Financial Mirror 2015 07 01

FinancialMirror OREN LAURENT

MOHAMED EL-ERIAN

Uber, Airbnb and the ‘sharing economy’ PAGE 14

Shelter from the storm in Europe PAGE 20

Issue No. 1140 July 1 - 7 , 2015

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Referendum trap pushes Greece closer to ‘Grexit’ JOSEPH STIGLITZ: EUROPE’S ATTACK ON GREEK DEMOCRACY -

‘Brexit’ could hit UK economy and financial sector SEE PAGE 17

PAGES 10 - 11

July 1 - 7, 2015

2 | OPINION | financialmirror.com

FinancialMirror Published every Wednesday by Financial Mirror Ltd.

Army education and innovation EDITORIAL

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The Ministries of Defence and Education are rewarding army conscripts by introducing a distance-learning programme for those already enrolled in undergraduate courses in Cyprus and Greece, who may gain up to one semester’s worth of credits during their military service. At the same time, the cooperation with the Open University also allows for short courses towards vocational qualifications for those who will not continue to higher education after they leave the army.

In both cases, this incentive offered to those who have not evaded their national service should also help instill a sense of responsibility and productivity in our otherwise disillusioned youth, who very often are not even aware why they have been called up. By introducing a level of competitiveness, at the same time that Defence chief Christoforos Fokaides has promised to announce reforms in the National Guard by October, including a gradual reduction in military service, our 20-year-olds may be better placed to face the real world, perhaps even seek a career-related higher education that has not been imposed by parents.

But what happens next?

Although both education programmes, that will be offered from September, are most

commendable, what the Ministry of Defence ought to be looking at is innovation, not just education.

The concept of innovation is pro-active and implies fresh ideas by putting them to practical use. Apart from gradually gearing towards a leaner, but longer-service professional army, that will be necessary even after a potential solution in Cyprus may be reached, the military should be seen as an innovator, researching and even taking part in programmes that improve the quality of life or technological advances.

Naturally, such applications would have some military significance, ie. communications, technology, marine and health, but their impact could be wider that would be accepted by society and, perhaps, the business world.

After all, this is how the first incubator programmes got off the ground in Israel, the then-Soviet Union, the U.K. and the U.S., while military units are even hired nowadays for clandestine electronic work, especially in China.

Taking the army into the digital age may even, surprisingly act as a catalyst towards an increase recruits, while those initially doing their national service, would opt to stay on and continue into a career that has great potential, job satisfaction and encourages creativity.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

Snoras eyes USB, Cyprus eurobonds The Russian-owned Snoras Bank has submitted a bid for 50.1% of Universal Bank, while two Cyprus Eurobonds will start trading on the NewEuroMTS platform, according to the Financial Mirror issue 625, on June 22, 2005.

Snoras bid: The Russian-controlled by Lithuania domiciled Snoras Bank has submitted a bid to

20 YEARS AGO

Cyta independence, shares edge lower A CDB report has suggested that Cyta change its structure and become independent, maintain government ownership, while shares edged lower on the OTC market, according to the Cyprus Financial Mirror issue 118, on June 28, 1995.

Cyta change: The Cyprus Development Bank drafted a report suggesting that Cyta change from a semi-government organisation to a fullindependent utility, fully-owned by the government.

By taking this course, and eventually seeking a

Universal Life for 50.1% of CSElisted Universal Bank, but the bid is subject to Central bank approval. The offer is reportedly valued at 76c a share, a 40% premium on USB’s last close on the CSE, making USB worth CYP 11.5 mln. The deal is also linked to UL CEO Andreas Georghiou’s efforts to take the 28% of the insurer’s share held by Bank of Cyprus for CYP 7.3 mln in cash.

Eurobonds: The Central Bank of Cyprus announced that two previously issued Eurobonds will start trading on the NewEuroMTS electronic platform.

The two Eurobonds are EUR 500 mln earning 4.375% and maturing in 2014 and 550 mln with a 5.5% coupon maturing in 2012.

Exports rise, tourism bounces back: Exports reached a year-to-date increase of 29% in April for CYP 203 mln in the first four months, while imports during the period fell 1.4% to CYP 883 mln. At the same time, tourism bounced back in May rising 8% year-on-year due to a better Easter break to 284,000 in the month and up 5% to 736,000 for the five month period.

Oil at $60? The key question for investors was how high can oil prices go as crude gained for four days and reached a record high of $59 a barrel.

partial flotation on the stock exchange, the profit-making telco will no longer need House approval for its spending and development budget and management will be responsible for its future course. The purpose for the report wad to make Cyta selfsufficient by 1998 when the EU directives on telecom fares and subsidies come into effect. As expected, trade unions SEK and PEO were “totally against” liberalisation or privatisation.

Stocks lower: Share prices lost their upmomentum on the KEVE OTC stock market with a down-correction of share prices continuing for a few days. Volume was satisfactory with dailies reaching an average CYP 333,000. Bank of Cyprus accounted for 12% of all trades so far in the year, with a +5.5% price change, followed by Laiki Popular (7% of trades, +10.1%), Paneuropean Insurance (6% of trades, +64%) and CTC (6% of trades, +86%).

Competitive: Cyprus should concentrate where it enjoys a competitive advantage, said Commerce Ministry DG Kyriacos Christophi, adding that the recent trend of liberalisation in world commerce as a result of the enforcement of the Uruguay Round of trade talks, as well as the Cyprus-EU customs union, show that Cyprus should focus in areas such as services, software, R&D and insurance.

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July 1 - 7, 2015

financialmirror.com | CYPRUS | 3

PDMO sells €31m in retail bonds, programme raises €182m so far The Ministry of Finance sold 6-year government bonds worth EUR 31 mln in its monthly offer this week, the second highest in the programme that started last year, suggesting that investors were unaffected by the government’s move to lower interest rates on the retail bonds for individual investors later this year.

The Public Debt Management Office said that for the July bonds, the seventh series this year, the Republic received 123 offers for the total of EUR 31,103,800, of which 22.5 mln were from just eight foreign investors. The size of bids ranged from EUR 1,000 to 5 mln.

This brings the total raised through this programme to EUR 182 mln, well within target to reach the government’s initial plan to raise EUR 120 mln a year This was conceived as an alternative source of mid-term funds having been shut out of markets since 2011 when the island’s banks invested in toxic Greek government bonds that led to their downfall and a EUR 10 bln bailout programme from the Troika of international investors.

The PDMO said that it is not limited to receiving bids for only EUR 10 mln a month and that it can accept to sell all the retail bonds, if it so wishes.

The biggest amount of retail bonds sold was in December 2014 when it sold EUR 37 mln, up from EUR 27 mln in November, with most of the interest continuing to come from foreign investors.

The eighth series for August will accept bids for EUR 10 mln from July 1 to 20.

In its first quarter 2015 report, the PDMO had said that the issues of 6-year bonds continued unhindered and raised EUR 57 mln in the first three issues of the year.

The interest rate for the 2015 series has been adjusted

downwards by 0.25 percentage points and ranges from 2.50% for the first year to 5.50% in the final year. These are subject to 3% tax on interest.

In May, the PDMO said it was lowering the interest rate on future bonds starting from the September series, to be offered on August 3-20.

Thus, the rate will be lowered to 2.5% for the first 24 months, 2.75% for 24-48 months, 3.00% for 48-60 months and 3.25% for 60-70 months.

This will generate an average 6-year yield of 2.79%, down from the 4% average at the launch of the programme.

As a consolation prize, the PDMO said that the present rates will be maintained through the current and previous bond issues, until they expire.

At the beginning of the year, the PDMO lowered rates by 0.5% starting from an initial 2.5% for up to 24 months and gradually increasing to 5.5% for a 60-72 months holding, for an average annual yield of 3.875%.

The annual coupon rate when the series was first launched in May 2014 started from 2.75% and averaged at an attractive 4% over a six-year period, with a minimal 3% income tax on the interest, far better than the 30% imposed on all interest-yielding products.

July 1 - 7, 2015

4 | CYPRUS | financialmirror.com

Economic sentiment unchanged in June The monthly Economic Sentiment Indicator (ESI) remained unchanged at 104.2 points in June, due to a marginal drop in consumer confidence and an equal improvement in business confidence in the retail, construction and manufacturing sectors.

The Economics Research Centre of the University of Cyprus said that climate change in retail was affected by a lesser-negative sentiment in sales in the second quarter and projections for future sales.

The construction sector benefited from a “lesser pessimistic” view of jobs in the next quarter, while the improvement in manufacturing resulted from a “lesser negative” climate due to current orders and increase in productivity.

The services sector remained basically unchanged from May. The marginal drop in consumer confidence arose from a negative view of consumption levels and household incomes in general and over the next 12month period.

Moody’s sees Greek risk to Cyprus banks Unemployment stuck at 16% The rate of unemployment rate remained steady in May, stubbornly at 16% compared to the previous month.

The euro area seasonally-adjusted unemployment rate was 11.1% in May, stable from April, and down from 11.6% in May 2014. This is the lowest rate recorded in the euro area since March 2012.

The EU28 unemployment rate was 9.6% in May, also stable compared with April and down from 10.3% in May 2014. This is the lowest rate recorded in the EU28 since July 2011, according to Eurostat.

Among EU member states, the lowest unemployment rate in May was in Germany (4.7%), and the highest in Greece (25.6% in March) and Spain (22.5%). Compared to a year ago, the unemployment rate in May fell in 22 member states, increased in five and remained stable in Cyprus. The largest decreases were in Lithuania (11.0% to 8.2%), Spain (24.7% to 22.5%) and Ireland (11.7% to 9.8%).

The increases were registered in Belgium (8.4% to 8.6%), France (10.1% to 10.3%), Romania (6.8% to 7.1%), Austria (5.6% to 6.0%) and Finland (8.6% to 9.4%).

Greek bank subsidiaries operating properly Subsidiaries of Greek banks in Cyprus opened for businesses as usual on Monday and without any limitations, despite the bank holiday in Greece and the capital controls that were put in place. central Bank of Cyprus Spokeswoman Aliki Stylianou said that “the subsidiaries of Greek banks operating in Cyprus are Cypriot banks, have sufficient capital, high liquidity and are therefore operating properly and are not affected by developments in Greece”.

She added that Greek subsidiaries are facing no limitations.

A deterioration of the economy in Greece and a potential Greek exit (Grexit) from the eurozone, could have a negative impact on Cyprus banks, despite the fact that the island’s lenders have little or no exposure to the Greek market, according to Moody’s.

The rating agency said on Thursday that Cyprus companies that do business in Greece could burden the efforts by Cypriot banks to improve their asset quality.

The rating agency also said that Cypriot banks would benefit from a new code for handling borrowers in financial difficulty, that was published by the Central Bank of Cyprus last week, noting however that their “asset quality metrics will remain weak for several years to come”.

“The code, which is required as part of the country’s support programme from the European Commission, European Central Bank and International Monetary Fund, will benefit Cypriot banks because it raises awareness regarding borrowers’ financial obligations and speeds up loan workouts of borrowers with financial difficulties”.

The rating agency’s analysis added that the code also sets clear timeframes for each step of the restructuring process, which will likely speed up the process and reduce the number

of uncooperative borrowers.

“Cypriot borrowers to date have been largely unwilling to engage their banks to restructure their loans owing to a widespread belief that they can get away with not repaying their loans because of the legal framework’s past weaknesses,” Moody’s said. “The published code can also be used by the newly established financial ombudsman and newly licensed insolvency practitioners to raise awareness and help borrowers understand banks’ rights”.

According to the rating agency, “although the code’s application will likely help the banks rehabilitate their loan books, given the large volume of non-performing loans (NPLs) that Cypriot banks are facing, asset quality metrics will remain weak for several years to come”.

The ratio of NPLs to gross loans remained stubbornly high at 46% of the national loanbook as of March, and was even higher for principal domestic banks. Bank of Cyprus reported an NPL ratio of 51.3%, while Hellenic Bank’s ratio was 54.6%.

Separately, Bloomberg quoted the head of the Single Supervisory Mechanism Daniele Nouy as telling the European Parliament that the subsidiaries of Greek banks in Cyprus “are liquid and solvent on a stand-alone basis.”

President calls Tusk, Merkel, Tsipras, in efforts to mediate President Nicos Anastasiades had a telephone conversation with the President of the European Council Donald Tusk on Tuesday, as part of his initiative on Greece, whose economic programme expired at midnight.

Government Spokesman Nikos Christodoulides said that the telephone conversation aimed to help achieve an agreement with Greece.

On Monday he spoke with German Chancellor Angel Merkel and Greek Prime Minister Alexis Tsipras.

Tsipras has called a referendum for July 5 asking the Greek people to say if they agree with the latest proposals by Greece’s international creditors on the conditions they laid down to extend the current programme.

Greece needed to make a 1.5 bln euro debt repayment to the IMF by Tuesday. With the ECB keeping its emergency funding to Greek banks unchanged, the government imposed as of Monday bank closure until July 6, coupled with capital controls.

On Monday, European Commission President Jean Claude Juncker urged the Greek electorate to vote ‘yes’ and avoid a national catastrophe, while several European leaders have said that a ‘no’ vote may lead Greece out of the euro

area.

Foreign Minister Ioannis Kasoulides said that Greece needs to remain a member of the EU and the Eurozone, expressing support to the Greek people.

Asked about his telephone conversation with his Greek counterpart, Nikos Kotzias, Kasoulides said he was briefed on the situation and the impending referendum the government has called regarding the Greek bailout offer.

Times are very crucial for Greece and Cyprus is taking the lead in efforts to keep the country in the Eurozone, Anastasiades said on Monday after the end of negotiations for a Cyprus settlement.

The President said Cyprus was in favour of a “strong Greece” and spoke of the need of a programme that will bring the country back to recovery and provide relief to the Greek people.

Moreover he said that his and the Finance Ministry’s initiatives were well-known, for a number of important issues, such as the viability of the debt.

We will do everything in our power, in order for Greece to stay in the Eurozone and in order to conclude a programme that will help Greece in this direction, the President noted.

July 1 - 7, 2015

financialmirror.com | CYPRUS | 5

70 EoIs for Limassol port

Bank of Cyprus caves in to trade union demands, afternoons abolished The bank staff trade union ETYK’s strong-arm tactics seem to have paid off as a new deal struck with the island’s biggest lender – with others expected to follow – sees cash tills closing daily at 2.30pm as of this week, at 2pm on Fridays and abolishing the Monday afternoon shift.

ETYK described the deal with Bank of Cyprus as a “victory” for its members, who will now benefit from a 37hour week, privileged fixed-interest borrowing rates, but a reduced contribution of the employer’s share into the staff provident fund.

The trade union, that has clearly not heard of rolling shifts and afternoon work in order to facilitate customers and businesses struggling to recover from the 2013 crisis, praised board member Mike Spanos for the “good spirit and honesty” during the negotiations for the collective agreements, that avoided the mediation of the Labour Ministry.

As of Monday, BOCY staff will clock in at 7.30am as before, and clock out at 3pm Mondays to Thursdays and 2.30pm on Fridays, with the cash tills closing half an hour earlier. In effect, counters will open at 8am and have an hour and a half more Monday to Thursday, and one hour more on Fridays.

But in a sign that the Cyprus banking system is fast returning to the Dark Ages, the trade union declared in a long-winded statement that it secured “labour harmony” and that “this new agreement will unavoidably provide an indicator for the rest of the banking system.”

It added that “through a policy of whispers, some [unnamed] tried to impose work hour solutions that are incompatible with the realities of Cyprus” and claimed its demands were “reasonable”.

ETYK secured customer-subsidised fixed-interest borrowing rates for its members that will maintain the agreed rate up to the expiry of the loan, regardless of market prevailing rates. These will be fixed at a 1.4% base rate for retail loans and 1.6% for student loans and overdrafts.

For borrowing by commoners, the bank’s base rate is currently 4% which with a 4% interest in case of a personal guarantee rises to an annualised percentage rate of 8.9% and with asset-based collateral, that carries a 2.75% interest, rises to an APR of 7.6%.

More than 70 firms have so far expressed an interest to bid for one or all three concessions of the privatisation of services at Limassol port, the island’s main port of call that accounts for 80% of passenger traffic and 70% of all commercial activity.

The tender document for the privatisation was published a week ago on the government’s e-procurement website www.eprocurement.gov.cy with the deadline set for midnight, August 12.

Expressions of Interest must be submitted by July 17.

The contract notice concerns three potential opportunities for a services concession for the Container Terminal, a services concession to provide Marine Services and a services concession in respect of a Multi-purpose Terminal.

Interested parties may bid for one or all three of these potential opportunities.

The Ministry of Transport, which is the Contracting Authority, anticipates that the duration of the services concessions for the container terminal

and the multi-purpose terminal is likely to fall within a range of between 25 to 30 years and for the marine services from 10 to 20 years.

Limassol Port is currently in the process of upgrades which should be completed in 2016.

Speaking on CyBC radio on Monday, Ministry Under-Secretary and ex-officio chairman of the Cyprus Ports Authority, Alecos Michaelides, said that “the great interest shown so far also guarantees that the tender process will be a success, with the competition already quite big.”

“The benefits will be extensive and multiple, as this is a major project of strategic interest. The managers (of one or all three concessions) will utilise their know-how and experiences to transform Limassol port as a leading centre in the Mediterranean with tremendous benefits for our economy,” Michaelides said.

After a short-list is assessed by consultants Rothschild, the new operators will be selected later this year and undertake management in the first

quarter of 2016, initially in a parallel transition phase with the CPA. After that, the CPA will cease to act as an operator and be limited to the role of landlord and regulator of all three major commercial ports – Limasol port of call, home port Larnaca and Vassiliko cement and oil terminal.

The government is also in the process of finalising the privatisation of Larnaca port and marina with the winning bidders Zenon Consortium, that initially won the tender in 2013 but failed to find sufficient funding due to the economic crisis that hit Cyprus.

The privatisation process, that includes the break-up and sale of telco Cyta and energy producer EAC, is part of the government’s obligations to international creditors who bailed out the island with a 10 bln euro programme in 2013.

The aim is to raise about 1.4 bln from the privatisation of state assets or de-nationalisation of services and utilities, to make the economy more competitive and less reliant on its rigid civil service.

Porters to get €32m for Limassol, Larnaca licenses Porter companies at Limassol port will get EUR 28 mln in compensation for their licenses, equalling a cool EUR 1 mln for each of the 28 porters, but lifting the final hurdle in tendering out the management of the port’s services to private bidders.

The government, acting as landlord and future regulator of the island’s commercial ports, will provide a further EUR 3.6 mln to the porters operating in Larnaca port, once the management agreement has been concluded with finalist Zenon Consortium.

Transport Minister Marios Demetriades said that a preliminary agreement with the Limassol porters should be signed “within a few days”, but should be patient for the one in Larnaca.

The government-owned Cyprus Ports Authority has put out to tender three services at Limassol port for the container terminal (25-30 years), marine services (10-20 years) and the passenger and commercial terminal (25-30 years), with some 70 companies already keen to submit an expression of interest (EoI) by the July 17 deadline.

This is the island’s main commercial port capable of docking vessels up to 340m in length and handles all of

the container traffic (imports, exports, transit re-exports) and accounts for 40-50% of total cargo by tonnage. The nearby Vassiliko port is an exclusive cement exporting and oil storage facility that handles the rest of the island’s cargo by tonnage.

Limassol port also handles about 75% of cruise and passenger traffic, with the rest handled by Larnaca port and marina, that is designated as the ‘home port’.

The privatisation of the CPA’s services with the Limassol port operator chosen by the first quarter of 2016, is part of the government’s public sector reform that will see the state abandoning commercial activities in port management, telecommunications and electricity production, and retaining only the ownership of the ports, the national power grids and telecom networks.

In accordance with the economic adjustment programme signed with the Troika of international lenders, Cyprus needs to raise about EUR 1.4 bln from the sale of assets and outsourcing services, cutting back on its huge public sector payroll and servicing the EUR 10 bln bailout that rescued the island from collapse and the banks from a meltdown.

July 1 - 7, 2015

6 | CYPRUS | financialmirror.com

Minister says air connectivity ‘could be higher’ Air connectivity with the rest of the world is quite high, but should be even higher, according to Transport Minister Marios Demetriades.

However, considering that Cyprus is highly dependent on tourism and foreign airlines operating on the island, the Minister during a public consultation on Monday that air traffic in Cyprus has not been affected by the closure of Cyprus Airways earlier this year.

For the period until June 15, according to figures compiled by airports operator Hermes, air traffic increased by 3.8% compared to the same period last year, while total air traffic will be around 7.3 to 7.4 mln passengers for the whole year based on the year-to-date figure of 2.6 mln up to June 15.

According to the Minister, 2015 air traffic is expected to decline slightly compared to last year, possibly registering zero growth because of the decline in visitors from the Russian market.

Demetriades said that 70 airlines operate now in and out of Cyprus, with more than 130 routes, flying to 40 countries.

“It is important that we are not dependent on only one airline,” the Minister said, adding that none of the companies holds a market share of over 15%.

Demetriades said the government is implementing a new strategy in relation to the country’s air connectivity which includes a specific action plan to achieve liberalisation of bilateral air agreements with a number of third countries and to remove all existing limitations in relation to the number of designated airlines, frequencies, aircraft types, loads and also to grant fifth freedom rights.

The Minister said that Cyprus has so far signed a new agreement with Bahrain and is expected to sign an agreement soon with Oman, an agreement with Egypt is at an advanced stage, while negotiations are underway with Kuwait, Saudi Arabia, India, China, Cuba, North Africa and Uzbekistan.

He added that an EU-Israel ‘open skies’ agreement is being gradually implemented and that Cyprus had granted commercial rights to Aegean, Ryanair and Wizzair, while the House of Representatives had recently ratified the EU-Jordan ‘open skies’ agreement.

Also, Aegean has been granted commercial rights for Qatar, the United Arab Emirates and Ukraine and the right to exercise fifth freedom rights to Lebanon.

The Minister said that a new round of negotiations with Russia will begin on July 14 and that Russian charter airlines will have the right to sell individual seats, up to 50 per flight, in order to cover available seats from the Russian market and since there is an increase demand for retail ticket sales.

He also noted that there are new opportunities in markets such as the Middle East, Asia and Eastern Europe.

“We have given some incentives to airlines through the projects we implement with Hermes. We can do even more,” he said.

Peace ‘really has a chance’, says Eide “There will be good days and bad days, but these have probably been the best days because of the creation of this unique atmosphere of trust, and will, and leadership

Peace really has a chance in Cyprus, UN Secretary General’s Special Adviser on Cyprus Espen Barth Eide said on Tuesday, expressing his optimism that there is a genuine opportunity to solve the Cyprus problem, which the two leaders who resumed talks on Monday are actually grasping Speaking at a the Biommunal Peace Initiative at the Home For Cooperation, Eide said that “we agreed that we shall not reveal the details of the talks, and I will not start now, but what I want to tell you is that (on Monday) and (Tuesday) have probably been the best days in my current job because of the creation of this unique atmosphere of trust, and will, and leadership”.

He said that “after agreeing between the two sides on where they already stand on known issues, they have now started going into the new, complicated issues that you all know about, and they are doing that with a high degree of respect, creativity, and will to find solutions and will to understand each other, that I think is unique in Cyprus but unique in the world right now”.

“It’s very encouraging. Yesterday, a very solid leaders’ meeting; today, a meeting of the excellent negotiators, Mr. Ozdil Nami and Mr. Andreas Mavroyiannis, who also, like their leaders, have found a good tone of working together”, he stressed.

But leaders, he said, cannot change the world on their own, they need support.

“It’s not easy. There will be good days and bad days, but with this kind of spirit that I feel here tonight, I think that it is almost impossible to say that peace will not come, because peace really has a chance in Cyprus,” Eide concluded.

On Monday, President Nicos Anastasiades and Turkish Cypriot leader Mustafa Akinci were “immersed in substantive negotiations with their focus on unresolved core issues,” Eide said after their meeting at the UN-

controlled Nicosia airport compound.

Speaking to the press following the meeting which lasted five hours, Eide said that determined to keep the pace of their meetings and in line with their joint commitment to a leader-led process, the two leaders met in a positive and results-oriented atmosphere.

He noted that to enable their discussions, the negotiators provided an update on the work they have carried out on a specific set

of core issues across the chapters of governance, property and criteria on territory.

Nami and Mavroyiannis were reported to have produced a list of convergences and divergences.

“Mr. Akinci and Mr. Anastasiades discussed those issues at length in a pragmatic and constructive manner, making further progress. They provided new guidance to the negotiators, who will meet

three more times this week to carry forward their work on core issues”, Eide said.

He also said that on the subject of confidence building measures, the leaders continued their exchange.

“They took stock of the work done to implement already agreed confidence building measures, expressing satisfaction with the progress made to date”, he stressed.

“Mr. Anastasiades and Mr. Akinci expect that practical solutions to any pending issues will soon be found, bringing the implementation of those measures closer to completion”.

He added that the leaders exchanged views on the economic prospects that would arise from a solution.

“With substantive negotiations now at the centre of their work, Mr. Akinci and Mr. Anastasiades reiterated their resolve to reach a comprehensive settlement as soon as possible”.

Eide announced that the leaders will jointly participate in an event that will be coorganised by the Cyprus Chamber of Commerce and Industry (KEVE) and the Turkish Cypriot Chamber of Commerce (KTTO) on July 8. On the same day, they will also participate in a joint meeting with religious leaders.

The next leaders’ meeting will be held on Friday, July 10.

He said that sometimes they come to an agreement, while other times they continue to disagree, “always in a spirit saying that we will find a solution to those issues”. He stressed that the leaders don’t just have coffees and participate in events together, but they hold very substantive and serious negotiations which is something very encouraging.

He said that he is more optimistic than before due to the substantive negotiations between the two leaders who are committed to solving a long standing problem.

LETTER TO THE EDITOR: What are the motives for absence in due diligence?

I believe Alan Waring’s Risk Watch article ‘Corrupted Spirit of Laissez Faire Authorities’ hit the nail on the head regarding the ease with which it appears almost anyone can set up a Cypriot company and open associated bank accounts, with only a barest minimum of

due diligence checks.

As a former Senior Police Officer in Africa engaged for several years in a broad spectrum of policing, including counterterrorism and fighting organised crime, I can attest to the fact that if authorities provide only a flimsy veneer of protection,

and so encourage and facilitate organised criminals and terrorists to channel funds through their country, without doubt, certain parasites will grab the opportunity. Moreover, others will use the weakness as an opportunity for tax evasion or for running up huge debts and

then disappearing without paying.

What does concern me is what possible motives controlling authorities could have for being so laid back on such crucial matters.

Sincerely Graham Walker, Larnaca

July 1 - 7, 2015

financialmirror.com | CYPRUS | 7

UKCEC, IPA promote Cyprus as a centre for enterprise and investment, “encouraging signs” The UK Cyprus Enterprise Council joined forces with the International Professionals Association (IPA) to organise a seminar at the Cyprus High Commission in London last week to promote the island’s attractions as a centre for services, enterprise and investment.

UKCEC Chairman Peter Droussiotis and IPA Chairman Simon Denton welcomed a packed and diverse audience of British and UK Cypriot entrepreneurs, business and professional people, which they noted was a positive sign of the level of interest in Cyprus as a destination for business.

In his opening remarks, Peter Droussiotis, UKCEC Chairman, pointed out that the event was “taking place against a positive backdrop on the island, both in terms of the Cypriot economy, which is gradually re-emerging from the crisis and, of course, encouraging signs that the negotiations currently underway may, at long last, lead to the island’s reunification which has the potential to transform Cyprus’s future prospects.”

High Commissioner Euripides Evriviades set the tone for the evening by outlining that the Cypriot economy had turned a corner: “We can state with confidence and certainty that the economy… is on the road towards full recovery.

Cyprus is returning to the international markets, far earlier than anyone predicted.”

He added that, “in a globalised economy where enterprises and investors have high business expectations, Cyprus provides a complete value proposition as a centre for international economic activities by offering numerous advantages such as tax credit incentives, simplified

Cyprus High Commissioner Euripides Evriviades and the panellists at the UKCEC event in London

procedures and a well-trained and versatile work force.”

IPA’s Simon Denton said that there were “clear synergies and areas of common interest between our respective organisations which we are keen to develop in the future. The presentations pointed to the strengths and importance of Cyprus as an EU hub for international business, especially for UK persons wishing to expand their UK business to overseas destinations. With a positive double tax treaty enjoyed between both countries, a low, competitive tax system, a diversified but qualified work force and a less bureaucratic regime than other international finance centres, Cyprus should be a shortlisted jurisdiction for a typical international business person or company.”

The event covered a diverse range of themes, with presentations delivered by an authoritative panel, most of whom are UKCEC Goodwill Ambassadors.

George Mouskas, President of the Cyprus Union of Ship Owners talked about “Cyprus as a Maritime Centre,” followed by a presentation on “Effective Management of Hydrocarbon Reserves in the Republic of Cyprus” by Prof. Toula Onoufriou, President of the Cyprus Hydrocarbons Company and Vice Rector of the Cyprus University of Technology (TEPAK).

High Commissioner Ric Todd with the CIM and ACU officials

“The advantages of Cyprus as a centre for the protection and exploitation of global IP” was presented by Nick Kounoupias, Founder and CEO, Kounoupias IP, followed by “The benefits and characteristics of the EU Freedom of Establishment Act and why Cyprus should be a shortlisted domicile” by Andrew Terry, Partner, Withersworldwide.

Concluding the panellists, Dr Patrick Fullick, Founder Hylle Royce Education talked about “Cyprus as an Educational Centre.”

There was consensus among the panel and within the audience that Cyprus is open for business and that it presents a variety of opportunities for investment, especially in targeted sectors of the economy such as tourism, energy, renewable energy, shipping, services, education, the arts and real estate. The seminar and reception facilitated information sharing and networking to foster collaboration in aid of this.

UKCEC is a voluntary, independent, apolitical and not-forprofit organisation that relies exclusively on donations and sponsorship to carry out its work of promoting initiatives which encourage inward investment and bilateral trade with an emphasis on targeted sectors of the economy.

The Council is governed by a board, chaired by Peter Droussiotis. http://www.ukcec.co.uk

CIM Director Theo Hadjiyannis addressing the event

CIM joins Commonwealth network at Nicosia event The Cyprus Institute of Marketing has officially been inducted into membership of the Association of Commonwealth Universities (ACU), joining the University of Cyprus and Philips College

as its third member from Cyprus.

The announcement was made at a special ceremony at the British High Commissioner’s residence in Nicosia by Joyce Achampong, Director of External

Engagement of the ACU. The association is the oldest university network organisation in the world and dates back to 1913, presently boasting over 500 member institutions

in 37 countries across the Commonwealth. It researches and deals with higher education matters, encourages networking and administers scholarships.

July 1 - 7, 2015

8 | COMMENT | financialmirror.com

Thoughts for pleasant Summer Meals

FOOD, DRINK and OTHER MATTERS with Patrick Skinner a few minutes) 500 g of broccoli florets 500 g of vermicelli or other thin pasta 6 tbsp extra virgin olive oil 1 garlic clove, peeled and crushed 2 canned or bottled anchovy fillets, washed and chopped Some pinches of chilli pepper Salt and pepper to taste

As the temperature rises, so does the urge to sit at a shaded café table, overlooking the blue, blue sea and contemplating a cool glass of chilled Xynisteri, whilst considering the menu. Or, if you want the wine to wait for the food, a non-alcoholic refresher. I have just the thing.

HONEY DEW LEMONADE

Ingredients for about 8 medium glasses Zest of two lemons 25 cls of fresh lemon juice 185 g) caster sugar 1 honeydew or sweet melon 1250 grams, rind and seeds removed, cut into small pieces.

50 cl soda water

Method 1. In a small saucepan combine the lemon zest, juice and sugar and bring to the boil.

2. Stir from time to time for about five minutes.

3. When you have a nice syrup, drain this off into a bowl and let it cool.

4. In your food processor whizz the melon pieces until you have a fine purée. If you want this finer still, push it through a sieve.

5. In a large jug, combine the syrup and the melon purée, stir it will, cover and refrigerate.

6. When you want to serve add the soda water and some ice. Pour into glasses and garnish each one with a slice of lemon and a couple of mint leaves.

Some Summer Lunch Proposals I start with a dish that is light and flavoursome, can be cooked well before a meal, and which makes an excellent summer starter or part of mezedes.

Mushrooms Nicoise

Ingredients for 4 servings 450 g small button mushrooms, wiped clean and cut in halves 2 tbsp extra virgin olive oil 1 large onion, peeled and quite finely chopped 1 large garlic clove, peeled and finely chopped 2 large ripe tomatoes, peeled, deseeded and chopped 1 medium wine glass of white wine 15 cl water 2 tbsp lemon juice A few good pinches of fresh tarragon if you have it, otherwise parsley, chopped.

Method 1. In a sturdy non-stick frying pan, heat the oil and fry the onion until transparent 2. Add the garlic and mushrooms, stir-fry for a minute or two.

3. Put in the tomatoes and cook until all the juice has boiled away.

4. Pour in the lemon juice, water and wine. Stir until almost all the juices have evaporated.

5. Season and stir in the tarragon or parsley.

6. Serve cold.

Summery Shrimp Salad

Now another buffet dish which uses frozen medium-large shrimp (you get 20+ to the kilo) and is delicious.

Ingredients 250 g of uncooked frozen shrimp (ice washed off and de-frosted in a bowl of cold water for

Method 1. Boil some water in a large frying pan or skillet 2. Put in the shrimp and cook for 5 - 7 minutes (until pink and cooked through) 3. Rinse with cold water, drain, put on a plate and sprinkle with a little salt and pepper.

Discard water from pan.

4. In a large pot, heat plenty of water, add some salt and cook the pasta until AL DENTE, drain and set aside.

5. Heat 4 tbsp of the olive oil in the dried frying pan and stir fry the garlic and anchovy, adding a pinch or two of chilli pepper. A minute or two should suffice. Do not remove from the pan, but remove from flame.

6. Meanwhile, boil the broccoli florets in a little water until they are ALMOST cooked through.

7. Slice the shrimp lengthways into two halves.

8. Put the pan with the oil, garlic and anchovy back on the flame and stir in the shrimp, then the pasta and finally the broccoli florets. Check the seasoning.

9. Pour over the remaining olive oil, stir well but gently and serve.

You could accompany this with a salad that not only looks different, it IS...

Carrot, radish and spinach salad

You don’t mix this, so simply arrange the ingredients in rows upon a serving platter.

Ingredients 2 medium sized carrots, topped, tailed, peeled and coarsely grated.

4 medium-large radishes, peeled to leave only the white part, grated.

1 bunch spinach, carefully washed, patted dry, stalks and choggy bits removed, then very thinly sliced.

Method 1. Arrange the carrots, radishes and spinach in an artistic fashion on a platter.

2. Serve separately from a good French dressing of: 3 tbsp lemon juice; 3 tbsp white wine vinegar; 2 tbsp Dijon (or similar) mustard; 4 tbsp extra virgin olive oil, or sunflower oil if you prefer a lighter flavour.

Summer Pudding

Very, very English. A mix of red currants, raspberries and black currants – or summer berries and fruits of your choice (or what you can find!) Frozen berry mixes are available and these work very well.

Ingredients for 6 – 8 servings 1 kilo of mixed frozen summer fruit, de-frosted 200 g caster sugar 1 strip of lemon rind 10 slices of day-old white bread, crusts removed.

Method 1. Put the sugar into a medium pan and heat until it has dissolved.

2. Add the fruit and lemon rind and gently simmer until cooked through.

3. Remove pan from heat and take out lemon rind.

4. Cut a circle of bread to fit the bottom of a large pudding basic.

5. Line all the inside of the basic with bread leaving no spaces.

6. Reserving about a cupful of the fruit liquid, pour all the fruit and juice into the bread-lined bowl.

7. Complete by covering the fruit completely with bread.

8. Put a lid or plate on top which fits inside the basin and which can press down the pudding. Put weight on top to assist this.

9. Put pudding in fridge overnight.

10. When ready, invert the pudding on to a serving dish. If there are any bits of bread in to which the fruit juice has not percolated, spoon some over from the cup of juice you set aside.

11. Serve with whipped cream.

SUMMER WINES… This is the time to become a Pinko – drink a well chilled rosé. Raise a glass of a good Greek, or support local winemakers. From the days many years ago when I used to drink Pink Lady, I’ve always had room for a glass or two of a Cyprus pink. Forward Paphians Theodoros Fikardos with your eminently quaffable Iocasti and Marios Kolios with your Cornetto!

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

July 1 - 7, 2015

financialmirror.com | COMMENT | 9

CEOs see ‘skills shortage’ as their biggest threat to growth CEOs are now finding it so difficult to find people with the right skills to grow their business that three quarters of the 1,300 interviewed in 77 countries by PwC rank ‘skills shortage’ as the biggest threat to their business.

This represents a ten percentage point jump from 2014 and is up from less than half (46%) six years ago. CEOs in Japan and South Africa are the most concerned – over 9 in 10 of those surveyed say the availability of key skills is a threat to their organisation’s growth prospects, and is closely followed by China (90%), Hong Kong (85%), UK (84%)

and Romania (84%). In Cyprus, 35% of CEOs are concerned about the availability of key skills and 80% state that they now look for a much broader range of skills when hiring than they did in the past.

To solve the talent conundrum, CEOs are increasing their use of contingent workers, part-time employees, outsourcing and service agreements to fill their talent gaps.

They are also looking for a wider mix of skills than in the past and are searching for talent in different geographies, industries or demographic segments.

Filling talent gaps is also a major driver of

Wealthiest universities in the United States Universities in the United States are getting wealthier and wealthier. A report from Moody’s Investors Service measuring the total wealth of 500 public and private institutions in cash and investments found that the country’s top ten richest universities held a third of the total wealth.

The gap between the richest universities and the rest of the pack is widening, with leading schools attracting a steady stream of investments, alongside generous donations.

The top three names on the academic wealth list should come as little surprise. Harvard is in first place with $42.8 bln with Stanford coming second with $31.6 bln. Yale rounds off the top three with $25.4 bln. (Source: Statista)

mergers and acquisition (M&As), with over a quarter of CEOs saying that access to top talent is the main reason for collaborating with other organisations. This is creating a ‘gig economy’, where workers with the most in-demand skills can dictate where and when they work, and who they work for.

“The digital age has transformed the skills shortage from a nagging worry for CEOs into something more challenging,” explained Jon Andrews, leader of PwC’s global people and organisation practice.

“Businesses are faced with a complex and shifting world where technology is driving

huge changes. They desperately need people with strong technology skills that are adaptable and can work across different industries, but these people are hard to find and they can afford to charge a premium for their skills,” Andrews said.

“Organisations can no longer continue to recruit people as they’ve always done – they need to be looking in new places, geographies and from new pools of talent.

Businesses also need to make use of data to understand exactly what skills they need, and where they will need them, to focus their future hiring efforts.”

July 1 - 7, 2015

10 | GREECE | financialmirror.com

Referendum trap pushes Greece ever closer to Euro-exit

By Costis Stambolis Greek Prime Minister Alexis Tsipras’ surprise decision late Friday night to call a snap referendum on new bailout terms offered by its creditors, pitted Athens on a head-on collision with its eurozone partners pushing the country closer to a “Grexit”. The government’s momentous decision to call a referendum followed a supposed break-down of talks in Brussels, during which Greek negotiators huddled with officials from the EU, IMF and ECB in a bid to bridge the gap on economic reforms Greece should adopt to unlock EUR 15.3 bln of urgently needed funds before the bailout programme expired on June 30.

It has now become known that the negotiations did not actually break down over presumed insurmountable differences or an alleged ultimatum handed by Eurozone governments, which was portrayed as tantamount to blackmail by the Tsipras goverment, but the Greek team was suddenly ordered to leave the negotiating table and return home. At the same time the cabinet was meeting in Athens to approve the PM’s decision to call a referendum following a rejection of latest creditor bailout terms. In his dramatic midnight television proclamation, Greece’s young and agitating PM denounced the proposed bailout terms as they would “place unbearable new burdens on the Greek people and lead to unprecedented recession and poverty”, while calling voters to reject outright “this blackmail ultimatum”.

Over the weekend, huge queues formed at cash dispensing machines throughout the country as citizens withdrew their money predicting rightly that the referendum call would halt the bailout programme and prompt capital controls, which dully followed on Monday together with an indefinite bank holiday, in order to prevent the collapse of the banking system.

Over the last few months, Greece’s banking system has relied heavily on ECB support through the Emergency Liquidity Assistance (ELA) programme in order to stay afloat as the depositors were constantly withdrawing money fearing “Grexit”. Since December last year, more than EUR 30 bln has left Greek banks with total deposits now standing well below 130 bln and banks running short of banknotes.

Following the tumultuous developments resulting from the Greek government’s decision to go ahead with a hastily organised referendum, eurozone finance ministers last Saturday denounced this move and at the same time rejected a plea from finance minister Yanis Varoufakis to extend bailout terms beyond Tuesday until the vote is held. In tune, and not willing to oblige the Athens government, angered by Tsipras’ double dealing, the ECB announced on Sunday that it was freezing all loans to Greek banks which meant no more ELA cash injections, thus forcing the Greek government to impose capital controls and a week long bank holiday while forcing depositors to limit daily withdrawals to 60 euros per person.

As Greece heads to Sunday’s critical vote over the country’s future in the eurozone, constitutional experts and public commentators are openly talking of a parliamentary

A protestor in Athens expressing his frustration at Syriza’s policies and was among thousands who rallied to vote Yes on Sunday

instigated coup d’ etat since the terms on which the public is asked to vote and the very content of the actual vote form appear blurred and confusing to say the least. The general perception is that Greece is holding a referendum on a proposal that no longer exists for a punishing bailout programme since withdrawn by the creditors.

As Peter Spiegel wryly pointed out in the FT, “Athens sees things differently. It has framed the referendum as a vote on the final terms offered by Greece’s creditors for a bailout extension, not on the country’s membership of the eurozone.

The highly technical question that Greeks will have to answer and which was revealed on Monday, does not even mention the single currency”.

Contrary to democratic parliamentary tradition, Mr. Tsipras and his ministers have taken sides urging a “No” vote to endorse the radical left government’s rejection of an alleged “blackmail” by the EU, ECB and IMF to apply further harsh austerity measures in return for a generous bailout.

The third in line since Greece was first declared bankrupt in May 2010.

Drawing attention to the seriousness of the situation, European leaders warned Greeks that Sunday’s vote on the country’s international bailout was a referendum on its membership of the eurozone, pointing out that rejection would not bring an improved offer and would have disastrous economic consequences. This perilous state of affairs is further confounded by the Greek government’s decision to default on EUR 1.6 bln loan payment to the IMF on June 30.

Defaulting on this payment will put Greece in the same category as Zimbabwe, Sudan and Cuba. Even more critical

is a EUR 3.5 bln payment that Greece must make to the European Central Bank at the end of July. In an exhaustive press conference on Monday, Jean-Claude Juncker, president of the European Commission, openly admitted that he felt cheated by the Greek government’s devious negotiation tactics and argued that a “no” vote would lead to Greece leaving to Eurozone.

Although much of the blame for this lamentable situation lies no doubt with Athens and Mr. Tsipras’ intransigent and wildly populist policies, it appears that creditors are to a large extent also responsible for insisting on a one-sided agreement which in the first place refused to address Greece’s serious debt problem, despite written assurances given in a 2012 bailout agreement. Their inflexible attitude has fuelled the Greek PM’s argument, and his SYRIZA party’s long stated and clearly worded policies, advocating not only Greece’s exit from the Eurozone but also from the European Union and the pursuance of a completely independent path, cut off from Western links.

According to political commentators in Athens, SYRIZA’s secret plan for turning Greece into a neo communist state, complete with central planning and state owned industries, is now rapidly unfolding. They further argue that Alexis Tsipras and his radical left party never really intended to negotiate seriously with the EU, EC and IMF and all along were aiming for a major confrontation which is now underway.

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

Ifo’s Sinn calls for ‘orderly Grexit’, electronic currency Hans-Werner Sinn, President of the Ifo Institute in Munich has spoken out in favour of an orderly Grexit.

“The foreseeable insolvency of Greece is deeply regrettable. Greece now needs to immediately introduce a new electronic currency as legal tender and must stop all euro payment orders to other countries abroad and impose capital controls”, Sinn said on Sunday. “The new currency would devalue against the euro, which would

make the country competitive again.”

In addition, a debt conference involving all creditors to discuss a haircut in the wake of the euro exit would be needed.

This would particularly affect the euro states, the European Central Bank (ECB) and the International Monetary Fund (IMF).

The Greek central bank should no longer electronically produce any new euros or issue euro bank notes, noted

Sinn. The euro bank notes that are still available in Greece could remain as parallel currency, although all wages, prices, rents and loans should be quoted in drachma, he added. Within a few weeks bank notes could be printed in the new currency.

Extensive empirical analyses by the Ifo Institute have shown that devaluations can jump-start an economy in a financial crisis. They make imports more

expensive, meaning that the population buys more domestic products.

Exports, in the case of Greece primarily tourism services, go up as they become cheaper; and flight capital returns to the country. It typically takes one to two years for an economy to return to growth.

Europeans would certainly need to offer Greece generous assistance in terms of critical imports like, for example, medicine, Sinn concluded.

July 1 - 7, 2015

financialmirror.com | GREECE | 11

Europe’s attack on Greek democracy

By Joseph E. Stiglitz The rising crescendo of bickering and acrimony within Europe might seem to outsiders to be the inevitable result of the bitter endgame playing out between Greece and its creditors. In fact, European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics.

Of course, the economics behind the programme that the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been.

But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018.

Economists around the world have condemned that target as punitive, because aiming for it will inevitably result in a deeper downturn. Indeed, even if Greece’s debt is restructured beyond anything imaginable, the country will remain in depression if voters there commit to the troika’s target in the snap referendum to be held this weekend.

In terms of transforming a large primary deficit into a surplus, few countries have accomplished anything like what the Greeks have achieved in the last five years. And,

though the cost in terms of human suffering has been extremely high, the Greek government’s recent proposals went a long way toward meeting its creditors’ demands.

We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems.

The IMF and the other “official” creditors do not need the money that is being demanded.

Under a business-as-usual scenario, the money received would most likely just be lent out again to Greece.

But, again, it’s not about the money. It’s about using “deadlines” to force Greece to knuckle under, and to accept the unacceptable – not only austerity measures, but other regressive and punitive policies.

But why would Europe do this? Why are European Union leaders resisting the referendum and refusing even to extend by a few days the June 30 deadline for Greece’s

next payment to the IMF? Isn’t Europe all about democracy?

In January, Greece’s citizens voted for a government committed to ending austerity.

If the government were simply fulfilling its campaign promises, it would already have rejected the proposal. But it wanted to give Greeks a chance to weigh in on this issue, so critical for their country’s future wellbeing.

That concern for popular legitimacy is incompatible with the politics of the eurozone, which was never a very democratic project. Most of its members’ governments did not seek their people’s approval to turn over their monetary sovereignty to the ECB. When Sweden’s did, Swedes said no. They understood that unemployment would rise if the country’s monetary policy were set by a central bank that focused single-mindedly on inflation (and also that there would be insufficient attention to financial stability). The economy would suffer, because the economic model underlying the eurozone was predicated on power relationships that disadvantaged

workers.

And, sure enough, what we are seeing now, 16 years after the eurozone institutionalised those relationships, is the antithesis of democracy: Many European leaders want to see the end of Prime Minister Alexis Tsipras’s leftist government. After all, it is extremely inconvenient to have in Greece a government that is so opposed to the types of policies that have done so much to increase inequality in so many advanced countries, and that is so committed to curbing the unbridled power of wealth. They seem to believe that they can eventually bring down the Greek government by bullying it into accepting an agreement that contravenes its mandate.

It is hard to advise Greeks how to vote on July 5. Neither alternative – approval or rejection of the troika’s terms – will be easy, and both carry huge risks. A ‘yes’ vote would mean depression almost without end.

Perhaps a depleted country – one that has sold off all of its assets, and whose bright young people have emigrated – might finally get debt forgiveness; perhaps, having shriveled into a middle-income economy, Greece might finally be able to get assistance from the World Bank. All of this might happen in the next decade, or perhaps in the decade after that.

By contrast, a ‘no’ vote would at least open the possibility that Greece, with its strong democratic tradition, might grasp its destiny in its own hands. Greeks might gain the opportunity to shape a future that, though perhaps not as prosperous as the past, is far more hopeful than the unconscionable torture of the present.

I know how I would vote.

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

Which countries stand to lose big from a Greek default?

The IMF has turned up the heat on Greece’s Eurozone neighbours, calling on them to write off “significant amounts” of Greek sovereign debt. Writing off debt, however, doesn’t make the pain disappear—it transfers it to the creditors.

No doubt, Greece’s sovereign creditors, which now own 2/3 of Greece’s EUR 324 bln debt, are in a much stronger position to bear that pain than Greece is. Nevertheless, we are talking real money here—2% of GDP for these creditors.

Germany, naturally, would bear the largest potential loss — EUR 58 bln, or 1.9% of GDP. But as a percentage of GDP, little Slovenia has the most at risk — 2.6%.

The most worrying case among the creditors, though, is heavily indebted Italy, which would bear up to EUR 39 bln in losses, or 2.4% of GDP. Italy’s debt dynamics are ugly as is — the FT’s Wolfgang Munchau called them “unsustainable” last September, and not much has improved since then. The IMF expects only 0.5% growth in Italy this year.

Italy’s IMF-projected new net debt for this year would more than double, from EUR 35 bln to 74 bln, on a full Greek default — its highest annual net-debt increase since 2009.

With a Greek exit from the Eurozone, Italy will have the currency union’s second highest net debt to GDP ratio, at 114% — just behind Portugal’s 119%.

With the Bank of Italy buying up Italian debt under the ECB’s new quantitative easing programme (QE), the markets may decide to accept this with equanimity. Yet

assuming that a Greek default is accompanied by Grexit, this can’t be taken for granted. Risk-shifting only works as long as the shiftees have the ability and willingness to

bear it, and a Greek default will, around the Eurozone, undermine both.

Source: Council on Foreign Relations (CFR)

July 1 - 7, 2015

12 | PROPERTY | financialmirror.com

Paphos remains the top choice for overseas property buyers Property sales continue to grow for the fifth consecutive month in 2015, both from the domestic and especially from the overseas markets, with Paphos continuing to lead in purchase contracts by foreign buyers recorded at the Department of Lands and Registry by 36%. By comparison, Limassol accounted for 26%, Larnaca 18%, Nicosia 10% and Famagusta District with just 9% The massive property purchases by foreign investors in Paphos were due to the granting of residence permits to non-EU investors if they bought properties worth at least 300,000 euros, while an investment of 3

mln makes them eligible to apply for citizenship.

The natural environment, the attractive areas and mild climate of Paphos also seem to impress foreign investors with large development companies creating suitable projects with amenities, facilities and services that raise the quality of lifestyle throughout the region.

Leptos Group said in an announcement that it has concluded “another very large investment on the coastal area of Coral Bay, this time by a Russian investment company.”

Real estate tax restructuring is a must Each and every property in Cyprus is taxed three times: at acquisition, while it is being held and upon its sale.

It is a well-known fact that in Cyprus, properties are heavily taxed when they are sold or bought and they draw a negative comparison with what is the norm in other European countries.

It is also well known that the holding property tax was considered “reasonable to low” up to 2011, but when all taxes and levies were taken together Cyprus properties were burdened with “average to high” taxes when compared to other member states.

Since changes in the property tax were brought about in 2012, (from EUR 12 mln in 2011 to 105 mln in 2014), taxes increased sharply placing Cyprus at the top of the list among European countries.

VITAL For the real estate sector to survive and prosper, owning a property for own use or as an investment must be profitable.

Steep, unpredictable and complex taxes that currently exist in Cyprus make it not worthwhile and troublesome to own a property.

A good number of individuals and professional institutions have been suggesting for quite some time now that property taxation must be simplified and set at a lower level. In addition, the government must offer incentives to boost sales.

Our suggestions are clear: - Reduction of the Capital Gains Tax (CGT) from 20% to

By George Mouskides

of taxation which will be at 2014 levels. This was a once-off cash injection for the state in 2013 and 2014 and should not continue.

TRANSFER FEES 10%; - The basis of the valued price for CGT to be set taking into account 1/1/2013 values; - Raise the ceiling for tax exempt amounts for CGT; - Waive transfer fees if VAT is payable and adopt a set factor at 3% for all other cases (instead of 3%, 5%, 8% in force at present).

If a property is sold by an owner who buys another property within a six-month period, the Capital Gains Tax should be waived. This would be helpful to owners who want to move to a smaller or bigger property but are hesitant to do so due to heavy taxation.

In principle, levies such as transfer fees or municipal immovable taxes should be in direct relation to the services offered by the state or municipal authorities.

Our suggestion is for every property to have its own set ownership tax, irrespective of the owner. We also propose the setting up of a ceiling both for the immovable property tax and the sewage fees so that the various authorities do not charge at will.

We applaud the government’s decision to incorporate the state and municipal property taxes, but we object to the level

We also agree with the reduction of transfer fees proposed and hope to see the legislation tabled soon. The Capital Gains Tax should also be lowered to compensate for the higher ownership tax.

Another injustice must be pointed out. Rent incomes are double-taxed. An income tax as well as a defense levy is imposed. Owners should be liable for either the one or the other.

Our politicians mistakenly consider that anyone owning property is well off and must pay a wealth tax. If such a tax is to be introduced it must be done correctly. All assets should be taken into account, not just real estate owned. Bank loans should also be an integral part of the equation.

It is vital to make sure that property tax is in no way related to the wealth tax. This would be a huge stumbling block to growth and will force many individuals to sell their properties. This will deal a deadly blow to the real estate sector, one of the main contributors to the government coffers.

George Mouskides is Chairman of the Cyprus Association of Property Owners (KSIA) and Director, FOX Smart Estate Agency.

Australia to ban foreigner investors from tax incentive Australia may restrict a property tax scheme to only its citizens after it was revealed that foreign investors dodged close to US$ 60 mln in tax in 2013.

Australian Tax Office data showed almost half of the country’s 52,670 foreign investors that declared rental income in 2012-13, the latest figures available, claimed a loss, mostly through negative gearing, News Corp reported.

Negative gearing allows landlords to offset the cost of their investment property, such as maintenance, agent fees and interest on mortgages, against the income received from rent. It has been blamed for handing the advantage to higher-income earners and pricing lowerincome earners out of the property markets in Sydney and Melbourne, where house prices are sky- rocketing.

The government, fearing voter backlash from the 1.27 mln Australians using the system, has been loath to change the system completely, but is investigating a move on restricting or abolishing the system’s use for overseas investors.

By using negative gearing, foreign investors in 2012-13 reduced their tax bill by 73%, saving US$ 57.75 mln.

“Negative gearing by non-residents is under active consideration as part of the Tax White Paper process,” a spokesperson for Treasurer Joe Hockey told News Corp.

The impact of the scheme on the nation’s bottom line is compounded by the speed at which foreign investment is growing. From 2012-13 to 2013-14, overseas investment doubled to US$ 26.2 bln.

Fortress designed by Leonardo to sell for €5-10 mln A seafront fortress with imposing walls designed by Leonardo Da Vinci is up for sale for about 5-10 mln euros by premium realtors Lionard Luxury Real Estate of Florence.

The fortress, located in Livorno, Tuscany, was briefly used as a dwelling by Da Vinci himself in 1502 and was later owned

by Napoleon’s sister, Princess Elisa Bonaparte, in the 19th century.

The fortress is just one of over 100 seafront properties in Lionard’s portfolio, which includes villas and castles for sale in Italian resorts, with prices ranging from 2 to 45 mln euros.

Notable highlights in the portfolio include a tower home on the Amalfi Coast originally built to withstand pirate attacks and now transformed into a villa over three levels with private sea access, and a Coppede-style castle on the

Ligurian Riviera.

The property, built in the early twentieth century and surrounded by a historic park, measures 800sq.m., with interior space distributed over six levels.

According to Lionard, Tuscany is the most requested region for property, with Forte dei Marmi leading. The other seaside resorts which are highly requested are Capri and the Amalfi Coast, Portofino and the Ligurian Riviera, and Sardinia.

Among the 140 seaside properties featured on http://www.lionard.com is a Portofino-based villa overlooking the Ligurian sea which once housed Robert Kennedy during a visit, liberty-style villas along the Forte dei Marmi promenade and many more.

July 1 - 7, 2015

financialmirror.com | PROPERTY | 13

Keep up with the incentives, Mr. President µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

The whole property and construction sector has been following the proposals by President Nicos Anstasiades to adopt on a permanent basis a set of development incentives which he declared in May, 2013.

At the same time, we continue to monitor the permanent rejectionists (including members of the Technical Chamber ETEK) who do not embrace the President’s incentives, giving various excuses, which seem childish to those of us who deakl with every stage of the construction industry and see unemployment levels soaring, particularly among young technicians.

There is a perception among some that the area of ??Cyprus is about that of Australia, with enough land left over for future generations. This is why we have a flimsy urban policy inherited from previous technocrats, with low building coefficients, minimal heights and in the end we waste whatever land is left. The future strategy and policies for urban areas need a radical restructure from the beginning, and not a patch up job that causes distortions, while the permanent adoption of some new incentives is a start.

The President should go ahead with his incentives, and ignore the building factor precious land, which in coastal areas is 20% and in other regions 15%. This is why we have military-style development that look like barracks from Protaras to Latchi serving the rich foreign buyers, while the rest of us locals are limited to non-coastal areas. These are developments that the President and the Minister of Interior should visit to see first hand the monstrous mistakes of the past. The coefficient for construction and the height limitation on buildings should be relevant to the value of land and instead of looking like army-style camps, wouldn’t it be better for the building factor to increase to levels of 100% or 150% in coastal areas and urban peripheries, always maintaining a level that could be increased if necessary in the future?

The greatly respected urban planner Angelos Demetriou, who was hired by Paralimni municipality, recently proposed that in Protaras projects be allowed to rise to 6-8 floors, or more, with a coefficient of 150% and tall buildings where all units offer views to the sea and have large open spaces around, both for landscaping and playgrounds, parking spaces and green spaces. But nobody listened to him. Not only that, some even retorted that Protaras would be transformed into “Miami Beach”. As a result of these conservative views, Protaras remained with a building factor of 45 which was not only not increased, but the new policy is to reduce it to 30% for housing units. But with coastal land values in the region in the region of 300 euros per sq.m., is an increase in the coefficient not justified? For hotels, should the building factor not be at least 200% and for residential

Many projects are limited by the number of levels they can build and cannot attract enough investors

purposes 60-100%? Some of the “luminaries” in charge of urban planning are afraid that the coastal areas will not withstand the alleged overpopulation. Is this, then, the reason why Latchi and Larnaca sre still stuck with a coefficient of 15-20% and continue to suffer from nondevelopment?

President Anastasiades should proceed with the incentives and reforms, because past mistakes must be avoided. Already, the original 10% coefficient for golf courses has been raised to 15%, while the see the original building factor of 20% for marinas was hiked to 160%. The problem with the Governmental Committee on the Environment and the Environment Commissioner (remember the Limni project that was cleaned and transformed from a toxic landfill into a resort) is that the huge delays and obstacles laid by the Council for relaxations is driving away foreign investors.

The wider urban policy should be guided by the welfare of the citizens, job creation and local development. This is what the European Court decided when it ruled in favour of the Government of Hungary, that wanted to allow the expansion of an existing industrial project within a vast expanse of a Natura-designated area.

During a recent meeting I had with an AmericanArmenian investor, he told me “the coast of Lebanon, especially in Beirut and despite the problems in the area, is still a centre of attraction, with large condominiums and projects while you here are still planning with the village attitudes of the 1960s.”

Another horror story is just as we try to develop the casino resort, parliament imposed a building factor that must exceed 50% and in this case all the green spaces and other must be reduced by 30%.

It hard to find reason in the objections raised by

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individuals and by ETEK, which has appointed itself as the ultimate advisor to the State. There may be nothing wrong with that, but as an advisor it should bear responsibility for the bad advice it might give and should even face a fine of the Council decision is incorrect. Where was ETEK when the government needed advice to revive the construction sector?

What tangible measures did it propose for the Makarios Ave. and the centre of Nicosia? And what are its views for the old centre of Paphos and the area of the refineries in Larnaca?

Is, then, the 14-floor Olympic Tower in Limassol bad and is it wrong for hotels to increase the building coefficients at a time when some of these premium properties have been upgraded and generate more revenues and job opportunities?

It is ironic that on coastal properties, the owner can not build private access within the protection zone, while the state has every to put up parking lots within the same zoning area. Is this not why foreign investors are hesitant about investing in international university projects in Limassol but have found obstacles related to limitations on parking areas?

These are the many issues that should be up for discussion and I hope we do not see the construction industry, that drove the economy at one stage, to be regulated in such a way that it will not be able to stand on its feet again.

This is why the President should not listen too hard to these “doubting Thomases”, but should proceed with incentives and practical proposals that should help cut down on unemployment, especially among the younger technicians, who are obliged to seek their fortune in the Arab countries with booming construction sectors, while we end up arguing with various “experts”, of whom we must admit there are many. www.aloizou.com.cy - ala-HQ@aloizou.com.cy

July 1 - 7, 2015

14 | WORLD MARKETS | financialmirror.com

Uber, Airbnb and the ‘sharing economy’

By Oren Laurent President, Banc De Binary

New technologies have made it possible to find either a quick ride, or a place to sleep for the night, in totally new ways. While some say these services are making the world a better place, these trends also have a downside. As Uber and Airbnb face a new wave of lawsuits, they will have to adapt their business model to match society’s needs.

The sharing economy is based on a very simple premise.

People have things to share, such as a ride ‘from A to B’, or an empty room in their apartment. The new “sharing” apps allow them to get the word out, while empowering strangers to easily make contact, and pay for the service, with ease.

Airbnb’s founder, Brian Chesky, wisely notes that the system is based off of trust. Strangers must be willing to open up their apartments to people they’ve never met before.

Tourists, in the meantime, must trust that their host will deliver what they advertise. While Airbnb is creating a new wave of entrepreneurs who can make some side-cash by renting out vacant space, the effects are not all positive.

In San Francisco, landlords have been evicting formerly long-term residents, hoping to make more money from short-term Airbnb visitors looking for a place to stay for a night or two. Meanwhile, due to the decrease in apartments available for those who live and work in the area, the price of long-term rent has been increasing.

Uber is facing similar criticism from their drivers. The

Crude oil continues to fall, investors shun risk Crude oil prices moved lower on Tuesday as investors exited riskier assets, following the failed negotiations between Greece and its creditors, primarily the European Union.

Greeks took to the streets to protest against austerity following a bank shutdown and with the nation headed to a referendum on Sunday, price action is likely to remain volatile throughout the week.

Brent crude futures were down 16 cents at $61.85 a barrel early on Tuesday, after falling to $62.01 on Monday, their weakest finish in almost a month, heading for a second straight monthly decline.

US crude WTI dropped 20 cents to $58.13, having closed down $1.30 at $58.33 a barrel, its lowest settlement since June 8.

Technical analysts said that crude oil prices tested trend line support and appear to have edged through an upward sloping trend line that connects the lows in May to the lows in June and comes in near $58.20. The next level of target support for crude is seen near the May lows at $56.75. A close below this level would target the March low near $50 per barrel. Resistance is seen near the 20-day moving average at $60.14.

Any resolution to the crisis in Greece is unlikely before Sunday’s referendum on a new bailout.

Investors are also looking at the US government’s June payrolls report on Thursday for an indication that the US Federal Reserve might raise interest rates as early as September, and talks on Iran’s disputed nuclear programme going on in Vienna.

The Vienna talks would continue past Tuesday’s deadline for a comprehensive agreement intended to open the door to ending sanctions in exchange for limits on Iran’s most sensitive nuclear activities for at least a decade.

Summing up, analysts said that the current oil price slump is far from over.

Following the oil price collapse of 2014-2015 that began a year ago this month, the world has crossed a boundary in which prices are not only lower now but will probably remain lower for some time.

“It represents a phase change like when water turns into ice: the composition is the same as before but the physical state and governing laws are different,” said one analyst.

service allows people to find a taxi, or car service, by simply clicking a button on their smartphone. When a driver connects with a passenger via the app, Uber typically charges the driver between 20 and 25% of the transaction fee. As taxi drivers compete to find passengers, the Uber service has empowered them to find new customers faster. That being said, sharing a piece of the pie with Uber is becoming a real strain for drivers.

In a recent labour ruling in California, the state decided that Uber drivers should be entitled to more rights. The heart of the California Labour Commission’s decision stated that Uber drivers should be treated as employees, and not merely as independent contractors. While Uber has stated that the

Commission’s ruling could significantly hurt its business model, the company still seems to be expanding rapidly into China.

Reuel Schiller, a law professor at UC Hastings, believes Uber’s legal troubles could intensify should their drivers unite.

“Does Uber mind paying out $4,000 a couple of times a month to the drivers who have the resources and time to bring these individual cases?” asked Schiller. “I don’t know, but we both know they have that kind of money… The class-action mechanism is a more potent mechanism to generate a response.”

If Uber and Airbnb want to face this backlash of criticisms, and continue growing successful enterprises, it seems that they will have no choice but to adapt and accommodate the needs of all the players in the sharing economy.

China steps closer to full interest rate liberalisation China’s new move to scrap the mandatory loan-to-deposit ratio (LDR) is set to help reduce the country’s overall financing costs and bring it one step closer to full interest rate liberalisation.

The State Council, or the cabinet, passed a draft amendment to China’s Banking Law last Wednesday that gives banks more freedom to make loans by removing the 75% loan-to-deposit ratio.

The ratio will instead be seen as a liquidity-monitoring indicator, according to a statement released after an executive meeting chaired by Premier Li Keqiang.

The move will enable financial institutions to increase lending to agriculture and small businesses, the statement said.

Zeng Gang, with the Chinese Academy of Social Sciences, said the removal of the LDR requirement was an “inevitable result”.

“As a banking liquidity indicator, mandatory LDR is falling behind the reality of banks’ rising borrowing costs and cannot reflect the real liquidity conditions of the banking sector,” Zeng said.

The rule has resulted in distortions in the financial market, as many banks had to rush to absorb more deposits at the end of each month to meet the requirement, he said.

The draft amendment will be tabled to the top legislature, the National People’s Congress Standing Committee, for review.

China has kept the 75% ratio unchanged for years. Last year, the central bank expanded the definition of what constitutes a bank’s deposits in a bid to release more capital for lending.

At the end of the first quarter this year, the overall LDR was 65.67%, much lower than the 75% red line set by the banking regulator.

But some small and medium-sized banks have LDR levels nearing or even higher than the line.

Zhong Hua, researcher with the Hong Kong-based Hang Seng Bank Limited, said the new move will give small and medium-sized banks more room to make loans.

“Since those banks lend mostly to small and mediumsized enterprises [SMEs], the move will help lower the

financing cost of SMEs and promote their development,” Zhong said.

Lian Ping, chief economist with the Bank of Communications, agreed, saying that the measure is conducive to reducing lending rates and thus the overall social financing costs.

“In terms of immediate impact, we do not think the removal of the LDR will have a material impact on loan growth,” a research note from the HSBC reads.

The real constraint on bank lending is risk aversion, which meant that the willingness to lend has diminished faster relative to the demand from borrowers. Therefore more aggressive monetary policy easing is still the most effective antidote to the slowdown in lending growth, HSBC said.

“The move is another step on the path of financial reform and interest rate liberalisation,” it said.

Zhou Xiaochuan, governor of China’s central bank, said earlier this year that there is a high likelihood that interest rate liberalisation reforms will be completed by the end of this year.

With the removal of LDR reducing deposit rate competition, and hence lowering upward pressure on interest rates, HSBC said it expects an announcement removing the deposit rate cap before the year’s end. (Source: Xinhua)

July 1 - 7, 2015

financialmirror.com | MARKETS | 15

Germany is the real risk Marcuard’s Market update

by GaveKal Dragonomics As the Greek crisis apparently reaches its climax it is odd that the default response is to seek refuge in “safe” German assets. If, as appears quite likely, the flawed euro-system really is heading into the next phase of its denouement, then German assets are the soft underbelly of the system, and they are likely to suffer most. Here is why: Fixing the exchange rate inside Europe was an “original sin” as countries with different productivity levels cannot coexist in an inflexible exchange rate system. Moreover, fixing interest rates at the average level for the eurozone meant that they were too low for Germany, and too high for the rest. As a result, we have had no real market prices in euroland for about 15 years. The effect has been to subsidise entrepreneurs in Germany, while those in the likes of Italy, France and Spain have been destroyed.

The obvious point is that Europe’s crisis is at root a balance of payments problem. Since the euro’s inception, Germany has run a cumulative trade surplus versus eurozone nations of about EUR 1 trln. It is axiomatic that within the eurozone the sum of the current accounts and capital accounts must equal zero. This implies that the German financial system, since 2000, has accumulated EUR 1 trln of paper issued by eurozone nations (less investments made by German firms in other single currency member nations and debt repayments made by German institutions).

Hence, German banks, pension funds and insurance firms are probably carrying assets from the non-competitive eurozone countries of EUR 800 bln-1 trln. If the eurozone were to fail, this would cost Germany Inc perhaps EUR 500 bln; enough to wipe out the capital of its banking system (about EUR 350 bln the last time we looked). Hence, if Greece were to get a 50% haircut on its debt, the next question would be what about Italy, Spain and Portugal— one understands why Angela Merkel is fighting to have the Greek loans repaid.

During the “good old days” of flexible exchange rates in Europe, when one economy sold “too much” to another economy, companies in the surplus nation tended to accumulate the deficit nation’s currency. If German firms had pocketed lots of French francs, they could: (i) reinvest in France, (ii) buy their French competitors, (iii) hold francs

www.marcuardheritage.com

and earn higher interest rates, or (iv) repatriate funds into deutschemarks. The effect of these money flows and price adjustments was a self-regulating system. In the extreme case, the central bank of a deficit country could devalue its currency, which had the effect of quickly reining in German surpluses.

The monetary adjustment mechanism in the euozone is trickier as it takes place through the European Central Bank’s clearing system and shows up with those infamous Target 2 balances. The Bundesbank presently has an approximate EUR 530 bln credit with the ECB, against which an equivalent sum of money has been printed. The corollary is that any systemic problem in the payment chain would result in an abrupt and sudden collapse in Germany’s money

Shares in Guotai Junan Securities, China’s third largest stock brokerage firm by assets, started trading on the Shanghai stock exchange on Friday, according to Xinhua.

At the opening, the stocks rose 44%, the maximum allowed on a new stock’s first trading day, to 28.38 yuan ($4.64).

The company’s shares opened for subscription last Thursday at a price of 19.71 yuan per share to raise more than 30 bln yuan, the largest domestic initial public offering in five years.

Guotai Junan was established in 1999 after the merger of former Guotai Securities and Junan Securities, which were both founded in 1992.

WORLD CURRENCIES PER US DOLLAR CURRENCY

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

15180 1.5719 1.7506 24.398 6.6795 14.0064 1.1169 2.242 281.7 0.62913 3.0909 0.3842 18.7 7.8856 3.7521 4.0166 55.7361 8.2537 0.931 20.99

AUD CAD HKD INR JPY KRW NZD SGD

0.7673 1.2402 7.7521 63.765 122.23 1115.23 1.4701 1.3449

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

0.3770 7.6063 29160.00 3.7633 0.7080 0.3021 1505.00 0.3850 3.6411 3.7504 12.2344 3.6728

AZN KZT TRY

1.0433 186.2 2.6870

AMERICAS & PACIFIC

Australian Dollar * Canadian Dollar Hong Kong Dollar Indian Rupee Japanese Yen Korean Won New Zeland Dollar * Singapore Dollar

supply. Of course, on the other side of those Target 2 balances are Europe’s weak links, led by Italy and Spain with debit entries of about EUR 200 bln each, and Greece with around 100 bln.

We fail to see why the potential unwinding of this unstable system should cause its principle guarantor to be seen as a safe haven.

There is a real risk that in a little more than a blink of an eye Germany moves from having a glut of liquidity to experiencing a huge collapse in liquidity. If Greece does indeed do the sensible thing and leaves the euro, then the next ones to go will likely be the Italians, and at that point all bets are off. Given that this is the path we seem to be winding down, we would advise selling Germany.

MIDDLE EAST & AFRICA

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

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

Investments in foreign currencies are subject to exchange rate fluctuations.

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

Base Rates

ASIA

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira * USD per National Currency

LIBOR rates

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

RATE

EUROPEAN

Interest Rates CCY

CODE

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

The Financial Markets

USD GBP EUR JPY CHF

China’s 3rd largest stock brokerage up 44% on Shanghai debut

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.19 0.51 -0.08 0.07 -0.83

0.23 0.55 -0.04 0.09 -0.80

0.28 0.58 -0.01 0.10 -0.78

0.44 0.74 0.06 0.13 -0.73

0.77 1.05 0.17 0.24 -0.64

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.90 1.10 0.13 0.15 -0.77

1.25 1.36 0.22 0.17 -0.65

1.54 1.56 0.35 0.23 -0.48

1.78 1.71 0.51 0.27 -0.29

2.13 1.93 0.81 0.43 0.03

2.44 2.14 1.16 0.63 0.37

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1169 0.8953

100 JPY

1.5719

1.0741

0.8181

1.4074

0.9617

0.7325

0.6833

0.5205

0.6362

0.7105

0.9310

1.0398

1.4634

122.23

136.52

192.13

0.7617 131.29

Weekly movement of USD

CCY

Today

136.08

GBP EUR JPY

1.0354

CHF

1.5719 1.1169 122.23 0.9310

CCY\Date

02.06

09.06

16.06

23.06

30.06

USD GBP JPY CHF

1.0883

1.1254

1.1224

1.1212

1.1140

0.7155

0.7333

0.7189

0.7109

0.7081

135.47

140.04

138.55

138.60

1.0266

1.0416

1.0424

1.0389

Last Week %Change 1.5781 1.1220 123.67 0.9319

+0.39 +0.45 -1.16 -0.10

July 1 - 7, 2015

16 | WORLD MARKETS | financialmirror.com

China’s AIIB deal signed, bank takes key step forward A China-initiated multilateral bank that has dominated media headlines for months took a key step forward on Monday, with the signing of an agreement that outlines the framework and management structure for the institution.

Representatives of the 57 prospective founding countries of the Asian Infrastructure Investment Bank (AIIB) gathered in Beijing for the signing ceremony in the Great Hall of the People.

Australia was the first country to sign the document.

The 60-article agreement specified each member’s share as well as the governance structure and policy-making mechanism of the bank, which is designed to finance infrastructure in Asia.

Some 75% of the bank’s share is distributed among Asian and Oceanian countries while the remaining 25% is assigned to countries outside the region. As the bank expands its membership, countries outside of the region can expand their stake, but the portion cannot exceed 30%. Each member will be allocated a share of the quota based on the size of their economy.

China, India and Russia are the three largest shareholders, taking a 30.34%, 8.52%, 6.66% stake, respectively with their voting shares calculated at 26.06%, 7.5% and 5.92%.

China’s stake and voting share in the initial stage are a “natural outcome” of current rules, and may be diluted as more members join, China’s Vice Finance Minister Shi Yaobin said in an interview with Xinhua.

“China is not deliberately seeking a veto power,” Shi stressed.

Being the largest shareholder does not mean China will have veto power over major issues. Instead, China will closely watch and balance other members’ interests, said Tang Min, with Counselors’ Office of the State Council, who previously worked for the Asian Development Bank (ADB).

Speaking at Monday’s ceremony, Finance Minister Lou Jiwei said the new bank will uphold high standards and follow international rules in its operation, policies and management to ensure efficiency and transparency.

The bank, headquartered in Beijing, will possibly set up regional offices in other countries. It will be led by a president with a five-year term that can be extended once.

The articles do not say who will be the president, but said the president will be chosen from Asian member countries

using an “open, transparent and excellent” selection process.

Jin Liqun, former vice finance minister of China, is secretary-general of the interim multilateral secretariat for establishing the AIIB. After signing the agreement, representatives from prospective founding countries will return home with the document for legal adoption.

The AIIB was proposed by President Xi Jinping in October 2013. A year later, 21 Asian nations, including China, India, Malaysia, Pakistan and Singapore, signed an agreement to establish the bank.

After the new bank garnered support from countries like

Britain and Germany, much focus has been trained on whether the U.S. and Japan, the world’s largest and third largest economies, will join.

While stating that the U.S. will not join the AIIB at present, U.S. President Barack Obama said the country looked forward to collaborating with the new development bank “just like we do with the Asia Development Bank and with the World Bank”in April.

Despite outside worries that a new investment bank will challenge the established order of multilateral lenders, the IMF, World Bank and other leading global lenders have welcomed collaboration with the new bank to fill Asia’s infrastructure gap.

Statistics from the ADB show that between 2010 and 2020, around $8 trln in investment will be needed in the AsiaPacific region to improve infrastructure.

“We view the AIIB as an important new partner that shares a common goal: ending extreme poverty. With strong environment, labor and procurement standards, the AIIB will join us and other development banks in addressing the huge infrastructure needs that are critical to ending poverty, reducing inequalities, and boosting shared prosperity,” World Bank Group President Jim Yong Kim said in a statement after the signing ceremony.

Chinese officials have reiterated that rather than being a competitor, the new bank will complement the current international economic order and enable China to take more global responsibility.

The bank will start operation at the end of the year under two preconditions: At least ten prospective members sign the agreement and the initial subscribed capital is no less than 50% of the authorised capital.

“We are confident of working with related parties to accelerate legal procedures and push for the official set up of the AIIB before the year end,” Lou said.

AIIB: the green investment bank?

XINHUA INSIGHT At an eco forum in Guiyang, southwest China, one important player is drawing much attention from environment organisations, researchers and business people, despite being absent.

The Asian Infrastructure Investment Bank (AIIB) was about to be officially founded with its 57 prospective founders meeting in Beijing to sign its charter in anticipation of beginning formal operations by the end of the year.

The multilateral investment bank, with authorised capital of $100 bln, will change the landscape of development in Asia.

International environment organisations are already clamouring to work with the AIIB interim secretariat on “green policy.”

Many are eager to form partnerships with the bank.

Zhang Shigang, coordinator of the United Nations Environment Programme (UNEP) China Office, said that UNEP wants to incorporate an eco-friendly strategy into AIIB investment policy to avoid polluting first and cleaning up later.

“We have reached some understanding about cooperation. UNEP has experience in green financing and AIIB has financial tools.

Together we could develop infrastructure in Asia in a sustainable, eco-friendly way,” Zhang said.

UNEP wants environmental indicators

included in the basic framework from the beginning and environmental impact assessments on each investment.

The International Union for Conservation of Nature (IUCN) is also working with the bank. Its president Zhang Xinsheng told Xinhua that the green issues cannot be ignored when building infrastructure in regions with a fragile environment.

“We suggest that the bank adopt a green mentality. Not only are highways and airports infrastructure, but also air, water and forests. The bank should consider investing in environmental infrastructure,” he said.

It is too early for the bank to publish any strategy, but the AIIB has already shown willingness to be creative and inclusive. In April, Jin Liqun, secretary-general of the interim secretariat, said in Singapore that all members will be committed to building a bank which is “lean, clean and green.”

Chinese President Xi Jinping told the Boao Forum for Asia in March that the AIIB will be open, inclusive and follow best international practice. Zhu Shouqing of the World Resources Institute China branch told Xinhua that although green financing is new, there are enough international precedents. The AIIB can install standards and procedures to control environmental risk and issue bonds on renewable energy, energy efficiency and pollution control, he said.

“Using government money, the bank can draw in private investment. In the worst

case, one dollar of public money brings in two or three dollars of private funding. In the best cases, that can be as much 10 or 20 dollars,” he said. “There could be huge investment in green industry and environmental protection if AIIB is so disposed.”

China’s private companies with technological and business advantages are interested in overseas markets and Asia is their most natural option.

“If we want to explore abroad, we will have a new choice of financing, besides the Export-Import Bank of China,” said Colin Yang, vice president of Trina Solar, a Chinese photovoltaic system supplier. Yang wants to see smooth communication channels between the bank and private companies in green industries.

“Without the private sector, the bank may not know where to spend its money. We will certainly approach the bank and promote ourselves when we have the chance,” he said.

This is where networks like Denmark’s Global Green Growth Forum (3GF) want to step in.

The organisation is keen to have the AIIB in its private-public partnership network working on promising environmental projects.

“Now we two are looking at each other and asking if we are a match. Do we want private-public partnerships? We would very much like to have the bank around the table,” said 3GF’s Lisbeth Jespersen at the Guiyang forum.

China misses Q2 growth target China’s economy will grow by 6.93% year on year in the second quarter, said a report by the National Academy of Economic Strategy (NAES), affiliated to the Chinese Academy of Social Sciences.

Released at a meeting co-hosted by NAES and the Economic Information Daily on Friday, the report made the quarterly-based analysis on China’s micro-economy.

The growth forecast is lower than the 7% annual growth target, but 0.13 percentage points higher than the earlier NAES forecast.

Economists took various factors into consideration, including a continuous fall in foreign trade, steady consumption and an investment increase, said NAES deputy director Wang Hongju, who is also one of the chief economists that drafted the report.

NAES head Gao Peiyong xpects more cuts to bank interest rates and reserve requirement ratio (RRR) in the second half of the year, and advised the country to boost infrastructure investment to shore up growth.

“The annual growth target is attainable as China is introducing more pro-growth measures,” according to the report.

July 1 - 7, 2015

financialmirror.com | WORLD | 17

‘Brexit’ could hit U.K. economy, financial sector On June 12, Standard & Poor’s revised our outlook on the long-term sovereign credit rating on the United Kingdom to negative from stable because the rating agency believes the plan to hold a referendum on EU membership indicates that economic policymaking in the U.K. could be at risk of being more exposed to party politics than we had previously anticipated.

A potential ‘Brexit’ poses a risk to growth prospects for the U.K.’s financial services and export sectors, significantly denting the current net trade surplus in insurance and financial services of more than 3% of GDP. This is one of the stronger points of the U.K.’s relatively vulnerable balance of payments performance since the 2008-2009 global financial crisis.

S&P’s base-case scenario is that the U.K. will remain in the EU after the referendum, which is to be held by the end of 2017. Even if a Brexit did occur, it is likely that some of the negative economic implications would be ameliorated by alternative arrangements, such as bilateral free trade agreements or membership of the European Free Trade Association (EFTA). There is, nevertheless, a risk of more adverse outcomes in the event of an “out” vote if the U.K. failed to negotiate alternative arrangements successfully.

OVERVIEW By end-2017, the U.K. will hold a referendum on whether to leave the EU. If the U.K. leaves, we believe this could have significant negative economic implications due to the effect on the U.K. financial services industry.

However, the impact depends crucially on what alternative free trade arrangements the U.K. government could agree with its European partners.

While London sould maintain its status as a global financial centre, global banks could ultimately consider other locations as bases for their European operations.

The impact for domestically orientated U.K. banks would likely be modest, mainly related to the knock-on effect on the vitality of the U.K. economy and the creditworthiness and activity of its actors.

For insurers, a Brexit would likely entail additional costs of doing business in Europe, although S&P does not expect their operations would be significantly curtailed.

Despite the financial crisis, the financial services sector is still a major contributor to the U.K. economy, providing an estimated 1.4 mln jobs, 12% of income tax and national insurance receipts to the Treasury, and more than 3% of GDP in net export receipts. A Brexit would likely lessen foreign direct investment (FDI) inflows, particularly to the financial services sector, and entail additional

costs to doing business. A potential U.K. departure from the EU therefore poses a business risk for this sector.

A Brexit is likely to be detrimental to FDI into the U.K., particularly into the financial services sector. Although the City of London has been a major financial centre for centuries, it has grown ever more rapidly over the past few decades. The U.K. financial system’s total assets have grown from less than 1x GDP in the 1960s to more than 4.5x GDP today, with most of that increase taking place between 1979 and 2006. The initial spur for U.K. banking services was U.S. regulation and tax policy in the 1960s and 1970s and the genesis of the Eurobond market. But the second wave of growth coincided with the U.K.’s accession into the European Economic Community in 1973 and the Big Bang deregulation of financial markets in 1986.

The rapid increase of inward investment into the U.K. economy follows a similar exponential pattern. At an estimated $1.6 trln, the stock of inbound FDI (excluding special purpose entities) to the U.K. is the third-highest in the world. It represents 6.3% of the global total, well above the U.K.’s 4% share of global GDP. High FDI inflows into the U.K. have increased the capital stock in an economy that stands out for low investment. The proportion of capital expenditure to total expenditure is low, at an estimated at 17% of GDP. This lags all OECD peers with the exception of Luxembourg, Italy, Ireland, Portugal and Greece.

The U.K. furthermore attracts the highest financial services-related FDI among rich countries. At 30% of total inward FDI (based on OECD data), this is equivalent to 17% of GDP. Nearly a half of the FDI into the financial services sector comes from EU investors.

Thus, a Brexit would put at risk this FDI to the financial services. If such an exit resulted in large-scale disinvestment from the City of London it would undermine the enormous success of the U.K.’s financial services industry.

SHIFT EUROPE’S BANKING CENTRE OF GRAVITY FROM LONDON While global banks may have a greater incentive to tilt away from London in the event of the U.K. leaving the EU, the effect on the domestic banking system would be less harsh and would depend on the wider economic fallout from a Brexit.

London is the principal global hub for banking and financial markets, and non-EU banks typically make it their springboard for conducting operations in the EU. At present, almost a fifth of global banking activity is booked in the U.K. There are now 150 deposit-taking foreign branches and 98 deposit-taking foreign subsidiaries in the U.K. from 56 different countries. Foreign banks make up about half of U.K. banking

assets on a residency basis. Foreign branches account for about 30% of total resident banking assets and about one-third of interbank lending. This is 225% of U.K. GDP. Most of these banks are based in London because other global financial institutions are also based there. This in turn reflects everything that makes London a financial sector cluster: - The infrastructure of clearing houses and exchanges.

- A deep pool of international talent, and a historically welcoming attitude toward highly skilled immigrants.

- Legal and business services suppliers.

- A highly advantageous middle time zone with overlap in Asia and the Americas.

- A legal system that has a centuries-long

track record in preserving property rights and creditors’ rights, and innovating legal structures for tradeable securities.

These strengths are unlikely to be changed were the U.K. to leave the EU. Still, the U.K.’s EU membership is also a strength for its financial services industry because U.K.-domiciled banks make active use of their U.K. authorisation to provide banking and trading services across the EU and European Economic Area (EEA), known as passporting rights. Without these rights, there is a risk that enough major global banks could choose to route their business through other financial centres in the EEA that retain those rights. Even assuming that an exited U.K. was prepared to enter the EEA or find a way to preserve passporting, the trend in global regulation is moving toward basing risk management functions inside their jurisdiction — be it Frankfurt, Paris, Madrid, Milan, or New York. A Brexit could

accelerate this trend within Europe.

Therefore, while London would likely retain its global status as a leading financial centre, post-Brexit the centre of gravity in European financial markets could well move further toward Frankfurt, Paris, Dublin, or beyond. This trend would potentially accelerate if the U.K. was outside an EU free trade area or if free movement of labour were curtailed. In response, overseas banking groups could be expected to relocate some of their trading operations from London.

Indeed, they may even take more wideranging action to centre their European operations on subsidiaries inside the remaining EU. Important pieces of the European financial sector infrastructure are hosted by London, including stock and derivatives exchanges, and clearinghouses. Earlier this year, the EU General Court overturned a European Central Bank (ECB) decision that would have forced clearinghouses clearing eurodenominated contracts to be domiciled within the eurozone. By ceasing to be an EU member, the likelihood of the U.K. being challenged again on the ECB’s location policy would rise.

Over time, the importance of financial centres follows the trajectory of its host economy’s wealth and trading reach. This suggests that, whatever happens in the next few years in Europe, in the long-term Asia is more likely than continental Europe to pose greater competition to London.

A Brexit would also have important implications for financial services companies in Scotland. A national vote to leave the EU would, for example, likely increase the probability of a Scottish exit from the U.K., given limited popular support in Scotland for the U.K. to leave the EU. The U.K. currently has a highly successful financial services sector. In 2014, its trade surplus in insurance and financial services totaled an estimated 3.3% of GDP. Trade with the EU accounts for more than 40% of net earnings of the financial services sector, excluding insurance. And this figure does not reflect third-party deals that ultimately depend upon the U.K.’s distribution arms in the rest of the EU. Given that the U.K. operates the secondlargest current account deficit in the world, to put at risk one of the few net exporting sectors via a highly politically charged referendum would in pose substantial risks to the balance of payments, the currency, and the economy.

July 1 - 7, 2015

18 | WORLD | financialmirror.com

Food in the age of biofuels

By Jose Graziano da Silva Over the past several years, biofuels have become a bone of contention. For some, a renewable energy source produced from organic matter amounts to a magic wand in the fight against climate change. But others view biofuels as an existential threat, because the plants used to create them compete for agricultural land and water that would otherwise be used to grow food.

But this is a false dichotomy. The choice cannot be between food and fuel. We can make good use of both. Given the right conditions, biofuels can be an effective means to increase food security by providing poor farmers with a sustainable and affordable energy source.

In some land-locked African countries, gasoline costs three times the global average, making fuel prices one of the main barriers to agricultural growth. Extending the use of biofuels in these regions could boost productivity and create new employment opportunities, especially in rural areas. The effect could be made even stronger if the additional demand for feedstock created by biofuels was met by family farmers and small-scale producers.

Biofuels have become a fact of life, and their use is expected to continue to increase steadily. In 2013, biofuels accounted for 3% of the total transport fuel used around the world, according to a report by the Food and Agricultural Organisation and the OECD. While this percentage is expected to remain steady, we can nonetheless expect the production of biofuels to grow in absolute terms as the global market for transport fuels also expands.

Indeed, global biofuel production is projected to be double by 2023 relative to its level in 2007. If that prediction is borne out, biofuels will consume 12% of the world’s coarse grain, 28% of its sugar cane, and 14% of its vegetable oil. As production of these fuels grows, we will require policies, programs, and capacities that ensure that they are used sustainably, without distorting food markets or compromising food security, which will always be the first

priority.

The pioneers of biofuels would probably be surprised by how little they contribute to the total world fuel supply today.

Rudolf Diesel’s first engine, designed in the late 1800s, ran on fuel derived from peanut oil. Henry Ford once scouted Florida in hopes of buying tracts of land to plant sugar cane, convinced that the United States would not tolerate the pollution from burning fossil fuels or the dependency implicit in importing oil to produce gasoline.

Only in recent decades have biofuels regained their original appeal, owing to efforts to secure affordable energy, generate income, and mitigate the dependency of which Ford warned. More recently, concerns about pollution, climate change, and the finite nature of fossil fuels has driven a spike in demand – one that must now be managed.

Flexibility is key to efforts to leverage the world’s growing reliance on biofuels to boost agricultural productivity, accelerate rural development, and increase food security. For example, policymakers must defuse the competitive pressures between food and fuel by designing schemes to counter price volatility for basic foodstuffs. Authorities could require that the percentage of biofuels blended with conventional fuel be increased when food prices drop and cut

when they rise.

This would serve as a sort of automatic stabiliser. Poor farmers would continue to enjoy robust demand for their products even when food prices dropped, and consumers would be protected from rapid or excessive price increases.

National targets could also be made more flexible. If mandates for biofuel use were applied over several years, instead of only one, policymakers could influence demand in order to minimise pressure on food prices.

Finally, at the individual level, greater flexibility could also be built in at the pump, through the promotion of flex-fuel vehicles of the type already in use in Brazil. If cars are equipped with engines that can run on conventional fossil fuels or blends with high percentages of biofuels, consumers can adapt to changes in prices by switching between one or the other.

Finding the right balance will not be easy. But if we harness our collective knowledge, include developing countries’ smallholder farmers in this effort, and maintain our focus on reducing poverty and protecting the vulnerable, we can have more fuel, more food, and greater prosperity for all.

José Graziano da Silva is Director-General of the UN Food and Agriculture Organization (FAO). © Project Syndicate, 2015 - www.project-syndicate.org

Squashing the superbugs Current antibiotics are becoming increasingly ineffective, not only at fighting common illnesses like pneumonia and urinary tract infections, but also at treating a range of infections, such as tuberculosis and malaria, which now risk again becoming incurable. With the G-7 leaders having committed, in a recent joint declaration, to tackle ìantimicrobial resistanceî (AMR), it is time for the more inclusive G-20 – and China, as it chairs the group for the first time – to take the fight to the next level.

Failure to address AMR will affect everyone, regardless of their nationality or their country’s level of development. Indeed, by 2050, ten million people could be dying as a result of AMR, up from around 700,000 today, with China and India each housing about 1 mln sufferers. At that point, an estimated $100 trln in global GDP will already have been lost.

No G-7 strategy, however well crafted, can succeed without the involvement of the rest of the international community. After all, if infections travel with the people who carry them, so does resistance, meaning that the only solution to AMR is a shared one. That is why members of the World Health Organisation have agreed to implement a ìglobal action plan on AMR,î and have called upon the United Nations to convene a highlevel meeting of political leaders in 2016.

In this effort, the emerging economies – with their large populations, rising wealth, and growing international clout – have a

particularly important role to play, with China leading the way. We at the Review on Antimicrobial Resistance (which I chair) have already recommended such a role for China, including in discussions with some Chinese policymakers.

Between now and 2016, the stage must be set for China to act. The G-7 countries should drive this effort forward by taking concrete steps to fulfill the commitments they made in their joint declaration.

One such commitment is to reduce the use of antibiotics in animal husbandry. Some European governments have already made significant progress in regulating this practice. The United States has been slower to act, but has lately made some important policy moves.

But perhaps the best way to change the way livestock are raised is by putting pressure on major food companies – a feat that consumers could achieve most effectively. Indeed, rising demand for healthier foods, including antibiotic-free meat, has already compelled major foodindustry players like McDonald’s, Costco, and KFC to declare their intention to phase out antibiotic-laden meat.

A second commitment included in the joint declaration – to help ensure that medicines are used only when they are needed – may seem obvious, but in fact represents a major problem driving AMR. The key to addressing this problem is to develop and improve access to rapid point-

of-care diagnostic tools.

Improved diagnostic technologies are undoubtedly within the reach of the world’s top technology firms. But they will invest only if they are confident that health systems will use their innovations. If governments, say, mandated that particular diagnostic tests must be conducted before antibiotics could be prescribed, companies would have the necessary incentive.

Consider one of the most common infections: sore throats. Though they are often viral, rather than bacterial, they are frequently treated with antibiotics – an approach that not only is ineffective, but also fuels AMR. A quick and easy swab test could solve this problem – and, indeed, one already exists. In a trial by a British pharmacy chain (which, admittedly, used a small sample), the test reduced the number of antibiotics consumed by nearly 60%. Investment in the development and deployment of this technology could lead to a substantial decline in unnecessary antibiotic treatments for sore throats, not to mention ease pressure on health systems and save doctors’ time.

A third imperative, recommended by the Review and recognised by the G-7, is improved surveillance of the spread of drugresistant infections, particularly in developing countries, where such data is most sparse. On this front, our own government is leading the way, with

By Jim O’Neill Chancellor George Osborne pledging in March to allocate £195 mln ($307 mln) to help emerging countries finance the fight against AMR. Foundations are likely to pledge their own funds to this initiative.

The world faces many challenges and crises, virtually all of which will demand strong political commitment and significant investment to resolve. But the fact is that, when it comes to AMR, governments have a rare opportunity to preempt a major crisis, at a fraction of the cost of responding to the crisis once it has escalated. In the scramble to address the recent Ebola outbreak in West Africa, for example, the US alone had to contribute $5.4 bln in public funds. Add to that the savings to health systems and even employers, and concerted action to combat AMR becomes even more cost-effective.

That is why the G-7 governments should intensify their efforts to address AMR. And it is why China and the other emerging economies should join the fight. Together, we can safeguard the curative powers of our medicines.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management, is Commercial Secretary to the UK Treasury and Chair of the British government’s Review on Antimicrobial Resistance. © Project Syndicate, 2015.

July 1 - 7, 2015

financialmirror.com | WORLD | 19

The diaspora goldmine

By Ricardo Hausmann Many countries have substantial diasporas, but not many are proud of it. After all, people tend not to leave a country when it is doing well, so the diaspora is often a reminder of a country’s darker moments.

El Salvador, Nicaragua, and Cuba, to cite three examples, had more than 10% of their native population living abroad in 2010. And this figure does not take into account their descendants. The bulk of this migration happened at a time of civil war or revolution. In other places, massive outmigration occurred in the context of political change, as in Europe when communism collapsed.

The relationship between diasporas and their homelands often encompasses a broad palette of sentiments, including distrust, resentment, envy, and enmity. Colloquially, people describe a bout of emigration as a period in which a country “lost” a certain proportion of its population.

But people who leave a country have not disappeared.

They are alive and socially active. As a result, they may become an invaluable asset not only to their country of destination but also, and importantly, to their country of origin.

One important connection is remittances, which add up to some $500 bln a year worldwide. The largest recipients are India, Mexico, and the Philippines. For countries such as Armenia, El Salvador, Haiti, Honduras, Jamaica, Kyrgyzstan, Lesotho, Moldova, Nepal, and Tajikistan, expatriates remit the equivalent of more than one-sixth of national income – an amount that often exceeds exports. And this money can do a lot of good, as the World Bank’s Dilip Ratha has highlighted.

But a diaspora’s potential economic importance goes well beyond remittances. As the late historian Philip Curtin documented, from the beginning of urban life, millennia ago,

trade typically involved networks of co-ethnic merchants living among aliens. Greeks, Phoenicians, trans-Saharan traders, the Hanseatic League, Jews, Armenians, overseas Chinese, and the Dutch and British East India Companies organised much of world trade through such networks.

Although these alien traders were sometimes politically powerful in the host countries, they were often weak and faced discrimination.

The economist Avner Greif argues that these co-ethnic networks’ durability and resilience throughout history reflects their ability to enforce contracts at long distances when the existing institutional framework could not do so reliably. They could establish trust between exporters and importers because they could punish opportunistic behaviours. For a tight-knit community, reputational costs and other forms of social punishment transcend geography: not paying for goods might mean not being able to marry your children well.

Legal institutions have since evolved to facilitate impersonal trade. Exporters and importers no longer need to know one another, because they can write a contract that a court will enforce.

And yet the impact of co-ethnic networks may well be as important as ever. As Hillel Rapoport of the Paris School of Economics and his co-authors have shown, controlling for other determinants of trade, countries trade more with, and invest more in, the diasporas’ home countries. In recent work with Dany Bahar, Rapoport has also shown that countries become good at making the products that their migrants’ home countries are good at making.

I interpret these results as the consequence of tacit knowledge or knowhow. To do things, you need to know how, and this knowhow is mostly unconscious. After all, most of us know how to ride a bicycle, but we are not really aware of what our brain does to achieve that feat, or how it develops that ability through practice.

This knowhow moves geographically in the brains of those who possess it and is transferred to others at work.

That is why ethnic cuisines diffuse through diasporas, not cookbooks. And it may be why economies with more diverse sets of migrants perform better. Also, return migration is

often an important source of new skills for a country. In ongoing work, Ljubica Nedelkoska of Harvard’s Centre for International Development has found that the wages of Albanians who never left tend to increase when migrants return home.

Evidence of the importance of diasporas is everywhere, if you care to look. Franschhoek (French corner in Afrikaans) is a beautiful valley near Cape Town settled by Huguenots in the late seventeenth century. That is why, to this day, wines are made there.

East Asian industrialisation exploited the links created by the network of overseas Chinese. India’s high-tech industries were to a large extent created by returning migrants and are deeply connected to the diaspora. Israel is an entire country created by its diaspora, and its thriving high-tech sector, too, has benefited from sustained ties. By contrast, many Latin American countries have substantial diasporas abroad, but few equivalent success stories.

A country’s diaspora, and the diasporas it hosts, can be a huge asset for its development. Diasporas are not gusanos or worms, as Fidel Castro refers to Cubans abroad. They are a channel through which not only money, but also much tacit knowledge, can flow, and they are a potential source of opportunities for trade, investment, innovation, and professional networks.

But a diaspora can work its economic magic only if the host country tolerates it and the home country appreciates it.

Governments should have a diaspora strategy that builds on natural feelings of identity and affection to cultivate this social network as a powerful source of economic progress.

Ricardo Hausmann, Director of the Center for International Development and Professor of the Practice of Economic Development at the John F. Kennedy School of Government at Harvard University, is a former Venezuelan minister of planning. © Project Syndicate, 2015 - www.project-syndicate.org

The good-governance trap Development and improved governance have tended to go hand in hand. But, contrary to popular belief, there is little evidence that success in implementing governance reforms leads to more rapid and inclusive economic and social development.

In fact, it may be the other way around.

The focus on good governance stems from the struggle to restore sustained growth during the developing-country debt crises of the 1980s. Instead of reassessing the prevailing economic-policy approach, international development institutions took aim at the easy targets: developingcountry governments.

The World Bank, using well over 100 indicators, introduced a composite index of good governance, based on perceptions of voice and accountability, political stability and the absence of violence, government effectiveness, regulatory quality, the rule of law, and levels of corruption. By claiming that it had found a strong correlation between its governance indicators and economic performance, the Bank fueled hope that the key to economic progress had been found.

The case was flawed from the beginning.

The indicators used were ahistorical and failed to account for country-specific challenges and conditions, with crosscountry statistical analyses suffering from selection bias and ignoring the interlinkages among a wide array of variables. As a result, the World Bank badly overestimated the

to distract from more effective development efforts.

The conclusion is clear: the development agenda should not be overloaded with governance reform. As Harvard’s Merilee Grindle has put it, we should be aiming for “good enough” governance, selecting a few imperatives from a long list of possibilities.

But selecting the most important measures will not be easy. Indeed, advocates of governance reform have rarely been right about the most effective approach.

Consider the unrelenting

By Jomo Kwame Sundaram promotion of efforts to and Michael T. Clark strengthen property rights.

Absent alienable individual ownership of productive resources, it is asserted, there will international institutions to avoid be insufficient means and incentives to acknowledging the shortcomings of the new pursue development initiatives, and shared development orthodoxy of the last two resources (the “commons”) will be overdecades of the twentieth century, when Latin exploited and used inefficiently.

In reality, the so-called “tragedy of the America lost over a decade, and Sub-Saharan Africa a quarter-century, of economic and commons” is neither ubiquitous nor inevitable, and individual property rights are social progress.

It has also complicated the work of not always the best – and never the only – governments unnecessarily. With good- institutional solution for dealing with social governance reforms now a condition for dilemmas.

Herein lies the real problem with the international aid, developing-country governments often end up mimicking donor good-governance agenda: it supposes that expectations, instead of addressing the issues the solution to most policy and political that are most pressing for their own citizens. dilemmas lies in compliance with a set of Moreover, the required reforms are so formal process-oriented indicators. But wide-ranging that they are beyond the means experience over two decades shows that such of most developing countries to implement. directives provide little practical guidance for As a result, good-governance solutions tend solving the technically, socially, and impact of governance reform on economic growth.

To be sure, governance that is effective, legitimate, and responsive provides untold benefits, especially when compared to the alternative: inefficient governance, cronyism, and corruption.

In fact, this governance-focused approach may have actually undermined development efforts. For starters, it has allowed

politically complex real-world problems of economic development.

Recognising that governance improves with development, the international community would be better served by pursuing reforms that directly advance development, instead of a broad agenda that may have, at best, a small indirect impact.

Such a pragmatic approach to improving governance would be neither dogmatic nor pretend to universality. Instead, the major constraints would be identified, analysed, and addressed, perhaps sequentially.

Many of the good-governance agenda’s key goals – empowerment, inclusion, participation, integrity, transparency, and accountability – can be built into workable solutions, not because outsiders demand them, but because effective solutions require them. Such solutions should draw from relevant experiences, with the understanding that they do not amount to “best practices.”

The blind pursuit of good governance has guided development efforts for too long. It is time to acknowledge what works – and disregard what does not.

Jomo Kwame Sundaram is Coordinator for Economic and Social Development at the Food and Agriculture Organization of the United Nations. Michael T. Clark is Special Adviser on International Governance at the Food and Agriculture Organisation of the United Nations. © Project Syndicate, 2015. www.project-syndicate.org

July 1 - 7, 2015

20 | BACK PAGE | financialmirror.com

Shelter from the storm in Europe

By Mohamed A. El-Erian Αuthor of When Markets Collide Dark clouds are lowering over Europe’s economic future, as three distinct tempests gather: the Greek crisis, Russia’s incursion in Ukraine, and the rise of populist political parties.

Though each poses a considerable threat, Europe, aided by the recent cyclical pickup, is in a position to address them individually, without risking more than a temporary set of disruptions. Should they converge into a kind of “perfect storm,” however, a return to sunny days will become extremely difficult to foresee any time soon.

As it stands, the three storms are at different stages of formation. The Greek crisis, having been building for years, is blowing the hardest. Beyond the potential for the first eurozone exit, Greece could be at risk of becoming a failed state – an outcome that would pose a multi-dimensional threat to the rest of Europe. Mitigating the adverse humanitarian consequences (associated with cross-border migration), and geopolitical impact of this storm would be no easy feat.

The second storm, rolling in from the EU’s east, is the costly military conflict in Ukraine’s Donbas region. The crisis in eastern Ukraine has been contained only partly by the Minsk II ceasefire agreement, and reflects the deepest rupture in the West’s relationship with Russia since the Soviet Union’s collapse.

Further Russian interference in Ukraine – directly and/or through separatist proxies in Donbas – would present the West with a stark choice. It would either have to tighten sanctions on Russia, potentially tipping Western Europe into recession as Russia responds with counter-sanctions, or accommodate the Kremlin’s expansionist ambitions and jeopardise other countries with Russian-speaking minorities (including the EU’s Baltic members).

The third storm – political tumult brought about by the rise of populist political movements – poses yet another serious threat. Energised by broad voter dissatisfaction, particularly in struggling economies, these political

movements tend to focus on a small handful of issues, opposing, say, immigrants, austerity, or the European Union – essentially whomever they can scapegoat for their countries’ troubles.

Already, Greek voters handed the far-left anti-austerity Syriza party a sweeping victory in January. France’s far-right National Front is currently second in opinions polls. The anti-immigration Danish People’s Party finished second in the country’s just-concluded general election, with 22% of the vote. And, in Spain, the leftist anti-austerity Podemos commands double-digit support.

These parties’ extremist tendencies and narrow platforms are limiting governments’ policy flexibility by driving relatively moderate parties and politicians to adopt more radical positions. It was concern about the United Kingdom Independence Party’s capacity to erode the Conservatives’ political base that pushed Prime Minister David Cameron to commit to a referendum on the country’s continued EU membership.

With three storms looming, Europe’s leaders must act fast to ensure that they can dissipate each before it merges with the others, and cope effectively with whatever disruptions they cause. The good news is that regional crisismanagement tools have lately been strengthened considerably, especially since the summer of 2012, when the euro came very close to collapsing.

Indeed, not only are new institutional circuit breakers, such as the European Financial Stability Facility, in place; existing bodies have also been made more flexible and thus more effective. Moreover, the European Central Bank is engaged in a large-scale asset-purchasing initiative that could be easily and rapidly expanded. And countries like Ireland, Portugal, and Spain have, through hard and painful work, reduced their vulnerability to contagion from nearby crises.

But these buffers would be severely strained if the gathering storms converged into a single devastating gale.

Given the EU’s fundamental interconnectedness – in economic, financial, geopolitical, and social terms – the disruptive impact of each shock would amplify the others, overwhelming the region’s circuit breakers, leading to recession, reviving financial instability, and creating pockets of social tension. This would increase already-high unemployment, expose excessive financial risk-taking, embolden Russia, and strengthen populist movements

further, thereby impeding comprehensive policy responses.

Fortunately, the possibility of such a perfect storm is more a risk than a baseline at this point. Nonetheless, given the extent of its destructive potential, it warrants serious attention by policymakers.

Securing Europe’s economic future in this context will require, first and foremost, a renewed commitment to regional integration efforts – completing the banking union, advancing fiscal union, and moving forward on political union – that have been crowded out by a never-ending series of meetings and summits on Greece. Likewise, on the national level, pro-growth economic-reform initiatives – which seem to have lost some urgency in the face of overly complacent and excessively accommodating financial markets – need to be revitalised. This would ease the policy burden on the ECB, which is currently being forced to pursue multiple ambitious objectives that far exceed its capacity to deliver sustainably good outcomes regarding growth, employment, inflation, and financial stability.

The current focus on the downpour in Greece is understandable. But policymakers should not be so distracted by it that they fail to prepare for the other two possible storms – and, much more worrisome, the possibility that they merge into a single more devastating one. Europe’s leaders must act now to minimise the risks, lest they find their shelters inadequate to the extreme weather that could lie ahead.

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

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