefit from exceptionally favourable funding conditions. Ireland is taking advantage of record low yields to refinance most of its ?22.5 bln in IMF loans, thereby reducing interest costs and extending its maturity profile. In addition, proceeds from the sale of government holdings in Irish banks could potentially be used to reduce the public debt burden.

However, though public debt ratios are declining, they remain high and vulnerable to adverse shocks. The principal risk stems from the external environment. The outlook for the euro area is fragile, with weak growth expected in 2015. Fallout from disruptive events in Greece or escalating tensions with Russia could further weaken European demand. This would likely have adverse effects on Ireland’s recovery and public debt dynamics. On the domestic front, Irish banks face weak profitability and a high stock of non-performing loans. Adverse shocks could worsen credit conditions for the real economy. Moreover, Irish households remain heavily indebted, despite six years of deleveraging.

Demand for public services, notably healthcare and education, is expected to increase due to demographic changes, and pressure to increase public sector pay could build. General elections, which need to take place by April 2016, pose some uncertainty over the policy outlook. Nevertheless, DBRS believes it is most likely that prudent macroeconomic policy will be maintained through the electoral cycle.

March 18 - 24, 2015

18 | WORLD | financialmirror.com

A bright future for clean technology

By Jon Creyts and Martin Stuchtey

Observers might be forgiven for thinking that so-called clean technology’s moment in the sun has passed. Over the last two years, many clean-tech equity indexes have performed poorly. In Europe, solar power took a hit after the European Commission decided to phase out subsidies for renewable energy by 2017. The installation of solar panels fell by nearly 60% in Germany in 2013, and by 70% in Italy.

Meanwhile, in the United Kingdom, less than 30% of earlystage venture-capital-funded clean-tech deals were financed.

The truth is that we have been here before. The convulsions in the clean-tech sector are simply symptoms of a cycle that characterises emerging technologies: excitement, inflated expectations, and consolidation – ultimately followed by stability and the resumption of growth. Indeed, underlying recent developments are signs of a much more significant transformation: clean tech is becoming commercially viable.

Confidence in the clean-tech sector’s future is rooted in the need for sustainable solutions for a planet that is supporting an ever-wealthier population. Over the next 20 years, the number of middle-class consumers is expected to rise to some 3 bln, from 1.8 bln today. Their new lifestyles will require resources, including energy.

This surge in demand will occur at a time when finding, developing, and extracting new sources of energy and resources will be increasingly challenging and expensive.

Over the last 12 years, for example, the average real construction cost of an oil well has doubled, and in recent years new mining discoveries have been few, despite the industry’s best (and often expensive) efforts. But cleanenergy costs are trending in the opposite direction, ripening these solutions at a time when need – particularly in some of the world’s largest developing cities – is becoming acute.

One pivotal question for the future of clean tech has been whether it needs regulatory support to thrive. To be sure, the

withdrawal of subsidies in Europe hit the sector hard. But, even as Germany and Italy lost their first- and second-place rankings in terms of new solar-power installations, China and Japan took their place. Globally, the solar-power industry has grown at an average annual rate of 57% since 2006.

Regulatory support has been effective in creating demand and allowing sources of renewable supply to reach scale. But such support has not always been economically efficient. One lesson from the German experience is that sudden changes in regulation can create peaks and valleys in demand that are not helpful to an industry that is still emerging. The biggest risk in many markets is not that subsidies and other supports will be withdrawn, but that the regulatory structure will not adapt as the sector develops.

A thriving global marketplace goes a long way toward leveling the playing field across all resource options. During the last five years, dozens of solar manufacturing companies have failed, only to be replaced by stronger, more innovative, and more efficient players. More than one-quarter of cumulative global solar photovoltaic capacity was installed just in the past year. The International Energy Agency, which has been conservative regarding solar energy’s prospects, now expects it to be the world’s largest power source by 2050.

Nonetheless, concerns about the future of clean tech have made new projects more difficult to finance. But innovative new schemes, such as clean-tech bonds and third-party

financing, are changing the picture. Third-party ownership, in which a company installs and maintains solar panels, in exchange for either a set monthly rate or a fixed price per unit of power, has driven up adoption rates in California, financing more than two-thirds of new installations in 2012 and 2013. Similarly, new partnerships with large industry incumbents – such as the tie-up between Daimler and Tesla and the controlling stake that Total took in SunPower – are reducing the cost of finance for smaller firms.

Clean-tech companies are becoming more sophisticated and creative. An entire new industry has been created around the use of information technology to reduce energy consumption. Some companies, such as C3 Energy, offer electric utilities software that can analyse their electrical networks to improve grid operations and asset utilisation, increasing profits.

Smart-grid hardware has been deployed widely in the past decade, and as companies figure out how to use big data and analytic tools, it will become much more important. Google’s acquisition of Nest Labs for $3.2 bln is a good example of the value that companies are placing on this kind of data.

All of this adds up to an industry that Bloomberg calculates reached $310 bln in investment last year. This is not a “niche” segment, but an asset-intensive industry on its way to commoditisation.

Clean tech is maturing and adopting proven management practices in operations, marketing, sales, and distribution.

Increasingly, the industry is implementing approaches that have ensured success in other sectors, such as reducing procurement costs and deploying lean principles in manufacturing. As clean-tech businesses continue to scale up, there will be additional opportunities to improve.

The shakeout in the clean-tech industry has been tough; but it has also been typical of emerging technologies, and, by weeding out the weaker players, it has made the sector more robust. This is a global segment meeting a growing global need. There is little room for doubt that the clean-tech industry can expect plenty of sunny days ahead.

Jon Creyts is a managing director at Rocky Mountain Institute. Martin Stuchtey is Director of the McKinsey Center for Business & Environment. © Project Syndicate, 2015.

Building a caring economy

By Tania Singer Today’s mainstream economic models are based on two fundamental assumptions: first, humans are essentially selfish actors who act rationally to advance their own utility – so-called homo economicus; but, second, as Adam Smith’s metaphor of an “invisible hand” was intended to suggest, self-regarding behaviour can inadvertently advance the common good. Both assumptions are patently false.

In order to address pressing global problems like climate change and inequality, the predominant economic models must be rethought, incorporating other motivational systems that can induce different human behaviours. Such realistic models, based on empirical research in psychology and the neurosciences, would allow societies to cultivate their sense of compassion and build a new kind of “caring economics” that reflects more fully what it is to be human.

Neuroscientific studies have shown that humans can be motivated by care and systems of affiliation just as easily as they can be by power and achievement or consumption and desire. After all, we have evolved to be able to form stable relationships, build trust, and care for children, all of which requires a capacity for compassion and empathy. Once we recognise that these caring motivational systems are common to all humans – indeed, most are shared with other animals – the world begins to look very different.

Compassion, by contrast, is concern for another person that is linked to a strong motivation to alleviate their suffering. If, say, a mother sees her child crying after a fall, she may first empathise with the child, feeling its pain and sadness. But, rather than succumbing to feelings of distress, she will take the child in her arms to soothe and comfort it.

Both empathy and compassion seem to come naturally to humans. But both responses are fragile, and can be quelled or reversed by a large number of factors – including the degree to which we identify with the person who is suffering.

Humans tend to find it easy to empathise with and care about members of their “in-group” – people with whom they share features, whether real or socially constructed, like race, gender, age, or religious affiliation. Empathy and care toward out-group members does not come quite as easily. Such universal or global compassion – caring about people who are very different from us – probably requires the involvement of higher cognitive functions, and thus may be unique to humans.

It may also require some training. After all, living in a world that assumes we are homo economicus can encourage selfish habits. Fortunately, research suggests that such habits can be broken.

The largest such study is the recently completed ReSource project, in which my colleagues and I subjected almost 300 people, over 11 months, to an intense mental-training programme, developed by a team of experienced mediation teachers, scientists, and psychotherapists. The goal was to cultivate a broad range of mental capacities and social skills, including attention, mindfulness, self-awareness, perspective-taking on others, empathy, compassion, and the ability to cope with difficult emotions like anger or stress.

Progress was assessed by measuring changes in participants’ brains, hormones, health, behavior, and subjective sense of wellbeing.

The project’s preliminary results reinforce a key finding of previous, smaller studies: just as we can strengthen and transform a muscle through physical exercise, we can develop our brain and behavioral capacities – from attention and emotional regulation to trust and donation behavior – through regular mental training.

Of course, mental exercises must be honed to develop

particular skills and behaviors; mindfulness practice alone is not adequate to improve, say, socio-cognitive skills. And lasting changes occur only after a prolonged period of regular training. But, with the right approach, it may well be possible to foster the kind of altruistic and pro-social behaviors that are needed to improve global cooperation.

On the basis of these findings and those from other psychological, neuroscientific, and economic studies, my colleagues and I are now working with the president of the Kiel Institute for the World Economy, Dennis Snower, to formulate new motivation-based computational models of economic decision-making. These models will enable us to make clear, testable predictions about expected monetaryexchange behavior in an economic context, including in addressing common-good problems. In fact, several of these experiments are already underway.

The secular, ethical mental-training exercises used in the ReSource project could be applied in businesses, political institutions, schools (for both teachers and students), and health-care settings – in short, in all areas where people experience high levels of stress and related phenomena.

Young children, in particular, could benefit considerably from such training programs, which could enabled them to use mental skills and compassion to regulate stress and emotions. A lack of compassion is arguably the cause of many of humankind’s most devastating failures. Our success in tackling the enormous challenges we face will depend not only on our willingness to work actively and cooperatively to advance the common good, but also on our ability to foster the attributes needed to do so.

Tania Singer is Director of the Department of Social Neuroscience at the Max Planck Institute for Human Cognitive and Brain Sciences. © Project Syndicate, 2015. www.project-syndicate.org

March 18 - 24, 2015

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Britain in the wilderness

By Gordon Brown

Europe is once again divided between East and West – only this time the fault line runs through the European Union. The eastern members – most notably Poland and the Baltic states – are clinging fast to the EU in the face of Russian aggression. At the other geographic and political extreme, the United Kingdom is threatening to walk out on Europe for good. Decisions being taken today on Europe’s eastern and western peripheries are likely to shape a new balance of power.

It is not difficult to imagine Europe after a British withdrawal: a French-German axis in control, Russia empowered, America bypassing a now-weakened Britain, pro-EU Scotland threatening once again to leave the UK, and England turning inward as Euroskeptics convince themselves that Britain always is strongest when alone.

And, given the effects of UK Euroskepticism so far, no crystal ball is needed to foresee the impact on Britain of withdrawal from the EU. As former European Commission President José Manuel Barroso put it in December, “I’ve never seen in all my years in the European Council… a big country as isolated as Britain.”

Indeed, the UK is now a fringe player in deciding a European growth strategy; marginal to trade debates that it used to lead; and, despite being a big lender, almost irrelevant to the future of Greece. And now, though Britain was a signatory of the 1994 Budapest Memorandum guaranteeing Ukrainian independence, only France and Germany attend any serious negotiations. British ministers want it both ways: “Russia must be countered by even greater European unity,” they say. “But, by the way, we may be leaving.”

Dean Acheson, the US secretary of state who was an architect of NATO and the Marshall Plan, famously noted that Britain in the twentieth century lost an empire and never found a new international role. In the twenty-first century, Britain could lose Europe and find itself once again without a role in the world.

The price of exit would be enormous, putting at risk 3 mln jobs, 25,000 companies, annual exports worth £200 bln ($301.4 bln), and £450 bln of inward investment. Moreover,

London’s unique role in bringing together the full range of financial services that serve the continent – the City is home to 250 global banks with 160,000 employees and accounts for 80% of Europe’s hedge funds, 78% of its foreign-exchange trades, 74% of its derivatives, and 57% of its private equity – would be jeopardised as well.

There is little evidence to support the anti-Europeans’ argument that EU regulations hobble British trade outside of Europe; on the contrary, substantial extra-EU trade and investment opportunities would be lost were Britain to leave.

And their claim that a non-European Britain could effortlessly retain the EU’s benefits while ditching its burdens is simply not credible.

Consider the Euroskeptics’ favourite examples, Norway and Switzerland. The Norwegians must pay EUR 2 bln ($2.1 bln) a year for access to European markets. Switzerland, like Norway, must take a back seat to the EU Commission when trade and investment decisions are made.

The world’s largest economy, the United States, needs the North American Free Trade Agreement, and Southeast Asia’s rising economies need ASEAN. Likewise, Britain – which at its peak generated nearly 20% of world economic activity but soon will account for no more than 2.5% – is much stronger as a part of Europe. EU membership strengthens the UK’s competitiveness by enabling it to negotiate the best deals on trade, tax rules, patents, money laundering, corruption, and security with China, India, and the rest of the world.

But economic arguments alone will likely not be enough to persuade a Britain that, in the late journalist and political columnist Hugo Young’s words, is caught between the past

it cannot forget and the future it cannot avoid.

According to this view, British ambivalence toward Europe may reflect a persistent inability to leave behind the days of imperial grandeur.

Nonetheless, economic insecurity – owing to the rapid pace and, at times, destructiveness of the global economy – evidently is driving much of the public’s nostalgia for British sovereignty. Millions of Britons long for someone or something to protect them from the seemingly alien forces that threaten to steal their livelihoods.

This fear has found its voice in the antiEuropean UK Independence Party, which has risen in opinion polls by converting economic discontent into a culture war in which foreigners and immigrants – and, indeed, Europe as a whole – are the enemy. Britain, UKIP’s leaders and supporters believe, is not the Britain they once knew.

Though economic statistics must be part of the argument for Europe, such data will not convince those who fear that Britain is becoming a foreign country. Nor will it be enough to recall the historic benefits of engagement and Britain’s distinguished centuries-old role in ensuring that no country ever gained sole mastery of Europe. What needs to be said is this: Britain is at its best when it sees itself as a leader in Europe. Just as Britain once led Europe in fighting fascism, supporting democratic aspirations, and charting the continent’s response to the global recession of 2008, it should be inside Europe leading from the front ranks.

The Britain that has always championed liberty, tolerance, and social responsibility should be ready once again to lead a progressive movement, spearheading action to fight climate change, resist protectionism, and encourage sustainable growth. It must lead in mobilising Europe to make the global economy work for people, protecting them from injustice and inequity. Globalisation needs a human face, and the face of modern Britain can provide it.

Some say that the best way to secure European reform is to threaten to leave. My experience is that Britain does best when it works to bring people together, set the agenda, promote its values, and champion change. It is then that Britain can channel its unforgettable past while embracing its unavoidable future.

Gordon Brown, former Prime Minister and Chancellor of the Exchequer of the United Kingdom, is United Nations Special Envoy for Global Education. © Project Syndicate, 2015.www.project-syndicate.org

Realising the Indian dream

By Jim O’Neill It is not often that I get to wear two hats at once. But that is exactly what happened earlier this month, when I spent a few days in New Delhi.

I was in India primarily as part of my current role as Chairman of a review for the British prime minister on antimicrobial resistance (AMR). But my visit coincided with the presentation of India’s 2015-2016 budget, the first under Prime Minister Narendra Modi. Given some of my other interests and experiences, I found what was presented to be very interesting.

Following recent revisions to its GDP figures, India’s economy has recently grown – in real terms – slightly faster than China’s. A key feature of my research into the BRIC economies (Brazil, Russia, India, and China) more than ten years ago was that at some point during this decade, India would start to grow faster than China and continue to do so for dozens of years.

The reasoning is straightforward. India’s demographics are considerably better than China’s, and the size and growth rate of a country’s workforce is one of the two key factors that drive long-term economic performance – the other being productivity. Between now and 2030, the growth rate of India’s workforce will add as much to the existing stock of labour as continental Europe’s four largest economies put together. India is less urbanised than China, and it is in the

early stages of benefiting from the virtuous forces that normally accompany that process.

But there is a catch. When it comes to productivity, India has been a laggard. Unless it finds a way to improve, the country’s demographic profile could become a burden rather than a benefit.

In this regard, Modi’s first full budget did not include anything dramatic. But if a number of initiatives are successfully implemented, the economy should receive a real boost. Indeed, the budget’s main feature is its commitment to investments in public-sector infrastructure, even at the expense of raising next year’s deficit from 3.6% to 3.9% of GDP. I have argued for several years that India should emphasise investment spending, so I welcome this shift. The budget also includes a number of other helpful measures, such as the reduction of the corporate-tax rate and efforts to improve the business environment.

My visits as chairman of the AMR review also allowed me to witness some encouraging signs. In my book ‘The Growth Map’, I describe my unforgettable first visit to Gurgaon, a municipality near Delhi that serves as a regional financial and industrial hub. Gurgaon is home to a lot of high-flying technology firms, and on this trip I visited one of India’s leading diagnostics companies, SRL Diagnostic, which is developing tools that could improve the use of antibiotics.

The last time I made the trip from the Oberoi hotel in New Delhi to Gurgaon, it took well over 2.5 hours to travel the 30 kilometers. Though a new freeway was under construction, the building site was full of cars and animals. As a result, traffic was in a state of chaos, and it was impossible for any roadwork to be done.

I had always promised myself that the next time I took the trip, I would somehow repeat the exact journey. I am pleased to say that the drive now takes less than an hour and the experience was much less dramatic. Moreover, the hotel car that made the journey provided free Wi-Fi – the first time I have come across this anywhere in the world.

It is probably too early to say with certainty that India will soon take its place as the world’s third largest economy, behind China and the United States. But, given that India’s investment climate seems to be improving, that moment might not be too far away. By 2017, India could surpass Italy and Brazil to become the world’s seventh largest economy; by 2020, there is a reasonable chance that it will overtake France and the United Kingdom to become the fifth largest.

Overtaking Germany and Japan, however, will require bolder steps, especially regarding education, health, and economic policy. India will need to improve its education system dramatically, both at the secondary and tertiary level, and make similarly large advances in basic sanitation (not to mention implementing my review’s recommendations for combating AMR).

These developments, along with a more stable framework for monetary and fiscal policy, could lead to the type of double-digit growth that China has enjoyed for the past three decades. It is up to India’s policymakers to realise this ambition.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management, is Chairman of the Review on Antimicrobial Resistance. © Project Syndicate, 2015. www.project-syndicate.org

March 18 - 24, 2015

20 | BACK PAGE | financialmirror.com

The messy politics of economic divergence

By Mohamed A. El-Erian Αuthor of When Markets Collide

The world is increasingly characterised by divergence – in economic performance, monetary policy, and thus in financial markets. Global divergence has already contributed to stock-market volatility, unprecedented declines in advanced economies’ government bond yields, and outsize currency movements. And the trend is not abating, placing increasing pressure on already-strained political systems.

The world’s systemically important economies can be placed into four categories. The first group includes countries like India and the United States, where economic recovery is broadening, enabling them to overcome financial imbalances. The second group is exemplified by China, which is achieving a soft landing onto a growth path that, while lower than in recent years, remains adequate to support continued progress toward high-income status and financial stability.

The third group includes economies – such as Brazil, several eurozone countries, and Japan – that are not growing fast enough, and face downside risks. And, finally, the fourth group consists of economic and financial wildcards like Greece and Russia – countries that could succeed in restoring growth and financial stability, but could just as easily implode, sending shock waves across Europe and beyond.

This divergence is as much a political phenomenon as it is an economic and financial one. Overcoming it – and ensuring

steady, financially stable global growth – will require responsive national policymaking and multilateral coordination. Unfortunately, today’s rather messy national and international political environments have so far precluded such an approach.

Nonetheless, experimental monetary policies in advanced economies – such as the large-scale asset purchases initiated this month by the European Central Bank – have slowed the vicious circle of subpar economic performance and muddled politics. But it is far from clear that this will continue, especially given the US Federal Reserve’s gradual exit from such policies, which puts America on a different path from most of the other advanced economies.

Moreover, market forces have gained an ever-larger role in reconciling global economic divergence, leading to dramatic shifts in exchange rates. The list of such currency movements – which so far has included the euro’s 25% fall against the dollar, a record low for the Mexican peso, and

disorderly depreciations of the Brazilian real and other emerging-economy currencies – is getting longer by the day.

Even healthy economies like South Korea are keen to weaken their currencies, leaving the US alone in its willingness to tolerate significant currency appreciation.

On their own, currency markets will not bring about the growth-enhancing global economic rebalancing that is needed. Better policies at the national, regional, and global levels are also essential – and that requires better politics.

Too many political leaders around the world remain unable – or unwilling – to fulfill their economicgovernance responsibilities. This is particularly regrettable, given that there is a broad consensus regarding the technical components of the required policy response: structural reforms to revamp growth engines, efforts to rebalance aggregate demand, and the elimination of debt overhangs. (The eurozone must also work to complete the essential underpinnings of its historic integration project.) What is missing is implementation.

But governments seem unlikely to overcome their dysfunction anytime soon. In the US, Congress and the executive branch are locked in a stalemate. Europe’s political systems are being shaken by the rise of populist parties, many of which are winning support with an anti-European platform.

In the emerging world, Brazil’s government has faced multiple corruption scandals. And Russia’s leadership remains committed to its disruptive regional adventures, regardless of their devastating

impact on its economy.

In most, if not all, of these cases, we see examples of a broader phenomenon: what might be called governing by inertia – a “can’t, won’t, and shouldn’t” mentality, to paraphrase the economist Mark Blyth, that blocks effective policymaking.

As policy inertia prolongs sluggish growth and impairs job creation, it becomes even more difficult to abandon. Given how hard it is for governments to initiate a shift to a new policymaking mode (that is, to disrupt themselves), pressure will build from the outside. In a democracy, this tends to occur through the fragmentation of traditional parties and the emergence of non-traditional parties – some offering genuine alternatives, and others relying on fear and prejudice.

The global economy is at a critical juncture. Most economists agree on what is needed to avoid another round of lost growth opportunities, inadequate employment, financial instability, and worsening inequality.

Central banks and markets cannot achieve an orderly global rebalancing on their own. As difficult as it may be, politicians need to pursue comprehensive policy responses. The longer they delay, the less effective their efforts will be. As bad politics block economic opportunity, public trust in governments will continue to erode – with serious potential consequences for political systems, and the economies they administer, worldwide.

Mohamed A. El-Erian, Chief Economic Adviser at Allianz and a member of its International Executive Committee, is Chairman of President Barack Obama’s Global Development Council and the author, most recently, of When Markets Collide. © Project Syndicate, 2015.

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