Financial Mirror 2015 05 20

FinancialMirror JIM LEONTIADES A theory of growth, unions and politics PAGE 6

Issue No. 1134 €1.00 May 20 - 26 , 2015

JOSEPH STIGLITZ The secret corporate takeover PAGE 16

Greece’s plans for energy hub faces stiff resistance EU AND US OBJECT TO EAST-WEST PIPELINE PROJECT -

Cyprus-Israel electricity cable starts to take shape SEE PAGE 3

PAGE 9

ANALYSIS PAGES 10-11

May 20 - 26, 2015

2 | OPINION | financialmirror.com

FinancialMirror

Taner Akcam: “I am a normal Turk”

Published every Wednesday by Financial Mirror Ltd.

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Historian and sociologist Taner Akcam, a holocaust and genocide lecturer and researcher at Clark University presented a highly informative, illuminating even, lecture on Monday night on “A hundred years after: new aspects of the Armenian Genocide”.

It is not so much the information that was revealed at the packed University of Cyprus lecture hall, some for the first time to a non-academic audience, as much as the psyche of the Ottoman rulers a century ago and the methodical and mechanical way with which orders for the annihilation of the Armenians and other non-Muslim minorities were executed.

From the ethnic cleansing conceived by the nationalist wings of the Young Turks, allegedly in the name of Islam, to the precise measures used by the notorious Department of Statistics to implement the “5% rule” of forced conversion, assimilation and relocation, it is no wonder that present-day Turkey refuses to recognise the acts of genocide, a term not coined until three decades later.

According to Akcam, many profited from the mass deportations and kidnap of children, not only through bribes to help families survive or at least relinquish their faith and disappear into the crowds, but also from “adopting” orphans who were considered the sole heirs of their family fortunes.

Many of these officials continued in the employ of Kemal Ataturk’s new Republic, with the new regime inheriting responsibility and continuation, even, of the acts of the genocide, by officials and ordinary people.

But what angers Akcam most is not so much

Turkey’s denial of the genocide ever taking place, saying that this act is not a single event that took place overnight, but a long-term, well-thought plan to exterminate an entire population and eliminate any reference to their existence.

The biggest crime is the vast population’s silence, to which he has apologised for not knowing at a ripe younger age of the existence of the Armenian nation, let alone their holocaust.

Education, Akcam concedes, is the biggest weapon to defeat extreme nationalism and fundamentalism, such as is being repeated in present-day Iraq and Syria.

Even as “a young leftist student” when he first protested the Turkish army’s invasion of Cyprus, Akcam says he was often ridiculed by fellow progressive leaders, saying “why do you need to concern yourself with such matters?”

The 62-year-old professor also questions Turkishness, a reason often used to arrest, prosecute or even assassinate late 20th century free thinkers in Turkey, such as his close friend Hrant Dink. But he looks beyond the genocide centennial commemorations urging Armenians and others to visit Turkey and support those who are speaking openly about crimes of the past in an effort to cleanse the nation of the dark past.

He has faith in Turkish civil society, whom he trusts will some day have enough power to force the government to stand up and admit responsibility for the genocide.

“I am a normal Turk” he says, for recognising the atrocities with the hope that reconciliation will come some day soon.

Perhaps, some faith should also be reserved for civil society as efforts are also underway to try and resolve the Cyprus problem.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

Rate cut, franchise wars, CSE on a roll An interest rate cut is imminent after the Cyprus pound entered the ERM2 ‘waiting room’ for joining the eurozone, with the currency coming out stronger, while investment companies matched the performance of the CSE main index and the franchise wars heated up again, according to the Financial Mirror issue 620, on May 11, 2005.

CYP in ERM2: The Cyprus pound enjoyed a smooth ride in the first few days of its ERM2 entry

and appreciated 0.8% compared with its pre-entry rate. This has raised hopes that interest rates will be cut when the Monetary Policy Committee meets on May 20, with the official rate 225 basis points above the equivalent in the eurozone (ECB marginal lending: 3%; deposit: 1%).

CSE rise: The combined assets of the 25 investment companies listed on the CSE rose 7.5% in the first quarter to CYP 223.5 mln, but still short of the 230 mln at the end of March last year. The return matched the CSE performance with their combined NAV up 17.45% compared with the CSE GENX rise of 17.06%.

Franchise wars: After a relative lull, the franchise wars have heated up again, with PHC clinching the second KFC license, Symeonides’ Costa Coffee taking on Marinopoulos-operated Starbucks and Marks & Spencer starting a Home unit to take on IKEA opening in late-July, Greece’s Hondos is pulling out and Lidl is expected to make its first inroads.

Slow talks: President Tassos Papadopoulos has warned against raising hopes too soon for the resumption of a new round of talks to solve the Cyprus problem.

Housing up: Home prices continued to rise for a second month in April, up 0.6% from March, to a year-to-date increase of 2.5% according to the BuySell index. The average home price is CYP 85,317.

Meanwhile, Cyprus Cement Co. said it is expected to raise prices 8-9.5%.

moratorium on the registration of new Russian and CIS offshore banking units, “in order to check the rapid rise of Russian OBUs in Cyprus,” according to Chief Senior Manager Andreas Philippou.

Elma-Lemeco: The recent announcement that Elma Holdings and Lemeco Industries, a CTC subsidiary, will merge is expected to

help both companies expand their operations, said Elma’s boss Michael Ioannides. It will create the island’s largest paper and hosiery manufacturer to be renamed Lemeco Silvex.

Arab Bank: Group Assistant General Manager Abdel Hamid Shoman is on the island to review the local Arab Bank operations, including expansion plans on the island and building its multi-million regional headquarters building in Nicosia.

Revolting unions: Trade unions took a militant stance after the construction sector’s reps were denied a mediation plan by the Labour Ministry.

Unions representing 22,000 workers want a CYP 3.15 a week raise, others 2.75 and apprentices 2.75.

20 YEARS AGO

Freeze on Russian OBUs, Elma-Lemeco merger The central bank has imposed a freeze on new Russian and CIS company registrations in a bid to lessen the dependence on this market, while Elma and Lemeco merger is expected to boost profits for the new company and Arab Bank’s chief executive is on the island for talks, according to the Cyprus Financial Mirror issue 111, on May 17, 1995.

Russian freeze: The central bank has imposed a

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May 20 - 26, 2015

financialmirror.com | CYPRUS | 3

Interconnector starts to take shape Progress meeting for implementation of the EuroAsia project

On-site inspections have taken place of the cable have all been approved for funding by the landfall area near Haifa, in Israel, from where the European Union. ambitious multi-billion EuroAsia Interconnector The project will also allow Cyprus to meet project will be launched, with Cyprus expected to join interconnection targets allowing at least 10% the grid and receive electricity from the world’s longest of its installed electricity output to be available sub-sea cable in 2019. across borders. In March, twelve EU member The project, expected to cost about 4 bln euros by its states, including Cyprus, missed this target. completion in 2022, will also connect Cyprus to According to George Markopouliotis, the Greece, via Crete, thus ending the energy isolation of Head of the EC Representation in Cyprus, the outer-lying Greek islands, while Israel will also embark Commission has drawn up a list of 137 on a new era of energy security, as the Interconnector electricity projects, including 35 that aim on will also the import of electricity in times of crisis. electricity interconnection.

George Killas, Project Director of the joint venture The project standing out for Cyprus is the between DEH Quantum Energy and the Israel Electric EuroAsia Interconnector. Such projects may Corporation Ltd. (IEC) and Dr. David Elmakias, the IEC access the 5.85 bln euro fund for the Senior Vice President of Planning, Development and “Connecting Europe” facility and, according Technology, who is the IEC’s EuroAsia Project to Markopouliotis. manager, inspected the cable landfall area (Joint-Pit) in He said that the first round of funding, Hadera. They later reviewed progress in the project so worth 647 mln euros, includes the leg of the far and its benefits to the partner countries and the EuroAsia Interconnector project that will link European Union. between Hadera in Israel and Vassilikos in The Interconnector is a European Project of Dr. David Elmakias and George Killas, the Project Director of the EuroAsia southeastern Cyprus. The project has been Common Interest (PCI) and consists of a 400 kV DC Interconnector reviewing the plans for the cable landing site in Haifa allocated 1.3 mln euros for a feasibility study, underwater electric cable interconnecting the Cypriot, while two more Cypriot projects figure in the The project will end the energy isolation of Israel, Cyprus list, comprising the electricity interconnection of Cyprus and Israeli and the Greek transmission networks.

It will have a capacity of 2000 MW and a total length of and Crete, enhance security of supply and enable Crete and a set of gas projects, including the pipeline and the around 820 nautical miles or 1518 km (329 km between development for generation from renewable energy LNG storage facility in Vassilikos.

Cyprus and Israel, 879 km between Cyprus and Crete and 310 resources. In addition, the project will give Israel the Markopouliotis said that “Energy Union is a top priority km between Crete and Athens) and allow for the bi- opportunity to export electricity. for President Juncker”, adding that energy-related problems Three studies for the Technical/Technological Study, the can only be effectively dealt with though coordinated action directional transmission of electricity between connected Reconnaissance Survey and the Environmental Studies/EIA, at the European level. countries.

May 20 - 26, 2015

4 | CYPRUS | financialmirror.com

New tax breaks to attract investments President Nicos Anastasiades said that his Government plans to announce new tax incentives to attract foreign investments, but also for the benefit of Cypriot citizens and enterprises.

In his speech at the annual meeting of the Employers and Industrialists Federation (OEV), the President said that the Ministry of Finance will soon announce plans to improve the taxation framework, providing facilities to attract more foreign investment.

“We aim to become the first government that along with the reduction of public debt will also achieve the reduction of the tax burden imposed in the past. Heavy taxes mutilate the income of citizens and businesses and suffocate the economy,” he said.

He added that the government’s main goal for this year is to exit from the recession and to finally restore the country’s sovereign rating, which would allow the completion of the economic adjustment programme with the Troika of international lenders within the next ten months.

The President also referred to his visits abroad to attract foreign investors saying that there were positive signs and he expected concrete results in the future.

He also underlined his government’s willingness for the reform and modernisation of the state to be more friendly to private initiatives.

In relation to public finances, he referred to statistics showing improvement in the numbers and a positive growth rate after 14 continuous quarters of negative growth rate.

As he said, this was an important development that confirmed the positive prospects of the economy, without imposing new taxes for two years.

Referring to the Cyprus problem and the resumption of the negotiations with the new Turkish Cypriot leader Mustafa Akinci, Anastasiades said that they share a common vision and he expressed the view that together they would manage to heal the open wounds affecting the country for decades.

He added that it was commonplace that peace was synonymous with security and security was a prerequisite for investment

Bailout exit “within ten months”, President tells OEV meeting

and growth.

He also said that a settlement would have a positive effect on the whole region and would primarily benefit Turkish Cypriots and Greek Cypriots.

“Cyprus with the Cyprus issue resolved will undoubtedly be the most stable country in our region and this in combination with its existing high-level infrastructure and personnel, creates additional incentives

among potential investors. We can make our country an attractive destination for multinational companies, while the favourable environment will have a direct impact on the development of our traditional tourist product,” he said.

At the same time he referred to the new opportunities for Cyprus in the eastern Mediterranean and welcomed the fact that other leaders in the region are determined to

cooperate.

The President also said the EU is for all European citizens and the Turkish Cypriots are and should be equal citizens of the EU, just like Greek Cypriots are.

“And this will happen through the safeguarding of human rights and the four fundamental freedoms and based on the principles and acqui communautaire”, he concluded.

Finance Ministry to set up energy investment fund The Finance Ministry is working to set up an investment fund to manage the revenue from hydrocarbon deposits in a credible and transparent way, the Ministry of Finance said in a statement on Monday after Finance Minister Harris Georgiades met with the Energy Council, appointed last September to advise the government on energy issues.

Georgiades said at the meeting that the Ministry sees the energy sector as the main driver for economic growth, focusing on preparing Cyprus for the management of revenue from hydrocarbon deposits and investments in the broader energy sector.

The Ministry also stressed in an announcement the need for attractive investment opportunities in the wider energy sector by

private companies or private partnerships in collaboration with the public sector to raise funds from European banks.

The Energy Council briefed the Minister on an initiative to monitor and assess the current energy situation and strategy of Cyprus.

The Council has scheduled a series of meetings with local agencies on energy matters. The current situation will be assessed and will be the basis for scenarios to develop an integrated energy strategy up to the year 2050. The Energy Council also briefed the Minister on the framework of the EU climate and energy policy for 2030 and the conclusions of the European Council acknowledging Cyprus’ particularities as a small and isolated insular energy system.

Highly-paid FBME bank administrator quits The Central Bank of Cyprus, acting as the Resolution Authority that took control of Tanzania-owned FBME Bank in Cyprus over alleged money laundering charges, announced on Friday that Special Administrator Dinos Christofides resigned “for personal reasons”, effective Saturday, May 16.

The Central Bank had last month appointed UK-based recoveries expert Andrew Andronicou as a second Special Administrator, who will now take full charge of the bank at a reportedly monthly expense of EUR 50,000.

The monthly fee, in addition to a 20% mark-up for expenses, also allows Andronicou to hire up to four consultants to help administer the bank. He was previously called in to try and recover assets from bankrupt Orphanides Supermarkets, the island’s largest retailer prior to its collapse almost two years ago.

Christofides was reportedly earning EUR 10,000 a month. Payments are deducted from FBME deposits, currently controlled by the Central Bank, with some EUR 270 mln placed in escrow with the Bank of Cyprus, widely rumoured in the past as the potential buyer of the Tanzania-based bank’s local branch.

Although staff at the administered bank have often

complained that Christofides was not at all cooperative, resulting in clients’ accounts being blocked and transactions trickling through, the hope is that Andronicou will at least try and bring the bank closer to normal operations, prior to its

suspension last July.

The Central Bank had intervened after suggestions made by the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) named FBME as “a financial institution of primary money laundering concern”. To this day, the FBME shareholders deny the allegations and resorted to the Paris-based ICC arbitration court to have the liquidation and resolution orders lifted.

FBME’s shareholders asked the ICC Tribunal to settle the dispute before irretrievable damage is caused to the bank branch in Cyprus by the Central Bank of Cyprus, the Resolution Authority and the appointed Special Administrator and are seeking compensation for damages of at least $500 mln.

The whole case has also dealt a serious blow to the credibility of the Cyprus authorities that are struggling to save face and rebuild the banking sector after its near-meltdown in 2013, resulting in Laiki Bank shutting down and its depositors losing their savings, with the operations and debt carried over to Bank of Cyprus, the island’s biggest lender, burdened with some EUR 11.5 bln in ECB-alloted emergency liquidity allowance (ELA).

May 20 - 26, 2015

financialmirror.com | CYPRUS | 5

CBC prepares draft law on sale of loans and securitisation A Central Bank draft law on loan sales provides that loans could only be sold to companies resident in Cyprus, in addition to subsidiaries of credit institutions in other EU member states.

This settles the concerns by investors and politicians alike that mortgaged Cyprus properties that have defaulted may end up in foreign hands, particularly Turkey.

The CBC may also intervene in the rate of disposals of immovable properties to safeguard the financial stability in the Republic, the frat law says, and to check in detail the natural and legal persons hidden behind the credit acquiring companies.

At the same time, the Central Bank prepared a second draft law on loan securitisation.

The two bills, according to the Cyprus News Agency, are discussed in a Task Force established under the CBC, with the participation of representatives of commercial banks, the Banks Association and Certified Public Accountants of Cyprus

(ICPAC), the Bar Association and the Borrower Association.

Among other issues, they examine the obstacles to the transfer of individual loans or loan portfolios to third parties, which may arise from the loan contracts, collateral agreements and existing legislation.

The adoption of the two bills by the Cabinet by the end of June is a prior action requested by the Troika of international lenders.

Under the fifth update of the Memorandum, the Cypriot authorities should remove any obstacles to the transfer of loans to third parties, while the consent of the borrower should not be required, as it is the case today.

According to the draft law, all loans, performing and non performing could be sold.

It also stipulates that a company which intends to engage in credit acquisition may apply to the Central Bank by presenting the identity of its shareholders, whether direct or indirect, natural or legal persons, who have qualifying holdings and the amount of this holding or, if there are no qualifying holdings, the identity of the 20 largest shareholders.

Shipping Chamber supports Ministry initiative on reform The Cyprus Shipping Chamber has welcomed the important initiative announced by Transport Minister Marios Demetriades, presenting the main findings of a study carried out for the future of shipping.

Having already participated actively in the initial drafting and execution of the study, the Chamber, said it continues its direct involvement in its implementation, assuming, after a relevant proposal by the Minister, the responsibility for the co-ordination of relevant committees which have been established among representatives of the wider public and private shipping sectors.

As a positive response to the relevant recommendations it submitted and as a recognition of the crucial economic contribution of the shipping industry to the Cyprus economy, the Shipping Chamber welcomes the slogan adopted by the Minister of Transport, “... Shipping – Time for Action ... “, in relation to his plans for the need of an immediate upgrading of the Cyprus Maritime Administration and Cyprus shipping in general.

Meanwhile, ever since the European Commission, European Parliament and European Council decided since

2008 that May 20 be established as the “European Maritime Day”, to be celebrated every year throughout the European Union, The Cyprus Shipping Chamber is organising a blood donation at the “Ygia” Polyclinic in Limassol, under the auspices of Transport Minister Marios Demetriades.

The main objective of the “European Maritime Day” is to raise awareness and inform the general public about the great opportunities offered by the sea, the challenges faced by the shipping industry, the environmental challenges, as well as the promotion of the significant contribution of the shipping industry in the economy of the member states.

This is a celebration that concerns the whole of the European maritime cluster, since Europe is a continent with a coastline of approximately 70,000 kilometres, and as the majority of the member states, including Cyprus, whether they are coastal or island areas, are directly associated with the element of the sea, for which the resources and maritime professions is of vital importance for prosperity and the quality of life.

Lavar Shipping celebrates golden anniversary Lavar Shipping, the Limassol-based shipping company established in 1965 by entrepreneur Pantelis Tsanos, is celebrating its golden anniversary this year.

The flagship company of the RPT Group, Lavar Shipping is one of the first shipping companies established in Cyprus and has played a leading role in the evolution of the industry and the establishment of Cyprus as a maritime centre. It is currently one of the top three shipping agencies on the island, with an employee base of 30 Cypriot professionals.

“The Cypriot shipping industry that my father boldly stepped into in 1965 is a world away from the environment in which we operate today”, said CEO Reginos Tsanos.

“Then in its infancy, he had the foresight to identify the opportunities that our island had to offer, but at the same time had to overcome a number of challenges.”

Today, Lavar Shipping is a multi-faceted organisation, offering traditional and specialised maritime services to the local and international industry, with its experienced agency team providing services including port agency, forwarding, husbandry, and technical support. Lavar Shipping also plays an important role in ship-to-ship operations performed off Limassol port limits and at designated points of anchorage.

“50 years on, with an established presence in the industry, I am proud to have succeeded my father as the

head of such a diverse company that has evolved in line with changing economic circumstances and industrial trends”, added Tsanos. “As our country slowly but steadily exits the economic quagmire which enveloped it in 2013, the shipping industry – and companies like ours – can be at the forefront of this recovery, building on our strengths and professionalism, while at the same time continuing to diversify our services. Staying true to our founding principles, Lavar Shipping will continue to broaden its horizons in the years to come.”

The company is planning a series of activities in the coming months to mark the anniversary. Having continued its sporting success at the Limassol Marathon and Ayia Napa and Paphos Triathlons earlier in the year, a number of other events are due to take place, including a gala dinner, with the participation of local and overseas clients and associates, as well as business leaders from Cyprus.

“While this is a year of celebration for us, it is also an opportunity for us to give back”, said COO Christina Tsanos.

“Our 50 years would not have been nearly as successful without the outstanding collaboration enjoyed with clients and associates, the tireless efforts of our people, and the contribution of the communities within which we work. Our events will recognise all those people that have helped Lavar Shipping become the company that it is today.”

Under the third part of the proposed law (supervisory powers and requirements), the Central Bank may intervene in the rate of disposals of immovable properties, by issuing general or specific directives or guidelines.

A second bill called “The securitisation law,” allows the creation of an organisation, in which the banks assign or sell their loans and the organisation issues either shares or bonds to secure the loans granted.

The guarantor under the proposed law can be either a person, including the government, or any public authority.

Meanwhile, parliament has approved the regulations on auctions, paving the way to banking institutions to conclude foreclosures proceedings.

During their regular session last Thursday, 33 MPs voted in favour of the regulations, while 21 voted against.

Banking institutions in Cyprus may now activate foreclosures proceedings, a crucial requirement of the island’s 10 bln euro bailout programme.

30-day T-bills oversubscribed The Public Debt Management Office of the Ministry of Finance announced that the auction last Thursday of EUR 50 mln 30-day Treasury Bills was oversubscribed by about 1.5 times. In all, bids worth 76.1 mln were received for the T-Bills, with an issue date of May 18 and listing on the CSE and maturity of June 17.

The yields on the submitted bids were 1.70 – 1.94%, for an average yield of 1.81%.

Inflation drops Annual inflation dropped again in Cyprus in April, to 1.7%, compared to -1.4% in March, according to Eurostat.

Euro area annual inflation was 0.0% in April, up from 0.1% in March. In April 2014 the rate was 0.7%. The EU annual inflation was also 0.0% in April, up from -0.1% in March. A year earlier the rate was 0.8%.

According to Eurostat, in April 2015, negative annual rates were observed in 12 member states. The lowest annual rates were registered in Greece (-1.8%), Cyprus (1.7%), Bulgaria and Poland (both -0.9%). The highest annual rates were recorded in Malta (1.4%) and Austria (0.9%). Compared with March, annual inflation fell in nine member mtates, remained stable in one and rose in 17.

Tourist arrivals up 14% in first quarter, travel abroad down Tourist arrivals marked an increase of 11.3% in April compared to the same month of 2014 and an increase of 13.7% for the first quarter of the year According to the Statistical Service, on the basis of the results of the Passengers Survey, arrivals of tourists reached 201,495 in April compared to 180,998 in April 2014, an increase of 11.3%.

An increase of 13.3% was recorded in tourist arrivals from the United Kingdom (from 73,556 in April 2014 to 83,361 in April 2015), +71.8% from Greece (from 10,374 to 17,825) and +9.2% from Germany (from 10,465 to 11,433 this year). On the other hand, a decrease of 22.5% was recorded in tourist arrivals from Russia (25,149 in April 2015 compared to 32,430 in April 2014).

For the January – April period, tourist arrivals totalled 391,483 compared to 344,435 in the corresponding period of 2014, an increase of 13.7%.

Meanwhile, the number of Cyprus residents travelling abroad decreased by 15.8% in April compared to the same month of 2014.

According to Cystat, 92,387 residents of Cyprus returned from a trip abroad in April compared to 109,705 in the corresponding month last year, a decrease of 15.8%.

In April, there was a decrease of 12.4% on trips to Greece (35,.128 in April 2015 compared to 40,121 in April 2014) and a 36.5% decrease from the United Kingdom (18,327 compared to 28,862 last year).

May 20 - 26, 2015

6 | CYPRUS | financialmirror.com

Growth of 1.6% after 14Qs recession No room for complacency, says Finance Minister

After three and a half years of recession or 14 quarters of negative growth, the Cyprus economy expanded in the first quarter of 2015, with GDP growing 1.6% from the previous quarter, the fastest in the Eurozone according to Eurostat, defeating European Commission predictions for continued contraction, albeit mildly, this year.

This follows last week’s resumption of inspections for the 10 bln euro bailout programme by technocrats from the Troika of international lenders (ECB, EC, IMF) after a six month suspension, which Finance Minister Harris Georgiades sounded confident would be concluded with a favourable review.

Cyprus recorded a “positive growth rate after 14 quarters of contraction. Reform and consolidation efforts are paying off,” Georgiades said in a statement.

But to exit recession, Cyprus needs to record three consecutive quarters of growth, job creation and increased demand, a period enjoyed briefly from the first quarter of 2010 to the second quarter of 2011. After that it sank back into recession on a runaway public sector deficit and piling national debt, a banking sector on the verge of collapse due to exposure to toxic Greek government bonds, a deadly power station blast that sent aftershocks throughout the economy and rising unemployment.

Privatisation Commissioner Constantinos Petrides expressed reserved optimism about the latest data, saying that “for the first time since 2011 we have a positive growth rate, albeit marginal. The crisis is not over and the risks remain. But we are taking steady steps.”

The Finance Ministry said in a statement that the recovery is still at its early stages and thus remains fragile.

“For that reason it is imperative that the common efforts for reforms and development continue, far from premature celebrations, but with a negativity, driven by a confidence that we can make it,”

Georgiades said.

In its May 5 Spring forecast, the European Commission had said that the island’s

economy would contract by 0.5% this year before returning to a growth of 1.4% in 2016.

The quarter on quarter growth rate of

1.6% of GDP, as seen by the Eurostat flash estimate for Q1 2015, followed q-o-q contractions of -0.2%, -0.8% and -0.4%, while the average growth rates for both the Eurozone and the whole of the European Union were 0.4% after continued fractional expansion in the last three quarters.

Eurostat said that seasonally adjusted GDP rose by 0.4% in both the euro area (EA19) and the EU28 during the first quarter of 2015, compared with the previous quarter.

In the fourth quarter of 2014, GDP grew by 0.3% in the euro area and by 0.4% in the EU28. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.0% in the euro area and by 1.4% in the EU28 in the first quarter of 2015, after +0.9% and +1.3%, respectively, in the previous quarter.

During the first quarter of 2015, GDP in the United States increased by 0.1% compared with the previous quarter (after +0.5% in the fourth quarter of 2014).

Compared with the same quarter of the previous year, GDP grew by 3.0% (after +2.4% in the previous quarter).

Sixth Troika review “within weeks” The sixth review of the 10 bln euro bailout “adjustment programme” is expected to be completed within weeks, if not as early as next week, according to Finance Minister Harris Georgiades who said that the Troika technocrats are now examining the foreclosure regulations and the framework for insolvencies that were recently approved by parliament.

Upon the departure of the last Troika team of inspectors, Georgiades had said that he was confident Cyprus would get a positive review, paving the way for the disbursement of the next loan tranche from the IMF and the EU next month, while also allowing Cyprus bonds to be included in the ECB’s quantitative easing programme.

The Troika team said Cyprus needs to complete two “prior actions” – legislation on the sale of loan and mortgage

portfolios, and another that would allow property buyers to secure title deeds having repaid their mortgages but the developer would have re-mortgaged the property.

Meanwhile, the ruling DISY party said that an opposition proposal to suspend privatisations until 2017 would only serve to extend the duration of the island’s bailout programme at a time when the country was close to exiting.

Political parties have embarked on their populist election campaigns for a new parliament in May 2016 and are appealing to trade unions and public-interest groups for votes by claiming that they will oppose any sale of national assets, including the telecoms company Cyta, power generator EAC and the Ports Authority, out of which the state needs to raise some 1.4 bln euros by the end of 2018.

A theory of economic growth, unions, politics and Cyprus Yale U. Press)

By Dr. Jim Leontiades Cyprus International Institute of Management A British soldier observing the prosperous German countryside a decade or so after WWII commented to his colleague: “Makes you wonder who won the war”. Only a few years earlier, most of German industry and many of its cities were in ruins. How was it, then, that the country appeared more prosperous than victorious Britain which had not been occupied and had not suffered the same degree of damage?

This was the question that also puzzled Mancur Olson, an economist with degrees from both Harvard and Oxford. The German post-war economic miracle was eventually followed by similar economic “miracles” in a number of the other defeated countries: Italy, France, Japan and even Greece.

Common sense indicated that Britain, as well as those countries whose industrial structure emerged more or less intact from the war, should have been the growth leaders.

But this was not the case. Olson’s theory of economic growth developed out of this apparent paradox. His explanation: The defeated countries grew more rapidly not despite the destruction of World War II but because of it.

These “miracle” economies grew faster precisely because their pre-war economic and social infrastructure had been destroyed. (Olson, Mancur, The Rise and Decline of Nations,

SPECIAL INTEREST GROUPS Mancur’s view is that social stability gives rise to the formation of groups and associations aimed at promoting the special interests of group members. Over time, workers, doctors, lawyers, teachers, etc., will form groups to promote their special interests. These provide preferential benefits for their members, much like a cartel. These benefits may take the form of higher wages, prices, reduced working hours and other forms of preferential treatment, often gained through their influence on the legislative process.

Insofar as these groups succeed in securing higher wages, prices and other benefits beyond those merited within a freely competitive situation, there is a misallocation of resources. They gain at the expense of the general public.

Furthermore, the regulations, laws and other restrictions promoted by such groups to protect their privileged positions impede and slowdown economic activity. Both the special privileges and the complexity of the bureaucracy and regulations designed to protect these privileges adversely affect economic growth.

The theory predicts that there will be a period of rapid economic growth after major destabilising events which reduce or eliminate special interest groups. The rate of economic growth gradually diminishing as these groups gradually increase their presence and effectiveness.

CYPRUS AFTER THE 1974 INVASION Cyprus was not directly involved in World War II but the Turkish invasion of 1974 may be considered as an analogous

destabilising event. The invasion destroyed much of the infrastructure of pre-invasion Cyprus, disrupting the economy and the social structure. A good portion of the island was occupied. Many thousands became refugees, losing not only their jobs but their homes. Did Cyprus experience the rapid economic growth and subsequent slowdown predicted by Olson?

National statistics show quite clearly that shortly after the Turkish invasion, Cyprus experienced its own economic miracle. After a brief downturn in 1975, in 1976 the Cypriot economy experienced an astonishing 18% GDP growth rate, followed by a 15% increase in 1977. In the five years between 1975 and 1980, GDP grew at an average of over 11% annually. The decade of 1980-1990 saw average annual growth of 6.5%. During the decades 1990-2000 and 20002010 the economy grew at an average annual rate of 5% and 3%, respectively (all in constant prices).

Olson also predicts that special interest groups will actively lobby governments to forward their special interests.

Such activity is routinely observed in Cyprus. Political influence and the political life of the island revolve about such pressures and the influence of special interest groups.

The government goes out of its way to protect the jobs, pensions, working hours etc., of public sector workers, organised labour and other groups with hardly a mention of the thousands of unorganised workers who have lost both jobs and pensions. Politicians outraged by the thought of small shop keepers working seven days a week show no concern for the general shopping public or the thousands of hotel workers for which this has been normal practice for years.

May 20 - 26, 2015

financialmirror.com | CYPRUS | 7

GRS at iFX show as forex is new jobs driver GRS Global Recruitment Solutions is to exhibit at the largest financial B2B expo for the forex and binary options trading industry next week, an annual event being held at the Grand Resort in Limassol on May 27-28.

With over 2000 attendees from around the world and 80 exhibitors, the purpose of the iFX EXPO event is to provide exposure, allowing mutual business growth between both service providers and forex executives.

As the leading Cyprus-based recruitment agency, GRS has more than ten years of experience recruiting for the forex industry, one of the drivers of the new Cyprus economy as the island overcomes its financial crisis and repositions itself as a regional business and financial services centre.

“The GRS team possesses the essential expertise, credibility and knowledge to be acknowledged as a trusted recruiter in the forex sector and the convention each year provides an unique opportunity for brokers to introduce themselves to and network with the world’s leading Forex platform and service providers,” said Donna Stephenson, co-founder of GRS. “The GRS team is looking forward to networking and socialising with the influential leaders and their teams within the industry and promoting their recruiting services as a leader in fulfilling all levels of positions within the forex and binary sector,” she added. www.grsrecruitment.com www.ifxexpo.com

CIM hosts honorary fellows at first annual dinner The Cyprus Institute of Marketing (CIM) hosted its first-ever gala dinner last week to recognise the 21 leading business and other personalities who have been bestowed with honorary fellowships by the institute.

The keynote speaker at the event, held at the Leventis Gallery in Nicosia, was Energy, Trade and Tourism Minister Yiorgos Lakkotrypis who elaborated on the country’s new energy plans, but also applauded the CIM’s contribution to business education and excellence in the past 37 years.

The two main criteria to be awarded an Honorary Fellowship are the individual’s contribution to the development and activities of the CIM, and also their contribution and involvement in the wider business world.

The 21 CIM Honorary Fellows awarded each year are: Glafkos Mavros, CEO, ExpoBank; Petros Petrou, Business Development Manager, Phileleftheros; Thomas Kazakos, General Secretary, Cyprus Chamber of Shipping; Phidias Pilides, President, Cyprus Chamber of Commerce (KEVE);

Yiannis Telonis, former Strategy Manager, Hellenic Bank; Philokypros Andreou, CEO, Phil. Andreou Group; Renos Onoufriou, Marketing Manager, Phileleftheros; Alkis Hadjikyriakos, CEO, Frou-Frou; Georgos Georgiou, Marketing Manager, Christodoulides Bros.; Evros Papadopoulos, Senior Brand Manager, LaikoCosmos Trading; Antonis Karpasitis, CEO, MetLife Alico; Antonis Paschalides, former Trade Minister, Partner, Paschalides Law Firm; Christos Michaelides, Chairman, Employers Federation (OEV); Marios Loucaides, Managing Director, CTC; Stelios Athanasiou, General Manager, Scandia; Yiorgos Liveras, General Manager, Liveras & Associates; Aristos Anastasiou, Commercial Manager, Swipe; Emily Yioliti, Partner, Harneys Law Firm; Yiorgos Nicolaides, CEO, GanDirect; Fivos Vakis, General Manager, Columbia ShipManagement; Dimi Morozov, CEO, CYPV Energy Ltd.

May 20 - 26, 2015

8 | COMMENT | financialmirror.com I see that I am about to complete 20 years on the chain-gang of writing a weekly food-and-drink page in Cyprus newspapers (I anticipate a flood of congratulatory Emails). Before the summer of 1995, I had “cut my teeth” so to speak with two years of monthly writings in newspapers or magazines. I see my first weekly article concerned the advent of the Cyprus cherry season.

So, as it is almost upon us, I re-print it below, because many of the old readers may well be beyond reading at all and those who are able to will have forgotten it anyway. For me, they’re my “Ghosts in a Box File”.

Patrick Skinner

walnuts to come through. Muhumarra should have just a “hot” tinge to it – but how hot you make it is largely up to you.

Ingredients

SOME LIKE IT HOT….

In our donkey sanctuary days in the Troodos foothills, for several years we had four Sri Lankan grooms (two married couples). Not only were they wonderful workers with a remarkable affinity with animals, but they were exceptional cooks. They made the most wonderful pilaffs, pastry and vegetable dishes. And they made curry, virtually every day, for themselves. Invited to taste it, it was fresh and delicious but throat-burningly hot. How they could assimilate so much hot chili we couldn’t understand. They reduced the heat a lot for us, when they had us in for a meal.

I have often wondered why it is that people in hot countries love HOT food. That said, the many varieties of moderately hot dishes you can find in cook books do add excitement to a western diet. The simplest way to hot up a dish is, of course, pepper, which comes in many powdered forms. From there one can go on to pepper sauces, like “Tabasco” or Nando’s “Piri Piri” and many more.

Mustard, especially Colman’s mustard powder, adds zest and heat to many dishes. Generously coat rabbit joints with mixed mustard, dip them in flour, brown in a frying pan and then put in a casserole with chicken stock and mixed root vegetables – lovely. Add a little extra mustard to the Stroganoff sauce to hot up the fillet steak – super.

Fresh Green Pepper Corns – whack a dozen or so into both sides of fillet steak before frying to create Steak aux Poivres, before finishing with brandy, flamed. Start the same way for Steak Diane, adding some red wine, Worcestershire sauce, mustard and salt, reducing it well down and flaming with brandy before serving. If you haven’t got fresh green peppercorns, soak some dried ones for an hour or two in water.

Harissa - This hot saucy paste originated in North African countries, but it now graces kitchens and dining tables all over the world. It comes in small jars and can be bought from good grocery stores and shops specialising in Middle Eastern foods. Made from ground chilli and various herbs and spices, it has a lovely aroma.

Widely used in North African and Middle Eastern cuisines, it is dabbed on to plates of meat, fish, pilaffs and so on. Or, gives a hot lift to stews, soups and casseroles. Around the Middle East and North Africa you may find it comes in a little bowl, with added oil and bread for dipping. Beware, though. It is pungent and powerful and should be taken in small installments!

It’s also possible to make your own with a food processor. These are the ingredients for one (of many) version: dried red chillis, garlic, salt, fresh coriander, caraway seeds and olive oil. Optional items are: smoked paprika, cumin and mint. To allow the flavours to meld, make it the day before you want to use. After that, store in a cool, dry place. Once opened, it should be stored in the fridge and will last for 4 - 6 weeks.

4 Sweet (“Bell”) red peppers 2 fat garlic cloves, peeled and chopped 90g / 3 oz chopped walnuts 60g / 2 oz dry breadcrumbs (I make mine from lightly toasted pitta bread) 1 tbsp lemon juice 125 ml / 4 fl oz extra virgin olive oil 1 tsp ground cumin A pinch or two of chilli powder or red pepper flakes.

Muhumarra should have a “hot” tinge to it – how hot you make it is largely up to you. Salt and pepper to taste.

Method Firstly you need roasted peppers. You can cheat a little by using the very good bottled ones, but wash the brine off them and pat dry. Otherwise, and this is not difficult, open up your peppers and discard seeds, stem and choggy bits. Then heat a grill till it’s really hot, flatten the pepper and put the pepper, shiny side up, in a small oven tray. Grill them until the surface is black and bubbly. Remove, let them cool then scrape off the blackened skin. Alternatively you can slightly incendiarise the peppers by putting them on a fork and holding or placing them over a high gas flame.

Now… 1. Chop the peppers and coarsely.

2. Put all the ingredients except the oil into your food processor and whiz until mixed.

3. Drizzle in the olive oil and in a series of quick whizzes blend the mixture – don’t make it into a puree, but leave it with a little texture.

4. Taste and season.

Serve as part of a starter selection of dips, pickles, olives etc., with hot pitta bread, or as an accompaniment to grilled meats, chicken, fish or roasted vegetables.

… AND SOME LIKE IT SWEET AND JUICY Life is just a bowl of cherries (sometimes) Cyprus cherries are as good as you can get anywhere and served fresh they’re delicious - on their own or with other seasonal fruits like apricots and peaches. For just a while they catch the end of the strawberry season and, for me, they are a great combination.

Unless you are simply serving up a bowl of washed fresh cherries, it’s best to remove the stones. You can use an olive or cherry stone if you like, but I find it easiest to split the cherry between thumb and forefinger and squeeze the stone out. Tip: do this in the sink, because cherry juice both squirts and stains. Steep the pitted cherries in Cyprus cherry liqueur (about a coffee-cupful) for an hour or two and serve with whipped cream. Or, drain and use in a recipe like this one, which one of our friends from Sweden introduced to us. It’s called:

PER’S PUDDING - Ingredients for 6-8 portions 2 medium-large eggs 200 grams of caster sugar 125 grams of plain or village flour Half teaspoon of baking powder 250 grams of pitted cherries, steeped as above, drained About 100 grams of very cold unsalted butter

Method 1. Heat the oven to 175C. 2. Rub a little butter over a 28-30cms round pastry tin, nonstick for preference.

3. Dust with a sprinkling of flour.

4. In a food processor, blend the eggs and sugar until very creamy and whitish. Or beat with a whisk.

5. Add the flour and baking powder and whiz until blended.

6. Spoon mixture into the pastry tin and spread evenly.

7. Dot the drained cherries all over the mixture.

8. Take butter from fridge and flake off very thin slivers to cover the top of the mixture.

9. Bake for around 30-35 minutes until top is golden brown and crisp and the mixture is cooked.

10. Serve warm or cold, with cream, ice-cream or a fruit coulis — fresh apricot for example (10-12 stoned and peeled apricots, whizzed for a few seconds in a blender with a little sugar and a coffee cup of Cyprus apricot liqueur) This delicious variation on a sponge cake theme can use a variety of fruits — strawberries, chopped apple (with skins), apricots, peaches, even raisins. Good the following day, too, if there’s any left!

Muhumarra This is a lovely Arabic recipe I first encountered at a long-gone Lebanese restaurant, called “Abu Faysal”, in Nicosia.

Strangely, you don’t often come across it and I can’t think why. It should not be too hot, in order to allow the flavours of the

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

Email: editor@eastwardho.com

May 20 - 26, 2015

financialmirror.com | COMMENT | 9

Climate talks can’t fail as there is no alternative planet, says Fabius France’s foreign minister has warned that the international community had no option but to combat climate change as there is “no alternative planet”, according to the EU news and policy site EurActiv.

“We don’t have the right to fail,” Laurent Fabius told the opening of a two-day gathering in Berlin of representatives from 35 countries to pave the way for a global push to cut emissions.

“We must commit ourselves very resolutely because there isn’t an alternative solution, for the simple reason that there isn’t an alternative planet,” he added.

The informal talks are taking place under the “Petersberg Climate Dialogue” initiative, launched

by Chancellor Angela Merkel in 2010, to prepare for the UN climate change conference in Paris in December.

French President Francois Hollande has set out an ambitious goal for the Paris meeting – an agreement to limit the rise in global temperatures linked to greenhouse gas emissions to 2C from the pre-industrial age.

Fabius said that several other meetings were still scheduled before the Paris conference but warned that its success “depends on us all”.

Just under 40 countries have already presented their plans towards helping achieve the target eyed at the Paris meeting, Fabius said.

“It’s essential that everyone, starting with the rich countries, publishes them” before the deadline of 30 October, he added.

German environment minister Barbara Hendricks said there was a “moral obligation” to fight climate disturbance and reiterated Berlin’s objective of reducing carbon dioxide emissions by 40% by 2020 from 1990 levels.

EU backing for Mediterranean naval mission, migrant quotas rejected European Union foreign and defence ministers agreed on a naval mission on Monday to target gangs smuggling migrants from Libya. But parts of a broader plan to deal with the influx began to unravel in a row over national quotas for housing asylum seekers, the EU news and policy site EurActiv reported.

Hundreds of deaths at sea, including the drowning of up to 900 on a single vessel in the Mediterranean last month, have jolted European governments into a more robust response. But beyond greater funding for rescue operations, the EU is divided on how to act as anti-immigrant parties gain support at home.

EU foreign policy chief Federica Mogherini said the naval mission could start next month with details remaining unclear.

The European Union wants to capture smugglers and destroy their boats off the Libyan coast to help it tackle the rising number of migrants fleeing war and poverty in Africa and the Middle East. But it wants U.N. authorisation to operate close inshore to a country that has descended into anarchy since Western powers backed a 2011 revolt that ousted Muammar Gaddafi.

NATO Secretary General Jens Stoltenberg urged Europe to move, saying Islamic State militants might be “also trying to hide, to blend in among the migrants” in order to get to Europe.

Some 51,000 migrants have entered Europe by crossing the Mediterranean this year, with 30,500 via Italy. About 1,800 have drowned in the attempt, the UN refugee agency said.

At an emergency summit in Brussels last month, EU leaders agreed to “identify, capture and destroy vessels before they are used by traffickers”.

Mogherini flew to New York this month to seek support for a draft resolution by Britain, France, Lithuania and Spain under Chapter 7 of the U.N. Charter, which allows the use of force to restore international peace and security.

Without UN authorisation, the EU’s naval mission, which will be headquartered in Rome, will not have the mandate to intervene in Libyan territorial waters to seize vessels.

But diplomats say the EU can start using ships, drones and helicopters in the high seas to gather intelligence about

people smugglers, although the impact will be limited.

A 19-page document for Union ministers envisages four phases, starting with deployment and assessment, and culminating in a “disruptional phase”. A U.N. Security Resolution “is not required for the first phase”, the document said.

As part of its migrant strategy, the European Commission last week unveiled a plan to take in 20,000 more refugees over the next two years, a response to an emergency that saw over 600,000 people seek refuge in the EU in 2014.

The EU executive also proposed a quota system to spread out among states the burden of housing hundreds of thousands of people while their claims for asylum are processed. At present, Germany and Sweden, take the major share.

Britain has rejected any quota, exercising an established exemption from EU migration policies. The French premier has said he is against quotas, because France has already taken in thousands of refugees from Syria and Iraq since 2012.

Spanish Foreign Minister Jose Manuel Garcia-Margallo said Spain’s chronic unemployment meant it could not help.

Slovakia and Hungary are also against the quota system.

10 rules for outstanding customer service

By Melina Mori

Customer service is an integral part of our job and should not be seen as an extension of it. A company’s most vital asset is its customers. Without them, we would not and could not exist in business. When you satisfy your customers, they not only help you grow by continuing to do business with you, but recommend you to friends and associates.

So, what are the key elements of a successful customer service practice?

The Ten Rules of Customer Service: 1. Who’s the boss? You are in business to service customer needs, and you can only do that if you know what your customers want. When you truly listen to your customers, they let you know what they want and how you can provide good service. After all, the customer pays our salary and makes our job possible.

2. Be a good listener. Do you know what three things are most important to your customer? Take the time to identify customer needs by asking questions and concentrating on what the customer is really saying. Listen to their words, tone of voice, body language, and most importantly, how they feel. Beware of making assumptions thinking you intuitively know what the customer wants. Effective listening and undivided attention are particularly important on the

show floor where there is a great danger of preoccupation looking around to see to whom else we could be selling to.

3. Identify and anticipate needs. Customers don’t buy products or services. They buy good feelings and solutions to problems. Most customer needs are emotional rather than logical. The more you know your customers, the better you become at anticipating their needs. Communicate regularly so that you are aware of problems or upcoming needs.

4. Make customers feel important and appreciated.

Treat them as individuals. Always use their name and find ways to compliment them, but be sincere. People value sincerity. It creates good feeling and trust. Think about ways to generate good feelings about doing business. Customers are very sensitive and know whether or not you really care about them. Thank them every time you get a chance. On the show floor be sure that your body language conveys sincerity. Your words and actions should be congruent.

5. Help customers understand your systems. Your organisation may have the world’s best systems for getting things done, but if customers don’t understand them, they will get confused, impatient and angry. Take time to explain how your systems work and how they simplify transactions.

Be careful that your systems don’t reduce the human element of your organisation.

6. Appreciate the power of “Yes”. Always look for ways to help your customers. When they have a request (as long as it is reasonable) tell them that you can do it. Figure out how afterwards. Look for ways to make doing business with you easy. Always do what you say you are going to do.

7. Know how to apologise. When something goes wrong, apologise. It’s easy and customers like it. They may not always be right, but the customer must always win. Deal with problems immediately and let customers know what you

have done. Make it simple for customers to complain. Value their complaints. As much as we dislike it, it gives us an opportunity to improve. Even if customers are having a bad day, go out of your way to make them feel comfortable.

8. Give more than expected. Since the future of all companies lies in keeping customers happy, think of ways to elevate yourself above the competition. Consider the following: - What can you give customers that they cannot get elsewhere?

- What can you do to follow up and thank people even when they don’t buy?

- What can you give a customer that is totally unexpected?

9. Get regular feedback. Encourage and welcome suggestions about how you could improve. There are several ways in which you can find out what customers think and feel about your services: - Listen carefully to what they say.

- Check back regularly to see how things are going.

- Provide a method that invites constructive criticism, comments and suggestions.

10. Treat employees well. Employees are your internal customers and need a regular dose of appreciation. Thank them and find ways to let them know how important they are. Treat your employees with respect and chances are they will have a higher regard for customers. Appreciation stems from the top. Treating customers and employees well is equally important.

Melina Lori is the Group Business Development and Marketing Manager for Cypriot software developer Infoscreen www.quorumcentral.com

May 20 - 26, 2015

10 | GREECE | financialmirror.com

Gamble to become an energy hub

By Costis Stambolis Once again Greece is back in the news. This time not for its never-ending strenuous negotiations with the European Commission, the ECB and the IMF over the country’s desperate moves to clinch a deal and stay financially afloat and within the Eurozone, but for its bold opening to Russia over her government’s ambitious plans to turn Greece into a regional energy hub. Although Greece is a small energy consumer on its own right, with oil use of some 287,000 barrels per day and gas not exceeding 4.0 billion cubic meters (BCMs) per year, its geographical position favours her becoming a vital corridor for transporting gas from the East to the West. Where the East could be the Caspian region, with its rich oil and gas resources, Iran, which has the world’s largest natural gas reserves, but also Russia which already covers some 30-35% of European gas needs.

Greece currently obtains 65% of its gas supplies from Russia with deliveries first started in 1996 through the TransBalkan pipeline which passes through Ukraine and delivers gas first to Romania, Bulgaria and then splits in two with one branch going to Greece and the other to Turkey. Through an LNG terminal in Revythoussa, an islet off Megara, near Athens, and the Greek-Turkish gas interconnector, which brings gas from Turkey, Greece obtains the rest of its gas quantities. Following an agreement signed in 2013 between Greece and an international consortium, the Transadriatic Gas Pipeline (TAP), a new pipeline will be built which will cross Greece and then move gas through Albania and underwater through the Adriatic to Italy and then to Europe.

Construction of this EUR 3 bln pipeline is slated to start next year and will be completed by the end of 2019 transporting some 10.0 BCM from Azerbaijan to Italy. Not a significant amount of gas given European gas consumption, which

reached almost 500 BCMs in 2014. Nevertheless, the TAP pipeline is heavily promoted by the EU and the USA as Europe’s best alternative gas supply route in its efforts to diversify its gas intake and lessen its customary dependence on Russian gas. However, even if TAP doubles its capacity to 20 BCM as latest plans suggest, it will still provide insufficient quantities to enable it to play a key part in European gas supply.

Meanwhile, Russian state gas company Gazprom is trying to develop an alternative route to transport significant gas volumes to European companies by bypassing troublesome Ukraine, where currently four of its export pipelines go through. As earlier efforts to develop the South Stream pipeline, which would have taken Russian gas via the Black Sea and then via Bulgaria, Serbia and Hungary to Austria, was abruptly cancelled last December following intense

pressure by the EU on Bulgaria to abandon construction of the project, and a host of legal objections which would have made it impossible for Gazprom to sell its gas to its European customers through this particular pipeline. Hence, Gazprom has developed an alternative route also underwater through the Black Sea, but this time landing on the European shores of Turkey and from there through Greece to FYROM, Serbia and Europe. Last week during a visit to Moscow by Turkey’s Energy Minister, Taner Yildiz, and his meeting with President Vladimir Putin, the plans for the construction of this new pipeline were finalised with construction of the pipeline starting immediately and the first phase, to be completed by the end of 2016. This is a huge pipeline with some 64 BCM carrying capacity of which at least 16 BCM will be absorbed by the fast growing Turkish market.

In a highly controversial visit to Moscow last month

Why Syriza has no choice but to blink

By Anatole Kaletsky Once again, Greece seems to have slipped the financial noose. By drawing on its holdings in an International Monetary Fund reserve account, it was able to repay EUR 750 mln – ironically to the IMF itself – just as the payment was falling due.

This brinkmanship is no accident. Since coming to power in January, the Greek government, led by Prime Minister Alexis Tsipras’s Syriza party, has believed that the threat of default – and thus of a financial crisis that might break up the euro – provides negotiating leverage to offset Greece’s lack of economic and political power. Months later, Tsipras and his finance minister, Yanis Varoufakis, an academic expert in game theory, still seem committed to this view, despite the lack of any evidence to support it.

But their calculation is based on a false premise. Tsipras and Varoufakis assume that a default would force Europe to choose between just two alternatives: expel Greece from the eurozone or offer it unconditional debt relief. But the European authorities have a third option in the event of a Greek default. Instead of forcing a “Grexit,” the EU could trap Greece inside the eurozone and starve it of money, then simply sit back and watch the Tsipras government’s domestic political support collapse.

Such a siege strategy – waiting for Greece

to run out of the money it needs to maintain the normal functions of government – now looks like the EU’s most promising technique to break Greek resistance. It is likely to work because the Greek government finds it increasingly difficult to scrape together enough money to pay wages and pensions at the end of each month.

To do so, Varoufakis has been resorting to increasingly desperate measures, such as seizing the cash in municipal and hospital bank accounts. The implication is that tax collections have been so badly hit by the economic chaos since January’s election that government revenues are no longer sufficient to cover day-to-day costs. If this is true – nobody can say for sure because of the unreliability of Greek financial statistics (another of the EU authorities’ complaints) – the Greek government’s negotiating strategy is doomed.

The Tsipras-Varoufakis strategy assumed that Greece could credibly threaten to default, because the government, if forced to follow through, would still have more than enough money to pay for wages, pensions, and public services. That was a reasonable assumption back in January. The government had budgeted for a large primary surplus (which excludes interest payments), which was projected at 4% of GDP. If Greece had defaulted in January, this primary surplus could (in theory) have been redirected from interest payments to finance the higher wages, pensions, and public spending that Syriza had promised in its election campaign. Given this possibility, Varoufakis may have believed that he was making other EU finance ministers a

generous offer by proposing to cut the primary surplus from 4% to 1% of GDP, rather than all the way to zero. If the EU refused, his implied threat was simply to stop paying interest and make the entire primary surplus available for extra public spending.

But what if the primary surplus – the Greek government’s trump card in its confrontational negotiating strategy – has now disappeared? In that case, the threat of default is no longer credible. With the primary surplus gone, a default would no longer permit Tsipras to fulfill Syriza’s campaign promises; on the contrary, it would imply even bigger cutbacks in wages, pensions, and public spending than the “troika” – the European Commission, the European Central Bank, and the IMF – is now demanding.

For the EU authorities, by contrast, a Greek default would now be much less problematic than previously assumed. They no longer need to deter a default by threatening Greece with expulsion from the euro. Instead, the EU can now rely on the Greek government itself to punish its people by failing to pay wages and pensions and honor bank guarantees.

Tsipras and Varoufakis should have seen this coming, because the same thing happened two years ago, when Cyprus, in the throes of a banking crisis, attempted to defy the EU. The Cyprus experience suggests that, with the credibility of the government’s default threat in tatters, the EU is likely to force Greece to stay in the euro and put it through an American-style municipal bankruptcy, like that of Detroit.

The legal and political mechanisms for treating Greece like a municipal bankruptcy

are clear. The European treaties state unequivocally that euro membership is irreversible unless a country decides to exit not just from the single currency but from the entire EU. That is also the political message that EU governments want to instill in their own citizens and financial investors.

If Greece defaults, the EU will be legally justified and politically motivated to insist that the euro remains its only legal tender.

Even if the Greek government decides to pay wages and pensions by printing its own IOUs or “new drachmas,” the European Court of Justice will rule that all domestic debts and bank deposits must be repaid in euros. That, in turn, will force a default against Greek citizens, as well as foreign creditors, because the government will be unable to honour the euro value of insured deposits in Greek banks.

So a Greek default within the euro, far from allowing Syriza to honour its election promises, would inflict even greater austerity on Greek voters than they endured under the troika programme. At that point, the government’s collapse would become inevitable. Instead of Greece exiting the eurozone, Syriza would exit the Greek government. As soon as Tsipras realises that the rules of the game between Greece and Europe have changed, his capitulation will be just a matter of time.

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

May 20 - 26, 2015

financialmirror.com | GREECE | 11

is facing stiff resistance Greece’s Prime Minister, Alexis Tsipras, met with President Putin and Gazprom’s leadership and agreed for the Turkish Stream to be extended through Greece, with a 450 km pipeline to be known as Greek Stream which will transverse northern Greece and connect with another pipeline, known as Tesla, which will run through FYROM, Serbia and Hungary and will end in Baumgarten in Austria with the aim of supplying the main European gas markets. Moscow is now busy finalising details with Athens for the routing of the Greek Stream but also in providing financing for its construction.

Should the Greek Stream be eventually built, and with the TAP pipeline already scheduled to cross Greek territory, and with a 180 km gas interconnector pipeline to connect Greece and Bulgaria, known as IGB, construction of which will also start early in 2016, northern Greece is likely to become congested with a plexus of gas pipelines. If we are to add two floating LNG terminals, promoted by Greek DEPA and Gastrade, to be moored off the towns of Kavala and Alexandroupolis, and a Gas Trade Hub to be set up to handle gas supply in the region, Greece’s geopolitical position is to be greatly enhanced as a rising regional hub. This appears to be precisely the goal of Greece’s present political leadership which is trying hard to differentiate its position from EUstated energy policy which is dead against the expansion of Russia’s plans to develop further its gas infrastructure in SE Europe. It is certainly a coincidence, if not a paradox, that Greece’s strongest ally in this plan is Turkey which being outside the EU, although largely connected with a candidate member agreement, can afford to defy EU policies.

In Greece’s case the odds are against the government’s plans to develop the country as an energy hub given strong opposition from the EC and Brussels from whom the government is totally dependent for further financial assistance in the form of a new bailout expected to be agreed within June. Confounding EU’s opposition to Greece’s bold energy plans is the US government’s stern warning to Greece

not to entertain any further plans for engagement with Russia in developing the Turkish Stream project and its passage through Greece. During a visit to Athens on May 7, Amos Hochstein, special envoy and coordinator for International Energy Affairs at the US Department of State,

and following a meeting with Greece’s Minister for Energy, Panayotis Lafazanis, expressed his concern that an extension of a “Turkstream” pipeline across Greece will not help increase energy diversification, while it may also be of concern to EU competition authorities, and therefore does not constitute a long-term solution to Greece’s energy needs.

The USA’s negative stance on Greece’s ambitions to elevate itself as a major regional hub, whereby TAP and Turkish Stream may coexist as part for an enlarged South Corridor, has to be seen in context with the latest moves by Brussels to unseat Gazprom from its commanding position as the EU’s main gas supplier. Following the levelling of official anti-trust accusations against Gazprom by the EC on April 22, an open trade war is now in full swing between Brussels and Moscow as Europe tries to curtail Russia’s influence and stronghold on the continent’s energy supplies. According to independent observers, the ferocity of this war is such that in the process the ambitions and plans of small and problematic players such as Greece will easily be smashed.

Costis Stambolis is a Financial Mirror correspondent, based in Athens. cstambolis@iene.gr

DBRS downgrades Greece to CCC (high) negative trend DBRS, Inc. downgraded the Hellenic Republic’s long-term foreign and local currency issuer ratings to CCC (high) on Friday with a Negative trend from B, and downgraded the short-term foreign and local currency issuer ratings to R-5 with a Stable trend from R-4. The ratings are no longer Under Review with Negative Implications.

The deviation of this review from the next scheduled publication date for ratings on June 12 is due to an increase in uncertainty over government policies and Greece’s capacity to remain current on its debt. DBRS placed the ratings Under Review on February 4 to reflect an elevated concern over the potential for a deterioration in creditworthiness as a result of actions by the Greek government following the general elections on January 25. In light of the change in government, and given the importance of financial assistance from the European Commission, European Central Bank and International Monetary Fund, DBRS’s concern over Greece’s ability to meet its financing needs had increased.

The current downgrade is due to a further increase in uncertainty over whether Greece and its creditors will reach an agreement on a programme that restores macroeconomic stability and improves Greece’s cash position. In the absence of an agreement, financing sources appear to be insufficient to meet Greece’s financing needs over the foreseeable future.

This shortfall is due to the lack of access to bond markets, as well as a delay in an agreement between Greece and its official sector creditors over the conditions that the creditors require in exchange for continuing the existing financial assistance programme, or entering a new longer term lending programme.

DBRS’s view is that a new longer term programme is likely to be necessary to restore macroeconomic stabilisation.

The Negative trend reflects the risk of a missed payment to official creditors, or the further buildup of arrears to domestic agents. In the coming weeks, Greece faces a series of payments to the IMF and the ECB. A default to these creditors would likely cause an acceleration in the withdrawal of deposits from Greek banks, and would further undermine growth prospects. This is turn would make it more difficult for Greece to generate primary fiscal surpluses. Such a default could also jeopardise ECB Emergency Liquidity Assistance (ELA), without which Greek banks could face

lower liquidity buffers and run the risk of insolvency.

Alternatively, DBRS could move the trend to Stable if Greece and its creditors agree on a financial assistance programme that restores liquidity and bolsters macroeconomic stability. This in turn would likely stabilise bank deposits, improve fiscal sustainability and foster economic growth.

The existing financial assistance program, the second economic adjustment programme, was extended to June 30.

If Greece meets the conditions of the programme it would be eligible for a final tranche of EUR 7.2 bln. This would help Greece’s cash position, but would be unlikely to remove uncertainty over future payments. As part of the existing programme, the ECB and Single Supervisory Mechanism (SSM) could request from the European Financial Stability Facility (EFSF) an additional EUR 10.9 bln, originally transferred to the Hellenic Financial Stability Fund (HFSF) in the form of EFSF bonds and subsequently returned to the EFSF, to be transferred back to the HFSF for the recapitalisation and resolution of Greek banks, if necessary.

The current negotiations appear to be focused on two technical issues in the labour market and the social security system. Excessive restrictions in the labour market maintain a high cost of doing business, and inhibit the establishment or expansion of large firms. Collective dismissals of workers are not allowed, and this forces firms to offer high severance packages or resort to bankruptcy. The second issue is over reducing social security contribution rates, eliminating loopholes, better targeting lower-end contributions to reduce the cost of doing business for firms and strengthen labour demand, and strengthening the pension system by improving efficiency, achieving actuarial balance over the coming decades, ensuring consistency with fiscal targets, and making other parametric improvements.

The Greek negotiators have allegedly agreed to harmonise value-added tax rates, improve tax collection, and privatise a number of state-owned entities. However, they have not agreed to make further changes to the labour market or social security system. The impact of the delay in an agreement has been a liquidity squeeze, deposit outflows from Greek banks, a setback in the economic recovery, and a slowdown in the fiscal adjustment. From July 2014 to March 2015, deposits declined by EUR 33.7 bln, and are at their lowest level since September 2005. If deposit outflows continue, this could jeopardise financial stability and further lower prospects for economic growth, lead to a larger primary fiscal deficit, and impair debt sustainability.

For the remainder of 2015, Greece’s obligations are mainly in the form of principal and interest charges on IMF loans, principal and interest payments on bonds held mainly by the Eurosystem (the ECB and national central banks within the euro area), and interest payments on bilateral loans under the Greek Loan Facility (GLF).

At the same time, Treasury bill redemptions and monthly public sector wages and pensions are sizeable. There are also minimal principal and interest payments on restructured bonds held by the private sector.

The central government has also slipped into arrears with suppliers of goods and services to the public sector. To improve its cash position, it passed a decree on April 20 requiring local governments, state-owned companies and public pension funds to transfer their cash reserves to the Bank of Greece.

May 20 - 26, 2015

12 | PROPERTY | financialmirror.com

Aristo Developers finds positive business climate in Russia Aristo Developers recently participated in the “Moscow Overseas Property and Investment Show”, an international stage for investors seeking advice on the most lucrative investments from across the globe.

Aristo Developers’ dynamic presence is Cyprus was a key attraction for both individual buyers and investors, identifying with the company’s unique and innovative portfolio of island wide properties.

While there are many Russians who have already made substantial investments abroad, investor interest in Cyprus is on the rise, judging from the positive turnout at the Aristo stand during the exhibition.

Pambos Charalambous, Aristo Developers’ Russia Representative Manager, said that the exhibition provided the perfect platform for the company to promote Cyprus’ virtues and competitive advantages such as its Mediterranean lifestyle, cultural legacy, educational facilities, tax and legal system.

“The island boasts an exceptional property market and offers a serious opportunity to prospective property buyers, with its realistic programmes for obtaining permanent residency and even citizenship in Cyprus, schemes which have become increasingly popular for those wishing to establish business ties within the European Union,” he added.

Greece: Prices down 3.9% in Q1 Nominal apartment prices fell by an average 3.9% in the first quarter of 2015, compared with the same period last year, the Bank of Greece said last week.

The central bank, in a report, said that according to revised data, the average annual rate of change was -7.5% in 2014 (Q1: -9.1%, Q2: -8.0%, Q3: -7.2% and Q4: 5.4%), compared with an annual slide of -10.9% in 2013.

More specifically, the year-on-year rate of decline in prices was 4.5% for “new” apartments (up to five years old) and 3.5% for “old” apartments (over five years old) in the first quarter of 2015. According to revised data, the prices of “new” and “old” apartments declined on average by 6.6% and 8.0%, respectively, in 2014.

According to data broken down by geographical area, apartment prices are estimated to have declined year-onyear in the first quarter of 2015 by -3.8% in Athens, -5.9%

in Thessaloniki, -4.1% in other cities and -3.0% in other areas of Greece. According to revised data, 2014 prices dropped on average year-on-year by -9.2%, -6.7%, -6.7% and -5.1%, respectively, in the mentioned areas.

For 2014 as a whole, based on revised data, they declined at an average annual rate of 8.0%, compared with -10.9% in 2013.

Residential property appraisals conducted with Monetary Financial Institution intermediation for any purpose totaled 3,270 in the first quarter of 2015, down from 4,270 in the previous quarter. Year-on-year, residential property appraisals fell by 23.9% in the first quarter of 2015. According to revised data, the number of appraisals in 2014 reached 17,044 dropping substantially by 30.3% from 24,446 in 2013.

Source: http://intelligent-news.com

PGS introduces smart lighting technology PGS Lighting Electrical, exclusive distributor of Megaman, recently imported the latest LED lighting technology called Ingenium Blu (Bluetooth technology) which offers a plug-and-play installation that allows users to control lighting through their smart device.

This innovative solution was the Winner of the Good Design Award at HomeDEC Malaysia 2014 and was recently selected as the “Top Innovation of the Year” by DIY Magazine.

With the Ingenium Blu solution’s integrated Bluetooth 4.0 technology users can enjoy the benefits of smart lighting with instant and easy set-up. It is suitable for small areas with coverage of up to 10 metres and features functions such as turning on/off the lights, dimming, programmed scene setting, grouping of lamps for easier control, pre-set of time, etc.

It can be easily retrofitted in the home or commercial venues without extra wiring. Ingenium Blu is compatible with the Megaman LED PAR16 lamps.

“When we began 30 years ago we committed to offer our customers quality products at the best possible price,

remaining loyal to our philosophy by evolving according to market trends and implementing innovative ideas,” said PGS Lighting Electrical’s Managing Director Neophytos Neophytou.

“Today, we are very pleased to introduce to the market this cutting edge

technology that will allow our customers to control their lighting through their smart device.”

Ingenium Blu lighting technology is available at the 11 PGS Lighting Electrical stores www.pgses.com around Cyprus and the head office in Paralimni.

May 20 - 26, 2015

financialmirror.com | PROPERTY | 13

Shops, pharmacies and casinos ... and why many sectors are not yet liberalised µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

One could say that the title of my article is really strange considering the unconventional ties between these three activities.

Fortunately, the government found a way to overcome the unacceptable bill aimed to close shops on Sundays. This bill, with all sorts of nonsense and gibberish, found many of us totally opposed. Limassol, the star of tourism, Larnaca, Paphos, etc. are not considered tourist areas and the reason is because our MPs can’t be bothered about the social fabric (new words for our vocabulary), while this social fabric itself does not exist in Paralimni , Latchi etc.

So, according to the proposed bill, stores up to 150 sq.m. would be allowed to operate, while shops of 152 sq.m. would not. If you were in this category, the best thing to do would be to separate a part of the store (on Sundays only) with some false partition, so that the store of 180 sq.m. on Sunday alone is reduced to 150 sq.m. And what is included in the area of a shop? The covered verandahs, underground storage, the pavement where goods are displayed? What if a store, which is not a souvenir shop, also offers local traditional dishes. So, a store of 300 sq.m. could on Sundays add some cheap “trinkets” made in China, bottles with sweets, etc., as well as the rest. What, then would this shop be – a store, gift shop or eatery?

The argument used by the majority of our cognitive MPs to subsidise the small store owners employing 2-3 people was that the large stores had become monopolies. So, the “small” stores would work on Sundays and this would help build the social fabric for the large majority? Is this not a contradiction?

All this talk about monopolies and monopolies, but the most monopolistic “store” is the pharmacy. Observing the ‘standard bearer’ of this effort, DIKO MP Angelos Votsis (a pharmacist), arguing the reasons for his party maintaining this position raises many questions (although AKEL’s opposition to capitalistic abuse on Sundays is perfectly understandable based on their ideology). Given the restrictive regulations for pharmacies, there is no other more restrictive monopolistic activity in Cyprus – distance from one

pharmacy to another, late night services that are not so (but are obliged to open up if we call them). We should really see what would happen to Mr Votsis if the pharmacies sector is fully liberalised.

Now we come to the casino and to the proposed bill where here too there is competition among the parties to see which one will impose the most restrictions. Starting from the smoking ban (consider the example of a casino project in Spain that was turned down by American investors because of this), while in the Las Vegas-type casinos, which we want to copy, smoking is permitted only in the players’ rooms, outside of other spaces such as restaurants, show halls, etc.

Another party explained that the 15% tax on income should be gradually increased to 30%. How bright these party officials are to believe that hordes of foreign investors are waiting in queue to pump in 500 mln euros. If a truly “free” casino is built by our most competitive country, Malta, then we have lost the game because maybe our region will not be able to support both. So the first casino will win the bet.

The liberalisation is based on the efforts by the state to increase revenue, boost tourism and hence help create demand for property (which involves everybody from borrowers to banks). Further liberalisation is also needed in other areas as well, such as opening hours of banks, the public service, registration of companies, etc.

The “curse” in this country is our outdated mentality and

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the lack of affection for Cyprus from various parties concerned.

For example, what is a fan card needed for, asked a party official who believes that believes hooligans from his team’s supporters will be monitored? Who cares about 7,000 unemployed simply to help 200-500 small shop owners survive? Why did the plan for building amnesty fail, why did the plan to convert old touristic units into apartments for sale fail?

Why, then, is there a demand for 30% of young people to become teachers? Is it because parties and politicians are being blackmailed by the potential list of 1,000 unappointed teachers just as the strikes in hospitals were for pay increases and nothing else? Why should air traffic controllers earn 150,000 euros a year? Why, then, has a particular party suggested that the casino license must also include a golf resort? Where in Las Vegas have they seen such resorts, unless the aim is to serve the interests of friendly developers.

In all this mess of corruption in the political scene and others, we are still trying to attract foreign investors. As an office we undertook a promotional “offensive” (as stated by the Irish prime minister) to attract foreign investors into Cyprus properties, and what did we get in return? Several mostly negative responses and who listens to the President of the Cyprus Investment Promotion Agency (CIPA) nowadays who says that we are not projecting a good image and we are pushing away potential investors. Even for the Archbishop’s development project in Yeroskipou, suddenly two other companies have cropped up with the identical plans who are interested. Where were they all this time? Were they perhaps driven by jealousy or by some others simply to delay this project?

Unfortunately, we don’t have the right investigative journalists who will dig deep into these issues and expose those at fault, and so there is no answer. There are only a handful of radio presenters that I hear of nowadays, but even their work and reach is restricted, but even that is somewhat necessary to allow democracy to function properly. www.aloizou.com.cy ala-HQ@aloizou.com.cy

May 20 - 26, 2015

14 | WORLD MARKETS | financialmirror.com

Wall St: Financials struggled this year, analyst says buy ‘big 3’ savviest leaders in Jamie Dimon, the stock is a solid buy for investors.

JPMorgan investors are paid a 2.7% dividend. The consensus price target is $70.41. Shares closed on Monday at $66.42.

By Lee Jackson While the market has had a very up and down year, with the S&P 500 up just over 3%, one sector that has struggled as we stay mired in a low interest rate scenario is the financials. In fact, the financials are up a meagre 0.11%, as of the close Friday. In a new report, Oppenheimer is very bullish on financials that are big players in the equity capital markets arena.

Typical of a big part of the equity capital market arena is initial public offerings and secondary offerings. Three companies dominate that space on Wall Street, and Oppenheimer likes all three of them on a technical basis as a top new money ideas.

GOLDMAN SACHS This company continues to be the gold standard of Wall Street banks. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise, and the firm continues to be a dominant force around the world. The bank is one of the most sought after in the world, and it is one of the very few firms that dictate who can be a client.

In investment banking, the company has the preeminent client franchise. Goldman Sachs advised on more than $1 trln of announced transactions last year, the highest level since 2007. It has also maintained a leading market share

over the past 25 years. It maintained a market position when M&A activity was dominated by technology in 1999, by financials in 2008 and by natural resources in 2014. The bottom line is, regardless of where market strength is in any given year, Goldman Sachs is up to the task.

Goldman Sachs shareholders are paid a 1.3% dividend.

The Thomson/First Call consensus price target for the stock is $207.75. Shares closed Monday near that level at $204.66.

JPMORGAN This stock trades at a very low 11.4 times estimated 2015 earnings. JPMorgan Chase & Co. (NYSE: JPM) is expected to benefit from commercial loan growth and an upturn in capital spending. Wall Street analysts agree that the stock seems attractively valued on 2015 estimated price to earnings and a very solid price-to-book value. Some on Wall Street have cautioned that last year’s divestiture of the physical commodities business could provide an earnings headwind next year.

Improvement in loan growth, terrific equity capital markets and a steady increase in deposits will be a solid plus.

Trading at a discount to many of the large cap banks on 2015 earnings estimates helps upside potential as well. With $2.6 trln in assets on a worldwide basis, and one of Wall Street’s

MORGAN STANLEY Morgan Stanley (NYSE: MS) is another one of the white glove Wall Street firms that continues to show tremendous growth, and it is running neck and neck with Goldman Sachs as the bank of choice for high-profile IPOs. Trading at a priceto-earnings multiple of 12.9 times estimated 2015 earnings, that seems extremely reasonable given the 2015 expectations for EPS growth of more than 20%. The company also has $539 bln in cash equivalents on its balance sheet, versus $288 bln in total debt.

Morgan Stanley recently raised its dividend to $0.15 and will buy back up to $3.1 bln in stock after the Federal Reserve System signed off on the company’s plan in the first quarter.

Morgan Stanley says it will buy back the stock over five quarters, starting this quarter.

Morgan Stanley investors are paid a 1.6% dividend. The consensus price objective is $39.96. Shares closed Monday’s trading at $38.33.

The Oppenheimer technical specialists are focused on stocks to buy that have good technicals that are backing up solid fundamentals. They think the equity capital markets theme is a winning one, and these are the top companies in that game.

(Source: 24/7 Wall St.com)

Gold/US Dollar spot rate – Short-term uptrend and next targets

By Panayiotis Pilavakis FX Prop-trader YESFX Ltd www.yesfx.com.cy Trading from the bearish movement of the XAU/USD (Gold/USD), in a Daily chart, from $1,307.64 as of January 22, we noticed the end of this motion in March 17.

Formation of a bullish Failure Swing bottom reversal pattern occurred between April 29 until May 13.

First bottom was formed on May 1 with a low price at $1,169.92, followed by a top on May 5 with a high price at $1,199.57.

The second bottom was formed on May 11 with a low price at $1,178.99.

We observed an upward penetration of the last Top ($1,199.57) and the formation of an uptrend from May 13 onwards.

This confirms a bullish reversal in trend (uptrend). If

the top falls below our break point (1,199.66) on a weekly closing basis then the Failure Swing pattern would not be valid.

Continuing with our analysis, we set up our expected targets (1st, 2nd and 3rd), which is the vertical distance from the last top to the last bottom.

Following our analysis the price has the upside potential to reach at some point the value of $1,245.00 and it is expected to rise to $1,268.32 within the upcoming weeks.

Fibonacci confirms our analysis with the levels 50.00, 61.80 and 76.40 to agree with our three targets.

UK inflation reading weaker than expected Markets Report

By Jameel Ahmad, Chief Market Analyst at FXTM

The UK Inflation reading is much weaker than expected, and provides some validity behind why BoE Governor Mark Carney repeated some cautious views over the UK economy last week.

Most will link the low price of oil and decline in inflation together, but the unexpected and continued weak core inflation reading pinpoints that UK inflation

woes stretch much further than the decline in the price of oil.

This will not only further push back any faint expectations for a UK interest rate rise anytime soon, but it will also strengthen the BoE’s well-known and continuously dovish views on UK inflation.

Can we expect the GBPUSD to continue to fall? Not really, and you could suggest that traders priced this news in early following the pair slipping from 1.58 at the beginning of the week.

When the GBPUSD closed above 1.55 a fortnight ago, it set a new upper trading range and it would need to close before 1.55 before traders could expect any

additional bearish momentum.

If you’re pessimistic about the US economy and expecting a dovish FOMC Minutes on Wednesday, then we could see the pair bounce back later this week.

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

May 20 - 26, 2015

financialmirror.com | MARKETS | 15

Icahn may be too ambitious in his Apple $240 target

By Chris Lange and Jon C. Ogg Carl Icahn is back at it again. The 79-year old activist investor has issued an open letter to Apple Inc. CEO Tim Cook, with a valuation path — driven largely by buybacks — that would theoretically make Apple worth a whopping $240 per share. The plan sounds optimistic, but honestly it sounds too optimistic.

In February, Icahn originally issued an open letter to Cook and Apple investors regarding the direction and valuation that he thinks Apple should have. At that time he called for the share price to rise to $216, considering Apple implement an increased share buyback plan.

Apple reported its earnings in April and did in fact increase its share repurchase plan. The tech giant announced that its board of directors has authorised an increase of over 50% to the company’s programme to return capital to shareholders.

Under the expanded programme, Apple plans to utilise a cumulative total of $200 bln of cash by the end of March 2017.

However, this was just not enough for Icahn. He still believes that, given Apple’s cash and investments and positive cash flow, the company could do more, but there are

As a reminder, it is not uncommon for investors, much less activist investors, to talk up their book.

It is worth mentioning that a guy like Carl Icahn might not have to care if he leaves a company like Apple leveraged up. What if Apple runs into a period when it becomes harder and harder to add endless growth? Considering that the ramifications could be years in the future, men in their late seventies and eighties might not think they need to care about long-term ramifications and the fallout seen thereafter.

Apple shares were up 1.3% at $130.48 on Monday afternoon. The stock has a consensus analyst price target of $148.18 on a 52-week trading range of $85.33 to $134.54.

(Source: 24/7 Wall St.com)

no signs Apple plans to do so.

Despite Apple not necessarily moving in line with Icahn’s plan, he revised his price target to a whopping $240. Icahn explained his valuation of Apple shares in his most recent open letter to Cook and Apple sent out on May 18: “To arrive at the value of $240 per share, we forecast FY2016 EPS of $12.00 (excluding net interest income), apply a P/E multiple of 18x, and then add $24.44 of net cash per share. Considering our forecast for 30% EPS growth in FY 2017 and our belief Apple will soon enter two new markets (Television and the Automobile) with a combined addressable market size of $2.2 trillion, we think a multiple of 18x is a very conservative premium to that of the overall market. Considering the massive scope of its growth opportunities and track record of dominating new categories, we actually think 18x will ultimately prove to be too conservative, especially since we view the market in general as having much lower growth prospects.”

What you are hearing from Icahn is really nothing new.

He keeps coming up with massively higher valuations that are based on many “if-then” scenarios. The one if-then that Icahn is not considering is that this may gut Apple’s cash balance, and at a time that growing the core business for what is already the largest company in the world may be difficult in the years ahead.

WORLD CURRENCIES PER US DOLLAR CURRENCY

Asian currencies took a hit last week as the ongoing global bond market sell-off forced capital outflow. Yet unlike the “taper tantrum” of two years ago, the region has navigated this sell-off with limited collateral damage—emerging Asia’s benchmark bond index has fallen by -3% in the last two weeks compared with a -19% peak-to-trough slump in 2013. A fair question is whether heavily leveraged Asia is the next shoe to drop. So long as current ructions do not turn into a rout, sparking a global risk-off, Asia remains a good bet as the macro backdrop is far better than two years ago.

This may seem counterintuitive since aggregate Asian debt levels are back to those seen just before the 1997/98 Asian crisis, while in Northeast Asia, deflationary winds are blowing hard. The difference with past crisis periods can be seen across a range of macro settings: (i) Asian economies mostly run flexible exchange rate systems and have tended to suppress their currencies’ value to allow the build-up of reserves, (ii) Indonesia and India were overheated in 2013 but have acted to crimp demand, which has helped external balances to sharply improve, and (iii) economies with external surpluses such as South Korea have forced banks to address a maturity mismatch problem where they have borrowed short and lent long.

www.marcuardheritage.com

RATE

EUROPEAN

Why Asia should suck up Tantrum II Marcuard’s Market update

by GaveKal Dragonomics

CODE

Another difference this time is the positive impact of the fall in the price of oil and other commodities. Disinflation and even outright deflation in several Asian economies, causing real interest rates to swing positive, has granted policymakers space to ease rates, which should mean that a 2013 policyinduced slow-down can be avoided.

For investors, comfort can be taken from the macrooutlook, but also the fact that nominal yields on benchmark Asian debt, despite recent ructions, remain significantly higher than on developed market equivalents.

To be sure, problems may emerge if the dollar resumes its appreciation track due to the Federal Reserve moving to normalise policy, while Asia shifts toward easing. Since most Asian currencies to some degree are dollar-linked, the standard Asian response would be to engender a depreciation that boosts exports and crimps imports. However, such a mercantilist approach may be less effective than usual as both Europe and Japan are playing the same game, hence lessening Asia’s scope to devalue its way out of trouble. Also, the last 18 months have seen a general collapse in Asian currency volatility, and so any disruption to these calm seas could produce unforeseen events, with a self-reinforcing cycle of capital outflow, currency depreciation and falling asset prices. Still, the move to a general risk-off is not our central scenario and we advise investors to switch into US dollar denominated, high-grade Asian debt which still pays an approximate 200bp premium over treasuries.

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

14070 1.5532 1.7448 24.433 6.6551 13.9602 1.1208 2.332 273.62 0.62706 3.0807 0.383 17.5 7.4573 3.6166 3.9695 49.262 8.3069 0.9305 20.9

AUD CAD HKD INR JPY KRW NZD SGD

0.7971 1.2179 7.7518 63.635 120.08 1090.43 1.3491 1.3309

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

0.3770 7.6101 27993.00 3.8516 0.7078 0.3017 1513.00 0.3849 3.6402 3.7501 11.8597 3.6729

AZN KZT TRY

1.0477 185.94 2.5837

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

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira Note:

* USD per National Currency

The Financial Markets Interest Rates Base Rates

CCY USD GBP EUR JPY CHF

LIBOR rates

CCY/Period

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

USD GBP EUR JPY CHF

1mth

0.18 0.50 -0.06 0.07 -0.82

2mth

0.23 0.54 -0.04 0.09 -0.81

3mth

0.28 0.57 -0.02 0.10 -0.79

Swap Rates 6mth

0.41 0.71 0.05 0.14 -0.70

1yr

0.73 0.99 0.17 0.25 -0.58

CCY/Period USD GBP EUR JPY CHF

2yr

0.82 0.97 0.10 0.14 -0.66

3yr

1.16 1.21 0.17 0.16 -0.55

4yr

5yr

1.43 1.65 1.39 1.53 0.26 0.37 0.19 0.25 -0.42 -0.28

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1207 0.8923

100 JPY

1.5529

1.0753

0.8329

1.3857

0.9595

0.7432

0.6924

0.5364

0.6440

0.7217

0.9300

1.0423

1.4442

120.06

134.55

186.44

0.7746 129.10

Weekly movement of USD

CCY\Date

21.04

28.04

05.05

12.05

19.05

USD GBP JPY CHF

1.0679

1.0820

1.1071

1.1115

1.1247

0.7171

0.7102

0.7324

0.7135

0.7185

127.39

128.74

132.81

133.44

134.78

1.0205

1.0323

1.0349

1.0360

1.0410

CCY GBP EUR JPY CHF

Today

1.5529 1.1207 120.06 0.9300

Last Week %Change 1.5578 1.1115 120.05 0.9321

+0.32 -0.83 +0.01 -0.22

7yr

1.97 1.76 0.61 0.37 -0.03

10yr

2.26 1.97 0.89 0.57 0.23

May 20 - 26, 2015

16 | WORLD | financialmirror.com

The secret corporate takeover

By Joseph E. Stiglitz The United States and the world are engaged in a great debate about new trade agreements. Such pacts used to be called “free-trade agreements”; in fact, they were managed trade agreements, tailored to corporate interests, largely in the US and the European Union. Today, such deals are more often referred to as “partnerships,” as in the Trans-Pacific Partnership (TPP). But they are not partnerships of equals: the US effectively dictates the terms. Fortunately, America’s “partners” are becoming increasingly resistant.

It is not hard to see why. These agreements go well beyond trade, governing investment and intellectual property as well, imposing fundamental changes to countries’ legal, judicial, and regulatory frameworks, without input or accountability through democratic institutions.

Perhaps the most invidious – and most dishonest – part of such agreements concerns investor protection. Of course, investors have to be protected against rogue governments seizing their property. But that is not what these provisions are about. There have been very few expropriations in recent decades, and investors who want to protect themselves can buy insurance from the Multilateral Investment Guarantee Agency, a World Bank affiliate, and the US and other governments provide similar insurance.

Nonetheless, the US is demanding such provisions in the TPP, even though many of its “partners” have property protections and

judicial systems that are as good as its own.

The real intent of these provisions is to impede health, environmental, safety, and, yes, even financial regulations meant to protect America’s own economy and citizens. Companies can sue governments for full compensation for any reduction in their future expected profits resulting from regulatory changes.

This is not just a theoretical possibility.

Philip Morris is suing Uruguay and Australia for requiring warning labels on cigarettes.

Admittedly, both countries went a little further than the US, mandating the inclusion of graphic images showing the consequences of cigarette smoking.

The labeling is working. It is discouraging smoking. So now Philip Morris is demanding to be compensated for lost profits.

In the future, if we discover that some other product causes health problems (think of asbestos), rather than facing lawsuits for the costs imposed on us, the manufacturer could sue governments for restraining them from killing more people. The same thing could happen if our governments impose more stringent regulations to protect us from the impact of greenhouse-gas emissions.

When I chaired President Bill Clinton’s Council of Economic Advisers, antienvironmentalists tried to enact a similar provision, called “regulatory takings.” They knew that once enacted, regulations would be brought to a halt, simply because government could not afford to pay the compensation. Fortunately, we succeeded in beating back the initiative, both in the courts and in the US Congress.

But now the same groups are attempting an end run around democratic processes by inserting such provisions in trade bills, the

contents of which are being kept largely secret from the public (but not from the corporations that are pushing for them). It is only from leaks, and from talking to government officials who seem more committed to democratic processes, that we know what is happening.

Fundamental to America’s system of government is an impartial public judiciary, with legal standards built up over the decades, based on principles of transparency, precedent, and the opportunity to appeal unfavorable decisions. All of this is being set aside, as the new agreements call for private, non-transparent, and very expensive arbitration. Moreover, this arrangement is often rife with conflicts of interest; for example, arbitrators may be a “judge” in one case and an advocate in a related case.

The proceedings are so expensive that Uruguay has had to turn to Michael Bloomberg and other wealthy Americans committed to health to defend itself against Philip Morris. And, though corporations can bring suit, others cannot. If there is a violation of other commitments – on labour and environmental standards, for example – citizens, unions, and civil-society groups have no recourse.

If there ever was a one-sided disputeresolution mechanism that violates basic principles, this is it. That is why I joined leading US legal experts, including from Harvard, Yale, and Berkeley, in writing a letter to President Barack Obama explaining how damaging to our system of justice these agreements are.

American supporters of such agreements point out that the US has been sued only a few times so far, and has not lost a case.

Corporations, however, are just learning how to use these agreements to their advantage.

And high-priced corporate lawyers in the US, Europe, and Japan will likely outmatch the underpaid government lawyers attempting to defend the public interest.

Worse still, corporations in advanced countries can create subsidiaries in member countries through which to invest back home, and then sue, giving them a new channel to bloc regulations.

If there were a need for better property protection, and if this private, expensive dispute-resolution mechanism were superior to a public judiciary, we should be changing the law not just for well-heeled foreign companies, but also for our own citizens and small businesses. But there has been no suggestion that this is the case.

Rules and regulations determine the kind of economy and society in which people live.

They affect relative bargaining power, with important implications for inequality, a growing problem around the world. The question is whether we should allow rich corporations to use provisions hidden in socalled trade agreements to dictate how we will live in the twenty-first century. I hope citizens in the US, Europe, and the Pacific answer with a resounding no.

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University. His most recent book, co-authored with Bruce Greenwald, is Creating a Learning Society: A New Approach to Growth, Development, and Social Progress. © Project Syndicate, 2015. www.project-syndicate.org

Germany’s golden opportunity The German economy appears unstoppable. Output is expected to grow by more than 2% this year, and wages by 3%, with the current-account surplus set to reach a towering 8.4% of GDP. Unemployment has been halved over the last decade, and now stands at an all-time low. German exporters remain highly innovative and competitive. And the government is recording a sizeable budget surplus. While the rest of Europe remains mired in crisis and self-doubt, Germany’s future seems bright and secure. But appearances can be deceiving.

In fact, today’s rosy macroeconomic data tell only part of the story. Since the euro was established in 1999, Germany’s productivity growth has been no more than average among European countries, real wages have declined for half the workforce, and annual GDP growth has averaged a disappointing 1.2%.

A key reason for this lackluster performance is Germany’s notoriously paltry investment rate, which is among the lowest in the OECD. The result is deteriorating infrastructure, including roads, bridges, and schools. This, together with an inadequate regulatory and business environment, has raised concerns among companies; since 1999, the largest German multinationals have doubled their employee headcounts abroad, while cutting jobs at home.

In their 2013 coalition agreement, the Christian Democratic Union and the Social Democrats set a goal of raising public and private investment by 3% of GDP, or EUR 90 bln annually, to reach the OECD average. Although this is not a particularly ambitious objective – after all, Germany’s current-account surplus at the time amounted to 7.8% GDP – achieving it is vital to the country’s continued prosperity.

Last August, the German government appointed a 21member committee of experts (including the three authors) from business, labour unions, finance, and academia to determine how to achieve the target. Last month, the committee presented its ten-point action plan, which, despite disagreement on taxes and private financing of public

By Marcel Fratzscher, Jurgen Fitschen and Reiner Hoffmann investment, reflects an unusually broad consensus.

For starters, the action plan calls for limiting the impact on public investment of the pressure to consolidate the government budget. The plan does not challenge the constitutional debt brake that forbids the federal government from running structural deficits above 0.35% of GDP. But it does recommend a legally binding commitment to keep investment levels at least as high as the rate of depreciation of state assets, and to use unexpected budget surpluses, first and foremost, for increased public investment.

In order to support local investment, the expert committee proposes creating a “national investment pact” to enable municipalities to increase investment by at least EUR 15 bln over the next three years. And it recommends establishing a public advisory institution to help municipalities realise their investment projects, of which there is currently a EUR 118 bln backlog.

The most controversial issue, within the committee and in Germany, relates to financing infrastructure via publicprivate partnerships, a seemingly promising solution that nonetheless has proved to be far from a panacea. To strike an effective balance, the action plan proposes two publicly owned investment funds – one raising money from institutional investors, and the other from individuals. The public projects financed by the funds would provide sufficient efficiency gains to attract private financing.

As for purely private-sector investment, the committee recommends a focus on developing the sectors that will dominate tomorrow’s economy. As it stands, Germany is

strong in traditional industrial sectors, but has fallen behind its competitors in Asia and the United States in terms of investment in research and development. To catch up, R&D spending should be raised from less than 3% to at least 3.5% of GDP. Nowhere is the need to overcome financing bottlenecks more apparent than with Germany’s Energiewende (energy transition). To succeed, more than EUR 30 bln, or 1% of GDP, will have to be invested annually in network infrastructure, renewable-energy generation, combined heat and power systems, and storage technologies in the coming decades. While some of these funds will come from public budgets, the vast majority will have to be provided by the private sector.

A substantial increase in private investment is necessary not just for Germany; it is critical to Europe’s recovery from its ongoing crisis. Given Germany’s relative economic strength, it has a special responsibility to help foster investment throughout Europe, including by promoting European-level reforms of transport and energy, supporting incentives for innovation, and backing digital modernisation.

Germany’s combination of strong growth, low unemployment, favourable financing conditions, and large budget surpluses present it with a golden opportunity. With increased investment in infrastructure, not to mention a competitive education system and more investment-friendly business conditions, it can place its economy on a stronger footing for the future, and help pull Europe out of its malaise.

We now have a plan; all that is needed is the will to implement it.

Marcel Fratzscher is Committee Chairman and President of the think tank DIW Berlin. Jürgen Fitschen is Co-Chief Executive Officer of Deutsche Bank. Reiner Hoffmann is Chairman of the Confederation of German Trade Unions (DGB).

By Marcel Fratzscher, Jürgen Fitschen, and Reiner Hoffmann

© Project Syndicate, 2015 www.project-syndicate.org

May 20 - 26, 2015

financialmirror.com | WORLD | 17

The missing arrow of Abenomics

By Seki Obata and Georges Desvaux In his drive to kick-start the Japanese economy, Prime Minister Shinzo Abe, shortly after taking office in 2012, introduced a large fiscal stimulus and put in place a bold programme of monetary easing. Since then, Japanese policymakers have been working to launch what Abe calls the third “arrow” of his agenda: arduous reforms of key industries and the demolition of structural barriers to growth.

But the focus on public policy has left a “fourth arrow” – the private sector – untouched and seemingly ignored. This is unfortunate, because the government cannot fix Japan’s ills on its own. Annual productivity growth has been stubbornly sluggish, rarely rising above 2% for much of the past two decades, reflecting both missed opportunities and declining cost competitiveness.

Japan’s productivity slump permeates the entire economy; labor and capital productivity gains have nearly stalled in almost every sector – even in Japan’s signature advanced manufacturing industries. Labor productivity in the transport-equipment sector, for example, is barely half that of Germany.

This trend puts annual GDP growth on course to average only 1.3% through 2025, implying a third consecutive decade of stagnation. Such an outcome would coincide with – and exacerbate the effects of – an adverse demographic shift that will constrain fiscal revenues and drive up costs for universal health care and pension benefits.

Japan’s ability to alter its trajectory depends on individual companies making decisions to invest, change workplace policies, deploy new technologies, and test untried business models. Abe’s structural reforms will take time and political will to enact, but Japanese companies cannot afford to sit still. They can and must act, without waiting for the government to change its policies. In many cases, the economy’s bottlenecks are not regulatory in nature, but stem from entrenched ways of doing business.

New research by the McKinsey Global Institute examines Japan’s advanced manufacturing, retail, financial services, and health-care industries in detail – and finds substantial untapped productivity potential in every area.

For starters, Japanese firms must become more globally integrated. Exporting to the fastest-growing overseas markets is one obvious route to overcoming sluggish demand growth at home. But, rather than just selling products abroad, Japanese enterprises need to expand operations beyond their borders and cast a wider net for international talent.

Japanese companies have formidable R&D operations, but most will need to reconfigure them to obtain better returns and impact. The process must start with an understanding of what the customer wants and a determination to deliver solutions accordingly. Closed and tightly managed R&D

operations must be transformed into more fluid, open processes involving collaboration with customers and suppliers.

Japanese companies will also need to improve their capabilities in areas such as marketing, pricing, and talent development. While there are some pockets of excellence, most Japanese firms are severely lacking in these areas. To compete in global markets, they will need to achieve the same consistency in these areas that they have in their traditional areas of strength.

Many Japanese companies have yet to digitize paper-based processes and replace outdated information-technology systems. Others would benefit from moving beyond basic digitisation to next-generation technologies, such as big-data analytics. Companies can also head off looming labor shortages with intelligent software systems and robotics.

Manufacturers can augment or replace their assembly lines with technologies such as the Internet of Things and 3D printing. More broadly, Japanese companies have to organise for performance and discipline. As policy changes unleash market forces, businesses will face greater competition.

Some may need to reorganise or exit unprofitable markets; others may have to undertake mergers and acquisitions to achieve economies of scale.

Finally, shareholders and senior executives should tie performance goals to incentives. Some of Japan’s corporate giants have already begun shifting from traditional senioritybased advancement toward merit-based pay structures.

Others should follow their lead. Promoting younger and more diverse talent can create agile organisations with fresh ideas.

If Japan’s private sector rises to the challenge, it can move the economy onto a path of faster growth. Innovations in one company would cascade across its entire industry by forcing competitors to raise their game. In the 1950s and 1960s, for example, Toyota introduced more efficient production

processes that were eventually adopted by the entire automobile industry.

Instead of settling for a future of 1.3% annual GDP growth, Japan could attain roughly 3% annual growth through 2025. Doing so would require the growth rate of labour productivity to more than double, but this is an attainable goal. More than half of this growth increment can be met by adopting best practices that companies around the world already use, while technology can close much of the remaining gap.

Japanese business leaders need to combine big thinking with a focused attention to detail. They will need to create innovative products, penetrate new markets, and make bold investments in equipment, technology, and talent, while simultaneously scrutinizing every aspect of their operations for inefficiency and waste.

Traditional ways of doing business may have to be abandoned. But there is ample scope to make progress and spur faster economic growth. Immense trade flows, the rise of billions of new consumers in the emerging world, and technology breakthroughs are rapidly transforming the global economy. Japan can shift its current trajectory by turning this wave of disruption into opportunity.

Seki Obata is a professor at Keio University’s Graduate School of Business Administration and a former official in Japan’s Ministry of Finance. Georges Desvaux is the managing partner of McKinsey & Company’s Japan office. © Project Syndicate, 2015 - www.project-syndicate.org

May 20 - 26, 2015

18 | WORLD | financialmirror.com

Educating for sustainable development

By Irina Bokova and Christiana Figueres

This year marks a turning point for the world, with the international community adopting a new global development strategy in September and negotiating a universal deal to combat climate change in December. To succeed, policymakers must recognise that today’s global imperatives – to eradicate poverty and improve wellbeing, while restoring the Earth’s balance – form a single agenda, and that the most effective means of achieving it is education.

The good news is that the proposed set of Sustainable Development Goals, which will underpin global efforts for the next 15 years, reflect this recognition. Likewise, Article 6 of the United Nations Framework Convention on Climate Change (UNFCCC) stipulates that education, training, and public awareness on climate change must be pursued.

But, with negotiations on these global agreements far from complete, it is vital that policymakers’ emphasis on education continues to be reinforced. To this end, the world’s education ministers must take the opportunity offered by this month’s World Education Forum in Incheon, South Korea, to highlight the role that education can and should play in advancing sustainable development.

A strong education system broadens access to opportunities, improves health, and bolsters the resilience of communities – all while fueling economic growth in a way

that can reinforce and accelerate these processes. Moreover, education provides the skills people need to thrive in the new sustainable economy, working in areas such as renewable energy, smart agriculture, forest rehabilitation, the design of resource-efficient cities, and sound management of healthy ecosystems.

Perhaps most important, education can bring about a fundamental shift in how we think, act, and discharge our responsibilities toward one another and the planet. After all, while financial incentives, targeted policies, and technological innovation are needed to catalyse new ways of producing and consuming, they cannot reshape people’s value systems so that they willingly uphold and advance the principles of sustainable development. Schools, however, can nurture a new generation of environmentally savvy citizens to support the transition to a prosperous and sustainable future.

Some schools are already becoming learning labs for sustainable development, where young students are being prepared to adapt to and help mitigate the consequences of climate change. Guided by the UNFCCC – as well as related initiatives like the UN Alliance on Climate Change Education, Training, and Public Awareness – governments are increasingly integrating education strategies, tools, and targets into national development policies. The UNESCO-led UN Decade of Education for Sustainable Development, which began in 2005, was explicitly intended to instill in every human being “the knowledge, skills, attitudes, and values necessary to shape a sustainable future.”

Together, UNESCO and the UNFCCC are not only promoting climate-change education in schools; they are also giving teachers the tools and knowledge they need to

provide that education through online courses. Already, more than 14 mln students and 1.2 mln teachers in 58 countries have been engaged in such learning, and 550 business schools have signed on to the Principles for Responsible Management Education, developed by the UN Global Compact.

This progress, though important, is just the beginning.

What is needed now is a global movement, with every student in every country learning about sustainable development from well-trained teachers, equipped with the appropriate curricula and resources. An ambitious sustainable development agenda, together with a legally binding global climate deal, could go a long way toward catalysing such a movement.

Of course, we cannot secure a sustainable future in a matter of months. But, with a well-designed set of commitments and targets, we can move onto the right path.

And, with effective educational programs that instill in future generations the importance of restoring Earth’s balance and delivering a prosperous future for the many, rather than the few, we can stay on that path.

That is the message that education ministers must emphasise at their upcoming forum, and that policymakers should heed as they negotiate this year’s two critical global agreements.

Irina Bokova is Director-General of UNESCO. Christiana Figueres is Executive Secretary of the UN Framework Convention on Climate Change. © Project Syndicate, 2015 - www.project-syndicate.org

Talent versus capital in the 21st century

By Klaus Schwab When financial policymakers attempt to promote economic growth, they almost invariably focus on looking for new ways to unleash capital. But, although this approach may have worked in the past, it risks giving short shrift to the role that talent plays in generating and realising the ideas that make growth possible. Indeed, in a future of rapid technological change and widespread automation, the determining factor – or crippling limit – to innovation, competiveness, and growth is less likely to be the availability of capital than the existence of a skilled workforce.

Geopolitical, demographic, and economic forces are relentlessly reshaping labour markets. Technology, in particular, is changing the nature of work itself, rendering entire sectors and occupations obsolete, while creating completely new industries and job categories. By some estimates, almost half of today’s professions could be automatable by 2025. Speculation about what will replace them ranges from predictions of unexpected opportunities to forecasts of large-scale unemployment as machines displace most human labor.

The first signs of this disruption are already visible. Global unemployment has topped 212 mln, according to the International Labor Organisation, and another 42 mln new jobs will need to be created each year if the world economy is to provide employment to the growing number of new entrants into the labor market.

Meanwhile, last year, 36% of employers worldwide reported facing difficulties in finding talent, the highest percentage in seven years.

Addressing this mismatch in supply and demand will require governments, business leaders, educational institutions, and individuals to overcome incentives to focus on the short term and begin to plan for a future in which change is the only constant.

All must rethink what it means to learn, the nature of work, and the roles and responsibilities of various stakeholders in ensuring that workers around the world are able to fulfill their potential.

Human-resource executives at some of the world’s largest companies anticipate profound disruptions from the increased adoption of mobile Internet and cloud technology, the use of big data, flexible work arrangements, 3-D printing, advanced materials, and new energy supplies, according to early results from a survey by the World Economic Forum. Their view of the overall impact on employment levels in their industries was for the most part positive – provided that new workforce skills can be developed rapidly in their own sectors and in the labor market more broadly.

As technology increasingly takes over knowledge-based work, the cognitive skills that are central to today’s education systems will remain important; but behavioral and non-cognitive skills necessary for collaboration, innovation, and problem solving will become essential as well. Today’s schools and universities, which are

dominated by approaches to learning that are fundamentally individualistic and competitive in nature, must be redesigned to focus on learning to learn and acquiring the skills needed to collaborate with others.

Uniquely human skills, like being able to work in teams, manage relationships, and understand cultural sensitivities will become vital for businesses across all sectors and must become a core component of future generations’ education.

Moreover, with education increasingly becoming a lifelong pursuit, businesses must rethink their role in providing for a competitive workforce. Some companies have already grasped this and are investing in their employees’ continuous learning, reskilling, and up-skilling. Yet most employers still expect to obtain pre-trained talent from schools, universities, and other companies.

Business will increasingly have to work with educators and governments to help education systems keep up with the needs of the labor market. Given rapid change in the skill sets required for many occupations, business must redirect investment to onthe-job training and lifelong learning, particularly as millennials enter the workforce, seeking purpose and diversity of experience where their predecessors sought remuneration and stability.

Business cycles naturally entail peaks and troughs in employment, and socially

responsible businesses should follow successful examples like Coca-Cola, Alcoa, Saudi Aramco, Africa Rainbow Minerals, and Google in working toward mitigating joblessness and enhancing people’s abilities to earn a livelihood.

Governments, too, have a role to play in creating an environment in which their citizens can reach their potential.

Policymakers must use stronger metrics to assess human capital and reexamine investment in education, curriculum design, hiring and firing practices, women’s integration into the workforce, retirement policies, immigration legislation, and welfare policies.

Regulatory support for entrepreneurship and small and mediumsize enterprises remains one of the most underused means of unleashing creativity, enhancing growth, and generating employment.

Protecting workers and consumers is critical, but shielding specific industries from the impact of new business models will not hold off the next wave of transformation.

Rather than seeking to rein in disruptive businesses such as Airbnb and Uber, governments should introduce regulations that enable their sustained growth, while looking for ways to leverage their technologies and entrepreneurial approaches to boost social welfare. Such policies include online education courses for the unemployed, digital workers’ insurance, virtual unionization, and tax policies geared for the sharing economy.

Unlocking the world’s latent talent, and thus its full capacity for growth, requires us to look beyond business cycles and quarterly reports. The future is full of potential, but only if we are smart enough – and courageous enough – to grasp it.

Klaus Schwab is Founder and Executive Chairman of the World Economic Forum. © Project Syndicate, 2015. www.project-syndicate.org

May 20 - 26, 2015

financialmirror.com | WORLD | 19

Building the global schoolhouse This year is a critical one for education worldwide. Despite a commitment by the international community to guarantee universal primary schooling, some 58 mln of the world’s most marginalised children remain out of the classroom.

And, as we seek to expand the international community’s commitment, so that by 2030 every child has the opportunity to attend secondary school, we must work hard to provide the necessary funding.

spending on this scale.

For the time being, outside help will be essential. There are clear limits to poor countries’ ability to mobilise the domestic resources needed to provide secondary education for all. The international community must help make up the difference by looking to private foundations, businesses, charitable organisations, and global and national funding.

The cause of education still lacks a major philanthropist like Bill Gates. And, although the Global Partnership for Education raised more than $2 bln in its replenishment effort, health programs have more funders, reflected in, for example, the $12 bln Global Fund to Fight Aids, Tuberculosis, and Malaria. Only recently has Norway assumed a vanguard role in making education of all children worldwide a national priority.

Currently, education accounts for only 1% of humanitarian aid in emergencies, despite the fact that millions of children are refugees in need of help, not just for days or weeks, but often for years. Nearly half of the out-ofschool population – some 28 mln children – now reside in conflict countries, with millions trapped in refugee camps or tent cities.

Among the proposals being discussed at this year’s meetings is the establishment of a fund for education during emergencies and a coordination platform to help channel resources to places like Syria, where the conflict has left nearly three million children out of school. Likewise, in Nepal, 25,000 classrooms are in urgent need of reconstruction or retrofitting to withstand earthquakes.

The effort to provide humanitarian aid in emergencies is just one part of the agenda for global education. Just as the International Finance Facility for Immunisation provides front-loaded funding mechanisms for health, we now must consider innovative financing instruments, like social impact bonds, that promise not only to increase enrollment, but also to improve student retention and learning.

Today, the richest countries in the world spend about $100,000 educating a child to the age of 16. In Sub-Saharan Africa, by contrast, an average child from a poor family will receive less than four years of education, at a cost of $150 per year – only $12 of which originates in the richest countries.

Our long-term aim must be to ensure that citizens of the world’s poorest countries have not only the same educational opportunities, but also the same educational attainment rates as their counterparts in richer countries. Only when this is accomplished will we be able to say that the struggle for the right to education has been won, and that we have created a world in which all children can realise their hopes and ambitions.

By Gordon Brown

This is why the upcoming four-day World Education Forum in South Korea, the homeland of United Nations SecretaryGeneral Ban Ki-moon, is so important.

According to most estimates, providing universal secondary education will cost international donors an additional $22-50 bln a year, even after developing countries ramp up their commitments. If we fail to raise that money, the hopes and ambitions of millions of children are certain to be crushed.

The Forum will focus on how to bridge the funding gap. Later, on July 7, Norwegian Prime Minister Erna Solberg and Foreign Minister Borge Brende will convene a summit in Oslo with the aim of raising education’s profile among global priorities, reversing negative trends in financing, and identifying ways to support students more effectively. Other conferences, including the Addis Ababa International Conference on Financing for Development, the Education International World Congress, an #UpForSchool Town Hall during the UN General Assembly, and the 28th Session of the General Conference of UNESCO, will provide forums for action and discussion.

It is fitting that the first of these events is taking place in South Korea and that Ban will be one of the key speakers. Ban’s personal story illustrates the difference education can make in transforming a life.

Raised in war-torn Korea in the 1950s, Ban’s elementary schooling – made possible by help from UNICEF – took place under a tree. UNESCO provided the books, which bore an inscription that read, “Children should work hard, and by doing so they will repay their debt to the United Nations.” No one could have imagined that one of those students would repay his debt by becoming Secretary-General and using that position to lead a campaign, the Global Education First Initiative, to provide others with the opportunity he received.

Education is central to achieving all of the other Sustainable Development Goals; it unlocks gains in health, women’s empowerment, employment, and overall quality of life. The trouble is that providing for a proper education system requires at least 5% of a country’s GDP and usually about 20% of public spending. Few developing countries have undertaken

Gordon Brown, a former prime minister of the United Kingdom (2007-2010), is United Nations Special Envoy for Global Education. © Project Syndicate, 2015. www.project-syndicate.org

May 20 - 26, 2015

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Modi in China

By Brahma Chellaney China and India have a fraught relationship, characterised by festering disputes, deep mistrust, and a shared ambivalence about political cooperation. Booming bilateral trade, far from helping to turn the page on old rifts, has been accompanied by increasing border incidents, military tensions, and geopolitical rivalry, as well as disagreements on riparian and maritime issues.

Since taking office last year, Indian Prime Minister Narendra Modi has sought to transform his country’s relationship with China, arguing that Asia’s prospects hinge “in large measure” on what the two countries – which together account for one-third of the world’s population – “achieve individually” and “do together.” But, as Modi’s justconcluded tour of China highlighted, the issues that divide the demographic titans remain formidable.

To be sure, China’s leaders fêted Modi in style. When Modi arrived in Xian – one of China’s four ancient capitals and President Xi Jinping’s hometown – Xi took him on a personal tour of the Big Wild Goose Pagoda. (Modi subsequently boasted of his close “plus one” friendship with Xi.) In Beijing, Premier Li Keqiang posed for a selfie with Modi outside the Temple of Heaven. What China’s leaders did not do was yield on any substantive issue – and not for lack of effort on Modi’s part. Despite Modi’s pragmatic and conciliatory tack, his request that China “reconsider its approach” on some of the issues that are preventing the partnership from realising its “full potential” went unheeded.

Consider discussions relating to the ongoing dispute over the two countries’ long Himalayan frontier. Alluding to a series of Chinese military incursions since 2006, Modi declared that “a shadow of uncertainty” hangs over the border region, because the “line of actual control” that China unilaterally drew after defeating India in a 1962 war that it had initiated was never mutually clarified. Modi proposed resuming the LAC clarification process, but to no avail.

In fact, the reason for the continued ambiguity is that, in 2002, after more than two decades of negotiations, China reneged on a promise to exchange maps with India covering

the two main disputed sectors – the Austria-size Arunachal Pradesh and the Switzerland-size Aksai Chin, along with its adjacent areas – located at either end of the Himalayas. Four years later, China revived its long-dormant claim to Arunachal Pradesh, and has since breached its border several times. It fulminated against Modi’s visit to Arunachal Pradesh in February.

Nonetheless, in his zeal to build the bilateral relationship, Modi announced that Chinese tourists are now eligible to receive electronic visas on arrival in India – blindsiding his foreign secretary, who had just told the media that no such decision had been made. China’s foreign minister hailed the measure as a “gift” – an accurate description, given that China has yielded nothing in return. On the contrary, China has aimed to undermine India’s sovereignty, by issuing stapled visas to residents of Arunachal Pradesh.

Moreover, China – which, by annexing water-rich Tibet, has become the region’s hydro-hegemon – also declined to conclude an agreement to sell India hydrological data on transboundary rivers year-round, rather than just during the monsoon season. So, China is not only refusing to create a water-sharing pact with any of its neighbours; it will not even share comprehensive data on upstream river flows.

Making matters worse, there is an unmistakable air of condescension in the pronouncements, contained in the joint statement issued at the end of Modi’s visit, that China “took note of India’s aspirations” to join the Nuclear Suppliers Group, and “understands and supports India’s aspiration to play a greater role in the United Nations, including in the Security Council.” China is the only major power that has not backed India’s bid to become a permanent member of the Security Council.

Economic outcomes were similarly unequal. Many of the deals Modi made with business leaders in Shanghai – supposedly worth $22 bln – entail Chinese state-owned banks financing Indian firms to purchase Chinese equipment. This will worsen India’s already massive trade deficit with China, while doing little to boost China’s meager investment in India, which totals just 1% of China’s annual bilateral trade surplus – a surplus that has swelled by onethird since Modi took office and is now approaching $50 bln.

Indeed, China and India have one of the world’s most lopsided trade relationships. Chinese exports to India are worth five times more than its imports from India. Moreover,

China mainly purchases raw materials from India, while selling it mostly value-added goods. With India making little effort to stem the avalanche of cheap Chinese goods flooding its market – despite Modi’s much-touted “Make in India” campaign – China’s status as the country’s largest source of imports appears secure.

China is well practiced in using trade and commercial penetration to bolster its influence in other countries. In India’s case, it is leveraging its clout as a major supplier of power and telecommunications equipment and active pharmaceutical ingredients, not to mention as a lender to financially troubled Indian firms, to limit the country’s options. By allowing the trade distortions from which China profits to persist – and, indeed, to grow – India is effectively funding this strategy.

As hard as Modi tries to put a positive spin on his recent visit to China, highlighting the 24 mostly symbolic agreements that were concluded, he cannot obscure the harsh strategic realities affecting the bilateral relationship.

Without a new approach, the Sino-Indian relationship seems doomed to remain highly uneven and contentious.

Brahma Chellaney, Professor of Strategic Studies at the New Delhi-based Center for Policy Research, is the author of Asian Juggernaut, Water: Asia’s New Battleground, and Water, Peace, and War: Confronting the Global Water Crisis. © Project Syndicate, 2015 - www.project-syndicate.org

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