Financial Mirror 2015 05 27

FinancialMirror Issue No. 1135 €1.00 May 27 - June 2 , 2015

LEE JONG-WHA

OREN LAURENT

The irresistible rise of the renminbi PAGE 17

Yemen crisis reaches beyond its border PAGE 14

Hellenic Bank is ‘ready for growth’ says CEO Bert Pijls EIB FUNDS DISBURSED, AIMS FOR SHIPPING FINANCE -

Cutting the Gordian knot of the Cyprus title deeds saga SEE PAGE 12

PAGE 9

INTERVIEW PAGES 10-11

May 27 - June 2, 2015

2 | OPINION | financialmirror.com

FinancialMirror

Is peace momentum picking up again?

Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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The ten-year-itch seems to be going away, with the island’s two leaders setting their own pace of official and social meetings that are gradually re-introducing a glimmer of hope that the Cyprus problem could, after all, be solved.

Their “walkabout” on both sides of the Green Line last Saturday was aimed at raising public support for the resumption of talks, regardless of the huge obstacles on both sides of the divide.

They succeeded, to some extent.

However, the momentum that Mustafa Akinci and Nicos Anastasiades have created, has so far produced muted support for two basic reasons: the economic crisis has hurt households in both communities, and the rejectionist front, that has yet to propose any pragmatic alternative to help solve the island’s division (or even the economy), is feeding into this dire situation gradually building up old scaremongering tactics that a solution will demolish everything that everyone has worked so hard to build.

On the demolition front, we have the politicians to thank, who, in their incompetence allowed a chain of events that led to the March 2013 bailout plan. Unemployment has remained at doggedly high levels with the present administration struggling to lower it, as it also sets a target to exit the economic adjustment plan some time next year.

Reforms are trickling through with the most important of all, privatisations, meeting more objection than the “devil-devised” Annan plan.

The absence of a truly ruling party and its failure to strike up alliances in parliament means that the administration’s hands will remain tied until after the elections for a new assembly eleven months from now. Which is why opposition forces want all talk about privatisations moved back to beyond 2016, hoping that a change in the political scene in the House of Representatives will also stop the government’s plan in its tracks.

Fortunately, we have seen several ministers in the present administration digging in for long battles, aiming to return the economy into a recovery mode, as soon as possible.

The financial state of the private and public sectors will also determine the outcome of the peace talks, which have been upgraded to ‘reunification’ talks, judging from the tweets of both leaders.

Anastasiades declared “we ought to deliver peace and prosperity” and Akinci responded with “We had a good start. Continuing well and concluding well is much more important. We should all work to not cause new disappointments.”

Let’s not repeat the mistakes of the past. And in the meantime, if Anastasiades can win the gamble of getting the Cyprus economy on its feet again, he will find it much easier to push through with a settlement agenda.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

EU tax, new Cyta tariffs The professional services sector was bracing for a new EU-wide tax rate of 15% on interest from July 1, expected to impact all high net-worth individuals, while Cyta was about to introduce a new tariff policy, with ISDN gong up 50% and ADSL unchanged, according to the Financial Mirror issue 621, on May 18, 2005.

EU tax: With only 40 days to go for the EU Savings Tax Directive (EUSD) to kick in, professionals were scrambling to put the accounting and banking details of their high net-worth clients in order. The

20 YEARS AGO

Bounced cheques, Kiliaris returns to Louis Bounced cheques totaled 250,000 worth CYP 25 mln in 1994 and in the first two months of the year the value reached CYP 443,000, while two weeks after his resignation from the Trade Ministry, Stelios Kiliaris has returned to the Louis Group according to the Cyprus Financial Mirror issue 112, on May 24, 1995.

Bounced cheques: Despite the efforts of the police,

new directive orders all EU member states to exchange information with each other about all EU residents who earn interest on savings and investments in one member state, but live in another. A 15% rate will be deducted at source.

Cyta tariffs: Cyta introduced a new tariff policy on fixed telephony and monthly rental fees. The connection fee will rise from CYP 30 to 37 and the fixed line monthly fee from CYP 5 to 6.95. ISDN connection will rise from CYP 40 to 60 and the monthly fee from CYP 8 to 13.40. Call

charges for fixed to fixed telephony will drop from 2c per 2 minutes to 0.88c per minute and 0.76c off peak hours. ADSL rates remain unchanged.

Interest rates: Cypriot businesses are paying much more for their loans than their peers of all the six ERM2 entrants. According to Eurostat, the 3month money-market interest rate in the eurozone was only 2.14%, but in Cyprus it was 282 basis points higher at 4.96%. In Slovenia it was 4.05%, in Latvia 3.26% and so on.

CDB profits: The majority state-owned Cyprus Development Bank reported a profit before provisions for NPLs of CYP 1.9 mln, from a loss of 2.7 mln in 2003.

banks and business associations, 250,000 cheques worth CYP 25 mln bounced last year, with the problem increasing. One major bank sent back 175,000 cheques because they were issued with no collateral, raising the total of returned cheques to 420,000.

Kiliaris at Louis: Tow weeks after quitting the cabinet, former Commerce and Industry Minister Stelios Kiliaris has returned to the Louis Organisation as Group General Manager,

the same post he held prior to his public appointment, while he has also been appointed vice president of the board of IMC. French airport contract: French joint venture Aeroport De Paris (ADP) and Sofreavia secured a CYP 992,000 contract to draft construction plans fro a new international airport in Paphos. The new passenger terminal must accommodate 1.7 mln travelers, rising to 2.8 mln.

Lombard leads: Lombard Natwest Bank said it was the most successful of foreign banks in Cyprus, with net operating profits rising from CYP 594,000 to 1 mln, loans rising from CYP 75 mln to 98 mln, and deposits up 23% from CYP 118 mln to 145 mln.

Oh, and Hellenic Bank was advertising itself as “A modern Cypriot Bank”…

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May 27 - June 2, 2015

financialmirror.com | CYPRUS | 3

Banks’ trade unions starting to get restless with bosses Trade unions of bank employees are preparing for a confrontation with management at Hellenic Bank and Bank of Cyprus as the restructured banks want to employ universally accepted working hours and pay scales in order to regain their competitiveness.

The bank employees are trying to strengthen their negotiating position with the dual tactic of preparing for a conflict with Hellenic Bank and of refraining from negotiations with Bank of Cyprus, the business site Stockwatch reported.

Other reports suggest that nearly 97% of staff at Hellenic who belong to the ETYK trade union have authorised their representatives to deal with the bank’s management, that is alleged to have demanded that staff work longer hours without overtime pay.

This is also the reason why both bank of Cyprus and Hellenic Bank abandoned the Cyprus Bankers’ Association and sought direct negotiations with the staff, as the association has signed a collective labour agreement that obliges all member banks to adhere to the labour packages.

Hellenic Bank’s CEO Bert Pijls told the Cyprus Mail earlier this week that he favours extending operating hours of the bank’s branch network as well as overhauling employee pay in a way that will reward productivity, two positions that are likely to further anger the ETYK union.

“We have internally discussed this, both at executive level and board level,” Pijls said, adding that a “material” extension

of opening hours could also result in the creation of more jobs. “It is one of the things that we say ‘yes, one day, we want to have longer hours’ but in terms of whether I have concrete plans to discuss with the unions, we are not that far yet”.

In the case of Hellenic Bank, the trade union has increased the pressure with staff abstaining from any overtime work and turning to the Labour Ministry to resolve the dispute.

At the Bank of Cyprus, ETYK has frozen talks and cancelled a meeting scheduled for last Friday within the context of the renewing the collective agreement that expired on 31 December last year.

ETYK accuses the bank’s administration of trying to eliminate the pay scales, cost-of-living allowance, promotions, a cut of contributions to the provident fund and changing working hours.

The trade union said it has no financial claims.

ETYK also accused Hellenic Bank for violating the provisions of the collective agreement related to staff recruitment issues from outside the bank. The union has insisted in past years that all non-staff promotions or new hiring first get its own approval, a condition that seem ludicrous in present circumstances.

Next Friday, the Bank of Cyprus board is expected to assess, among others, the status of the labour relations with ETYK and possibly to determine its own tactics.

Wednesday’s AGM at Hellenic Bank may also deal with the dispute.

‘BOCY 5’ plead not guilty Five senior former executives at the Bank of Cyprus have pleaded not guilty to charges of misleading shareholders and the authorities over its grossly underestimated capital shortfall dating back to 2012 when the bank had bought toxic Greek government bonds.

EU leaders had agreed in November 2011 that the Greek bonds be written down, as a result of which investors lost billions. Among them were both Bank of Cyprus and now-defunct Laiki Popular Bank, that had been encouraged by the then government in Athens to buy these toxic bonds in an effort to prop up the Greek economy.

BOCY’s former chairmen Theodoros Aristodemou and Andreas Artemis, former CEOs Andreas Eliades and Yiannis Kypris, and former deputy CEO Yiannis Pehlivanides were formally charged after the court rejected their pre-trial objections, except one.

The court set a next hearing for June 2 but defence lawyers objected seeking to start the trial in September so that expert witnesses could have time to study the evidence.

Defence lawyers have also argued double jeopardy applied and sought a mistrial, as the defendants – with the exception of Artemis – had already been fined for the same offences by the Cyprus Securities and Exchange Commission (CySEC).

May 27 - June 2, 2015

4 | CYPRUS | financialmirror.com

Cyprus start-up markets Down’s syndrome test A revolutionary non-invasive prenatal diagnostic test for Down’s Syndrome is now available from NIPD Genetics Ltd., a start-up company created by the Cyprus Institute of Neurology and Genetics in 2010.

The test for Down’s Syndrome, or trisomy 21, a genetic disorder caused by the presence of all or part of a third copy of chromosome 21, was discovered in 2011 by researchers under Professor Philippos Patsalis, then General Director of the Institute of Neurology and Genetics and presently Minister of Health.

The Veracity Test, as it is called, is an innovative prenatal test that can provide all pregnant women, at very low cost, with high accuracy and reliability, but also without any risk to the fetus, a noninvasive prenatal screening for the syndrome, trisomy 18, trisomy 13, monosomy X and the sex of the fetus.

The non-invasive prenatal test Veracity can be provided to every pregnant woman, in Cyprus and abroad, who wants to

President Anastasiades to visit Israel on June 15 President Nicos Anastasiades will pay an official visit to Israel on June 15, Government Spokesman Nicos Christodoulides said on Sunday.

He said the visit follows an invitation from the Israeli government.

During the visit he will meet with Prime Minister Benyamin Netanyahu, the President and the Knesset President, he added.

Replying to a question on whether the agenda will include energy related matters Christodoulides said that the agenda of President Anastasiades’ visit includes quite a few matters of mutual interest.

He added that the agenda of the discussions to take place is expected to be finalised in the coming days.

These include bilateral relations and security in the Eastern Mediterranean region, he noted.

Injection of €2 bln from citizenship and residency deals Cyprus has earned EUR 2 bln from granting Cypriot citizenship and residency permits to foreigners boosting the economy as many have also invested property.

During a parliamentary review of the audit service report of the Ministry of Interior for 2013, Interior Minister Socrates Hasikos told MPs the revenues from granting Cypriot citizenship exceeded EUR 2 bln, noting that these funds were a considerable financial injection.

According to Hasikos, these foreigners acquire Cypriot citizenship but have income from abroad.

The minister avoided to give further details on the issue citing privacy issues.

“The Republic is under pressure to stop this policy, so we need to keep a low profile”, he said.

Car registrations up 13% in Jan-April Car registrations in the first four months of the year reached 7,881, an increase of 13.2% compared with 6,984 registered in the same period of 2014.

According to figures released by the Statistical Service Cystat, new car registration totalled 3,912, up 7.47%, whereas used car registration stood at 3,969, an increase of 19.40% compared to the first four months of 2014.

Saloon car registrations reached 6,047, up 10% compared with 5,498 sold in January-April 2014.

Car registrations, both new and used cars, recorded an annual increase in all fourth months of 2015. January registrations reached 2,047, in February 1,643, in March 2,150 and 2,041 in April.

know early during her pregnancy if her child has Down’s syndrome or other genetic disorders.

Its greatest advantage is that the test does not put the pregnancy or the life of the fetus at any risk.

The test is 100% safe for the health of the mother and for the life of the fetus, unlike invasive methods of prenatal diagnosis, such as amniocentesis and CVS, which can cause miscarriage in 1-2% of the cases.

The Veracity test can be used any time after the tenth week of pregnancy. The results of any blood test (from all over the world) will be analysed in the company’s laboratories in Nicosia and sent back to the doctor.

NIPD Genetics put the test on the market this week and expressed belief that it will soon be adopted around the world as part of the pregnancy care.

The company is a privately held start-up company aiming to design, develop and manufacture non-invasive in vitro diagnostic tests for the diagnosis of genetic diseases and syndromes during the early stages of pregnancy.

Practitioners line up for first Insolvency Service permits The Insolvency Service began receiving applications from interested parties to become licensed insolvency practitioners. Giorgos Karotsakis, Head of the Insolvency Service, told the Cyprus News Agency that the Service will prepare the first list with licensed insolvency practitioners in the coming days, adding that this also depends on the applicants themselves and how soon they will submit the necessary documents.

Karotsakis said that there will be electronic communication between the courts and the Service to effectively implement the insolvency framework, adding that this will be the topic of a meeting with the President of the Supreme Court next week.

All the cases related to the insolvency framework will be sent to the courts and the judges electronically and be examined and processed in the same way, he explained.

“All changes that have been decided are innovative and will modernize the courts” Karotsakis said, noting that “in this way the cases concerning the insolvency framework will be swiftly processed”.

These cases will relate, inter alia, to applications to the court to order exemption from debts of up to EUR 25,000, requests to order protection of borrowers until they reach an agreement with their creditors on debt restructuring and ratification of agreements on debt restructuring between creditors and borrowers.

Online property portfolio from Coop bank The Cooperative Central Bank has created a website which will serve as the main gateway to inform the public on issues regarding the Cooperative’s property market.

The website was created with a view to promoting properties in the bank’s portfolio as well as real estate for which assisted sale is implemented. The website currently displays 43 properties worth EUR 33 mln.

Information such as a description, photos, title data, location etc has been posted for each property. The website provides a search function based on three criteria (district, type of property, target sales price).

As it is noted that properties will be made available through an open bidding procedure and bids will be submitted in writing. Those interested can visit the website www.realestate.coop.com.cy or via the CCB website www.ccb.coop.com.cy Bank of Cyprus operates a similar website at http://propertiesforsale.bankofcyprus.com/en-GB/

Investment funds net assets up 23% in Q1 Total net assets of Cyprus investment funds increased by 23%, rising to EUR 2.54 bln from EUR 2.07 bln in December 2014, the Cyprus Investment Funds Association (CIFA) said, citing figures released by the Central Bank of Cyprus.

“The latest statistics reveal the trust investors continue to place in the jurisdiction which is able to compete with other, larger jurisdictions. Cyprus is becoming a fast growing investment fund centre in Europe through the prompt response to legislative and regulatory needs and its strong

financial services sector which is at the forefront of industry developments,” CIFA said.

Retail trade turnover down in March The Turnover Value Index of Retail Trade for March decreased by 1.3% to 77.7 units, compared to the corresponding month of the previous year. According to the provisional estimates, announced by the Statistical Service Cystat, the index is estimated to have recorded an increase of 0.2% for the period January-March, compared to the same period of 2014.

Moreover, the Turnover Volume

Index of Retail Trade for March increased by 1.5% to 76.8 units (base 2010=100) compared to the corresponding month of the previous year. According to provisional estimates for January-March, the index recorded an increase of 3.4% compared to the same period of 2014.

Road transport down Both national and international road transport decreased in 2014, compared to the year before. According to the latest figures for the 12-month period January-December 2014, the Statistical Service said national road transport decreased by 9.5% in 2014 compared to 2013.

May 27 - June 2, 2015

financialmirror.com | CYPRUS | 5

Hellenic Bank in €12 mln profit turnaround Hellenic Bank, one of four systemic banks that underwent stringent capital tests last October and raised about 200 mln in fresh funds, reported a profit of EUR 12 mln in the first quarter this year, compared to a EUR 26 mln loss in the same quarter of 2014.

“During a period where the economic environment remains fragile and the banking sector continues to face challenges, the return to profitability for a second consecutive quarter indicates that the Hellenic Bank Group is on the right track to achieving its goals while at the same time shows signs of stability,” the bank said in a statement.

Deposits were slightly up in the first quarter, increasing 4% to EUR 6.6 bln, thus enhancing the Group’s comfortable liquidity, as well as prospects for growth and profitability.

However, the bank’s leadership, including CEO Bert Pijls, has stated that Hellenic will not, for now, seek overseas expansion and will look to organic growth at the local level.

The Group’s profit from ordinary operations before impairment losses and provisions amounted to EUR 22 mln, totalling EUR 12 mln after provisions. The first quarter impairment losses and provisions to cover credit risk amounted to EUR 13 mln.

The sale of Borenham Holdings Limited,

the bank’s single-branch subsidiary in Russia, resulted in a profit of EUR 5 mln. It now operates representative offices in Moscow and St Petersburg.

The ratio of non-performing loans to the total gross loans, calculated in accordance with the new methodology of the European Banking Authority, stands at 60%, of which 47% is covered by provisions for impairment and the remainder by tangible collateral.

Recognising that the management of NPLs is the biggest challenge of the banking system, Hellenic said it is proceeding with a specific plan for their management which aims to result in fair and viable restructurings.

“In spite of the overall uncertainty that was caused by the Eurogroup’s decisions in March 2013, over the past two years the Hellenic Bank Group has managed to increase its deposits significantly. The positive deposits trend continued during the first quarter of 2015, resulting in a 4% increase in deposits compared to December 2014 (EUR 6.3 bln) which reached EUR 6.6 bln with a net loans to deposits ratio of 49%,” the bank’s statement added.

“Having a strong capital position, Hellenic Bank can withstand the pressures and is ready to take advantage of the opportunities for growth.”

The Group’s capital adequacy ratio at March 31 was 17.9%, the Tier 1 capital ratio

16.2% and the common equity tier 1 (CET 1) Ratio 13.3%.

May 27 - June 2, 2015

6 | COMMENT | financialmirror.com

CIIM launches digital marketing specialisation for MSc Management

By Olga Kandinskaia

Tougher EU AML rules to fight tax evasion, terrorist funding The ultimate owners of companies will have to be listed in central registers in EU countries, open both to the authorities and to people with a “legitimate interest”, such as investigative journalists, under new rules already agreed with the Council and endorsed by the European Parliament on Wednesday.

The new anti-money laundering directive aims to step up the fight against tax crimes and terrorist financing, while new rules to make it easier to trace transfers of funds were also approved.

The fourth anti-money laundering directive (AMLD) will for the first time oblige EU member states to keep central registers of information on the ultimate “beneficial” owners of corporate and other legal entities, as well as trusts. These central registers were not envisaged in the European Commission’s initial proposal, but were included by MEPs in negotiations.

The text also sets out specific reporting obligations for banks, auditors, lawyers, real estate agents and casinos, among others, on suspicious transactions made by their clients.

The central registers will be accessible to the authorities and their financial intelligence units (without any restriction), to “obliged entities” such as banks doing their “customer due diligence” duties, and also to the public. However, public access may be subject to online registration of the person requesting it and to a fee to cover administrative costs.

To access a register, a person or organisation (e.g. investigative journalists or NGOs) will in any event have to demonstrate a “legitimate interest” in suspected money laundering, terrorist financing and in “predicate” offences that may help to finance them, such as corruption, tax crimes and fraud.

These persons could access information such as the beneficial owner’s name, month and year of birth, nationality, country of residence and details of ownership. Any exemption to the access provided by member states will be possible only “on a case-by-case basis, in exceptional circumstances”.

Central register information on trusts will be accessible only to the authorities and “obliged entities”.

The text clarifies the rules on “politically-exposed persons”, i.e. people at a higher than usual risk of corruption due to the political positions they hold, such as heads of state, members of government, supreme court judges, and members of parliament, as well as their family members.

Where there are high-risk business relationships with such persons, additional measures should be put in place, e.g. to establish the source of wealth and source of funds involved, says the directive.

MEPs also approved a “transfers of funds” regulation, which aims to improve the traceability of payers and payees and their assets.

Member states will have two years to transpose the anti-money laundering directive into their national laws.

The transfers of funds regulation will be directly applicable in all member states 20 days after its publication in the EU Official Journal.

CIIM is introducing a new specialisation area for the Master of Science in Management Programme. In line with CIIM’s policy to bring best foreign professors, the new Digital Marketing Specialisation of the MSc Management has been designed in collaboration with leading digital marketing professionals from abroad.

Participants will qualify for the Professional Diploma in Digital Marketing issued by the Digital Marketing Institute (DMI) of Ireland www.digitalmarketinginstitute.com, the world’s leading professional institute in the field.

Working closely with expert practitioners, the Institute promotes best current practice, theory and applied skills in digital marketing for individuals and organisations. The DMI’s Professional Diploma is the most widely taught, industry-accredited qualification. We chose them as our partners to ensure that our students are receiving the most up-to-date information available during the training course.

The new Digital Marketing Specialisation is ideal for anyone involved in the planning, implementation and measurement of digital strategies, or anyone who would like to pursue a career in this area. CIIM’s MSc Management is a rigorous Master programme, which equips participants with an international standard of expertise in management aspects. The core courses cover the four main management functions: managing people, managing operations, managing finances, and managing sales and marketing. The programme is fully accredited by SEKAP and recognised by KYSATS. Combining a broadly based business degree with the specialised knowledge in such a growing area as Digital Marketing is an excellent career opportunity for a recent university graduate. To quote Ian Dodson, Co-Founder and Director of DMI, “all of the current innovation and thinking in marketing is happening through the various digital channels. At a time of uncertainty in the global economy,

now is the time to develop a skill set in a field that is truly recession-proof.”

The new specialisation programme focuses on the planning, implementation and measurement of the digital marketing strategy. It includes an intensive Digital Marketing Boot Camp which is followed by a group projectbased course, allowing participants to apply, practice and master what they have learned.

The digital marketing skill set will open up new career opportunities for the postgraduate management students.

There is an increasing demand in Cyprus and abroad for such professionals. The use of digital media is becoming a must for all businesses as well as government and nongovernment organisations. Companies are looking for professionals with the market relevant skills and knowledge.

While the job market in Cyprus remains depressed and in many professions the young graduates are struggling to get a job simply because companies prefer people with experience, the situation in the digital marketing job market is different.

Companies begin to realise that young people today are naturally good at using social media and they also understand better the way young consumers make their choices. This partially compensates for the lack of work experience, and therefore, a young graduate – provided that she or he possesses a credible degree and the right skill set – gets an excellent chance to be hired for a position in digital marketing.

The new Digital Marketing specialisation for the CIIM MSc Management students will start from September 14.

The degree takes one year full-time or two years part-time to complete.

CIIM, sponsored by the CDB Bank, is currently offering one full scholarship for the MSc Management Programme.

The deadline for applications is June 20.

For information visit www.ciim.ac.cy , master.management@ciim.ac.cy or call +357 22462246 (Nicosia) +357 25878782 (Limassol).

Dr Olga Kandinskaia is Director of the MSc Management Programme at the CIIM Business School

The most common Internet scams in the U.S. In 2014, victims of Internet crimes in the United States lost more than $800 mln as a new report published by the FBI’s Internet Crime Complaint Center reveals. In total, the IC3 received 269,422 complaints last year consisting of a wide array of scams affecting victims across all demographic groups. While confidence / romance scams, in which the criminal establishes an online relationship with his or her victim and later asks for money, are mostly targeted at

middle-aged women, men are more likely to fall for toogood-to-be-true car listings and become victims of auto fraud. For information on the different kinds of online scams visit the IC3’s website http://www.ic3.gov/default.aspx or check out its latest annual report on Internet crime cyber crime report at http://www.ic3.gov/media/annualreport/2014_IC3Report .pdf

May 27 - June 2, 2015

financialmirror.com | CYPRUS | 7

How the hotel industry can increase sales through social media Tourism has been the leading growth sector in Cyprus since 1980 and now constitutes the backbone of the economy. At present, the island hosts more than 2 mln tourists every year, according to a 2015 Cyprus Tourism Market Report conducted by KPMG.

By Mariana Antonescu At the same time, the number of people who book hotel reservations through online travel agencies like Booking.com and Hotels.com continues to grow each year.

Although this type of booking helps hotels increase sales, it takes away the hotel’s direct interaction with the customer. This trend also reduces the revenue that hotels make from those bookings because the online travel agencies have to take their cut too.

Fortunately, social networks like Facebook present a significant opportunity for hotels to build relationships that lead to brand awareness, word-of-mouth marketing, and ultimately, sales.

For the past years social media has grown to be one of the most effective means for tourists to seek information and share travelling experiences. The places people choose to visit and the activities they take part in are hugely influenced by current trends, the opinion of friends and the power of social opinion. Approximately one-fifth of leisure travellers worldwide turn to social media platforms for inspiration within different categories of their travel planning including: hotels (23%), vacation activities (22%), attractions (21%) and restaurants (17%).

Another survey found that 52% of Facebook users said their travel plans were affected by seeing friends’ pictures of trips.

Of people who had already made travel plans, only 48% stuck with their original plan after checking out what was being said on social media channels, 33% went on to change their hotel and 7% altered their entire trip by changing destinations. Hence, the influence of social media on the traveller’s decisionmaking cannot be ignored.

My company has managed complete marketing solutions for hotels since 2010. By mid 2013 we introduced a dedicated social media team working to manage complete campaigns for our clients.

What we’ve learned is that the hotels that get most direct return on investment on social media are hotels that adopt the following practices: Build a community of loyal followers around the property. The size of your community is an obvious factor in using social media to drive revenue. Simply put, more followers equals more revenue.

However it’s not about acquiring as many connections as possible; it’s about quality.

You need ‘Likes’ from people who really do like you, who will act as your hotel’s brand

ambassadors and spread the good word to their Facebook friends. If you manage your Facebook page right, you can create longlasting relationships with your guests who will stay with you whenever they can, interact with you frequently on your social media platform and share with their friends the wonderful time they are having during their travels thus extending the reach of your brand and increasing your return on investment.

Optimise for mobile devices. Mobile devices (smart phones and tablets) are here to stay. According to Google research in Europe, 40% of leisure travellers and 36% of business travellers book using their mobile devices. While this shift has already driven online travelling agencies to expand their services, luxury hotels in Cyprus have been slow to explore expanding their services. A user-friendly mobile site or an integrated mobile brand app is a way for hotels to increase their revenue through mobile bookings and by sending special offers through push notifications.

Manage your online reputation.

Consumers have an unprecedented impact on a hotel’s reputation and success.

Travellers who have had poor experience with a hotel will often vent their anger in social media forums. Negative comments, if not acknowledged and followed up with remedial action, can be devastating to the reputation of the hotel and therefore sales, as the sheer reach of social networks means negative publicity spreads very rapidly. On the other hand, effective service recovery can actually increase customer loyalty as it conveys the perception that the company cares for its customers. Have a dedicated team that monitors social comments on a daily basis, and ensures prompt response to customer issues and feedback.

Share TripAdvisor reviews. TripAdvisor is one of the most important resources when it comes to swaying a potential guest into sealing the deal and choosing to stay with you. Don’t shy away from sharing exceptional, 5-star TripAdvisor reviews with your followers, while also encouraging reviews from your past guests. Kanika Hotels make a point to share TripAdvisor awards and certificates of excellence on their Facebook page as well as to encourage guests to share their experience at their hotels and have already witnessed an increase in user reviews on the platform.

Though social media marketing in the hotel industry has a long way to go, it has a lot of potential and ignoring it would be a mistake.

Integrating social media into a company’s marketing communications programme is necessary to help bring the companies closer to their customers, to listen to them, to meaningfully engage with them and ultimately boost customer service, brand and sales.

Mariana Antonescu (PhD) is Business Consultant with a special interest in the field of Social Media Marketing. www.mariana.branded.me

May 27 - June 2, 2015

8 | COMMENT | financialmirror.com

Wine Wit… and Wisdom (?)

As I write, it is a cold and cloudy Bank Holiday Monday here in the UK. But I am in jovial mood, so a touch of humour Patrick Skinner may be in order.

In my days in the U.K. wine business, I had to attend fairs and festivals promoting the stuff to the general public. I remember one such, where as part of the entry fee each person was given a wine glass, which he or she could take along to the many stands of exhibiting wine producers and have a sample poured.

There were lots of them. And often, the pouring was quite generous. At 9.30 a.m. when the doors opened, the “public”, mostly comprising retired men, rushed in clasping the glasses to the first place offering a free slurp. By 11 o’clock, the place was littered with the elderly prostrate or seated fanning themselves. A heart attack was rumoured from time to time. I only hoped none was so foolish as to have driven themselves there.

Flipping through my photo archive, I found a few pictures that posed the odd thought about our enjoyment of wine, including a truism or two.

1. It’s a fallacy that you need a big nose to be able to get the best of a wine’s aroma.

Just hover your proboscis over the glass and sniff gently and slowly. You can be amazed!

2. Whether you are pouring the wine for yourself, or whether your butler does it, never fill a wine glass more than half full. Red wine glasses, which are larger than those used for white wine, may be only quarter, or less, filled.

3. By all means, raise a glass to toast the health of your host, but remember, once is enough.

4. Enjoy a glass or two of wine with your meal, don’t end up under the table, but make sure you stay Compos mentis. This quotation from the American writer and wit Dorothy Parker is appropriate…

“I like to have a martini, Two at the very most.

After three I’m under the table, after four I’m under my host.”

5. When buying wine, be your own man, or woman. Don’t be bulled by journalists telling you what wine you should buy. Or people running wine shops, for that matter. Remember, those “experts”, marking wines out of 100 points, have just the same number of taste buds that you do. All too often they’re pushing something, too, for one reason or another.

Make up your own mind. But don’t stick with just one or two wines. If you find you like a wine made from, say, the Merlot grape, try others, from different regions or different countries.

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

Premium Arabica from Ethiopia, the birthplace of coffee A Cyprus-based company with branches in Addis Ababa and Moscow, has started the supply and distribution of Ethiopian Arabica green beans and freshly roasted coffee beans, considered by far the premium variety of coffee worldwide.

A.H.V. Royal Coffee Trading Ltd. has its main office in Nicosia, which lies at the crossroads of three continents, occupying a key strategic position at the gateways of Europe, Middle East and Africa.

“The fabulous taste of Ethiopian coffee owes everything to the perfect environment in which it grows. The high altitude, perfect climate, good fertility and natural planting conditions makes Ethiopian coffee one of the best in the world,” explained one o fthe company’s executives.

Freshly roasted in Addis Ababa, it has a smooth dark or medium roast with a warm and resonating flavour.

A.H.V. Royal Coffee Trading offers two kinds of roasted coffee: Tomoca, single estate coffee from Harrar and Yirgacheffe, and Tarara, Ethiopian 100% Arabica blend. It can be used for espresso and filter, packed in a bag equipped with single way valve to preserve original coffee flavours and long lasting freshness.

The packages are ideal for retail, as well as wholesale use by coffeeshops. info@royalcoffeetrading.com www.royalcoffeetrading.com www.facebook.com/royalcoffeetrading

May 27 - June 2, 2015

financialmirror.com | COMMENT | 9

The world’s highest-paid sports teams The world’s richest sports stars compete on the soccer field.

According to Sportingintelligence’s Global Sports Salaries Survey, eight of the world’s twelve highest-paid sports teams are soccer clubs with Paris Saint-Germain grabbing first position.

Players at the French Ligue One outfit earn an average of $174,692 every week, adding up to just over $9 mln every year.

Real Madrid and Manchester City aren’t too far behind, paying their players a weekly average of $166,180 and $165,343 respectively.

The first non-soccer team to make the list, the Los Angeles Dodgers, come in fifth. The Major League Baseball team pay an average of $154,292, just 18 dollars more than Manchester United’s average weekly pay. (Source: Statista.com)

US leads slowdown in OECD growth The Organisation for Economic Cooperation and Development (OECD) reported that real gross domestic product (GDP) growth among the OECD countries in the first quarter of 2015 slipped from 0.5% in the fourth quarter of 2014 to 0.3%. The slowdown was most significant in the United States, where real GDP growth rose by just 0.1%.

OECD membership includes 34 developed and emerging economies. Members besides the United States range in size from the United Kingdom to Slovenia. Mexico, Chile and Turkey are among the current emerging economies that are members of the OECD. China is not a member, and Russia’s application for membership is on hold.

The so-called Major Seven OECD economies — the United States, Germany, the United Kingdom, Italy, Canada, France and Japan — posted first-quarter growth of just 0.2%, compared with 0.7% in the prior quarter. Growth in the European Union was flat at 0.4%, and among the eurozone

members growth improved from 0.3% to 0.4%.

Year over year, total OECD growth was 1.9%, up from year-over-year growth of 1.8% in the fourth quarter. Growth among the Major Seven rang in at 1.7%. Compared with a year ago, Japan fared worst, down 1.4%, the only member of the Major Seven to show a drop in growth. Month over month, however, Japan posted a gain of 0.6%, tied with France for the best performance among the Major Seven countries.

Italy, which had posted yearly GDP contraction for 13 straight quarters, posted growth that was flat with a year ago. Year over year, the U.S. economy rose by 3%, the most of any of the Major Seven countries.

The U.S. Bureau of Economic Analysis released its first estimate of U.S. first-quarter GDP growth in late April, a disappointing 0.2% in current dollars. Real GDP rose just 0.1%. The second estimate is due out on Friday. (Source: 24/7 Wall St.com)

Can Apple Watch sales reach 40 mln?

For the most part, sales expectations for Apple Inc. (NASDAQ: AAPL) have been muted so far. Analysts continue to focus on iPhone sales, which are by far the largest contributor to Apple’s revenue. But as time passes since the launch of the smartwatch, Wall Street will keep a more careful eye on it, because something has to shoulder the stagnation, or drop, of iPad and Mac sales.

According to Barron’s, Katy Hubert who is an analyst at Morgan Stanley, believes Apple Watch sales will reach 36 mln in the year immediately after its launch. Because Apple does not release figures on its smartwatch, forecasts are nothing more than a guess, driven by small pieces of research that cannot be definitive.

However, should Apple Watch sales reach 40 mln in the next year, it would be difficult to claim it is anything short of a major success.

In its most recently reported quarter, Apple management disclosed that iPad sales had fallen 23% to 12.6 mln in the same period the year prior. Measured sequentially, quarter over previous quarter, unit sales fell 40%. While the iPad has become a second-tier product for Apple, its sales, at $5.4 bln last quarter, were 8% of Apple’s revenue. As the number continues to slip, it has to be replaced by iPhone sales or sales of the Apple Watch. Revenue from Mac sales barely rose from a year ago, and it dropped by 19% sequentially to $5.6 bln.

Between them, the iPad and Mac are nearly a fifth of Apple’s revenue.

On the back of an envelope, for Apple Watch to be a success financially and contribute to Apple’s momentum, its revenue contribution needs to be close to $5 bln. With an average price point of just above $500, that will be difficult.

May 27 - June 2, 2015

10 | INTERVIEW | financialmirror.com

CEO Bert Pijls: Hellenic Bank

Has already issued 45 mln in EIB loans €4 Low-cost retail products to help households

Ship financing for second-hands, not newbuilds Hellenic Bank, the island’s third biggest lender that has survived the banking crisis that pummelled its peers in 2013, has just announced a second successive quarter of profits. But despite this good news, its CEO, Bert Pijls, insists that, for now, Hellenic will remain a primarily Cyprus-centric bank, looking to expand further in the local corporate sector and in maritime where it has a dedicated unit based in Limassol and wants to enter the ship-financing game.

In an interview with the Financial Mirror, Pijls, a former executive at European financial and retail giants who was headhunted last November, sounds confident that Hellenic now has a strong cash fund to launch more products and help revive the economy by investing more.

He said that the new, lower-cost retail products “will really make a difference in (consumers’) wallets every month.”

Here is the question and answer session with the bank’s chief executive:

Banks in Cyprus, and Hellenic Bank in particular, seems to be getting aggressive with new retail products.

Even though the Financial Mirror would be the first to shout that “banks need to be lending again to get the economy started”, does Hellenic Bank have the necessary “arsenal” to support these products?

Yes we do. Hellenic Bank has all the capabilities to support these products. First of all we have the liquidity. Secondly, we

have amended our product set. Just to give you two examples, we recently launched a balance transfer loan with a rate of 4.95% as well as a housing loan at 3% with no fees.

These are significant improvements that households in Cyprus will benefit from in a very meaningful way. It will really make a difference in their wallets every month.

Furthermore we have updated our marketing campaigns and we have adjusted our processes so that we can respond to customer request in an efficient and timely manner. We are definitely ready to be a very active player in the retail market.

Who are these retail products aimed at – all income levels or any particular segment of consumers?

Hellenic bank is a universal bank and thus we target a broad range of customers. We have a nationwide branch network and can and want to service any retail customer in Cyprus.

What is more important - household income or good repayment track record?

As far as credit risk is concerned, it is not so much about household income as it is about the monthly amount available to service the debt. Someone with a high income but high expenses may have less funds available than someone with an average income but lower monthly outgoings.

After we have established the customer’s ability to pay, we look at the customer’s repayment track record, which indicates the experience and willingness to repay. So, we use both of course.

So far, my retail experience outside Cyprus has indicated

that willingness to repay is probably a slightly better determinant of the actual performance of the loan than the ability to repay, but as I said before we do use both.

Will we be seeing more corporate products?

We aim to grow in all sectors, including corporate. Given our strong liquidity position in the market we don’t really need any special programmes; we can easily lend from our own funds at competitive prices. As far as our product suite is concerned, again I believe that we have all the products we need. In the case of corporate it is more a question of telling clients that we are ‘open for business’ and that if they have a financing need they will find Hellenic Bank a more than capable partner.

How much of the European Investment Bank funding have you so far disbursed?

You will remember that we secured a EUR 35 mln tranche from the EIB which we matched with EUR 35 mln from our own funds for a total fund of EUR 70 mln. As of very recently we have booked just over EUR 26 mln under the EIB tranche and about EUR 19.5 mln under the Hellenic Bank tranche, for a total of EUR 45.5 mln booked. These loans are at various stages of implementation and disbursement. We still have, of course, a pipeline of applications that takes us well in excess of the EUR 70 mln in terms of demand, but these applications still need to be approved.

What are the client and loan sizes? Are the loans for EUR 100,000 and up?

As far as loan sizes are concerned it is pretty varied and, yes, most loans are in excess of EUR 100,000.

A Dutchman at the helm...

Hellenic Bank, one of the island’s four systemic banks that underwent stringent capital stress tests last October, appointed Dutchman Bert Pijls as its new Chief Executive Officer on November 7.

He replaced Marinos Yannopoulos who had been acting CEO since September, and later returned to his role as a non-executive director on the board.

Yannopoulos, who was vice president at the time, stepped in to take over from

veteran banker Makis Keravnos who had resigned after ten years at the bank’s helm.

Pijls brings over two decades of banking experience to Hellenic, which concluded a EUR 220 mln rights issue to meet capital shortfall identified in the EU-wide stress tests and fund its ambitious growth plans.

“With his deep experience in banking across six different countries and his recent specialism in the use of digital channels to enhance customer service, Bert Pijls is

ideally placed to ensure the implementation of our strategic plan and capture the considerable opportunity before us as the solid banking alternative for Cypriot households and businesses,” chairwoman Irena Georgiadou said at the time of the appointment.

Pijls was most recently Managing Director of Customer Services and Commercial at British Gas/Centrica, where he had a strong focus on increasing the

company’s use of digital channels. Before that, he was Managing Director at Citigroup EMEA in London, CEO at Egg and held senior positions in the US, Germany and Belgium with Citigroup and American Express.

“I am joining a bank in sound financial health, with supportive shareholders and a committed team and in a unique position as the credible challenger to the established order in Cypriot banking,” Pijls said.

May 27 - June 2, 2015

financialmirror.com | INTERVIEW | 11

is ready for growth Hellenic Bank recently got an international award.

How important are these? Surely being the “best in Cyprus” does not really mean much nowadays. Or does it?

I think they do mean a lot. Of course they are not an indication that we have arrived at our destination and can sit back and relax. Especially in the Cypriot context where there is still a lot of work to be done and much progress to be achieved. However, these awards are a valid recognition of the progress that we have made and we are proud of that recognition.

Whenever we do get an award I am most pleased for our people because they have earned us these awards through their commitment and dedication. And you know what? They deserve it!

During a recent brief conversation you focused on shipping and maritime. Hellenic Bank has a dedicated division for this area. Are you a “big player among the small fish” or “small player among the big fish”?

We are indeed the only bank with a dedicated shipping centre and we have a long, fruitful, collaboration with the sector in Cyprus.

We go way back. As a result, in Cyprus we are definitively a big fish among the big fish. Up until now we do not offer ship financing as a core product (no bank in Cyprus does, as far as I know) and therefore in the international arena we are a small fish amongst very big fish.

We need to recognise this and be realistic about our aspirations, but we do have aspirations to do more for and with the shipping industry. One of those aspirations is indeed ship financing and we are evaluating our options there.

Is there any particular segment of maritime and shipping where you want to create your “niche”?

Hellenic Bank’s niche has always been quality and reliability of service and that is what it will remain. It is critical for the industry that the administration and payments for the vessels, as well as the payments to the seafarers all across the globe is done effectively and efficiently. I don’t think that I am exaggerating when I say that it was Hellenic Bank’s expertise in this regard that helped the Cypriot shipping industry navigate through the darkest days of the crisis in 2013 and that helped it maintain its excellent global reputation. And we could do this because we really know our clients and they know us.

Isn’t the current global shipping sector a bit risky for financing ship purchases or newbuilds?

As far as ship financing is concerned, as I said before, we have to be realistic. It is not our aim to finance new-builds, but most likely smaller, second hand vessels. How and when we launch this service does indeed depend on the state of the global shipping industry.

A glut of new-builds, combined with a global recession has led to significant oversupply and as a result charter rates have plummeted. But vessels have an expiry date and the trends indicate there comes a point when demand does meet supply and then charter rates should correct upwards. When this will happen exactly is difficult to foretell so we have to be prudent, but we do want to participate and contribute to that

recovery.

Is there any new business in the pipeline that we can refer to or a major deal currently underway?

As I said before, we should only really do this when we are ready and we are not quite ready, so I have no major deals in the pipeline.

Looking ahead, does Hellenic Bank remain a primarily Cyprus-centric bank or does its relationship

with its shareholders allow diversification or expansion into new areas?

Hellenic Bank is a Cypriot bank and we have more than enough on our plate at the moment to keep us busy here. In fact, an overseas expansion could distract us from the job at hand.

Therefore, I foresee for the medium term that we will remain Cyprus-centric. For the long term? I don’t know but we’ll cross that bridge when we get there. In the meantime, I have not looked at any non-Cyprus opportunities.

Hellenic Bank wins “Best Corporate Governance” award Hellenic Bank has been presented with the “Best Corporate Governance Cyprus 2015 Award” by Capital Finance International journal (CFI.co).

“The bank not only emerged from the recession, it deftly managed its affairs without appealing to bailout funds or other forms of state support. Hellenic Bank Group was the only Cypriot financial institution to do so, thus affirming its unique position,” said the CFI.co announcement, justifying the award.

“Eschewing risk well before the crisis hit, and with a comprehensive governance framework ensuring full transparency already firmly in place, Hellenic Bank

Group gained the trust – and admiration – of its clients. The bank has distanced itself from the pack by pursuing its business in a conservative, yet dynamic, fashion. That stance has since attracted new shareholders,” said CFI.co.

The announcement added that “with a proven track record, and its corporate philosophy tried and tested under the most trying of circumstances, Hellenic Bank Group is now primed for expansion. The key to the Group’s enduring success remains good corporate governance with the active involvement of all stakeholders and full compliance with global standards.

“Given the impressive results obtained in the face of grave difficulties, the CFI.co judging panel considers the Hellenic Bank Group a most inspiring leader of the Cypriot financial sector.”

Hellenic Bank said that it had taken the initiative of applying many of the Corporate Governance Codes principles issued by the Council of the Cyprus Stock Exchange well before the issuance of the Code. The full implementation of the Code’s principles constitutes Hellenic Bank’s policy, it said.

This recognition comes in addition to the recently received award from Global Finance Magazine as “The Best Bank in Cyprus for 2015”.

May 27 - June 2, 2015

12 | PROPERTY | financialmirror.com

OPEN LETTER TO SOCRATIS HASIKOS

Cutting the Gordian knot of title deeds Last week the Interior Minister announced that that the government intends to bring new legislation addressing the problem of thousands of home buyers trapped without title seeds due to vendors’ unpaid

mortgages.

Below is an initial response to the minister’s announcement by a member of the property monitoring community.

By Nigel Howarth I applaud your decision to introduce legislation to address the problem of thousands of trapped home buyers who are unable to get the deeds to the property they purchased due to their developer’s outstanding mortgage debt(s).

But to be effective the legislation must include the release of a deed that is encumbered by other debts and memos, including taxes owed to the state and local authorities.

The legislation must also ensure that trapped home buyers are not, under any circumstances, required to contribute towards paying a vendor’s debt(s) and tax liabilities – and that the fees payable to effect the transfer of the property are no more than the fees payable had the property been unencumbered.

Furthermore, once the property is registered in the name of its purchaser that purchaser must be free to mortgage the property, sell it, gift it, leave it to their heir(s) or dispose of it in any way they wish within the law – and subsequent owners must also be free to dispose of the property without incurring any costs over and above those that would normally be payable.

Any proposed legislation that fails to embrace the conditions above would be disingenuous and unacceptable.

The present system unfairly penalises home buyers who are unable to obtain title to the property they purchased through no fault of their own. This must change.

As you openly admitted in July last year, the state – government and parliament – has failed miserably over the Title Deeds issue. Not only has this miserable failure contributed to the decline property sales, it has also resulted in tarnishing Cyprus’ reputation in the international community and reducing the inflow of revenue to state coffers.

Title Deed issuance The most effective solution to the many problems associated with Title Deeds is to ensure that unencumbered title is available for transfer on delivery of a property to its purchaser(s). This solution would both: (a) help to restore the island’s tarnished reputation; and, (b) help the recovery of the island’s beleaguered property industry.

Other countries deliver unencumbered deeds on the delivery of a property, why not Cyprus?

There are numerous ‘idiosyncrasies’ in the present system. Perhaps the most obvious is that property ownership is dependent on whether a built property conforms to the The presence of Leptos Estates at the “International Real Estate” in Ukraine and the “Moscow International Property Show” in Russia which took place this month was marked with great success, according to the company, which said that the Group presented its latest developments in Paphos and Limassol, as well as Chania and Santorini, areas which attract tens of thousands of visitors and tourists as well as real estate buyers and investors.

“Our participation in both exhibitions was very successful as guests were impressed by the quality of our new projects, the affordable prices and the easy payment facilities offered,@ said Andreas Santis, Group Manager for Eastern Europe.

“At the same time we are creating and improving good relations and cooperation with our existing and new business partners in both countries. These exhibitions have for another year attracted high quality visitors and potential buyers who have shown great interest in having a property under the sun. Since the early 1990s, our Group continues to show strong momentum in the former Soviet Union, particularly Russia and Ukraine, in which it maintains its own offices in central areas of Moscow and Kiev. “

permissions and permits issued for its construction; but only in some cases: If a purchaser buys a property off-plan, a deed for that property will not be issued until that property has been completed and inspected by the Planning Authority and issued with a ‘Certificate of Final Approval’.

However a purchaser can buy a plot of land, pay the Property Transfer Fees and secure its title. That purchaser can then build a house on that land (having first secured the required permissions and permits) safe in the knowledge that they own the land and the house, regardless of whether the house has been issued with a ‘Certificate of Final Approval’.

Why is a purchaser who buys a property off-plan treated differently to another purchaser who builds a house on land they own? That’s discrimination.

Article 10 of the Streets and Buildings Regulations Law, Cap. 96, provides that no person shall occupy, use or permit any other person to occupy or use any building, unless and until a ‘Certificate of Approval’ has been issued in respect thereof by the appropriate authority. This law is almost universally ignored and, as far as I am aware, it is rarely (if ever) enforced.

What is the point of having a law that is never enforced?

It might just as well be scrapped and replaced with something more appropriate.

A second idiosyncrasy is the fact that many home buyers are unable to obtain the deed to the property they purchased because their developer has failed to build roads, pavements and other infrastructure. Why should this be the case?

Providing the property developer has fulfilled his contractual obligations to the purchaser, there can be no reason for not issuing its deed. An inspection of the property prior to its delivery may be desirable to advise the purchaser of possible health & safety and other issues enabling the purchaser to make an informed decision whether to accept delivery of the property. Responsibility and costs associated with completing roads, pavements and other parts of the

development would remain with the developer.

Site inspections are another issue. Does it really need the Planning Authority, the Land Registry and the local authority to each carry out separate property inspections? Why not establish a single independent inspection authority (perhaps a government agency) to take responsibility for all site and property inspections. The Planning Authorities, Land Registry and local authority could carry out ‘sample inspections’ (say 1 in 20) to ensure that authority inspections are being correctly executed.

Anyone who has dealt with the authorities in Cyprus will appreciate the paperwork and mind-numbing bureaucratic processes involved. As many as 10 different permits from various local & central Government authorities may be required before a property can be legally built, owned and occupied. This number needs to be rationalised.

Cyprus agreed a target with the troika to ensure that the title deed issuance backlog dropped to less than 2,000 cases of immovable property units with title deed issuance pending for more than one year by Q4-2014, but there has been no public release on the reduction actually achieved. I know from the correspondence I understand that good progress was made, but can you advise how many cases remained outstanding at the end of 2014?

Over many years successive governments have made minor adjustments to the various processes involved in planning and the issuance of Title Deeds. These have all failed to reduce the time it takes to issue Title Deeds. Indeed it would appear that some of these adjustments have further complicated the system resulting in even longer delays. The ‘Town Planning Amnesty’ is a case in point.

Speaking in 2011 former Interior Minister Neoclis Sylikiotis said: “The approval by parliament of four of the five bills will solve the Gordian knot for the thousands of title deeds that have been pending for years now.” But once again, no official statistics on the number of deeds issued as a result of the amnesty have been released. Can you please advise?

What is needed now is a total review of the planning and Title Deed issuance processes and procedures by those with no interest in maintaining the status quo.

This review would be followed by redesigning and then reengineering the processes involved to meet best business practices with the over-riding objective of ensuring that unencumbered title is available for transfer on delivery of a property to its purchaser.

In spite of the progress made to date there are still many thousands of properties waiting to be issued with their Title Deed as a result of unacceptably long delays in planning departments and Land Registry offices. In Paphos, for example, there are a number of cases where home buyers have been waiting for deeds since 1979.

Erimi, Limassol Nigel.Howarth@cyprus-property-buyers.com

Leptos Estates attracts interest from Ukraine and Russia

May 27 - June 2, 2015

financialmirror.com | PROPERTY | 13

Foreclosures: much ado about nothing‌

By George Mouskides

performing loans (NPLs) have any idea what the law is all about.

WHO KNOWS? Playing on the words of Shakespeare, a lot of fuss is being kicked up about an issue without substance.

The foreclosures legislation had been under discussion for a whole year which was nothing more than time wasted.

The legislation has been approved but we are certain that even those who voted for it do not know what they voted for.

It is a paradox and at the same time a sad observation, but it seems that not even the thousands of people burdened with non-

It is important for these people to have a protection

framework.

For the framework to be useful, though, the conditions as well as the degree to which you are protected must be crystal clear.

It is primarily for this reason that the Cyprus Association of Property Owners, (KSIA), has taken the initiative to organise a meeting on May 27, at 5pm at the KEVE offices in Nicosia, to discuss and inform owners facing non-performing loans problems.

Those holding NPLs must know that there are a lot of options available to them before a bank can go ahead with property foreclosures. To begin with, loan restructuring can be discussed with two bank bodies.

MEDIATORS Based on certain criteria, the help of a mediator can also be employed.

People can also refer their case to an insolvency consultant to find out if a solution can be found based on a repayment plan envisaged by the insolvency legislation.

Even in the case that none of the above solutions works and the bank goes ahead with foreclosure procedures, the main residence is protected under some

conditions. As a last resort, citizens can take the case to court, something which will buy them a lot of time.

Summing up the measures and tools people have at their disposal, (loan restructuring, Central Bank directives, etc) it would take at least 4-5 years before a property could be foreclosed. During this period, it might very well be that the financial status of owners change for the better and a better solution is found.

In conclusion, there has been a lot of noise generated around this issue, which is nothing more than noise. Reality is far different.

George Mouskides is General Manager, FOX Smart Estate Agency and Licensed Estate Agent, US Certified Public Accountant

Cyfield delivers Dasoupolis Lyceum, and on time!

President Nicos Anastasiades praised Cyfield Development for delivering on time a functional, modern and safe school, the Dasoupolis Lyceum in Nicosia which he inaugurated together with Archbishop Chrysostomos recently.

The contractors had undertaken the difficult task of tearing down the old school, considered a serious hazard and facing the risk of rapid collapse, and built the new high school which has become an architectural masterpiece for public buildings and a reference point for the whole area.

The project, that cost EUR 7.8 mln, was delivered on time, a crucial factor that was achieved without any delays, allowing the students to move back from their pre-fab temporary accommodation and continue with their learning in spacious and comfortable surroundings.

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

Plot Area: 556 sq.m.

Max. Building Cover: 50% Max. Building Height: 24 meters Max. No. of Floors: 6 Road Frontage: Approx. 24 meters Price: â‚Ź650,000 For more info please contact us at: 99317468

May 27 - June 2, 2015

14 | WORLD MARKETS | financialmirror.com

Yemen crisis reaches beyond its borders

By Oren Laurent President, Banc De Binary

The Yemen crisis has captivated the world’s attention. The unrest has torn the country apart as the worst fighting in decades threatens to ignite a powder keg in the already volatile Middle East. Regional and global powers are nervously jockeying for position as the security of the region and the world teeters on the edge.

Yemen is an impoverished country, but its strategic importance cannot be understated. The Western world has a particular interest in what happens in Yemen, since the rising influence of Iranian hegemony is upsetting the delicate balance in the Middle East. At the heart of the conflict is discord between different groups of people, causing Yemen to descend into a conflagration akin to civil war. The conflict is centred around forces supporting President Mansour Hadi, and the Zaidi Shia contingent. As a result of the conflict, President Hadi was forced out of the Yemeni capital in February.

The loyalty of Yemeni forces is split between multiple groups, including President Hadi, his predecessor Saleh and the Houthis. The Sunnis in the south of the country support Hadi, along with the tribesmen of the region. Their enemies include al-Qaeda splinter groups from the Arabian Peninsula.

Also, ISIL/ISIS has managed to infiltrate the tenuous situation in Yemen. Multiple bombings have taken place in the Yemeni capital this year, with no end in sight to the

conflict. Now, the Saudi Arabians, Egyptians, Moroccans, Sudanese and Jordanians have taken concrete steps to get involved in the crisis by launching air strikes against the pro-Iranian Houthis.

While Yemen is a third world country, the technical capabilities of al-Qaeda in the Arabian Peninsula have Western governments deeply concerned. The advances made by the Houthis have put the West on the back foot. Two dominant power-blocs have emerged in Saudi Arabia (Sunnis) and Iran (Shias). Arab Gulf states believe that Iran is aiding and abetting the Houthis while they are backing the exiled President.

Since Yemen links the Gulf of Aden with the Red Sea, it is strategically important. Any Iranian-allied takeover of the strait will be devastating to the regional power balance.

The Houthis seized power in Yemen and they are looking to establish an interim assembly with a presidential council. This has filled the void left by President Hadi’s departure. Sunni dissent in the south of the country means that the Houthi takeover has not been recognised. All in all, the power struggle in Yemen is a result of the unequal access to resources and power of different groups. Endemic corruption, poor infrastructure development, unemployment and large scale instability have rocked this country for the better part of the 20th century. Even after unification in 1990, the Republic of Yemen was racked by infighting and insurgency. Yemen remains the most poverty stricken of all the countries in the Middle East. The situation is fluid and

it’s all taking place against the backdrop of difficult nuclear negotiations with Iran and the P5+1.

Spain benefits from stronger economic growth, but debt level remains high Spain’s (Baa2 positive) strengthening economic growth continues to support the narrowing of the fiscal deficit, but its high public debt level is unlikely to stabilize before 2016, Moody’s Investors Service said in its annual Spain Credit Analysis.

According to Moody’s, structural reforms have helped Spain strengthen its institutions, the banking system and the labour market.

The rating agency expects that Spain’s economic growth will continue to recover in 2015-16, largely led by domestic demand. Moody’s forecasts growth rates of 2.7% and 2.2% for 2015 and 2016 respectively. Private consumption and investment are likely to again prove to be the main driving forces in the economy, benefiting from improved confidence, better financing conditions, and improvements in the labour market, Moody’s said.

In addition, the rating agency expects that growth in exports of goods and services will accelerate in the coming years, and notes that Spain has already started to reverse losses in world export market share.

Nevertheless, net exports’ contribution to growth is likely to be somewhat negative, as the growing strength of the domestic economy is, in turn, fuelling stronger import growth.

The rating agency expects Spain’s still-high budget deficit to decrease over the coming years, as economic growth boosts government revenue. As a result, Moody’s forecasts that Spain’s deficit will fall further to 4.5% and 3.5% of GDP in 2015 and 2016, respectively.

However, Spain’s high debt levels continue to represent a constraint on its sovereign rating, despite the recent improving trends of economic, fiscal and financial data, says Moody’s. Under its current base case assumptions, the debt ratio will peak in 2016 at above 100% of GDP and stabilise through 2018, assuming a continued economic recovery and continued fiscal consolidation.

Spain’s fluid political environment introduces some elements of uncertainty as to policy direction in the coming years. While the rating agency does not foresee a disruptive change in economic policies after national elections, it may be more challenging to pass legislation during the next administration. As such, there is a risk of a slowdown in the reform momentum experienced during the current administration.

EUR/GBP FX (Spot Rate) – Short-term technical analysis

By Aimilios Nychidis FX Prop-trader YESFX Ltd www.yesfx.com.cy The forex pair EURGBP on the daily chart from March until May indicates a trading range confirmed by a sideways movement.

From the above daily chart we observe a formation of a bearish Failure swing completed downwards occurred between April 28 and May 22.

The first top (Point A) was formed on May 7 with a high price at £0.7481 followed by a bottom (Point B) on May 13 with a low price at £0.7121.

The second top (Point C) was formed on May 15 with a high price at £0.7281.

It is obvious that the market failed to make an equal or higher top from point A as a result of having a failure swing top.

Once Point C breaks the lower price of Point B (£0.7121) in a downward movement then we set up our expected targets (1st, 2nd and 3rd). In order to identify the targets, we measure the vertical distance from Point A to Point B. Later on, we use the same distance starting from the break point (B) and we measure from the last bottom to the next top.

Continuing with our analysis, we observe our first target to be at £0.6736, the second target at £0.6360 and our third target at £0.5992.

In case the price fails to reach the break point (£0.7121) then the failure swing top will not be valid.

May 27 - June 2, 2015

financialmirror.com | MARKETS | 15

Towards a US recession?

Marcuard’s Market update

by GaveKal Dragonomics Last week’s Federal Reserve minutes showed policymakers to be nervous about the outlook for US growth, and so more likely to extend the zero interest rate policy.

Many would, of course, argue that this is to confuse cause and effect, as US economic weakness in fact stems directly from ZIRP. But what concerns us today is less whether a quarter point rise in policy rates happens next month or in September, but if the US is in fact sliding into a far more serious downturn.

At the end of last year, while questioning the growth prospects of the developed economies, we did not expect the US to be at the forefront of such an event; now we’re wondering if it is the main instigator. This is, of course, a heretical view that will get little traction among the high priests of Keynesian orthodoxy, although given the forecasting attempts of the Fed in recent years, you might think some humility was warranted. It also contrasts with the fairly cheery outlook presented last Wednesday our analysts on the outlook for US wage growth, and its impart on equities.

Why do we fear such an occurrence? The argument in recent years has been that Fed policy has helped inflate the price of existing assets in preference to building new assets.

Such a policy could work so long as companies retained positive cash flows, allowing them to keep buying back their shares. Problems were always going to emerge at the point that such activity was funded not by cash flows, but by new borrowing. At such a juncture, firms could move into a negative cash flow situation, even if their capital spending was weak. The seven recessions to hit the US since 1965 have been preceded by the “financing gap” moving below 1.5 % of GDP. The one false signal came in late 1984/early 1985 after a huge spike in the US dollar. The chart shows that each time the financing gap of US companies fell below -1.5% of GDP, within a year US capital spending plunged, with the decline being a huge driver of the resulting recession. At an intuitive level, this makes sense as firms with high negative cash flow seldom go on investment binges.

Since the 2009 crisis US capital spending has been subpar and firms have instead preferred to buy back shares. Now, however, they are moving into a negative cash flow situation, so something must give. Until the release of the 1Q15 Flow of Funds report in June we are working on 2014 data, but given the weak growth this year, lousy productivity figures

and continued huge volume of US share buybacks, don’t be surprised if US firms’ financing gap slid below -1.5% of GDP. If that happened, the chance of a US recession would rise significantly.

To be clear, we’re not saying that the US is moving into a recession; rather that recessionary signals are starting to appear, which—given the policy setting—is hardly surprising given the misallocation of capital that took place in 2003-07 and after 2009 as a result of monetary policy mistakes. If this rather grim scenario does materialise, then the Fed will suffer a massive loss of credibility, inflation will collapse and it would be very surprising if long rates stayed at 3%. Indeed, US long rates will be the key indicator to watch in the coming weeks.

WORLD CURRENCIES PER US DOLLAR CURRENCY

A common bias for investors is to assume that relationships between the market and economy in one phase must persist in the next. For example, since 2009 US firms have mostly grown profits by expanding margins—i.e. costcutting. Hence, the logic runs that if wages start to rise, profit margins must fall, leading to weak profit growth, and hence lower equity prices. Implicit in this logic is an assumption that margins must drive profits. There is, of course another way: namely top-line growth.

Indeed, it is entirely plausible that the top-line is the only source of profit growth given continued weak US productivity and the simple fact that firms have no more fat to cut—i.e. margins cannot be expanded further. Still, for companies to consistently grow sales, demand must rise and in the absence of a strongly positive demographic tailwind, that necessarily means that real median income growth needs to rise.

Nice idea, but policies of low real rates and quantitative easing have done nothing to improve US incomes. In fact, the real median income in the US officially stands at $52,000 compared to a peak of $56,900 in 1999. So, for all the policy acrobatics of the past 15 years, the average Joe is making -9% less. Such numbers hardly speak to a new burst of demand supporting corporate profit growth. And yet given recent

www.marcuardheritage.com

RATE

EUROPEAN

What could spur US equities?

Marcuard’s Market update

by GaveKal Dragonomics

CODE

news of chunky wage rises at big employers such as WalMart, the outlook for incomes appears to be brightening. Last week’s strong home starts number for April certainly suggests the US consumer is still kicking. Moreover, the official household income data is produced with a big lag so it is necessary to look for other sources of guidance.

One such source is the National Association of Realtors which surveys households monthly. Deflating the NAR series by the US CPI produces a decent approximation of the official real median income series. The turn in the NAR reading of family income since 2012 is probably explained by the sharp decline in unemployment. Looking forward, if that curve is to keep rising, wages must start rising.

History does not suggest that rising wages are a problem for US equities. In 1994-98 wage growth picked up from 2.4% YoY to 4.5%, while US corporate profits rose by 50% and the S&P 500 tripled. Interestingly, that burst of wage growth followed recovery from the Savings & Loans crisis, which caused a balance sheet recession. The next period of sustained wage growth was 2003-2007, when hourly earnings growth rose from 1.7% YoY to 4.2%. In this period, US domestic profits doubled and the S&P 500 rose by close to 40%.

Our point is not that the S&P 500 is about to soar to 6000.

But it may be a mistake to assume that earnings must weaken. The effect of rising wages on final demand, and with it topline growth, can overwhelm the negative effect of margin compression at the start of a wage growth cycle.

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

14300 1.5417 1.7933 25.1195 6.8365 14.3528 1.0903 2.2627 282.39 0.64469 3.1669 0.3938 17.9 7.6788 3.7763 4.0859 50.2954 8.4423 0.949 20.5

AUD CAD HKD INR JPY KRW NZD SGD

0.779 1.2339 7.7521 63.81 122.48 1100.85 1.3728 1.3479

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

0.3770 7.6148 27993.00 3.8771 0.7079 0.3027 1510.00 0.3849 3.6393 3.7500 11.9852 3.6729

AZN KZT TRY

1.048 185.81 2.6265

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:

The Financial Markets

* USD per National Currency

Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

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

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

CCY/Period

USD GBP EUR JPY CHF

0.18 0.51 -0.07 0.07 -0.82

0.23 0.54 -0.04 0.09 -0.81

0.28 0.57 -0.01 0.10 -0.79

0.42 0.71 0.05 0.14 -0.70

0.74 1.00 0.17 0.25 -0.59

USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.88 1.00 0.10 0.15 -0.72

1.21 1.24 0.17 0.17 -0.61

1.47 1.41 0.25 0.20 -0.46

1.68 1.56 0.36 0.25 -0.31

1.98 1.77 0.59 0.39 -0.07

2.24 1.96 0.88 0.59 0.22

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

1 USD

Opening Rates

1 EUR

1 GBP

1 CHF

100 JPY

1.0903

1.5417

1.0537

0.8165

1.4140

0.9665

0.7488

0.6835

0.5296

0.9172 0.6486

0.7072

0.9490

1.0347

1.4631

122.48

133.54

188.83

0.7748 129.06

Weekly movement of USD

CCY\Date

28.04

05.05

12.05

19.05

26.05

CCY

Today

Last Week

USD GBP JPY CHF

1.0820

1.1071

1.1115

1.1247

1.0881

0.7102

0.7324

0.7135

0.7185

0.7042

128.74

132.81

133.44

134.78

132.45

GBP EUR JPY

1.0323

1.0349

1.0360

1.0410

1.0300

CHF

1.5417 1.0903 122.48 0.9490

1.5653 1.1247 119.84 0.9256

%Change +1.51 +3.06 +2.21 +2.53

May 27 - June 2, 2015

16 | WORLD | financialmirror.com

Staying the course in Europe’s east

By Carl Bildt

As the European Union’s leaders gathered in Riga for a summit with the six members of the EU’s “Eastern Partnership,” many recall the dramatic meeting in Vilnius of November 2013. It was there that Ukraine’s thenpresident, Viktor Yanukovych, under heavy Russian pressure, refused to sign the EUUkraine Association Agreement that had been negotiated from 2007 to 2012.

Of course, when Yanukovych returned home, he had to face thousands of protesters in Kyiv’s Maidan (Independence Square).

Determined to hold him to his promise to sign the EU agreement and not take Ukraine into a customs union with Russia, the protesters mobilised the country.

Yanukovych, failing to crush them with his security forces, simply fled. Russia’s behaviour in Ukraine since then has made the Eastern Partnership more important than ever.

The Eastern Partnership was launched in 2009 on the initiative of Poland and Sweden, where I was the foreign minister at the time.

The aim was to respond to the desire of Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine for some of the instruments of integration that had helped transform the central European and Baltic countries into the democracies – and now

EU members – that they are today.

The Eastern Partnership was also seen as a way to balance the EU’s “Russia first” approach. Enormous resources had been invested in the relationship with Russia, but very little had gone into helping the countries in the neighbourhood that the EU and Russia share – including the most important of these neighbours, Ukraine.

Until 2013, the EU’s Eastern Partnership seemed to raise no concerns in the Kremlin.

It was never brought up at any of the numerous high-level bilateral meetings, nor at any meeting in which I participated. The Kremlin probably regarded it as irrelevant.

That changed after Vladimir Putin returned to Russia’s presidency in 2012. His main geopolitical project was now the creation of the Eurasian Union, which he knew could not succeed without forcing Ukraine off of its EU path and into his embrace.

While the EU’s vision of “wider Europe” relies on soft power, economic integration, and long-term institution building, Putin’s “wider Russia” policy depends on intimidation and violence. The EU pursues long-term geo-economics, whereas the Kremlin plays short-term hardball geopolitics.

That is why, soon after Yanukovych decided to flee to Russia, Putin’s “little green men” began to appear openly in Crimea, while Russian Buk anti-aircraft missiles and Russian battalion battle groups appeared in Ukraine’s eastern Donbas region not long after. In annexing Crimea and stoking

separatist violence in Donbas, the Kremlin’s aim has clearly been to destabilise Ukraine in order to bring it under Russia’s thumb.

Indeed, the very notion of an independent Ukrainian state is openly questioned by Russia’s leaders, Putin included.

In Riga, the EU’s leaders will reaffirm the so-called deep and comprehensive free-trade agreements concluded with Ukraine, Moldova, and Georgia. The most important signal will be the EU’s pledge that these agreements will take effect. Despite massive propaganda, intense economic pressure, and overt military aggression, the EU can and will stay the course in its Eastern Partnership and its offers to its neighbours.

Clearly, no one in Europe should underestimate the challenges ahead. When I left the Vilnius meeting in 2013, I could certainly see storm clouds gathering, but I did not know that Putin was prepared to unleash so much aggression and turmoil.

Now, we in Europe have every reason to prepare for the long-term effort needed to help our neighbours along their chosen paths.

But this will require a greater European commitment, both politically and economically, than we have seen thus far.

Ukraine has been misgoverned for decades, and it will have to pass through a valley of reform-induced tears before it starts to reap the benefits of association and integration with the EU. Unfortunately, it is far easier for Russia to fuel short-term volatility than it is for Europe to help build long-term stability. But to allow

the Kremlin and its proxies to succeed would not only undermine the Eastern Partnership countries; it might jeopardise peace in Europe itself.

After all, the appetite grows with eating, which might well apply to the Kremlin’s “wider Russia” strategy. At some point, the risk of an open confrontation between NATO and Russia could grow. Even China, as it poses as Russia’s friend and patron, should consider the consequences for itself of such a risk.

Such a clash must be prevented. By confirming the Eastern Partnership agreements, the EU’s leaders will demonstrate that they are not prepared to acquiesce in a new Yalta-style division of the continent that would deprive these countries of their right to choose their own destiny.

The Riga meeting is unlikely to produce any headline-grabbing new initiatives. But none is needed. With everything from massive disinformation to tanks and soldiers thrown against the Eastern Partnership since 2013, just staying the course is a powerful sign of success. And, in the interest of longterm stability across Europe, that should be welcomed – even in Putin’s nationalistically aroused Russia.

Carl Bildt is a former prime minister and foreign minister of Sweden. © Project Syndicate, 2015. www.project-syndicate.org

Keeping Europe’s Eastern Promise

By Yuliya Tymoshenko For many years, the European Union’s eastward expansion seemed unstoppable. But with Russia’s invasion of Ukraine, President Vladimir Putin appears to have succeeded in ordering a halt to Europe’s efforts to extend democracy, the rule of law, and open markets throughout the continent.

The EU must not kowtow to his demands. Ukraine’s fate has become Europe’s fate. Indeed, Putin not only wants to stop European political, civic, and social norms from taking root within Ukraine; he wants to roll them back in the Baltics, the Balkans, and anywhere else in Europe made politically brittle by economic crisis and/or demagogic populism.

The EU Eastern Partnership summit in Riga must demonstrate Europe’s determination to defend its unity, security, and values in the face of Russian aggression. And it must do so in concrete ways, not simply with quickly forgotten official communiqués for which the Kremlin and its Ukrainian separatist proxies have only contempt.

Of paramount importance is to make the new policy a true partnership among peoples. The citizens of the partner countries must become the real beneficiaries if this partnership is to become more than the inert agreement that it has been. Generous EU commitments on mobility, aid to SMEs and entrepreneurs, and a vast increase in educational opportunities are among the key ingredients that could make such a partnership politically popular for a vast majority.

Ukraine should be the centrepiece of any effort to revive the Eastern Partnership as a way to attract the support of Europeans who remain outside the EU. Yes, the news from my country remains bad. Thousands of our citizens are dead.

Hundreds of thousands are now refugees in their own homeland. The Minsk II cease-fire agreement has failed to restrain Russian/separatist forces.

Although Ukraine’s economy is no longer in free-fall, as it

was last winter, GDP has declined by a quarter since Russian troops first invaded in February 2014. Official unemployment now stands at over 10%, compared to 7.3% before Russia’s occupation and annexation of Crimea. Our national debt is mounting by the day to levels that inspired The Economist to suggest that we may become the “Greece of the east.”

Moreover, much of our economy remains in separatist hands, and they, no surprise, are running the stolen assets into the ground.

In the face of such calamitous conditions, Ukraine’s government is a bit like the proverbial Dutch boy who put his finger in a dike to stop the sea from leaking through. Despite herculean efforts, more leaks continue to appear. The simple truth that Europe must grasp is that we Ukrainians simply do not have enough fingers to plug all the leaks, and thus rebuild our economy, on our own.

Despite the depth of Ukraine’s plight, Europe cannot avoid taking up the challenge that Putin has set before it. After all, if Putin succeeds in turning Ukraine into a failed state with a frozen conflict embedded within it, he will seek the same outcome all along the EU’s borders, from Estonia to Greece.

Fortunately, the EU has a real partner in Ukraine, whose people’s devotion to Europe has been tested by snipers in the streets of Kyiv and now by the Russian army. Their courage, and their newfound political activism, has stiffened the government’s backbone in implementing needed reforms and made it impossible for any political actor in Ukraine to buck the pro-EU consensus. The EU can stiffen it even more by demanding much greater clarity in the fight against corruption.

Yet, given the war in the eastern Donbas region, the shattering of so much of our economy, and the precarious nature of our government’s finances, the International Monetary Fund and others are clearly asking too much of Ukrainians. The idea that Ukraine can embrace the economic “shock therapy” that Poland pursued a quarter-century ago is the type of cookie-cutter policymaking that resulted in the 2008 global financial crisis.

That is why a renewed Eastern Partnership must embrace bold new initiatives for Ukraine, and not try to reheat old policies designed for very different circumstances. A recent

report from the Vienna Institute for International Economic Studies provides some guidance concerning what the EU should now try to do for Ukraine.

For starters, the EU should help us create a more stable exchange-rate regime to overcome the currency volatility that has wracked our economy since Russia’s invasion. And, although fiscal consolidation is necessary, given the state of our economy, Ukraine’s most vulnerable people are now enduring a hand-to-mouth existence. They have nothing more to sacrifice. On the contrary, they need relief, and Europe should insist that its programs, and those of the IMF, take their needs into account.

Perhaps most important for the long term, the EU must honour its commitment to the deep free-trade and association agreement that Ukraine’s previous government refused to sign in late 2013. After all, it was to secure that agreement that young Ukrainians braved former President Viktor Yanukovych’s snipers, and are now braving the might of the Russian army.

To follow through would do more to anchor Ukrainians’ confidence in their European future, and to convince the Kremlin that it cannot succeed in rolling back European values, than anything else the EU might do.

One clear way that Europe can demonstrate that its association agreement with Ukraine remains alive is to encourage investment in my country. Since Russia’s invasion, FDI into Ukraine has collapsed, which is precisely what Putin wants.

The EU can demonstrate its commitment to Ukraine’s economic renewal by having the European Investment Bank invest in a showcase infrastructure project, say improved rail links to the EU. The EU faces a stark choice: a renewed Eastern Partnership or a renewed division of Europe. The decisions that it makes, beginning at the Riga summit, will determine Europe’s fate for decades to come.

Yuliya Tymoshenko is a former prime minister of Ukraine. © Project Syndicate, 2015. www.project-syndicate.org

May 27 - June 2, 2015

financialmirror.com | WORLD | 17

The irresistible rise of the renminbi By the end of this year, the International Monetary Fund will decide whether the Chinese renminbi will join the euro, the Japanese yen, the British pound, and the US dollar in the basket of currencies that determines the value of its international reserve asset, the Special Drawing Right (SDR). China is pushing hard for the renminbi’s inclusion. Should it be admitted?

reluctant to welcome China into the fold.

This is all the more problematic given that the 2008 financial crisis laid bare the international reserve system’s inadequacy when it comes to ensuring sufficient liquidity for emerging economies. Although emerging economies have since accumulated larger foreign-exchange reserves and strengthened financial supervision and regulation, they remain vulnerable to external shocks, especially from the US, the eurozone, and Japan. All three have lately employed expansionary monetary policies; and, as the US Federal Reserve normalises its policy, emerging economies will be hit again by a sudden withdrawal of global liquidity.This continued vulnerability reflects a collective failure to reform the global monetary system – an imperative that People’s Bank of China (PBOC) Governor Zhou Xiaochuan highlighted in early 2009.

Per Zhou’s proposal, China has championed a transition to a multi-currency reserve system, in which the SDR and an internationalized renminbi would be used more widely, including in countries’ currency reserves. But its attempt in 2010 to add its currency to the SDR basket failed, because the renminbi was not “freely usable.”

Since then, China has implemented a series of reforms to increase the renminbi’s usage in foreign trade and direct investment, as well as in cross-border financial investment. Fourteen renminbi-clearing banks have been established worldwide. Last year, the Shanghai-Hong Kong Stock Connect was launched to stimulate crossborder investment and capital-market development. And China has signed bilateral currency-swap agreements with 28 central banks, including the Central Bank of Brazil, the Bank of Canada, the European Central Bank, and the Bank of England.

By Lee Jong-Wha The IMF created the SDR in 1969 to supplement existing reserve currencies, thereby providing the global financial system with additional liquidity. As it stands, the SDR’s role remains largely limited to IMF operations; its share in global financial markets and central banks’ international reserves is negligible. Nonetheless, adding the renminbi to the SDR basket would be symbolically important, implying recognition of China’s growing global stature. The renminbi is already a major currency for world trade and investment, and accounts for a growing share of international financial transactions and reserve holdings.

To qualify for inclusion, the Chinese government has eased its capital controls and liberalised its financial markets considerably.

Inclusion in the SDR basket would require continuing this process, which, together with the renminbi’s emergence as a globally investable currency, would benefit the entire world economy.

The IMF’s largest shareholders – the United States, Europe, and Japan – should thus welcome the renminbi’s addition to the SDR basket. Yet opinions on the matter have been divided, with the US, in particular,

This year, Chinese policymakers have signaled further financial liberalisation by removing the domestic cap on banks’ deposit rates, thereby giving overseas institutional investors easier access to capital markets. The PBOC is also likely to widen the currency’s trading band and move toward a more flexible exchange-rate regime.

As a result of these efforts, the renminbi has emerged as the second most used currency in trade finance, overtaking the euro, and the fifth most used for international payments.

Moreover, it is increasingly preferred in currency-market transactions and official foreign-exchange reserves.

Of course, China stands to gain much from the renminbi’s emergence as an alternative international reserve currency, sharing in the “exorbitant privilege” that the US currently enjoys by virtue of the dollar’s global status. Beyond the convenience of conducting international transactions in local currency, China would be able to take advantage of seigniorage – safe in the knowledge that it would not face a balanceof-payments crisis.

But, in order to reach that point, China must confront significant risks. Capitalaccount liberalization and renminbi internationalisation invite potentially volatile cross-border capital flows, which could, for example, trigger rapid currency appreciation.

Given this, China can be expected to continue to manage capital-account transactions to some extent, using macroprudential measures and, when appropriate, direct capital controls.

Even if China manages to mitigate such risks, unseating the US dollar as the

dominant global currency will be no easy feat. Inertia favours currencies that are already in use internationally, and China lacks deep and liquid financial markets, an important precondition that any international reserve currency must meet.

Furthermore, China’s banking system, which remains subject to extensive government control, lags far behind those of the US and Europe in terms of efficiency and transparency.

If, however, China succeeds in developing a more convertible capital account and bolstering its financial system’s efficiency, the renminbi is likely to emerge as a new international reserve currency, complementing the US dollar and the euro.

This would benefit companies and central banks alike, by enabling them to diversify their foreign-currency holdings further.

History suggests that a shift in global currency dominance is likely to occur gradually. For now, China is focused on winning the renminbi’s inclusion, even with a small share, in the SDR currency basket.

The IMF’s major shareholders should seriously consider it. The renminbi’s continued internationalisation, not to mention further progress on critical financial reforms, would contribute to the creation of a more stable and efficient global reserve system.

Lee Jong-Wha, Professor of Economics and Director of the Asiatic Research Institute at Korea University, was a senior adviser for international economic affairs to former President Lee Myung-bak of South Korea. © Project Syndicate, 2015. www.project-syndicate.org

Development finance with Chinese characteristics?

By Daniel Poon and Richard Kozul-Wright After a late flurry of additions to the founding membership of the Asian Infrastructure Investment Bank, attention now turns to setting the China-led AIIB’s rules and regulations.

But important questions remain – most important, whether the AIIB is a potential rival or a welcome complement to existing multilateral financial institutions like the World Bank. Since China and 20 Asian countries signed the AIIB’s initial memorandum of understanding last October, 36 other countries – including Australia, Brazil, Egypt, Finland, France, Germany, Indonesia, Iran, Israel, Italy, Norway, Russia, Saudi Arabia, South Africa, South Korea, Sweden, Switzerland, Turkey, and the United Kingdom – have joined as founding members.

According to China’s finance ministry, the AIIB’s founding members are to complete negotiations on the Articles of Agreement before July, with operations to begin by the end of the year. China will serve as the standing chairman of the negotiators’ meetings, which will be co-chaired by the member country hosting the talks. The fourth chief negotiators’ meeting was completed in Beijing in late April, and the fifth will take place in Singapore in late May. The Chinese economist Jin Liqun has been selected to lead the AIIB’s Multilateral Interim Secretariat, charged with overseeing the bank’s establishment.

While GDP will be the basic criterion for share allocation among the founding members, the finance ministry suggested in October that China does not necessarily need the 50% stake that its GDP would imply. Moreover, although

the AIIB will be based in Beijing, the ministry has said that regional offices and senior management appointments will be subject to further consultation and negotiation.

Like the $50 bln New Development Bank announced by the BRICS countries (Brazil, Russia, India, China, and South Africa) last summer, the AIIB has faced considerable scrutiny, with some Western leaders questioning its governance, transparency, and motives. Indeed, many in the West have portrayed their establishment as part of an effort to displace existing multilateral lenders.

But the new development banks seem less interested in supplanting current institutions than in improving upon them – an objective shared by those institutions themselves.

As Deputy Finance Minister Shi Yaobin pointed out recently, by recognising the need to reform their governance, existing multilateral lenders have shown that there are, in fact, no “best practices” – only “better practices.” In fact, given its experimental approach to development, China is well-suited – and, as some top officials have hinted, more than willing – to contribute to this process. If China can help find a way to balance the need for high standards and safeguards in project lending with the imperative of rapid loan dispersion, global economic governance would benefit significantly.

In pioneering a more pragmatic approach to development finance, China’s institutional model could be the $40 bln Silk Road Fund that President Xi Jinping announced last November. The SRF and the AIIB will serve as the key financial instruments of China’s “One Belt, One Road” strategy, centered on the creation of two modern-day Silk Roads – the (overland) “Silk Road Economic Belt” and the “Twenty-First Century Maritime Silk Road” – stretching across Asia toward Europe. The initiative will aim to promote economic cooperation and integration in the Asia-Pacific region, mainly by providing financing for infrastructure like roads, railways, airports, seaports, and power plants.

The SRF will be capitalised by four state agencies. The State Administration of Foreign Exchange will hold a 65% stake; the China Investment Corporation (CIC, the country’s sovereign-wealth fund) and the China Export-Import Bank (China Exim) will each have a 15% stake; and the China Development Bank (CDB) will hold the remaining 5%.

In a sense, the SRF can be considered China’s latest sovereign-wealth-fund initiative, and some media have even referred to it as the “second CIC.” But, whereas the CIC is under the control of the finance ministry, the SRF’s operations appear to reflect the influence of the People’s Bank of China. In a recent interview, the PBOC’s governor, Zhou Xiaochuan, suggested that the SRF would concentrate more on “cooperation projects,” particularly direct equity investment, before hinting at the Fund’s “just right” financing features. For example, Zhou indicated that the SRF will adopt at least a 15-year time horizon for investments, rather than the 7-10-year horizon adopted by many private equity firms, to account for the slower return on infrastructure investment in developing countries.

Moreover, the SRF could act as a catalyst for other state financial institutions to contribute to a selected project’s equity and debt financing. The Fund and other private and public investors – would first make joint equity investments in the project. China Exim and the CDB could subsequently disburse loans for debt financing, with the CIC providing further equity financing.

Richard Kozul-Wright, Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development, is the author, most recently, of Transforming Economies: Making Industrial Policy Work for Growth, Jobs and Development (co-authored with the International Labour Office).

Daniel Poon is an Economic Affairs Officer at the United Nations Conference on Trade and Development.

May 27 - June 2, 2015

18 | WORLD | financialmirror.com

The health benefits of fighting climate change

By Patricia Garcia and Peter van den Hazel

Governments often see climate change as too costly to address. In fact, it is too costly to ignore. That is why the World Health Organisation (WHO), for example, has linked the prevention of disastrous climate change to “immediate health benefits and health cost savings” from the reduction of air pollution.

The statistics are grim. Air pollution caused more than 7 mln premature deaths – one in eight globally – in 2012, compared to nearly 6 mln premature deaths from tobacco.

One of the biggest causes of harm are the fine particles called PM2.5, with a diameter of less than 2.5 micrometers.

They wreak havoc by traveling deep into the lungs, contributing to inflammation, cancer, and respiratory infection, or by passing into the bloodstream, where they can trigger changes in blood vessels that cause heart attacks and strokes. The combustion of diesel and coal are among the main causes of air pollution, with 3.7 mln deaths attributed to outdoor fumes and 4.3 mln resulting from poorly ventilated homes. Motorised transport now accounts for half of premature deaths from ambient particulate matter in the 34 OECD countries. Coal-fired power is also the main source of carbon dioxide, the main greenhouse gas responsible for climate change, which causes about 150,000 premature deaths annually and threatens pervasive risks this century and beyond.

To be sure, the coal industry has helped billions of people escape poverty, not least in China, where coal-fired power has underpinned the nearly 700% growth in per capita income since 1990. But human health is at greater risk in countries that burn more coal. Research for the Global Commission on the Economy and Climate last year calculated that particulate matter alone caused 1.23 mln premature deaths in China – the world’s top coal-consuming economy – in 2010.

Estimates for 2012 suggest that 88% of air-pollutionrelated deaths occur in low- to middle-income countries, representing 82% of the world’s population. The Western Pacific and Southeast Asian regions bear the burden of 1.67 mln and 936,000 deaths, respectively.

But pollution is worsening and taking lives in highincome countries as well. For example, PM2.5 reduces life expectancy across the European Union by eight months and, together with ozone, was responsible for 430,000 premature deaths in the EU’s 28 member states in 2011.

In Britain, more than six decades after the Great Smog of 1952, PM2.5 pollution levels still persistently exceed WHO guidelines. The health costs of air pollution in the EU are up to EUR 940 bln annually.

The WHO recently carried out a review of the evidence on the health effects of air pollution, and found that the range of such effects is broader and occur at lower concentrations than previously thought. In addition to the well-known effects of air pollution on the lungs and heart, new evidence points to its detrimental impact on

children’s development, including in utero. Some studies even link air pollution to diabetes, a major chronic disease and health challenge in Indonesia, China, and Western countries. Despite the overwhelming evidence of health risks, many countries routinely ignore air-quality standards – as well as the emissions monitoring needed for effective regional cooperation – mainly owing to governments’ fear of their economic impact. Economic models used by advisers to shape development strategy – and touted by lobbyists to influence decisions on major infrastructure projects – exclude the human cost of air pollution and the long-term benefits of measures to reduce it.

Any solutions to the problems posed by air pollution will require not only new economic models, but also integrated measures by local, national, and international governments.

Cutting emissions from urban transport, for example, will involve city mayors, local planners, and national policymakers working together to induce compact development.

Fortunately, government support for effective action is growing. Air pollution is at the top of China’s domestic agenda, following the choking smog dubbed “airpocalypse” that engulfed its major cities in January 2013 and Chai Jing’s recent documentary (and social-media phenomenon) “Under the Dome,” which exposed the catastrophic health impacts of air pollution. Indeed, China’s government has closed some of the country’s dirtiest power plants, resulting in a drop in coal consumption last year for the first time since 1998.

A recent draft resolution on air pollution and health for the World Health Assembly (the WHO’s governing body) suggests that countries should “underscore” a link between air pollution and climate change. Countries should adopt the WHO air-quality guidelines and highlight additional opportunities for greener urban planning, cleaner energy, more efficient buildings, and safer walking and cycling. A formal acknowledgement by governments of the immediate health-related benefits of cutting carbondioxide emissions can tip the scales toward greater progress on climate change, air pollution, and human health simultaneously. Policymakers everywhere should recognise the economic opportunities – and the political benefits – that such an outcome promises to deliver.

Patricia Garcia is Dean of the School of Public Health at Universidad Peruana Cayetano Heredia, Peru. Peter van den Hazel is International Coordinator of the International Network on Children’s Health, Environment, and Safety (INCHES), the Netherlands. © Project Syndicate, 2015 - www.project-syndicate.org

Outlook for Greek banking system is ‘negative’ The outlook for the Greek banking system is negative, primarily reflecting the acute deterioration in Greek banks’ funding and liquidity, Moody’s Investors Service said in a new report. These pressures are unlikely to ease over the next 12-18 months and there is a high likelihood of an imposition of capital controls and a deposit freeze.

Moody’s noted that significant deposit outflows of more than EUR 30 bln since December 2014 have increased banks’ dependence on central bank funding. In our view, the banks are likely to remain highly dependent on central bank funding, as ongoing uncertainty regarding Greece’s support programme continues to compromise depositors’ confidence. Greek banks do not have access to the interbank

repo market, as foreign banks minimise their exposure to Greece. Consequently, Moody’s estimates that funding from the European Central Bank and the Emergency Liquidity Assistance from the Bank of Greece increased to about 32% of total assets for the system at the end of April from about 12% at the end of September 2014.

Greece’s pressing financing needs and uncertainty regarding its support programme have also negatively affected economic activity. Moody’s forecasts a lower growth trajectory than previously anticipated, of 0.5% in 2015 and 1.5% in 2016, with risks to this forecast skewed to the downside.

Although the formation of new nonperforming loans (NPLs) slowed down in

2014, Moody’s expects reported NPLs to increase to about 38%-40% of gross loans by the end of 2015 from 34.2% of gross loans as of December 2014.

This reflects the weak economic conditions, and increased repayment defaults and loan rescheduling delays as borrowers hope to benefit from the government’s proposed pro-borrower measures. While loan-loss reserves rose in 2014, they remain insufficient to cover expected losses, particularly as banks’ ability to foreclose on residential properties remains constrained.

Moody’s said it considers that Greek banks will likely require additional capital over the outlook horizon. Following two rounds of recapitalisation in 2013 to 2014,

the rating agency estimates that banks’ weighted-average Common Equity Tier 1 ratio increased to 13.7% as of December 2014 from 12.0% in December 2013.

However, about 55% of this capital is in the form of deferred tax assets, which are lowerquality capital, given that their eligibility to be converted into deferred tax credits - and ultimately into tangible assets - is contingent on the Greek government’s creditworthiness. Furthermore, banks’ capital base will remain at risk from very high loan-loss provisions over the outlook period.

Moody’s negative outlook on the Greek banking system is consistent with the negative outlook assigned to the rated Greek banks’ long-term deposit and debt ratings.

May 27 - June 2, 2015

financialmirror.com | WORLD | 19

Global finance and global warming

By Nick Robins and Naina Lal Kidwali Since 2008, when the global financial crisis nearly brought down the world economy, financial reform has been among the top items on policymakers’ agendas. But, as leaders move from fixing the problems of the past to positioning the financial system for the future, they must also grapple with new threats to its stability, particularly those stemming from climate change.

That is why a growing number of governments, regulators, standard-setters, and market actors are starting to incorporate rules concerning sustainability into the financial system. In Brazil, the central bank views the integration of environmental and social factors into risk management as a way to strengthen resilience. And in countries like Singapore and South Africa, companies listed on the stock market are obligated to disclose their environmental and social performance, a requirement that investors and regulators increasingly view as essential to the efficient functioning of financial markets.

Initiatives like these might once have been regarded as part of a peripheral “green” niche. Today, they are considered central to the operation of the financial system. In Bangladesh, the central bank’s efforts to support economic development include low-cost refinancing for banks lending to projects that meet goals for renewables, energy efficiency, or waste management. In the United Kingdom, the Bank of England is currently evaluating the implications of climate change for the insurance sector as part of its core mandate to oversee the safety and soundness of financial institutions.

In China, annual investment in green industry could

reach $320 bln in the next five years, with the government able to provide only 10-15% of the total. In order to prevent a funding shortfall, the People’s Bank of China has recently produced a report with the United Nations Environment Programme (UNEP) setting out a comprehensive set of recommendations for establishing China’s “green financial system.”

In India, the Federation of Indian Chambers of Commerce and Industry has established a new “green bond” working group to explore how the country’s debt markets can respond to the challenge of financing smart infrastructure. And recent regulatory changes hold out considerable potential for listed investment trusts to deploy capital for clean energy.

So far, such measures affect only a small fraction of the $305 trln in assets held by banks, investors, financial institutions, and individuals in the global financial system.

But they are set to be applied more broadly as financiers and regulators alike recognise the full consequences of environmental dislocation.

Those consequences already are severe. In 116 of 140 countries assessed by UNEP, the stock of natural capital that underpins value creation is in decline. The human and economic costs of continued high-carbon growth include severe health impacts, growing disruption to infrastructure, and water and food security, as well as increasing market volatility, most notably in developing countries. This damage will become worse, with risks becoming unmanageable if emissions of greenhouse gases are not reduced to net zero levels between 2055 and 2070.

As the threat from climate change becomes more evident, financing the response to its impact will become increasingly important. Developed countries have committed to mobilize $100 bln in annual financial flows to developing countries by 2020, but much more is needed.

Above all, it is essential to place the financing challenge posed by climate change within the broader context of the green economy and sustainable development. The task for

those charged with governing the financial system is to enable the orderly transition from high- to low-carbon investments and from vulnerable to resilient assets.

According to the New Climate Economy initiative, $89 trln will be spent on global infrastructure investment by 2030 – with an additional $4.1 trln needed to make it low-carbon and resilient.

To mobilise the required capital, policymakers will need to harness the power of the financial system. The scope of risk management will need to be expanded, so that long-term sustainability and risks from climate change are included in prudential rules for banking, insurance, and investment. New “green banks” can help to bring in funding from debt and equity markets. Transparency will have to be improved, through better corporate reporting and enhanced disclosure from financial institutions. And financial professionals’ skills and incentives will have to be retooled and revised to reflect these new priorities.

Promising avenues for international cooperation are now opening up. For example, the G-20 finance ministers and central bank governors have just asked the Financial Stability Board to explore how the financial sector could address climate issues. Actions such as these will not only strengthen climate security; they will also contribute to a more efficient, effective, and resilient financial system.

Naina Lal Kidwai, Chairwoman of HSBC India and Director of HSBC Asia-Pacific, is a member of the international advisory council of the UNEP Inquiry into the Design of a Sustainable Financial System. Nick Robins is Co-Director of the UNEP Inquiry into the Design of a Sustainable Financial System. © Project Syndicate, 2015 - www.project-syndicate.org

No child left out

By Moza bint Nasser

On a recent visit to a camp for Syrian refugees in Turkey, I witnessed some of the most powerful displays of human endurance that anyone can imagine. And yet, amid all the stories of trauma and loss, what affected me the most was these refugee families’ unquenchable thirst for education.

The children I spoke to told me of their continued desire to learn in the camp’s makeshift schools, crammed into classes and taught in shifts running from before dawn until after dark. Their parents spoke of the hope they place in the transformative power of education.

Syria once boasted universal education. Now, with more than four million people forced to flee their homes because of the violence wracking the country, it has become one of the world’s many places suffering from what can only be described as a global education crisis. There are an estimated 58 mln primary-school-aged children out of school worldwide, and those affected by conflict and natural disasters are among the hardest to reach.

Worse, the number of child refugees cut off from school – in places like Nepal, Myanmar, and Yemen – is increasing at

an alarming rate. If the international community does not act to nurture and educate these children, the cycle of poverty and conflict will be reproduced for generations to come.

The fact that so many children are cut off from education constitutes a clear failure on the part of the world’s governments, which promised in 2000, when the Millennium Development Goals (MDGs) were adopted, to ensure primary schooling for all children by 2015. To achieve this, it is not enough to enroll children in school; they must be kept there and provided a quality education. UNESCO estimates that at least 250 mln of the world’s children of primary-school age are unable to read, write, or do basic arithmetic. The international community has a chance to do something about this scandalous state of affairs.

Policymakers from around the world will meet in South Korea at the World Education Forum to agree on the global education targets that are set to replace the MDGs. It is truly fitting that South Korea is hosting this forum, because it is so often seen as a model of what investment in education can deliver. Some 8% of South Korea’s GDP is spent on education, and UNESCO estimates that every dollar invested in primary schools generates $10-$15 in economic returns. South Korea, which has lifted itself up from the ranks of the world’s poorest countries to among its richest in just two generations, is living proof that education pays off.

The new Sustainable Development Goals that are to be agreed this year underscore the challenges that world governments must address by 2030. I insist that quality universal primary education must be one of the SDGs’ top priorities. The emphasis here is on quality. Success is measured not only by the number of children we enroll, nor by their achievements on standardised tests; the most important outcomes are the tangible and intangible impacts of education on the quality of students’ lives.

This is the unfinished business of the MDGs. Wherever I travel with the Education Above All foundation, I encounter bright, motivated children who have been denied the chance to learn. As the world moves on

to new priorities, we cannot forget our responsibility to those who have been failed by our complacency. The job is not done. We must remain committed to achieving the goal of quality primary education for all children – not some, and not even most – wherever they live.

Sheikha Moza bint Nasser, Chairperson of Education Above All, is UNESCO Special Envoy for Basic and Higher Education, and a member of the UN MDG Advocacy Group. © Project Syndicate, 2015 - www.project-syndicate.org

May 27 - June 2, 2015

20 | BACK PAGE | financialmirror.com

The return of European political risk ANALYSIS by GaveKal Dragonomics A surprising facet of the post-2010 euro crisis period has been the degree to which the political centre in the European Union has held. Despite record unemployment in the struggling south, extremist movements have mostly been contained to the fringes. So, it is ironic that just as the long anticipated cyclical recovery arrives, the political tide looks to be turning the other way. Voters in this weekend’s Spanish regional elections gave the main two parties a thumping in favour of upstarts which oppose austerity, corruption, and to one degree or another, the authority of Brussels.

To be sure, even as Greece lurches towards a debt denouement under the radical Syriza party, anti-euro platforms are not to be found in Spain, or still struggling Portugal, yet voters have clearly rejected pro-EU parties. In the same vein, Polish voters on Sunday defied pollsters to elect a Eurosceptic president, a position which involves a say in foreign policy and the appointment of the central bank head. Such nose-thumbing follows the shock UK general election win on May 7 by the Conservative Party whose commitment to an in/out referendum from the EU was driven by the populist UK Independence Party nipping at its heels. For its part, France’s National Front continues to poll in the 25% range.

For now, the political calendar is focused on the Iberian Peninsula as both Spain and Portugal should hold national elections later this year. In Spain this weekend, the ruling Popular Party and the socialists (PSOE), who ran the last government, together got 52% of the vote—since the mid1970s Spain has been a two party system with the big two polling at least 70%. Podemos, a loose left-wing alliance that is barely a year old scored a series of stunning wins, especially by wresting control of the Barcelona city administration, a victory that will add vim to the ongoing campaign for Catalan independence.

The repeated refrain among European voters has been to punish established parties, which in Spain have faced corruption scandals in addition to being held responsible for an austerity programme that helped drive unemployment to 25%. As a reminder that voters do not agonise over the ebb and flow of high frequency economic data, Spain’s voters

handed out their drubbing just as the country became Europe’s fastest growing economy with 0.9% QoQ GDP growth in 1Q15, while 500,000 jobs have been created in the last 12 months. For Prime Minister Mariano Rajoy, it seems to have been a case of too little, too late.

Now, a period of coalition negotiations will unfold in order for regional governments to be formed. At the very least, the rise of parties such as Podemos and Ciudadanos, a new anticorruption centre-right outfit, will impact the policy platforms of the main Spanish parties. This was the experience in Britain where UKIP polled a respectable 12% earlier this month, but arguably had more impact by forcing the big parties to harden their stance on hot button issues such as immigration. In Spain, PSOE will likely seek to coopt some of the radical anti-austerity platform of Podemos, while the Popular Party will probably reach out to the reformminded Ciudadanos grouping. The impact is that budgetary constraints under the EU’s fiscal compact could face severe

political opposition.

The hope for centrist parties such as that run by Rajoy is that when it comes to picking a national government voters will not risk jeopardising an incipient economic recovery, and instead opt for the “devil they know”. The issue is whether such establishment figures will be able to make that argument without acceding to grass roots demands for change in the relationship between national governments and Brussels.

In theory such a loosening of the ties that bind the EU could mean a more flexible and more competitive system— but that will only be the case if a dialing back of EU powers is followed by continued structural reforms at the national level. Given the centrifugal forces which are again building up in the political arena, that is a big if. It would seem that political risk is again a factor which investors need to take seriously in their eurozone calculations.

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