Financial Mirror 2015 04 29

FinancialMirror JEFFREY FRANKEL Asian games are not zero-sum PAGE 16

JEFFREY SACHS

Issue No. 1132 €1.00 April 29 - May 5 , 2015

The case for peace with Iran PAGE 19

A new deal for Greece?

- Will anything change after Varoufakis is sent off?

- The ECB’s three tough choices it faces today

PAGES 10-11

Apple announces solid earnings, but does not impress with dividend hike

PAGE 9

April 29 - May 5, 2015

2 | OPINION | financialmirror.com

FinancialMirror Published every Wednesday by Financial Mirror Ltd. www.financialmirror.com

Sunday shopping regulation: a return to the Dark Ages

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A lot has been said about the merits of Sunday shopping, with only one (unsubstantiated) argument against it – that is that the figure of 7,000 people finding jobs is impossible to prove.

The benefits of this relaxation to the old rigid rules have been tremendous, even within the crisis that we are living through today. The change has helped, somewhat, with employment, retailers are increasing (or at least sustaining) their turnover and, fingers crossed, when the tourists arrive in flocks, they will continue spending in our shops, just as they do any other day of the week.

The rule change, which the opposition parties in parliament have stripped the Labour Minister of setting by decree, has also been a help to ordinary folk, many of whom work more hours during the week to make ends meet.

It is now clear that with just 12 months to go to the next parliamentary elections, parties are flexing their muscles to show their grossly frustrated supporters that they are doing some work and that they do justify their fat taxpayer

sponsored salaries.

But judging from the ferocity with which some politicians are arguing in favour of shutting down shops on Sundays, it leaves a major suspicion that some MPs and their party bosses may be on the take from kiosk-owners, probably by getting a free newspaper or two, or a bonus ice cream.

How else could one explain allowing kiosks to operate on Sundays when they used to rob consumers by overcharging for food and other necessary items.

If voters allow their MPs to continue playing such silly games, gambling with the rights of ordinary consumers, then they are worthy of the members they elect to parliament. And judging from the gaffes that the Club of 56 have seen over the past two years, then we couldn’t elect a worse bunch of representatives.

The likely solution will probably come from the north. With moderate Mustafa Akinci elected leader of the Turkish Cypriot community on Sunday, it is only a matter of time that reunification talks could re-start sooner than expected. And with such a solution could come a more frequent rate of crossings, building up confidence among the two sides and filling the pockets of those who wish to work on Sundays.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

Funds grab bonds, property dealer wanted Major funds were quick to grab the 15-year bonds issued by the government with a 6.1% coupon rate, while a Cypriot couple is seeking the arrest of a British estate agent selling property in the Turkish occupied north, according to the Financial Mirror issue 617, on April 20, 2005.

Funds buy bonds: Provident funds, insurance companies and banks rushed to grab the government’s multi-bond auctions with the 15-year bonds atracting the most interest. The CYP 50 mln issue with a coupon rate of 6.1% was oversubscribed three times, improving on the previous yield of 7.15%

20 YEARS AGO

Markets see Chirac win, call for flotation of rates Markets tipped Jacques Chirac to win the French presidential elections, but were uneasy on some of his policies, while at home, Bank of Cyprus Chairman Solon Triantafyllides called fro the flotation of interest rates as part of the path towards EU membership, according to the Cyprus Financial Mirror issue 108, on April 26, 1995.

Chirac win: Analysts expect conservative

on 15-year bonds auctioned in June 2004.

Agent wanted: A Cypriot couple is seeking the arrest of Mark Unwin and his wife Hayran who appear as property developers on land that belongs to refugees Christos and Despina Mazios from Ayios Epiktitos. In a separate case, a Nicosia court upheld an order issued in November ordering Britons Linda and David Orams to tear down their house and return the land in the occupied areas to its rightful owner, Meletis Apostolides. The case could affect some 6,000 Britons who have bought property in the north.

Talat wins: The election of Mehmet Ali Talat as president of the TRNC on Sunday signals a sea change among public opinion in the north. He won fom the first round having secured 55% of the votes and ousted Rauf Denktash who has controlled politics since 1983 and is regarded an obstacle to reunification. President Tassos Papadopoulos gave a caution welcome, while AKEL leader Demetris Christofias called on Talat show “respect” for the Greek Cyrpiots.

Moodys warning: The rating agency said growth would average 4% over the next two years but challenges remain in declining competitiveness, rising labour costs, high oil prices and falling tourism receipts.

Biggest Costa: Costa Coffee is opening its biggest outlet in Europe, with the flagship coffee house on Nicosia’s busy Griva Digheni Ave. Oh, and Cardinal Ratzinger is elected Pope…

Jacques Chirac to beat socialist rival Lionel Jospin for the French presidency, but remained nervous about the impact of his economic policies, such as reducing the deficit in the health care system without cutting benefits, cutting the budget deficit while reducing taxes.

Free rates: Bank of Cyprus Chairman Solon Triantafyillides said that it was high time rates were floated, especially as the right conditions exist for

Cyprus’ EU membership. He told shareholders at the AGM that the flotation will benefit both depositors and borrowers.

CA BAC 1-11s: Cyprus Airways is expected to decide who to sell its three BAC 1-11s to, with Chairman Vassilis Rologis saying that despite the loss of aircraft, 110,000 more seats would be created this year. After huge losses in 1992-1993, CA managed to return to the black with a profit of about CYP 3-4 mln expected. In 1994, the airline carried 1.3 mln passengers and Eurocypria 382,000.

Vassiliou in north: Former President George Vassiliou has accepted an invitation from the Turkish Cypriot Young Businessmen to visit the north and talk about the economic implications of a solution.

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April 29 - May 5, 2015

financialmirror.com | CYPRUS | 3

Second post-bailout bond issue a success 1 bln raised with 4% yield €1 Finance Minister Harris Georgiades announced that the government’s second bond issue since the bailout programme two years ago was a success with EUR 1 bln raised with a 4% yield rate.

Georgiades said the 7-year bonds, listed on the London markets, were nearly twice oversubscribed and this affirms that confidence has been restored in the Cypriot economy which will help the country emerge from recession.

He said the money will be used to pay off older, more expensive debt and inject fresh liquidity into the economy.

The Ministry of Finance said that the EUR 1 bln RegS registered only fixed rate notes issue due 6 May 2022, pays a coupon of 3.875% and has a reoffer price of 99.250 with a spread of +367bp over mid-swaps, equivalent to +404.2bp over the 2% Jan-2022 DBR. The reoffer yield is 4%.

The joint lead managers in the deal were barclays, HSBC, Morgan Stanley and SG CIB. “I believe this is a development that confirms the restoration of trust in the Cypriot economy on behalf of the international investment community. It is an important development which shows in the most tangible manner that the assessments of the investors regarding the Cypriot economy are positive”, Georgiades said.

He added that “this development, along with other positive developments over the recent period, such as lifting the restrictive measures, the passing of bills on foreclosures pending for a long time at the House, create the prospects for new impetus for the

economy’s exit at last from the recession”.

Responding to a Fitch opinion that Cyprus will not use the whole amount left in the bailout programme, Georgiades said “it is a fact that the needs of the Cypriot economy in relation to the official financing from the European Support Mechanism and the IMF

will be less” because the banks will not need further state aid and the deficits in the budget have been constrained, which means that “we will not have to load a further burden on the households and businesses”.

Asked if the Troika (EU Commission, IMF and ECB) would now be unnecessary, Georgiades said the aim was “to create the circumstances that would allow the economy to function without dependencies”.

Georgiades also said that the government was determined to push forward with its reform and recovery policy.

Cyprus returned to the bond market in June last year making the fastest comeback of any bailed out eurozone country by selling a five-year bond. It issued a 750 mln euro bond issue with a 4.75% coupon rate.

Edging out of recession, Dijsselbloem sees “good news” for Cyprus Cyprus Finance Minister Harris Georgiades told his colleagues at the Eurogroup meeting of Eurozone finance ministers in Riga on Friday that the island was “edging out of recession,” while the group’s Chairman Jeroen Dijsselbloem said there was was “god news” on Cyprus.

In a message on twitter Georghiades said: “My message at Eurogroup: Cyprus edging out of recession, with pro-reform, pro-market agenda & growth-friendly fiscal consolidation”.

He also issued a brief statement saying that “we are leading the Cypriot economy out of recession by promoting reforms and consolidating public finances”.

Georgiades added that “we are making any new tax measures unnecessary and we are regaining market confidence, thus creating prospects for investment and conclusion of the Cypriot (adjustment) programme”.

“This is the message that I conveyed today to Eurogroup. We remain committed to this policy”, he concluded.

Dijsselbloem said that the Eurogroup meeting had a full agenda, and that “all eyes are on Greece. I understand that there have been recently some positive signs, but there are still wide differences to cover and to bridge on substance.”

Moving on, he said that “e were informed that on 17 April the Cypriot parliament legislated to establish an insolvency framework and that will also make an end to the suspension of the foreclosure framework, which if I am informed correctly is coming to place on 6 May. This framework is needed to restore compliance with the prior actions of the fifth review. We therefore welcomed this important step bringing the programme back on track, which will allow the institutions to return to Nicosia to carry out the next review.”

“Another important development is that Cyprus lifted the last remaining capital controls on April 6th. Free circulation of capital has thus now been restored,” Dijsselbloem concluded.

April 29 - May 5, 2015

4 | CYPRUS | financialmirror.com

Sisi, Tsipras arrive for shipping, tourism, energy talks The leaders of Cyprus, Greece and Egypt are meeting in Nicosia on Wednesday with the agenda including economic relations in shipping, tourism and energy.

The meeting between President Nicos Anastasiades, the Prime Minister of Greece Alexis Tsipras and the President of Egypt Abdel Fattah el-Sisi, is expected to conclude with the Nicosia Declaration that will outline the guidelines for competent ministers of the three countries as regards the implementation of the issues agreed.

Government Spokesman Nikos Christodoulides said that the tripartite meeting is particularly important, noting that Cyprus shares common concerns with Egypt and Greece.

The President of Egypt will be accompanied by the Ministers of Foreign Affairs, Energy, Investments and the Government Spokesman. The Greek Prime Minister will be

accompanied by the Foreign Minister. The Ministers of Foreign Affairs, Energy and Finance of Cyprus will also attend the tripartite meeting.

Sisi and Tsipras will be welcomed during an official ceremony at the Presidential Palace.

The agenda of the meetings includes regional issues, the Cyprus problem, terrorism, developments in Yemen, the situation in Syria, Iraq and Libya and the Middle East issue.

As regards the issues of the Exclusive Economic Zone (EEZ), the meeting will be a follow up of the meeting in Cairo, which called for the Cyprus exclusive economic zone (EEZ) to be respected and for the end of Turkey’s seismic research within it.

With regard to the delineation of the EEZ of Greece and Egypt, Christodoulides referred to the bilateral meeting that

will take place between the two countries.

As regards the participation of Israel in this discussion, Christodoulides said that President Anastasiades is expected to visit Jerusalem after a government is formed to meet with the Prime Minister and after that a tripartite meeting between Greece, Cyprus and Israel is expected to take place.

As regards energy issues, Christodoulides recalled that a dialogue is under way on these issues with Egypt.

The commercialisation of the natural gas and ways of channelling it from the “Aphrodite” gasfield are being discussed at a bilateral level, as Egypt has a keen interest in Cypriot natural gas.

Moreover government sources have described as a positive development the purchase of British Gas, which operates in Egypt, by Shell.

President announces CBMs ahead of the resumption of peace talks

Jordan keen to import Cyprus gas Jordan is interested to import natural gas from Cyprus’ offshore gasfields and Cyprus is willing to supply Jordan with natural gas as soon as the infrastructures is ready, House President Yiannakis Omirou said on Tuesday after welcoming the President of the Jordanian Senate Abdur-Rau’f Rawabdeh to Cyprus.

Omirou stated that they discussed the

threat to the region from the Islamic State and that Cyprus and Jordan constitute factors of stability, peace and cooperation in the region.

“We will work to continuously improve and strengthen the relations between the two parliaments”, and between the two countries in the fields of energy, economy and politics”, Rawabdeh said.

Most of part time workers are underemployed Among the 44.1 mln persons in the European Union (EU) working part-time in 2014, some 9.8 mln were underemployed who wished to work more hours and were available to do so.

This corresponds to 22.2% of all part-time workers and 4.5% of total employment in the EU in 2014. The large majority of part-time workers being underemployed in the EU were women (67%).

According to Eurostat, in Cyprus, the percentage of people working part-time in 2014 was 14% and the underemployed 9.3%.

In 2014, the percentage of underemployed part-time workers among total part-time workers varied significantly

across the EU Member States. A majority of part-time workers wished to work more hours while being available to do so in Greece (72.1%), Cyprus (65.9%) and Spain (57.3%). At the opposite end of the scale, the Netherlands (4.0%) registered by far the smallest share of underemployed part-time workers, followed by Luxembourg (10.5%), Denmark (10.7%), Estonia (11.2%) and the Czech Republic (11.4%).

At EU level, 22.2% of persons working part-time were underemployed in 2014. It should be noted that underemployed parttime workers were predominantly women in every EU Member State except Romania and Slovakia.

Car sales up 12% in Jan-March New and used car sales continued to rise in the first quarter of the year, following a trend seen from last year when consumers preferred to buy a car for cash and not owe any money to the banks.

The statistical service Cystat said that the total number of motor vehicle registrations increased by 12.3% to 5,840 in JanuaryMarch, up from 5,201 vehicles in the same

period of 2014.

Private saloon cars increased by 9.1% to 4,567 from 4,186 in January-March 2014. Of the total, 2,082 vehicles or 45.6% were new and 2,485 or 54.4% were used cars.

All other categories recorded decreases.

Goods conveyance vehicles were down by 7.4% to 386 in January-March, compared to 417 in January-March 2014.

President Nicos Anastasiades announced a handful of confidence building measures prior to meeting newly-elected Turkish Cypriot leader Mustafa Akinci on Saturday, as UN-sponsored reunification talks are expected to get underway later in May. Anastasiades and Akinci discussed their upcoming meeting during a telephone conversation they had on Tuesday morning.

The venue is yet to be announced.

The measures include information and maps with regard to 28 anti-personnel minefields in the Pentadaktylos range.

Anastasiades also announced the transfer of the management to Evkaf of the Muslim places of worship that are in the free areas, and which belong to the Turkish Cypriot community and are not under the protection for foreign embassies.

He added that a decision has been taken to hire more Turkish speaking officers at the citizens bureaus in Nicosia to better serve the Turkish Cypriots who seek assistance, and welcomed the effort underway to unify the two sides’ football leagues “and I hope that it is concluded successfully at the earliest possible”.

Akinci, who won just over 60% of the vote in the second round of the elections, ousting conservative leader Dervis Eroglu, has already spoken in recent days of reopening the fenced-off ghost city of Famagusta to allow Greek Cypriot refuges to return, in return for international recognition for the port of Famagusta and Tymbou-Ercan airport.

Government Spokesman Nicos Christodoulides said that on the issue of Famagusta, the only proposal on the table, for which the international community is already aware of, is the proposal submitted

by President Anastasiades which refers to the fenced off area of Famagusta (Varosha).

Invited to comment on statements by Akinci on the issue, the Spokesman said the Greek Cypriot side is aware of his public statements only. “When we are specifically briefed, then we will be able to comment,” he added.

As regards the illegal airport in Tymbou, the Spokesman the issue is often included in public statements and that the Greek Cypriot side has no official information to this end.

Christodoulides also said that President Anastasiades will be presiding over a meeting of the National Council soon.

On the public spat between Akinci and Turkish President Tayip Erdogan, the Spokesman said that Cyprus government monitors closely developments related to this incident.

“We are watching an attempt by Akinci to break free from Turkey’s dependence. We are sure that the UN and the foreign governments who are interested in the Cyprus problem closely follow these developments. We will also keep following developments and will comment accordingly”, the Spokesman said.

Christodoulides said that UNSG Special Envoy Espen Barth Eide will be arriving on the island next Monday.

The United Nations welcomed “the positive announcement on confidence building measures” that President Anastasiades has announced, and supports “meaningful confidence building measures which will further contribute to the positive climate surrounding the talks”, Farhan Haq, Deputy Spokesman for the UN Secretary General, said. He added that “now they are preparing for the early resumption of the negotiations”, noting that “making progress in these negotiations will be of utmost importance and will be our main focus in the upcoming weeks and months”.

Transavia launches Amsterdam flights Low cost carrier Transavia, a member of the Air France-KLM Group, will fly to Larnaca and Paphos from Amsterdam in an effort to increase the tourist flow from central Europe.

The direct route will be operated twice a week from Larnaca, every Tuesday and Friday while flights from Larnaca to Amsterdam will also be available every Thursday and Sunday, with Paphos as a stopover. The flights are carried out in code

share with KLM which enables passengers to fly from Cyprus via Amsterdam to all KLM destinations worldwide.

Hermes Airports CEO Wes Porter welcomed Transavia to Cyprus noting that “the Netherlands is one of the developing markets in which we can see important opportunities and development prospects.”

Amsterdam, he said, “has always been a favourite destination for the Cypriots and for this reason we are really pleased.” as

April 29 - May 5, 2015

financialmirror.com | CYPRUS | 5

Moody’s gives thumbs-up to banks after foreclosures law is passed in House Implementation of the foreclosures framework in parliament last Saturday is credit positive for Cypriot banks because it lays the groundwork for large-scale loan restructurings and improves the banks’ recovery prospects, Moody’s said in a comment.

Last Saturday, the Cypriot parliament narrowly passed five bills affecting personal and corporate insolvency that implement the foreclosure bill passed last October.

The laws’ passage also allows the Troika of the European Commission, the International Monetary Fund and the European Central Bank to conclude their fifth review of the country’s support programme. The review had been delayed by the wait to modernise the insolvency framework and implement the foreclosure law. If positive, the review’s conclusion paves the way for the next tranche disbursement.

The rating agency added that “concluding the review will also allow the country to access the ECB’s quantitative easing plan. Under the plan, Cyprus’ government bonds will become eligible for direct purchases by the ECB, which will improve bank liquidity and support modest lending.”

Moody’s explained that the bills amend the corporate bankruptcy framework by introducing creditor protection for 120 days to allow for a company reorganisation.

They also legislate the licensing of insolvency practitioners in Cyprus and introduce a social safety net by providing protection against foreclosure on primary

residences. This will allow courts to impose loan restructurings in case the negotiations between the concerned parties fail, and allow the write-off of individuals’ unsecured debt under certain conditions.

The new foreclosure framework mainly aims to shorten the time needed to foreclose and auction real estate collateral to 18 months from more than 10 years previously. Although nearly six months have passed since the new foreclosure framework was voted into law, parliament delayed its implementation until the enactment of Saturday’s bills.

The enactment will provide incentives to individuals to seek restructuring of their loans and discourages strategic defaults.

This will help banks tackle the volume of nonperforming loans (NPLs), which were 50% of gross loans as of November 30, 2014, the rating agency said.

Moody’s said that all principal domestic banks, the Bank of Cyprus (Caa3/Caa3 stable, caa3), Hellenic Bank (Caa3 review for upgrade, caa3) and the Cooperatives (unrated), have long-established restructuring units dedicated to NPL workouts.

“However, progress has been slow because individuals and companies adopted a wait-and-see attitude given the open political debate surrounding the implementation of the foreclosure law and the uncertainty regarding the level of protection the new bills would offer to borrowers,” it said, adding that since December 2013, only 22% of system-wide NPLs have been restructured.

Fitch: Cyprus won’t need all of bail-out money Fitch Ratings believes that with public sector debt reaching 110% of GDP this year and later easing off to about 90% by 2022, Cyprus won’t need to cash in on the full EUR 10 bln bailout agreed to in 2013.

“The general government debt to GDP ratio is expected to peak at just over 110% in 2015 and 2016 and will ease to around 90.7% by 2022. The strong budget performance implies the buffers in the programme have grown close to EUR 3 bln (17% of GDP). The underlying trend for public finances has been positive,” the rating agency said, adding that the fiscal deficit in 2014 was 0.2% of GDP (8.8% of GDP including the capital injections to the co-operative sector) compared with Fitch’s forecast of 3.3% in October.

“The over-performance reflects a combination of higher tax revenues and lower than expected expenditure across most items. Fitch expects the fiscal deficits to average 0.8% from 2015 to 2018”.

However it said that the risks to EU-IMF adjustment programme implementation remain elevated and that there is a significant risk that privatisation plans will not be fully implemented, leading to further delays to

programme reviews. Fitch also noted that non-performing loans (NPLs) in the banking sector reached an “exceptionally high” 50%.

The removal of the remaining capital controls in April has led to the Country Ceiling being raised by three notches to ‘BB’. The credit rating agency said that it has affirmed Cyprus’s long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘B’ with a positive outlook.

The Country Ceiling has been raised to ‘BB-’ from ‘B’.

Fitch warned that Cyprus is among the most vulnerable eurozone sovereigns to a disorderly Greek exit, as a country still in the midst of a post-crisis adjustment. Direct linkages between the two economies have been reduced in recent years and are not large, however, the impact on depositor and investor confidence is harder to gauge.

“The passing of the insolvency law through parliament on 18 April should trigger the activation of the foreclosure law and pave the way for further official funding.

The law should strengthen the foreclosure framework and address the high banking NPL problem,” the rating agency said.

April 29 - May 5, 2015

6 | COMMENT | financialmirror.com

Why Cyprus isn’t the same as Ireland

By Pavlos Loizou Many investors seek to find parallels between Cyprus and Ireland, trying to convince themselves that the V-shaped recovery of the Cyprus economy and of the real estate market are fast approaching.

Both countries are island-states, former British colonies, have a small population, and a significant portion of foreign direct investment. They also have over-borrowed households, an overleveraged real estate sector and bust banks; all a result of a speculative, credit-fuelled property boom.

Then again, fingers and toes are at the end of our limbs, but no one expects them to behave in a similar manner.

Cyprus has sunshine, the Mediterranean, halloumi, souvlakia, Terlikas, and zivania.

Ireland has rolling hills, sheep, Connemara, The Dubliners, and Guinness. It also has U2,

the European headquarters of Facebook, Dropbox, LinkedIn and Google, potato cakes, and Kehoe’s pub.

Ireland has a GDP of EUR 185 bln and a population of 4.5 mln, of which 27% are under the age of 20. In contrast, Cyprus has a GDP of EUR 17 bln and a population of 840,000, of which 23% are under the age of 20.

Furthermore, Dublin is a financial centre that attracts investors from across Europe and the USA, and has more recently proven to be a magnet for IT companies who wish to operate across Europe.

The Cyprus Stock Exchange has an average transaction volume of EUR 350,000 per day, banks close at 2.30pm, and a streamlining of processes in the government sector remains a pipedream. The countries may be similar, but there are significant differences in ethos and in the drivers of the people and of the economy.

Looking at the sources of their respective economic crisis, the Irish sovereign debt crisis was based on the state guaranteeing the six main Irish-based banks that had

financed the property bubble. Part of the solution was the formation of a National Asset Management Agency (NAMA) which was created to acquire large property-related loans from the six banks at a market-related “long-term economic value”. This allowed banks to focus on their banking operations, whilst the government worked with them to reform the public sector and attract overseas investment.

The economy of Cyprus was hit by several huge blows in and around 2012 including, amongst other things, the EUR 22 bln exposure of Cypriot banks to the Greek debt haircut, the downgrading of the Cypriot economy to ‘junk’ status by international rating agencies and the inability of the government to refund its state expenses.

Cyprus’ bail-in caused ripple effects across the banking sector, NPLs have skyrocketed to over 50%, and banks are effectively turning themselves into asset management companies.

As time has passed, the will to modernise the workings of the state has waned and politicians have increasingly engaged in

populist posturing instead of facing up to responsibilities.

Unfortunately “it is often that a person’s mouth broke his nose”, which is why Cyprus is now faced with multiple investigations and accusations against the Governor of the Central Bank, the Attorney General, the Assistance Attorney General, etc. and it took nine months to reach a consensus to pass an insolvency law that will rely heavily on the judicial system, where courts stop at 2.30 and are closed for Christmas, Easter and Summer vacations, making it ineffective and inefficient.

A journey of a thousand miles must begin with a single step. Cypriots have been let down by their politicians and they have let themselves down by expecting too much from them.

With that, we say to Bank of Cyprus CEO John Hourican go n-éirí an bóthar leat.

Pavlos Loizou is a partner Greece & Cyprus at Resolute Asset Management (Cyprus) Ltd.

pavlos.loizou@res-am.com

The Silk Road Spirit A towering Chinese initiative

By Dr Andrestinos Papadopoulos Ambassador a.h.

Who does not know the Silk Road and the stories of Marco Polo, which for generations nurtured the peoples of Asia, Europe and Africa who benefited from the opening up of new routes of trade and cultural exchanges? Champions in taking far-reaching initiatives, the government of the People’s Republic of China decided to revive the Silk Road Spirit which is the expression of “peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit”.

Concerned by the fact that the international financial crisis still persists, the world economy is recovering slowly, the global development is uneven and the world is undergoing major adjustments and faces big challenges, the Chinese President Xi Jinping, in the Autumn of 2013, took the initiative of jointly building the Silk Road Economy Belt and the 21st century Maritime Silk Road (hereinafter referred to as the Belt and the Road).

Symbolising communication and cooperation between the East and the West, the Belt and the Road is designed to uphold the global free trade regime and the open world economy in the spirit of open regional cooperation. It is aimed at promoting orderly and free flow of economic factors, highly efficient allocation of resources, deep integration of markets and achieving economic policy coordination and more in-depth regional cooperation. To strengthen cooperation countries along the Belt and Road should promote policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds.

The Belt and Road Initiative is in line with the purposes and principles of the UN Charter and upholds, in particular, the principles of mutual respect for each other’s sovereignty and territorial integrity, mutual non-aggression, mutual non-interference in each other’s internal affairs, equality and mutual benefit and peaceful coexistence. The Initiative is open to all countries and international and regional organisations with a view to benefiting wider areas of the world.

Its modus operandi, which abides by market rules, aims, inter alia, at improving the region’s infrastructure, putting in

place a secure and efficient network of land, sea and air passages, further enhancing trade and investment facilitation, establishing a network of free trade areas, maintaining closer economic ties, deepening political trust, enhancing cultural exchanges and promoting mutual understanding, peace and friendship among peoples of all countries.

For more than a year, the Chinese government has been actively promoting the building of the Belt and Road Initiative. A number of international summits, forums, seminars and expos on the theme of the Belt and Road Initiative have been held in order to increase mutual understanding, reach consensus and deepen cooperation.

Special mention should be made to the fact that President Xi Jinping and Premier Li Keqiang have visited over 20 countries to explain the rich contents and positive implications of the Belt and Road Initiative. As a result, more than 60 countries and international organizations have shown interest in taking part in the development of the Initiative.

Since peace, development and win-win cooperation have become the prevailing trend of our times, and the development of the Belt and Road Initiative is open to all countries, the purpose of this article is not only to make known its content, but to encourage the Cyprus government as well to seek an active participation in it.

April 29 - May 5, 2015

April 29 - May 5, 2015

8 | COMMENT | financialmirror.com

And the Grand Gold goes to... Commandaria 43 awards for the best wines of Cyprus Three of the island’s oldest wineries won the Grand Gold medal for their own version of the traditional Commandaria during the 8th Cyprus Wine Competition, presented in Limassol by Agriculture Minister Nicos Kouyialis and the town’s mayor, Andreas Christou.

In all, 43 awards were handed out – three Grand Gold medals, 15 Gold and 25 Silver.

The Grand Gold medals went to St. John Commandaria 1984 (Keo Mallia Winery), St. Nicholas - Centurion Commandaria 2000 (ETKO) and Alasia 2004 LOEL. Several more Commandaria sweet wines won the Gold, together with other excellent wines: Commandaria 2008 (Tsiakkas), Commandaria 2005 (Kyperounda Winery), Kalamos Commandaria 2009 (Nicholas Ignatiou & Sons), Saint John (Keo Mallia Winery), Commandaria White Sweet Xynisteri 2007 (G. Athenodorou & Sons), Saint Barnabas White Sweet Xynisteri 2005 (Sodap Camanderena), Metharmi Red Dry Maratheftiko 2009 (Ezousa), St. Nicholas Commandaria 2010 (Etko), Mosxatos White Sweet 2012 (Ayia Mavri), Vlassides Cab. Sauv.

Red Dry 2012 (Vlassides Winery), Ayios Chrysostomos White Dry Xynisteri 2014 (Ezousa), Epos - Chardonnay 2013 (Kyperounda), Constantinou - Shiraz Red Dry 2012 (C.G. Constantinou Distillery), Yerolemos - Maratheftiko Rose Dry 2014 (G. Athenodorou & Sons), Kolios - Shiraz Red Dry 2008 (Kolios Winery) and Constantino Cab Sauv. Red Dry 2010 (Costas Erimoudes).

The Silver awards went to: Ayioklima Xynisteri White Dry (2014 C.G. Constantinou Distillery), Epos - Shiraz/Cabernet Sauv. 2012 (Kyperounda), Constantinou - Cab. Sauv.

2010 (C.G. Constantinou Distillery), Cab. Sauv. 2011 (Kyperounda Winery), Vamvakada Red Dry Maratheftiko 2012 (Tsiakkas Winery), Xynisteri White Dry 2014 (Tsiakkas Winery), Maratheftiko Red Dry 2011 (Makkas Winery), Argyrides Maratheftiko Red Dry 2012 (R & A Vasa Winery), Eros Red Dry Maratheftiko 2014 (Ezousa Estate), Mosxatos White Sweet 2011 (Ayia Mavri), Vlasides White Dry 2014 (Vlasides Winery), Camanderena Lefkada Rose Dry 2014 (Sodap), Zambartas - Lefkada/Shiraz Red Dry 2013 (Zambartas Wineries), Petritis White Dry Xynisteri 2013 (Kyperounda), Yerolemos

Xynisteri Semi Sweet White 2014 (G. Athenodorou & Sons), Persefoni White Semi Sweet Xynisteri 2014 (Kolios Winery), Melapsopodi White Dry Sauvignon 2014 (Tsalapatis Wines Co.), Vardalis - Shiraz Red Dry 2013 (Vardalis Kilani Winery), Alina White Dry Xynisteri 2014 (Vouni Panayias Winery), Barba Yiannis Red Dry Maratheftiko 2012 (Vouni Panayias Winery), Zambartas - Marathefriko Red Dry 2013 (Zambartas Wineries), Epos - Chardonnay White Dry 2014 (Kyperounda), Chardonnay White Dry 2014 (Kyperounda), Camanterena Xynisteri White Dry 2014 (Sodap).

A Special Award for Commandaria went to St. John Red Sweet 1984 (Keo Mallia Winery), a Special Award for Maratheftiko to Metharmi Red Dry 2009 (Ezousa Estate), and a Special Award fro Xynisteri to Ayios Chrysostomos White Dry 2014 (Ezousa Estate).

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April 29 - May 5, 2015

financialmirror.com | WORLD | 9

Apple in solid earnings, unimpressive dividend hike

By Chris Lange Apple Inc. (NASDAQ: AAPL) reported its fiscal second-quarter financial results on Monday after the markets closed. The iPhone giant had $2.33 in earnings per share (EPS) on $58 bln in revenue, compared to Thomson Reuters consensus estimates of $2.16 in EPS on $56.06 bln in revenue. The same period from the previous year had $1.66 in EPS on $45.65 bln in revenue.

Gross margin for the second quarter was 40.8%, compared to 39.3% in the same period last year. International sales accounted for 69% of the quarter’s revenue.

The company gave guidance for the fiscal third quarter as revenue in the range of $46 bln to $48 bln and a gross margin between 38.5% and 39.5%. There are consensus

analysts’ estimates of $1.68 in EPS and $47.06 bln in revenue.

In terms of the segment breakdown: the iPhone segment moved 61.2 mln units, totalling revenues of $40.3 bln; the iPad moved 12.6 mln units, totalling revenues of $5.4 bln; the Mac segment moved 4.6 mln units, totalling revenues of $5.6 bln.

Tim Cook, CEO of Apple, commented on its earnings: “We are thrilled by the continued strength of iPhone, Mac and the App Store, which drove our best March quarter results ever. We’re seeing a higher rate of people switching to iPhone than we’ve experienced in previous cycles, and we’re off to an exciting start to the June quarter with the launch of Apple Watch.”

Apple may be still considered a cheap stock against the market for growth investors, but its dividend yield was a mere 1.5% or so. Keep in mind that Apple just

recently was added to the Dow Jones Industrial Average index.

After Apple reinstated its dividend in late 2012, the first hike was by 15%. The second dividend hike, in 2014, was roughly 8%. So, why do we expect that the hike has to go up much more in 2015? The simple answer is that Apple’s yield has to go up to make a dent in the dividend game. Taking the dividend hike to $0.60 is nearly a 28% payout hike.

Still, does it seem normal that Apple, which has not used any cash yet for mega-mergers, should have such a low yield?

In fact, Apple announced that it did raise its quarterly dividend 11% to $0.52 per share, below what 24/7 Wall St. was hoping for.

What about share buybacks? The amount of stock buybacks seemed less clear going into the earnings report. Apple added $30 bln or so to its buyback plan last year, and the company has now spent over $112 bln

returning capital to shareholders since it began, including a total of $80 bln in share repurchases.

Tim Cook also commented on Apple’s capital allocation plan: “We believe Apple has a bright future ahead, and the unprecedented size of our capital return programme reflects that strong confidence. While most of our programme will focus on buying back shares, we know that the dividend is very important to many of our investors, so we’re raising it for the third time in less than three years.”

Shares of Apple closed Monday up 1.8% at $132.65. Following the release of the earnings report, shares were up 1.5% at $134.65 in after-hours trading, pushing a new all-time high. The stock has a consensus analyst price target of $142.13 and a 52-week trading range of $81.79 to $133.60. (Source: 24/7 Wall St.com)

Apple posts record iPhone sales as iPad sales slump Apple can look forward to a record breaking March quarter, thanks to surging iPhone sales. Between January and March, the company sold 61.2 mln units, an increase of 40% compared to the same period last year. By contrast, iPad sales continue to slump, decreasing 23% compared to last year. This means Apple’s tablet sales have now declined for the fifth consecutive quarter. Still, given that the company raked in $13.6 bln in profit, it should be able to handle flagging iPad sales, as long as the iPhone continues to sell well. (Source: Statista)

America’s risky recovery

FOMC will start to raise rates in September and the federal funds rate will reach 3% by 2017

By Martin Feldstein

The United States’ economy is approaching full employment and may already be there. But America’s favourable employment trend is accompanied by a substantial increase in financial-sector risks, owing to the excessively easy monetary policy that was used to achieve the current economic recovery.

The overall unemployment rate is down to just 5.5%, and the unemployment rate among college graduates is just 2.5%. The increase in inflation that usually occurs when the economy reaches such employment levels has been temporarily postponed by the decline in the price of oil and by the 20% rise in the value of the dollar. The stronger dollar not only lowers the cost of imports, but also puts downward pressure on the prices of domestic products that compete with imports. Inflation is likely to begin rising in the year ahead.

The return to full employment reflects the Federal Reserve’s strategy of “unconventional monetary policy” – the combination of massive purchases of long-term assets known as quantitative easing and its promise to keep shortterm interest rates close to zero. The low level of all interest rates that resulted from this policy drove investors to buy equities and to increase the prices of owner-occupied homes.

As a result, the net worth of American households rose by $10 trln in 2013, leading to increases in consumer spending

and business investment.

After a very slow initial recovery, real GDP began growing at annual rates of more than 4% in the second half of 2013.

Consumer spending and business investment continued at that rate in 2014 (except for the first quarter, owing to the weather-related effects of an exceptionally harsh winter).

That strong growth raised employment and brought the economy to full employment.

But the Fed’s unconventional monetary policies have also created dangerous risks to the financial sector and the economy as a whole. The very low interest rates that now prevail have driven investors to take excessive risks in order to achieve a higher current yield on their portfolios, often to meet return obligations set by pension and insurance contracts.

This reaching for yield has driven up the prices of all longterm bonds to unsustainable levels, narrowed credit spreads on corporate bonds and emerging-market debt, raised the relative prices of commercial real estate, and pushed up the stock market’s price-earnings ratio to more than 25% higher than its historic average.

The low-interest-rate environment has also caused lenders to take extra risks in order to sustain profits. Banks and other lenders are extending credit to lower-quality borrowers, to borrowers with large quantities of existing debt, and as loans with fewer conditions on borrowers (so-called “covenant-lite loans”).

Moreover, low interest rates have created a new problem: liquidity mismatch. Favorable borrowing costs have fueled an enormous increase in the issuance of corporate bonds, many of which are held in bond mutual funds or exchange-traded funds (ETFs). These funds’ investors believe – correctly – that they have complete liquidity. They can demand cash on

a day’s notice. But, in that case, the mutual funds and ETFs have to sell those corporate bonds. It is not clear who the buyers will be, especially since the 2010 Dodd-Frank financial-reform legislation restricted what banks can do and increased their capital requirements, which has raised the cost of holding bonds.

So that is the situation that the Fed now faces as it considers “normalising” monetary policy. Some members of the Federal Open Market Committee (FOMC, the Fed’s policymaking body) therefore fear that raising the short-term federal funds rate will trigger a substantial rise in longer-term rates, creating losses for investors and lenders, with adverse effects on the economy. Others fear that, even without such financial shocks, the economy’s current strong performance will not continue when interest rates are raised. And still other FOMC members want to hold down interest rates in order to drive the unemployment rate even lower, despite the prospects of accelerating inflation and further financialsector risks.

But, in the end, the FOMC members must recognize that they cannot postpone the increase in interest rates indefinitely, and that once they begin to raise the rates, they must get the real (inflation-adjusted) federal funds rate to 2% relatively quickly. My own best guess is that they will start to raise rates in September, and that the federal funds rate will reach 3% by some point in 2017.

Martin Feldstein, Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research, chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. © Project Syndicate, 2015 www.project-syndicate.org

April 29 - May 5, 2015

10 | GREECE | financialmirror.com

The ECB’s 3 tough choices

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

As another meeting of euro area finance ministers ended in acrimony on Friday, the focus will turn to the resumption of — it is to be hoped — more constructive technical discussions between Greece and its European partners. Yet the most potentially decisive discussions will be taking place in a different venue: decision makers at the European Central Bank will hold their weekly consideration of how much “emergency liquidity” they should extend to Greek banks and on what terms.

At its weekly meeting on April 29, the ECB will be under tremendous pressure to keep Greece on its life support system. But without progress elsewhere, this powerful monetary institution is at risk of joining other actors in the Greek drama that are unintentionally transitioning from being a major part of the solution to a big part of the problem now and in the future. This risk is symptomatic of the much larger dysfunctions undermining a comprehensive and sustainable outlook for Greece within the euro zone.

The ECB decision will involve some variant of three basic alternatives: 1. Pretend and extend.

The ECB, through the Emergency Liquidity Assistance

operated by its network of national central banks, would continue to extend exceptional funding to Greece. This would be done under the pretense that it is helping Greece deal with a liquidity problem instead of acknowledging the country’s true predicament, deep economic and solvency deficiencies. This approach has the advantage of keeping options open in the hope that Greece and its creditors will finally break through to decisive policy and financial solutions. The downside is that it would increase the ECB’s financial exposure to a problem case that, at least so far, has shown little chance of resolving itself in an orderly fashion. It would also raise concerns about burden-sharing as the ECB would act even as other creditors, not only from the private sector but also public institutions such as the International Monetary Fund, are scheduled to get repaid.

2. Pull the plug.

Under this scenario, the ECB would be forthright. It would limit any further financing to Greece, raising not only the legitimate burden-sharing issues but also rightly noting that liquidity support would continue to prove ineffective without accompanying measures to improve growth and financial solvency. It would make further assistance conditional both on policy progress and new money to Greece from other sources, along with debt reduction. If such conditions failed to be met, the ECB decision would likely lead to even greater capital and deposit flight from Greece. And this, under most realistic scenarios, would prompt the Greek government to impose capital controls, default on payments and take even more draconian steps to gain control of any idle cash balances in the country. All of these developments would increase the risk of Greece exiting the euro zone.

3. Pull the plug as part of a comprehensive Plan B. In this case, the ECB’s refusal to extend additional liquidity support would be part of an attempt (albeit a risky one) at an orderly pivot for both the euro zone and Greece.

The ECB would seek to minimise the risk of Greek contagion and disorderly spillovers to other economies (such as Cyprus, Italy, Portugal and Spain) by expanding its funding windows for both governments and financial institutions. It would also

step up its large-scale program of security purchases (known as quantitative easing). Meanwhile, work would proceed on some sort of interim European arrangement for Greece, including the possibility of an association agreement with the European Union or, even, remaining in the EU but outside the euro zone, like the U.K. One of the big lessons of the last few years is that, regardless of the facts on the ground, no one — whether on the Greek side or among its official national, regional and international creditors — wishes to go down in history as the cause of the first exit from the single currency. For that reason, the ECB would most likely opt again for the first option — extending the ELA and pretending that a durable solution is around the corner — and it would hope that its involvement wouldn’t be overwhelmed by funding demands caused by accelerated deposit flight from Greek banks.

All this speaks to what is perhaps the greatest tragedy of all. For several years, very few people — whether in Greece, among its European partners or in the ECB, EU and IMF — have stepped up to the challenge of a lifetime: that of either taking decisive breakthrough policy actions or properly pressing the reset button. Instead, the decision has been to engage in a collective muddle-through, hoping some perfect — indeed, immaculate — solution would appear down the road. Such a solution is hard to come by. And the wait for one is far from cost-free.

Millions of Greeks, including an alarming portion of the country’s youth, have become mired in devastating unemployment and spreading poverty. And with hundreds of millions of euros of debt obligations having been transferred from the private sector to European taxpayers, the would-be solvers of this Greek tragedy have become a growing part of the problem. (Source: Bloomberg) Mohamed El-Erian is the chief economic adviser at Allianz SE. He’s chairman of Barack Obama’s Global Development Council, the author of best-seller “When Markets Collide,” and the former chief executive officer and co-chief investment officer of Pimco.

Starving the Greeks out Marcuard’s Market update

by GaveKal Dragonomics

After Friday’s near-total breakdown in the negotiations between Greece and the eurozone, it is clear that both sides need a Plan B. In the case of Greece the alternative to a negotiated solution has always been clear. It is to default on its debts to other European governments, thereby presenting those nations with a stark alternative: either expel Greece from the euro and risk contagion to Portugal, Spain and Italy, or offer Greece the money it has been promised, without onerous austerity conditions.

Yanis Varoufakis seems to believe, as explained by our own Nick Andrews on Thursday, that Europe’s fear of a currency breakup gives Greece enough negotiating leverage to offset its lack of economic and political power.

But this calculation is based on a false premise. It assumes that a Greek default would force Europe to choose between two alternatives: kick Greece out of the euro or offer unconditional help. In reality there is a third option that other European Union governments would find much more attractive in the event of a default. Instead of forcing Greece out of the euro or even allowing it to exit, the EU authorities could simply starve the country of money and wait for political support for the Syriza government to collapse.

This siege strategy has been emerging in the past few weeks as the Plan B for dealing with Greek intransigence. Deadlines for a deal with Greece have come and gone without the EU showing any sign of blinking—in fact EU and International Monetary Fund officials have publicly stated that trying to impose deadlines on these negotiations has become counterproductive.

Instead of rushing towards a deal with Greece, other EU governments now seem content to sit back and wait while the Greek government resorts to increasingly desperate measures to scrape up the money it needs for wages and pension payments.

These monthly payment crises suggest that tax collection is deteriorating so fast that

Greece now needs EU support not only to keep up foreign debt payments but also to maintain the normal functioning of government.

In other words, the primary surplus of 4% of GDP, whose reduction to around 1% had been the main objective of the Greek demands and whose forced diversion to domestic spending through default had always been the trump card in Varoufakis’ negotiating strategy, has probably vanished.

(Nobody can be sure, since Greece has failed to provide detailed budget figures either to its creditors or to the markets since the new government’s election in January.) This means that the Syriza government, unless it gets more money from Europe, can have no hope of delivering on its election promises of higher wages, pensions and public spending, whether it defaults or not.

Now that the Greek primary surplus has more or less disappeared, Europe would not need to “punish” a default on foreign debt by forcing Greece out of the euro.

The default itself would impose sufficient punishment on the Greek people, as default did in Cyprus—by slashing their bank deposits, ruining their businesses and exposing foreign assets to lawsuits.

Under these circumstances, what would the EU do about Greek membership of the euro?

The near-universal assumption is that Greece would be expelled. But a more rational plan from the EU’s standpoint would be to do the opposite. Instead of forcing Grexit, the EU could insist that Greece must

remain inside the euro. The EU treaties clearly state that joining the euro is irreversible—and that is the market message that peripheral governments and the ECB want to convey.

The EU could therefore insist that the euro was the only legal tender recognised by EU law, even if the Greek government decided to print domestic IOUs to pay wages and pensions.

Greece could be banned from replacing euro debts or domestic bank deposits with a newly issued currency. That legal provision, in turn, would mean an explosion of the government’s liabilities not only to foreign debtors but also to its own citizens since the government would be responsible for the insured deposits in banks that were rendered insolvent by the default.

Instead of being forced out of the euro, Greece could be treated simply like a municipal or local authority in bankruptcy.

Without any access to borrowing, the government would have to keep spending strictly in line with tax revenues. With the primary surplus apparently vanishing, default would force Syriza to inflict even more austerity than the Troika, instead of the spending bonanza it had promised—and the government’s collapse would be just a matter of time.

In short, the main effect of a Greek default would probably be expulsion of Syriza from the Greek government, rather than expulsion of Greece from the euro.

That, of course, would suit the rest of Europe just fine.

April 29 - May 5, 2015

financialmirror.com | GREECE | 11

A new deal for Greece Three months of negotiations between the Greek government and our European and international partners have brought about much convergence on the steps needed to overcome years of economic crisis and to bring about sustained recovery in Greece. But they have not yet produced a deal. Why? What steps are needed to produce a viable, mutually agreed reform agenda?

overcoming two hurdles. First, we must concur on how to approach Greece’s fiscal consolidation. Second, we need a comprehensive, commonly agreed reform agenda that will underpin that consolidation path and inspire the confidence of Greek society.

Beginning with fiscal consolidation, the issue at hand concerns the method. The “troika” institutions (the European Commission, the European Central Bank, and the International Monetary Fund) have, over the years, relied on a process of backward induction: they set a date (say, the year 2020) and a target for the ratio of nominal debt to national income (say, 120%) that must be achieved before money markets are deemed ready to lend to Greece at reasonable rates. Then, under arbitrary assumptions regarding growth rates, inflation, privatisation receipts, and so forth, they compute what primary surpluses are necessary in every year, working backward to the present.

The result of this method, in our government’s opinion, is an “austerity trap.”

When fiscal consolidation turns on a predetermined debt ratio to be achieved at a predetermined point in the future, the primary surpluses needed to hit those targets are such that the effect on the private sector undermines the assumed growth rates and thus derails the planned fiscal path. Indeed, this is precisely why previous fiscalconsolidation plans for Greece missed their

By Yanis Varoufakis MINISTER OF FINANCE

We and our partners already agree on much. Greece’s tax system needs to be revamped, and the revenue authorities must be freed from political and corporate influence. The pension system is ailing. The economy’s credit circuits are broken. The labour market has been devastated by the crisis and is deeply segmented, with productivity growth stalled. Public administration is in urgent need of modernization, and public resources must be used more efficiently. Overwhelming obstacles block the formation of new companies. Competition in product markets is far too circumscribed. And inequality has reached outrageous levels, preventing society from uniting behind essential reforms.

This consensus aside, agreement on a new development model for Greece requires

targets so spectacularly.

Our government’s position is that backward induction should be ditched.

Instead, we should map out a forwardlooking plan based on reasonable assumptions about the primary surpluses consistent with the rates of output growth, net investment, and export expansion that can stabilise Greece’s economy and debt ratio. If this means that the debt-to-GDP ratio will be higher than 120% in 2020, we devise smart ways to rationalize, re-profile, or restructure the debt – keeping in mind the aim of maximising the effective present value that will be returned to Greece’s creditors.

Besides convincing the troika that our debt sustainability analysis should avoid the austerity trap, we must overcome the second hurdle: the “reform trap.” The previous reform programme, which our partners are so adamant should not be “rolled back” by our government, was founded on internal devaluation, wage and pension cuts, loss of labor protections, and price-maximising privatisation of public assets.

Our partners believe that, given time, this agenda will work. If wages fall further, employment will rise. The way to cure an ailing pension system is to cut pensions. And privatisations should aim at higher sale prices to pay off debt that many (privately) agree is unsustainable.

By contrast, our government believes that this programme has failed, leaving the population weary of reform. The best evidence of this failure is that, despite a huge drop in wages and costs, export growth has been flat (the elimination of the current-

account deficit being due exclusively to the collapse of imports).

Additional wage cuts will not help exportoriented companies, which are mired in a credit crunch. And further cuts in pensions will not address the true causes of the pension system’s troubles (low employment and vast undeclared labor). Such measures will merely cause further damage to Greece’s already-stressed social fabric, rendering it incapable of providing the support that our reform agenda desperately needs.

The current disagreements with our partners are not unbridgeable. Our government is eager to rationalise the pension system (for example, by limiting early retirement), proceed with partial privatisation of public assets, address the non-performing loans that are clogging the economy’s credit circuits, create a fully independent tax commission, and boost entrepreneurship.

The differences that remain concern how we understand the relationships between the various reforms and the macro environment.

None of this means that common ground cannot be achieved immediately. The Greek government wants a fiscal-consolidation path that makes sense, and we want reforms that all sides believe are important.

Our task is to convince our partners that our undertakings are strategic, rather than tactical, and that our logic is sound.

Their task is to let go of an approach that has failed. © Project Syndicate, 2015. www.project-syndicate.org

Varoufakis pushed out of Eurogroup negotiations “At last, Greece may be about to step back from a potentially disastrous default,” was how the Economist reported on Finance Minister Yanis Varoufakis being sidelined by Prime Minister Alexis Tsipras in an effort to rescue the negotiations with the Eurogroup.

The sudden demotion of Varoufakis, the argumentative finance minister, suggests a last-minute policy switch by Tsipras, one which could re-invigorate fractious bail-out negotiations with the country’s international creditors, the Economist added.

A deal would unlock EUR 7.2 bln of much-needed bail-out aid. The government is already struggling to pay pensions and state subsidies for April (it has scratched together enough money for salaries) and has strong-armed local authorities to hand over EUR 2 bln of spare cash to cover payments until mid-May. Without an agreement with its European creditors and the IMF, Greece faces a near-certain default in June.

Officially, Varoufakis was moved sideways: he will sit on a new economic policy committee and continue to attend meetings of Eurogroup finance ministers, according to government officials. But he is no longer managing the bailout talks. That job has gone to Euclides Tsakalotos, an Oxford-educated economist and, unlike Varoufakis, a longserving member of Syriza, the ruling party.

Tsakalotos, another fervent left-winger, will in turn be closely supervised by Yannis Dragasakis, the pragmatic deputy premier and Tsipras’s enforcer. At the same time, Giorgos Chouliarakis, also in Dragasakis’s camp, takes over from Nicos Theocharakis, a friend and academic colleague of Varoufakis, to handle day-to-day negotiatons with the EU and International Monetary Fund.

There are other signs that a compromise may be in the works. Tsipras predicted in a late-night television interview on Monday that a deal may be reached by May 9: three days before Greece is due to repay EUR 750 mln to the IMF. In a

nod to Syriza’s restive far-left wing, he also threatened to hold a referendum if the lenders try to push Athens too far.

Meanwhile, the finance ministry is rushing to complete a draft bill containing reform measures for which international lenders have been pushing since the Syriza-led government came to power in January. These include a move to cement the independence of the chief tax collector and to auction off new television licences.

Markets showed only modest interest in the new developments, the Economist report said, adding that in part that reflects the fact that few large investors are placing bets on Grexit, one way or the other. But it also reflects an assessment that it is too early for euphoria over a Greek deal with the Eurogroup. Varoufakis’ flamboyant style and erratic negotiating positions have been blamed for much of the difficulty Greece has had negotiating since Syriza took power.

But the fundamental tensions are between Syriza’s need to show its voters that it has won some of the concessions from Europe that it was elected to extract, the difficulty of asserting the government’s authority over Greece’s oligarch class, and the Europeans’ unwillingness to release funds until they see evidence of fiscal and structural change in Athens.

Those underlying problems will not disappear just because the Greek government has swapped a leather jacket for a tie.

FDR, 1936: “They are unanimous in their hate for me; and I welcome their hatred.” A quotation close to my heart (& reality) these days This is what Yanis Varoufakis posted on his Twitter account, which has 401,000 followers, it was retweeted 3,600 times and favourited 3,000 times

April 29 - May 5, 2015

12 | PROPERTY | financialmirror.com

Aristo unveils HAI Imperial Residences at Venus Rock Aristo Developers has launched its latest project, the HAI Imperial Residences, a hamlet of opulent luxury homes complimented by the Venus Rock Beachfront Golf Resort’s beauty.

Nestled on an elevated site, commanding sweeping coastal and golf course views, the owners of the HAI Imperial Residences will reap the rewards of world-class facilities at one of Europe’s largest golf integrated and spa resorts.

Aristo Developers have combined exceptional elements of this project to create a uniquely integrated community that can evolve with the Venus Rock Resort.

Theodoros Aristodemou, CEO and Managing Director of Aristo Developers, describes the HAI Imperial Residences as “unique”.

“We wanted to create something that flowed from the inspiration of the place, with buildings that drew on the indigenous architecture of Cyprus. The villas at the HAI Imperial Residences personify the pride and impeccable attention to detail, representing extravagance, privacy and distinctiveness, with end-to-end luxury facilities.”

Suitable for the EU citizenship and residency investment programme, the HAI Imperial Residences are designed with the architectural aspiration of “East meets West” and “traditional meets modernity”.

Call 8000-2747 (in Cyprus) or visit www.aristodevelopers.com

UCy workshop on photovoltaic systems: good and bad options The University of Cyprus and the Photovoltaic Technology Laboratory are organising an educational workshop on “Photovoltaic Systems: good and bad options”. The event will take place on Wednesday, May 6, at 6pm, at amphitheater B108, “Anastasios G. Leventis” building within the university campus in Aglantzia.

The workshop will be addressed by the Rector of the University of Cyprus, Prof. Constantinos Christofides, the Energy Regulator and member of the Cyprus Energy Regulatory Authority Kypros Kyprianides and the Head of Sector Programs at Cyprus Research Promotion Foundation Leonidas Antoniou.

Speeches will follow on “Definition of quality in photovoltaics”, by Dr. George Makrides, Quality Manager at the Photovoltaic Technology Laboratory, “Hidden risks in low-quality Photovoltaic Modules” by Alexander Phinikarides, Technical Manager at the Photovoltaic Technology Laboratory and a speech on “Contemporary methods of determining the quality of PV” by Dr.-Ing. Markus Schubert, Deputy Director at the Institute of Photovoltaics (ipv) of the University of Stuttgart.

After the speeches, a discussion with the audience will follow, which will be moderated by Prof. George Georghiou, Head of the Photovoltaic Technology Laboratory and interim Director of the FOSS Research Centre for Sustainable Energy of the University of Cyprus.

This event is co-financed by the European Regional Development Fund and by the Republic of Cyprus in the framework of the project ‘Reliable Assessment of Degradation in new thin-film photovoltaic technologies’. The event is also supported by Conercon Energy Solutions.

The event, which is open to the public, will be held in Greek and English and there will be simultaneous translation.

For attendance call 22894460 (auto reply) by May 5.

For other information, tel. 22894305 , 22894304

Luxembourg: high potential, low risk

By Franz Wolfgang Kubatzki Luxembourg is a center of international finance and an administrative headquarter for the EU. Moreover, the successful expansion of CLT-Ufa (RTL) made Luxembourg one of Europe’s most important locations for the TV industry. All this results in a significantly above-average share for service industries in total regional production. Within manufacturing, which accounts for just a small share of regional output, steel-producing industries play the most important role. In contrast to other steel-producing locations, Luxembourg’s steel industry succeeded in insuring its international competitiveness by specialising in sophisticated high-tech steels.

Feri Real Estate Market Rating rates Luxembourg as a business location “AAA”, which is upgraded from the first quarter 2014. It translates into “high potential, low risk”.

With this rating result the city ranks first among European metropolises.

Regarding office real estate Feri rates Luxembourg “C”, which is downgraded from the first quarter 2014 and ranks 15th among office locations of European metropolises.

Luxembourg is one of Europe’s smaller office space markets, with around 3 mln square meters total volume. The prime locations, where the highest rents are charged, are in the central business district and near the train station. The largest sub-market in terms of floor space is Kirchberg, preferred by EU organisations and the international financial sector. The investment market is quite transparent, but the liquidity risk is relatively high.

The latest financial crisis had a moderate effect on office rents in Luxembourg, resulting in reductions of around 5%.

Because of incentives offered to encourage the leasing of better-quality space, rents remained stable last year, despite a decreasing vacancy rate. From the supply side, the market should see further relief from its past looseness – new office completions are set to drop below the long-term average.

Luxembourg’s economy is expected to grow better, which will support demand for office space and office rents should rise by around 2% per year over the forecast horizon, slightly above the long-term trend.

The price correction on Luxembourg’s investment market has been relatively moderate. Since 2007, rental yields have increased by only 80 basis points. Last year, the market remained stable, thanks largely to the great restraint shown

by German open-ended real estate funds. Transaction volume picked up significantly in 2014 and let initial yields decrease further with a tight supply of high-quality objects. Over the year, a further slight compression of rental yields is expected.

In the retail sector, Luxembourg is a popular shopping destination for people from neighbouring countries. This pattern is supported by a large share of foreign commuters in the local workforce, as well as by the fact that local

consumption taxes are low. Given Luxembourg’s good prospects for income growth along with easier shopping possibilities thanks to the introduction of the euro, chances are good that retail sales and hence retail rents, at both top and secondary locations will rise further in the coming years after a short break from 2009 until early 2010. Dramatically high price jumps will not occur.

When it comes to residential real estate, Luxembourg ranked tenth among European metropolises with a rating result of “A”.

Since the late 1990s both a positive economic performance and a rising population have helped to induce rising rents on Luxembourg’s apartment market. Yet no really dramatic price leaps are recorded. During the coming years, continuing albeit relatively moderate rent increases are expected, supported by Luxembourg’s good performance with respect to disposable incomes and ongoing solid demand, in conjunction with low new building activity.

Among other things, enlargement of the EU provided a good boost for demand. However, because rents in the city of Luxembourg are enormously higher than those in surrounding areas, more activity in the rental housing market will shift outside the city.

Sale prices for residential real estate rose steadily through much of the last decade. However, the financial crisis caused a mild dip in the market in 2009. Since buildable land is both scarce and expensive, market activity concentrates on existing residences.

Demand for condominiums – particularly new, wellequipped condominiums as well as nicely renovated existing ones – has been notably high. Luxembourg’s favourable outlook for strongly rising disposable incomes – especially since these are already relatively high – supports an expectation for an upcoming increase in the region’s rate of home ownership. wolfgang.kubatzki@feri.de Feri EuroRating Services AG is a leading European rating agency, specialising in the analysis and valuation of investment markets and investment products. The rating currently includes more than 150 cities in Europe, the United States and Asia.

April 29 - May 5, 2015

financialmirror.com | PROPERTY | 13

Tolerating yet another risky stupidity µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

I wonder if there are any people in this place with little brains wishing to destroy the Cypriot economy, especially when it is on the way to recovery.

I wonder, then, with what logic shops must be closed over the weekend and then we all expect, including the President, to attract investors to Cyprus.

According to the Ministry of Commerce, around 7,000 employees were hired by supermarkets and others, even with the minimal 500 euros a month, and they will now be unemployed and all of the rest of us should support them with benefits from our taxes, when there is no need for such measures. A shop lady was crying on TV because she was unemployed with two children and that without the 500 euros a month she could not pay the rent. Perhaps MP Angelos Votsis and the rest of the sterile policies of the 1980s who receive respectable wages as parliamentarians, income from their own businesses, have not realised that our friend on TV found a job, even if for only 500 euros a month and now she will lose it.

Cyprus is trying to attract the cruise businesses and has intensified its efforts. But by introducing laws that will regulate the opening and closing of shops will be bad for our image in the eyes of the cruise tourists. Plus, a lot of people who work all week, found Sunday to be the perfect day for shopping. Many of us visit supermarkets on Sunday where we will meet fellow professionals, lawyers, accountants and others, because that is the only day that we (male) consumers will be able to shop for whatever our wives didn’t.

Consumers throng to the supermarkets and malls on Sundays, which in turn have offered employment opportunities for many out of work, so it suits us o be out on Sunday and the aim should be to serve consumers, not the petty interests of others.

So, to put it bluntly, 7,000 people must lose their jobs because of the 200 or so small shops with 1-2 employees, and we will have to once again contribute more to the state in the form of taxes to pay for the increased unemployment benefit.

And is there a list at the Ministry of Labour with names, numbers, etc. of more than 7,000 people, as some political parties claim, saying that this is not the real number of people who have benefit from Sunday shopping work? So, in order to keep a number of small shops to survive, we should sacrifice the evolution of the entire retail sector?

And what will happen to the walled city of Nicosia, the old part of Limassol and Larnaca and other areas that have flourished in the last 2-3 years? Should we close them too fro

the sake of no more than 30 antiquated and obsolete shopkeepers in the walled part of Nicosia?

We all have to realise that Cyprus, as an all-island tourist destination, should aim to serve tourists, as well as the locals.

All these amenities that we enjoy every day have their importance for the sales and investments in real estate investments. Whatever hampers (even unreasonably) the pleasant use of weekend shopping, also makes it difficult for the real estate market, especially when buyers such as British, Germans, Russians and others, seem to enjoy much more flexible working hours in their own countries. So, we should lay off those unfortunate 7,000 employees and close the malls, supermarkets, the old of Nicosia and by extension restaurants, cafés, etc. (so that we can claim to have equality), in order to satisfy the petty shopkeepers who are a dying breed of their own, due to the worldwide changes in shopping trends, conditions and services.

What is more puzzling is that if at some stage the House will also dictate working hours on Sundays for office, as the mico-offices will not be able to extend their working hours on Sundays, if they have to, due to the nature of their work or dealing with overseas clients, etc. The whole philosophy is so wrong that it extends to the financial sector and with the time difference we have with other countries, 30% of foreign companies cannot carry out their business from Cyprus because of inflexible working hours and very often we are closed. Where will this whole issue of intervention by Parliament, trade unions and others, including the banks, finally end?

That is why I cannot understand why the House wants intervene in the free trade market, even though the position of AKEL may be somehow understood, due to its ideology.

But what about the rest? www.aloizou.com.cy ala-HQ@aloizou.com.cy

UK prime RMBS stable in February, NPLs at 1.1% The performance of the UK prime residential mortgage-backed securities (RMBS) market remained stable in the three-month period ended February 2015, according to Moody’s Investors Service.

The 90+ day delinquencies decreased to 1.11% in February from 1.50% in November 2014.

Outstanding repossessions slightly decreased to 0.06% in February from 0.07% in November 2014 and cumulative losses increased marginally to 0.60% in February from 0.55% in November 2014. Moody’s annualised total redemption rate trend was relatively stable at 17.36% in February.

The rating agency said it expects that the overall collateral quality for new UK RMBS will improve given the favourable economic conditions such as higher GDP growth than in the rest of Europe, low interest rates and lower levels of unemployment than in the rest of Europe.

In the UK, it forecasts a GDP growth of around 2.5% in 2015 and 2016.

In March, Moody’s placed the 77 notes on review for upgrade from Arran Residential Mortgages Funding 2010-1 Plc, Arran Residential Mortgages Funding 2011-1 and Arran Residential Mortgages Funding 2011-2 Plc, Greenock Funding

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Plot Area: 556 sq.m.

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No.5 Plc and Granite Master trust.

The rating agency has also assigned new ratings to six transactions in the UK prime RMBS market: Brass No. 4 plc, originated by Accord Mortgages Limited (not rated), issued GBP 1.11 bln; Fosse Master Issuer plc Series 2015 -1, originated by Santander UK (A2/Prime-1), issued GBP 1.0 bln; Lanark Master Issuer plc Series 2014-2, originated by Clydesdale Bank plc (Baa2/Prime-2) and Yorkshire Bank Home Loans Limited (not rated), issued GBP 1.19 bln; Silverstone Master Issuer plc Series 2015 -1, originated by Nationwide Building Society

(A2/Prime-1), issued GBP 1.53 bln; Slate No. 1 plc, originated by Bradford & Bingley plc (A1/Prime-1, stable), Legal & General Bank Ltd (not rated), Mortgage Express (not rated) and NRAM plc (C/Prime-1), and sold to the issuer by Consilium Airton Ltd, issued GBP 2.38 bln; and, Slate No. 2 plc, originated by GMAC-RFC Ltd (93.4 % of loans) and Kensington Mortgage Co. (6.6% of loans), and sold to the issuer by Consilium Airton Ltd (not rated), issued GBP 0.41 bln.

Moody’s rates 89 UK prime RMBS transactions with an outstanding pool balance of GBP 139.3 bln.

April 29 - May 5, 2015

14 | WORLD MARKETS | financialmirror.com

Is corruption destroying Brazil?

By Oren Laurent President, Banc De Binary

Brazil’s Petrobras scandal isn’t the simple disgracing of a badly run company. It’s a scandal that involves top politicians with dire economic ramifications, a scandal about a Government-backed corporation which used to generate revenue worth 8% of the entire country’s gross domestic product. And it couldn’t have come at a worse time.

The oil giant has been accused of overpaying its suppliers who then illegally passed some of the profit back to company executives and politicians. Last Wednesday, in its first audited financial statements to be released in over eight months, the gravity of the situation became apparent.

Petrobras reported a quarterly loss of $8.8 bln and now owes a total debt of $170 bln. Thousands of workers have been left unemployment and multiple of its suppliers and partner companies have been forced to file for bankruptcy.

Its bad news for the Brazilian economy. Petrobras not only supplies 87% of the country’s oil output, but also accounts for more than 10% of all investment. Its stock price has lost over one third of its value in the last year, and the country as a whole is now paying the price for its dependency. Analysts have estimated that Brazil’s gross domestic product could drop 1.5% this year as a direct result of the scandal.

For Brazil, which already has a government deficit of around 66% of the GDP, the timing amplifies the problem.

Firstly, there’s the dollar factor. Already this year the US dollar has gained over 14% against the Brazilian real. Now, as the US Federal Reserve is expected to increase interest rates, dollar-denominated debt will be even more difficult to repay.

Secondly, the abysmally low oil prices are already hurting the country’s commodity-driven economy and reducing the value of Petrobras’ output. To relieve some of its debts, the company announced plans to sell an estimated $13.7 bln worth of assets, but obtaining a decent price could prove tricky given the current fundamentals.

Thirdly, the news has created a wave of political uncertainty. President Dilma Rousseff narrowly won with just 51.6% of the vote in October’s passionately contested

election. She promised to unify the country, strengthen the economy, and reduce corruption. Her pledges and efforts may now be undermined. Rousseff herself was chairwomen of Petrobras between 2003 and 2010, and although she isn’t implicated directly in the current scandal, many Brazilians have taken to the streets and hold her and her government responsible for the high level of corruption that is threatening their society.

So can Brazil pull itself back up? I wouldn’t be surprised if it falls into recession later this year, but it’s worth remembering that this is still the world’s seventh biggest economy. Even with the odds stacked against it at present, Brazil has tremendous long-term potential. Rousseff knew that was taking on a challenge six months ago. Now she must prove that she can handle the pressure.

More of the same from Amazon Amazon delivered more of the same in last week’s earnings presentation as the company continues to favour growth over profits. For years now, Amazon’s founder and CEO Jeff Bezos has made a point of sacrificing short-term profits in favour of investments aimed at long-term success, as the Statista chart nicely illustrates.

One of these long-term investments is now bearing fruit, as the company revealed in its earnings report: Amazon Web Services, the company’s quickly growing cloud storage division, generated $1.57 bln in revenue between January and March and is on track to generate $1 bln in profits this year. On a revenue run rate of $6+ bln per year, Amazon’s cloud business is on par, if not bigger than those of industry heavyweights such as IBM and Microsoft.

Europe’s roadblocks to long-term investment Angelien Kemna One of the major challenges facing the European economy is the lack of liquidity in its capital markets. Since the 2008 global financial crisis, an enormous number of new rules have been put in place. In order to facilitate the long-term investment that Europe desperately needs, it would be wise to reassess the broader regulatory environment that has emerged over the past six years.

With banks reluctant to make new loans, institutions such as pension funds are well placed to meet the desperate demand for capital. Indeed, the savings of workers who may not be retiring for several decades are particularly well suited for long-term investments. The trouble is that in many cases, rules and regulations intended to ensure financial markets’ stability impede the ability of pension funds and others to allocate savings smoothly and efficiently.

The importance of proper regulations cannot be understated. When properly drafted and applied, they ensure financial stability, maintain (and, if necessary, restore) confidence in the markets, and facilitate long-term investment, helping citizens meet

their future financial needs. But if regulations are not well tailored to the various types of market participants and to how markets actually work, they can choke off opportunities that would otherwise benefit investors and the economy.

The new margin requirements for derivatives, introduced in order to reduce systemic risk, are one example of such a chokepoint. It might make sense to apply them to banks or hedge funds, but pension funds are highly creditworthy institutions that pose little or no systemic risk to financial markets. Forcing them to set aside assets for collateral purposes only drains capital that could be used for long-terminvestment.

Such investment involves a variety of products, market players, and jurisdictions, and, as a result, the effect of regulations can be difficult to see, much less quantify. For starters, the impact of rules and regulations can be direct or indirect. Rules that apply specifically to long-term-investment products or strategies can be classified as having a direct impact. Rules that apply to investors or their counterparts, competitive products, or complementary parts of the market can be described as having an indirect effect.

A well-crafted regulatory framework minimises the adverse consequences for

long-term investment, while maximising the positive effects. New regulations are constantly being introduced. It is important to analyse carefully whether the new regulations are actually needed and, if yes, to foresee and fill regulatory gaps with rules that ensure the smooth flow of savings to new and existing projects.

For example, standardising regulations relating to covered bonds, green bonds, and cross-border investment through real-estate trusts could encourage more long-term investment. In a more indirect way, a general regulatory push that increased the availability of projects suitable for long-terminvestment and harmonised local insolvency regimes could also have a positive effect.

Prominent examples of regulations with a direct negative impact include existing rules on securitization and proposed rules on asset-based capital charges.

The indirect negative effects of such regulations on long-term investment are, by nature, more difficult to discern, but they can be just as harmful as the direct effects – especially if they leave investors with fewer funds available for long-term investment.

Margin requirements for derivatives transactions have this effect, as do regulations that increase banking costs.

These types of indirect negative effects have not been central to policy discussions

concerning how to boost long-term investment. But they deserve careful consideration. It is crucial that we identify the full scope and scale of their impact on the allocation of capital. Otherwise, they risk offsetting the positive impact of investmentenhancing reforms.

As legislators and regulators continue to shape the investment environment, it is important not only to monitor and evaluate the impact of each piece of additional regulation; the way rules interact with one another – and with new rules as they are introduced – must also be understood.

Unnecessarily broad regulations should be avoided in favor of rules that are specifically tailored to the various participants in the market. Allowing long-term investors such as pension funds to provide the European economy with much-needed capital has the potential to provide huge benefits to future retirees, as well as to the broader economy.

But that will not be possible unless, and until, the right regulatory environment is created.

Angelien Kemna is a board member and chief financial and risk officer of APG, a subsidiary of Stichting Pensioenfonds ABP, the world’s second-largest pension fund. © Project Syndicate, 2015. www.project-syndicate.org

April 29 - May 5, 2015

financialmirror.com | MARKETS | 15

The pros and cons of a bull market Marcuard’s Market update

by GaveKal Dragonomics In sharp contrast to their approach in 2007, Chinese government officials are actively encouraging the current bull market in onshore equities, repeatedly saying that rising share prices are a good thing for China. We agree that there are definite economic advantages to the runup in stocks, but it is also worth keeping an eye on the risks.

The most direct benefit of the bull market is that it has already lifted China’s economic growth rate. While the official year-on-year growth rate of China’s gross domestic product slowed to 7% in the first quarter, tertiary industries grew at a relatively robust 7.9% pace. Most remarkably, the growth of the financial services sector accelerated to 15%.

At slightly less than 10% of GDP, the financial sector has typically accounted for 0.6-0.8pp of real GDP growth in recent years.

By our estimates, that contribution doubled to 1.4pp in the first quarter of 2015, largely because the bull market fueled higher earnings at non-bank financials such as brokerages. Without the run-up in stocks, it is unlikely the economy would have hit Beijing’s growth target (the jump in the finance sector’s contribution to growth also helps explain why correlations between GDP growth and other economic indicators broke down in 1Q).

There is also a potential benefit from the wealth effect. In theory, when the value of household assets goes up, consumers feel wealthier and spend more. But in aggregate Chinese households have only limited exposure to the equity market. Our best estimate is that retail investor stock holdings are worth about RMB 13 trln. In comparison, wealth-management products are worth some RMB 15 trln, while household bank deposits amount to RMB 54 trln.

However, by far the biggest household asset is housing. We estimate the urban housing stock is worth about RMB 149 trln at current market prices.

This implies that households hold only around 5% of their total assets in the stock market. Since there was little evidence of a wealth effect on consumption during the long upswing in housing prices, we doubt whether the relatively small increase in household assets caused by the equity bull market will have a noticeable impact.

The economic benefit that has been talked about most— including by People’s Bank of China governor Zhou Xiaochuan—is the effect of the bull market on equity capital markets. Company valuations improve in a rising market, and both IPOs and secondary placements get much easier. As

www.marcuardheritage.com

a result, corporate debt/equity ratios fall and the economy becomes—or should become—less dependent on debt financing, which moderates overall economic risk. A bull market will also allow Beijing to sell the shares of stateowned enterprises at higher prices, much as it did in 2007, which should facilitate SOE reform.

The equity capital market activity has indeed picked up since 2014. The amount of capital raised has risen for five quarters in a row as the regulators have given the green light

market speculation. As the economy has slowed, corporate earnings have deteriorated, especially in heavy industrial sectors. With companies struggling to make money from their core businesses, investment gains from a rising equity market will account for a greater share of total profits, potentially prompting companies to increase their exposure to the stock market. Consequently corporate profits will become even more dependent on the stock market, increasing the volatility of earnings. If market’s trend reverses and the economy remains weak, earnings will suffer a double blow.

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

Belarussian Ruble British Pound * Bulgarian Lev Czech Koruna Danish Krone Estonian Kroon Euro * Georgian Lari Hungarian Forint Latvian Lats Lithuanian Litas Maltese Pound * Moldavan Leu Norwegian Krone Polish Zloty Romanian Leu Russian Rouble Swedish Krona Swiss Franc Ukrainian Hryvnia

to more deals as the market has climbed. Despite the recent increase, however, equity financing remains relatively small, at less than 5% of total social financing, compared with 20% at its peak in 2007. What’s more, most of the companies offering new shares today are private firms whose balance sheets are generally in good shape. For equity financing to have a meaningful impact on the wider economy, far more companies—and more heavily-indebted companies—will have to come to the market.

Of course, while a bull market in stocks is welcome, not all the implications are positive. The most obvious risk is the effect of rising margin debt. From RMB 400 bln a year ago, total margin debt has quadrupled to RMB 1.8 trln, equal to some 3% of today’s equity market capitalisation. To fund their loans to stock investors, brokers have borrowed from the interbank market. If the stock market suddenly reverses and investors default on their margin debts, the contagion effect will be much greater than in previous cycles, since the banking system is now more exposed to the brokerage industry. If any brokers get into trouble, banks may end up taking losses as well.

A secondary but nonetheless significant risk is that the combination of a slowing economy and a rising equity market may encourage companies to divert capital into stock

BYR GBP BGN CZK DKK EEK EUR GEL HUF LVL LTL MTL MDL NOK PLN RON RUB SEK CHF UAH

14420 1.5254 1.795 25.2323 6.8475 14.3671 1.0894 2.2826 275.63 0.64533 3.1704 0.3942 18 7.7188 3.6641 4.049 52.2975 8.601 0.9548 22.65

AUD CAD HKD INR JPY KRW NZD SGD

0.7887 1.209 7.7504 63.275 118.99 1069.85 1.3093 1.3278

BHD EGP IRR ILS JOD KWD LBP OMR QAR SAR ZAR AED

0.3770 7.6231 27993.00 3.9069 0.7081 0.3011 1511.00 0.3849 3.6401 3.7500 11.9643 3.6729

AZN KZT TRY

1.0463 185.79 2.6779

AMERICAS & PACIFIC

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

Bahrain Dinar Egyptian Pound Iranian Rial Israeli Shekel Jordanian Dinar Kuwait Dinar Lebanese Pound Omani Rial Qatar Rial Saudi Arabian Riyal South African Rand U.A.E. Dirham

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.

ASIA

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira

The Financial Markets

Note:

* USD per National Currency

Interest Rates LIBOR rates

Base Rates

CCY USD GBP EUR JPY CHF

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

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.18 0.51 -0.05 0.07 -0.84

0.23 0.54 -0.03 0.09 -0.83

0.28 0.57 0.00 0.09 -0.81

0.41 0.70 0.06 0.14 -0.73

0.70 0.99 0.18 0.25 -0.62

USD GBP

CCY/Period

EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.78 0.97 0.06 0.14 -0.71

1.08 1.16 0.09 0.14 -0.61

1.31 1.32 0.15 0.17 -0.47

1.50 1.44 0.21 0.21 -0.35

1.76 1.61 0.33 0.32 -0.12

2.00 1.78 0.50 0.51 0.08

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

1 USD

Opening Rates

1 EUR

1 GBP

1 CHF

100 JPY

1.0894

1.5254

1.0473

0.8404

1.4002

0.9614

0.7714

0.6866

0.5509

0.9179 0.6556

0.7142

0.9548

1.0402

1.4565

118.99

129.63

181.51

0.8024 124.62

Weekly movement of USD

CCY\Date

24.03

31.03

07.04

21.04

28.04

CCY

USD GBP JPY CHF

1.0876

1.0742

1.0875

1.0679

1.0820

0.7279

0.7266

0.7302

0.7171

0.7102

GBP EUR

129.98

128.96

129.89

127.39

128.74

1.0509

1.0405

1.0399

1.0205

1.0323

JPY CHF

Today 1.5254 1.0894 118.99 0.9548

Last Week 1.4870 1.0699 119.51 0.9591

%Change -2.58 -1.82 -0.44 -0.45

April 29 - May 5, 2015

16 | WORLD | financialmirror.com

Asian games are not zero-sum

By Jeffrey Frankel Two society hostesses are rivals. Both guard their social standing jealously – and may even punish a guest who attends the other’s party by withholding future invitations.

China and the United States seem to regard Asia-Pacific relations similarly: as a zero-sum game. Are countries signing up for China’s Asian Infrastructure Investment Bank (AIIB), or for America’s Trans-Pacific Partnership (TPP)? Will China be welcomed, or humiliatingly rebuffed, in its effort to persuade the International Monetary Fund to include the renminbi in its unit of account, Special Drawing Rights (SDR)? Is the US still the world’s largest economy, or did China surpass it in 2014?

However tempting it may be to focus on such questions, they are the wrong way to think about the global economy. There is no reason why some countries should not join both China’s AIIB and America’s TPP, or why overlapping memberships should not expand over time – or, indeed, why the hostesses should not eventually attend each other’s parties.

Unfortunately, that is not how current issues of global economic governance are being framed. When the United Kingdom, Germany, South Korea, Australia, and others unexpectedly decided in March to join the AIIB, it was widely reported (partly because of missteps by US policymakers) as a mass defection of US allies to a rival’s party.

But there is nothing wrong with joining the AIIB. Asia needs more help with infrastructure investment than the World Bank and the Asian Development Bank can provide; China can play a useful leadership

role; and the participation of countries with high governance standards can help prevent the cronyism, corruption, and environmental damage to which large-scale infrastructure projects are prone.

Likewise, the TPP negotiations are sometimes characterised as a US attempt to isolate China. But, given the Asia-Pacific region’s high trade volumes, and its dense set of trading arrangements running in every direction, no one, including China, is about to be isolated. And, with World Trade Organisation negotiations, in which all countries could participate, stalled for years, the TPP and other regional initiatives (like AsiaPacific Economic Cooperation and various intra-Asia free-trade areas) are better than nothing.

Exchange rates are another area where zero-sum thinking prevails. On April 9, the US Treasury released the biannual report mandated by Congress to identify countries engaging in “currency manipulation.”

Neither China nor anyone else was found guilty this time. But Treasury officials believe that they must keep up the pressure, lest Congress follow through on threats to punish supposed currency manipulators, derailing the TPP and other trade agreements.

Then there is the SDR. Every five years, the IMF reconsiders its composition, which currently is defined in terms of the dollar, euro, yen, and pound. China’s renminbi is unlikely to be included in the basket now, because it is not “freely usable.” And, though this will likely be reported as a defeat for China, it should not be. The issue is of little importance.

It might seem that all of this could be shrugged off as a harmless media spectator

sport. But, to the extent that a misplaced focus on country rankings becomes a barrier to sensible policy, it can do real damage.

Such is the case with the stalled IMF quota reform, an issue where the rankings in fact are of some importance, but not in a zero-sum way. By any measure of economic importance, China and other major emerging economies have long since merited much larger IMF quota shares, implying greater financial contributions and greater voting weights.

But their increase in shares need not come at the expense of the US. It is the European countries that are greatly overrepresented. Despite European reluctance to cede ground, US President Barack Obama succeeded in brokering such a reallocation of IMF quota shares at the G-20 summit in Seoul in November 2010. Five years later, the US Congress is still holding up IMF quota reform – not because it would imply any loss of power or cost to US taxpayers, but because many members do not want to give Obama anything he asks for.

Thirty years ago, the West wanted nothing more than for China to become a

capitalist economy. It has done so, with spectacular success. The rules of the game now require that China be given a bigger share in the governance of international institutions.

Making room at the table will help the rest of us in the “game” that matters most: world peace and prosperity. If the Congress does not pass the IMF quota reform, the US can hardly blame the Chinese for undertaking initiatives such as the AIIB on their own.

We often hear about hard power (military) and soft power (the attractiveness of a country’s ideas, culture, economic system, and so forth). But there is another kind of power. Ever since Bretton Woods, the US has had the power of global leadership. During the interwar period (1919-1939), Americans were unprepared to assume that mantle; but World War II taught them the cost of isolationism, and they rose to the challenge in 1944.

Seventy years later, even after America’s massive foreign-policy mistakes in Iraq and elsewhere, and even after Chinese GDP has supposedly caught up with America’s (at least in terms of purchasing power parity), the world remains ready to be led by the US, including on the crucial subjects of trade and IMF reform. If those who insist on scorekeeping have their way, the US will be unable to exercise the leadership that the world needs. And the world will look elsewhere.

Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University. © Project Syndicate, 2015. www.project-syndicate.org

The shareholder spring continues It is annual general meeting season – the time of year when some of the world’s biggest companies gather to report to shareholders and have some semblance of a conversation with them. For the next couple of months, a succession of companies will talk about what influenced their performance over the previous year, what they are planning for the future, and the decisions that their boards have made.

There was a time when these meetings took place without much fanfare, mostly unnoticed by the public. That has not been true for a couple of years. A worsening economy and widening inequality have spurred more people to become more engaged and take an interest in the activities of companies and those who run them. And, with that change, attention has broadened from CEOs and executive teams to those who previously existed in a black box: the companies’ board members.

In 2012, shareholders and others started shining a bright light on boards, questioning their decisions and activities, and those of individual members, and thus was born the Shareholder Spring. People grew tired of tone-deaf board directors operating in soundproof rooms, seemingly ignoring economic realities and the public’s mood. They wanted to confront those who decide on executives’ often eye-popping compensation or approve companies’ decisions to undertake sophisticated tax engineering. People wanted to know whether board members were actually doing their jobs or just filling seats and collecting a nice fee.

Many companies and company boards hoped that this heightened interest would pass quickly; instead, it has matured. Discontent has continued to mount, and investors, employees, politicians, and members of the public now want to know not only about executive compensation, but also about the frequently staggering discrepancy between what companies’ highest- and lowest-paid personnel earn. They

By Lucy P. Marcus want to know about living wages and zero-hours contracts.

They want to know what companies are doing to address climate change, whether they are responsible community members, how they behave in conflict zones, and much more.

Those asking the questions are no longer content to protest outside. They are becoming increasingly sophisticated about how to be heard, buying shares, stepping up to the microphone, and looking board members in the eye, so that their questions become part of the official minutes. And they are putting pressure on companies’ major investors to hold board members to account as well.

The questions posed and statements made can sometimes be longwinded. But many of them are legitimate, and they are an important reminder to boards that they must serve the company’s entire ecosystem – investors, employees, customers, and community alike. Indeed, these open meetings are a reminder that board members must ask the hard questions all year round, rather than simply rubberstamping management proposals or going along to get along.

Interestingly, just as the movement to hold boards to account has gained greater traction, some companies have adopted new ways of convening annual shareholder meetings. These were once fairly staid gatherings. The companies’ senior management would walk investors and

board members through the reporting formalities step by step, present results, take questions, vote, and move on.

There was tea, coffee, and biscuits, but nothing fancy.

In recent years, however, there has been a trend toward a more carnival-like atmosphere, with companies bringing in big-name entertainers and turning the event into a feel-good pep rally. Last year, Wal-Mart’s annual meeting featured Harry Connick, Jr., Robin Thicke, and Pharrell Williams. In 2013, Elton John performed.

In contrast, other companies have swung to the opposite extreme and embraced fully virtual meetings. The board gathers in front of a camera for a live webcast to shareholders, takes questions submitted in advance, and avoids the protesters altogether. This year, HP joined Sprint and Martha Stewart Living Omnimedia down this road.

There is a virtue to having a meeting with a virtual component: businesses are global, and so are their investors, who can participate without having to get on a plane. But a webcast of a meeting with a live audience would be the ideal combination. And while companies might argue that entirely virtual meetings save money – which of course is true – investors do not need Robin Thicke. They will settle for good numbers, serious discussion, and a dry biscuit.

Boards and managers must take these meetings seriously.

Part of the job is facing those with something at stake.

Hosting circuses or hiding behind cameras will not keep tough questions from coming. A seat at the boardroom table comes with the responsibility to stand up and do this vital part of the job – in person and without musical accompaniment.

Lucy P. Marcus is CEO of Marcus Venture Consulting. © Project Syndicate, 2015 www.project-syndicate.org

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The AIIB and global governance Despite official American and Japanese opposition, 57 countries have opted to be among the founding members of the China-led Asian Infrastructure Investment Bank (AIIB).

Regardless of what naysayers believe, this remarkable turn of events can only benefit global economic governance.

According to former US Treasury Secretary Larry Summers, the AIIB’s establishment “may be remembered as the moment the United States lost its role as the underwriter of the global economic system.” Asia Development Bank (ADB) President Takehiko Nakao, by contrast, does not believe that there will be a “major change to the world of development finance,” though he conceded that “there can be interpretations as to the symbolic meaning of this.”

Who is right will depend largely on the decisions that the AIIB’s top shareholders make regarding its operating structure. So far, the AIIB has not sought to amend the principle that the largest contributor to a multilateral organisation gets the largest say in running it. Just as the US dominates the World Bank and Europe leads the International Monetary Fund, China will head the AIIB. This implies a larger global leadership role for China – which the world, including its traditional powers, should welcome. After all, global leadership is not just a matter of might; it also reflects the provision of global public goods.

When World War II ended, the US, aside from being the world’s leading military and economic power, was the largest provider of such goods, through the Marshall Plan, support for the United Nations, and contributions to the Bretton Woods institutions (the International Monetary Fund and the World Bank). But massive debts have lately undermined the ability of the US – not to mention Europe and Japan – to continue making such large contributions. Fortunately, China is willing and able to fill the gap.

In fact, China might have done so within the Bretton Woods institutions, were the distribution of voting rights within them not skewed so heavily toward the incumbents, who still enjoy veto power. For example, China has a 3.8% voting share in the IMF and World Bank, even though it accounts for more than 12% of world GDP. The United Kingdom and France – which are one-third the size of China – each have a 4.3% share. With the incumbents unwilling to

By Andrew Sheng and Geng Xiao

bring China’s voting share in line with its economic might, China had little choice but to launch its own institution.

But the AIIB has its own objectives, which do not align precisely with those of, say, the World Bank. Specifically, the bank is a critical element of China’s “one belt, one road” strategy, which encompasses two initiatives: the overland Silk Road Economic Belt, connecting China to Europe, and the 21st Century Maritime Silk Road, linking China to Southeast Asia, the Middle East, and Europe. While the US “pivots” to the east, China is pirouetting west, applying the lessons of its development to its trading partners across Eurasia and beyond.

Perhaps the most important of these lessons is that connectivity is vital to economic growth. Over the last three decades, the construction of roads, railways, ports, airports, and telecommunications systems in China has fostered trade, attracted investment, and, by linking the country’s land-locked western and southern provinces to its more prosperous coastal areas, helped to reduce regional disparities.

China’s Silk Road initiative, which aims to boost prosperity among China’s trading partners largely through infrastructure investment, is a logical next step – one on which China is spending significantly. In addition to its initial contribution of up to $50 bln to the AIIB, China has committed $40 bln to its Silk Road Fund, $32 bln to the China Development Bank, and $30 bln to the Export-Import Bank of China.

According to estimates by HSBC, the “one belt, one road” initiative could end up costing as much as $232 bln – just under two-thirds of the World Bank’s balance sheet in 2014.

The $100 bln AIIB will play a central role in this effort.

Given massive global demand for infrastructure finance – which, according to ADB estimates, will amount to $8 trln in Asia alone over the next decade – the AIIB should not be considered a threat to the World Bank, the ADB, or other multilateral lenders. Nonetheless, it will compete with them, owing to its distinctive – and probably more efficient – approach to lending.

In fact, the AIIB’s operations will most likely resemble those of the World Bank in the 1960s, when engineers with hands-on development experience dominated the staff and could design lending conditions that worked for borrowers.

In the late 1980s, the World Bank began to implement the Washington Consensus, pushing for economic and political liberalisation, without sufficient regard for local political or economic realities. The result was conditional lending, with terms – created mostly by policy wonks – that many developing-country borrowers could not meet (at least not without hiring consultants to adjust their official reporting).

The acid test of the AIIB’s effectiveness will be its governance model. One failing of the Bretton Wood institutions is their full-time shareholder boards of directors, which tend to undermine effectiveness by micro-managing and often requesting conflicting lending conditions. The World Bank has wasted far too much time re-organising itself under various presidents, without recognising the fundamental problem with its own governance structure.

Even if the AIIB does not deliver as promised, its establishment is an important reminder that in a fastchanging world, economic governance cannot remain stagnant. If Western leaders really do believe in innovation, competition, and meritocracy, they should welcome the AIIB. Andrew Sheng is Distinguished Fellow of the Fung Global Institute and a member of the UNEP Advisory Council on Sustainable Finance. Xiao Geng is Director of Research at the Fung Global Institute. © Project Syndicate, 2015. www.project-syndicate.org

An Earth Year - things to do for a new climate dea which now amounts to less than one trillion tons, in just 25 years. result would be catastrophic

By Johan Rockstrom The changes like unmanageable sealevel rises, devastating heat waves, and persistent droughts that create unprecedented On April 22, the world marked the 45th challenges in terms of food security, anniversary of Earth Day, established in 1970 ecosystems, health, and infrastructure. to draw attention to environmental Unsurprisingly, the poorest and most challenges. Never have those challenges been vulnerable will be the hardest hit. greater or more urgent than they are today.

We must change course. This Earth Day The combination of climate change, erosion should serve as a reminder – and, indeed, a of biodiversity, and depletion of natural catalyst – of what the world really needs: resources is propelling the planet toward a strong and sustained action. Fortunately, tipping point, beyond which objectives like 2015 may mark the beginning of just such a sustainable development and poverty change for the better. reduction will be more difficult than ever to This year, world leaders will meet three achieve. times to chart a new path for our planet. In Since 1970, scientists have learned not July, they will meet in Addis Ababa, Ethiopia, only that human activity is the primary for the Conference on Financing for driver of environmental change on Earth, Development. In September, they will but also that it is pushing the planet beyond convene to approve the Sustainable its natural limits. If we do not make big Development Goals, which will guide changes fast, the results could be development efforts until 2030. And in devastating.

December, they will head to Paris to Global leaders seemed to recognise this negotiate a new global climate agreement. when they agreed five years ago to limit The outcomes of these meetings will global warming during this century to 2 shape this generation’s legacy for both the Celsius above pre-industrial levels – the natural environment and economic growth threshold beyond which we risk triggering and development. By decarbonising the more devastating consequences of climate global economy and limiting climate change, change. But strong action to reduce world leaders can unleash a wave of greenhouse-gas emissions has not been innovation, support the emergence of new taken. On the contrary, emissions have industries and jobs, and generate vast increased markedly; as a consequence, last economic opportunities. year was the hottest year on record.

It is up to all of us to encourage political The world is now on track to deplete its leaders to do what is needed to secure such remaining “budget” for CO2 emissions, an outcome. Just as we demand that our

governments address risks associated with terrorism or epidemics, we should put concerted pressure on them to act now to preserve our natural environment and curb climate change.

Here, the scientific community has a special responsibility to share their research and its potential implications. That is why I and the 16 other scientists of the Earth League – representing world-leading academic institutions like the Potsdam Institute on Climate Impact Research, the Earth Institute, Tsinghua University, and the Stockholm Resilience Centre – have released the “Earth Statement,” which sets out the eight essential elements of a successful global climate deal, to be reached in Paris in December.

First, the agreement must reinforce countries’ commitment to limit global warming to below 2C. Second, the agreement needs to recognise the remaining global budget for CO2 emissions.

Third, the agreement should lay the foundation for a fundamental transformation of the economy, with deep decarbonisation beginning immediately, in order to create a zero-carbon society by around 2050.

Fourth, all 196 countries in the United Nations Climate Convention must formulate an emissions pathway consistent with deep decarbonisation, with richer countries taking the lead.

Fifth, countries must promote innovation in clean technologies and ensure universal access to existing technological solutions.

Sixth, governments must agree to support adaptation to climate change and to

address the loss and damage associated with it.

Seventh, the agreement must include provisions to safeguard carbon sinks and vital ecosystems.

Eighth, to help developing countries fight climate change, donors need to provide additional support at a level at least comparable to current global development aid.

The good news is that these eight objectives are realistic and achievable; indeed, some progress is already being made.

Last year, total CO2 emissions from the energy sector remained unchanged year on year for the first time (in the absence of an economic downturn). And recent reports show that emissions in China, the world’s largest emitter of greenhouse gases, also did not increase from 2013 to 2014.

The tide is turning. Decarbonisation has already begun, and the appeal of a fossil-fuelfree world is growing – not only because it would limit climate change, but also because it would be more technologically advanced, democratic, resilient, healthy, and economically dynamic. This is the right time to move fully onto a more sustainable, zerocarbon path.

With the right global deal, the world could finally do just that. For the sake of the planet, and the people who depend on it, let us make 2015 Earth Year.

Johan Rockström is Professor of Global Sustainability at Stockholm University. © Project Syndicate, 2015. www.project-syndicate.org

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Mr. Abe goes to Washington

By Yuriko Koike On April 29, Japanese Prime Minister Shinzo Abe will address a joint session of the United States Congress. The Japan-US alliance is now 63 years old, but this will be the first time that a Japanese leader will be accorded this high honour from the American government and people.

Abe’s visit to the US comes at a time when friction between the two countries is at an all-time low. The trade and economic disputes that incited tensions – and a subgenre of paranoid movies about Japan – in the 1980s, when nine members of Congress even smashed a Toshiba radio with sledgehammers, rarely make an appearance nowadays.

Those past disputes probably explain why former Prime Minister Yasuhiro Nakasone, though a political soul mate of thenPresident Ronald Reagan, was never invited to address a joint session of Congress. Today, however, the bilateral relationship is very different. Japan’s economic interests are more closely aligned with America’s – the country is poised to join the US-initiated Trans-Pacific Partnership, which will create a vast free-trade zone among a dozen Pacific Rim countries – and the two sides’ strategic visions for Asia are in near-harmony.

Moreover, the long-simmering dispute over the US Marine Corps base on Okinawa, which had roiled bilateral relations during the years the Democratic Party of Japan was in power, has been settled amicably, with the US agreeing to move the base to a less

populated part of the island. Of course, some Okinawa residents remain opposed to the US base’s continued presence on their island, but most Japanese recognise the need for this tangible symbol of their alliance with America, which remains the bedrock of Japan’s national-security strategy.

The two sides’ increasingly similar views on international security issues as well, particularly where China is concerned, no doubt also contributed to the decision by the US Congress and President Barack Obama’s administration to honour Abe. Both Abe and Obama are focused on creating a durable structure of peace for all of Asia, and Abe has been eager for Japan to play a more active role in this regard, and in supporting its allies. That stance is making the alliance much more a partnership of equals than it has been for the last six decades.

In America’s view, the reinterpretation of Article 9 of Japan’s “peace constitution” that Abe undertook – thereby allowing Japan’s self-defense forces to aid allies under attack and to assist the US and other allies in meeting their commitments to securing Asia’s peace – was long overdue. That bold policy initiative – in the face of the Japanese public’s deeply ingrained skepticism toward any increased exposure to military risks – has no doubt endeared Abe to US diplomats and military strategists, as well as secured both open and sometimes tacit approval from Japan’s Asian neighbours.

Increased military cooperation with the US is particularly important now, given American worries about many of its other strategic partners’ readiness. Even the United Kingdom, long seen as America’s closest ally, now seems intent on undermining its ability to work cooperatively with the US in times of crisis, even in

meeting its NATO commitments, because of severe cuts to its military budget. Other allies are also increasingly regarded in the US as free riders on America’s military might.

Abe’s commitment to the rules and institutions of the post-1945 world order, which helped bring Japan out of the ruins of World War II and has allowed China to rise so peacefully, gives the US another reason to honour him. Like the US, Japan has many concerns about the parallel institutions – including the Asian Infrastructure Investment Bank and the BRICS countries’ New Development Bank – that China is creating.

Having benefited so much from the postwar global order, most Japanese share Abe’s view that China’s efforts to replace it with one more to its liking is both unwise and dangerous for Asia. Indeed, countries that have decided to cooperate with China in creating rival multilateral institutions should ask themselves a simple question: Would a world order designed by China allow for the rise of another power to challenge it in the way the US-led world order allowed for – indeed, encouraged and assisted – China’s three-decade-long boom?

To answer that question, one can look to the writings of the Chinese strategist Yan Xuetong, whose book Ancient Chinese Thought/Modern Chinese Power argues that all countries must recognize and accept China’s centrality to the world as the Middle Kingdom. Moreover, China has thus far shown little interest in discussing the standards by which the multilateral institutions it has launched will be governed – or, indeed, the extent to which they will be truly multilateral.

Abe’s visit to the US thus comes at a moment of clarity in bilateral relations. Both

countries seek to create a viable structure of peace for Asia, one that allows China to continue to grow and prosper, but that prevents any one country from claiming hegemony. And both favour a rules-based Asian trading order that reinforces the global norms that have served the world so well since WWII’s end. In honouring Abe with an address to Congress, the US is really honouring the values and vision that both countries share.

Yuriko Koike, Japan’s former defense minister and national security adviser, was Chairwoman of Japan’s Liberal Democratic Party’s General Council and currently is a member of the National Diet. © Project Syndicate, 2015. www.project-syndicate.org

The case for peace with Iran

By Jeffrey D. Sachs The nuclear framework agreement between Iran and the five permanent UN Security Council members (the United States, the United Kingdom, France, China, and Russia) plus Germany is an important achievement in global diplomacy.

The deal announced earlier in April represents the triumph of rational hope over irrational fear, and it deserves to be implemented. But now the race is on against hardliners in the US, Iran, Israel, and elsewhere, who want to kill the deal before the deadline for a final agreement in June.

The framework agreement benefits all parties. Iran scales back its nuclear activities, especially the enrichment of uranium fuel, in exchange for an end to economic sanctions.

Its government is kept further away from developing a nuclear bomb – which it denies pursuing – and gains room for economic recovery and normalisation of relations with the major powers.

It is a smart, pragmatic, and balanced approach, subject to monitoring and verification. It does not require that the US and Iranian governments suddenly trust each other; but it does offer an opportunity to build confidence, even as it allows for specific steps that are in each side’s interests.

Crucially, it is part of international law, within the framework of the UN Security Council.

By propounding the idea that the other side can never be trusted, the hardliners are advancing a self-fulfilling theory of politics and human nature that makes war far more likely.

These purveyors of fear deserve to be kept on the sidelines. It is time to make peace.

The great divide between the West and Iran today, it should be noted, is largely the result of malign Western

behavior toward Iran (Persia until 1935) in the past. From the start of the twentieth century, the British Empire manipulated Persia in order to control its vast oil reserves.

After World War II, that job fell increasingly to the US. Indeed, from coup to dictatorship to war to sanctions, the US has racked up more than 60 continuous years of trying to impose its will on Iran. The CIA and Britain’s MI6 jointly toppled Mohammad Mossadegh’s democratically elected government in 1953, in order to block Mossadegh’s attempts to nationalise Iran’s oil reserves. The US then installed the brutal dictatorship of Shah Mohammad Reza Pahlavi, which ruled the country until the Islamic Revolution of 1979.

Following the revolution, the US helped to arm Iraq in the Iran-Iraq War of the 1980s, in which an estimated one million Iranians died. Since 1987, the US has imposed economic sanctions against Iran on a variety of premises, including claims of Iranian terrorism and the alleged nuclear threat. And the US has worked hard to internationalise these sanctions, leading the push for UN measures, which have been in place since 2006.

The US hardliners have their own long list of grievances, starting with the 1979 seizure of America’s embassy in Tehran, in which 66 US diplomats and citizens were held for 444 days. Then there is Iran’s involvement in Islamist insurgencies, and its support for anti-Israel political movements and groups deemed to be terrorist.

Still, the British and American abuses vis-à-vis Persia and Iran started earlier, lasted longer, and imposed far higher costs than Iran’s actions vis-à-vis the US and UK. Moreover, much of what the US categories as Iranian “terror” is a product of the region’s sectarian struggles between Shia, backed by Iran, and Sunnis, backed by Saudi Arabia. “Terror” is a term that obscures rather than clarifies these longstanding clashes and rivalries. That is why Iran, called a “terrorist state” by US hardliners, is now America’s de facto ally in the fight against Sunni jihadists in Iraq and Syria.

Iran’s confrontation with the UK and the US is part of the

much broader saga of the West’s use of its military and economic dominance to project its power and political will over much of the world during the nineteenth and twentieth centuries. Today’s low- and middle-income countries are only now entering a period of true sovereignty.

The proposed agreement with Iran will not overcome a century of distrust and manipulation, but it can begin to create a new path toward peace and mutual respect. Mutual benefit will be achieved by honest appraisals of mutual interests, and step-by-step progress backed by verification, not by hardliners on both sides claiming that the other side is pure evil and insisting on complete triumph.

The success of US President John F. Kennedy and Soviet leader Nikita Khrushchev in reaching the 1963 Limited Nuclear Test Ban Treaty, at the height of the Cold War, provides an instructive lesson. At the time, hardliners on both sides denounced the LTBT as a weakening of national defense in the face of an implacable enemy. In fact, both sides fully honored the treaty, and it led to the landmark 1968 Nuclear Non-Proliferation Treaty.

JFK’s words a half-century ago apply to the Iran agreement today. The LTBT, said Kennedy in 1963, “is not a victory for one side – it is a victory for mankind.” This treaty, he said, “will not resolve all conflicts, or cause the Communists to forgo their ambitions, or eliminate the dangers of war. It will not reduce our need for arms or allies or programmes of assistance to others. But it is an important first step – a step towards peace – a step towards reason – a step away from war.”

Jeffrey D. Sachs is Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University. He is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals. © Project Syndicate, 2015. www.project-syndicate.org

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Girls, not brides

By Graca Machel and Mabel Van Oranje

When Memory Banda’s younger sister was forced to marry at just 11 years old, Memory became determined to ensure that no more girls had to experience her sister’s fate. Since then, this remarkable young woman from rural Malawi has helped to persuade her government to raise the minimum age of marriage across her country, and is blazing a trail for girls that we all should follow.

Memory’s sister became pregnant during a traditional sexual “cleansing ceremony,” a rite of passage in some parts of Malawi that is supposed to prepare pubescent girls for womanhood and marriage. She was forced to marry the father of her unplanned child, a man in his early 30s, and was burdened with all the responsibilities of adulthood. Now 16, she is raising three children alone; she has been unable to return to school.

The incident inspired Memory to push for a better future for girls. She became involved with a local grassroots group, Girls Empowerment Network, joining other young women and civil-society groups across Malawi to urge village authorities and parliamentary ministers to put an end to child marriages.

Last month, Memory’s efforts – along with those of thousands of others – paid off, when Malawi’s government enacted a new law that sets the minimum age for marriage at 18. Memory’s achievement is an important one. Every year, some 15 million girls are married before the age of 18, and their plight is all too often ignored. A girl forced into marriage typically faces pressure to bear children before she is physically or emotionally ready to do so. And the result can be deadly. Girls who give birth before they turn 15 are five times more likely to die in pregnancy or childbirth than women in their 20s.

The consequences of child marriage are lifelong. Child brides typically drop out of school, losing the chance to acquire the skills and knowledge needed to lift themselves and their families out of poverty. Like Memory’s sister, they often are married to older men – a situation that leaves them less able to ensure that they are treated well. Can you imagine trying to stand up to a man you did not choose, you do not love, and who does not respect you?

Education for girls is crucial to ending

child marriage. The transition from primary school to secondary school is particularly important, as it usually coincides with adolescence, a period in a girl’s life that lays the foundation for success and wellbeing in womanhood. Girls with secondary education are up to six times less likely to marry early compared to girls with little or no education.

An educated woman is also likely to bear fewer children and is able to plan for a healthier, more prosperous future for herself and her family.

Girls must be convinced and assured of their worth. In places like India, Tanzania, and Zambia, girls’ empowerment clubs, in which members share their challenges and learn how to overcome them, have proved their effectiveness. Such clubs give girls the confidence and skills they need to take control of the major decisions in their lives – including whether, when, and whom they will marry. But girls should not be left to end child marriage on their own. Child marriage occurs in a wide variety of countries, religions, and cultures, and families, communities, and societies share a joint responsibility to end it. Governments need to adopt legislation that sets 18 as the minimum age for marriage – leaving no room for exceptions such as traditional practices or parental consent.

Fathers, brothers, and male leaders must be engaged to care for and empower girls.

Support should be given to civil-society groups that conduct dialogues with parents, teachers, and traditional leaders to build community awareness of the consequences of child marriage.

Girls hold the key to building thriving societies. It is up to all of us to serve as role models for the girls in our lives. We have all benefited from the wisdom of our parents, partners, colleagues, and mentors. It is now up to us to nourish and nurture girls’ ambitions. We must bring to an end a practice that prevents millions of them from reaching their potential. Let girls be girls, not brides.

Graça Machel is Founder of the Graça Machel Trust. Mabel van Oranje is Chair of Girls Not Brides: The Global Partnership to End Child Marriage. © Project Syndicate, 2015 www.project-syndicate.org

After the quake: Nepal economy by the numbers Nepal may be most known for having is roughly 14.76 mln, with a severe lack of Mount Everest, but a devastating 7.8skilled labour. magnitude earthquake has ravaged the Gross domestic product (GDP), under nation and the death toll is now reported to 24/7 WallSt.com the purchasing power parity calculation, be nearing 4,000. This quake was strong was shown by the CIA World Factbook as enough that it destroyed many buildings, $66.92 bln in 2014 (97 in the world). That and aftershocks have left many fearing to go back into would compare to estimates of $63.44 bln in 2013, and buildings. The destruction is almost certain to severely $61.09 bln in 2012. Per capita GDP is very low, at $2,400 in hamper what is already a weak local economy.

2014 (ranking 197 in the world).

The CIA World Factbook calls Nepal one of the poorest and Inflation has been an issue in Nepal, but perhaps getting least developed countries in the world. About one-fourth of better — at 8.4% in 2014, after 10.2% in 2013. The market the population is said to be live below the poverty line. value of its publicly traded shares was listed as being only Population is 30,986,975. Some 31.6% is aged 14 and $9.67 bln as of October 31, 2014. That compared to $5.81 bln younger, with 22.6% being ages 15 to 24, and another 35.7% in the same time in 2013 and to $5.23 bln in 2010. aged 25 to 54 years old. Only 5.6% of the population is 55 to Imports and exports are out of line. Exports were 64 years old, and only 4.5% is age 65 or older. This estimated at $1.12 bln in 2014, up from $991.5 mln in 2013. population ranks as number 42 in the world. Its labour force Imports were $7.28 bln in 2014 and $6.5 bln in 2013. Nepal’s

By Jon C Ogg

export partners are India (53.7%), United States (9.2%), China (4.9%), Germany (4.2%) and Bangladesh (4.2%).

Nepal’s import partners are India (50.6%) and China (35.0%).

Reserves of foreign exchange and gold were estimated at $5.44 bln as of the end of 2013 and $4.43 bln as of the end of 2012. Agriculture is the mainstay of the economy, which supports over 70% of the population but accounts for a little over one-third of GDP. Industrial activity is focused on the processing of agricultural products, including pulses, jute, sugarcane, tobacco and grain.

Nepal has considerable scope for exploiting its potential in hydropower, with an estimated 42,000 MW of commercially feasible capacity, but political uncertainty and a difficult business climate have hampered foreign investment.

Additional challenges include its landlocked geographic location, persistent power shortages, underdeveloped transportation, civil strife and labour unrest.

April 29 - May 5, 2015

20 | BACK PAGE | financialmirror.com

Three encounters with Hillary

By Bernard-Henri Levy It is Boston, July 2004. The setting is a downtown restaurant to which the editor Tina Brown has invited Hillary Clinton and a handful of notables, including Caroline Kennedy, filmmaker Michael Moore, and former Senator George McGovern. What is immediately striking is Clinton’s youthful appearance, bright laugh, and blue eyes that appear a little too round when she gazes at us with curiosity.

Sometimes her expression is briefly clouded by a streak of stifled pain, obstinate and not wholly contained. Five years earlier, she was the most humiliated wife in America, a woman whose private life was thrown open – fully and relentlessly – to public scrutiny. So she can talk national and international politics until she is blue in the face. She can sing the praises of John Kerry, whom her party has just nominated in an effort to deny George W. Bush a second term. And she can expound on her role as the junior senator from New York. Still, there persists an idea that I cannot push out of my head, and that I enter into the travel journal that I am writing for The Atlantic.

The idea is this: to avenge her husband and to take revenge on him, to wash away the stain on the family and show what an unblemished Clinton administration might look like, this woman will sooner or later be a candidate for the presidency of the United States. This idea brings to mind Philip Roth’s The Human Stain, published a year after the Senate acquitted her husband of perjury and obstruction-ofjustice charges, with its searing portrait of how indelible even an undeserved blot on one’s reputation can be. She will strive to enter the Oval Office – the theater of her inner, outer, and planetary misery – on her own terms. And the most likely outcome, my article will conclude, is that she will succeed.

Fast forward to Paris in May 2011. The senator from New York has become President Barack Obama’s secretary of state. Her aura dominated the just-concluded G-8 summit hosted by France. It is ten in the evening, and I am waiting at the elevators in the lobby of the Hotel Westin with

Mahmoud Jibril, one of the leaders of the Libyan insurrection. Jibril has made a special trip to plead on behalf of the civilians whom Colonel Muammar Qaddafi and his sons have promised to drown in rivers of blood.

“I thought you were in Libya!” she exclaims when she sees me. “I’ve just returned,” I respond, gesturing toward Jibril.

“Really, hidden in a vegetable truck with him?” That triggers one of those great bursts of laughter that, as I noticed in Boston, raise her high cheekbones still higher. Then, suddenly serious, and accompanied by a man whom I notice for the first time and who turns out to be J. Christopher Stevens, the young US ambassador to Libya who will be murdered a little more than a year later, she leads Jibril to her suite for an interview.

When, after nearly an hour, Jibril reemerges, he is convinced that the conversation went badly. He grumbles that Clinton hardly opened her mouth, which he interprets to mean that his plea was not well received. In fact, Clinton was deeply moved by Jibril’s testimony, riveted by the horror of the regime’s tanks grinding toward Benghazi at that very moment. In the hours that follow, she convinces Obama not to bow to his anti-interventionist secretary of defense, Robert Gates.

She displays emotion and composure, I note. Her humanity and compassion are coupled with an acute sense of the iron discipline required for effective governance. These are the reflexes of an impeccable stateswoman.

By February 2012, the war in Libya is over, and I am wrapping up my documentary film about the conflict. I am in Washington, DC, in a wood-paneled conference room on the seventh floor of the Department of State’s headquarters, to gather Clinton’s recollections, as I had already done with French President Nicolas Sarkozy and British Prime Minister David Cameron. This is the moment for conclusions and perspective, the always-fascinating moment when the actors in the drama, who have sometimes operated in secret, turn up their last cards.

Clinton lends herself graciously to the exercise. She evokes her interview with Jibril, a conversation at the White House or the Elysée Palace. She remembers everything and regrets nothing. She feels that, in acting as she did, she was faithful to her most cherished values and beliefs. And she has no doubt that the West, in responding to the Arab League’s

entreaty to intervene, avoided a replay of Srebrenica in North Africa.

What strikes me the most is that she sees, even then, the beginnings of the tribal conflicts and the coming contest among Islamists to outdo one another in fundamentalist purity. She worries about the early violations of human rights, particularly women’s rights, which she fears will multiply. She has no illusions that history turns out the way reason tells you it should. Time is needed, she says, to build a state and construct a democracy – time and a mixture of pragmatism and faith, of patience and audacity, of respect for others and regard for oneself.

Was this concern about “nation building” a warning? Was it her ideological contribution to an administration that, though she did not know it at the time, would continue without her? Was she laying down the broad strokes and ambition of her own presidency?

One thing is certain: Of my three encounters with Hillary Clinton, this third was the one where I found her the strongest and most passionate, thoroughly imbued with the meaning and pitch of the great American pastoral. If we meet again, I will not be surprised if I am addressing her as Madam President.

Bernard-Henri Lévy is one of the founders of the “Nouveaux Philosophes” (New Philosophers) movement. His works include Left in Dark Times: A Stand Against the New Barbarism. © Project Syndicate, 2015. www.project-syndicate.org

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