Financial Mirror 2015 07 08

FinancialMirror LAURA TYSON

OREN LAURENT

Issue No. 1141 €1.00 July 8 - 14 , 2015

The future of Emerging Markets PAGE 18

Donald Trump’s comments costing him millions PAGE 16

Will ‘No’ vote stop descent into chaos?

LEADING ECONOMISTS REVIEW AFTERMATH OF THE REFERENDUM - PAGES 8 - 13

ANTONIS LOIZOU: What’s going on in Protaras, Mr Mayor?

SEE PAGE 14

July 8 - 14, 2015

2 | OPINION | financialmirror.com

FinancialMirror

Is Cyprus doing enough for Greece?

Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

www.financialmirror.com Tel. 22 678 666 Fax. 22 678 664 P.O. Box 16077, CY2085 Nicosia

Publisher/Managing Editor Masis der Parthogh masis@financialmirror.com Editorial submissions: info@financialmirror.com Advertising inquiries: marketing@financialmirror.com Subscriptions: http://www.financialmirror.com/signup/index.ht

COPYRIGHT

©

No part of the Financial Mirror newspaper, the Greeklanguage XÚ‹Ì· & AÁÔÚ¿, the daily XpressOIKONOMIKH electronic PDF edition or any of the contents of the website www.financialmirror.com, may be reproduced, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical photocopying, recording or otherwise) without prior permission of the publishers.

Any person or company found in violation will be prosecuted and financial damages will be sought as this implies theft of the intellectual property rights of the publishers, their associates and contributing services or agencies.

No matter what the outcome of the ongoing efforts to save the Greek economy from crumbling, the government in Cyprus will once again become the punching bag for noisy opposition leaders, many of whom do not know where to turn their frustration or inability to do the ‘right thing’ and show practical support to Greece.

Finance Minister Haris Georghiades put it quite diplomatically (and rightly so) when he said last week that the government here is prepared to forgive its share of Greek debt, estimated at 330 mln euros, as long as Athens adhered to some sort of rescue plan.

That in itself is far more than what our own fragile economy can withstand, considering that we lost nearly 4.5 bln euros when the EU leaders (our own Christofias included) accepted a writedown of toxic Greek government bonds nearly four years ago. As a result, one bank collapsed, the others were rescued by shareholders and investors, while all three Cypriot banks lost their entire branch network in Greece, seized by the central bank of that country.

Cyprus is still going through a painful austerity programme and seems to be on target to exit the scheme some time next year, if we manage to balance the books, revive growth and continue with reforms, including privatisations. So, it cannot offer Greece anything else than it already

has. At best, a ring-fencing of the Greek-owned banks in Cyprus should at least ensure that our financial system remains robust.

As PM Tsipras drives Greece further towards an exit from the eurozone, with their banks on the brink of collapse and cash controls similar to what we experienced two years ago, many will flock to our shores for work, believing they can find (better) paying jobs here, possibly even burdening our already-strained labour market further.

Very soon, the noisy party parade in Cyprus will turn its wrath, once again, to Germany, admittedly the paymaster of the European Union, hence maintaining a key role as to who gets to stay in or out of the Eurozone.

But this is no time to dig up dark pages from history and lecture each other on principals of democracy. Cyprus shares a much uglier recent history with Greece than with Germany.

What we should have learned until now is that if we get our act together, we will at least get a deserving pat on the back from Chancellor Merkel. And so it should be.

Before rewarming the blame-game, let’s at least see how we can benefit from our partnership with the EU in general and Germany in particular. The same way that our relationship with Israel, Egypt and Lebanon needs to be elevated to a higher level, alliances within the EU itself are mostly based on the needs of others.

Perhaps it would be wiser to make sure that Cyprus remains afloat, and then we should worry about others.

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.

Like us on Facebook

Follow us on Twitter

July 8 - 14, 2015

financialmirror.com | CYPRUS | 3

Greek rescue deal likely Prime Minister Alexis Tsipras may have averted a financial meltdown of his country’s economy, after eurozone leaders seemed committed for a last-minute rescue for Greece.

“The ball is in Greece’s court,” Italian Prime Minister Matteo Renzi said. “Next Sunday the final meeting will take place on Greece.”

German Chancellor Angela Merkel changed her tune in the room and was actively involved in efforts to find a lastditch solution for a new Greek loan application and reforms, according to euro zone sources.

“It is not a matter of weeks but of a few days” to save Greece from collapse, Merkel told reporters.

With Greek banks down to their last few days of cash and the European Central Bank tightening the noose on their funding, Tsipras tried to convince the euro zone’s other 18 leaders to approve a new loan swiftly.

ECB President Mario Draghi had assured finance ministers at the Eurogroup meeting that the central bank would keep Greek lenders afloat this week as long as negotiations were under way.

Merkel and French President Francois Hollande worked together on a plan to save Greece from plunging into economic turmoil and possibly having to ditch the euro. This involved a medium-term conditional programme and a short-term interim financing deal for a few months, sources said.

However, a solution still depends on Tsipras putting forward convincing reform proposals and rushing key measures through parliament by the weekend to make Greece’s public finances sustainable.

If he does, bridge financing could be provided by “Greece’s friends” and by releasing past ECB profits on Greek bonds, to prevent Athens from missing a crucial 3.5 bln euro bond

Larnaca portmarina deal fails The government said that after several extensions in order to secure financial backers, negotiations with the Zenon Consortium for the privatisation and development of the Larnaca port and marina, failed.

The Ministry of Transport said it had allowed several extensions ever since the consortium won the bid in July 2010, but to no avail.

It added that the decision to transform Larnaca into the island’s home port for cruises and to develop the marina still stand, as does the commitment not to change it into a commercial port.

redemption to the ECB on July 20.

Merkel made it clear it was up to Tsipras to present convincing proposals after Athens spurned tax rises, spending cuts and pension and labour reforms that were on the table before its 240 bln euro bailout expired last week.

Euro zone finance ministers complained that their new Greek colleague Euclid Tsakalotos, while more courteous than his abrasive predecessor Yanis Varoufakis, had brought no new proposals to a preparatory meeting before the summit.

Greek officials said the leftist government broadly repeated a reform plan Tsipras sent to the euro zone last week before Greek voters, in a referendum on Sunday, overwhelmingly rejected the austerity terms previously on offer for a bailout.

Eurogroup chairman Jeroen Dijsselbloem said the ministers would hold a conference call on Wednesday to review a Greek request for a medium-term assistance programme from the European Stability Mechanism bailout fund.

NPLs in Cyprus among highest Cooperative Central Bank Chairman Nicolas Hadjiyiannis said that Cyprus topped the world list of systems with high non-performing loans, adding that the Cooperative sector is doing its best to resolve the problem.

He said, in his address to the international Co-ops conference in Limassol that the Cyprus Cooperative sector has EUR 3.5 bln in liquidity, employs 2,700 people, has the largest network of 256 branches, its capital adequacy ratio is around 13.5% and its capital amounts to EUR 1.3 bln.

He added, however, that the Co-operative sector “has a huge percentage of non-performing loans, a percentage which for Cyprus itself is a bad global pre-eminence.”

July 8 - 14, 2015

4 | CYPRUS | financialmirror.com

Limassol to get new projects worth €124.7 mln President Nicos Anastasiades announced a host of infrastructure projects worth EUR 124.7 mln in his home town of Limassol, saying that after 26 months in government and having achieved a turnaround in the economy, Cyprus has returned to the markets and can now borrow at a rate of 3.5%, as opposed to 15% when the crisis first broke.

This follows similar declarations in Paphos and Nicosia over the past two months worth EUR 60 mln and EUR 174 mln, respectively.

Chairing a wide-scale meeting of six members of his cabinet and mayors from the Limassol district, Anastasiades said that now is the time to invest in mature projects, or those that have been approved but could not be funded due to limitations imposed by the EUR 10 bln bailout deal in March 2013.

Repeating his policy of reducing unemployment and boosting development and growth, the President said that Limassol has already benefitted from projects worth EUR 47.5 mln during the present administration, while others worth EUR 134 mln are already underway or will begin by the end of the year.

These include dredging Limassol port further and expanding the docksides (EUR 46 mln), a new road leading to Limassol port (EUR 7.1 mln), refuse collection centre (EUR 52 mln), water supply to Limassol rural areas from the Episkopi desalination plant (EUR 13.3 mln), while by autumn the port will see a new passenger terminal of 7,500

June CPI down on fruit, electricity; inflation -2.4% The Consumer Price Index for June decreased by 0.18 units or 0.16% to 115.50 units compared to 115.68 in May mainly due to decreases in the prices of certain fresh fruit and electricity.

The “food and non-alcoholic drinks” sub-index was down -1.95% from the previous month and -2.74% yearon-year, while the “housing, water, electricity and gas” sub index decreased marginally by 0.07% from May, but -9.17% year-on-year and -7.92% for 1H 2015 compared to the same period last year, in line with global price changes in crude oil contracts. Increases in CPI have been recorded in the prices of air fares and retail petroleum products. The “transport” sub-index was up 1.8% from May to June, but down -2.89% year-on-year.

Inflation for June decreased by -2.4% compared to -2.0% in May and -1.2% in June 2014. For the first half period January-June 2015, the CPI recorded a decrease of -1.9% compared to the corresponding period of 2014.

Jobless drops 9% yoy in June The number of registered unemployed persons declined to 40,876 in May, down 9.1% from a year earlier.

According to data released by the statistical service Cystat, June saw the fourteenth consecutive annual reduction of the unemployed persons since May 2014 and the third largest from March this year (-9.36%) and May (9.35%). The number of jobless peaked in February 2014 at 53,204 persons. The reduction is attributed mainly to hirings in construction, financial and insurance, trade, manufacturing, education and to newcomers in the labour market.

BOCY JEREMIE loans to 15/9 Bank of Cyprus announced on Friday that JEREMIE-III, the current phase of its lending scheme for small to medium sized enterprises (SMEs), expires on September 15, having already allocated EUR 31 mln to 460 corporate borrowers.

To date, the bank has provided similar loans of about EUR 150 mln from facilities funded by the European Investment Bank and the EU’s Regional Development Fund, with relatively milder terms to spur growth in the SME sector. As with JEREMIE and JEREMIE II, the third programme maintains identical terms of repayment, duration, grace period and interest rate starting from 2.66%. The collateral required for JEREMIE III is at 60% of the value of the loan, similar to the second programme, while JEREMIE I required a security of 50%.

sq.m.

His new measures include a football stadium for the three local clubs of AEL, Apollon and Aris (EUR 20 mln), new roads worth EUR 25.3 mln, new schools and other works of EUR 14.6 mln.

In Kato Polemidia, the abandoned Berengaria barracks will be cleared (EUR 9.5 mln), Yermasoyia will get road works and wave breakers worth EUR 3.8 mln and a 10-year grace period on past loans, Ayios Athanasios will benefit from EUR

825,000 of road works and Ypsonas with a further EUR 1.5 mln, while rural areas will see new school, road works and sewerage network improvements.

Other public projects include a new fire station in Limassol (EUR 5.8 mln), a TB Centre (tuberculosis) at Kyperounda hospital (EUR 1.2 mln), a waste water treatment plant west of Limassol (EUR 36.7 mln), a household and industrial waste treatment centre in Vati (EUR 4.7 mln) and solid waste treatment along the ‘hotel strip’ (EUR 2 mln).

The President added that within the year, the new ambulance centre will be operational, municipal housing and roads in the Mishaouli and Kavazoglou area will be restored, the municipal kindergarten in Mesa Yitonia will receive aid, the derelict farming units in Kato Polemidhia will be cleared, pavements and cycle paths will be built in Ayios Athanasios and Yermasoyia, and cash-strapped communities will start repaying their street lighting bills to the EAC over 36 monthly instalments.

Anastasiades added that as part of the municipal reform plans, a universal property tax of 0.1% will be imposed, but not collected by local administration that will receive a grant of EUR 15 mln. However, the plan is to return the tax collection authority to local councils once the reform and restructuring of all municipalities has been completed.

He concluded that the District Officer has been tasked with a supervisory role to ensure speedy procedures and transparency in public projects and procurement.

Major tax reforms aimed at ‘non-doms’, FDIs, property The government has introduced radical tax reforms that aim to attract foreign direct investments and nondomiciled individuals, simplify levies for properties, return tax-collection to local municipalities and encourage taxbreaks for direct injections where local companies are strained for cash-flow.

Finance Minister Haris Georghiades said that the set of five tax packages approved by the Cabinet on Wednesday and submitted to parliament on Thursday aim to make Cyprus as “attractive and competitive” as ever before, and make taxation, and subsequently investments, “fairer, simplified and more effective.”

Property transfer fees have been reduced by 50% to the end of 2016, there will be no capital gains tax for purchases up to the end of 2016, property taxes are simplified, municipal property levies are abolished and merged into a single tax of 0.1% of the last available valuation.

Early birds will benefit from a 10% discount and a rebate of up to EUR 25, which affects some 12% of all property

owners.

These tax breaks will deprive the state of some EUR 20-21 mln in annual earnings, “which is within fiscal budget allowances, but will generate multiple benefits from an increase in transactions and growth.”

The Ministers said that the loss of EUR 14 mln that will be incurred by the local administration will be replaced by a direct grant of EUR 15 mln to municipalities, as decided by the Cabinet, which will develop through the wider plans for municipal reforms and autonomy.

To encourage a revival of the private sector, the government is introducing the “allowance for new equity/notional interest deduction” to allow fresh funding in the form of investing in equity for businesses that have difficulty borrowing. This will be retrospective from January 1, 2015 and aims to encourage investments in capital.

Cyprus already has one of the highest national borrowing rates of 140-150% of GDP.

The reforms include further tax discounts on depreciatisn of equipment, facilities and buildings until the end of 2016.

High-net worth non-domiciled individuals (non-doms) will need to declare Cyprus as their taxable jurisdiction and receive an exemption on defence tax on rents, interest and dividends. Also, to lure executives to the island, a 50% discount will be afforded on wages earned prior to their employment here, where the salary is above EUR 100,000, while this break will be extended from five to ten years.

Georghiades said that the fivepackage tax reforms fully harmonise the Cyprus tax regime with that of the EU, self-declaration is introduced, and a new framework is introduced for investments and activities by oil and gas exploration and prodyction companies operating with the Exclusive Economic Zone (EEZ).

However, the minister admitted that the tax reforms will have an initial negative impact as revenues will revert back to pre-2012 levels.

Credibility of state and banks restored The government is committed to addressing the problems society is facing, President Nicos Anastasiades said on Friday, adding that under his administration, the credibility of the banks and the state itself has been restored.

Addressing a meeting with local authorities in Limassol, where he announced new projects worth EUR 147 mln, the President referred to the difficulties faced when he took over, pointing out that the decisions taken by the Eurogroup and the country’s partners did not allow him to announce any projects which his government would not be able to implement.

Anastasiades said that during the 26 months of his governance, there has been consistent implementation of

the credit conditions laid out by Cyprus’ international lenders, which resulted in achieving what the most optimistic circles did not even expect.

He added that 22 consecutive downgrades were followed by eight upgrades so far and positive reviews in all seven assessments by international lenders.

Furthermore, he added, “we have managed to return to the markets, in the hope for more favourable terms next time we return to the markets in the future.”

However, the President said, there are still serious problems among the vulnerable groups and the unemployed, pointing out that his government is making continuous efforts to attract foreign investment that will lead to growth and development.

July 8 - 14, 2015

financialmirror.com | CYPRUS | 5

ESM approves next tranche of €100 mln The European Stability Mechanism (ESM) has approved the disbursement of EUR 100 mln to Cyprus as part of the EUR 9 bln financial assistance of which EUR 5.8 bln has been paid so far.

The ESM board in Luxembourg said that the payment “follows the positive assessment of the sixth quarterly review of Cyprus’s macroeconomic adjustment programme and approval of the supplemental Memorandum of Understanding with Cyprus by the ESM Board of Governors.”

ESM Managing Director Klaus Regling said that he was pleased that Cyprus’s adjustment programme is back on track.

“The legal framework for a new foreclosure procedure has entered into force, and there has also been a substantial reform of corporate and personal insolvency laws. These new regulations enable the country to effectively deal with the problem of non-performing loans (NPL). I trust that the

Central Bank starts buying bonds as part of QE The Central Bank of Cyprus started buying government bonds as part of the European Central Bank ‘quantitative easing’ (QE) programme, which would see investments opf up to 500 mln euros, spokeswoman Aliki Stylianou said, “Following approval by the European Stability Mechanism on Thursday, in the framework of Cyprus adjustment programme implementation review, the CBC proceeded (on Friday) with the purchasing of Cypriot bonds in the secondary market, in the context of the ECB’s QE programme,” Stylianou said.

She added that the purchases lead to a reduction to the yields of Cypriot bonds by approximately 15 basis points.

“The CBC and the ECB will continue purchasing Cypriot bonds until the next programme review,” Stylianou noted.

The seventh review of Cyprus adjustment programme is expected to begin in mid July. Under the ECB rules, states whose bonds are below investment grade are eligible for QE only if they follow an adjustment programme and obtain positive implementation reviews on a quarterly basis.

13-week T-Bill yield drops to 2.18% The Public Debt Management Office of the Ministry of Finance announced that Thursday’s 13 week Treasury Bills auction for EUR 150 mln was oversubscribed and the average yield was 2.18%, lower than 2.47% at the previous auction on May 6.

However, the PDMO said a total amount of EUR 171.5 mln were submitted, down from 200 mln in the previous auction and thus accepted bids for EUR 144 mln.

The accepted yields ranged between 2.10% - 2.30%.

Yields in previous auctions for 13-week T-bills were 2.47% in May (EUR 150 mln), 2.68% April (EUR 200 mln) and 2.84% in March (EUR 200 mln).

Appetite for 6MO T-bills Cyprus sold EUR 50 mln of 26-week treasury bills during its auction on Thursday, which was oversubscribed by almost three times, pushing the yield down to an average 2.40%.

The yield was far below the 2.96% rate achieved in January 2011, just before Cyprus was shut out of international markets and sought a EUR 10 bln Troika bailout due to a runaway fiscal deficit and banks overexposed to toxic Greek government bonds.

The Public Debt Management Office at the Ministry of Finance said that Thursday’s bids for the 6-month T-bills topped EUR 130.2 mln, with an average accepted rate of 2.35-2.45%.

For the rest of 2015, Cyprus has loan obligations of EUR 1.79 bln, 736 mln in 2016 and 1.5 bln in 2017.

In February, the 13-week T-Bills yielded 2.96% with the government accepting bids worth EUR 125 mln. The PDMO said that the auction was oversubscribed 1.67 times as it had received a total of EUR 209 mln of bids.

government will continue its reform efforts so that Cyprus can sustain economic recovery.”

Regling added that “progress in Cyprus confirms that with strong ownership by a government our approach to grant a loan in exchange for economic policy conditions works. This has also been demonstrated by the successful programme conclusions in Ireland, Portugal and Spain.”

Cyprus applied for the “bailout” financial assistance on 25 June 2012 and the key elements for a macroeconomic adjustment programme were agreed by the Eurogroup on 25 March 2013 aiming to address the financial sector imbalances including an appropriate downsizing of the country’s financial sector, fiscal consolidation, structural reforms and privatisation.

The agreement paved the way for a EUR 10 bln package, of which the ESM undertook EUR 8.968 bln and the International Monetary Fund (IMF) around EUR 1 bln.

The first tranche of financial assistance was provided in two separate disbursements of EUR 2 bln on 13 May 2013, and EUR 1 bln on 26 June 2013. The second tranche, in the form of EUR 1.5 bln of ESM floating rate notes, was disbursed on 27 September 2013 for the recapitalisation of the cooperative banking sector, which has since been restructured and is presently government-owned.

The facility was designed to cover Cyprus’s financing needs including budgetary financing, the redemption of medium and long-term debt, and the recapitalisation of financial institutions except the country’s two largest banks (Bank of Cyprus and Cyprus Popular Bank, which were subject to restructuring and resolution).

The remaining ESM transfers were EUR 100 mln on 19/12/2013, EUR 150 mln on 04/04/2014, EUR 600 mln on 09/07/2014 and EUR 350 mln on 15/12/2014. The weighted average maturity of loans is 14.88 years.

July 8 - 14, 2015

6 | COMMENT | financialmirror.com

TO FRANCE AGAIN… and why not?

A tasting of good Burgundies this week at Limassol’s “French Depot” serves to remind me, at least, that as far as food and wine are concerned, no-one beats the French. Thousands upon thousands of us still make the pilgrimage every year to that lovely country to sample its wares. And they are as good as ever.

Imagine: a summer morning in rural France, leaving a small hotel after fresh croissants, bread rolls and huge breakfast cups of coffee, and then meandering through the countryside until thoughts of lunch enter the frame.

A village hoves into sight and there a grocery, with a small but varied range of terrines and pâtés. A picnic lunch is the decision. “A little of that one... oooh, and a little of that one”, and out we go with a dollop of smooth and a fine piece of coarse terrine, some gherkins, olives and flask of local wine. Then, some fresh tomatoes and cucumbers and several baguettes, all to be taken lazily under tall gently breeze-stirred plane trees on a tow-path by a canal.

Memorable, indeed.

If not picnic-minded, there are still to be found the small auberges and other eating places where a simple, but superb meal may be had. A meal like one described by Elizabeth David in her wonderful book of articles, essays and recipes “An Omelette and a Glass of Wine”.

Elizabeth David takes some lunch, à, seul, in France.

What is she eating? Not snails, or mussels – I think her choice is Palourdes Farcies; stuffed clams. She could well be in Brittany where this dish is often to be found. A splendid way to start a meal, with a bottle of Muscadet.

Photograph from “At Elizabeth David’s Table – Her very best everyday recipes”.

She partook of it in Nyons, Provence. It comprised: a tomato salad with chopped onions, the little black olives of the Nyons district and home-made pâté... each item on its own separate dish, and left on the tables so the diners could help themselves.

The second course was a gratin of courgettes and rice. And then a daube of beef, with, says Mrs David, “an unthickened but short sauce of wine and tomato purée, beautifully scented with bay-leaf and thyme”. Like the other courses the pot was left on the table, inviting further helpings.

The dessert was a dish of jam, as often it can be in France. A special, home-made jam, of course. This one was made of “green melons, fresh tasting, not too sweet, a hint of lemons in the background”.

Now, what could make a better meal than this? Simple, honest, good food; unadorned by side dishes of salad or vegetables – but everything you could want is in it. Mrs David assumes that, if you are reading her, you have an affinity with cooking and so gives no recipes, just guidance, viz: The gratin of courgettes is not difficult to do.

2-3 medium sized courgettes, sliced and fried gently in butter until they have given up their wateriness. A cup of cooked rice. About a half litre of béchamel sauce and some cheese.

Whizz the cooked courgettes very quickly in your food processor, or mash them with a fork or push through a sieve. Put the coarse purée into a bowl and mix the cooked rice and the béchamel sauce well in. Turn in to an oven dish, grate some cheddar and Parmesan over the top and brown in a hot oven or under the grill. This is a lovely starter.

Mrs David gives no recipe at all for Boeuf en Daube, but the one she ate in Nyons must have been very similar to this very traditional Provençal recipe, which I commend to you.

FOOD, DRINK and OTHER MATTERS with Patrick Skinner Some orange rind (from half an orange) Half litre of good thick stock (**) Salt and peppercorns Red Wine (*) If you can, ask the butcher for different cuts of stewing steak, which will give a more varied flavour. (**) The original recipe calls for a split calf’s foot to provide a natural thickening for the sauce. A good chicken or mixed meat stock will provide a good alternative.

Method 1.

Heat the oil in a large heavy pot, which has a close-fitting lid.

2.

Stir in the onions, carrot, tomato purée, orange rind, Bouquet Garni, the peppercorns and a little salt and cook for a few minutes stirring frequently.

3.

Add the stock and stir.

4.

Now add the meat, stir and pour over enough red wine to cover.

5.

Bring to the boil, then turn the heat down very low, cover tightly and simmer very gently for about six hours.

6.

Add more red wine to the pot if the sauce is becoming dry. You may prefer, as I do, to transfer the pot to the oven and cook it there on a low temperature (around 150-175C) until the meat is cooked well through.

This dish may be cooked in advance, because it re-heats beautifully.

If you have not made anything to precede this daube, then some simple starch of one sort or another can accompany: some boiled new potatoes, pasta or some very fresh bread. And if you must have a vegetable, my choice is some little barely cooked florets of broccoli.

In the glass by the side? A Pays d’Oc Merlot would do nicely, or one of my favourite local reds, Ayios Onoufrios.

There is not a great tradition of puddings in France, but there are many very good recipes for mousse. I particularly like this one, which you can make now with this season’s gorgeous oranges and Cyprus orange liqueur.

Ingredients The juice of five oranges 1 teaspoon of finely grated orange rind 150 g caster sugar 6 egg yolks 1 tbsp “Filfar” orange liqueur 4 egg whites

Method 1.

Prepare a good-sized pan of simmering water and set a bowl over it. If you have a double-boiler, use that.

2.

Put the sugar into a bowl and add the orange juice and rind 3.

Whisk well until you have a paste 4.

Whisk in the egg yolks one at a time 5.

Turn the mixture into the bowl in the pan, or your double-boiler 6.

Stir continuously until the mixture thickens 7.

Remove from the heat and stir in the orange liqueur. Set aside, to cool 8.

Now whisk the egg whites until stiff and then fold them slowly into the orange mixture.

9.

Spoon into small ramekins and keep chilled until ready to serve.

* Note: “An Omelette and a Glass of Wine” has recently been re-issued, and despite the articles having been written between 40 and 60 years ago, they are virtually all relevant today.

And those that don’t still seem to make excellent reading.

Ingredients for 6-8 servings 1 generous kilo of braising steak, cut into cubes (*) 225 g fatty bacon, or bacon fat.

4 tbsp olive oil 4 medium onions, peeled and quartered 1 whole onion studded with cloves (around 8) 2 large carrots, peeled and cut into Julienne strips 1 small can of tomato purée 5 cloves of garlic Bouquet Garni (or 3 bay leaves and several chopped sprigs of fresh thyme)

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

July 8 - 14, 2015

financialmirror.com | COMMENT | 7

EBRD in €20m TF deal with Eurobank, no impact expected from Greece The European Bank for Reconstruction and Development (EBRD) has signed a EUR 20 mln trade finance facility with Eurobank Cyprus under the EBRD’s Trade Facilitation Programme (TFP) aiming at supporting the expansion of international trade on the island.

Through the facility, the EBRD will issue guarantees in favour of international commercial banks covering the political and commercial payment risk of the transactions undertaken by Eurobank.

In addition, Eurobank Cyprus will also benefit from the EBRD’s technical cooperation projects in trade finance.

The agreement was signed by the head of the EBRD’s Cyprus office Libor Krkoska and Eurobank Cyprus CEO Michalis Louis on the sidelines of the EBRD’s first TFP Information Session in Cyprus, held in Limassol.

In his speech, Krkoska noted that “this is our first ever trade finance facility in Cyprus. This alone makes it an historic event, as it shows our new Mediterranean countries taking a more active role in the demand of TFP product”.

Lucyna Stanczak-Wuczynska, EBRD Director, Financial Institutions, added that “the EBRD will aim to contribute to boost intra-regional trade and will contribute to the development of trade links between Cyprus and other countries where we invest.

Extending trade is an important way of strengthening the local economy by creating opportunities for growth and the EBRD would

like to be more engaged in working with Cypriot banks”.

Eurobank’s Michalis Louis said that “this facility will enable and assist our clients operationally and in a cost- efficient manner to promote their export/import businesses. At the same time, it is a vote of confidence for the Cyprus economy and our bank”.

The TFP Information Session focused on “Financing Foreign Trade with Cyprus” and attracted 100 representatives from issuing and confirming banks under the programme, the International Chamber of Commerce, Vienna, the World Trade Organisation, as well as key trade finance professionals, regulators and economists.

The main topics of discussion were the latest trends and developments of trade finance in the region including factoring and supply-chain finance.

After the event, the EBRD’s Cyprus office head Libor Krkoska said that the bank will do its best to minimise the impact of the Greek crisis on the Cyprus economy and that the EBRD is monitoring the situation in Greece very carefully.

“We are also monitoring what is happening here in Cyprus and so far it seems that the Greek crisis has little impact on Cyprus,” he noted.

He also noted that “we will do our best to support the stability of both the financial sector and local companies so that the impact on the Cypriot economy will be minimal.”

More changes at EY Cyprus leadership Just a month after EY Cyprus announced a new Country Managing Partner, the ‘Big Four’ audit firm that employs 230 people said it was admitting a senior executive into partnership and promoting three others to Executive Directors, raising the total to seven.

Stavros Pantzaris, who took over as the Country Managing Partner as from July 1, succeeding Andreas Demetriou who retired after a professional career of over three decades, said the promotions “is part of our growth plans and improving the level of service provided to our clients.”

Stelios Demetriou, Head of Transaction Advisory Services, with 16 years of service under his belt, has been admitted to partnership, joining five other partners.

He is a member of the Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Certified Public Accountants of Cyprus (ICPAC).

Three senior managers have been promoted to Executive Directors: Christophoros Socratous, head of Global Compliance and Reporting; Nicholas Pavlou, Audit and Finance Services; and, Charalambos Constantinou, Advisory Services.

July 8 - 14, 2015

8 | GREECE | financialmirror.com

The Neo-Marxist threat to national economies THE RISK WATCH COLUMN

By Dr Alan Waring The theatricals and melodrama of the current Greek crisis mask a far more serious issue than mere political entertainment. The self-created sequence of threats to Greece, i.e. sovereign debt default, bankruptcy, Eurozone exit and relegation to the status of economic and financial backwater, if not international pariah, has already started to become reality.

The EUR 1.6 bln debt repayment to the IMF was not paid on June 30. Over the period of July 10 to 20, Greece has to repay a further EUR 7 bln in various debts (ECB, IMF, national central banks and short-term treasury bills) and has no means to pay. Stringent capital controls are already imposed and financial collapse imminent. A Greek referendum on continued acceptance of the international bailout terms on July 5, on a blatantly false Yes/No prospectus, produced a resounding No result – and a show of pseudo-democracy at its most cynical.

None of this happened either by accident or external malevolence. This was the deliberate internal destruction of a national economy and finances by its own government for the sole purpose of ruthlessly imposing a failed political ideology, namely Marxism dressed up in a modern form.

international creditors, but these are primarily loans and they have to be repaid. To do that, Greece absolutely needed to undergo radical reform of its economy, public spending, banks and tax gathering, so as to better balance its books and return to growth. Syriza believes the opposite. They say that what must come first is public pride and dignity, that every citizen is entitled to a basic standard of living, and, crucially, that the state will ensure that the public purse will provide it regardless. They say that the international creditors, and particular foreign governments they don’t like, owe the Greek people a high standard of living which they are entitled to demand and receive. Syriza has absolutely refused to countenance the major reforms needed to deliver such largesse – but nonetheless insists that the international creditors must keep on paying out billions to Greece. Oh, and by the way, Greece will no longer make its sovereign debt repayments (because it has run out of money). On June 30, Greece became the first ever developed country to default on an IMF loan. Greece is now on the cusp of financial collapse and a ruinous future for its population.

Some Observations Syriza could not possibly deliver such a preposterous

In Greece, Syriza’s neo-Marxist ideology of feckless entitlement has become the opiate of the austerity weary, benefit claimants, debt defaulters, tax evaders and those unwilling to take any personal responsibility for anything.

When Greece was drowning in 2010 as a result of its own incompetence and economic mismanagement, the only lifeline came from the Troika. Yet, having been saved by the Troika, many Greeks believe (encouraged by Syriza propaganda) that their saviours were actually the cause (sic) of their debt-ridden economy and austerity! A drowning man surely does not accept a lifeline and then, having been saved, complain bitterly about the quality of the lifeline and the motives of his saviours – and then blame the saviours for him nearly drowning and, worse, demand yet another lifeline from those saviours as he now threatens to jump over a cliff!

Syriza is openly demanding that the Troika capitulates and hands over yet more billions on an empty ‘Syriza promise’. With their appalling track record to reflect on, the Troika has pulled up the drawbridge. Moreover, the other EU member states are mindful of just how infuriated their own populations have become by Greece’s parasitic behaviour. As EU taxpayers and contributors to the bailouts, they will no longer stand for Greece, in effect, stealing their hard earned money. Not just Germany and other large economies but also small countries such as Slovakia, Bulgaria and Romania whose average earnings, pensions and living standards are half those of Greece.

Why would any sane government behave in such a disgraceful and suicidal way?

Neo-Marxist Fellow Travellers

The Syriza prospectus and modus operandi are not all what they claim. Syriza The Road to Ruin and its allies and supporters such as Debt and debt default have long been an Antarsya are really hard-line neo-Marxists accepted way of life in Greece. Greece has masquerading as socialists and social benefitted from several international democrats. Their espoused agenda is the bailouts since 2010, each with stringent protection of Greece’s dignity (whatever austerity conditions attached, which that means) and the maintenance of high successive Greek governments failed to public sector employment, high wages, implement. However, in 2014 many felt early retirement and generous pensions – that the situation was controllable. The far beyond what the state can afford and far new factor, which has propelled Greece beyond the levels of comparable EU states. from ailing but just about manageable Their real agenda, however, is the economy in 2014 to the verge of economic destruction of capitalism and the collapse in July 2015, is the arrival in international institutions that maintain January 2015 of the new hard left-wing capitalism. To that objective, governments government of the Syriza party and its such as Syriza are fully prepared to destroy prime minister Alexis Tsipras. their country’s economy and finances, i.e.

Syriza won on a populist anti-austerity Greece is on the brink of financial collapse after years of EU and IMF bailouts the end justifies the means. A toxic mix of and anti-Troika agenda. It portrayed all of totalling somewhere in the region of EUR 240 bln. It has failed to repay EUR 1.5 incompetence, delusion and megalomania.

Greece’s woes as being the fault of its bln to the IMF on time and it has now become the very first European Union Syriza is not alone. Other erstwhile international creditors and especially the communists and ultra-left radicals have troika of the IMF, the European Central country in history to fail to repay such a loan. Greece now joins an unglamorous rebranded themselves as new socialist and Bank and the EU. When Greece was club containing Zimbabwe, Somalia and Sudan. By the end of this year, it needs social democratic parties while in fact verging on financial bankruptcy in 2010, to repay SDR 4.4 bln ($6.2 bln) and SDR 18.5 bln ($26 bln) over the course of the carrying forward their old Marxist policies the Troika stepped in with a bailout and agendas, for example AKEL in Cyprus, package coupled with strict conditions next ten years. (Source: Staista.com) SNP in Scotland and the Chavez regime in such as economic reform, drastically Venezuela. These fellow travellers all have a curbing public expenditure, greatly common agenda to destroy capitalism and increasing the effectiveness of tax collection and tackling tax promise to the electorate, based as it was on an endless its institutions at any price. In Cyprus, by 2012 the former evasion. Little headway in compliance occurred, owing to the supply of “other people’s money” and a refusal to reform. The AKEL government over five years had destroyed the Greek government’s reluctance and a general culture of debt Syriza promise appears to be little more than a cynical economy and nearly bankrupted it, only being saved at the default, tax evasion, feather-bedded public sector jobs with confidence trick on a politically naïve and gullible populace: last moment by a new non-Marxist government and a Troika early retirement at 50, and generous state pensions. tell them we will fight ferociously to secure their jobs in the bailout. Let the self-imposed destruction of Greece be an However, eventually the government was forced to cut back. over-bloated public sector, their overly-generous pensions, object lesson to all.

By 2014, the realisation that after nearly five years of their retirement at 50; they can also borrow as much as like austerity and more cuts coming with no end in sight drove and never have to pay back any debts; it is their right and Dr Alan Waring is an international risk management many voters into the arms of Syriza who were offering entitlement and it’s all those nasty foreign capitalists and consultant with extensive experience in Europe, Asia and the immediate salvation: a quick end to austerity, reversal of ‘neo-liberal’ policies of foreign creditors who say otherwise Middle East with industrial, commercial and governmental public sector job cuts, and a reversal of state pension cuts. who are to blame for your imposed austerity. The aggressive clients. His latest book Corporate Risk and Governance is at But, the Syriza prospectus was and remains a complete and often obnoxious rhetoric of demagogues such as Tsipras www.gowerpublishing.com/isbn/9781409448365. Contact economic and financial fantasy. The money for government and Yanis Varoufakis against the EU, IMF and ECB built up waringa@cytanet.com.cy. largesse has to come from somewhere. For years, Greece’s over Syriza’s first and disastrous six months in power to finances have been propped up by bailout funds from something of a crescendo. ©2015 Alan Waring

July 8 - 14, 2015

financialmirror.com | GREECE | 9

How do Europeans feel about a Grexit?

Months of negotiations between Greece and its creditors have tested the patience and sympathy of its European neighbours.

According to a YouGov poll, many people across Europe care little about whether Greece leaves or stays in the eurozone. In Germany, 53% of those polled would prefer Greece to leave. In Finland and Denmark, that number is 47 and 44%, respectively. (Source: Statista.com)

Ifo’s Sinn says “bring back the Drachma” It is time for Greece to make a daring leap and adopt its own currency, said Ifo President Hans-Werner Sinn, adding that the drachma should be introduced immediately as a virtual currency.

“All of the country’s contracts, including its debt contracts with foreigners, should be converted into drachma. This would make the Greek government and the Greek banks solvent once again,” Sinn said in Munich.

“At the same time, the Community of States should also refrain from trying to collect up all of those euro banknotes currently in the hands of Greek citizens, but should allow them to be used for cash transactions instead, although prices would be stated in drachma,” added Sinn.

“According to an official assessment by the EFSF bailout fund, the Greek government is insolvent, and since it is insolvent, so are the banks closely connected to it”, explained Sinn. In this situation the ECB should no longer allow the Greek central bank to grant commercial banks further emergency loans.

“This will naturally bring the economy to a standstill unless a new fiscal bail-out package is offered or Greece returns to the drachma. Since it is foreseeable that negotiations over another bail-out package will only waste more time, without a successful outcome, Greece should introduce a new currency,” argued Sinn.

Since the new drachma would depreciate rapidly, Greece would presumably experience a strong economic upturn within one or two years, because Greeks would buy fewer imports and tourism would see an upturn. In addition, flight capital would flood back into the country very quickly.

In Sinn’s opinion, “the Community of States should soften the difficult transition process with generous financial assistance, which should be earmarked for humanitarian aid for the poorest. Moreover, Greece should be given the opportunity to return to the euro at a later date and at a different exchange rate.”

According to Sinn, “the Greeks on the whole have pots of money, around 120 bln euros more than would normally be expected of a country of its size. But this surplus cash has largely been taken out of the country and is extremely unequally distributed. Greece’s socialist government can surely now be expected to make an effort to raise part of the money required to avoid a humanitarian disaster itself.”

July 8 - 14, 2015

10 | GREECE | financialmirror.com

Sunday’s ‘No’ vote will not stop the country’s descent into chaos As thousands of young Greeks were celebrating last Sunday in all-night jubilations and street dancing the country’s resounding rejection of creditors’ bailout demands, in a nationwide referendum, where the “No” vote attracted more than 61% of votes cast, economic conditions continued to deteriorate. With the banks closed since June 29, and likely to remain shut for the foreseeable future, capital controls in place, thousands of tourist cancellations and the market idled due to lack of cash. A situation which will progressively get worse as bank liquidity goes

dramatic time”, he said.

However, Mr. Tsipras may soon find it difficult to deliver on his promise to secure more lenient bailout terms let alone debt relief which has been a central point in his “No” campaign. European leaders, including Germany’s Angela Merkel and France’s Francois Holland, are in no mood to entertain plans for debt forgiveness as such a move would create a bad precedent for other Eurozone members with similar problems such as Italy, Spain and Portugal, who then make even more pressing demands.

As was expected, the success of the “No” vote led to some fast unfolding political developments. The failure of the “Yes” campaign led New Democracy leader Antonis Samaras to announce his resignation. “I understand that our great party needs a new start”, he said. Samaras called on Greeks to set aside their differences and urged the government to reach a swift deal with creditors.

In a dramatic move, controversial Finance Minister Yanis Varoufakis was ousted by Prime Minister Tsipras who replaced him with Oxford educated economist Euclides Tsakalotos who until now has headed Greece’s bailout negotiation team. The move is expected to appease creditors who sought a more congenial and moderate negotiator.

The return of Tsipras to the negotiating table – which he left on his own volition abruptly on June 24, falsely claiming that his government was being blackmailed in order to call the “Yes” – “No” referendum - is not going to be welcomed by most other EU leaders and certainly not by EC president Jean-Claude Juncker who was openly cheated by Tsipras’ grand standing. Trust has been seriously eroded between Greece and creditors as European officials remain unconvinced that Tsipras will be able to make good on his promises, let alone deliver the spending cuts that will have to be agreed in any bailout settlement. The European Union has never witnessed anything like this happening in Greece before. As over the last ten days the government has introduced capital controls, closed the banks indefinitely, shut the Athens Exchange, defaulted on EUR 1.6 billion IMF payment, engineered the collapse of a multi-billion euro bailout, and organised an ill-conceived and misleading referendum aimed to broaden the gap between Greece and Europe.

Although Tsipras moved quickly to take advantage of his huge success with the “No” vote, reshuffling his cabinet by appointing the pragmatic Tsakalotos for Finance

By Costis Stambolis to zero and ATMs will not even dispense the allocated sum of 60 euros per day per person.

The heavier than expected victory for the “No” campaign against the austerity policies demand by Greece’s creditors - EU, ECB and IMF - has strengthened the Prime Minister’s domestic standing as he campaigned vehemently for Greeks to reject lenders’ terms. Emboldened by this phenomenal referendum success, PM Alexis Tsipras said he would return to the negotiating table to strike an agreement with the creditors, although most governments in the eurozone have said they would not offer better conditions to Athens. More important, the referendum’s result has created even more uncertainty about the future of the country’s banking sector as the ECB has refused to extend more ELA support.

Following the referendum, the EC issued a brief statement saying it “respects” the result of the referendum. Other reactions were less diplomatic.

“With the rejection of the rules of the eurozone negotiations about a programme worth billions are barely conceivable” said German Economy Minister Sigmar Gabriel.

“Tsipras and his government are leading the Greek people on a path of bitter abandonment and hopelessness”, Gabriel said, adding Tsipras had “torn down the last bridges on which Greece and Europe could have moved toward a compromise”.

European Parliament President Martin Schulz said Tuesday’s eurozone summit should discuss a “humanitarian aid programme for Greece” after Greeks rejected creditors’ proposals. He added that Greece must make “meaningful and constructive proposals” in the coming hours. “If not we are entering a very difficult and even

No matter how much makeup he puts on, Tsipras’ EU partners are no longer convinced

Minister and persuading the pro-European political parties to join him in forming a united stance in presenting his country’s fresh bailout proposals, he is still going to get a frosty reception in Brussels. Meanwhile, the country is fast moving towards financial collapse with the government and banks running out of money. Should the negotiations drag on for days, market insolvency will only get worse with bankruptcies mounting with supermarket shelves emptying and with the jubilant mood from last Sunday’s election quickly turning sour. Executives from all different business sectors are making daily appearances on television for a solution to be found by the weekend otherwise massive layoffs of workers will follow and complete market disintegration will result.

In a last-minute effort to safeguard the Eurozone’s fragile unity and prevent Greece from going bust, EU leaders met once again in Brussels on Tuesday night in a hastily convened summit. Athens was to be given one more chance to table its proposals for a new comprehensive plan to cover much needed reforms, urgent financing requirements to prevent a complete meltdown of the banking sector and some kind of debt relief. However, senior Eurozone officials who have seen the draft proposal appear apprehensive noting that the new plan is offering “too little, too late” as it fails to address adequately the burning issue of vital reforms in the direction of cost cutting and minimising Greece’s excessive public

sector spending. The EU summit takes place against the backdrop of the ECB’s Monday decision to tighten further the screw on Greek banks when it required them to offer more assets in exchange for ELA, thus squeezing further their liquidity.

Under the circumstances, it therefore appears most unlikely that Alexis Tsipras, Greece’s boisterous Prime Minister, will walk out of the summit with a firm deal in his hands. He will probably be given few more days to negotiate a transition period for the introduction of a parallel currency in order to meet pressing financial commitments at home as there is no way for the ECB to extend further credit.

Meanwhile, the economy will continue its downward spiral as the government is contemplating the country’s fateful plunge into the unknown and its eventual departure from the European Union. For as we have already pointed out, the ultimate goal of the radical left SYRIZA party, which leads Greece’s coalition government, is to move Greece away from Europe and the Western flank and pursue a third-world country type independent path.

Consequently, Greece will soon become a poor and devastated country in the fringe of Europe and totally susceptible to geopolitical blackmail. The question is if the powers that be in Europe would really like such an outcome.

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

These 7 Yanis Varoufakis quotes show why we’ll miss him Greece’s finance minister Yanis Varoufakis has resigned from his post to help smooth his country’s negotiations with creditors on a new debt restructuring deal.

In typically flamboyant fashion, the motorbike-riding economist left some parting words to his Eurogroup peers — the ones he has battled with over the last few months. “I shall wear the creditors’ loathing with pride,” he boasted in a blog post announcing his departure Monday.

On using the Eagles to show Greece’s dilemma: “Greece is absolutely, irreversibly, committed to staying in the eurozone,” he told CNN. “The problem is that once you’re in, it goes just like the Eagle’s song ‘Hotel California’ – you

can check out any time you like, but you can never leave.”

On using poet Dylan Thomas to show Greece’s resolve: “Greek democracy today chose to stop going gently into the night. Greek democracy resolved to rage against the dying of the light,” he wrote in his blog.

On the lengths he would go to negotiate a better deal: “I’d rather cut off my arm than accept (a) bad deal,” he told Bloomberg.

On the Europe’s ‘troika’ team that was negotiating with Greece: “A committee built on rotten foundations,” he said.

On comparing the eurozone to the Titanic: “(The eurozone) resembles a fine riverboat that was launched on a

still ocean in 2000. And then the first storm that hit it, in 2008, started creating serious structural problems for it. We started leaking water. And of course, the people in the third class, as in the Titanic, start feeling the drowning effects first,” he told Channel 4 News.

On how much he sticks out when compared to his peers: “I am being treated as a strange bird because I talk macroeconomics,” he told The Wall Street Journal.

On quoting a famous leader to show how much he is disliked: “FDR, 1936: ‘They are unanimous in their hate for me; and I welcome their hatred’. A quotation close to my heart (& reality) these days,” he said in a tweet. (Fortune)

July 8 - 14, 2015

financialmirror.com | GREECE | 11

Why the Greek bailout failed

By Kenneth Rogoff

As the Greek crisis evolves, it is important to understand that a successful structural-adjustment programme requires strong country ownership. Even if negotiators overcome the most recent sticking points, it will be difficult to trust in their implementation if the Greek people remain unconvinced.

That has certainly been the experience so far. And without structural reform, there is little chance that the Greek economy will see sustained stability and growth – not least because official lenders are unwilling to continue extending an unreformed Greece significantly more money than it is asked to pay. (This has been the case through most of the crisis, even if one would never know it from the world press coverage.)

Greece’s membership in the European Union gives its creditors significant leverage, but evidently not enough to change the fundamental calculus. Greece remains very much a sovereign country, not a sub-sovereign state. The “troika” of creditors – the International Monetary Fund, the European Central Bank, and the European Commission – simply do not enjoy the kind of leverage over Greece that, say, the Municipal Assistance Corporation wielded over New York City when it teetered on the edge of bankruptcy in the mid1970s.

The best structural-adjustment programmes are those in which the debtor country’s government proposes the policy changes, and the IMF helps design a bespoke programme and

provides the political cover for its implementation. Imposing them from the outside is simply not an effective option. So, for reforms to take hold, the Greek government and its electorate must believe in them.

That a country must take ownership of its reform programme is not a new lesson. The IMF’s rocky relationship with Ukraine began long before the latest round of negotiations. Back in 2013, IMF staff wrote a sobering report on the organisation’s experience in the country. Their conclusion, in essence, was that the government’s failure to embrace the reform process fully all but guaranteed that its programme would not work.

If a government is incapable of or uninterested in making the needed adjustments, the report argued, the best option is to drip money out as reforms are implemented, as is now being done in Greece. Unfortunately, that approach has not proved adequate to overcome the challenges there.

Structural-reform conditions often tilt the balance between competing domestic factions, for better or for worse. If there is no will inside the country to maintain the reforms, they will quickly be undermined.

Left-wing ideologues have long viewed structural-reform programmes with deep suspicion, accusing international lenders like the IMF and the World Bank of being captured by neoliberal market fundamentalists. This critique has some truth in it, but is overblown.

To be sure, structural reforms often favour policies like labour-market flexibility. But one should not make the mistake of viewing these interventions in black-and-white terms. Breaking down dual labour markets that are excluding young workers (as they do in much of southern Europe, including Italy and, to some extent, France) is very different from making it easier to fire all workers. Making pension systems sustainable does not amount to making them

stingier. Making tax systems simpler and fairer is not the same as raising all taxes.

Recently, opponents of structural reform have put forward more exotic objections – most notably the problem caused by deflation when policy interest rates are at zero. If structural reforms simply lower all wages and prices, it may indeed be difficult in the short-term to counter the drop in aggregate demand. But a similar critique could be made of any other change in policy: if it is poorly designed, it will be counterproductive. The truth is that the way forward in Europe requires achieving greater productivity.

The lessons from Greece and other unsuccessful bailout programmes are sobering. If a debt bailout programme requires a wholesale change in a country’s economic, social, and political model, the best course of action might be to write off the private losses, rather than pour in public money to cover them. In cases like Greece, the creditors’ passion for structural reforms might be better directed at home – particularly toward improving financial regulation.

The vast majority of Greeks want to stay in the EU. In an ideal world, offering financial aid in exchange for reforms might help those in the country who want to shape it into a modern European state. But given the difficulty Greece has had so far in making the necessary changes to reach that goal, it might be time to reconsider this approach to the crisis completely. In place of a programme providing the country with further loans, it might make more sense to provide outright humanitarian aid – regardless of whether Greece remains fully within the eurozone.

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

Statesmanship and the Greek crisis Sovereign-debt crises such as the one in Greece can be resolved only through bold steps by both debtor and creditor.

The debtor needs a fresh start through a debt write-off; the creditor must find a way to provide one without rewarding bad behaviour. For a deal to be struck, both sides must have their needs addressed. Thus, serious reforms and deep debt relief need to go hand in hand. It is for this reason that Greece and Germany, its largest creditor, need a new modus vivendi in order to resume negotiations.

To begin with, the Greek government must be clear about the need for urgent economic reforms. The country’s economy has not just collapsed; it is structurally moribund. The roots of Greece’s problems stretch far deeper than the austerity of recent years.

In 2013, for example, resident inventors in Germany filed some 917 patent applications for every million inhabitants.

Resident inventors in Greece, by contrast, filed just 69 patent applications for every million.

If Greece wants the prosperity associated with a technologically advanced, 21stcentury economy, it will have to earn it, by producing innovative products that are competitive on world markets, just as Germany does. Doing so is likely to be a generational challenge.

For its part, Germany must acknowledge the enormity of Greece’s collapse. The Greek economy has shrunk by around 25% since 2009; unemployment stands at 27%, with youth unemployment at nearly 50%. When Germany faced comparable conditions in the early 1930s, its creditors shrugged, and the

By Jeffrey D. Sachs resulting instability allowed for the rise of Adolf Hitler. After World War II, however, Germany’s debt was slashed, enabling it to rebuild. Given this experience, it should understand the importance of cutting a country’s debt when the burden of servicing it becomes unsustainable.

The case for offering a country a fresh financial start is both economic and moral.

This makes it difficult for many bankers to understand, as their industry knows no morality – only the bottom line. Politicians, too, tend to have their moral compasses calibrated to the relentless hunt for votes.

Finding effective and moral solutions requires genuine statesmanship – something that has been all too rare during the euro crisis.

Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel now have the opportunity to rise to the occasion as European statesmen. Since Tsipras’s election in January, German officials have barely been able to contain their fury that a left-wing upstart government of a tiny, bankrupt country would dare to challenge one of the world’s great economies. Finance Minister Wolfgang Schäuble, for example, has repeatedly sought to provoke Greece into leaving the eurozone.

Tsipras’s response to these provocations has been clear and consistent: Greece should stay in the eurozone, and it needs a fresh financial start to do so. On July 5, the Greek people backed their young, charismatic leader with a decisive “No” vote on the unreasonable demands of their country’s

creditors. Their decision will one day be recognised as a victory for Europe over those who preferred to carve up the eurozone, rather than give Greece the chance to start anew within it.

At the meeting between Tsipras and Merkel this week in Brussels, the stakes could not have been higher. The economic costs of the impasse have been catastrophic for Greece, and pose a grave threat to Europe. The breakdown of negotiations last week sparked a bank panic, leaving Greece’s economy paralysed and its banks on the verge of insolvency. If the banks are to be revived at all, they must be saved within days.

If Tsipras and Merkel talks as mere politicians, the results will be catastrophic.

Greece’s banks will be pushed to the point of failure, making the costs of saving Greece and the eurozone prohibitively high. If the two leaders meet as statesmen, however, they will save Greece, the eurozone, and the faltering European spirit. With the promise of deep debt relief for Greece and a rapprochement between Greece and Germany, economic confidence will return.

Deposits will flow back into Greek banks. The economy will come back to life.

Tsipras needs to assure Merkel that Greece will live within its means, not as a chronic ward of Europe. To ensure such an outcome, debt relief and tough reforms should be phased in over time, according to an agreed schedule, with each party following through on its commitments, as long as the other does, as well. Fortunately, Greece is a country of exceptional talents, capable of building new competitive sectors from the ground up, if given the chance.

Merkel must now take a stance that is the opposite of the one her finance minister has pursued to date. Schäuble is undoubtedly one of Europe’s towering political figures,

but his strategy for saving the eurozone by pushing Greece out was misguided. Merkel now must step in to save Greece as part of the eurozone – and that means easing the country’s debt burden. To do otherwise at this stage would create an irreparable split between Europe’s rich and poor, and powerful and weak.

Some – in particular, the ever-cynical bankers – argue that it is too late for Europe to save itself. It is not. In Europe, many influential leaders and citizens still view the marketplace as constrained by moral considerations, such as the need to alleviate economic suffering. This is an invaluable asset. It makes it possible for Merkel to offer Greece a fresh start, because it is the right thing to do and because it accords with Germany’s own experience and history.

That idea of an ethical approach to the Greek crisis might sound absurd to readers of the financial press, and many politicians will undoubtedly consider it naive. Yet most European citizens could embrace it as a sensible solution. Europe rose from the rubble of World War II because of the vision of statesmen; now it has been brought to the verge of collapse by the everyday vanities, corruption, and cynicism of bankers and politicians. It is time for statesmanship to return – for the sake of current and future generations in Europe and the world.

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

July 8 - 14, 2015

12 | GREECE | financialmirror.com

Greece’s “No” is no victory for democracy

By Bernard-Henri Levy Despite what many are saying – especially those who do not have to bear the consequences of their words – Greek voters’ rejection on Sunday of the latest bailout offer from their country’s creditors did not represent a “victory for democracy.” For democracy, as the Greeks know better than anyone, is a matter of mediation, representation, and orderly delegation of power. It is not ordinarily a matter of referendum.

Democracy becomes a matter of referendum only in exceptional circumstances: when elected leaders run out of ideas, when they have lost the confidence of their electorate, or when the usual approaches have ceased to work. Was that the case in Greece? Was the position of Prime Minister Alexis Tsipras so weak that he had no better choice than to pass the buck to his people by resorting to the extraordinary form of democracy that is democracy by referendum? What would happen if Greece’s partners, each time they confronted a decision that they lacked the courage to make, broke off discussions and demanded a week to allow the people to decide?

It is often said – and rightly so – that Europe is too bureaucratic, too unwieldy, too slow to make decisions. The least that can be said is that Tsipras’s approach does not make up for these defects. (Much more could be said, if it inspires Spanish citizens to take the risky decision of electing a government led by their own anti-austerity party, Podemos.)

Putting this aside, let us suppose that the decision before Tsipras was so crucial and complex that it merited the exceptional step of referendum. In that case, the event should have reflected that complexity. It should have been a careful and deliberate sounding out of the will of the people. It should have been organised and carried out with due respect

for the stakes involved, with the government ensuring that adequate information was relayed to the Greek people.

Instead, Greece got a hastily arranged referendum. It got an opaque – indeed, a downright incomprehensible – referendum question. It got no public-information campaign worthy of the name. It got an appeal for a “No” vote that no one understood; the details of the proposals that Greek voters were supposed to reject were not even disclosed to them.

Ancient Greek had two words for the people: the “demos” of democracy and the “laos” of the mob. With his puerile call to shift the burden of his own errors and his reluctance to reform onto the shoulders of Greece’s fellow Europeans, Tsipras is leaning toward the latter manifestation – and promoting the worst version of Greek politics.

Tsipras might defend his approach to the referendum by asserting that his goal was not so much to sound out the people as to reinforce his position in the confrontation with Greece’s creditors. But what is the justification for that confrontation? That they had the audacity to demand progress toward the rule of law and social justice, as well as efforts to tame Greece’s shipping magnates and its taxavoiding clergy?

The European Union has achieved peace precisely by learning, gradually, to replace the old logic of confrontation and conflict with that of negotiation and compromise.

Despite its defects, the EU has become a laboratory of democratic innovation, in which, for the first time in centuries, an attempt is being made to settle differences not by political war and blackmail but by listening, dialogue, and a synthesis of different points of view.

In this sense, the Greek referendum delivered an insult to 18 countries, including some that are in situations no less difficult than Greece’s, and yet have made considerable sacrifices to grant the country, in 2012 alone, 105 billion euros in debt relief while remaining accountable to their own populations. What twist of the mind enables one to call that an “act of resistance” or the “defense of democracy?”

Yet many have. Indeed, since the referendum, many have acted as if Tsipras were the last eurozone democrat, as if he had faced a “totalitarian” clique (as described by the far-right

French politician Marine Le Pen) against which he valiantly “stood firm” (in the words of far-left politician Jean-Luc Mélenchon).

I will not dwell on Tsipras’s parliamentary alliance with the conspiracy-minded, right-wing Independent Greeks, whose leaders do not shy away from diatribes against homosexuals, Buddhists, Jews and Muslims. Nor will I dwell on the fact that Tsipras did not refrain, when assembling parliamentary support for his referendum, from soliciting the support of the neo-Nazi Golden Dawn party, whose help any other European leader would have rejected.

Instead, I will emphasise the fact that Tsipras’s fellow European leaders are no less democratic or legitimate than he. The countries of central Europe that endured Nazi and Soviet totalitarianism do not need lessons in legitimacy from anyone – especially not the Greek prime minister. The brave Baltic countries – the “legality” of whose independence is reportedly being reviewed by Russian President Vladimir Putin, another unsavory pal of Tsipras – have not yielded to panic or succumbed to the temptation to burden others with their misfortune. They are not using their struggles as a pretext to default on their duty of solidarity with Greece.

None of this means that we should write off Greece’s EU membership. In other times, the Greeks paid dearly for their “No” to Nazism and their “No” to military dictatorship.

Nothing would be sadder than to see them also have to pay for last Sunday’s “No” – a farcical simulation of those earlier noble acts of defiance.

May eurozone leaders have the forbearance to recognise the flawed “No” that has been delivered, and to be more Greek than the Greeks. May they act in a way that prevents Greece from ever having to face the true, tragic meaning of Sunday’s vote.

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

They voted ‘no’. Now what?

Euro-area leaders wanted Greece to vote “Yes”. The Syriza-led government backed “No” - and they won with 61% of the vote.

The following scenarios are based on

Instead, the institution’s bank supervision arm will decide how to value the government-backed assets held on Greek banks’ balance sheets. Meanwhile, the central bank’s monetary policy arm will consider whether to object to collateral that lenders post to gain ELA access from the Bank of Greece.

Then, the banks would get calls for new collateral and might come up short. Taken together, the supervisory and ELA review could show the Greek banks to be insolvent, and Greece wouldn’t have the means to use euros to prop them up again.

The ECB’s Governing Council has declared it will work closely with the Bank of Greece to maintain financial stability.

Greece also faces a series of financing hurdles, including bill refinancings and loan repayments. Things could come to a head on July 20 — if they haven’t already — when Greece needs to repay about 3.5 bln euros in bond redemptions for securities held by the ECB.

By Rebecca Christie and Jeff Black conversations with officials working on how to handle the Greek crisis, along with investors and economists.

‘NO’ VOTE DOESN’T MEAN EURO EXIT Greece won’t leave the euro overnight.

But it may face face three or four weeks of increasing pressure to start printing its own money.

That’s because Greek banks might soon be unable to meet European Central Bank demands for the collateral needed to keep access to Emergency Liquidity Assistance, and the Greek government would run out of cash to pay its bills and workers. At that point, it would be Greece’s decision to back out of the currency bloc.

DOES THE ECB THEN WITHDRAW SUPPORT IMMEDIATELY? Not necessarily. The ECB probably won’t withdraw its support until after the euro area’s political leaders have made up their minds. That process won’t end before Tuesday’s euro-area leaders’ summit, and might drag on for weeks.

WHAT IF GREECE HEADS FOR THE DOOR? At some point, a default could force a decision on Greece’s euro access. For example, if the government defaults to the ECB on July 20, that could trigger margin calls on the banking system and lead to a more generalised default. The banking system could also face some other credit event.

This would put pressure on the currency

bloc as a whole and the Bank of Greece in particular — a process that would be neither quick nor painless, since the ECB would have to parcel out losses and might need to spend years unwinding collateral holdings.

The euro area could decide to help Greece to an “orderly exit,” through a phased withdrawal of liquidity or some other settlement mechanism. It could also put Greece’s euro membership on temporary suspension, a prospect raised over the weekend by German Finance Minister Wolfgang Schaeuble.

As part of its efforts to protect the currency bloc, the ECB stands ready to assist other nations in the region to ward off contagion from Greece.

WHAT CAN THE CENTRAL BANKERS DO? One option might be to convert the emergency aid into a swap line, a tool that central banks use to extend liquidity to their counterparts.

Already, the ECB is preparing a facility with its Bulgarian counterpart, as a way to offer euros to the Bulgarian banking system against eligible collateral. Neither central bank would comment on the project.

Swap lines are a standard part of the global central bank toolkit. Since 2013, the ECB has had standing liquidity backstops with the Federal Reserve, the Bank of Japan, the Bank of England, the Bank of Canada and the Swiss National Bank. Permanent swap lines were set up after temporary arrangements were integral to surviving 2012 financial shocks.

HOW WILL THE LAWYERS HANDLE IT? If Greece introduces its own currency, the legal procedures would need to play catchup.

Any contracts signed in euros will be thrown into question. Some sort of legal procedure will need to be found to get Greece out of the euro, or at least to suspend its membership.

As one way around the hurdle, euro-area finance ministers are considering whether Article 352 of the European Union’s founding treaties might offer some basis.

That section, which provides for the extraordinary adoption of measures, can only be used by unanimity and working with the European Commission and European Parliament.

WHAT IF GREECE ISSUES IOUS? Any new currency would probably start off by posting a hefty discount to the euro.

Analysts have said Greece’s citizens would see an initial 30% to 40% drop in their purchasing power should the nation replace the euro.

After introduction, its value could sink lower as prices rise at the same time and inflation picks up. If Greece is lucky, the new currency would reach an equilibrium after a few months, perhaps buoyed by savings, foreign-held euros and tourism spending.

It’s also possible the Greek economy could go into freefall. At that point, the government might need another international bailout anyway, when things could look far worse. (Source: Bloomberg)

July 8 - 14, 2015

financialmirror.com | GREECE | 13

Is the BRICS bank an alternative for Greece?

This article concerns Greece’s potential accession to the New Development Bank established by the BRICS and examines whether BRICS Bank provides an alternative for Greece to rescue its economy in such a crucial moment of negotiations among Greece, the EU and the IMF. Over the past few weeks, speculation has been circulating over Greece’s potential accession to the New Development Bank established by the BRICS - Brazil, Russia, India, China and South Africa. Russia’s invitation to Greece to become a member of the BRICS bank comes at a delicate point for the latter, since its new leftist Syriza-led government is attempting to strike a deal with its European counterparts in order to avoid a potential bankruptcy that would have tremendous impact on the country and the Eurozone as a whole.

Is Russia’s invitation to Greece just a mere coincidence? Have the BRICS decided to save Greece from collapsing, enhancing Eurozone’s sustainability? At a time like this, where West-Russia relations bring back Cold War memories, such an explanation seems to be a truly superficial one.

In today’s international stage, it’s more than clear that the BRICS have established the New Development Bank to challenge the Western dominance in the global economy.

The United States, in the aftermath of its Second World War, created an economic, political, and ideological hegemony on a

By Konstantinos Myrodias and Panos Chatzinikolaou global level. Financial institutions such as the International Monetary Fund and the World Bank became the symbols of US global economic and political hegemony. This seemed to be unchallengeable, especially after the demise of the Soviet Union, when the global economy was growing and standards of living in most western countries were steadily rising. However, developments in the world economy during the last decade and the emergence of other economic powers such as BRICS, along with the global economic recession of 2008, which hit Europe particularly hard, have created a new global economic environment; an environment that has left Western economic hegemony more vulnerable than ever before.

The question that arises, therefore, is clear and simple; who is going to fill the void?

Based on their economic dynamic and developing economies, the BRICS are trying to challenge the international economic and political status quo and through the establishment of their own bank to increase their role in the global financial and political scene. The decision by China, Russia, India, Brazil and South Africa to provide higher funds to the New Development Bank than the IMF and World Bank, highlights the BRICS’s determination to hit the international financial establishment at a time when it is especially vulnerable.

In this period of global antagonism, the BRICS are aiming to take advantage of the

West’s political deficiencies. Greece has for years been the main concern in the ‘western’ economic camp and Eurozone’s weak link.

The IMF, ECB and European Commission have not yet reached an agreement with the new Greek government, which aims to end the continuous economic and social deprivation of the country.

This generates an unprecedented opportunity for the BRICS, and of course Russia, to break the western monopoly to the management of global economic affairs.

Russia’s involvement in the heart of the ‘western camp’ - the Eurozone - to save one of its members, should be considered as an attempt to play a more active role in the world economy and to get involved in European Union’s internal affairs. Russia, by luring Greece through economic assistance, aims to take advantage of the western camp’s fragility, and, by following the example that the US has set for many decades, aims to use this economic assistance as a means of political influence. The BRICS’ invitation to Greece is Vladimir Putin’s next move in the chessboard between Russia and the West.

This might be the start point of a new battle between the west and Russia in political, economic, but mostly in ideological terms.

Is the BRICS bank an alternative for Greece? The new Greek government, in a desperate economic and political situation, interprets this invitation as an alternative

source of economic assistance to avoid bankruptcy or at least as leverage to maximise its chances for a gainful deal in the bargain with the EU and the IMF. However, the New Development Bank has been established solely to fund projects within a country, such as the creation of new highways or hospitals, but, as the heads of the five states that compromise the bank have stated, certainly not to fund a country to the extent that it avoids bankruptcy.

Not only is BRICS’ bank not an alternative for the country as it cannot provide that economic assistance that Greece needs to survive, but also the latter seems too weak in economic and political terms to manipulate west-Russia antagonism for its own benefit.

Such a strategy is perilous and its results are highly unpredictable.

Except these risks, Greece should consider the big picture: how different is a ‘western’ mechanism of financial support than a BRICS’ or a Russian one? Are there any differences in being at the mercy of the EU and IMF than being a pawn of Russia and the BRICS in the global chessboard? This is a vicious dilemma.

Greece should think twice before getting involved in a very dangerous game, with everything to lose and nothing to gain.

Konstantinos Myrodias is a PhD candidate in International Development at the London School of Economics, Onassis Foundation Scholar. Panos Chatzinikolaou, MSc in Public Policy at the London School of Economics, is currently interning at the United Nations Headquarters in New York

Europe’s debt-deflation dynamic Marcuard’s Market update

by GaveKal Dragonomics Amid all the talk of contagion and demonstration effects emanating from Athens, there is a straight forward question that concerns investors whose domain spreads beyond the lapping shores of the Mediterranean: is the Greek crisis, at its root, inflationary or deflationary? Given talk of new currencies being launched, the obvious fear concerns inflation.

We would demur and suggest that a deflationary shock is unfolding. This matters especially for investors who are running large fixed income positions.

To begin with, consider a few facts: - Greece has foreign debt of EUR 315 bln with 75% due to public institutions.

- This debt is valued at face value since default to public institutions is not permitted.

- This debt is owned by the International Monetary Fund, the European Central Bank and a syndicate of European nations.

Let’s consider these three institutions and the impact that a “bad outcome” in Greece will have on their operations.

1. IMF: It lent more to Greece than it has ever advanced to a single state. Assuming this exposure is written down by 50% then the IMF will face a dent in its capital position and may need to ask its shareholders for a fresh infusion. The US retains a veto over decisions affecting the Fund’s capital structure, with this control exercised by Congress. Given that the IMF has for years been badly run by anti-American French technocrats, we’re sure that request will go down well! As a result, the ability of the Fund to intervene in the next crisis has been severely curtailed—no more lines of credit to be offered against “good behaviour”. The “Washington consensus” really is dead and buried. This is highly deflationary.

2. ECB: It is probably the biggest bag carrier for Greek exposure. In the event that Athens defaults, even partially, the result will be to wipe out the ECB’s capital base. Then a

whole series of tricky questions will arise: must the central bank boost its capital, or can it operate with a negative capital position? And if it does operate with negative capital, will its board members be personally liable should a new problem emerge? It should be recalled that the ECB’s capital is owned by central banks within eurozone member states. As a result, any ECB recapitalisation may require member states to pony up for their own central banks. We cannot imagine much enthusiasm at the Bundesbank, which will face an additional hit due to its Target 2 credits that are attributable to Greece.

This would amount to the German taxpayer funding another country, which is prohibited by the country’s constitution.

This is highly deflationary.

3. European nations and institutions: The alphabet soup of institutions and lending programmes created by those ever so smart eurocrats to help finance Greece all amount to the same thing: these entities are highly rated by the big ratings agencies and have issued lots of bonds bought by the world’s major financial institutions. Unfortunately their assets are mostly parked in Greek paper, with a small amount of

Spanish and Portuguese bonds thrown in for good measure. If entities such as the European Financial Stability Facility face the prospect of asset impairment, might it be that bondholders launch lawsuits against its shareholders, i.e.

E u r o p e a n governments? Quite quickly, the market would need to wrestle with the real meaning of an “implied guarantee” as it did with Freddy Mac and Fannie Mae during the 2008 financial crisis.

Moreover, the question would arise of whether that part of Greece’s debt—directly owned or guaranteed by European nations—should be added to the global stock of government debt? Such an eventuality will grab the attention of debt rating agencies, which will likely clamor for more tax hikes and government spending cuts. This is highly deflationary.

Perhaps the post-WW2 British foreign secretary, Ernest Bevan, put it best when commenting on the thorny question of how the nascent Council of Europe should expand: “If you open that Pandora’s Box, you never know what Trojan horses will jump out.”

The problem is that the weekend vote in Greece is likely to destroy the improvised legal structure that was adopted as the euro crisis has morphed over the last five years. This process is likely to be highly deflationary just as it was in the 1930s when Irving Fisher detailed the dynamics of a long term “debt-deflation”. We would advise investors to start extending the duration of their US bond positions.

July 8 - 14, 2015

14 | PROPERTY | financialmirror.com

President’s announcement on taxes disappointing

By George Mouskides

It was with some relief that we heard President Anastasiades’ announcement of measures for the real estate sector. Unfortunately, the tax breaks and incentives offered come too little and hopefully not too late.

We have not yet had access to the relevant bills and have to base our views on the announcements made by officials.

Let us take the example of the abolition of the Capital Gains Tax for property bought from the date the law is passed until the end of 2016. Can this be considered a measure to boost sales?

What does this tell an interested buyer?

IF… If you have the means to buy a property by the end of 2016, and if you sell the property in the future at a time when prices are up and you make a profit, and assuming you are liable to pay tax, then you can benefit from this measure by

not paying Capital Gains Tax. The market is in urgent need of measures that produce results today, not in some decades ahead.

I’d love to meet with the President’s advisors and have the chance to ask them how this measure will boost the market.

Are they expecting buyers to take to the streets and starting buying because of this measure? I honestly don’t think so…

Another example concerns the reduction of transfer fees by 50%.

forget the stamp duties the buyer has to pay for, a measure which should have been abolished anyway.

A third objection concerns the existing range system. Why is it still in force? We understand that the 3%, 5% and 8% will be reduced to 1.5%, 2.5% and 4%. It is known that this multi bracket system forces people to register all adult family members as co-owners to reduce the transfer fees required and creates all sorts of problems.

NOT PERMANENT SLIGHT IMPROVEMENT BUT… I must admit that this is an improvement (somewhat) from the current status. On another note, from the time of the announcement up until the law comes into force, (which we certainly hope will not be too long), market activity will freeze as everyone will play a waiting game so that they pay lower fees.

The main scope of transfer fees should be to reflect the cost of the transaction and not serve as a repulsive tax levy.

What on earth does a property buyer gain if on top of securing the funds for the purchase, a transfer fee must be paid as well?

It could be just a uniform fee of, say, 100 euros, irrespective of the property and the price paid. Let us also not

One also cannot help but wonder why the measure is in force only until 2016 and not permanently.

On a positive note, we fully agree with the abolition of municipal/community fees which have been integrated into the state property tax.

It is also positive that the government is proposing a common coefficient for all properties.

Of course this coefficient is quite steep, one euro tax per 1000 euros of property value. No way does it reflect government promises a couple of years ago that high property tax was only a temporary measure.

George Mouskides is Chairman, Cyprus Property Owners’ Association and General Manager, FOX Smart Estate Agency

So, what’s going on in Famagusta and Paralimni? µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

About two years ago, I wrote about the three containers placed in Protaras placed on the beach, yet beyond the beach protected zone, some 200 meters north of the Yianna Marie. Arranged in line, all three have been turned into holiday homes with stone and wooden trunks, similar to a cow boy farm, extended with pergolas, lawn was planted, but there is no road, no clean water, no electricity and no sanitation or sewerage link, thus infecting the beach. They have been lined along the pedestrian area of Protaras, supposedly the jewel in the resort, yet in full view of local and foreign visitors, while some even have billboard up saying they are available for rent.

During a visit last week and to my great surprise (as I had expected the Mayor or the District Officer to be sensitised enough to issue a demolition order), I observed that additional containers have cropped up, with the total for the “settlement” now reaching seven units.

Along the same road and with a similar technique used, one can find three ‘café’ pubs again without proper road access, toilets, etc., that have been in full operation for four years, with the tolerance of the local authorities.

Additionally, there are some hotels that have illegally grabbed public or government land that lies within the protection zone of the beach, they have erected facilities and kiosks that operate as outdoor cafes, selling alcoholic drinks, etc. While the Town Planning Authority prohibits the construction of a private road access to a private residence within the protection zone, these same authorities have built public parking areas within the protection zone. A contradiction, wouldn’t you say Mr District Officer?

For the owners or operators of these facilities to have the audacity and outright ridicule of the law, they must surely be enjoying the behind-the-scenes support or otherwise of certain public officials, probably within the Paralimni municipality itself.

The beach and coastal areas of Protaras must be protected from illegal developments and eyesores that damage the resort’s image

Certainly, I do not want to blame the honourable public officials (Mayor and District Officer) for purposely turning a blind eye to what is going on in the area, but regardless of what actions they have or seem to have taken, surely the illegal operation of the various cafés, pubs and “holiday homes” in the past 3-4 years cannot be justified.

Could it be that the Attorney General’s office has stumbled upon a major obstacle that prevents legal action from being taken to demolish these eyesores and hazards of health and safety? Or is the Attorney General unaware of the situation?

So, to put it into context, a house on the beach of Protaras has an average selling price of EUR 7,000/sq.m. In this case, we’re talking about the conversion of a 70 sq.m. container, which even with a sales value of EUR 3,500/sq.m. equals 245,000, minus the purchase cost of container and conversion of about 35,000. Thus, the net profit along with land is EUR 210,000. This means that with an investment of EUR 35,000 you can earn a cool EUR 210,000 (along with the land). Not bad for those who believe that gambling, prostitution and drugs can turn an easy profit. The moral of the story is simple: build fearlessly and illegally and the Mayor will probably not do anything.

Perhaps it is about time that the competent Minister of Interior looks into the matter because the blatant violations are unbearable. It is not right that on the one

hand, remarks are made about fully licensed buildings for menial issues, that an entire legislation has been introduced for urban development amnesty in the case of buildings that were built with proper

permits, but may have some minor irregularities, while on the other hand to tolerate this gross illegality, on the most expensive beach in Cyprus, a beach where the state has invested millions. It is also unfair for other legitimate businesses and developers, as well as restaurant and other licensed facility owners to be forced to compete with these ridiculous situations.

There is a complete lack of enforcement of the law, especially in blatant and unacceptable cases. Coastal land is converted into parking lots, ramps for children and the disabled are being taken over by cars for parking, while construction work goes on at all hours of the weekend, especially in the case of illegal alterations at hotels and other businesses. The municipality of Paralimni is calling on people from other districts to visit their area, but for what? To see the beautiful nature that God gave us but also to witness the tolerance with which local authorities allow these illegals to destroy it?

Shame on whoever is responsible for this situation. www.aloizou.com.cy ala-HQ@aloizou.com.cy

July 8 - 14, 2015

financialmirror.com | PROPERTY | 15

Investment incentives need improvement

By Alecos Vilanos

An air of optimism for the speedy recovery of the economy was brought by the last decision of the government to proceed with a revision of two incentive schemes targeted at third country nationals to invest in Cyprus, following the direct and indirect benefits that are offered in many areas.

The government, as part of measures to attract foreign investors to invest in Cyprus on 19 March 2014, revised the “Plan for exceptional Naturalisation of non-Cypriot investors / entrepreneurs” and thus set new economic criteria according to which foreign operators and investors will acquire by exception Cypriot citizenship.

The criteria are: Investing in real estate developments and work of infrastructure projects, investment in financial assets of Cypriot businesses or Cypriot organisations, purchase of or provision to participate in Cypriot businesses and companies, investment in government bonds, deposits in Cypriot banks, investing in real estate developments and infrastructure, market or provision to participate in Cypriot businesses and companies and deposits in Cypriot banks, persons whose deposits in Popular Bank were impaired because of measures implemented after March 15, 2013, major collective investments, etc.

Also, the government has revised the criteria relating to the new accelerated procedure for granting a permanent residence permit to persons of third countries, where certain conditions are met in relation to investment-financial criteria and qualitative criteria.

These decisions, according to official figures, have helped the real estate sector, the commercial banks, the land development companies, the service providers such as lawyers, accountants, real estate agencies, and in general the Cyprus market.

The benefits for the state came from the sale of property, collection of transfer duties and value added tax, recruitment and taxation of the income of new workers, collecting taxes and fees from various indirect taxes. The additional simplification of these incentives would bring other benefits, such as an increase in property demand, and demand for labour associated with reducing unemployment and increasing the purchasing power.

According to official statistics, so far 1,745 permanent residence permits have been issued, with the highest demand coming from China, Russia, Ukraine and Egypt.

With the new revised incentives it is estimated that more than 1.2 bln Euros have reached Cyprus. Interested nationals of third countries, might not only invest in real estate but will also visit the island, accompanied by relatives, friends, associates and collaborators, who will make purchases, moving “fresh” money into the Cyprus market, and helping, in many ways, the local economy.

These two projects contribute significantly to creating a climate of growth, restoring confidence in the global market, revitalising the economy and reducing unemployment in Cyprus.

However there is still scope for further improvement of these incentives.

As a Real Estate Consultant, I believe that the simplification of procedures, reduction of red tape, the extension of the term of age for children of the investors until 30 years (that are unmarried), the non addition of new criteria and the immediate preparation of visas or passports, to allow the investor to arrive on the island as soon as possible, would help cultivate a climate of stability and confidence in the Cypriot economy, as well as the possibility for investors to buy used assets and property, and thus help those who are facing difficulties in meeting their obligations.

Alecos Vilanos is Director at Vilanos Real Estate Agents

info@vilanosproperties.com www.vilanosproperties.com

Aristo and Dubai’s Al Shuala Real Estate in cooperation Aristo Developers has entered into an agreement with one of the largest real estate agencies in Dubai, Al Shuala Real Estate. The agreement was signed by the CEO and Managing Director of Aristo Developers, Theodoros Aristodemou and Ziad Raphael, owner of Al Shuala Real Estate.

Al Shuala maintains its headquarters in Al Moosa Tower 2, a luxurious building on Sheikh Zayed Road in Dubai, located in the heart of the emirate. Under the cooperation agreement with Aristo, Al Shuala Real Estate has established a team of sales and marketing individuals who will be dedicated to the promotion of Aristo Developers’ projects in the UAE and other countries in the Middle East.

July 8 - 14, 2015

16 | WORLD MARKETS | financialmirror.com

Trump’s derogatory comments costing him millions

By Oren Laurent President, Banc De Binary

This story began several weeks ago, when Donald Trump, the real-estate tycoon and television personality, made some offensive remarks about Mexican immigrants during his June 16 presidential campaign announcement. Trump’s remarks set off a chain reaction which began in the Mexican American community raising an uproar and ended in several businesses cutting off ties with the Trump empire.

NBC, which produces the hit show “Celebrity Apprentice,” announced that it would not allow Trump to return as the host and producer of the show. Analysts estimate that Trump’s contract with the network was worth an average $65 mln per year.

But, NBC is not the only one to cut ties with Trump over his derogatory comments. Univision, an American Spanishlanguage network, reported that it would cancel a deal to collaborate with Trump on his “Miss Universe” and “Miss USA” projects. Trump has said that the deal was worth $13.5 mln over a 5-year period.

In reaction to Univision’s cancellation, Trump announced that he will be suing Univision for $500 mln. “Under the contract,” reads a statement from the Trump Organisation, “Univision is required to broadcast the pageant live on television in Spanish… [the cancellation] was, in reality, a politically motivated attempt to suppress Mr. Trump’s freedom of speech under the First Amendment as he begins to campaign for the nation’s presidency.”

So, what exactly did Trump say during his campaign speech which has led these major corporations to cancel their contracts with the business mogul? The remarks were quite extreme.

“The US has become a dumping ground for everybody else’s problems,” Trump said during his opening speech, on

Kraft Heinz debut may signal more strength ahead The Kraft Heinz Co. (NASDAQ: KHC) opened its first day of trading on Monday at $71 a share and rose as high as $74.29 in the first hour of trading to end the day at $73.60. Volume totaled around 950,000 shares after the first 90 minutes or so of trading.

The signs are that the stock can go much higher. Credit Suisse’s analyst initiated coverage with an Outperform rating and a price target of $85 a share. Stifel has rated the stock a Buy with a price target of $80. Last week, Fitch Ratings boosted its long-term issuer default rating on the company that is now Kraft Heinz from BB- to BBB-. The rating covered both old Kraft and old Heinz debt, now rolled into a single rating.

Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRKA) and 3G Capital owned Heinz before the merger, having paid $11 bln for the company in 2011. Berkshire Hathaway now owns a stake of roughly 26% in the new company, and that is worth about $24 bln, according to Bloomberg News. It is Buffet’s second largest holding, behind only his $26 bln investment in Wells Fargo.

Former Kraft shareholders own 49% of the new company and former Heinz shareholders own 51%. Kraft shareholders also received a special dividend of $16.50 in cash plus one share of the new company for each share of Kraft stock they owned. The aggregate amount of the special dividend is approximately $10 bln and was funded by 3G Capital and Berkshire Hathaway.

It will take a while for Kraft Heinz to find its value, but as Credit Suisse noted, 3G Capital is known for wringing out costs primarily by lowering headcount. As the new CEO (from 3G Capital) starts work, and six of 11 board seats belonging to Berkshire and 3G Capital are enough to pursue a proven approach to cost-cutting, shares of Kraft Heinz could be in for some solid growth over the second half of this year. (Source: 24/7 Wall St.com)

June 16. “When Mexico sends its people, they’re not sending their best… They’re sending people that have lots of problems… They’re bringing drugs. They’re bringing crime.

They’re rapists. And some, I assume are good people.”

Despite the wave of businesses severing ties with Trump, he still seems to have a fighting shot in America’s Republican primary elections. A recent poll by CNN shows that Trump holds 12% of the votes, putting him in second place, behind former President George W.’s younger brother, Jeb Bush.

Univision has defended its decision to cancel its contract with Trump. The network issued its own statement, saying: “We will not only vigorously defend the case, but will continue to fight against Mr. Trump’s ongoing efforts to run away from the derogatory comments he made on June 16th about Mexican immigrants. Our decision to end our business relationship with Mr. Trump was influenced solely by our responsibility to speak up for the community we serve.”

Macy’s, a multi-national chain of department stores, has

now also joined the boycott. The corporation will cease to sell Trump’s menswear line.

“We are disappointed and distressed,” said the Macy’s statement, “by the recent remarks about immigrants from Mexico... In light of statements made by Donald Trump, which are inconsistent with Macy’s values, we have decided to discontinue our business relationship with Mr. Trump and will phase-out the Trump menswear collection, which has been sold at Macy’s since 2004.”

Boeing on track for record annual deliveries in race for new orders

By Paul Ausick Boeing Co. (NYSE: BA) reported on Monday that commercial aircraft deliveries totalled 197 in the second quarter of 2015, up from 181 in the second quarter of last year. For the first half of 2015, Boeing has delivered 381 commercial jets, up from 342 in the first half of 2014.

In the race for new orders, rival European maker Airbus has taken 348 net new orders so far this year, compared with 281 for Boeing. For the full year, Airbus expects to deliver a “slightly higher” total of commercial jets in 2015 than the 626 it delivered in 2014.

In 2014, Boeing delivered a total of 723 commercial jets, and it has estimated that it will deliver between 750 and 755 for the full year in 2015. If the company delivers the same number of planes in the second half of the year as it did in the first half, it will sell 762 commercial jets. Last year’s deliveries were the most ever for any aircraft maker, and Boeing seems confident, so far at least, in breaking that record this year.

Total deliveries of military aircraft trail last year’s totals however. In the first half of 2015, new build AH-64 Apache helicopters totalled 12, compared with 19 in the first half of

2014. CH-47 Chinook helicopters totalled 21 new builds this year, compared with 32 a year ago, and F-18 fighter plane deliveries have totalled 20 so far in 2015, compared with 23 in the first six months of 2014.

Let’s look at the commercial mix. In the second quarter of 2015, Boeing sold 128 737s, compared with 121 in the first quarter. Second-quarter sales of the 777 totalled 26, up from 24 in the first quarter, and 787 sales rose from 30 to 34 quarter-over-quarter. The 777300ER is Boeing’s most expensive commercial plane, with a list price of $330 mln per copy.

In Dreamliner sales, Boeing delivered ten 787s in June, compared with 13 in May and 11 in April. Part of the reason for the lower total is continuing difficulty sourcing seats for

the planes. The good news for Boeing is that June deliveries of the more expensive 787-9 ($257.1 mln) topped deliveries of the 787-8 ($218.3 mln) for the first time ever. Boeing delivered six of the 787-9s and four of the 787-8s in June.

Boeing’s new price list, issued last week, has lifted list prices on these planes by 2.9% to nearly $340 mln for the 777-300ER, $264.6 mln for the 7879 and $224.6 mln for the 787-8.

Deliveries of the 777 are right on track at 50 through the first half of the year. Boeing projects sales of 100 planes this year, a production rate of 8.3 planes per month.

Boeing’s stock traded up about 0.3% at noon on Monday, at $140.55 in a 52week range of $116.32 to $158.83.

(Source: 24/7 Wall St.com)

July 8 - 14, 2015

financialmirror.com | WORLD MARKETS | 17

Unequal sell-off in Chinese stocks Marcuard’s Market update

by GaveKal Dragonomics While the world’s headlines are concentrating on Greece, the real drama in financial markets is happening much further to the East. Since its peak in mid-June, the Shanghai Composite Index has now fallen by almost -30%, putting mainland Chinese shares in what is generally accepted to be bear market territory. Intra-day volatility has reached mindblowing levels, with the index swinging by more than 6% from peak to trough in each of the last four trading days.

Although what happens in the Shanghai market may not be directly relevant to most international investors, its

Buffett gifts $2.8 bln to charities Berkshire Hathaway Inc. (NYSE: BRK-A) has announced that Warren E. Buffett now has given 20,640,653 Berkshire Hathaway Inc. (NYSE: BRK-B) shares to five foundations. These were the Class B shares, but this still had a closing value of roughly $2.8 bln.

All in all, this has no impact on Berkshire Hathaway’s big four major public equity holdings of Wells Fargo & Co. (NYSE: WFC), International Business Machines Corp.

(NYSE: IBM), Coca-Cola Co. (NYSE: KO) and American Express Co. (NYSE: AXP).

Berkshire Hathaway’s press release showed that this was Buffett’s tenth annual gift. These gifts have been made to the Bill and Melinda Gates, Susan Thompson Buffett, Sherwood, Howard G. Buffett and NoVo Foundations.

The press release showed that the shares had a value of more than $2.8 bln as of last Thursday’s close. Under the terms, the gift must be spent currently for operations and not added to endowment funds.

stocks popular with leveraged investors down by half, the chance of further falls rises as more investors who bought in on margin get flushed out.

Thirdly, the sell-off has not been driven by any general policy tightening from the authorities, who remain broadly supportive of the market. True, the regulators have selectively tightened the rules on margin trading. Last week, the securities regulator said that investors had been forced to sell stocks worth RMB 6.2 bln in two and a half days to satisfy collateral requirements. However, at the same time the government is trying to smooth the de-leveraging process via other channels. Following last month’s interest rate and reserve requirement ratio cuts, the authorities announced plans to cut the stamp duty on stock deals and to allow the

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

fluctuations have profound implications for Hong Konglisted equities. As always, however, assessing exactly what is going on in the mainland’s markets is a tricky business.

Firstly, despite the current sell-off, China still stands out as the star performer among the world’s large markets this year. Over the year to date, the Shanghai Composite ranks fourth among all global indexes, with a US dollar total return of 24.5%. Among major developed markets, Hong Kong is second only to Japan, with the Hang Seng Index returning 14.4% and the H-share index of locally-listed mainland companies on 10.6%.

Secondly, the headline sell-off of the Shanghai index disguises a sharply bifurcated market. While the median performance of the top 25th percentile in Shanghai has been flat since the peak of the market on June 12th, the median stock among the bottom 25th percentile is down -43%. The steepness of the declines for the worst-performing stocks reflects a signal feature of the earlier rally: shares with a relatively small free float traded limit-up time and again over the last year as margined retail investors piled in with borrowed money. Similarly, as the market has sold off, volatility has been amplified on the downside. With many

www.marcuardheritage.com

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

state pension fund to invest in equities.

Can Beijing succeed in de-risking the system without causing share prices to sink further “under their own weight”? We think it likely—and not only because we accept the so-called “fallacy” that it would be reckless to “fight the PBOC and the Chinese government”. Looking at the performance of China’s banks, they have barely fallen in the last few days despite the forced selling elsewhere. We recently detailed reasons why investors should consider rotating into Chinese banks. In addition, we also expect the risk premium that has been attached to banks on fears of a disorderly interest rate liberalisation to diminish. With deposit rate liberalisation almost complete, there are few signs that competition to attract depositors is significantly driving down net interest margins, which means there is a great deal more confidence that Chinese banks will be able to maintain a respectable return on equity going forward. Finally, the property market has stabilised, assuaging investors’ worst fears about bank asset quality.

Putting all this together, it is likely that Chinese shares listed in Hong Kong, with their disproportionate weighting to the banking sector, should soon begin to attract more interest from investors.

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

15390 1.5493 1.7816 24.6855 6.7983 14.2567 1.0975 2.238 287.6 0.64037 3.1459 0.3912 18.8 8.1855 3.8301 4.0796 57.2213 8.4953 0.9465 21.3

AUD CAD HKD INR JPY KRW NZD SGD

0.7439 1.2696 7.7554 63.445 122.49 1130.1 1.5065 1.3564

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

0.3771 7.8011 29160.00 3.7762 0.7080 0.3027 1508.50 0.3850 3.6413 3.7503 12.4599 3.6729

AZN KZT TRY

1.043 186.2 2.6786

AMERICAS & PACIFIC

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

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

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

Investments in foreign currencies are subject to exchange rate fluctuations.

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

ASIA

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira

The Financial Markets

Note:

* USD per National Currency

Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

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

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.19 0.51 -0.08 0.06 -0.83

0.23 0.54 -0.04 0.08 -0.81

0.28 0.58 -0.02 0.10 -0.79

0.44 0.73 0.06 0.13 -0.74

0.76 1.03 0.17 0.24 -0.65

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.84 1.05 0.12 0.15 -0.80

1.18 1.29 0.19 0.17 -0.67

1.46 1.48 0.31 0.21 -0.49

1.69 1.64 0.45 0.27 -0.32

2.06 1.88 0.74 0.41 0.03

2.39 2.10 1.10 0.62 0.36

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.0975 0.9112

100 JPY

1.5493

1.0565

0.8164

1.4117

0.9627

0.7439

0.6819

0.5269

0.6455

0.7084

0.9465

1.0388

1.4664

122.49

134.43

189.77

0.7727 129.41

Weekly movement of USD

CCY

Today

134.51

GBP EUR JPY

1.0350

CHF

1.5493 1.0975 122.49 0.9465

CCY\Date

09.06

16.06

23.06

30.06

07.07

USD GBP JPY CHF

1.1254

1.1224

1.1212

1.1140

1.0978

0.7333

0.7189

0.7109

0.7081

0.7041

140.04

138.55

138.60

136.08

1.0416

1.0424

1.0389

1.0354

Last Week %Change 1.5719 1.1169 122.23 0.9310

+1.44 +1.74 +0.21 +1.66

July 8 - 14, 2015

18 | WORLD | financialmirror.com

The future of Emerging Markets Over the past year, the global economic environment changed markedly and in unexpected ways. Energy and commodity prices plunged. Growth in China (which accounts for about 40% of global growth) fell to its lowest rate since 1996, even as its stock market soared to unsustainable heights. The United States and the European Union ratcheted up economic sanctions on Russia in response to its military excursions in Ukraine, highlighting the geopolitical risks associated with cross-border investments. And there have been large swings in exchange rates, fueled by actual or, in the case of the Federal Reserve, anticipated changes in monetary policy.

These rapid changes have rattled global financial markets and spooked investors, reducing their appetite for risk – a cautious attitude that has been reflected in emerging markets. Investors have sat on the sidelines, and the MSCI index that tracks returns on emerging-market equities has stagnated.

During the second half of last year, the 15 largest emerging-market economies experienced the biggest capital outflows since the 2008 global financial crisis. And the aggregate foreign-exchange reserves held by emerging countries declined for the first time since 1994, when they began the steep upward climb that has been a defining feature of the global economy during the last two decades.

One major factor driving the lackluster performance of investments in emerging markets is the expectation that the Fed will begin to raise interest rates and normalise monetary policy later this year. In a recent speech, Fed Chair Janet Yellen confirmed that such steps would be “appropriate” if the economy continues to improve, stating that “delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy.”

Expectations of a rate hike have restricted flows to emerging markets ever since 2013, when the Fed triggered what came to be called the “taper tantrum” by announcing that it was likely to reduce its bond-buying programme. The resulting alarm roiled US financial markets and spilled over internationally. Emerging-market economies came under intense pressure, with inflows to investment funds falling sharply, asset prices declining, and many currencies losing value against the dollar.

By Laura D. Tyson Fortunately, the worst of the taper tantrum proved temporary. Capital inflows recovered somewhat, and most emerging-market economies weathered the financial distress in their capital markets. But the experience raised questions about the effects of future moves by the Fed. Stanley Fischer, the Fed’s vice chairman, said recently that he expects the anticipated increase in the Fed’s policy interest rate later this year to “prove manageable” for emerging-market economies.

But sudden steep declines in foreign capital inflows triggered by the Fed’s action could exacerbate the challenges that even the best-performing Asian economies are facing, as anemic demand in their export markets causes growth to slow.

The Fed has tried hard to be very clear about its policy intentions, strategies, and timing to ensure that investors are not surprised. In recent years, assets in emerging-market economies – especially currencies – have depreciated by 550% relative to the dollar, reflecting both external imbalances and the broader macro conditions of individual countries.

There is a widespread view that most emerging financial markets have already priced in the effects of a gradual increase in interest rates. But that does not mean that these effects will be insignificant for countries that investors already regard as risky.

As investors have become more cautious, they have also become more discriminating. The difference in returns across emerging countries and among sectors within them has grown. The countries at greatest risk of large capital outflows include those that are dependent on external financing, those with commodity-heavy economies, and those with uncertain political conditions.

Many of the best performers are in Asia – the only region where several economies have grown by 5% or more for at least four decades. Over the last year, the MSCI index for Asia increased by 10%, even as it fell by roughly 14% for emerging and frontier markets and by 21% for emerging markets in Latin America. And, indeed, Asia’s two largest emerging

economies offer reasons for cautious optimism.

China is certainly not free from risk. The recent equitymarket rally is largely divorced from fundamentals and is driven by speculative, debt-financed purchases. The outlook for corporate profits remains weak; the country’s equity supply is growing; and valuations are stretched. Up to 10% of China’s equity market cap is funded by credit – five times the average in developed economies.

But China also has substantial wriggle room in its monetary and fiscal policy to contain the adverse consequences of its debt buildup, real-estate boom, and irrationally exuberant stock market, while simultaneously pursuing bold structural reforms in its economy and capital markets. China’s growth rate may have dropped from a three-decade average of 10% to a 25-year low of 7%, but that slowdown has been largely the result of policies to reduce fixed investment and move the economy from manufacturing to services. Employment remains strong, and the middle class is growing rapidly.

Meanwhile, in India, the implementation of Prime Minister Narendra Modi’s ambitious reform agenda has been slower than anticipated. But inflation is down; the fiscal situation has improved; and the economy has benefitted from the drop in oil and commodity prices. Growth of 6-7% seems achievable, and Modi remains a popular reformminded leader whose policies are attracting the support of domestic investors.

As global investors navigate the uncertain waters of emerging markets in the next few years, they should remember that, for these economies, the wave of industrialistion and urbanisation and the associated productivity gains are far from over. With their fastergrowing populations and productivity, they will enjoy a growth advantage over developed economies for some time to come.

Laura Tyson, a former chair of the US President’s Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group. © Project Syndicate, 2015. www.project-syndicate.org

A new mission for the World Bank

By Nancy Birdsall The Green Revolution is considered one of the great successes in the history of economic development. In the 1960s and 1970s, the creation and adoption of highyielding cereal varieties transformed the Indian economy and saved billions of people from starvation throughout much of the developing world.

But today, the future of the institution responsible for the Green Revolution – a consortium of 15 research centres around the world called the Consultative Group on International Agricultural Research (CGIAR) – is under threat. The World Bank, one of its primary funders, is considering withdrawing its financial support.

On its own, this decision would be worrying enough. CGIAR’s mission is global food security, and basic agricultural research holds huge potential for providing economic returns to the world’s poor. But what is even more worrying is the signal the World Bank is sending: that it will no longer support the underfunded global public goods that are crucial to preserving the social, economic, and political progress of the last century.

The proposed cuts at CGIAR are part of the World Bank’s effort to decrease its

administrative budget by $400 mln – a pledge made by the organisation’s president, Jim Yong Kim, in 2013. The World Bank currently provides an annual grant of $50 mln to the CGIAR; that would be slashed by $20 mln, with the full amount possibly phased out entirely over a period of a few years.

On its own, the money involved would not be overly significant to either organisation. The figures being discussed are tiny compared to the $52 bln committed in 2013 by the World Bank’s donors to help fight global poverty and provide assistance to low-income countries. For the CGIAR, the proposed cuts, though painful, would not be devastating; in 2013, the group spent $984 mln to fund its activities.

Still, the World Bank – the preeminent global development institution – is essentially declaring that agricultural research is not a development priority.

Indeed, CGIAR’s funding is not the only funding that is at risk. The World Bank is also considering cutting its small but catalytic contributions to the Global Development Network, which funds researchers in developing countries. Its support for the Extractive Industries Transparency Initiative, which promotes disclosure of deals concerning natural resources in the interest of reducing corruption, is also at risk, as is its funding for the Special Programme for Research and

Training in Tropical Diseases. These programmes, and others, are supported by the Bank’s Development Grants Facility, which has been targeted as a possible source of administrative budget cuts.

The money provided by the World Bank to support the provision of development-related global public goods has never made up a large part of its spending. The roughly $200 mln a year that it spent on supporting CGIAR and other grantees pales in comparison to the $35 bln in loans that it provided in 2012.

But the proposed cuts would gut an area of the Bank’s activities that should be expanded, not reduced.

To be sure, at its inception the World Bank was not conceived as a provider of grants to institutions working on global public goods. Its primary mission was – and still is – to provide governments with loans and technical assistance. But it is worth noting that, relative to sovereign borrowing, private investment, and remittances by migrants, the World Bank’s relevance to developing countries’ finances has been severely diminished in the twenty-first century.

Because its loans or guarantees are bundled with expertise and advice, the World Bank still has a viable product. But, as I have argued previously, it should have another. As the world’s premier and only fully global development institution, it is well placed – and indeed has the responsibility – to help

sponsor, finance, and set priorities in the management of global public goods.

It is time for one or more of the World Bank’s member governments to take up the cause.

The organisation’s quick response to the recent Ebola pandemic provides an impressive example of its ability to address global concerns. Furthermore, this year, the international community will agree to the Sustainable Development Goals – targets that would be well served by investments in areas like agricultural research and development, efforts to optimise land and water use, and forestry protection.

The United States, in close collaboration with Germany, the United Kingdom, and China, should be able to provide a clear mandate for the World Bank in this regard.

The Bank’s 20th-century mission – to help countries finance their development – will remain vital for the foreseeable future. But there is also room for the World Bank to adjust its focus for the twenty-first century, with an increased emphasis on one of the core prerequisites of development: the careful management and protection of global public goods.

Nancy Birdsall is the founding president of the Center for Global Development. © Project Syndicate, 2015. www.project-syndicate.org

July 8 - 14, 2015

financialmirror.com | WORLD | 19

Lessons for Oslo

By Julia Gillard World leaders who care passionately about education gathered in Oslo for a summit, convened by Norway’s government, to discuss the educational needs of the world’s poorest children. This is a pivotal year, when the world is deciding on the content and financing of the Sustainable Development Goals (SDGs) that will guide development efforts for the next 15 years. And it is becoming a year of high-level focus on education. As it should be.

This renewed focus on education partly reflects the world’s shock at recent attacks on education, including the Pakistani Taliban’s shooting of Malala Yousafzai and the radical Islamist sect Boko Haram’s kidnapping of over 200 schoolgirls in Nigeria. If these girls can show so much bravery in seeking an education, surely the international community can do more to make sure they succeed in obtaining one.

But there are more good reasons why education should rise to the top of the global development agenda. Most notably, the world must recognise how great the educational needs are, gain a more sophisticated understanding of how the development agenda relies on education, and ensure a growing capability to respond.

First, the needs. Over the last 15 years, the Millennium Development Goal to achieve universal primary education has galvanised the international community, with nearly 90% of the world’s primary school-age children now in school (up from 82% in 1990). The share of primary- and lower secondary-age children not enrolled in school has dropped by 39%.

Despite this progress, roughly 121 million children of primary and lower secondary school age remain out of

school. Of the 58 million not in primary school, about 31 million are girls.

Moreover, an estimated 250 million children are receiving educations of such poor quality that they never attain even the most basic benchmarks in literacy and numeracy. As World Bank President Jim Yong Kim remarked at the recent World Education Forum in Korea, if these children all inhabited one country, it would be the fifth-largest on earth.

And there is more painful news: It will take a very long time to close the education gap between the developed and developing worlds. In terms of quality, the Harvard economist Lant Pritchett estimates it will take at least 100 years for children in schools in developing countries to reach the same learning outcomes as those attained today by students in developed countries.

In terms of access, UNESCO’s Education for All Global Monitoring Report estimates that, on current rates of change, universal lower-secondary education will not be achieved in sub-Saharan African until 2111. Unsurprisingly, it will be the girls who get there last, with the poorest girls gaining access to lower-secondary education a full 70 years after the richest boys.

These startling statistics all add up to one stark conclusion: business as usual is nowhere near good enough.

Unless we accelerate progress considerably, we will fail to meet the needs of the world’s children, particularly the poorest girls.

While the world’s educational needs are huge, and the importance of meeting them is profound, the international community’s capacity to deliver change is growing.

The Global Partnership for Education (which I chair), has been working to support this progress, including by implementing major reforms aimed at expanding our own capabilities. Through our partnerships globally and within 60 developing countries, we advance a country-led development model, as we combine technical capability, advocacy, resource mobilisation, and mutual accountability to improve education in our partner countries. At last year’s

replenishment conference, $2.1 bln in donor funds were leveraged to bring about an additional $26 bln in pledges from national governments.

To enhance the funds’ effectiveness, GPE allocates 30% of funding based on the achievement of specific results chosen by the government and its development partners in the areas of learning quality, education-system efficiency, and equity.

We have also been building our capacity to respond quickly in emergencies, with half of our funding in 2014 supporting education in conflict-affected and fragile countries.

GPE is making a real difference. But I remain haunted by the knowledge that, if we are to move beyond business as usual and slash those hundred-year timelines to meet the 15year time horizon of the SDGs, we must do much more.

Simply put, advancing the global education agenda will require more resources and more research. According to UNESCO, the international community will need to provide at least an additional $39 bln annually to educate the world’s children – and that is assuming that developing-country governments increase their own expenditure on education.

Resource constraints are compounded by a lack of research. In fact, the fragmentation and paucity of information about effective strategies for schooling and learning has long impeded progress on education. After all, donors understandably want to ensure that their money is directed toward the most effective initiatives. Evidence of what works also turbo-charges the effectiveness of advocacy.

Against this backdrop, participants at the Oslo Summit will be discussing how to generate the momentum and political will to broaden and deepen the donor base, and assess the highest-impact use of these funds. The summit also provides an opportunity to develop strategies for better meeting the needs of children who are being denied an education because of crisis and conflict.

Julia Gillard, a former Prime Minister of Australia, is Chair of the Global Partnership for Education. © Project Syndicate, 2015 - www.project-syndicate.org

Knowledge for progress Some 236 years ago, a young governor from the American state of Virginia broke the mold on education reform. In his Bill for the More General Diffusion of Knowledge, Thomas Jefferson called for “a system of general instruction” that would reach all citizens, “from the richest to poorest.” It was the first step in the creation of the American system of public education – an institution that helped to propel the country’s rise to global prominence.

By the early 20th century, the United States was a global leader in public schooling. Investments in education provided a catalyst for economic growth, job creation, and increased social mobility. As Claudia Goldin and Lawrence Katz have shown, it was American “exceptionalism” in education that enabled the country to steal a march on European countries that were under-investing in human capital.

As world leaders gathered for the Oslo Summit on Education for Development, the lessons from this experience could not be more relevant. In fact, with the global economy becoming increasingly knowledgebased, the education and skills of a country’s people are more important than ever in securing its future. Countries that fail to build inclusive education systems face the prospect of sluggish growth, rising inequality, and lost opportunities in world trade. In this context, some of today’s discussions on education sound curiously anachronistic. Harvard economist Ricardo Hausmann recently berated what he describes as the “education, education, education crowd” for advocating an “education-only” strategy for growth. It was an impressive attack on a view that, to the best of my knowledge, nobody holds.

By Kevin Watkins Of course education is not an automatic route to growth. Expanding education in countries where institutional failure, poor governance, and macro-economic mismanagement stymie investment is a prescription for low productivity and high unemployment. In North Africa, the disharmony between the education system and the job market left young, educated people without decent opportunities – a situation that contributed to the revolutions of the Arab Spring.

None of this detracts from the vital role of education – not just years of schooling, but genuine learning – as an essential component of growth. Extensive research – from the work of Adam Smith to Robert Solow and Gary Becker and, most recently, Eric Hanushek – confirms the importance of learning in building productive human capital. One step up the standard deviation score on the OECD’s Programme for International Student Assessment is associated with a 2% increase in a country’s long-run per capita growth rate.

Education may not be a quick fix for slow growth. But try naming a country that has sustained an economic transformation without advances in education.

Economists at the World Bank have contributed a few straw men of their own to the education debate. In one contribution, Shanta Devarajan criticises the view that

education is an essential public good that governments should finance and deliver, arguing that it should instead be considered a private good, delivered through markets to customers – that is, parents and children – seeking private returns.

The problem is that education is selfevidently not a public good – in the real world, few things are. It is, however, a “merit” good, something that governments should offer for free, because of the wideranging private and social returns that might be lost if parents underinvest, or if the poor are excluded. For example, progress in education – especially girls’ education – is closely associated with improvements in child survival and nutrition, and maternal health, as well as higher wages.

It is time to move beyond futile discussions based on flawed logic to focus on the real challenges in education – challenges that must be addressed, if we are to meet the Sustainable Development Goal of delivering high-quality primary and secondary education to all by 2030. The Oslo summit presents an important opportunity to lay the groundwork for success. With 59 million primary school-age children and 65 million adolescents out of school, that opportunity should be seized with both hands.

A successful summit would advance four key imperatives. First, governments must commit more domestic funds to education.

One background paper for the summit highlights the failure of successive governments in Pakistan, which now has the world’s second-largest out-of-school population, to invest in education. At the heart of the problem are politicians who are more interested in facilitating tax evasion by the wealthy than improving learning

opportunities for the poor.

Second, international donors must reverse the downward trend in aid for education. Even with an enhanced resourcemobilisation effort, roughly $22 bln annually in aid will be needed to achieve universal lower-secondary education. That is around five times current levels. Beyond closing the aid gap, United Nations Special Envoy on Education Gordon Brown has rightly called for financing mechanisms to deliver education to children affected by conflict and humanitarian emergencies.

Third, world leaders must get serious about inequality. Every government should be setting targets aimed explicitly at narrowing education disparities – linked to gender, wealth, and the rural-urban divide – and aligning their budgets with those targets. As it stands, the disparities are huge.

In Nigeria, for example, urban boys from the wealthiest 20% of households average ten years of schooling, while poor rural girls in northern areas can expect less than two years. Yet, education finance is skewed toward the wealthy in most countries.

Finally, governments and aid agencies must abandon market-based experiments, and commit to genuine system-wide reform.

One key priority area is teachers, who need strong incentives, effective training, and dependable support systems to deliver real learning. After all, an education system is only as good as its educators.

Kevin Watkins is Director of the Overseas Development Institute, a leading UK think tank on international development and humanitarian issues. © Project Syndicate, 2015

July 8 - 14, 2015

20 | BACK PAGE | financialmirror.com

Executive attitudes: From bubbles to bridges

By Lucy P. Marcus As the season in which public companies hold their annual general meetings progresses, one persistent issue is the lack of genuine dialogue between company officials and the general public. In place of robust debate and discussion among investors, executives, the workforce, and the community at large, the conversation seems to be taking place in different silos, with one group sitting around the boardroom table and another gathered at the kitchen table.

From the outside, a boardroom is all too often viewed as a kind of bubble where big decisions that influence thousands of lives are made by faceless people. They are perceived as places where big bonuses are awarded to chief executives and where horse-trading and old boy networks are more important than merit or hard work. With people outside the boardroom increasingly demanding to hold those inside it to account, opening up avenues of communication is now critical to companies’ long-term success.

An important feature of this shift will be the realisation by high-profile executives that they can no longer afford to brush off criticism with the you-just-don’t-understand defense. When Jamie Dimon, CEO of JPMorgan Chase, said that he didn’t think that United States Senator Elizabeth Warren “fully understands the global banking system,” many were infuriated at the arrogant condescension of his pronouncement. His words tapped into a wider feeling that CEOs are out of touch and unwilling, or unable, to respond to tough questions with sincere answers. Even the widely respected investor Warren Buffett missed the mark when he

said that Warren “would do better if she was less angry and demonised less.”

In the absence of genuine dialogue about issues like wage discrepancy, corporate social responsibility, data privacy, and a bonus culture that does not seem to provide the right incentives for hard work or to adequately penalise failure, worries and mistrust are guaranteed to fester. Lack of transparency, absence of clarity, and a paucity of answers feeds into the perception that companies are too often engaged in dodgy dealings and can’t be trusted. Worst of all, the breakdown in communication deprives those around both the boardroom and kitchen tables of the opportunity to realise that they are talking about similar problems and share similar desires to find solutions to them.

Chief executives and board chairs need to think of those with whom they interact as people to talk with rather than at.

Leaders who can talk are fine; but those who can listen are even better. Business executives need to realise that if they cannot explain their decisions in ways that investors, regulators, workers, and consumers can understand, then they – not the people with whom they are talking – are the problem.

When activist investors want to take a look at a company, the boardroom instinct should not be to circle the wagons and call in consultants to do battle. Instead, boards and executive teams need to ask themselves why their company has become a target and whether there are legitimate concerns to be addressed.

Annual general meetings provide an ideal opportunity to stand up and ask hard questions – an opportunity that investors and community members should make certain is not wasted. At Yahoo!’s recent annual meeting, the board was asked a wide range of questions; but, with the exception of a question or two about Alibaba, few of them addressed any of the real issues facing the company today.

CEO Marissa Mayer was asked questions like why the “underline” icon had been removed from the formatting options in Yahoo! Mail and why there was so much spam in Yahoo! Finance. If companies like Yahoo! are to benefit from occasions like this, individual and institutional investors alike need to up their game and ask real questions about the business in the open forum of the annual general meeting instead of airing their concerns behind closed doors.

For the conversation to be truly effective, however, it must continue between annual meetings. Smart business leaders must provide frequent opportunities for the exchange of ideas and expressions of concern. Silos must be knocked down and bubbles must be pierced, with bridges being built in their place. Tomorrow’s successful executives will be those who take the opportunity to join a real conversation and draw wisdom from the crowd.

Lucy P. Marcus, founder and CEO of Marcus Venture Consulting, Ltd., is Professor of Leadership and Governance at IE Business School, and a non-executive board director of Atlantia SpA. © Project Syndicate, 2015. www.project-syndicate.org