Financial Mirror 2015 05 13

FinancialMirror JEFFREY FRANKEL New and improved trade agreements PAGE 16

KENNETH ROGOFF

Issue No. 1134 €1.00 May 13 - 19 , 2015

Inequality, immigration and hypocrisy PAGE 17

Talks to resume PAGE 3

CONFIDENCE REVIVED AS LEADERS AGREE TO TAKE ‘BABY STEPS’ ON MAY 15

Varoufakis: A blueprint for Greece’s recovery SEE PAGES 10 - 11

PAGE 9

May 13 - 19, 2015

2 | OPINION | financialmirror.com

FinancialMirror

Lessons from London (if any...)

Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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With political analysts arguing that Britain is a secretly left-wing nation, the Labour Party was demolished by last week’s general election, “which comprehensively demonstrated that voters prize economic competence above waffly ideology,” said the Economist.

The result also reduced Labour to its lowest number of MPs since 1987 and led swiftly to the resignation of Ed Miliband, its “gutsy but misguided” leader with the race to succeed him immediately underway.

Tony Blair, the centre-right leader of ‘New Labour’, urged party members to stand “for ambition and aspiration as well as compassion and care”. If they ignore him, Labour risks enduring a decade as a parliamentary protest group rather than a credible alternative government and David Cameron will be hoping Labour plumps for another deluded left-winger.

With just 12 months away to our own general election, the political parties (and their leaders) refuse to wake up and smell the coffee, with EDEK backtracking on the most fundamental of national issues by declaring over the weekend that it formally rejects the bizonal, bicommunal federation as a basis for a solution. In an effort to pander to the centre-right rejectionist DIKO and to garner as much as possible from the fellow rejectionists at the Citizens Alliance, the socialists may have shot themselves in the foot, as recently ousted party boss Yiannakis Omirou

warned not to take too drastic an action on the Cyprus issue, while some party apparatchiks already distanced themselves from the New EDEK line.

Unlike PM Cameron, however, President Anastasiades does not enjoy the full support of the allegedly ruling DISY party, which is more determined to get its MPs re-elected come next May, as opposed to supporting the administration at its most crucial juncture.

Again, unlike the Conservative leader in the UK, re-elected primarily on the platform of his economic success (and not his fumbling with Scotland or talk of a ‘Brexit’), DISY cannot hope that those on the opposite bench in the House will stumble and fall. On the contrary, AKEL has been allowed to roam freely and throw out sweeteners to any and all who regard themselves as opposition, simply to get its diehard communists re-elected next year and pave the way for a centre-left presidential candidate three years from now.

If DISY wants to be taken seriously by its mostly frustrated voters, than it should stand up and fight for fundamental issues ranging from the economy and privatisations, to keeping the civil service in check. The party leadership does not have a clean nest and this is upsetting voters more, fortunately a phenomenon that is common across the board within all parties.

Or else, all parties could see their seats diminish to half what they are today with loony parties taking charge, just as Syriza has in Greece, and Podemos in Spain.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO CYP joins ERM2, EC aid for Cyprus Airways Interesting milestones were reached ten years ago, with the Cyprus pound entering the ERM2 ‘waiting room’ for the eurozone, unemployment at 5.1% and the European Commission authorised rescue aid for Cyprus Airways, according to the Financial Mirror issue 619, on May 4, 2005.

CYP in ERM2: As predicted a week earlier by the Financial Mirror, the Cyprus pound quietly slipped into the Exchange Rate Mechanism (ERM2) along with Latvia and Malta, in a decision adopted by the

20 YEARS AGO Record offshores, harmonisation needs boost The number of offshore companies reached a record 19,000, but a senior economist warned that Cyprus should seek to harmonise with the EU norm in order to be able to join the Union some day, according to the Cyprus Financial Mirror issue 109, on May 10, 1995.

Offshore companies: Cyprus continues to see an impressive growth in offshore company registrations,

finance ministers of the 12 euro-member countries.

President Papadopoulos said joining the ERM2 would bring “specific and tangible benefits to the economy of Cyprus” and speed up implementation of the government’s social policies. The central parity rate was fixed at CYP 0.585274 or EUR 1.7086. With Cyprus rates expected to decline from 5.25% to 3% to meet ECB levels, the biggest benefits of low rates would be in the property market, bonds, the stock market, trade and tourism.

Jobless at 5%: The unemployment rate of Cyprus in March was 5.1% compared to 8.9% in the eurozone,

according to Eurostat. Financial Mirror data showed the registered unemployed at 12,510.

CAIR aid: The European Commission has decided to authorise rescue aid for troubled (?) Cyprus Airways, consisting of a CYP 30 mln (EUR 51 mln) loan guarantee for the next six months to allow the authorities to restructure the airline (say that again!).

Tourists going north: Cyprus is looking towards a 10% increase in summer tourist arrivals, but the hoteliers have warned that this also means 100,000 more visitors to the north.

AG quits: Attorney General Solon Nikitas, a close friend of President Tassos Papadopoulos, quit after a high court cleared former Health Minister Dina Akkelidou (of AKEL) of interfering with the course of justice in a drug offender case that he had vehemently prosecuted.

rising at 400 a month to a record 19,000 since 1976, said Sophocles Michaelides, Assistant Manager at the Central Bank International Division. He added that Cyprus was also the fourth largest shipping centre in gross tonnage after Liberia, Panama and Greece.

EU harmonisation: Though the Cyprus economy has a dynamism which will enable it to cope well with the challenges generated by the accession to the European Union, nevertheless, it is utmost importance that the process of harmonization is accelerated, said Andreas Theophanous, Director of the Research and

Development Centre - Intercollege.

CSE rules: Parliament held its first debate on the proposed amendments to the Stock Exchange Law and regulations on the operation of the official Stock Exchange, but Chamber KEVE President Phanos Epiphanou warned that the bourse should be based on private initiative with the least participation possible by the state.

Exports up: Imports were up 12% and export 10% with the trade deficit at CYP 1 bln in the JanuaryFebruary. About 55% of imports were from the EU and 36% of exports. Britain was the island’s best export market, followed by Greece and Germany.

Editorial: Our editorial 20 years ago was “Gambling decision reversal a setback”. No need to comment further…

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May 13 - 19, 2015

financialmirror.com | CYPRUS | 3

Talks to resume on Friday

‘Low level’ CBMs on agenda, anti-solution camp starts to make noises

Despite the fresh momentum that has picked up after Mustafa Akinci won the elections in the north last month, the Greek Cypriot side seems more cautions than ever before, not so much because of Turkey’s ever-present in resolving the Cyprus problem, but because opposition is getting more vocal, especially as 2015 is widely seen as the ‘breakthrough year’.

President Nicos Anastasiades and Akinci agreed on Monday night to resume talks that had been stalled when Turkey sent its survey vessel into Cyprus commercial waters, with both leaders saying they have “a common vision” for a future Cyprus.

But Anastasiades has already had to face the first salvo from the socialist EDEK party that declared on Sunday that it was dead against any bizonal, bicommunal and federal solution, an indication of the opposition that the president will face from DIKO and others, especially as the countdown to parliamentary elections in May 2016 has already started.

The two leaders will meet under the auspices of UN Special Advisor Espen Barth Eide, flanked by their respective chief negotiators, Andreas Mavroyiannis and Ozdil Nami.

Already, the agenda for the first procedural meeting has been set, whereby by the two sides will agree to a timeframe for meetings and progress by their technical teams.

However, the talks may even touch upon low-key confidence building measures (CBMs), such as roaming telephony on both sides.

Friday’s meeting will go through a general exchange of views and to agree on the modalities for the structuring and the frequency of the meetings, Eide explained.

“I think this is a unique opportunity, an opportunity that will be grasped and it is truly rewarding to work with two leaders with such a strong commitment to seeing a sheer challenge that can only be solved through a shared effort to find a shared solution”.

Although the thorny CBM of Famagusta, whereby the fenced ghost town would be opened up to Greek Cypriot refugees under UN rule, in exchange for international status for Famagusta port and the Tymbou-Ercan airport, will probably not feature on the first day, it is expected to come up very soon.

To begin with, the issue of roaming mobile communications has already been discussed between the Cyprus Chamber of Commerce and Industry (KEVE) and the Turkish Cypriot Chamber (KTTO) as well as the technical committee responsible for such issues.

Reports suggested that this issue was on

the agenda of meetings for CBMs between Anastasiades and former Turkish Cypriot leader Dervis Eroglu, however Eroglu refused to discuss it.

Government Spokesman Nicos Christodoulides said on Tuesday that the two leaders agreed to begin discussion about the implementation of CBMs. They focused, he added, on how the procedure of the Cyprus talks will proceed.

“The first meeting will mainly deal with structural and procedural issues. The joint declaration (of February 2014) and all that is provided in it were confirmed”.

Asked about the frequency of the meetings between the leaders, the Spokesman said that “there is intent and desire by both leaders for more frequent meetings.”

As regards the CBM, he said that the two leaders agreed that the discussion on those measures should begin so that some of them are implemented directly.

He recalled that in June 2014 the Greek Cypriot side had submitted a proposal for 30 CBMs which, if implemented, could affect the daily lives of Cypriots in a positive manner and reinforce the negotiations, such as the opening of more crossing points.

The dialogue will begin on such CBMs, he said.

Foreign diplomats were quick to lend support to the resumption of the talks, chief among them being the German ambassador who said that the EU’s involvement should be “more active”.

“I met the President and I offered Germany’s support for the peace process. We

are very encouraged from what is going on”, said Ambassador Nikolai von Schoepff.

He said that “Germany wants to help in very concrete way, especially to bring more business here. We see Cyprus as a great business hub between Europe and the Arab world and also a united Cyprus and Germany can do a lot to improve the business situation here. We see here great potential and we are prepared to do more”.

“Germany is in favour of a strong EU here, Cyprus is part of the EU, and the EU should be more active here. We fully support this”.

Similar support came from the British High Commissioner in Nicosia, Damian Roderic Todd, who said that the meeting of the two leaders is a positive development.

He expressed his country’s support to the process of a settlement, not only because the UK is a UN Security Council permanent state, but also because it is a guarantor power and “because Britain and Cyprus have so extraordinary human connections, culturally and in human terms. We want to make everything we can to bring about a settlement of the Cyprus issue”.

German Foreign Minister Frank-Walter Steinmeier has welcomed the resumption of peace talks saying that both sides would benefit considerably from reunification, as no-one is content with the status quo.

The U.S. also welcomed the resumption of the UN-led peace talks reiterating their willingness to assist the process in any way the parties find useful.

“The United States welcomes the announcement that Greek Cypriot and

Turkish Cypriot leaders will resume settlement talks on May 15,” National Security Council Spokesperson Bernadette Meehan said in a statement issued.

MEPs call on Turkey to normalise relations with Cyprus Foreign Affairs Committee MEPs adopted Monday a report that calls on Turkey and all parties concerned to actively support the resumption of talks on the reunification of Cyprus.

Turkey must take steps to normalise its relations with Cyprus, begin to withdraw its troops from the island and transfer the Famagusta area to the UN, according to the report. At the same time, the Republic of Cyprus should open the port of Famagusta under EU customs supervision and allow Turkish Cypriots to trade with the EU. The report also says that Turkey must do more to fight corruption and enforce respect for media freedom, free expression and judicial independence, said Foreign Affairs Committee MEPs on Monday. In a resolution on the progress of reform in Turkey in 2014, MEPs also urge the EU to back Turkey’s efforts to build solid, democratic institutions and ensure respect for fundamental freedoms, human rights and the rule of law.

Finally, it advocates stepping up EU/Turkey foreign policy cooperation.

Turkish Lira depreciation affects domestic banks’ credit profiles The Turkish Lira’s steep decline in recent months will likely imply worsening asset quality and growth in riskweighted assets (RWAs) that will become pressure points for Turkish financial institutions, Moody’s Investors Service said on Tuesday.

“Lira depreciation will affect Turkish banks’ asset quality. About 30% of system-wide loans are foreigncurrency denominated, so the currency’s decline in value will result in rising loan repayments on these loans, and this is likely to result in increased delinquencies. We expect that this factor will contribute to an increase in the system-wide NPL ratio to around 3.5%-4.0% during 2015, from 2.8% at year-end 2014” explained Irakli Pipia, a Moody’s Senior Analyst.

The Moody’s report also said that the growth of RWAs will put pressure on capitalisation, such that the lira equivalent risk weight of foreign-currency loans will increase relative to Core Tier 1 capital that is mostly held in lira, so the depreciation could pressure Core Tier 1 levels. According to Moody’s estimates, a 5% depreciation of the lira versus the US dollar lowers Core Tier 1 capital by approximately 15 basis points (bps). Depending on the bank, the impact varies between 5-25 bps (up to 1.6% of Core Tier 1).

“As a result of worsening trends and high dependence on external wholesale funding the risk premiums that Turkish issuers must pay on their external borrowing over the coming 12-18 months could increase, although

some leading banks have comfortable liquidity resources to weather the pressure” said Pipia.

The rating agency report noted that the pressures on the banks will not be uniform in terms of refinancing needs. However, despite the uneven pressure on individual banks, the system-wide trends are expected to be negative and contribute to challenging operating environment which Moody’s expects will prevail in the Turkish banking system for the rest of 2015.

The funding structure of this system and its inherent vulnerabilities to volatile investor sentiment will remain a contributing factor informing the negative outlook currently assigned to the majority of Moody’s bank ratings in Turkey.

May 13 - 19, 2015

4 | CYPRUS | financialmirror.com

BOCY returns to profit in Q1, ELA down to €6.5 bln Bank of Cyprus is expected to return to profitability in the first quarter, compared to the loss-making fourth quarter of 2014 (loss after tax of EUR 337 mln), it announced on Friday, adding that has taken a more conservative approach to its Russian subsidiary, now regarded as a “disposal group”.

It also said that the exposure to ECB funding through the Emergency Liquidity Assistance (ELA) programme has been reduced to EUR 6.5 bln. The bank said it had increased its provisions for losses from customer loans in the final quarter of 2014 to EUR 248 mln, compared to a provision of EUR 115 mln in the third quarter.

“The elevated level of provisions for impairment of customer loans (continuing operations) charged during the fourth quarter of 2014 is not expected to be repeated in the first quarter of 2015, where the charge is expected to be in line with the first three quarters of 2014. Profit before provisions and impairments, restructuring costs and discontinued operations for the first quarter of 2015 is expected to be in line with the fourth quarter of 2014. As a result, it is expected that the first quarter of 2015 will be profitable after tax,” the bank said.

“Furthermore, in light of the deteriorating economic conditions in Russia since mid-December 2014, and following the reclassification of the Russian operations as a disposal group held for sale, the bank proceeded to prudently reassess its operations in that country and increased the level of provisions for impairment of customer loans and other assets during the fourth quarter of 2014. As a result, the loss from discontinued operations for the fourth quarter of 2014 totalled EUR 214 mln.”

CPI marginally up in April The Consumer Price Index for April recorded a marginal increase of 0.03 units or 0.03% to 115.34 units compared to 115.31 in March. Increases were recorded in the prices of certain clothing and footwear items, petroleum products and certain fresh fruit. Decreases were recorded in the prices of certain fresh vegetables and electricity.

The rate of inflation for April decreased by -2.1% compared to -1.9% in March and -1.6% in April 2014.

For January-April, the CPI recorded a decrease of -1.7% compared to the corresponding period of 2014.

Lending rates down in March Lending rates retreated in March, following the Central Bank of Cyprus decision to lower the base rate by one percentage point in an effort to encourage commercial banks to follow suit and spur money flow in the market and to consumers.

Central Bank data showed that the average interest rate on deposits from households with an agreed maturity of up to one year continued its downward trend falling to 1.73% from 2.30% in February. The deposit rate for nonfinancial corporations dropped for the second consecutive month, to 1.57% from 2.26% in February.

Interest rate on consumer loans dropped for the third consecutive month, to 4.69% in March from 5.19% the previous month, while the interest on home loans fell to 3.76% from 4.45% in February.

The interest rate on loans to non-financial corporations for amounts over EUR 1 mln dropped to 4.28% from 5.0% in the previous month.

Trade deficit narrows as exports shoot up The trade deficit narrowed in January-February by just over a quarter from a year earlier to EUR 368.6 mln from EUR 510.6 mln, with imports marginally up but exports leaping about 60%, probably due to the re-export of liquid fuels from the Vitol-owned VTTV storage facility in Vassiliko that started work in December 2014.

According to the statistical service Cystat’s “Intra-Extra EU Trade Statistics” for February 2015, total imports/arrivals (covering total imports from third countries and arrivals from other Member States) in January-February amounted to EUR 731.8 mln as compared to EUR 728.1 mln in January-February 2014.

Total exports/dispatches (covering total exports to third countries and dispatches to other member states) in January-February rose to EUR 363.2 mln from EUR 217.4 mln in January-February 2014.

The bank, that was restructured after depositors received equity for cash as part of the 2013 “bail in” imposed by the Troika of Cyprus’ creditors, and later bailed out with a further EUR 1.1 bln injection from foreign and local investors, said that its first quarter of 2015 is not comparable to the first quarter of 2014 “given the significant deleveraging completed since then, including the partial repayment of the sovereign bond held by the bank,” which had been used to recapitalised failed Laiki Bank and burdened Bank of Cyprus with a further EUR 9.5 bln of ELA funds.

The bank said it “continues to make good progress in delivering against strategic objectives. The balance sheet deleveraging is continuing and the bank completed the

disposal of its investment in Marfin Diversified Strategy Fund Plc on April 30, thereby enhancing its liquidity and capital position.”

As part of the deleveraging, the bank’s management team, headed by outgoing CEO John Hourican, has disposed of assets across eastern Europe and the U.K., has shrunk the workforce by more than a third and disposed of non-core properties, concentrating staff in own offices.

The bank also said it “is making progress in arresting the deterioration of its loan book quality. The Bank’s common equity tier 1 (CET 1) ratio is expected to be maintained at around 14%. The liquidity position continues to improve, benefiting from customer inflows experienced throughout the first quarter of 2015 and also during April 2015 despite the full abolition of capital controls. As a result, the Bank has managed to reduce its ELA funding by EUR 0.9 bln since December 31, 2014 to a current level of EUR 6.5 bln, compared to a high of EUR 11.4 bln in April 2013.”

Last month, parliament passed a much-delayed packages of measures on foreclosures and insolvencies that will help all commercial banks to recover assets from bad clients, restructure loans and reduce the rate of non-performing loans (NPLs), currently accounting for more than 50% of the banking system’s loanbook.

The board will convene on Friday, May 29, to review the financial results for the first quarter of 2015 that will be announced on the same day after market close to the Cyprus Stock Exchange and the Athens Exchange.

As at December 31, 2014, the Group total assets amounted to EUR 26.8 bln and total equity was EUR 3.5 bln.

Two prior actions will release next tranche of Troika bailout funds Concluding their week-long visit to Cyprus on Friday, having met Central Bank Governor Chrystalla Georghadji and Finance Ministry technocrats, the heads of the Troika of lenders’ mission to Cyprus are finalising their sixth review of the island’s economic adjustment programme, aka the EUR 10 bln bailout package that includes reforms and ways to keep public spending in check.

Two ‘prior actions’ that need to be implemented by the Cyprus government, in order to release the next tranche of the bailout money, are laws regulating the sale of loan and mortgage portfolios to investment funds, and the ‘Hasikos plan’ that will absolve borrowers who have repaid their loans, but have not secured title deeds as these may have been remortgaged by developers.

The issue of sale of loan securitisation and mortgages to non-financial institutions caused a furore among political parties that feared that mortgaged Cyprus property could end up in foreign hands, in particular Turkey. To that end, the government said this week that the Troika mission chiefs seemed positive to a proviso that any portfolio sold to foreign institutions be cleared by the Central Bank first.

The meeting with Georghadji on Friday, who missed a Thursday meeting as she was in Frankfurt for the ECB Council, was to agree to the revised Memorandum of Understanding concerning the financial sector.

On Thursday, the Troika heads had held a lengthy meeting with Finance Minister Harris Georgiades and Undersecretary to the President for Public Reform Constantinos Petrides, covering all issues concerning the fiscal sector and the structural reforms, after which it was reported that the loan securitisation issue had been postponed by three months to the end of July to allow time for dialogue.

The revised MoU includes further public sector reforms and government proposals for the promotion and mobility of civil servants, which will be put to the Cabinet for approval by the end of June. Government proposals for reform of the civil service include energy, tourism, privatisation of semigovernmental organisations and implementation of the National Health Scheme.

Moreover, the budgetary and macroeconomic commitments of Cyprus for 2015 were also agreed during the discussions and the assessment of the European Commission for 0.5% recession in 2015 was adopted, despite the fact that the Finance Ministry expects marginal growth.

At the same time the aim for primary surplus was brought forward a year, to 2015, from 2016.

The target for the budget deficit in 2015 was set at 1.5% of GDP, while the target for the primary surplus was set at 1.5% of GDP.

Unemployment down 9% y-o-y in April Unemployment dropped by 9% year-on-year in April as the number of registered as out of work decreased by 4,207 from April 2014, the statistical service Cystat said.

The figures showed that the unemployed persons, registered at the District Labour Offices on the last day of April, reached 42,551 persons (or 44,285 seasonally adjusted), below this year’s high of 50,240 in February and the record high of 53,204 in February 2014.

The decrease was recorded in the sectors of construction (-1,109), trade (-834), financial and insurance activities (-755), manufacturing (-741),

public administration (-676), education (-323) and to newcomers in the labour market (-939). An increase in registered unemployment was recorded in the accommodation and food service activities (+831) and transportation (+321).

Unemployment fell slightly by one point of a percent to 16% in March, compared to 16.1% in February, according to Eurostat, similar to the last quarter of 2014 when the labour force was 439,039.

Meanwhile, Eurostat data showed that the employment rate in Cyprus improved slightly in 2014 to 67.6% of the working age population of 20-64,

from 67.2% the year before.

According to Eurostat, for the first time since the financial crisis, the employment rate of the population aged 20 to 64 in the European Union also increased in 2014, reaching 69.2%, but not yet to its 2008 peak of 70.3%. A similar pattern was observed for men, reaching 75.0% in 2014, up from 2013 but still below the 2008 level. In contrast, the employment rate for women has continuously risen since 2010 to 63.5% in 2014, above its 2008 peak of 62.8%. The Europe 2020 strategy target is to reach a total employment rate of at least 75% for the 20-64s in the EU by 2020.

May 13 - 19, 2015

financialmirror.com | CYPRUS | 5

EIMF to host conference on risk management in financial services The European Institute of Management and Finance (EIMF), in collaboration with MAP S.Platis and Exness, is organising the Risk Management in the Financial Services Sector Conference next week, in light of

recent significant events that shook the sector in these few turbulent years, such as the post-crisis surge of regulatory changes and market shocks like the decision of the Swiss National Bank to abolish the exchange

rate cap.

The conference, to take place at the Carob Mill in Limassol on Wednesday, May 20, aims to become the premier forum for providers of investment services, and will offer a comprehensive presentation of the relevant regulations regarding risk management, practical advice on all relevant issues, and presentation of various solutions.

The conference starts at 9.30 am with an address by CySEC Chairwoman Demetra Kalogirou. The conference includes a networking lunch and will conclude by 2.30pm.

For information visit www.eimf.eu

Following the pack: Cyprus is a ‘moderate’ innovator Cyprus is a moderate innovator, according to the Innovation Union Scoreboard that provides a comparative assessment of research and innovation performance in Europe. The scoreboard helps countries and regions identify the areas they need to address.

According to IUS 2015, Sweden has confirmed its innovation leadership. It is followed by Denmark, Finland, and Germany as European innovation leaders. Compared to 2014, innovation performance has increased in 15 EU countries, while it declined in 13 others.

In Cyprus, innovation performance increased from 2009, but started to decline from 2012 onwards. For 2014, the innovation index is just below that of 2007. The performance relative to the EU peaked in 2008 (95%), but has been in decline from 2012. In 2014, relative performance dropped to 80%.

Cyprus performs below the EU average for most dimensions, the IUS 2015 said. At the indicator level, performance is well below average in license and patent revenues from abroad, research and development (R&D) expenditures in the business sector, non-EU doctorate students, new doctorate graduates and PCT patent applications.

A relative strong performance is observed for community trademarks, international scientific co-publications and innovative SMEs collaborating with others.

Performance in Cyprus has improved in five dimensions, in particular in intellectual assets (26%) and linkages and entrepreneurship (16%). The indicator with overwhelmingly strongest growth is PCT patent applications in societal challenges (63%).

Performance has worsened in firm investments, economic effects and innovators, in particular due to strong performance declines in license and patent revenues from abroad (-32%) and non-R&D innovation expenditures (-17%).

The European Commission’s Innovation Union Scoreboard 2015 reveals that the EU’s overall level of innovation has remained stable. However, the crisis has left an impact on the private sector’s innovative activity:

the number of innovative firms is in decline, as are SMEs’ innovations, patent applications, exports of high-tech products, venture capital investments and sales of innovative products. While there have been improvements in human resources, business investments in research and development and the quality of science, these are not enough to result in a stronger innovation performance.

In the overall ranking, Sweden is once more the innovation leader, followed by Denmark, Finland and Germany. The fastest growing innovators are Malta, Latvia and Bulgaria, Ireland, the UK and Poland. In global comparison, the EU continues to be outperformed by the US, Japan and South

Korea.

“We need more investments to boost the EU’s innovation performance,” said Commissioner Carlos Moedas, responsible for Research, Innovation and Science.

“This should go hand in hand with better conditions and a single market for innovative products and services in Europe. We are working on this at EU level and stand ready to help member states implement the reforms to enhance the impact of their public investments.”

The European Fund for Strategic Investments will be crucial for research and innovation, in particular to restore venture financing to its pre-crisis levels.

In addition, through the Capital Markets Union, the Commission aims to further improve access to finance for businesses, and in particular SMEs. Strengthening the synergies between the EU’s research funding programme Horizon 2020 and Structural Funds will also play an important role in stimulating investment levels.

May 13 - 19, 2015

6 | CYPRUS | financialmirror.com

Larnaca marina deal to conclude by June 15 The Larnaca marina and port project, stalled due to the lack of funding by the operators Zenon Consortium, is going ahead as planned “and should have a positive outcome by June 15,” said Transport Minister Marios Demetriades.

Speaking at a meeting hosted by the

mayor and members of the Larnaca municipal council, Demetriades said that everyone “should be patient, because this project of vital importance to the town, will soon enter its implementation phase.”

The minister added that road works and

other infrastructure projects will be part of the President’s recent declaration of a development plan that will try to revive the econmy through funding for public and private projects.

He added that tenders have already been issued for the resurfacing of many roads,

while the wave breakers at Pervolia and Oroklini, needed to halt the erosion of the beaches, have already been included in the current state budget.

A total of 17 will be constructed at a cost of 8-10 mln euros of which Larnaca Municipality will contribute 2.35 mln.

Port privatisation a ‘one way street’ says minister YoungShip Cyprus, the local chapter of the YoungShip International network of young professionals in the maritime industry, held its sixth annual seminar last week titled “Ports Privatisation - New Opportunities” with the main speaker being the Minister of Transport, Communications and Works, Marios Demetriades.

During the event, held at the Venue Centre of the Columbia Plaza in Limassol, the Minister spoke extensively about the controversial issue of ports privatisation and answered questions from the audience, repeating earlier statements that within the dialogue underway at the mixed advisory council, all rights of the workers at the ports would be secured.

The minister added that awarding the port-side services to private investors “is a one way street” for the development of the ports and sea transport sector, which will have a significant input on the growth of the economy.

Rival destinations, such as Malta, have already proceeded with similar actions more than ten years ago, with a positive impact on their econmy, Demetriades said.

The process is no different from what took place at the airports of Larnaca and Paphos, as well as that of the port of Larnaca, the Minister concluded.

He also invited all parties to contribute to help make the Maritime Cyprus conference in September a resounding

Gender diversity ‘far from reality’ even in Cyprus Members of the WISTA network of women at management level in the maritime industry were not at all surprised to hear that equal opportunities and equal pay for women are still far from reality in Cyprus.

The results of the study were presented by Anna Koukkides Procopiou, President of the International Association for the Promotion of Women of Europe (AIPFE Cyprus) at a regular WISTA meeting.

The material of Anna’s presentation of the gender diversity research project conducted by AIPFE was cause for a lively discussion and the second item on the agenda, a personal account by Marianna Charalambous (Director at MxCconsulting, LLM Oil & Gas) about her life as a female decision maker in Europe and the USA, only contributed to the debate. The meeting heard that there are no easy solutions to change the deeply rooted causes of the inequality of women in the workplace.

“However, raising the subject in the open and sharing experiences and thoughts, surely helps us to focus on this important issue with renewed energy, so we continue to try and achieve equal opportunities for women,” added Procopiou who is also a member of the Cyprus Women’s Lobby, a member of the Cyprus Literacy Board, and a member of the advisory board at the Centre of European and International Affairs, University of Nicosia.

Photo from left to right: Elise Croonen, Anna Koukkides Procopiou, Victoria Kostic-Nola, Ljudmila Bozhedomova, Tassoula Tsakania, Despina Panayiotou Theodosiou, Christina Tsanos

success.

The board of YoungShip Cyprus thanked the minister for his candid presentation, as well as the event sponsor the Institute of Chartered Shipbrokers (ICS), as well as the

members and participants for their active participation.

To become a member of YoungShip Cyprus or to find out about upcoming events and seminars contact cyprus@youngship.com or visit www.youngship.com .

Challenges, economy and environment will be main issues at the Maritime Cyprus conference Despite the international adverse economic conditions and the financial difficulties that Cyprus has been facing during the last years, the shipping sector has maintained its competitiveness and perspectives as a result of combined efforts from the public and private sectors, said Transport, Communications and Works Minister Marios Demetriades.

The challenges that lie ahead and issues of regulation, economy, environment and technology will be the main topics of discussion at the upcoming Maritime Cyprus conference in September, Demetriades said.

In his address at the 7th East Med Marine Exhibition in Limassol last week, the minister said that shipping has evolved in recent years as one of the leading sectors of the economy and a driving force for its recovery. Given its importance, Cyprus shipping and its sustainable growth constitute one of the main concerns and priorities of the government, he said.

“In an effort to develop a holistic strategic development plan for the shipping industry, a study has been recently completed, proposing measures that would strengthen the Cyprus merchant fleet and shipping cluster. Presently, the outcome of the study is being evaluated and specific measures will be adopted soon towards this goal,” Demetriades said.

“Merchant shipping is a business sector of which we are

very proud. It represents an invaluable asset for our country with significant political and economic advantages. The Cyprus registry today, ranks tenth among international fleets and third within the European Union, while it is characterised by high standards of quality and safety.”

The theme of the Maritime Conference in Limassol on September 13-16 is “Shipping: Game Change” and will focus on the crucial matters concerning the international shipping industry.

The issues that will be discussed include policy and regulatory matters and the forthcoming changes in the international shipping scenery, economic matters, environmental matters and their interaction with technology, geopolitical and energy developments and forecasting for the recovery of the economy and for the freight markets.

Demetriades praised he organisers and delegates at the East Med Marine Exhibition, which he said is a specialised technical marine exhibition which gives the opportunity to industry professionals from the local and regional shipping industry to become aware of the latest developments in marine technology and related services through more than 70 exhibitors.

“We welcome such events, as they strengthen Cyprus’ position as a leading international maritime centre and add to its high quality,” the minister concluded.

May 13 - 19, 2015

financialmirror.com | COMMENT | 7

British idealism and the moral view of politics An four-panel workshop on the moral view of politics was organised by a Cypriot academic on the sidelines of the 65th international conference of the Political Studies Association of the UK in Sheffield, where British idealism and the moral view of politics was the main topic of discussion, a timely subject as the event was attended by 600 scholars and thinkers and held just before the national elections.

Dr. Stamatoula Panagakou of the University of Cyprus organised and convened four panels on “British Idealism: Political Philosophy, Civic Pride and Ethical Citizenship” during the conference. An international cast of scholars addressed issues of citizenship, state theory, good governance, freedom, republicanism, the common good, patriotism, punishment, rights, public ethics, civil society, and political obligation.

The discussions showed that the concepts of civic pride and of ethical citizenship are at the centre of British Idealist political philosophy. The British Idealist vision of politics is characterised by a commitment to the common good and by a desire to achieve the best life in the ethical framework of the state.

The speakers had the opportunity both to reassess key issues in the theories of T. H. Green, Bernard Bosanquet, F. H. Bradley and R. G. Collingwood, and to develop comparative studies involving other philosophical schools and fields of inquiry.

The panels were well-attended and the presentations generated a fruitful discussion which demonstrated the value and continuing relevance of British Idealist philosophy and of British political thought.

All the sessions took place at the majestic rooms of Sheffield Town Hall and Sheffield City Hall, while the conference dinner was held at Cutler’s Hall, a Grade 2 listed building which played in the past an important role in the expansion of Sheffield industries of cutlery and metalwork.

Dr. Panagakou, who won a PSA Specialist Group Speakers Competition Award, gave a talk on “Civic Pride and Ethical Citizenship in the Political Philosophy of Bernard

Dr Stamatia Panagakou (4th left) with delegates and speakers at the PSA conference in Sheffield

Bosanquet.”

The other academics presenting papers were Dr. Cormac Behan (Sheffield), Professor James Connelly (Hull), Dr. Maria DimovaCookson (Durham), Daniel Duggan (Durham), Dr. Matt Hann, Dr. Damian Ilodigwe (St. Peter and St. Paul Seminary, Nigeria), Dr. Robert Kocis (Scranton, USA), Dr. Richard Murphy (Durham), Professor Colin Tyler (Hull), and Professor David Weinstein (Wake Forest, US, and Oldenburg, Germany).

The conference dinner keynote speaker was John Bercow MP, Speaker of the House of Commons, who was reelected to Parliament on May 7.

May 13 - 19, 2015

8 | COMMENT | financialmirror.com

Marrows large, marrows small, marrows like a cannon ball Long ago and far away, newly married, on a glorious summer Sunday day, after attending a conference in the north of England my wife and I drove south, homewards. We had booked lunch in the countryside near Cambridge at a then famous small restaurant run by a brilliant, but irascible Frenchman.

After a simple but truly memorable meal we paid up and departed. The chefpatron, André Amara, was at the garden gate. He kissed Mary and gave her a beautiful white rose. He shook my hand and from behind his back produced a small marrow, which he gave me with a sly wink. Whenever I see one now, I think of that moment, and I also wish such delicious and simple food was to be had today, and cooked

1 clove garlic, peeled and very finely chopped 1 tbsp water 1 medium sized tomato, skin removed and chopped 1 very small tub of strained Yogurt 3 – 4 sprigs of min, chopped 50 g of finely grated hard cheese (Cyprus Kefalotiri will do nicely) 1 tbsp chopped parsley Salt and pepper to season

Patrick Skinner

and served by such a man. (See Footnote) His menu, part of which I reproduce here, was as eccentric as the man, with its heading in several languages: “Credo in Deo, and in Me” (“I believe in God and in me”) Confusingly, these useful little vegetables come with several names: they used to be called “Baby Marrows” and the English boiled them and served them rather limp with a white sauce. When food became international the smart glossy magazines called them Zucchini if they were American-influenced or Courgettes if they leaned towards the continent. The Greeks, of course, have their own word for it: kolokythakia. This is unpronounceable by anyone English, so generally we cling to the French word. The Greek for Courgette Fritters, my recipe for this week is even more difficult.

These are called kolokithokeftethes and they are a tasty addition to any meze table. Try them as a vegetarian alternative to meatballs or top them with a fresh tzatziki sauce and you just may decide to make them the main meal.

Method 1. Heat your oven to 200C / 400F. 2. Cut off the ends of the courgettes.

3. Blanch the courgettes in boiling water for 2 – 3 minutes.

4. Remove from pan, cool a little, then cut them in half length-ways.

5. With a spoon, scoop out the seeds to leave a nice channel running along the halved courgettes.

6. In a non-stick frying pan, fry the onion until soft and getting a little golden at the edges.

7. Tip the minced meat, bacon and garlic in and stir fry for a minute or so.

8. Now put in the tomato purée, water and sugar. Stir.

9. Stir-fry for 12 – 15 minutes until meat is cooked through, then add the yogurt, chopped tomato and mint. Season to taste, stir well and remove pan from stove.

11. Spoon the mixture into the halved courgettes and sprinkle over the grated cheese.

10. Put in the centre of the hot oven and bake until the cheese is bubbling and beginning to brown.

Salt and pepper to taste Olive oil for frying Method: 1. Using a coarse grater, shred the courgettes and place in a colander.

2. Sprinkle with salt and allow the courgettes to sweat for 15 minutes. Using your hands, squeeze out the excess liquid from the courgettes to make it as dry as possible. (Like you are making courgette snowballs.)

3. In a medium sized mixing bowl put the courgettes, beaten eggs, crumbled feta, minced herbs, all purpose flour, and selfrising flour.

4. Season the mixture with salt and freshly ground black pepper. Mix well. You don’t want to over mix because the zucchini will get keep releasing more water.

5. Place some all-purpose flour in a shallow plate or baking pan. This will be for rolling the croquettes lightly in flour before frying them.

6. Using medium high heat, heat the olive oil in a large skillet or frying pan.

7. Using a small scoop or a large soup spoon, take a walnutsized portion of the mixture in your hands and roll it like a meatball. Dredge lightly in flour. Shake off the excess flour before frying. The mixture will be wet and sticky.

8. Fry the croquettes in the olive oil until they are a golden brown colour turning once. You may want to flatten them a little in the pan for more even cooking.

Drain on paper towels or on a cooling rack placed in a half sheet pan. There are several ways to serve: with dollops of fresh yogurt; with a tomato salsa; or with a bowl of tzatziki.

“Courgette Ravioli”

Courgette Cannon Balls

Stuffed Courgettes

Round courgettes look very good when brought to the table en masse, or individually on a plate. You treat them the same as straight ones (except you cut the top off like a lid and scoop out the inside). Here, they have been stuffed with a mix of meat, onions, garlic, herbs and a few bread crumbs.

Lids on, they are put in an oven dish with water half way up the courgettes and cooked at a medium temperature for about an hour, or until the meat is cooked.

Courgette Fritters Ingredients for 12 pieces 6 dark green courgettes (about 15 cms / 6 inches long) 1 smallish onion, peeled and finely chopped 1 tbsp olive oil 200 g of minced lamb or beef 3 slices of Snack brand back bacon, finely chopped 1 tsp tomato purée

Ingredients for 25 to 30 fritters 2 1/4 lbs (1 kilo) courgettes 2 eggs, lightly beaten 1/2 lb feta cheese, crumbled 1/2 cup fresh dill, minced 1/4 cup fresh parsley, minced 1/2 cup all purpose flour, plus more for dredging 1/4 cup self-raising flour

In this lovely dish a cooked meat “stuffing” has been wrapped with very thin slices of courgette (lengthways) which have been blanched for a minute or so and oven baked for a few minutes. Elegant and tasty accompanied by a rice pilaff with slivers of almonds. * Footnote: After this lunch, which had been preceded by a glass Kir Royal (Champagne and Blackcurrant liqueur), accompanied by a bottle of wine and completed with cognac, we felt rather drowsy and soon drove the car into a field, got out and lay on the grass. Instantly we fell asleep and only woke after three hours, when it was dark and cool.

Not the sort of thing we would do today. Alas.

Send me your news! To be published in Cyprus Gourmet, here and on-line.

Email: editor@eastwardho.com

May 13 - 19, 2015

financialmirror.com | COMMENT | 9

The world’s most valuable football clubs According to Forbes, the world’s 20 most valuable soccer teams are worth an average of $1.16 bln. That’s 84% higher than five years ago.

Real Madrid is in first place, worth $3.26 bln, primarily due to $746 mln in revenue, the most of any sports team in the world. Fellow La Liga heavyweight Barcelona is in second position, valued at $3.16 bln.

Rounding off the top three is Manchester United at $3.1 bln. The Red Devils are miles ahead of any other Premier League team in terms of value. (Source: Statista)

7 myths about the way to wealth William “Bud” Post who won $16.2 mln in Pennsylvania and who is on welfare today. Conversely, there are a much larger number of people who started out with just a few dollars, or actually used their credit cards to finance their first steps as entrepreneurs, and got rich anyway.

RECOMMENDED READING

By Dr Rainer Zitelmann

Myth no. 5: “I have to have zero debt to be rich.” Rather, Gray argues, the opposite is true: you need to borrow to get rich. You should employ borrowed capital to build a fortune.

The one thing you need to remember is to distinguish between bad debt (consumer debt) and good debt (debt used to finance a let property or a business).

Farrah Gray, Get Real, Get Rich: Conquer the 7 Lies Blocking You from Success.

New York, Dutton, 2008, 272pp There is no lack of books about how to get rich. Whenever I pick up a new book on the subject, the first thing I want to know is whether or not the writer is living proof that his or her advice actually works.

This is certainly the case with Farrah Gray. An AfroAmerican, he grew up as the youngest of five children raised by a single mother in the impoverished south side of Chicago. However, Gray overcame the odds to become a millionaire by the age of 14. The National Urban League’s “Urban Influence Magazine” recently named him one the most influential black men in America.

In this book, he seeks to debunk seven “lies” about getting rich. On a less dramatic note, I would prefer to call them misconceptions, because rather than representing wilfully disseminated untruths, they are simply wide-spread myths.

What sort of myths does Gray have in mind though?

Myth no. 1: “You have to be born with connections or with special talent to be rich.” To refute the “Born Lucky Lie,” Gray argues that it is all about the law of probability.

What he means is that you need to increase the number of occasions for meeting people, you need to build up a network and to open doors. No matter whether you are looking for a partner or wish to set up a business – no one will come and knock on your door. The key to success, he argues, lies in volume: How many times did you try? How many rejections did you get before you were accepted? How many times did you start all over again, and took an entirely new approach?

Gray believes that “the concept of being ‘at the right place at the right time’ is a complete and utter falsehood.” Rather: “You need to be everywhere at once.” He adds that you should always look at your life from the angle of the law of probability. The more you are willing to meet people half way, the higher the chance that you will get what you want.

To back this theory, Gray cites many examples from his own life and the lives of others. I would call it “the law of large numbers.”

Myth no. 2: “I have to work hard and make sacrifices to be rich.” The way Gray sees it, hard work is a name for the kind of work you hate doing – and this is no way to get rich at all. As he explains, the point is not to simply labour more,

but to do that which most matches your skill set, and where your chances of excelling are highest. To find out what these are, you should try to answer three questions: What is easier for you to do than for others? What would you do any time and in any case, even if you did not get paid for it? In what ways could you make yourself useful and do something for others?

Myth no. 3: “I have to hit it big in entertainment or sports to be rich.” Many people are blinded by a handful of celebrities that are fêted by the media. In truth, Gray observes, there are countless people who are completely unknown outside their field but who make much more money and who have amassed much bigger fortunes than the few stars everybody knows.

Myth no. 4: “You must first have money to make money and get rich.” This so-called “Money Lie” is particularly popular among those whom financial success keeps eluding.

People who unexpectedly come by large amounts of money tend to lose it just as quickly, and Gray illustrates the point by citing two examples: One is the case of Evelyn Adams who won the lottery jackpot in New Jersey not just once but twice (1985, 1986), collecting a total of $5.4 mln. Today, the money is gone, and she lives in a trailer. The other case is

Myth no. 6: “I have to be super smart or invent something the world relies on to be rich.” While the stories of Bill Gates, Steve Job, Sergej Brin and Larry Page are exciting, as he admits, they can also lead you down the wrong path. No one needs to aim as high as Microsoft or Google. Rather, there are any number of opportunities to build a fortune in certain niche sectors. Gray illustrates his points with several spellbinding accounts, one being the story of Tina Wells. Aged 26 at the time the book was written, she is the head of Buzz Marketing Group in New York, a company that has conducted market research among the younger generation on behalf of other companies for the past eleven years. She started out at 16 when working for the teenage magazine New Girls Times and writing her first reports about products aimed at young consumers. Tina exploited her own fascination with fashion and pop culture to identify a gap between the desires of the teenagers and the misguided products and services developed for them by many companies. When she started to submit her reports and proposals directly to the respective companies, she got an overwhelmingly positive response. Today, her company makes $3.3 mln in revenue, and counts renowned companies like Nike or Sony among her clients.

Myth no. 7: “I have to know a lot about the stock market or work on the Street to be rich.” Gray counters that investment returns are precisely not coming directly from Wall Street but are based “on your knowledge and your preferences.”

He argues that self-esteem and coping skills are what really counts. Gray cites an interesting survey among 500 leading CEOs in the US. These, as it turns out, have more self-esteem than 90% of the general public. They also turned out to be better at solving problems and generating ideas than 92% of the US population.

Dr. Rainer Zitelmann is the Director of Dr.ZitelmannPB.GmbH, Germany’s leading consulting company for the positioning and communication of real estate companies and fund companies. www.zitelmann.com info@zitelmann.com.

May 13 - 19, 2015

10 | GREECE | financialmirror.com

This is how Greece kept its budget on track in Q1

By Manos Giakoumis Recent Greek budget data showed the huge revenue gap of 968 mln euros recorded in January narrowed to 389 mln by the end of the first quarter (Q1) of 2015. At the same time, primary expenditure, which was just 53 mln better than target in January, displayed a strong outperformance of 1.18 bln by the end of March.

The underlying primary balance (excluding the impact of Public Investment Budget), which is defined as revenues (before tax refunds) minus primary expenditure, showed the shortfall of 915 mln euros recorded in January gradually reversed to an outperformance of 791 mln by the end of March.

Another important point to take away is that revenues exceeded primary expenditure in all three months of Q1, with the underlying monthly primary surplus ranging between 240 and 845 mln euros. This means that the collected revenues in each month are more than adequate for the payment of primary expenses (salaries, pensions, grants to social security sector and a large part of non-payroll costs).

A closer look at the evolution of the key budget items reveals some instructive findings for the underlying trends that were recorded within Q1.

REVENUES On the revenue front, the target for January was exceptionally high as it was initially due to include VAT revenues and the fifth installment of the single property tax (ENFIA). However, the negative impact from the pre-election period as well the postponement of the VAT payment by one month had a marked impact on the revenue underperformance of that month.

VAT payments in February did not result to any significant revenue collection, with VAT revenues coming in 30% lower than those collected in January. However, February closed with a modest revenue outperformance of 91 mln, mainly boosted by higher income tax month-on-month.

It is also noteworthy that actual revenues from ENFIA were very close to the targeted 2.65 bln euros, despite repeated speculation that many home owners would not pay the property tax.

In the absence of any ENFIA instalment, the targeted revenues for March (2.79 bln

euros) were the lowest for the first half of 2015. The actual figure came in at 3.28 bln, well below those for January and February but 488 mln euros above the monthly target.

However, the marked over-performance in March is to a large extent attributed to one-off or non-recurring items. March revenues incorporated 147 mln euros from the fast-track settlement of tax arrears that was implemented in the last ten days of the month. In addition it included privatisation revenues of 190 mln that were initially due to be reported in the first two months of the year.

April revenues are targeted at 3.12 bln.

This figure also incorporates the quarterly payment of VAT. However, the actual figure will include income from two revenue sources that were not initially budgeted.

The first relates to a non-recurring item of 555.9 mln euros that the state received from the Hellenic Financial Stability Fund (HFSF) on March 19 and relates to one-off fees Greek banks paid in 2012 ahead of their capital increases with HFSF becoming their dominant shareholder at that time.

Although this amount is to be reported in April’s budget revenues, it is unlikely to have any positive on the state’s current cash flow as it has probably already been utilised since it was disbursement in mid-March.

The second non-budgeted item relates to the collection of the (normal) settlement of tax arrears in up to 100 instalments.

According to a Finance Ministry announcement, revenues from the settlement of 2.2 bln euros in tax arrears reached 110 mln in the first 13 days of the scheme.

Summing up, April revenues are expected to be boosted by 667 mln euros not initially budgeted. Note though that unlike the income from the HFSF, revenues from the settlement of tax arrears should be expected to boost the amounts collected in the coming months.

Going forward, May and June revenues were initially seen at much higher levels of 3.83 and 3.53 bln respectively as they incorporated the first payments of 2015 personal income tax or ENFIA. However, it was recently announced that income tax is due to be paid as of July, while the new government has not yet clarified its stance on the ENFIA payment for this year.

The property tax may be retained for another year in its existing format due to the country’s tight fiscal position and revenue lag in Q1 but it is not clear when homeowners will start having to pay it. This means that compared to the 2015 budget targets, the actual revenues for May and June are likely to fall short of their targets.

In particular, allowances to families with many children amounted to 5 mln in Q1 versus an annual target of 650 mln euros, while grants to the Intergenerational Solidarity Fund (AKAGE) were zero in Q1 against an annual target at 454 mln. Since the new government has repeatedly stressed its sensitivity on the issue of social

PRIMARY EXPENDITURE

protection, it is likely both items will return to normal levels in the second half of the year, eliminating the gap reported so far.

Other primary expenditure was just 12 mln above target in January but the trend reversed in the next two months, with the actual figures coming in 366 and 142 mln below their targets in February and March respectively.

Overall, the non-payroll expenses topped 1.9 bln euros in Q1 compared to a target of 2.4 bln. This 500 mln made up 42 percent of the primary expenditure over-performance.

The more detailed breakdown shows that two specific expenses were contained: 1) Consumption and non-allocated expenditure, which stood at 127 mln in Q1 at just 8.1% of the annual target of 1.57 bln.

2) Agricultural subsidies at 65 mln in Q1, corresponding to 10.9% of the annual target of 591 mln.

Unlike grants to the social security sector, it is not clear whether the cut in these particular non-payroll expenses relates to efforts to tackle excessive spending or the postponement of payments for later in the year, leading to an increase in arrears to the private sector.

Moving on to expenditure, the breakdown of the three key components (salaries and pensions, grants to social security sector and other primary expenditure) shows that the latter two explain the substantial outperformance of the headline figure in Q1.

Primary expenditure was beat the target by 53 mln euros in January and then accelerated to an over-performance of 538 mln in February and further to 589 mln in March, meaning the actual quarterly figure was 1.18 bln euros better than the target.

Salaries and pensions were estimated at an average of 1.56 bln euros per month in the first half of the year, with the actual figure in Q1 coming in almost exactly on target.

Grants to the social security sector were just 40 mln euros better than target in January but this was extended to 171 mln in February and much higher to 437 mln in March. For Q1, this specific item was 648 mln better than target, making up 55% of the total primary expenditure outperformance.

What lies behind this performance: 1) Other healthcare expenses (covering hospital deficits) being reined in to just 43 mln euros in Q1, corresponding to just 3.9% of the annual target of 1.12 bln.

2) Only 95 mln euros, or just 6.6 %of the annual target of 1.44 bln, going towards social protection in Q1.

Manos Giakoumis is the head analyst at MacroPolis. You can follow him on Twitter: @ManosGiakoumis www.macropolis.gr

May 13 - 19, 2015

financialmirror.com | GREECE | 11

A blueprint for Greece’s recovery

By Yanis Varoufakis MINISTER OF FINANCE

Months of negotiations between our government and the International Monetary Fund, the European Union, and the European Central Bank have produced little progress. One reason is that all sides are focusing too much on the strings to be attached to the next liquidity injection and not enough on a vision of how Greece can recover and develop sustainably. If we are to break the current impasse, we must envisage a healthy Greek economy.

Sustainable recovery requires synergistic reforms that unleash the country’s considerable potential by removing bottlenecks in several areas: productive investment, credit provision, innovation, competition, social security, public administration, the judiciary, the labour market, cultural production, and, last but not least, democratic governance.

Seven years of debt deflation, reinforced by the expectation of everlasting austerity, have decimated private and public investment and forced anxious, fragile banks to stop lending. With the government lacking fiscal room, and Greek banks burdened by non-performing loans, it is important to mobilise the state’s remaining assets and unclog the flow of bank credit to healthy parts of the private sector.

To restore investment and credit to levels consistent with economic escape velocity, a recovering Greece will require two new public institutions that work side by side with the private sector and with European institutions: A development bank that harnesses public assets and a “bad bank” that enables the banking system to get out from under their non-performing assets and restore the flow of credit to profitable, export-oriented firms.

Imagine a development bank levering up collateral that comprises post-privatisation equity retained by the state and other assets (for example, real estate) that could easily be made more valuable (and collateralised) by reforming their property rights. Imagine that it links the European Investment Bank and the European Commission President Jean-Claude Juncker’s EUR 315 bln investment plan with Greece’s private sector. Instead of being viewed as a fire sale to fill fiscal holes, privatisation would be part of a grand

public-private partnership for development.

Imagine further that the “bad bank” helps the financial sector, which was recapitalised generously by strained Greek taxpayers in the midst of the crisis, to shed their legacy of non-performing loans and unclog their financial plumbing.

In concert with the development bank’s virtuous impact, credit and investment flows would flood the Greek economy’s hitherto arid realms, eventually helping the bad bank turn a profit and become “good.”

Finally, imagine the effect of all of this on Greece’s financial, fiscal, and social-security ecosystem: With bank shares skyrocketing, our state’s losses from their recapitalisation would be extinguished as its equity in them appreciates. Meanwhile, the development bank’s dividends would be channeled into the long-suffering pension funds, which were abruptly de-capitalised in 2012 (owing to the “haircut” on their holdings of Greek government bonds).

In this scenario, the task of bolstering social security would be completed with the unification of pension funds; the surge of contributions following the pickup in employment; and the return to formal employment of workers banished into informality by the brutal deregulation of the labour market during the dark years of the recent past.

One can easily imagine Greece recovering strongly as a result of this strategy. In a world of ultra-low returns, Greece would be seen as a splendid opportunity, sustaining a steady stream of inward foreign direct investment. But why would this be different from the pre-2008 capital inflows that fueled debt-financed growth? Could another macroeconomic Ponzi scheme really be avoided?

During the era of Ponzi-style growth, capital flows were channeled by commercial banks into a frenzy of consumption and by the state into an orgy of suspect procurement and outright profligacy. To ensure that this time is different, Greece will need to reform its social economy and political system. Creating new bubbles is not our government’s idea of development.

This time, by contrast, the new development bank would take the lead in channeling scarce homegrown resources into selected productive investment. These include startups, IT companies that use local talent, organic-agro small and medium-size enterprises, export-oriented pharmaceutical companies, efforts to attract the international film industry to Greek locations, and educational programmes that take advantage of Greek intellectual output and unrivaled historic sites.

In the meantime, Greece’s regulatory authorities would be keeping a watchful eye over commercial lending practices, while a debt brake would prevent our government from indulging in old, bad habits, ensuring that our state never again slips into primary deficits. Cartels, anti-competitive invoicing practices, senselessly closed professions, and a bureaucracy that has traditionally turned the state into a public menace would soon discover that our government is their worst foe.

The barriers to growth in the past were an unholy alliance among oligarchic interests and political parties, scandalous procurement, clientelism, the permanently broken media, overly accommodating banks, weak tax authorities, and a weighed-down, fearful judiciary. Only the bright light of democratic transparency can remove such impediments; our government is determined to help it shine through. © Project Syndicate, 2015 www.project-syndicate.org

The IMF should correct its big Greek debt mistake

By Ashoka Mody

The Greek government’s mounting financial woes are leading it to contemplate the previously unthinkable: defaulting on a loan from the International Monetary Fund.

Instead of demanding repayment and further austerity, the IMF should recognise its responsibility for the country’s predicament and forgive much of the debt.

Greece’s onerous obligations to the IMF, the European Central Bank and European governments can be traced back to April 2010, when they made a fateful mistake. Instead of allowing Greece to default on its insurmountable debts to private creditors, they chose to lend it the money to pay in full.

At the time, many called for immediately “restructuring” of privately-held debt, thus imposing losses on the banks and investors who had lent money to Greece. Among them were several members of the IMF’s board and Karl Otto Pohl, a former president of the Bundesbank and a key architect of the euro. The IMF and European authorities responded that restructuring would cause global financial mayhem. As Pohl candidly noted, that was merely a cover for bailing out German and French banks, which had been among the largest enablers of Greek profligacy.

Ultimately, the authorities’ approach merely replaced one

problem with another: IMF and official European loans were used to repay private creditors. Thus, despite a belated restructuring in 2012, Greece’s obligations remain unbearable — only now they are owed almost entirely to official creditors.

Five years after the crisis started, government debt has jumped from 130% of gross domestic product to nearly 180%. Meanwhile, a deep economic slump and deflation have severely impaired the government’s ability to repay.

Virtually everyone now agrees that pushing Greece to pay its private creditors was a bad idea. The required fiscal austerity was simply too great, causing the economy to collapse. The IMF acknowledged the error in a 2013 report on Greece. In a recent staff paper, the fund said that when a crisis threatens to spread, it should seek a collective global solution rather than forcing the distressed economy to bear the entire burden. The IMF’s chief economist, Olivier Blanchard, has warned that more austerity will crush growth.

Oddly, the IMF’s proposed way forward for Greece remains unchanged: Borrow more money (this time from the European authorities) to repay one group of creditors (the IMF) and stay focused on austerity. The fund’s latest projections assume that the government’s budget surplus (other than interest payments) will reach 4.5% of GDP, a level of belt-tightening that few governments have ever sustained for any significant period of time.

Following Germany’s lead, IMF officials have placed their faith in “structural reforms” — changes in labour and other markets that are supposed to improve the Greek economy’s longer-term growth potential. They should know better. The fund’s latest World Economic Outlook throws cold water on the notion that such reforms will address the Greek debt problem in a reliable and timely manner. The most valuable

measures encourage research and development and help spur high-technology sectors. All this is to the good, but such gains are irrelevant for the next five years. The priority must be to prevent Greece from sinking deeper into a debtdeflation spiral. Unfortunately, some reforms will actually accelerate the spiral by weakening demand.

On April 9, Greece repaid 450 mln euros to the IMF, and must pay another 2 bln in May and June. The IMF’s Managing Director, Christine Lagarde, has made clear that delays in repayments will not be tolerated. “I would, certainly for myself, not support it,” she told Bloomberg Television.

Inevitably, debt relief will be provided — but in driblets and together with unrelenting pain. The Greek government will need to withhold payments to suppliers and workers, and will raid pension funds. Five years from now, the country’s economic and social stress could well be even more acute.

The question will be: Why was more debt not forgiven earlier? No one is willing to confront that unpleasant arithmetic, and wishful thinking prevails.

Having failed its first Greek test, the IMF risks doing so again. It remains trapped by the priorities of shareholders, including in recent years the U.K. and Germany. To reassert its independence and redeem its lost credibility, it should write off a big chunk of Greece’s debt and force its wealthy shareholders to bear the losses.

Ashoka Mody is a Non resident scholar at Bruegel and Charles and Marie Robertson Visiting Professor in International Economic Policy at the Woodrow Wilson School, Princeton University (Source: Bruegel.org)

May 13 - 19, 2015

12 | PROPERTY | financialmirror.com

More and more British investors headed for Dubai Dubai has been constantly cementing its position as a global investment magnet, due its thriving hospitality, tourism and real estate sectors It has become one of the most sought after destinations of leisure travellers from Britain, with residents of London and Manchester topping the list of people travelling to the UAE, according to a study of cities with most of the incoming flights to the Gulf emirate.

But coming to this amazing city makes business sense too, as Dubai has been constantly cementing its position as a global investment magnet, courtesy of the its thriving hospitality, tourism and real estate sectors with vastly improving social, business and technology infrastructure.

So far, 699 Britons with the means and an eye for the future invested AED 1.89 bln ($515 mln) in Dubai’s real estate sector in the first quarter of 2015, Dubai Land Department (DLD) figures divulged. Indians topped the list with AED 3.04 bln ($828 mln).

DLD said around 19,000 Britons have invested in properties in Dubai, with a massive £1.6 bln invested in 2014 alone.

Rents in Dubai’s towering skyscrapers are 16th costliest in the list of most expensive office spaces in the world, making the fast-emerging global city a bargain for those looking to perform at a world stage.

Knight Frank’s Skyscraper Index revealed that Dubai prime office rents cost $43.50 per square foot in 2014, much behind Hong Kong, which topped the list with prime office rents listed at $250.50 per square foot. New York was second at $150 and London fourth at $108.75.

Bayut.com, UAE’s leading property portal, said it had observed an increasing number of searches by potential British investors into the Dubai real estate market. Searches for buying property dwarfed those for rental spaces, translating into the fact that there were much more Britons who were interested in buying property in Dubai than those moving to or in the process of moving to Dubai for making a living.

Bayut stats revealed that of all the British prospectors who searched for options in Dubai in 2014, 66.1% looked for properties up for sale. The same number was 64.9% in 2013.

Searches for rental spaces accounted for 33.9% of all searches in 2014, while 35.1% of all searches in 2013 by British related to renting properties.

Of the 2014 searches for buying property, a hefty 83%

Construction not key driver of price boom in Australia Fitch Ratings said in a new report that housing supply alone is unlikely the root cause of the recent price boom in Australia or the cause of future price correction in contrast to other overseas jurisdictions.

Australian dwellings completed have been in the 1.5 to 2.0 houses per 1,000 citizens range per quarter, showing a stable trend, similar to Great Britain. This contrasts with Ireland and Spain, which both suffered a building boom-and-bust leading into the 2007-2008 global financial crisis.

Australia has kept a growth of 0.4 houses per new citizen over the past 20 years, indicating that the ratio between supply and population has remained stable over time.

Fitch has adjusted house-price fall scenarios upwards over time to account for the increased potential of a significant fall in prices.

Fitch’s ‘AAA’ market-value declines in Australia range from 45% to 56%. Fitch expects Australian residenjtial mortgage-backed security (RMBS) ratings to withstand any future property price correction, should it occur.

share went to apartment searches, followed by villas with 13% of searches.

Bayut.com CEO Haider Ali Khan said the search figures for acquiring assets in Dubai by British investors meant that Britons increasingly saw Dubai as an ideal bastion for their capital.

“Sterling travels much farther in Dubai. Unlike London, prime real estate options in Dubai are aplenty and get you almost as decent returns as in any other part of the world.

Future prospects for the city also appear great, especially with the Expo 2020 inching closer. With security of investment and ownership and tax-free income added advantages, Dubai leaves an investor with little to desire,” Khan added.

Over the years, freehold properties that enable expats to fully own an asset have been a major impetus for spurring investment. Another important advantage of investing in Dubai has been that the expat owners do not need to live in Dubai after buying an asset. British, like other foreign

investors, have welcomed the opportunity as it allows them to remain in their country of choice, while their investment sits safe in a country that offers foolproof ownership security.

The upcoming Expo 2020 and Dubai’s rapid ascent towards becoming the top tourist destination of the world is luring large businesses, job seekers and service providers to the city in droves. But the cherry on the cake remains the tax-free status of business in the emirate. Dubai levies zero tax on rental income and capital gains.

Although some experts fear another slowdown in the Dubai real estate sector, others have put their trust in the Dubai government’s vision and its dedicated efforts to materialize that vision.

“The prices in Dubai are still a bargain compared to other major cities and the light is on and burning bright for this amazing city. As Dubai braces to host 20 mln visitors a year by 2020, there will arise a massive need for accommodation, making now probably the best time to invest in Dubai and

Larnaca goes green with eco-friendly lighting on Phinikoudes strip The Phinikoudes seafront is now lit up with eco-friendly and economical light bulbs after Larnaca Municipality awarded a supply tender to PGS Lighting Electrical with low energy consumption LED lamps. The upgrade will save the municipality up to 75% of its annual power bill or almost 30,650 euros, while the cost of the purchase will be offset within five months from installation.

According to PGS and based on environmental studies by experts such as the Clinton Foundation Initiative, road lighting networks around the world consume 159 terawatt of electric power. The Cyprus Energy Agency recently said that street lighting represents about 1% of the total electric power consumption. But for municipalities this represents 60% of their power consumption and 10% of their annual budget.

“Currently, many lamps in Cyprus are at the end of their lifespan or even past it. That is why other municipalities should follow Larnaca’s example in upgrading public lighting and replace them with low consumption LED bulbs that can be used for road lighting, public buildings, traffic lights, road signage, emergency lights and more,” said PGS Managing Director Neophytos Neophytou.

U.S.: Buying a house causes more anxiety than getting a root canal As the spring home-buying season shifts into a higher gear, survey results released last week from Chase indicate that just 24% of Americans plan to research or consider buying a house in the next 18 months. That is slightly less than the 26% who researched or considered buying house in the past 18 months.

Chase’s survey comprised a total of 1,098 respondents, of whom 575 identified themselves as intending to buy a house within the next 18 months. Among the homebuyers, 52% already own a house and 70% currently have mortgage on their house. Just over half, 52%, are employed full-time, and 20% identify themselves as not currently employed. Men comprise 58% of homebuyers in the survey and women 42%.

Among self-identified homebuyers, 84% plan to research or consider purchasing a house in the next 18 months.

Less than two-thirds of all respondents are optimistic about entering the housing market, while nearly three-quarters of buyers are optimistic.

Among the buyers, approximately one-third cited rising rents, upgrading and low interest rates as the top reasons for buying a new house. Rising rent and a desire to upgrade tied for the single top reason, with 20% of the 575 homebuyers citing each reason. When asked the two reasons most likely to affect their purchase decision, buyers said the overall price of the house (50%) and mortgage interest rates (33%).

Among the survey respondents who are not considering buying a house, the most often cited reason is lack of cash for the down payment.

When homebuyers were asked about their major and minor concerns related to buying a house, finding an affordable house was cited 84% of the time and locating a house in a quality neighborhood was cited 82% of the time.

And that root canal? Well, among homebuyers, 70% say they are extremely or somewhat anxious about the house buying process, while 64% are equally anxious about having a root canal and 62% dread public speaking to the same degree. (Source: 24/7 Wall St.com)

May 13 - 19, 2015

financialmirror.com | PROPERTY | 13

Visas, passports and civil partnerships too! µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

Amid all the economic crisis and falling demand in the property market, the only hope that remains is that single measure about residency and citizenship linked to property investments introduced during the Tassos Papadopoulos presidency in 2007, which, alas, was never implemented.

With the crisis that followed 2008/2009 and despite our insistence to be applied more intensively after we pressed the then Interior Minister Neoclis Silikiotis, after 1 1/2 years and upon our own initiative, a meeting took place in November 2011 at the Bank of Cyprus with 400 delegates where the conclusion was the then Government did everything to block this measure, saying there were problems with the applications, a delay of 1-1.5 years to respond, etc). As the delegates got furious with the delays and the pressure that followed on the new government, this measure was eventually implemented and expanded at various levels, where the EUR 15 mln initial investment was reduced to 5 mln and then to 2.5 mln per person in the case of joint investments by foreigners.

This kept the market alive (including the sale of properties by blocked accounts), while it is remarkable that some measures (visas and passports) to attract investors were already in place in Malta, Spain, Greece, Portugal and even Britain, with the first being Canada. Most of them have a condition of buying state bonds, as is the case of Malta, while in others the visas are given only for residence without ensuring the stay of the entire family of the investor and this for short periods (Greece), while in others relatives of the investor are prohibited to live in the country they are investing, as is the case of the UK. The current Ministers of Finance and Interior embraced the issue and in the face of competition submitted various improvements, such as new tax incentives, while the troubled situation in the Middle East also helped Cyprus not only because of its, but also because of other advantages such as religion, as is the case of Egypt’s Copts, Russians, Ukrainians, and Armenians who prefer this country.

This resulted in permanent residence visas with the Chinese the most attractive for Paphos developers. However, the overcharging that followed and ripping off investors where units were sold for EUR 300,000 regardless if they worth 150,000 was the worst that could happen. At the time, we wrote to the Chinese embassy here that some of these cases were scams, advertising on the internet (as Chinese brokers wanted a 20-25% commission) and now most Chinese have turned their backs on us. To that end it did not help that the planned investment to build a 500,000 sq.m. mall at the old Larnaca airport went sour, especially when the Chinese multimillionaire was branded a crook, for which the

opposition parties are mostly to blame. Fortunately, we found an Egyptian investor for EUR 200 mln for the Ayia Napa marina, and despite some noise by environmentalists and some antiquities that were found, he did not change his mind.

So, circumstances once again came to our rescue, even though we could have dealt with these cases in a better way.

It is not yet clear if Russia’s new “de-offshorisation” policy will be in our favour or against us. Perhaps, the uncertain political situation in Russia may be positive for us as many Russian offshore companies will now look to establish fully staffed offices in Cyprus, resulting in more foreign employees, spending, family holidays, etc. Recently, the Republic proposed new plans for taxation of such employees so that managers who are the decision makers enjoy the same incentives in Cyprus as the company owners and investors.

Of course, statements by the Russian President to investors (“see what happened to you in Cyprus”) did not help either, but we hope that with President Anastasiades’ persistence, they will gradually overcome these concerns.

To paraphrase AKEL leader Demetris Christofias’ “defend AKEL at all cost”, we should say “defend Russian investors at

all cost”. Don’t think for a moment that Cyprus is a haven of oligarchs and the elite Russians, as there are others from the economic middle class who love this island. The last investment we heard about is the creation of a playground in Platres in 1-2 months, not to mention the millionaire who wants to buy a trout farm in the mountain resorts just to keep his father “occupied with something”.

In an unrelated development is the new law for civil partnerships as Cyprus is one of only 20 states to allow it that could result in more people coming here for their partnership ceremonies. As a firm, we have already received inquiries, but we’ve made it clear that they still need to invest EUR 300,000 to buy a home. But if we look at this matter differently, we could see a new impetus to the property market.

Everyone has his own interest, you may say, but this development is of great benefit to lawyers, accountants and especially municipalities who earn millions of in revenues from civil marriage ceremonies.

Let’s keep an open mind, and as a Serbian couple told us, while inquiring about civil partnerships, “give us a chance, there are millions of us”. www.aloizou.com.cy

ala-HQ@aloizou.com.cy

Leptos dubs seafront villas ‘Absolute Blue’

The Leptos Group has launched a new promotional campaign entitled ‘Absolute Blue’ to reflect the 20 seafront and beachfront developments it has in its portfolio in Paphos, Limassol and the Greek islands of Crete, Santorini and Paros.

All these developments are in cosmopolitan and family-friendly environments with a plethora of entertainment and social venues. They are comprised of both detached villas with large plots that extend to the beach, and apartments and penthouses with large terraces to enjoy the magnificent views of the absolute blue of the Mediterranean Sea. Greek island-style architecture fuses with modern characteristics to create large indoor areas, patios and verandahs, swimming pools, jacuzzis, and lush landscaped gardens.

COMMERCIAL BUILDING PLOT FOR SALE IN NICOSIA Suitable for retail/office construction. Located in a very desirable location, opposite Marks & Spencer and within 50 mtrs of Acropolis Park.

Plot Area: 556 sq.m.

Max. Building Cover: 50% Max. Building Height: 24 meters Max. No. of Floors: 6 Road Frontage: Approx. 24 meters Price: €650,000 For more info please contact us at: 99317468

May 13 - 19, 2015

14 | WORLD MARKETS | financialmirror.com

Indices look more upbeat, though Greece remains a constant threat Markets Report

By Jameel Ahmad, Chief Market Analyst at FXTM

INDICES AND PBOC After being vulnerable to losses throughout last week as investors appeared to toy with the idea of closing positions, global indices have commenced the week looking more positive.

A variety of different factors have combined together to raise investor sentiment, with this including an unexpectedly smooth UK election being absent of any controversy, and the US non-farm payrolls (NFP) providing a reminder to the markets that the Federal Reserve will continue to remain both cautious and hesitant when it comes to raising interest rates. The People’s Bank of China (PBoC) has also provided a helping hand to indices, following the central bank easing monetary policy once again with another interest rate cut over the weekend.

The interest rate cut from China wasn’t completely unexpected, and to be honest some could even suggest that the main surprise was that interest rates were not lowered even further. The PBoC has been increasing active when it comes to easing monetary policy over the past months, and another interest rate cut is just the latest in a long line of increased stimulus measures being used to reinvigorate economic momentum. Concerns remain because the latest GDP reading was announced at the lower range of the government’s 7% target, and although the PBoC was expected to provide more time for the stimulus measures to work before acting again, last week’s trade data re-highlighted weaknesses and probably forced action.

The PBoC will probably and aggressively defend the 7% GDP target and if any doubts occur over whether Beijing’s objective can be achieved, the PBoC will continue easing policy.

The recent trade data was interesting because although import data has been declining consistently for some time,

there was also a noticeable decline in exports. The export figures provided a reminder that it is not only declining domestic momentum that is a concern, but that the economy is also vulnerable to risks outside China.

Previously, it was domestic data that was seen as the major catalyst behind declining momentum. Keep a very close eye on the upcoming Industrial Production and Retail Sales release. If these are announced below expectations, we are likely to see the markets pressure the PBoC for even further policy moves.

CURRENCY MARKETS Moving onto the currency markets, the prospects for the Euro are looking bleak with the EURUSD at risk of dropping back towards 1.10. Greece is once again weighing on investor sentiment, with the ongoing talks causing concern to spectators largely because the talks themselves are failing to present anything tangible. While Eurogroup Chair Jeroen Dijsselbloem has been reported to have stated that some progress has been made, this isn’t the first time we have read something encouraging to later find that we are still far from reaching an agreement. It is still highly unlikely that an agreement will be reached during the Eurogroup meeting on Monday and for as long as this ongoing Greece situation drags on, the Euro will remain vulnerable to losses.

After the conclusion of the UK election, Sterling volatility is calming down with the GBPUSD consolidating around 1.54. Now that the UK election is finally out of the way, investors may begin redirecting their attention back towards the UK economic outlook and interest rate policy from the BoE. When you look at the technicals, the GBPUSD is clearly finding it tough to surpass 1.55 and it’s possible we have set a new upper range for the pair. The US NFP has limited the chances of another USD sell-off, meaning that whether the GBPUSD can surpass 1.55 is going to be more dependent on the BoE encouraging Sterling bulls by talking hawkish later this week and reinforcing that its next policy move will be an interest rate increase.

Elsewhere, the USD is trading higher against the bulk of

its major trading partners following the NFP providing the required assurances that the Fed remains on course to begin raising interest rates later this year. Although the United States adding 223,000 jobs to the economy might not be eye-catching enough to get the USD bulls rallying again, the job report was in line with expectations and will reduce underlying concerns that the Fed might swerve away from its repeated commitment to begin raising interest rates in 2015. What has probably denied the USD bulls momentum to charge forward is the sharp downward revision to just 80,000 for March’s NFP eliminating any remaining optimism that the Fed might have still raised rates in June.

COMMODITIES After benefitting from the NFP reiterating that the Federal Reserve will adopt a slow approach to normalising monetary policy, Gold is looking slightly more bearish. The latest US Retail Sales is released on Wednesday and if we continue to encounter no correlation between substantially improved job creation and consumer confidence transitioning into expenditure, Gold will likely benefit because this would just provide another reason for the Federal Reserve to remain cautious on interest rate policy.

WTI Oil has continued to slip below $60 after a surprising advance to a 2015 high at $62.56 a few days ago.

Although we are now encountering a correlation between declining oil rigs and lower inventories being announced, there remains an aggressive oversupply in the markets and traders may have decided to close positions.

For more information, disclaimer note and risk warning, visit: www.ForexTime.com FXTM is an international forex broker. ForexTime Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC), and FT Global Limited is regulated by the International Financial Services Commission (IFSC)

Oil prices to stay below $100 for next decade, says OPEC Oil prices will remain below the psychologically important $100-abarrel mark until at least 2025, according to a draft report by the Organisation of Petroleum Exporting Countries (OPEC), seen

by The Wall Street Journal.

In its most optimistic scenario, the cartel of 12 oil-producing countries, forecast that oil will sell for around $76 per barrel in ten years’ time, according to the report.

However, it warned that crude oil could cost as little as $40 per barrel in 2025. “$100 is not in any of the scenarios,” said a delegate at an OPEC presentation last week in Vienna, according to The Wall Street Journal.

OPEC has refused to cut its output following a 60% crash in oil prices that began in June last year.

Brent and WTI crude prices have partially recovered from the lows seen at the start of 2015 to trade at around $65 and $59 per barrel respectively.

The draft report seen by the newspaper recommended that OPEC reintroduce the quota system it largely abandoned in 2011, which limited how much oil each member country could produce.

EUR/USD spot rate – possible further upside movement

By Andreas Ioannou FX Prop-trader YESFX Ltd www.yesfx.com.cy From the FX pair EURUSD daily chart there is a bearish movement (correction) within a bullish reversal double-bottom pattern. A double bottom formation was formed and completed upwards upon upside penetration (closing prices) of point B marked above on the chart. With this double bottom formation we have observed a failure swing completed upwards (a-b-c pattern).

Using Failure Swing bottom theory we expect to witness an uptrend in the following months.

Point C on the chart shows that the price failed to go beyond the previous bottom level at point A. Instead, we have a correction towards point B (last top).

Our target is set by the vertical distance between point A and point B and by the time it breaks point B level, with a valid green candlestick, suggested long positions are initiated. We see a verification of our first target at the point 1.1180. Our next targets are focused on the values of 1.1518 and 1.1841. The above set targets are also confirmed by the Fibonacci Retracement levels at 50% and 61.8%.

The above analysis for further upward movement will be cancelled if at any case we see a daily close below point C at approximately the 1.0600 price level.

May 13 - 19, 2015

financialmirror.com | MARKETS | 15

Tantrum II and European portfolios Marcuard’s Market update

by GaveKal Dragonomics The curious thing about the bond market tantrum of the last two weeks is that it happened despite big economies such as the US and China reporting weak growth. Moreover, the average bond yield across the G7 has bolted 50bp higher despite none of the G7 central banks announcing a meaningful shift in their monetary policy settings. These violent market moves have three immediate drivers with a bigger secular factor lurking in the background.

1) Inflation expectations: Oil’s surge from $46 in early January to $65 has rekindled inflation expectations in Europe after they flirted with record lows. Over the last six months a similar shift has happened in the US; Last Friday’s jobs report may have produced headlines for weak wage growth, yet viewed more broadly, earnings are clearly improving.

2) Bank credit growth: The revival of bank lending has been confirmed in the US and most recently in Europe, which implies that financial systems have less need of ventilator support from central banks.

3) Hedge fund unwinding: Volatility resulted from funds reversing highly leveraged positions on European bonds that were taken out in expectation of the spread tightening impact of quantitative easing.

It is not clear that this market episode points to anything

not reassure on these points in the coming weeks.

Lastly, the yield differential between peripheral eurozone economies and Germany remains attractive; in the case of Spain the spread at the 30-year maturity is 160bp despite credit risk in that economy being greatly reduced. Improved fundamentals in Southern Europe can be seen by an improved jobs picture in Spain and the Portugal, while in Italy, business surveys point to an economic acceleration.

However, the “good news” for bond investors is that this mild recovery in the South is a long way from generating a wage spiral.

Our conclusion would thus be to stay long European equities, especially the banks, as a play on the reflation theme. Investors should stay long peripheral bonds, but sell bunds on strength.

sinister. In May 2013, concerns over US monetary policy normalisation caused the “taper tantrum”, but pretty soon after the market settled. Catalysts #1 and #2 above both represent good news as they imply that reflationary policies are working. Also, nominal long-term interest rates remain low at 0.65% in Germany, less than 1% in France and 2.2% in the US, while pretty much everywhere, else real rates are either negative or barely positive.

And this brings us to the bigger point that may underlay recent ructions. If reflationary moves are confirmed as having worked, then it will mean that the secular decline in G7 interest rates found a bottom early this year. The implication for portfolio management could be profound. In recent decades, investors have been able to run a balanced portfolio in the knowledge that bonds would likely come to the rescue of volatile equity markets. This was especially the case after 2000 as equities on average delivered mediocre performance. Hence, if the secular bull market in bonds has indeed reached its denouement then wealth managers will henceforth need to make far more use of cash, rather than using bonds as the default buffer to absorb shocks.

To be sure, there are reasons in Europe to think that such a shift could be a slow motion affair. The European Central Bank will maintain its deposit rate at -20pbs for the foreseeable future, so anchoring the short-end of the curve.

Under its QE programme the ECB will continue to buy an average EUR 45 bln of government bonds each month until September 2016. It would be surprising if Mario Draghi does

WORLD CURRENCIES PER US DOLLAR CURRENCY

Investors are understandably spooked by recent bond market ructions given a backdrop of weakening growth in major economies, and continued accommodative central bank policy. One analyst argued on Monday that this “tantrum” was partly technical, but also the result of markets looking through to higher inflation expectations due to an apparently better economic outlook. Markets are being driven by leveraged players liquidating positions, but disagree about the root cause. Here’s why. As a starting point, we have argued since late last year that bond markets had become significantly overvalued. Our advice was to stick to US fixed income, but to shorten the duration from 30 years to 7 years and to move out from corporate bonds towards treasuries.

Today, the overarching point is that the arrival of Europe’s quantitative easing (QE) sparked silly behaviour, and recent moves are partially correcting the excesses that have built up.

The arrival of the ECB’s counterproductive QE convinced some market players that they were being offered a free ride.

Hence, they hopped aboard by going massively long on the German and Italian bond markets. Such was the flood of

www.marcuardheritage.com

RATE

EUROPEAN

When bond markets become silly Marcuard’s Market update

by GaveKal Dragonomics

CODE

money into bunds and BTPs that the 6-month rate of change for their 30-year yields reached a six sigma overbought position. Being smart, these investors are also likely to have gone short on the euro and, of course, substantial leverage was almost certainly in play. In sympathy, US bond yields declined to a three sigma overbought position. Such episodes of extreme silliness seldom last for long and are being unwound in both the bond markets and the US dollar.

The broader message is that markets can become awfully unstable as a result of central bank actions to try and manage asset prices. The argument made a few weeks ago was that the effort of central banks to suppress volatility was creating a dangerous feedback loop such that in the case of US equities, the collapse in the CBOE Volatility index caused banks’ value at risk models to increase the leverage that their clients can “reasonably” take.

These ructions have been driven entirely by the impact of momentum and automatic risk controls of the type just described. To be clear, such price moves contain zero economic information about future growth or inflation. What they do confirm is that in central banking land the inmates have truly taken over the asylum. In time, as this great free money experiment starts to unwind, we are sure to see far more severe volatility outbursts in the prices of all “managed” assets.

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.

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

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

14200 1.5676 1.7366 24.3292 6.6251 13.891 1.1264 2.335 272.06 0.62395 3.0654 0.3811 17.5 7.4747 3.636 3.957 50.7175 8.2858 0.923 20.35

AUD CAD HKD INR JPY KRW NZD SGD

0.798 1.2046 7.7519 64.208 119.89 1095.9 1.353 1.335

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

0.3770 7.6283 27993.00 3.8629 0.7058 0.3016 1513.00 0.3847 3.6400 3.7501 12.1239 3.6729

Azerbaijanian Manat AZN Kazakhstan Tenge KZT Turkish Lira TRY Note: * USD per National Currency

1.0484 185.9 2.6907

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 ASIA

The Financial Markets Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

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

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.19 0.51 -0.06 0.07 -0.82

0.23 0.54 -0.04 0.09 -0.81

0.28 0.57 -0.02 0.10 -0.79

0.41 0.70 0.05 0.14 -0.70

0.72 1.00 0.17 0.25 -0.58

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.91 1.06 0.10 0.15 -0.63

1.28 1.30 0.18 0.19 -0.52

1.57 1.50 0.30 0.24 -0.37

1.80 1.67 0.41 0.31 -0.22

2.13 1.89 0.68 0.46 0.06

2.41 2.10 0.99 0.66 0.35

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP

1 CHF

100 JPY

1.1262

1.5698

1.0839

0.8340

1.3939

0.9624

0.7405

0.6905

0.5313

0.8879 0.6370

0.7174

0.9226

1.0390

1.4483

119.91

135.04

188.23

0.7694 129.97

Weekly movement of USD

CCY\Date

07.04

21.04

28.04

05.05

12.05

CCY

Today

Last Week

USD GBP JPY CHF

1.0875

1.0679

1.0820

1.1071

1.1115

0.7302

0.7171

0.7102

0.7324

0.7135

129.89

127.39

128.74

132.81

133.44

GBP EUR JPY

1.0399

1.0205

1.0323

1.0349

1.0360

CHF

1.5698 1.1262 119.91 0.9226

1.5116 1.1071 119.96 0.9348

%Change -3.85 -1.73 -0.04 -1.30

May 13 - 19, 2015

16 | WORLD | financialmirror.com

New and improved trade agreements?

By Jeffrey Frankel Professor of Capital Formation and Growth at Harvard University Trade is high on the agenda in the United States, Europe, and much of Asia this year. In the US, where concern has been heightened by weak recent trade numbers, President Barack Obama is pushing for Congress to give him Trade Promotion Authority (TPA), previously known as fast-track authority, to conclude the mega-regional Trans-Pacific Partnership (TPP) with 11 Asian and Latin American countries. Without TPA, trading partners refrain from offering their best concessions, correctly fearing that Congress would seek to take “another bite of the apple” when asked to ratify any deal.

In marketing the TPP, Obama tends to emphasise some of the features that distinguish it from earlier pacts such as the North American Free Trade Agreement (NAFTA). These include commitments by Pacific countries on the environment and the expansion of enforceable labor rights, as well as the geopolitical argument for America’s muchdiscussed strategic “rebalancing” toward Asia.

As with consumer products, the slogan “New and improved!” sells. NAFTA and other previous trade agreements are unpopular. So the Obama administration’s argument is apparently, “We have learned from our mistakes.

This agreement will fix them.”

But the premise is wrong: The previous agreements did benefit the US (and its partners). The most straightforward argument for TPP is that similar economic benefits are likely to follow.

The economic arguments for the gains from trade of course go back to David Ricardo’s classic theory of comparative advantage. Countries benefit most from producing and exporting what they are relatively best at producing and exporting, and from importing what other countries are relatively better at producing.

Moreover, trade boosts productivity, which is why exporters pay higher wages than other companies, on average – an estimated 18% higher in the case of US manufacturing. And the purchasing power of income is enhanced by households’ opportunity to consume lowerpriced imported goods. The cost savings are especially large for food and clothing, purchases that account for a higher proportion of lower-income and middle-class households’ spending.

American trade debates have long been framed by the question of whether a policy will increase or reduce the number of jobs. This concern is a first cousin to the old mercantilist focus on whether a policy will improve or worsen the trade balance. A “mercantilist” could be defined as someone who believes that gains go only to the country that enjoys a higher trade surplus, mirrored by losses for the trading partner that runs a correspondingly higher deficit.

Even by this sort of reasoning, one could make an “American” case for the ongoing trade negotiations. The US market is already rather open; TPP participants such as Vietnam, Malaysia, and Japan have higher tariff and non-tariff barriers against some products that the US would like to be able to sell them than the US does against their goods.

Liberalisation would thus benefit US exports to Asia more than Asian exports to the US. The late 1990s offer a good illustration of how trade theory works in the real world. The volume of trade increased rapidly, owing partly to NAFTA in 1994 and the establishment in 1995 of the World Trade Organisation as the successor to the General Agreement on Tariffs and Trade.

For the US during this period, imports grew more rapidly than exports. But the widening of the trade deficit had no negative effect on output and employment. Real (inflationadjusted) GDP growth averaged 4.3% during 1996-2000, productivity increased by 2.5% per year, and workers received their share of those gains as real compensation per hour rose at a 2.2% annual pace. The unemployment rate fell below 4% – as low as it goes – by the end of 2000.

A stronger trade balance in the late 1990s would not have

added to output growth or job creation, which were running at full throttle. Further increases in net export demand would have been met only by attracting workers away from the production of something else. That is why the gains from trade took the form of bidding up real wages, rather than further increasing the number of jobs.

Admittedly, it is harder to make the case for freer trade – particularly for unilateral liberalisation – when unemployment is high and output is below potential, as was true in the aftermath of the financial crisis and recession of 2007-2009. Under such circumstances, there is a kernel of truth to mercantilist logic: trade surpluses contribute to GDP and employment, coming at the expense of deficit countries.

Of course, if one country erects import barriers, its trading partners are likely to retaliate with “beggar-thy-neighbour” policies of their own, leaving everyone worse off. That is why the case for multilateral renunciation of protectionism is as strong in recessionary conditions as ever. In response to the 2008-2009 global recession, for example, G-20 leaders agreed to refrain from new trade barriers. Contrary to many cynical predictions, Obama and his counterparts successfully fulfilled this commitment, avoiding a repeat of the debacle caused in the 1930s by America’s introduction of import tariffs.

In any case, mercantilist logic is no longer relevant. The US unemployment rate has fallen well below 6% – not quite full employment, but close. If output and employment were rising this year as rapidly as in 2014, the Federal Reserve would probably have felt the need to start raising interest rates as early as this June. As it is, the Fed will almost certainly delay raising rates for a while longer. If trade deals do boost US exports more than imports, the Fed will probably have to put a brake on the economy that much sooner.

But the bottom line is that if the US can boost auto exports to Malaysia, agricultural exports to Japan, and service exports to Vietnam, real wages will be bid upward more than by the creation of more jobs. That is why, if it is allowed to proceed, the TPP will, like past trade deals, help put real median US incomes back on a rising trend.

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

China’s green-energy revolution

By John A Mathews and Hao Tan China generates most of its electricity by burning fossil fuels, just as every rising economic power has done since the Industrial Revolution. But to focus on this single fact risks overlooking a notable trend. The Chinese system of power generation is turning green – far more quickly than any other system of comparable size on the planet.

This trend is visible in three areas. The first is electricity generation. According to data released by the China Electricity Council, the amount of power that China generated from fossil fuels in 2014 decreased by 0.7% year on year, the first drop in recent memory. Meanwhile, power generation from non-fossil-fuel sources increased by 19%.

Remarkably, nuclear energy played only a small role in this change. Electricity generated by strictly green sources – water, wind, and solar – increased by 20%, with the most dramatic growth occurring in solar power generation, which rose a staggering 175%. Solar power also surpassed nuclear in terms of new energy produced, providing an extra 17.43 terawatt-hours last year, compared to 14.70 terawatt-hours from nuclear sources. And, for the third consecutive year, China generated more electricity from wind than from nuclear energy. Given this, the argument that China will be dependent on nuclear power plants for non-carbon sources

of electricity appears to have little merit.

The second area in which the green trend has become apparent is China’s total electricity-generating capacity. The country’s power system is now the world’s largest, capable of producing 1.36 terawatts, compared to the United States’ one terawatt.

Direct comparisons of different power sources are difficult, because the use of wind, solar, nuclear, and fossilfuel plants varies according to the time of day. But a look at annual data can offer insights into how the entire system is changing.

Last year was the second in a row in which China added more generating capacity from non-fossil-fuel sources than from fossil-fuel sources. China increased its ability to generate electricity from fossil fuels by 45 gigawatts, to reach a total of 916 gigawatts. At the same time, it increased its capacity to produce electricity from non-fossil-fuel sources by 56 gigawatts, achieving a total of 444 gigawatts. Wind, water, and solar plants added 51 gigawatts of generating capacity.

As a result, wind, water, and solar power accounts for 31% of China’s total electricity-generation capacity, up from 21% in 2007, while nuclear power accounts for another 2%. These results exceed the goal established by China’s 12th Five-Year Plan, which projected that power generating capacity based on non-fossil-fuel sources would account for approximately 30% of the country’s electricity system by 2015.

Finally, the trend toward green energy can be seen in China’s investment patterns. The evidence is plain: The country is putting more money toward green sources of electric power than toward those reliant on fossil fuels.

Indeed, China is spending more on green energy than any other country.

Investment in facilities producing energy from fossil fuels has consistently declined, from CNY 167 bln (roughly $24 bln) in 2008 to CNY 95 bln in 2014 ($15.3 bln), while investment in non-fossil-fuel sources has increased, from CNY 118 bln in 2008 to at least CNY 252 bln in 2014. The share of energy investment going into renewable electric generation has increased steadily, reaching 50% in 2011, up from 32% just four years before. In 2013, renewables’ share of investment reached no less than 59%.

Much depends on the success of China’s energy reforms, and in particular on its efforts to build the world’s largest renewable power system – an ambition far larger than anything imagined, much less attempted, in the West. This makes it all the more important to report accurately on the system as it evolves, in order to comprehend the overall direction of change.

China’s power system remains heavily based on coal, and much more will be burned before the system can accurately be described as more green than black. But the direction of change is clear. This needs to be acknowledged – and factored into discussions of global energy and energy policy.

John A. Mathews is Professor of Strategy at Macquarie Graduate School of Management in Sydney. Hao Tan is Senior Lecturer at Newcastle Business School, University of Newcastle, Australia. © Project Syndicate, 2015 www.project-syndicate.org

May 13 - 19, 2015

financialmirror.com | WORLD | 17

Inequality, immigration and hypocrisy Europe’s migration crisis exposes a fundamental flaw, if not towering hypocrisy, in the ongoing debate about economic inequality. Wouldn’t a true progressive support equal opportunity for all people on the planet, rather than just for those of us lucky enough to have been born and raised in rich countries?

Many thought leaders in advanced economies advocate an entitlement mentality. But the entitlement stops at the border: though they regard greater redistribution within individual countries as an absolute imperative, people who live in emerging markets or developing countries are left out.

If current concerns about inequality were cast entirely in political terms, this inward-looking focus would be understandable; after all, citizens of poor countries cannot vote in rich ones. But the rhetoric of the inequality debate in rich countries betrays a moral certitude that conveniently ignores the billions of people elsewhere who are far worse off.

One must not forget that even after a period of stagnation, the middle class in rich countries remains an upper class from a global perspective. Only about 15% of the world’s population lives in developed economies. Yet advanced countries still account for more than 40% of global consumption and resource depletion. Yes, higher taxes on the wealthy make sense as a way to alleviate inequality within a country. But that will not solve the problem of deep poverty in the developing world.

Nor will it do to appeal to moral superiority to justify why someone born in the West enjoys so many advantages. Yes, sound political and social institutions are the bedrock of sustained economic growth; indeed, they are the sine qua non of all cases of successful development. But Europe’s long history of exploitative colonialism makes it hard to guess how Asian and African institutions would have evolved in a parallel universe where Europeans came only to trade, not to conquer.

Many broad policy issues are distorted when viewed through a lens that focuses only on domestic inequality and ignores global inequality. Thomas Piketty’s Marxian claim

By Kenneth Rogoff

that capitalism is failing because domestic inequality is rising has it exactly backwards. When one weights all of the world’s citizens equally, things look very different. In particular, the same forces of globalisation that have contributed to stagnant middle-class wages in rich countries have lifted hundreds of millions of people out of poverty elsewhere.

By many measures, global inequality has been reduced significantly over the past three decades, implying that capitalism has succeeded spectacularly. Capitalism has perhaps eroded rents that workers in advanced countries enjoy by virtue of where they were born. But it has done even more to help the world’s true middle-income workers in Asia and emerging markets.

Allowing freer flows of people across borders would equalise opportunities even faster than trade, but resistance is fierce. Anti-immigration political parties have made large inroads in countries like France and the United Kingdom, and are a major force in many other countries as well.

Of course, millions of desperate people who live in war zones and failed states have little choice but to seek asylum in rich countries, whatever the risk. Wars in Syria, Eritrea, Libya, and Mali have been a huge factor in driving the current surge of refugees seeking to reach Europe. Even if these countries were to stabilise, instability in other regions would most likely take their place.

Economic pressures are another potent force for migration. Workers from poor countries welcome the opportunity to work in advanced countries, even at what seem like rock-bottom wages. Unfortunately, most of the debate in rich countries today, on both the left and the right,

centres on how to keep other people out. That may be practical, but it certainly is not morally defensible.

And migration pressure will increase markedly if global warming unfolds according to climatologists’ baseline predictions. As equatorial regions become too hot and arid to sustain agriculture, rising temperatures in the north will make agriculture more productive. Shifting weather patterns could then fuel migration to richer countries at levels that make today’s immigration crisis seem trivial, particularly given that poor countries and emerging markets typically are closer to the equator and in more vulnerable climates.

With most rich countries’ capacity and tolerance for immigration already limited, it is hard to see how a new equilibrium for global population distribution will be reached peacefully. Resentment against the advanced economies, which account for a vastly disproportionate share of global pollution and commodity consumption, could boil over.

As the world becomes richer, inequality inevitably will loom as a much larger issue relative to poverty, a point I first argued more than a decade ago. Regrettably, however, the inequality debate has focused so intensely on domestic inequality that the far larger issue of global inequality has been overshadowed. That is a pity, because there are many ways rich countries can make a difference. They can provide free online medical and education support, more development aid, debt write-downs, market access, and greater contributions to global security. The arrival of desperate boat people on Europe’s shores is a symptom of their failure to do so.

Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University. © Project Syndicate, 2015 www.project-syndicate.org

Western politics’ locust years

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

Since my teenage years, I have been fascinated by the permutations and machinations of national politics. Today, I find myself focusing on broader political trends that also help to explain global economic issues.

One such trend is the political fragmentation and polarisation evident in Western democracies. Fringe movements, some operating within established political structures, and others seeking to create new ones, are placing pressure on traditional parties, making it difficult for them to mobilise their supporters, and, in some cases, causing them real damage. Desperate not to appear weak, long-established parties have become wary of cooperating across the aisle.

The resulting refusal to work together on the major issues of the day has had a dramatic impact on economic policies. Once formulated through negotiations conducted at the political centre, where Western democracies have long been anchored, policymaking is increasingly shaped by stubborn forces on the extreme left and right.

This approach has, it must be said, yielded the occasional breakthrough – sometimes good, sometimes bad. But the overall result has been policy paralysis, with even the most basic elements of economic governance (such as actively passing a budget in the

United States) suffering as a result.

Needless to say, the greater the governance and policy challenges at home, the more difficult regional and global cooperation becomes.

The Tea Party in the US is a case in point. After its success on the national stage in the 2010 midterm congressional election, many Republican lawmakers became so concerned about securing their party’s “base” for future re-election bids that they no longer felt comfortable pursuing the type of bipartisan cooperation that underpin effective economic policymaking.

But the Tea Party’s impact did not end there. By contributing to a shutdown of federal-government operations and repeatedly raising the threat of a technical default, it risked undermining an alreadyfragile US economic recovery. While the movement has evolved and no longer threatens to hold the economy hostage, it continues to contribute to overall policy paralysis.

Europe now seems to be headed down a similar path, as non-traditional parties – many of them driven by single issues – become increasingly influential. Movements like France’s anti-immigration National Front are making leading mainstream parties more likely to pander to extremists in order to preserve their support.

Of course, their fear is not irrational, as Pasok, a long-established left-wing party in Greece, found out when the far-left, antiausterity Syriza Party surged to victory in January. But that does not change the fact that parties’ need to address their electoral fears is causing serious damage to national policymaking.

Indeed, most established parties are so

busy playing defense that they have little inclination to engage in the type of forwardlooking strategic thinking that is needed to re-energise exhausted growth models, anchor financial stability, and ensure that technological innovation enables broadbased prosperity. As a result, Western economies are running chronically below their potential – and risk undermining their future potential.

That is why future generations will likely remember this as a time of lost economic opportunities. Instead of bowing to polarisation and paralysis, policymakers should be promoting growth- and productivity-enhancing infrastructure investments, funded at exceptionally low interest rates, scaling up labor-market reforms, and working to address the growing income and wealth inequality that is increasingly limiting access to economic opportunity.

Likewise, policymakers should be revamping incoherent and inconsistent tax structures that are riddled with unfair exemptions. And they should be pursuing immigration reform to overhaul a system that penalises talent, encourages malfeasance, and, as illustrated by the thousands of migrants who have drowned in the Mediterranean Sea in recent years while trying to reach Europe, often leads to human tragedy.

Despite widespread dissatisfaction with political institutions in many Western countries – the US Congress, for example, has very low approval ratings – it is difficult to see what will break the current logjam.

Within established parties, forces promoting rejuvenation are weak and uneven. Add to that an increasingly polarised and quasi-

tribal news media, which can amplify divisions in society, and the scope for collaborative transformation is extremely limited.

For their part, many of the fringe parties, despite their rising popularity, are struggling to achieve power, a challenge illustrated in the recent British election. And those that succeed, such as Syriza, quickly become frustrated by the largely immovable systems in which they must operate – a situation that their lack of governing experience makes all the more difficult.

Over time, Western political systems will evolve to meet the needs of their economies.

But, in the interim, the vast majority of companies and households will have to cope with systems that do relatively less to help them reach their potential, placing them at a disadvantage vis-à-vis competitors operating in more supportive systems.

To some extent, technological innovation will pick up the slack, as it empowers individuals and companies to live more selfdirected lives, creating pockets of excellence and wellbeing. But, while this is good news for some, it is inadequate to arrest the rising inequality of income, wealth, and opportunity – or to unleash the inclusive prosperity that Western economies can and should be generating.

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

May 13 - 19, 2015

18 | WORLD | financialmirror.com

Germany vs Google

By Philippe Legrain

American tech companies are under unprecedented attack

by European Union regulators. The European Commission has charged Google with abusing its near-monopoly over Internet search in the EU to favor its own shopping services.

It has also opened a probe of Google’s Android mobile operating system.

And, as part of its just-announced “Digital Single Market Strategy,” the Commission is calling for a comprehensive investigation of the role of (mostly American) Internet platforms, such as social networks and app stores.

Questionable practices by companies from any country should be addressed in a fair, impartial way. But that seems unlikely to happen here. The key driver of the EU’s regulatory onslaught is not concern for the welfare of ordinary Europeans; it is the lobbying power of protectionist German businesses and their corporatist champions in government.

Germany’s government boasts about how “globally competitive” the country is, and its officials lecture their EU peers on the need to emulate their supposed reformist zeal.

And yet, while the country remains a world-beating exporter in industries like automobiles, it is an also-ran in the Internet realm. There is no German equivalent of Google or Facebook.

Stymied at home by red tape and a risk-averse culture, the most successful German Internet entrepreneurs live in Silicon Valley. While US-based companies conquer the cloud, Germany is stuck in the mud.

With Germany’s digital start-ups stifled by overregulation and underinvestment, dinosaurs from the analogue world set the policy agenda. Traditional media companies resent their reliance on Google to direct traffic to their sites and its ability to sell advertising based on snippets of their content. The partly state-owned Deutsche Telekom hates that it does not earn additional revenue when people use its network to make calls on Skype, send messages on WhatsApp, and watch videos on Netflix and YouTube. TUI, the world’s largest travel

agency and tour operator, feels threatened by TripAdvisor.

Retailers fear Amazon’s ever-expanding empire.

Germany was the first EU country to institute a national ban on Uber, at the behest of taxi drivers fearful of competition. And Germany’s powerful industrial lobby frets that American tech companies could eat their manufacturing lunch. As Gunther Oettinger, the EU’s (German) digital commissioner, put it, “If we do not pay enough attention, we might invest in producing wonderful cars, but those selling the new services for the car would be making the money.”

Whereas Oettinger’s predecessor, Neelie Kroes, championed the potential of disruptive technologies to benefit consumers and boost economic growth, Oettinger is unashamedly corporatist in advancing German business interests.

German companies are not alone in fearing American competition, but their influence within the European Commission is decisive. Indeed, Germany has never had more clout in the EU. The debt crisis, which distracted France and alienated the United Kingdom, has thrust Germany, the eurozone’s largest creditor, into the European driver’s seat.

European Commission President Jean-Claude Juncker owes his position to the European People’s Party, the centreright political grouping dominated by German Chancellor Angela Merkel’s Christian Democratic Union, which in turns holds sway over the European Parliament. Juncker is also indebted to the Axel Springer media group, the publisher of Bild, Germany’s best-selling tabloid newspaper, which strongly backed him last summer when Merkel was wavering.

And his German chief of staff, Martin Selmayr, ensures that his country’s concerns are heeded across the Commission.

Last year, Germany pressured Joaquin Almunia, the EU’s then-competition commissioner, not to settle its antitrust dispute with Google, enabling his successor, Margrethe Vestager, to pursue it. In fact, the investigation into Internet platforms comes at the demand of Germany’s economics minister, Sigmar Gabriel. And its outcome seems preordained; in a leaked position paper, Oettinger proposes a powerful new EU regulator to rein in online platforms. He recently spoke of the need to “replace today’s Web search engines, operating systems, and social networks.”

No one forces Europeans to use Google as a search engine; competitors are only a click away. For shopping,

Europeans increasingly bypass it, searching directly on Amazon or eBay, or navigating through Facebook. So Google scarcely controls, much less monopolises, this rapidly evolving landscape. Nor have shoppers suffered. But, whereas US antitrust law rightly focuses on whether consumers are being harmed, EU competition authorities also consider whether rival firms have lost out – including old-fashioned shopping portals, such as Ladenzeile.de, owned by Axel Springer.

Creating a digital single market makes sense. Whereas every American Internet start-up benefits from a huge domestic market, their European counterparts are limited by domestic regulations to smaller local markets.

Unfortunately, the European Commission’s proposals are not focused on enabling Italians to buy from British websites or opening a market of 500 mln Europeans to Spanish startups. Their main goal seems to be to constrain American digital platforms. As Gabriel put it in a letter to the Commission last November: “The EU has an attractive single market and significant political means to structure it; the EU must bring these factors into play in order to assert itself against other parties involved at the global level.”

Instead of conspiring to hobble its American rivals, stifle innovation, and deprive Europeans of the full benefit of the Internet, Germany should practice what it preaches and make the difficult reforms it needs to raise its game. It should make it easier to start and expand Internet businesses. It should boost investment in broadband infrastructure and digital technologies. And it should throw its weight behind a genuine EU digital single market that benefits consumers and enables startups to flourish, instead of a backdoor industrial policy that favors Germany’s digital flops.

Philippe Legrain is a visiting senior fellow at the London School of Economics’ European Institute and a former economic adviser to the president of the European Commission. © Project Syndicate, 2015. www.project-syndicate.org

Buy back or pay forward?

When British Prime Minister David Cameron asked me to lead a review into the problem of antimicrobial resistance, the last thing I expected was that accepting the position would lead me to question one of the most popular tools for corporate financial management: share buybacks.

The problem of antimicrobial resistance is a serious one.

Left unaddressed, it could be responsible by 2050 for the deaths of some ten million people a year, more than currently die of cancer, along with an astonishing $100 trln in economic damage. Fortunately, however, there is much we can do to mitigate the threat – provided that adequate resources are made available.

One important avenue to pursue is the development of new drugs. In a forthcoming paper, the Review on Antimicrobial Resistance estimates that bringing new antimicrobials to market and improving their administration will cost about $25 bln – a significant sum, but one that pales in comparison to the costs to society if the problem is not checked. It is also roughly what two of the world’s largest pharmaceutical companies will spend this year buying back their own shares.

While the review has yet to come up with recommendations for financing the development of new drugs, it seems clear to me that it is well within the capacity of the pharmaceutical industry to contribute. A common argument made by drug companies is that they need to be guaranteed a reward if they are to invest in developing medicines that are unlikely to deliver the kind of returns that other investments may provide. The only sure way to guarantee drug development, the argument goes, is to allow prices to rise until demand matches supply.

And yet there is a good reason why the pharmaceutical industry can and should play a major role in financing something like a common “Innovation Fund” to provide financing for early-stage research into solving the problem of antimicrobial resistance. And that reason is one that I

By Jim O’Neill became familiar with during my years at Goldman Sachs: enlightened self-interest.

Six years after the eruption of the global financial crisis, the banking industry is still widely blamed for the catastrophe. And, as a result, banks are being hit with regulatory constraints that limit some aspects of their business. I suspect that if the industry had shown greater leadership on issues – for example, excessive executive pay – they would have found themselves in a much more favorable environment today.

The same is true of the pharmaceutical industry. Share buybacks can sometimes be legitimate, but on other occasions they do not seem justified – especially when considered from the standpoint of enlightened self-interest.

In December, the pharmaceutical giant Merck spent $8.4 bln to acquire Cubist Pharmaceuticals, a Massachusetts-based drug-maker that specialises in combating Methicillinresistant Staphylococcus aureus (MRSA), a bacteria that has become resistant to many types of antibiotics.

In early March – less than three months after the acquisition – Merck announced it would close down Cubist’s early-stage research unit, laying off some 120 staff and perhaps crippling its efforts to introduce new drugs into the pipeline. Three weeks later, Merck announced that it would spend an additional $10 bln to buy back some of its shares. It is difficult for an outside observer not to draw a connection between the two decisions.

Of course, dubious buybacks are not confined to the

pharmaceutical industry. Apple is another good example. The company’s latest quarterly sales results show how the company has become something more than a technology firm; it is now a major middle-class Chinese consumer brand. Within a year, China will likely be a bigger market for its products than the United States.

And yet, even more striking than this confirmation of the still-rising importance of the BRIC (Brazil, Russia, India, and China) economies is the sheer size of Apple’s ongoing buyback programme. In April, the company announced it had authorised an additional $50 bln to be used for repurchasing shares, bringing the total to $140 bln.

Coming at a time when the technology industry is under increasing scrutiny in the developed world as governments struggle with budget shortfalls and rising debt, this seems to me to be a questionable decision. Companies’ ability to minimise their global tax burden, while boosting their earnings per share through buybacks – in some cases financed with debt – does not strike me as a stable trend.

When companies are genuinely unable to identify areas of research and investment that would help their business (and employees and clients), they are better off returning the savings to shareholders in the form of higher dividends than authorising buybacks. Or, better yet, in a world confronted with a host of problems – from climate change to antimicrobial resistance – industry leaders should begin asking themselves how they can contribute to averting the crises of the future.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management, is a visiting research fellow at Bruegel, the Brussels-based economic think tank, and Chair of the British government’s Review on Antimicrobial Resistance. © Project Syndicate, 2015 www.project-syndicate.org

May 13 - 19, 2015

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Safeguarding the open Internet

By Marietje Schaake Proposals regarding Internet governance are bound to generate serious friction. The online world, after all, has provided enormous opportunities to billions of denizens, largely because it has never been governed.

And yet, as the Internet grows in importance, so do the risks inherent in the lack of regulation. There is a growing danger that the open platform we all cherish will increasingly be colonised by corporate greed, criminal activity, and conflict between states – with ordinary citizens the ultimate victims.

It is essential that safeguards be put in place, and that countries and companies alike are bound by principles that encourage them to act in the common interest.

The utopian view that governments and other institutions should stay out of the way ignores the role that countries are already playing on the Internet, often secretly. Nor does it account for the fact that giant companies are exploiting this largely unregulated environment to set themselves up as the new sovereigns.

When a country censors online content on a massive scale or uses digital backdoors to monitor its citizens, the entire Internet feels the impact. Similarly, when companies with billions of users scattered around the world suffer data breaches or choose to pursue profits at the expense of universal human rights, it is not currently clear who can hold them to account.

Human rights cannot be “balanced” with the interests of

states or commercial companies. Upholding core principles requires a system of checks and balances – mechanisms that can ensure that human rights, including privacy, are safeguarded, even as legitimate security concerns are taken into account.

Doing this will require the key players responsible for the Internet’s openness to enter into a mix of voluntary and binding agreements that establish something akin to the rule of law.

Until now, discussions about Internet governance have aimed at establishing voluntary norms. These are important first steps, but if the process does not eventually lead to binding agreements, it is unlikely to succeed in keeping the Internet functioning and safe. Revelations of pervasive online surveillance have already eroded trust in the Internet and its suitability for communicating, accessing information, and doing business.

It is crucial that the Internet’s central protocols be declared a neutral zone, free from interference by any party, as per a recommendation by the scientific council that is advising the Dutch government. This measure, which will work only if it is binding, is in the interest of all countries and companies, because the trust that users have in the services built on top of these protocols depends on it. Among the protected elements would be TCP/IP protocol suites, various standards, the domain name system (DNS), and routing protocols.

The Global Commission on Internet Governance (of which I am a member) has put forward a proposal for “a new social compact” among citizens, their elected representatives, law-enforcement and intelligence agencies, businesses, civil-society groups, and programmers and developers. Among the provisions would be the recognition

of privacy and personal data protection as a fundamental human right, and a call for clear, precise, and transparently created regulations that set limits on government surveillance and companies’ use of consumer data.

Under this framework, governance would strengthen the technology upon which the Internet depends. Governments would not seek to create backdoors to access data if doing so would make the Internet less secure. Companies that store or transmit consumer data would assume greater responsibility for illegal intrusion, damage, or destruction. And efforts by the Internet’s technical custodians to incorporate humanrights-enhancing solutions in standards and protocols, including end-to-end data encryption, would be encouraged.

Such a social compact and multi-stakeholder process would not replace judicial oversight and international human-rights law.

Existing governance institutions should be brought to bear on Internet regulation wherever possible. But, given the enormous challenges that this entails, it is also necessary to encourage all actors to behave in the best interest of the Internet ecosystem as a whole. The dangers of doing otherwise are simply too great.

Marietje Schaake (@MarietjeD66), a member of the European Parliament for the Dutch Democratic Party, is the founder of the Intergroup on the Digital Agenda for Europe and a member of the Global Commission on Internet Governance. © Project Syndicate, 2015. www.project-syndicate.org

May 13 - 19, 2015

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David Cameron’s Europe

By Carl Bildt

The next 18-24 months are likely to decide the shape of Europe for decades to come, and the United Kingdom has now started the clock on that process. Reelected with a resounding – and entirely unexpected – majority in the House of Commons, Prime Minister David Cameron must now use his increased mandate to set out an EU reform package that is attractive to all member states.

In recent years, the tail has tended to wag the dog in the UK, with Cameron kowtowing to the fanatically anti-European wing of his Conservative Party, if only to hold the prowithdrawal UK Independence Party at bay.

But now that his own authority has been strengthened significantly by his victory, with the UKIP emerging as the election’s biggest loser, he can now step forward as the pragmatic but committed European that he truly is.

In a series of speeches over recent years, Cameron has spoken about a European reform agenda centred on increasing the EU’s competitiveness and improving its institutions’ transparency. In the wake of Russian revanchism and the mayhem spreading across the Middle East, were Cameron to speak today of the changes that Europe needs to make, I would hope that he would add his support for more effective common foreign and security policies.

If Cameron sets out such a reform agenda at the European Council in June and is prepared to listen as well as to talk, he could set in motion a process that benefits all of

Europe. Then, it will be primarily up to EU Council President Donald Tusk, under the Luxembourg, Netherlands, Slovakia, and Malta presidencies of the EU over the next two years, to move a reform package forward by early 2017.

This will be a process in which the EU’s 28 member states, rather than the European Commission, must be in command. Only by appealing to and involving the EU’s national political institutions can EU reform succeed.

Next year should be a period of intense debate on a reform package that, when put together, will, it is hoped, be agreed by all of the EU’s members, because Cameron needs to hold his promised in-or-out referendum on the EU before the UK takes over the rotating presidency on July 1, 2017.

At the moment, opinion polls indicate that the UK electorate would vote for continued EU membership. Then again, no opinion polls predicted that the general election would result in a majority Conservative government. So no one should be under any illusion about the risks inherent in any British referendum on EU membership.

Of course, the EU is not powerless to influence the outcome. The Union can do its part in the coming 18 months by demonstrating its ability to deliver not only a potent reform package, but also implement other key policies, such as the Transatlantic Trade and Investment Partnership with the United States and the Digital Single Market.

Success in such areas, and the economic benefits they will bring, will make leaving the EU even more unattractive for the UK. But a UK decision to leave, should it come to that, would initiate a painful and complicated process of negotiating an exit and agreeing on some sort of new relationship. There would be no attractive options, and the result – regardless of how

much goodwill both sides bring to the talks – would leave both the UK and the EU visibly diminished, not least on the world stage.

Moreover, it would be naive to expect that the rest of the EU could just go on as before.

On the contrary, British withdrawal would likely inspire similar moves in other countries, with the risk that the EU, already weakened, might begin to fragment. And, given his current efforts to divide Europe, one can be sure that Russian President Vladimir Putin would do all that he can to encourage, and finance, such a split.

During this period, the EU would also have to address the ongoing challenges to its eastern neighbours, particularly Ukraine, posed by Putin’s revisionism, as well as the meltdown of much of its southern neighbourhood in the Middle East and North Africa. In this context, a weakened and

fractured Europe – unable to confront threats stemming from its immediate environment – would be a more dangerous place to live.

Cameron’s remarkable victory should be viewed as an opportunity to launch a renewed and reformed EU in the next two years. The UK’s European partners expect Cameron to frame the debate that must now begin if a truly stronger EU – one that can face up to its future and its future challenges – is to emerge. But there is also the possibility of it all going terribly wrong. In these dangerous times, the consequences of Europe’s disintegration must not be underestimated.

Carl Bildt is a former prime minister and foreign minister of Sweden. © Project Syndicate, 2015

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