Financial Mirror 2015 07 15

FinancialMirror JEFFREY SACHS Down and out in Athens and Brussels PAGE 11

OREN LAURENT

Issue No. 1142 €1.00 July 15 - 21 , 2015

What the stock markets think of Greece PAGE 12

Armageddon averted ... BUT GREECE FACES DEEP RECESSION AND SOCIAL UNREST - PAGES 10 - 13

Iran deal to have ‘major’ economic impact SEE PAGE 7

July 15 - 21, 2015

2 | OPINION | financialmirror.com

FinancialMirror

From Andreas Papandreou to Sakis Rouvas

Published every Wednesday by Financial Mirror Ltd.

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Greece finally got a deal on Monday, albeit a worse one than initially offered, to reschedule its debt repayments and gain additional liquidity for its banks. A bridge facility means that when babies born today will reach retirement age, they will still be paying for their grandparent’s mistakes when they elected Alexis Tsipras’ catastrophic Syriza into government who delayed talks for six months and the only concession he won, was a strict programme where austerity will continue for at least another three years.

Worse still, the initial plan to force others to push Greece out of the Eurozone (thinking this would solve all problems) backfired and as a result, whereby northern Europeans initially saw the Hellenes as a burden to the single currency area, they realised that the referendum was a wake-up call for European solidarity, especially in the face of extremism that would jeopardise the future of the currency union.

Whereas the boyish PM claimed a “great success” on Monday, it was nothing more than the Eurozone getting on a path of political unity for once. In an attempt to emulate the gifted orator Andreas Papandreou, who had a somewhat misguided vision for post-

dictatorship Greece, Tsipras has ended up looking more like the heartthrob Sakis Rouvas of modern-day Greek politics – a beaming smile, great voice and ready to please his millions of fans.

Many had looked up to Tsipras as a breath of fresh air after decades of clientelism nurtured by the establishment of political parties and trade unions that control them.

Instead, he has disappointed millions who, although voted ‘no’ in the vague referendum, in fact voted ‘yes’ to staying in the European Union and hanging on to the euro, with all the benefits that it could offer.

If young Alexis wants to have a political future beyond the current administration, whose days are numbered in its present form, then he should do the wise thing and appeal to other more moderate and pro-EU parties for a ‘national unity government’. After all, this is what the EU partners and lenders are telling Greece: “Get your act together… on your own”.

The dream of firing up a revolution that would sweep across the Union and transform it into a neo-Marxist federation, has, thankfully, died. Tsipras has only succeeded to unify his ideological opponents, who have now realised that true democracy comes at a cost, but also that democratic respect goes both ways.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

Push for airports deal, airline rip-offs The government will go ahead with the deal with the Hermes Consortium to push for the new airports to be ready by 2009, while separately, travelers were being ripped off by a CYP 12.50 surcharge imposed by airlines, according to the Financial Mirror issue 627, on July 6, 2005.

Airports deal: Communications and Works Minister Haris Thrasou said the government will

20 YEARS AGO

Cyta to open up Internet, Major wins in UK Cyta has bowed under pressure and announced it will allow Internet access commercially, as only the University of Cyprus is currently linked to the world wide web, according to the Cyprus Financial Mirror issue 118, on July 5, 1995.

Cyta on Net: Cyta said it will allow Cypriots to have access to the Internet by the middle of August, charging about 3.1c a minute and aiming to become a leading access provider as other also join the market. The aim is to provide the service through

proceed to sign the operator deal for the two airports with Hermes, headed by the Shacolas Group, despite objections from Alterra and J&P. Thrasou said that the new tender process could take four years, with four more to build them, setting the new airports back to 2013. The current cost of the project is set at CYP 500 mln.

Travel rip-off: Airlines are overcharging on Greek fares, with hundreds of thousands of passengers paying CYP 12.50 in hidden charges, according to Akis Kelepeshis of the travel agents’ association ACTA. He said while airport tax at Larnaca is CYP 9 per

person and 20.50 at Spata (Athens), airlines here are charging CYP 41.50 per person.

FDI tops EUR 360 mln: Foreign direct investments in the past five years has totalled EUR 360 mln, with the international business sector contributing 6% to GDP nad employing 3,100 locals.

International Business Association (CIBA) President Chris Koufaris also said that the Ministry of Commerce is planning to create a one-stop-shop to help non-EU skilled workers secure work permits .

Arab Bank dispute: The labour dispute between Arab Bank and the workers union ETYK over the redundancy of 68 employees will go to Ministry of Labour arbitration. The bank has already shut a number of branches citing a severe drop in business.

Cyta’s Public Switched Telephone Network (PSTN) and not the Cytapac platform.

Andreas Eleftheriades, Director of the Cyprus College, was critical of the delay and said that he had spearheaded a campaign since 1987 to connect Cyprus to the Internet.

Major wins: UK Prime Minister John Major won the Conservative leadership race outright, challenged only former Welsh Secretary John Redwood.

Sanctions busting: The Central Bank responded to allegations of harbouring financing despite the

controls imposed on former Yugoslavia, saying that only one of 138 allegations against sanctions busting was substantiated. Also, regarding the influx of funds from Russia, the Central Bank said the total of all foreign deposits was $3.5 bln.

Limassol-Paphos: The construction of the new Limassol-Paphos highway is expected to be completed by 1999. The project will include a 900m tunnel, while Britain is contributing CYP 7.5 mln towards the cost as it will alleviate pressure from traffic going through the base in Episkopi.

Low-cost loans: The state-owned Housing Finance Corporation said that it lowered interest rates by 0.5% and raised the cap for low-income household loans to CYP 40,000 for the purchase of a first home.

So far, CYP 13 mln had been issued in housing loans.

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July 15 - 21, 2015

financialmirror.com | CYPRUS | 3

Troika to focus on banking Worried about delays in reform programme

Inspectors from the Troika of international lenders arrived this week to begin their seventh review of the economic adjustment programme, with the focus this time being the supervisory controls of the banking system and the financial sector in general, while slow progress in implementing public sector reform has also raised several eyebrows.

The Cyprus programme is nearing its mid-2016 conclusion deadline, with the government confident that it will not need to tap into all of the 10 bln euros earmarked for the bailout programme. After six successive reviews and subsequent upgrades by rating agencies, the government has also returned to the markets raising funds at favourable rates.

However, reports suggest that trade unions and other groups are now pressing the government to back down from its full privatisation plans, seeing as the fiscal situation seems to be improving, arguing that further austerity and cutbacks are no longer necessary.

This may also be the reason behind the unexpected resignation of Health Minister Philippos Patsalis last week, who had been pushing for the autonomy of state hospitals and the parallel implementation of the National Health Scheme (GESY), but kept on facing obstacles and delays, one of which was the postponement by the presidency of the framework for the autonomy of hospitals.

The review of the banking system comes at an awkward time as the Central Bank and the Finance Ministry have insisted that the system is robust and can with stand the shocks from the Greek banking collapse, adding that the local subsidiaries have been ring-fenced and customer deposits are safe.

At the same time, reports have suggested that at least one back, Pireaus, has been in talks with Hellenic for a potential of the Cyprus subsidiary, while Bank of Cyprus stated that it had reduced its reliance on ECB funding through the emergency liquidity assistance (ELA) programme to below 6 bln euros. This has fuelled rumours that with its balance sheet in a strong position and holding on to cheap funding, BOCY too may be interested in any of the four Greek bank subsidiaries.

Whatever the outcome, the Troika technical team will be reviewing how the banking system develops in the face of the rapid changes in Greece as well.

Another thorny issue relating to banking is the stubbornly high rate of non-performing loans held by banks, despite efforts to reschedule or service them in order to reduce the NPL national average below 50% of the system’s loanbook.

It is also argued that the resignation of two banking CEOs (Bank of Cyprus and Cooperative) are not totally unrelated to interventions in this direction, mostly from political interest groups.

A delay in debating, passing and introducing a framework on foreclosures and insolvencies set the banks back by at least six months into their capital adequacy programmes, with their profits so far based on administrative costs and charges imposed on clients, an amount that is unsustainable as regards profitability.

The privatisation sector seems to have shown some progress, even though the Ports Authority and the tender for bidders for Limassol port services is the only aspect on the table at the moment, with trade unions bringing out the big guns, just ten months away from the next parliamentary elections, to press the government from backing down on the privatisations of telco Cyta and power producer EAC. As regards the public sector, reform here is clearly delayed, most important of which is the government’s inability to change the evaluation and promotions system of public servants.

July 15 - 21, 2015

4 | CYPRUS | financialmirror.com

BOCY, Hourican win Euromoney bank awards Bank of Cyprus CEO John Hourican, who leaves his post at the end of August after a tumultuous almost two years, has won the Euromoney Awards for Excellence as ‘Banker of the Year 2015’.

Having left RBS’ investment banking unit in February 2013, he was head-hunted by the then board of the Bank of Cyprus, facing a major liquidity crunch having already been subjected to a bail-in where depositors saw unsecured savings vanish into thin air in exchange for equity. They were then to see even that diminish to less than 1% of the bank’s new capital after EUR 1.1 bln was raised from international and new local investors, including mega-fund manager Wilbur Ross and the European Bank for Reconstruction and Development (EBRD).

Restoring BOCY to health by overcoming the European Central Bank’s stringent “stress tests” last October, Hourican announced he was stepping away from the latest, and

More aid needed to counter fallout from embargo on Russia Agriculture Minister Nicos Kouyialis told his EU counterparts in Brussels on Monday, that Cyprus needs additional support to counter the fallout of the embargo the EU has imposed on Russia.

Addressing an EU Agriculture Council, Kouyialis said that despite EU exports going up by 5% last year, Cypriot producers suffered significant loss of income due to the embargo.

He stressed the need for new support measures to be implemented for citrus fruit farmers and vegetable farmers in Cyprus. At the same time he asked that measures in place for pork should be maintained.

“We expect that the principle of community solidarity will be implemented and that immediate and substantial measures will be taken to deal with the serious impact on Cypriot producers,” he told his EU counterparts.

During discussions on a new regulation proposal for GMOs, Kouyialis welcomed the fact that the proposal has taken into consideration the views of member states. The new proposal, he said, will be one more tool allowing member states to legally decide on their national prohibition measures.

No appetite for 30-day T-bills The Public Debt Management Office (PDMO) of the Ministry of Finance said that it decided not to accept any tenders for Monday’s 30 day Treasury Bills Auction, with only EUR 12.62 mln were submitted instead of the auction target of EUR 50 mln.

Despite the lack of appetite from investors, the weighted average yield of the bids submitted was 1.91%.

toughest, of his repair jobs.

Citi and Morgan Stanley of the U.S. took top honours as best bank and best investment bank at the Euromoney Awards for Excellence 2015 held at the Natural History Museum in London on Thursday attended by 600 bankers from around the world. Jiang Jianqing, the chairman of ICBC, was recognized for his stewardship of the Chinese bank.

John Hourican was named banker of the year for his role in the remarkable turnaround of Bank of Cyprus over the past two years.

In justifying the award, Euromoney noted: “John’s task when he became CEO was to restore the bank after the wholesale collapse of the Cypriot banking system, the imposition of capital controls and the bail-in of depositors – unprecedented events at the time. He also had to absorb another bankrupt bank and had no funding sources.

“Two years on, Bank of Cyprus is a remarkable recovery story, with a new and prestigious investor base, strong capital levels, a focused business shed of its imprudent overseas operations and playing a crucial role in Cyprus’s economic recovery. It is a remarkable achievement.”

BOCY was also named best bank in Cyprus.

Receiving the award, Hourican said: “I am delighted to receive this prestigious award, which is recognition for the extraordinary efforts of the wider management team and all the employees of Bank of Cyprus in stabilising Cyprus’s leading financial services group.

“This work, notably the ?1 bln equity capital raising last summer, has also contributed to the restoration of Cyprus’s reputation with international investors. Leadership is about getting the best out of the people you work with. I hope I was a catalyst for change and helped to unlock the potential of my colleagues.”

Coop bank chairman steps into CEO’s shoes Nicholas Hadjiyiannis has stepped down as Chairman of the state-rescued Cooperative Central Bank and has taken up the post of the bank’s new CEO after Marios Clerides resigned on June 22, half-way through his contract.

Clerides’ resignation fuelled rumours that he may have been groomed as the next Governor of the Central Bank of Cyprus, a post not without its share of controversy of late. At the same time, the fact that biggest lender Bank of Cyprus had also failed to find a new CEO for John Hourican who is leaving at the end of August having orchestrated a successful multi-billion recapitalisation, has fuelled fresh rumours that Clerides may have been approached for that job.

There had also been talk that the CCB’s chief executive may had a falling out with the bank’s board, particularly over

handling the issue of non-performing loans and how to proceed to recover assets or collateral.

At its meeting on July 9, the supervisory board of the CCB, that was rescued last year with a 1.5 bln bailout from ECB funds afforded to the government, reviewed the short list suggested by consultants Egon Zehnder and opted for Hadjiyiannis appointment, which is also a reasonable choice seeing as he had spearheaded the government’s rescue plan and embarked on an ambitious restructuring that included shrinking the branch network and maintaining only 18 subsidiary Coop savings banks.

Deputy board chairman Pambis Christodoulides will step up as acting chairman until a new head is appointed to the bank’s board.

‘Empower, Motivate, Connect’ were the key messages of AIPFE Cyprus-Women of Europe at the presentation of the organisation’s vision held at the Old Powerhouse, in Nicosia.

The event was attended by over 140 women and men from the business, entrepreneurship, political and civil society arenas, including former Minister Claire Angelidou, MP Roula Mavronicola, Equality Commissioner Iosifina Antoniou, former Commissioner Katie Clerides, Major General Kristin Lund, Municipal Councilor Soula Kollakidou and others.

For the term 2015-18, AIPFE Cyprus worked with brand strategist Andreas Mesarites in an effort to formulate a vision with a cause.

July 15 - 21, 2015

financialmirror.com | CYPRUS | 5

Juncker arrives tomorrow

Lunch with Akinci adn Anastasiades on Thursday

European Commission President Jean-Claude Juncker will pay an official two-day visit on Thursday and Friday, during which he will attend a lunch with President Nicos Anastasiades and Turkish Cypriot community leader Mustafa Akinci.

According to a European Commission statement, during the first day of his visit, Juncker will hold bilateral meetings with President Anastasiades and Akinci.

Later on, all three will attend a lunch at the ceasefire line in Nicosia. Juncker will also meet with the UN Secretary General’s Special Adviser for Cyprus Espen Barth Eide.

During the second day of his visit, Juncker will meet with the President of the House Yiannakis Omirou and the

leaders of the parliamentary parties. Later on he will address the House plenary.

In a statement, Juncker said that “I pay a visit to Cyprus at a period during which there is a unique opportunity to achieve a permanent and comprehensive settlement of the Cyprus issue.”

He added that “the current situation is unacceptable and is not beneficial for either side. I hail the courage and the vision of the two leaders, Mr. Nicos Anastasiades and Mr. Mustafa Akinci, who show great commitment in their efforts to achieve the reunification of their countries. I want to assure them and the citizens of Cyprus that their efforts enjoy the full and unequivocal support of the European Commission.”

Gov’t backs down from municipal merger plan The Cabinet approved a bill tabled by the Ministry of the Interior on Tuesday that paves the way for the restructuring of the local authorities, but will not reduce the number of municipalities, as had originally been planned.

Interior Minister Socratis Hasikos said in a press statement this was an issue which has been raised and debated for years, it has

been addressed by the Troika of international lenders as part of the wider reform plans and now it will be debated at the House of Representatives.

Hasikos noted that the issue has been part of discussions with all political parties and other interested parties for two years, adding that the necessary consensus has been reached. He expressed hope that the bill will

be approved by the parliament before the end of the year. He said the approval of the bill will mean more savings and that all services for the citizens will concentrate in one place.

The minister noted that the Council also approved the introduction of a uniform taxation on property, to avoid multiple taxation from the local authorities and the central government.

He added that the money to be collected for the property taxation, estimated at over 100 mln euros, will form the basis for the local authorities’ autonomy.

He added that “the number of the municipalities and the community councils will not be reduced,” however the number of the members of their councils will be reduced.

July 15 - 21, 2015

6 | COMMENT | financialmirror.com

LNG exploration on hold, attention turns to developing Aphrodite The third well drilled in Cyprus’ Exclusive Economic Zone (EEZ) failed to reveal commercially exploitable natural gas reserves. Italian multinational Eni’s Saipem 1000 drillship drilled to a depth of 5,485 meters in Amathusa, in Block 9, without yielding positive results.

This is the second failed attempt by the Eni-KOGAS consortium in Cyprus’ EEZ. The consortium is hoping to get s i m i l a r treatment to that given to Total, and submitted a

By Middle East request to Strategic Perspectives extend its exploration license. As it stands today, the license expires in February 2016, with the consortium negotiating with Nicosia for a two year extension. Eni reportedly plans to use this period to form a more precise picture of the previously unexplored area and reevaluate the geological model and data collected in both drills.

With Total and Eni’s failure to locate commercially exploitable quantities of natural gas, all five blocks awarded in the second licensing round to big fanfare in 2013 yielded disappointing results. Of course, this does not rule out positive results in the future with the possible extension of the exploration program — granted for Total, and hoped for

by Eni.

ANALYSIS

Exploratory drilling on hold If Eni’s failure in Onasagoras and Amathusa, both in Block 9, is in itself a setback for Cyprus (although not entirely unexpected given the success rate for drilling at such depths), it does not mark the end of bad news for Nicosia.

The Eni-KOGAS consortium, which holds exploration rights in Blocks 2, 3 and 9, is legally bound to drill at least four wells in its current exploration program. But, after two unsuccessful wells and over $300 million spent, the program is shrouded in doubt. No exploratory drilling is expected this year in Cyprus (the Saipem 1000 drillship is scheduled to undergo maintenance lasting around five months) and could possibly be delayed for much longer. Indeed, with current oil prices, the Italian company has suffered significant losses in the last quarter of 2014, leading to cutbacks and the decision to sell up to ?8 billion ($8.9 billion) of assets. Its priorities

seem to lie a bit further south, after pledging to invest $5 billion in Egypt. Similarly, Noble has suspended further drilling plans in Block 12 due to the slashing of its exploration budget.

Resumption of negotiations The disruption of offshore exploration, which is not expected to resume before 2016 or even 2017, in addition to the expiration of Turkey’s NAVTEX (navigational telex warning) and the withdrawal of its seismic research vessel Barbaros Hayreddin Pafla from Cyprus’ EEZ, opened a window of opportunity to resume negotiations between Greek and Turkish Cypriots. The election of President Mustafa Ak›nc› — seen as a moderate — in Northern Cyprus on April 26, brought hope, for the first time in years, that the Cyprus problem can actually be settled.

Contacts resumed on May 15. Greek Cypriots would have headed to the negotiation table with a stronger hand had they made a new discovery, which would have made them much more at ease in monetizing their gas resources.

Instead, developing the ± 4 tcf Aphrodite gas field is in itself a challenge in the current context. This seems to have brought the Turkish option back to the table as one of the means to monetize Cypriot gas, even faster than negotiators.

Development of Aphrodite With the break in exploratory drilling, Aphrodite remains the only Cypriot gas discovery to date and will remain so in the short to medium term. Noble Energy is expected to submit its development plan in the next few weeks.

The plan is likely to involve a floating production, storage and offloading (FPSO) unit producing 800 mmcf of gas per day, and subsea pipelines to possible destinations, which in addition to Cyprus may include Egypt. Already, there are difficulties. It appears Noble Energy and Delek, the owners of Aphrodite, are hesitant when it comes to contributing to infrastructure work beyond the development of the field, which would ultimately leave it to the buyers and interested parties to transport the gas to its final destination.

Noble is also obligated to find export markets to proceed with the development of Aphrodite, since the local market is so small (requiring less than one bcm of gas per year) that it does not, on its own, justify development costs. Egypt, with its idle LNG plants and vast local market, emerges as the most logical option. The Egyptian Natural Gas Holding Company (EGAS) is negotiating to import approximately 700

million cubic feet of gas per day from Aphrodite. Gas will be transported via a pipeline that would be completed “within two and a half to three years,” according to a statement by EGAS chairman Khaled Abdel Badie to Daily News Egypt.

But Egypt is setting 2018 as a target year to become self sufficient in gas, and plans to stop imports by 2020. In addition, the Egyptian LNG option also comes with its own sets of challenges, although they can be managed in a way so as to alleviate their impact and make the Egypt option more viable. First, the combined capacity of the two LNG plants in Egypt is 12.2 mtpa and the operators are in discussions with other potential providers, including the Leviathan and Tamar partnerships, BP and BG (for supplies from Egyptian gas fields). This means not all of these suppliers can be accommodated. It is not exclusively a matter of ‘first come, first served’, as other elements such as geopolitics and prices are also taken into account, but timing is very important.

Second, there is a risk Cypriot LNG might not be competitive in European markets where LNG is now delivered at around $7 per mmBtu (or even Asian markets, with similar prices).

Taking into consideration the price of gas at the well, and adding the costs of transport to Egypt, liquefaction, transportation to Europe, regasification and profits, the enduser price could end up at $12 per mmBtu. Granted, LNG prices regularly fluctuate and cannot be predicted years in advance, but the LNG glut whose impact we are beginning to feel is expected to continue with additional supplies hitting the markets in the next few years, and an expected return to grace for nuclear energy in Asia. Barring a major catastrophe, these developments may indicate that prices are unlikely to return to their all time high in the foreseeable future.

There might still be another option, namely marine transport of compressed natural gas, allowing exports to Europe, although it doesn’t seem to generate much enthusiasm given it is still untested (the first ever carrier currently being designed for Indonesia’s PLN is expected to become operational in May 2016).

Changing market conditions, inflated expectations, a subjective assessment of geopolitics and political risks, unreasonable bets and so on might explain why Cyprus had to abandon grandiose ambitions and make the most out of what it already discovered — in itself significant — all while, rightfully, bracing for more. Unfortunately, these are symptoms we are all too familiar with in Lebanon.

This article was written in May for the June edition of Executive Magazine, Lebanon.

Israel and energy exports: Much hot air about gas Government plans to boost energy investment generate scepticism

Sixteen years after the first discovery of commercial-scale natural-gas reserves under the Mediterranean off Israel’s coast, the country’s transition from dependence on imports to energy exporter is proving slow, according to the Economist.

This month, the government will publish a long-overdue outline for regulation of the natural-gas industry. There will be a new framework for pricing and competition in those fields that have already been discovered and licensed, and a long-term plan for the exploration and exploitation of yet-to-befound undersea riches.

Opposition politicians and NGOs have been conducting a noisy campaign against the Israeli-American consortium that currently holds the licences to the largest gasfields, and against the sudden haste with which the new government, sworn in just a few weeks ago, has been conducting its regulatory review.

The head of the country’s competition authority, David Gilo, recently resigned after rowing with the prime minister, Benyamin Netanyahu, over how to break up the consortium’s monopoly over gas production.

The finance minister, Moshe Kahlon,

recused himself from any decisions on energy matters, because of his friendship with a shareholder in one of the gasfields involved.

Israel can only dream of having the

massive gas reserves enjoyed by nearneighbours such as Iran or Qatar. But at a conservative estimate, there already appears to be enough recoverable gas under Israeli waters to provide all the country’s powergenerating needs for 40 years.

Under a deal being negotiated between the government and the consortium members, Delek Group of Israel and Noble Energy of the United States, the firms will sell two small gasfields quickly; then in six years Delek will sell its entire stake in Tamar, the largest field currently in production, and Noble will reduce its stake to 25%. That will leave them with Leviathan, a bigger field due to come on-stream in 2020.

In return, the government will reject calls for it to impose formal price controls on gas sold domestically. Instead it is expected to go for a looser arrangement, to ensure that at least the price of gas inside Israel is no more than the export price. A limit on exporting— no more than half of the gasfields’ output— may be eased.

Why, after years of delays, is the government in such haste to strike a deal with the Delek-Noble consortium and to draw up a new energy policy? Officials point

to the imminent deal between Iran and its negotiating partners to curb Iran’s nuclear programme: once it is struck, sanctions on Iranian energy projects will be lifted and, they argue, all the investment will go there.

Like Gilo, the government’s critics think that in its rush, it is failing to bring sufficient competition to the industry.

Whatever the motives, Israel’s new energy policy should offer investors a stable and transparent regulatory regime. Even if sanctions against Iran are lifted, that country’s unreliable legal system and poor infrastructure mean that it may take years for it to start to attract foreign energy firms.

In the meantime, Israel has good prospects of attracting fresh investment, if it gets its rules right. So far only a quarter of the country’s waters have been explored.

Having depended on imports of Egyptian gas until recently, Israel has now signed deals to sell its gas back to Egypt, as well as to another Arab neighbour, Jordan. Not so long ago Israel was having to go as far afield as Mexico to secure energy supplies. Now the government’s challenge is to overcome the public’s nervousness about selling any of the country’s precious reserves to outsiders.

July 15 - 21, 2015

financialmirror.com | COMMENT | 7

Iran reaches nuclear deal Crude oil prices down $1 after agreement with P5+1

Iran and a clutch of world powers finally reached a deal on Tuesday over the Middle Eastern country’s nuclear programme.

The P5+1 group of countries - comprising US, UK, France, Germany, Russia and China - have agreed to ease sanctions on Iran in return for curbs on the Middle Eastern power’s nuclear programme, according to Reuters and Associated Press reports.

“All the hard work has paid off and we sealed a deal.

God bless our people,” an unidentified Iranian diplomat told Reuters.

AP also cited an unnamed European diplomat as saying final obstacles had been cleared for a deal to be done.

Oil prices tumbled more than $1 per barrel following reports of the deal.

Front-month Brent crude futures dropped over 2% and more than a dollar to $56.66 a barrel earlier in the day, while US crude was trading down $1.21 at $50.99 per barrel.

The parties, which have been negotiating for months but have been locked in most recent discussions for more than a week, were due to meet in the Austrian capital of Vienna to ratify the deal.

Yukiya Amano, Director General of the International Atomic Energy Agency (IAEA), said on Tuesday he has “just signed the road-map between the Islamic Republic of

Iran and the IAEA for the clarification of past and present outstanding issues regarding Iran’s nuclear programme”.

He continued: “The road-map sets out a process, under the November 2013 Framework for Co-operation, to enable the agency, with the co-operation of Iran, to make an assessment of issues relating to possible military dimensions to Iran’s nuclear programme by the end of 2015.

“It sets out a clear sequence of activities over the coming months, including the provision by Iran of explanations regarding outstanding issues.

“It provides for technical expert meetings, technical measures and discussions, as well as a separate

arrangement regarding the issue of Parchin.

Amano said the road-map “will provide an important opportunity to resolve the outstanding issues related to Iran’s nuclear programme”.

Israeli Prime Minister Benyamin Netanyahu immediately condemned the agreement, saying: “Iran is going to receive a sure path to nuclear weapons. Many of the restrictions that were supposed to prevent it from getting there will be lifted.”

“Iran will get a jackpot, a cash bonanza of hundreds of billions of dollars, which will enable it to continue to pursue its aggression and terror in the region and in the world,” he added.

Senior P5+1 and Iranian officials have been negotiating in Vienna almost non-stop since the week before last, after missing an earlier self-imposed deadline of June 30.

Ongoing negotiations then led to a deadline of July 7, and an “informal” deadline of July 9 to also be missed.

It was then hoped a deal could be unveiled last Friday, before that spilled into this week.

The international players are seeking to curb Iran’s programme in return for sanctions relief, with the pace at which sanctions would be lifted playing a major part in the negotiations. Iran contends that its nuclear programme is for civilian use.

Deal will have ‘major’ economic impact Government losing $2.5-4 bln a month in lost oil revenue due to sanctions

Iran’s agreement over its nuclear programme with world powers, paving the way to lifting sanctions on Tehran, will have a major positive impact on the Iranian economy, a leading expert told the Financial Mirror.

At the same time, property developers active in Cyprus and Greece are rubbing their hands in delight that they will, at last, be able to sell holiday homes or other forms of housing, mainly to younger Iranian couples in want for the EU residency permits that are attached to investments of 300,000 euros in Cyprus.

Bigger investments or wealth-related deposits will also get them one step closer to applying for citizenship, something that had upset US diplomatic circles on the island.

On the other hand, Cypriot construction companies active in the Gulf, have recently been to-ing and fro-ing to Tehran with the hope of clinching some deals of their own, while Trade and Energy Minister Yiorgos Lakkotrypis paid an official visit to Iran to explore closer commercial and other ties.

“GDP and growth are very sluggish after a 15-20 year period of growth in the post-IranIraq war. Successive five-year economic plans, while not a raging success, had nonetheless positive results overall in leading Iran out from a one-product economy of only oil and gas,” said the analyst with over 40 years Iran experience.

“Actually, Iran is a two-product economy if you include domination of the pistachio market, and has tried to become a more mixed economy with downstream industries, manufacturing and exports,” added the analyst, who remains anonymous due to his ties with both Iran and the West.

“The UN sanctions from 2006 onwards dampened all that down, to the present situation where widespread unemployment (especially the under 30s) has prevailed for several years and living standards have fallen.

The international sales of Iranian oil have been badly affected by the sanctions and is

currently losing the government some $2.54 bln a month in lost revenue, based on crude prices of $50-70 a barrel.. The costly burden of state subsidies for the poorer half of the population, brought about by a mix of post-war widows/ orphans/ disabled, a low wage economy, sanctions and populist government policies over decades, may at long last be able to be reduced if sanctions are lifted.” Examples of major industries that will benefit from removing sanctions are steel, chemicals, plastics, cars, white goods, construction and tourism. Iran Khodro is now a major car manufacturer that recently opened ultra-modern robotic assembly lines in conjunction with Rover (the Shanghai Rover, that is).

Tehran’s current national economic plan includes provisions to build hundreds of new cities, towns and large villages (the smallest build project being 5,000 dwelling units) and there are huge construction projects that will benefit from assured capital investment flowing from the lifting of sanctions.

Domestic demand is bound to rise especially with a rapidly growing Iranian population, currently at 75 mln. Currently, it is possible to get imported goods fairly easily in Iran but they are very expensive. The combination of increasing demand and reduced import costs (as the sanctions go) may boost the demand for imported goods of all kinds.

Iran Khodro is the biggest car manufacturer with an annual ouput of 800,000 vehicles

primarily European and Asian, have invested there in a variety of ways. Foreigners are now allowed to own companies there, own real estate and have bank accounts. Lifting the sanctions will re-establish the SWIFT access to and from Iran and the bi-directional flow of monies. This should have a positive effect generally, but also to Iran’s traditional trading neighbours in Dubai, Bahrain and other Gulf states, as well as to the near East, Cyprus, Turkey, etc. Foreign tourism and property investment by Iranians is likely to grow once sanctions are lifted.”

FINANCIAL IMPACT “Put at its simplest, the removal of sanctions will (a) boost export revenues from oil but not just oil, and (b) greatly reduce cost burdens arising from cost premiums on imports and sanctions busting,” said the analyst.

“Foreign investment in Iran, already encouraged by the lifting of restrictions some five years ago, is likely to rise significantly once sanctions go. Already, a number of large foreign companies,

POLITICAL IMPACT To the US and the West in general, the nuclear programme deal is positive.

“For good or ill, Iran is politically, economically and militarily stable and holds a pivotal geographic position between unstable and dangerous states to its east and west. As (Foreign Minister) Mohammad Javad Zarif has said, the ISIS/daesh threat is a threat in common to us all. Based on the

building of trust and confidence, the deal then enables some form of strategic alliance between the West and Iran to combat and defeat ISIS/daesh.”

“While I believe that a stable Iran ‘on board’ will be a good thing, there are others who refuse to countenance such an outcome. Such objection is largely based on fears of various kinds. Israel refuses to believe that Iran is not the devil incarnate or that Iran will live up to its deal commitments. For their part, countries such as Saudi Arabia will not accept the trustworthiness of Iran on its nuclear commitments,” added the analyst.

“Thus, there may be a rather surprising realignment of interests with the West getting closer to Iran after decades of isolation, while Israel and some Arab states share a common interest in keeping Iran as weak as possible. Israel has already today declared that it will engage in political lobbying to thwart the deal – this presumably means using the strong Jewish lobby and APAC in the US to block US support for the deal in Congress. A very negative and dangerous game, in my opinion.”

July 15 - 21, 2015

8 | COMMENT | financialmirror.com

EDITOR WANTED? To quote its own blurbs, “Parikiaki” is ‘the leading Greek Cypriot newspaper published in London which serves the Greek and Greek Cypriot communities in excess of 300,000 people’.

This month it ran a story about a Greek Cypriot couple who recently opened a restaurant featuring Cyprus cooking in a town called Chandler in the State of Arizona, U.S.A. I extract a couple of paragraphs, for your interest, and have marked in bold a couple of fascinating errors. Bear in mind this is published in London! It surprises me to see the fairly common error encountered on Cyprus menus – “Lamp” instead of “Lamb” – in this context.

“Penélope Acosta-Komitis and Christodulos Komitis are experienced restaurateurs, who wanted to have a restaurant that offered both authentic-Mediterranean dishes and a lively ambiance... Patrons can enjoy cocktails at the bar and patio area, and when their table is ready they can dine on fine dishes, from a plethora of menu options like shrimp and eggplant with spicy marinara sauce, grilled lamp pita and flank steak.

“Our food is pretty much Mediterranean with a modern twist to it,” Penélope said. All dishes on the menu are authentic to Christodulos’ home county of Cyprus; a small island in the Eastern Mediterranean Sea”.

Thanks to John Wood for sending me this item.

Are you cheating on yourself?

We all know them. It’s usually a man. He proudly tells of “how much he drank last night/at the weekend/at a party, or whatever”. He does this as if it is an achievement to get legless. One in my ken is of a certain age, so he has to have a medical check-up every now and then. Firstly, for some days before his appointment with the doctor he doesn’t drink in the belief that his blood pressure will be lower at the check-up. And then when the medic asks him how much he drinks he greatly understates his intake.

This man is intelligent. He knows he is probably shortening his life, but more important that he stands a good chance of scrambling his brains and becoming an old burden to family or carers. One wonders why on earth he tries to deceive; himself and others.

More and more evidence is accruing that a regular moderate intake of alcohol does you no harm and in Just the one glass… is good for you some cases actually does you good. Red wine has many good reports, a number concluding that it can actually reduce the risk of lung cancer.

It is already known as an inhibitor of prostate cancer, heart disease and blood pressure, provided it is taken in reasonable quantities. And these would seem to be between 2 and 4 glasses a day, according to your body-weight. So for a couple, a pleasant bottle of wine with the evening meal is probably actually assisting your health.

If you adhere to a regular half bottle, it’s OK; what you have to avoid is not drinking for six days and then taking three and a half bottles on board.

FOOD, DRINK and OTHER MATTERS with Patrick Skinner what a superstar vegetarian family prepare for themselves and their friends. Mary’s dad’s Margarita recipe makes an appearance here in the Mexican Food chapter and one can almost see Macca giving this inclusion his famous ‘thumbs up’ salute, and mine as well.

This is a good entry-level book for the new or intending vegetarian, much along the lines of Simon Rimmer’s The Accidental Vegetarian. American, Middle Eastern, Parties and Feasts get their own sections.

The recipes are light, fun and uncomplicated. I have tried several, including Falafels and Lentils and Rice. Both turned out well, with ingredients that most vegetarians would have to hand. I thought the recommended seasoning was a tad heavy, but this is personal anyway, and one can adjust to one’s own taste.

The chapter devoted to sandwiches is excellent and reminiscent of the wonderful Pret-aManger book. And when McCartney pitches to the younger market she gets it spot on, take the recipe for Cream Cheese and Banana for example.

So, here is a nicely turned out, non-heavyweight cookbook, if you want to try some veggie recipes for yourself or friends, or to inspire you to eat less meat. It’s a suitable gift, too, for a young, aspiring vegetarian cook.

A carnivore friend of mine on leafing through this book declared it definitely one that they’d like in their collection. A big (Macca) ‘thumbs up’ it is then.

This Week’s Recipe… a delicious vegetarian starter

CURRY PUMPKIN SOUP

BOOK REVIEW Mary McCartney is the photographer granddaughter of Beatle Sir Paul, whose mum Linda did veggie cookery. She’s followed in her parental footsteps with a cook book aimed at young people who want to learn or expand their cooking abilities. Robert Skinner reviews it.

Recipe from Ousia Restaurant/lounge, Limassol

‘At my Table’ by Mary McCartney Published May 2015 by Chatto & Windus.

Hardback, Price St£20.00

Inspirational for the Aspirational This is Mary McCartney’s second cookbook, the first being Food, published in 2012. At My Table continues in much the same vein: easy-to-make family-oriented recipes... that just happen to be meatless.

As the daughter of the late Linda McCartney, professional photographer and celebrity vegetarian, it is not surprising that the photography is Mary’s own and the recipes are vegetarian. At My Table looks to be muchly a solo effort - no Team Nigella here. I like this approach; it’s refreshing and doesn’t feel forced or artificial and a feeling that the author knows what she’s talking about.

Of course, the McCartney identity looms large here – three generations, so far for whom meat and fish are eschewed. As a long-time vegetarian myself, I admit that to curiosity about

1 kg. Pumpkin 3 large potatoes 1 medium onion 2 tbsp. oil 1 clove garlic 2 tbsp red curry paste (or more or less to your taste) 400 ml can coconut milk 2 cups water 1 cup frozen peas Salt and pepper to taste Cream to serve

Method 1. Cut pumpkin and potatoes into small pieces.

2. Heat oil, add onion and garlic, cook until soft.

3. Stir in curry paste, cook for 1 minute.

4. Add pumpkin and potatoes stir until coated with paste, add coconut milk and water.

5. Bring to boil, simmer for about 15 minutes.

6. Stir in peas and cook until all vegetables are soft.

7. Blend until smooth, return to pan and add cream to taste.

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

July 15 - 21, 2015

financialmirror.com | COMMENT | 9

Countries with the most engineering graduates Which countries produce the most engineering graduates every year?

According to research carried out by the World Economic Forum (excluding China and India due to lack of data), Russia is in first position, churning out over 454,000 graduates in engineering, manufacturing and construction on average every year.

The United States is in second position with nearly 238,000, while Iran rounds off the top three with 233,700. Developing economies are producing more graduates than ever with both Vietnam and Indonesia making the top ten list.

The end of work as we know it

By Jean Pisani-Ferry

In 1983, the American economist and Nobel laureate Wassily Leontief made what was then a startling prediction.

Machines, he said, are likely to replace human labour much in the same way that the tractor replaced the horse. Today, with some 200 million people worldwide out of work – 30 million more than in 2008 – Leontief’s words no longer seem as outlandish as they once did. Indeed, there can be little doubt that technology is in the process of completely transforming the global labour market. To be sure, predictions like Leontief’s leave many economists skeptical, and for good reason. Historically, increases in productivity have rarely destroyed jobs. Each time that machines yielded gains in efficiency (including when tractors took over from horses), old jobs disappeared, but new jobs were created.

Furthermore, economists are number crunchers, and recent data show a slowdown – rather than an acceleration – in productivity gains. When it comes to the actual number of jobs available, there are reasons to question the doomsayers’ dire predictions. Yet there are also reasons to think that the nature of work is changing.

To begin with, as noted by the MIT economist David Autor, advances in the automation of labor transform some jobs more than others. Workers carrying out routine tasks like data processing are increasingly likely to be replaced by machines; but those pursuing more creative endeavors are more likely to experience increases in productivity.

Meanwhile, workers providing in-person services might not see their jobs change much at all. In other words, robots might put an accountant out of work, boost a surgeon’s productivity, and leave a hairdresser’s job unaltered.

The resulting upheavals in the structure of the workforce can be at least as important as the actual number of jobs that are affected. Economists call the most likely outcome of this phenomenon “the polarisation of employment.”

Automation creates service jobs at the bottom end of the wage scale and raises the quantity and profitability of jobs at its top end. But the middle of the labour market becomes hollowed out. This type of polarisation has been going on in the United States for decades, and it is taking place in Europe too – with important consequences for society.

Since the end of World War II, the middle class has provided the backbone of democracy, civil engagement, and stability; those who did not belong to the middle class could realistically aspire to join it, or even believe that they were part of it, when that was not the case. As changes in the job market break down the middle class, a new era of class rivalry could be unleashed (if it has not been already).

In addition to the changes being wrought by automation,

the job market is being transformed by digital platforms like Uber that facilitate exchanges between consumers and individual suppliers of services. A customer calling an Uber driver is purchasing not one service, but two: one from the company (the connection to a driver whose quality is assured through customer ratings) and the other from the driver (transport from one location to another).

Uber and other digital platforms are redefining the interaction among consumers, workers, and employers.

They are also making the celebrated firm of the industrial age – an essential institution, which allowed for specialization and saved on transactions costs – redundant.

Unlike at a firm, Uber’s relationship with its drivers does not rely on a traditional employment contract. Instead, the company’s software acts as a mediator between the driver and the consumer, in exchange for a fee. This seemingly small change could have far-reaching consequences. Rather than being regulated by a contract, the value of labour is being subjected to the same market forces buffeting any other commodity, as services vary in price depending on supply and demand. Labour becomes marked to market.

Other, less disruptive changes, such as the rise of human capital, could also be mentioned. An increasing number of young graduates shun seemingly attractive jobs in major companies, preferring to earn much less working for startups or creative industries. While this can be explained partly by the appeal of the corresponding lifestyle, it may also be a way to increase their overall lifetime income. Instead of renting their set of skills and competences for a pre-set price, these young graduates prefer to maximise the lifetime income stream they may derive from their human capital.

Again, such behavior undermines the employment contract as a basic social institution and makes a number of its associated features, such as annual income taxation, suboptimal.

Whatever we think of the new arrangements, we are unlikely to be able to stop them. Some might be tempted to resist – witness the recent clashes between taxi and Uber drivers in Paris and the lawsuits against the company in many countries. Uber’s arrangement may be fraudulent according to the existing legal framework, but that framework will eventually change. The transformative impacts of technology will ultimately make themselves felt.

Rather than try to stop the unstoppable, we should think about how to put this new reality at the service of our values and welfare. In addition to rethinking institutions and practices predicated on traditional employment contracts – such as social security contributions – we will need to begin to invent new institutions that harness this technologydriven transformation for our collective benefit. The backbone of tomorrow’s societies, after all, will be built not by robots or digital platforms, but by their citizens.

Jean Pisani-Ferry is a professor at the Hertie School of Governance in Berlin, and currently serves as CommissionerGeneral for Policy Planning for the French government. © Project Syndicate, 2015 - www.project-syndicate.org

July 15 - 21, 2015

10 | GREECE | financialmirror.com

Armageddon averted, but country faces deepening recession and social unrest After an exhaustive 17-hour session which started last Sunday evening only to conclude late on Monday morning, the Eurozone heads of state conclave worked out yet another gigantic bailout deal - the third since 2010 - to help stave off complete bankruptcy in Greece and keep the country afloat as an integral part of the Eurozone.

What became most abundantly clear during this arduous and never-ending all night session was the determination of a small but persistent group of eurozone government officials from the north and central European countries who most

Fund - a scenario Greece had tried hard to block.

Many Greeks reacted furiously to the deal, particularly Germany’s role in insisting on continued austerity in return for help.

Crucially, the package will not result in an immediate cash injection for the country’s cash-starved banks which remain closed, but it was understood that the possibility of a bridging loan will be discussed later this week. The European Central Bank did nothing on Monday to ease the squeeze on bank cash - with withdrawals still limited at 60 euros per day.

The plan agreed in Brussels includes the creation of a EUR 50 bln asset fund by Greece, based in Athens, which would be partly used to recapitalise the banks. Should the Greek parliament agree the fund and other reforms such as spending cuts, the prospect of a third bailout totaling EUR 86 bln over three years will be up for discussion. Prime Minister Tsipras said the negotiations had been a “tough battle” but he insisted he had managed to avert “the plan of a financial collapse and banking system collapse”.

Upon his return to Athens on Monday, Tsipras faced a rebellion within his own government after he accepted the most intrusive programme ever mounted by the EU in order to keep Greece in the eurozone.

Inevitably, he will have to rely on opposition support to pass a swath of economic reform measures by Wednesday’s EU-imposed deadline, or face the country’s bankruptcy as a growing number of far-left MPs voiced strong opposition to the deal. The ruling Syriza party’s communist Left Platform, which controls almost 30 seats in parliament, called it a “humiliation of Greece”.

The leader of the Independent Greeks, the rightwing coalition partner, also said that his party could not agree to the accord, calling it a “coup by Germany” and its hardline eurozone allies, the Netherlands and Finland.

But other Greek political leaders said that there was no danger for legislation not going through parliament because it had the wide support of mainstream opposition lawmakers, who would make up any government defections in the 300-member legislature.

The hard-fought agreement averted the gravest crisis facing the EU and its eurozone core, postponing, at least for the time being, Greece’s exit from the single currency and the chaos that could follow. Tsipras accepted plans for a high level of domestic economic supervision by the bailout monitors, something which he had wanted to avoid at

By Costis Stambolis definitely wanted Greece kicked out of the eurozone block on political, ethical and financial grounds. This would have been an unprecedented action forced upon the other Eurozone members with the argument that Greece’s continuing presence in the Eurozone was detrimental to the European project because of its problematic and deficit prone finances, and recalcitrant nature.

Greece, by systematically avoiding any kind of public policy reform, was undermining Eurozone’s credibility and presented a bad example to other countries and therefore had to be expelled. The euro’s slide against the dollar over the last six months also was a strong case in point, never mind the fact that a cheaper euro was helping boost European exports.

Without doubt the terms agreed in this latest bailout deal are extremely harsh but could not be different given Alexis Tsipras’s far left government’s five month socialist experimentation and open defiance of European norms, during which time the economy went into an uncontrolled downward spiral culminating in capital controls, an indefinite bank holiday, suspension of trading on the Athens Stock Exchange, thousands of job losses and mounting bankruptcies.

Although the foundations of a new bailout deal for Greece were agreed in Brussels on July 13, tough negotiations still lie ahead to end its financial crisis. At a news conference, EU President Donald Tusk described the agreement as an “aGreekment” but as he said there was clearly a lack of trust on the creditor side, with German chancellor Angela Merkel among those saying the relationship had to be “rebuilt” following months of tortuous talks. She added that future funding was conditional on the continued involvement of the International Monetary

all cost, including the IMF and a public administration overhaul overseen by the European Commission. Now, he must implement a list of demanding economic pledges, including a repositioning of the country’s value added tax system and sweeping pension reforms, by enacting legislation by July 15 as a condition for a formal start of negotiations later this week on a financing package to stave off bankruptcy.

Eurozone officials said that once Greece had taken steps to legislate reforms there would be an agreement that eurozone governments could “recommend with full conviction” to their parliaments. President Francois Hollande of France said: “At some point we thought we might lose a member of the eurozone, but Europe would have retreated; we needed to succeed.”

Meanwhile, the delay in reaching a deal prevented the European Central Bank from providing Greek banks with much needed extra emergency finance. But, following the announcement of the agreement, the ECB said it would maintain Greek banks’ EUR 89 bln emergency liquidity assistance (ELA) lifeline. That means that there will be no immediate relief for Greece’s ailing banking system with economic conditions worsening from day to day. The IMF, also, said late on Monday that Greece had missed a second payment, meaning it now needed to clear EUR 2 bln in arrears before the institution could lend to Athens again.

Investors welcomed the accord, pushing stocks in Europe up by almost 2%, but there was no euphoria, reflecting the political obstacles that still lie ahead — not least in Athens. Sovereign debt markets initially rallied before cooling later in the day.

With trust, concerning Greece’s position in Europe and its financial and commercial dealings in general, seriously undermined following this latest crisis, the reputation of Greek companies is equally tarnished, and will therefore make it extremely difficult for them to compete in the international arena.

The amount and effort needed to continue operating, let alone grow, in a highly competitive global environment, given the restrictions and financial burdens that will be imposed on them through this latest bailout programme, will simply be huge and it remains to be seen how many will actually survive.

Greece’s position in the eurozone may for the moment appear secure, although fragile, but uncertainty as to the recessionary economic conditions that will inevitably result is extremely high with the country most likely to face soon a huge wave of social unrest. Economic growth will apparently remain a distant mirage for the foreseeable future, with pundits forecasting Greece’s slow and agonising death within the euro.

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

Sinn: Euro agreement doesn’t really help Greece Ifo President Hans-Werner Sinn has criticised the agreement reached at the euro summit on Monday morning.

“Many people believe that this plan is good for Greece, but it isn’t,” he said in Munich.

“While this decision will cost the rest of Europe a great deal of money, all of this cash will not be enough to satisfy Greek citizens.” Greece is too expensive and is no longer competitive for that reason.

“There is no sense in trying to solve the country’s problems by throwing more money at it. That is expensive

and prevents the creation of competitive economic structures. A windfall will not create long-term jobs,” warned Sinn.

The agreement could only lead to a sustainable improvement in the situation in Greece if it were to trigger a real depreciation of wages and prices within the country.

“But this kind of real devaluation would take a long time and would be highly inefficient and unfair, because it would be asymmetric and would drive debtors into bankruptcy,” noted Sinn.

The only way to become cheaper and thus more

competitive without any major social repercussions is an open currency devaluation for Greece, added Sinn. “Since that is impossible if Greece retains the euro, an exit is the only option. The Greek people are proud and intelligent; Greece is the cradle of European culture. I don’t understand why the country wishes to be financially dependent on other countries.”

Only Wolfgang Schauble’s proposal of a temporary exit had the potential to give Greece’s economy fresh impetus.

The fact that it was not accepted means that the Greek tragedy looks set to continue for another three years.

July 15 - 21, 2015

financialmirror.com | GREECE | 11

Eurozone agrees on third bailout After marathon meetings throughout the weekend, Eurozone leaders reached an agreement on a third bailout to save Greece from bankruptcy on Monday, but a final deal is “still weeks ahead”.

The standoff also means that Alexis Tsipras stays on as Prime Minister and will probably spearhead a loose ‘national unity’ government to implement the rescue plan, which some of his own ran-and-file leftists oppose.

European Council President Donald Tusk said that Finance ministers will as a matter of urgency discuss how to help Greece meet her financial needs in the short term, primarily through bridge financing.

Following national procedures, the Eurogroup will now work with the Institutions (formerly the Troika of international lenders) to swiftly take forward the negotiations.

Turks said that the EuroSummit had unanimously reached agreement, but the reportedly talks stall on two points, one being IMF involvement in a new 3-year bailout.

All is ready to go for the ESM programme for Greece that will include serious reforms and financial support, he said.

Eurozone leaders warned that a final deal is still weeks away and will require ratification in several national parliaments.

Back in Greece, the main opposition centre-right New Democracy party, an unlikely ally to leftist Tsipras, said that it was satisfied with a deal reached between Syriza-led government and Greece’s international lenders. New Democracy MP Kyriakos Mitsotakis, tweeted that Greece had a great chance now to become a normal European country.

“We have 3 years to become a normal European country.

I hope we have learnt from the mistakes of the past. Let’s

make a new beginning!”

Adonis Georgiadis, also a member of New Democracy who has strongly criticised the Greek premier in recent months, said that Tsipras finally chose to follow Greece’s interests.

“Despite the mistakes and the damage he provoked, at the end [Tsipras], between Greece and Syriza, he picked Greece.

History will credit that to him.”

However, there were also harsh words of criticism towards the EU’s main paymaster.

Anti-austerity economist Jeffrey Sachs said that Eurozone “was right to avoid suicide but the real tests are opening the

banks, implementing reform measures and debt relief.

Chancellor Angela Merkel said that the German parliament will only be called once the Greek parliament agrees on the package.

Prominent economist and Nobel laureate Joseph Stiglitz accused Germany earlier on Sunday of displaying a “lack of solidarity” with debt-laden Greece that has badly undermined the vision of Europe.

“What has been demonstrated is a lack of solidarity by Germany.

You cannot run a eurozone without a basic modicum of solidarity,” Stiglitz said.

The Eurosummit may have ended with agreement, but analysts say anything can go wrong as approval of national parliaments is still needed for the ESM programme to begin.

Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem said he hoped that by the end of the week there will be formal mandate to negotiate the Greek bailout, but a final deal is still weeks ahead.

Dijsselbloem said that EUR 25 bln will be used to recapitalise Greek banks and confirmed that the Eurogroup will discuss bridge financing for Greece.

He added that the Eurogroup of Eurozone finance ministers could have a conference call Wednesday, and then the national parliaments could approve the deal.

Down and out in Athens and Brussels The Greek catastrophe commands the world’s attention for two reasons. First, we are deeply distressed to watch an economy collapse before our eyes, with bread lines and bank queues not seen since the Great Depression. Second, we are appalled by the failure of countless leaders and institutions – national politicians, the European Commission, the International Monetary Fund, and the European Central Bank – to avert a slow-motion train wreck that has played out over many years.

If this mismanagement continues, not only Greece but also European unity will be fatally undermined. To save both Greece and Europe, the new bailout package must include two big things not yet agreed.

First, Greece’s banks must reopen without delay. The ECB’s decision to withhold credit to the country’s banking system, and thereby to shutter the banks, was both inept and catastrophic. That decision, forced by the ECB’s highly politicised Executive Board, will be studied – and scorned – by historians for years to come. By closing the Greek banks, the ECB effectively shut down the entire economy (no economy above subsistence level, after all, can survive without a payments system). The ECB must reverse its decision immediately, because otherwise the banks themselves would very soon become unsalvageable.

Second, deep debt relief must be part of the deal. The refusal of the rest of Europe, and especially Germany, to acknowledge Greece’s massive debt overhang has been the big lie of this crisis. Everyone has known the truth – that Greece can never service its current debt obligations in full – but nobody involved in the negotiations would say it.

Greek officials have repeatedly tried to discuss the need to restructure the debt by slashing interest rates, extending maturities, and perhaps cutting the face value of the

By Jeffrey D. Sachs debt as well. Yet every attempt by Greece even to raise the issue was brutally rebuffed by its counterparties.

Of course, as soon as the negotiations collapsed two weeks ago, the truth about the Greek debt began to be stated. The IMF was the first to break the silence, acknowledging that it had been urging debt relief but to no avail. The United States then let it be known that President Barack Obama and Treasury Secretary Jack Lew had been trying to convince German Chancellor Angela Merkel and Finance Minister Wolfgang Schauble to offer debt relief to Greece, also without success.

Then even Schauble himself, by far the staunchest opponent of debt relief, admitted that Greece needed it; but he also claimed that such relief would violate European Union treaty provisions barring bailouts of governments. Following his remarkable acknowledgment (made publicly only after utter catastrophe had struck), Merkel herself opined that perhaps certain kinds of relief (such as cuts in interest rates, rather than in the debt’s face value) could do the job in a way that would be consistent with EU rules.

The fact that the Greek debt overhang was acknowledged only after negotiations had collapsed exposes the deep systemic failures that have brought Greece and Europe to this point. We see a European system of crisis management that is fraught with ineptitude, extreme politicisation, gamesmanship, and unprofessionalism. I certainly do not mean to excuse Greek clientelism, corruption, and mismanagement as ultimate causes of the

country’s predicament. Yet the failure of the European institutions is more alarming.

Unless the EU can now save Greece, it will not be able to save itself.

The EU today operates something like the US under the Articles of Confederation, which defined the US’s ineffectual governing structure after independence from Britain in 1781 but prior to the adoption of the Constitution in 1787. Like the newly independent US, the EU today lacks an empowered and effective executive branch capable of confronting the current economic crisis. Instead of robust executive leadership tempered by a strong democratic parliament, committees of national politicians run the show in Europe, in practice sidelining (often brazenly) the European Commission. It is precisely because national politicians attend to national politics, rather than Europe’s broader interests, that the truth about Greece’s debt went unspoken for so long.

The Eurogroup, which comprises the 19 eurozone finance ministers, embodies this destructive dynamic, meeting every few weeks (or even more frequently) to manage Europe’s crisis on the basis of national political prejudices rather than a rational approach to problem-solving. Germany tends to call the shots, of course, but the discordant national politics of many member states has contributed to one debacle after the next. It is the Eurogroup, after all, that “solved” Cyprus’s financial crisis by partial confiscation of bank deposits, thereby undermining confidence in Europe’s banks and setting the stage for Greece’s bank panic two years later.

Amid all this dysfunction, one international institution has remained somewhat above the political fray: the IMF. Its analysis has been by far the most professional and least politicised. Yet even the IMF allowed itself to be played by the

Europeans, especially by the Germans, to the detriment of resolving the Greek crisis many years ago. Once upon a time, the US might have pushed through policy changes based on the IMF’s technical analysis. Now, however, the US, the IMF, and the European Commission have all watched from the sidelines as Germany and other national governments have run Greece into the ground.

Europe’s bizarre decision-making structure has allowed domestic German politics to prevail over all other considerations. And that has meant less interest in an honest resolution of the crisis than in avoiding the appearance of being lenient toward Greece. Germany’s leaders might rightly fear that their country will be left holding the bill for European bailouts, but the result has been to sacrifice Greece on the altar of an abstract and unworkable idea: “no bailouts.” Unless some rational compromise is agreed, insistence on that approach will lead only to massive and even more costly defaults.

We are now truly at the endgame.

Greece’s banks have closed, its debt has been acknowledged as unsustainable, and yet the future of both the banks and the debt remains uncertain. The decisions taken by Europe in the next several days will determine Greece’s fate; wittingly or not, they will determine the EU’s fate as well.

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 15 - 21, 2015

12 | GREECE | financialmirror.com

What the stock markets think of Greece

By Oren Laurent President, Banc De Binary

On Friday, July 10, global stock markets from New York to London, Hong Kong and Shanghai rallied on the back of news that Greece is making serious concessions to come to an agreement with European creditors. This follows the July 5 referendum which sent markets into a tailspin and investors reacted emotionally, without considering the market fundamentals.

Shares on the LSE, NYSE, NASDAQ and Dow Jones rallied on Friday after taking their cue from similar gains across Europe. The rally that began in Europe and China soon spread across the Atlantic and generated bullish sentiment in the U.S. and the U.K. The ‘equity bubble’ that many analysts warned of in China appears to be less of a concern given the constructive actions taken by Chinese regulators to stem the declines and reverse the losses. However, analysts have pointed out that the average Chinese investor is not deeply invested in stocks, with an estimated 15% of the typical portfolio comprising equities.

The measures adopted by the Chinese included halting trading on over 50% of equities, setting up a multi-billion

dollar emergency fund with fund managers, relaxing regulatory conditions and preventing new IPOs. Combined, these initiatives helped to reverse weeks of losses in Chinese equities and to restore confidence to the global markets. The Hang Seng Index rallied by over 2.1% on Friday and the Shanghai Composite Index rallied by 4.5%. Since China is the world’s largest consumer of commodities, it is especially important how the Chinese stock markets perform as the spill-over effect is detrimental to copper prices, crude oil, iron ore, and agricultural produce, etc. The real concern however is how poor equity performance will impact on overall consumption in China.

Meanwhile in Europe, the IMF, EC and ECB are signalling greater optimism after Greece approached creditors with a bailout and repayment proposal. The Mediterranean country has been emboldened by the July 5 referendum, but it is clear that Greece wishes to remain in the eurozone with the euro as its currency unit. To this end, the Greek Prime Minister Alexis Tsipras presented his government’s plans for austerity measures, tax hikes, cuts to pensions and a 3-year bailout deal amounting to almost EUR 60 bln. An agreement with creditors could supersede the July 20 repayment of EUR 3 bln due to the ECB. The French Prime Minister Francois Hollande is confident that a Grexit can be avoided, but the Germans are more circumspect.

Several measures put forth by Greek Prime Minister Tsipras include the following: - 23% standardised VAT;

-Removal of solidarity grant for pensioners by 2019; - Removal of 30% tax break for Greece’s wealthiest islands; - Continuance of EUR 60 daily withdrawal limit at Greek banks; - Increased taxes on shipping companies; - EUR 300 mln in cuts to defence spending by 2016; Kneejerk reactions to equity market shocks are not uncommon.

However, it should be noted that the fundamentals of the Chinese market are sound. That China has been transitioning from an export-driven market to a consumercentric market is an important strategic change. The Chinese government has many powerful tools at its disposal to arrest further declines and spur economic growth at a rate of 6.5% to 7% for the year. With regards to Europe, the ECB is equally adept at using a wide range of resources to instil confidence in the region. “Quantitative easing” measures are but one such tool available. The low oil price is certainly a catalyst for economic growth.

Greece, Europe and the equity market Marcuard’s Market update by GaveKal Dragonomics After days of intense Greek psychodrama, with Francois Hollande playing the good cop and Angela Merkel the bad, Europe has once again served up a compromise. The deal reached on Monday imposes on Greece an

Marcuard’s Market update

by GaveKal Dragonomics even tougher plan than the one rejected by its people ten days ago. No doubt each of us will have a different take on what the agreement will mean for the future of Europe—and of Greece. However, surely everyone will agree with the late Chinese premier Zhou Enlai, who, when supposedly asked for his assessment of the French Revolution, responded that “it is too soon to tell”.

Nevertheless, from an equity market perspective the news is clearly positive, as the risk of Grexit has now considerably diminished. Assuming that over the next few days Greece begins to deliver on its promises, investors will quickly refocus on the outlook for corporate profits—where happily there is a great deal less uncertainty.

Even though the term “Grexit” has now appeared in the official language of European Union policymakers for the first time, the events of recent days have once again demonstrated that fears of the incalculable consequences should the eurozone break up remain strong enough to keep Europe on the “muddling through” path. The fact that a substantial majority of Greeks are still in favour of keeping the euro, even after five long years of economic hardship, is also telling. How much longer this consensus will last is unknown, but for now it remains solid.

Can Greek confidence recover after suffering so much political, financial and macroeconomic damage? We will know soon enough whether Prime Minister Alexis Tsipras can rally enough support from opposition To Potami, Pasok and New Democracy members of parliament to offset

defections from the hard left of his own Syriza party and its right wing Independent Greeks coalition partners. If he can, successfully transforming himself into a “Mitterandreou” or a “Renzimanlis”, the tax and pension reforms that the EU is demanding will be approved this week, as will a second round of conditions next week. After that, it will be up to Europe’s institutions, including the European Central Bank, to begin channelling money to the Greek government and the Greek financial system. If these early tests go smoothly, the plan forged over the weekend in Brussels will have a reasonable chance of working.

That’s partly because Greece’s economic situation has changed over the last few years.

The long period of agonising fiscal austerity, which saw the Greek budget deficit reduced from 15% of gross domestic product in 2009 to just 3.5% in 2014, is largely over. Had Greece not elected Tsipras six months ago, it would now be enjoying a gradual economic recovery, a small primary fiscal surplus, declining bond yields and even access to bond market refinancing. If a new political majority in Greece can restore a minimum level of confidence, an early return to a moderate primary budget surplus does not look impossible. Moreover, thanks to generous terms from its creditors, Greece is paying an effective interest rate of only 2.3%.

As a result, a nominal GDP growth rate any faster than 2.3% would be enough to begin to shrink the size of Greece’s debt relative to GDP. The starting point of Greece’s third bailout is therefore very different from those of 2010 and 2012, both for Greece and for the eurozone, whose economy is now recovering, supported by an aggressively expansionary ECB. Although certainly tough, the deal clinched on Monday in Brussels does not condemn Greece to eternal austerity and endless deflation. The key question now is whether, once it has demonstrated sufficient good faith, Greece will be allowed to follow

much of the rest of the eurozone down the path towards Thatcherite Keynesianism.

Under this model—now adopted, albeit reluctantly, even by France and Italy—the pain of necessary supply side reforms is alleviated by more moderate trajectories for deficit reduction and strong support from the ECB. Whether this is a politically realistic goal for Athens is an open question.

Nevertheless, Greece’s economic prospects under the current deal are very different than they were in 2010 or 2012, when the name of the game was all about massive fiscal consolidation.

After weeks of successive political Uturns, investors remain hesitant to conclude that the Greek crisis is over. As a result,

equity markets have not yet rallied as much as they might have done. Sure, eurozone stock indexes have recouped half the losses they sustained during the April-June period.

But in the context of a broadening and strengthening cyclical recovery in the eurozone, the elimination of Grexit risk has the potential to drive further gains.

We believe the second quarter earnings season, which will start at the end of the month, should help significantly. The lagged effect of the euro’s depreciation and, crucially, the fact that economic growth in the eurozone is now slightly above trend— probably somewhere close to 2%—should produce positive surprises for corporate profits.

July 15 - 21, 2015

financialmirror.com | GREECE | 13

Getting personal with the Greek crisis There is an important lesson here for Europe.

People selected to lead

By Lucy Marcus and countries or companies must have the technical Stefan Wolff competence – and the number-crunching support teams – needed to make Today’s decision-makers are supposed to good decisions. But that is never enough. embrace the virtues of big data, relentlessly Effective leaders must be able not only to pursue quantitative metrics, and then adhere represent a point of view, but also to work to the optimal course of action that these well with others to realise their vision. If powerful tools supposedly indicate. Yet if deals – whether on bailout arrangements, there is one thing that the Greek crisis has nuclear programmes, or corporate mergers – made clear, it is the importance of the could be concluded on the basis of human factor in negotiations. People and quantitative data alone, they would be. But their personalities, and the way they perceive they never are. one another, can make small debts seem For Greece and its creditors now, the unserviceable or large debts disappear with a latest agreement is only the first step. The six handshake. months of finger pointing and brinkmanship In a world that feels increasingly unstable, that preceded the deal have created a many seek reassurance in the illusion of mountain of mistrust among leaders and certainty that data provide. We want it in our citizens alike. journalism. We want it in our investment When multiple ceasefire agreements fail decisions. We even want gadgets that count in South Sudan and eastern Ukraine, or a our every step and heartbeat. We want to humanitarian truce in Yemen collapses bring our wellbeing and our future fully within hours, one or more of the parties is under our control.

But the Greek financial crisis serves as a said to lack “credible commitment.” reminder that life is not governed by data Similarly, when the Greek side proposes alone. In the end, outcomes may – and often essentially the same deal that it just called a do – depend on the amorphous yet essential snap referendum to reject, or when the qualities of integrity, trustworthiness, and Eurogroup of eurozone finance ministers, following Germany’s lead, simply ignores the interpersonal “chemistry.”

The importance of such factors was no unsustainability of Greece’s debt, the ability less clear in the negotiations over Iran’s to execute any deal must be in doubt.

What will make this deal work is quick nuclear programme. Whereas partisan grandstanding and nationalist posturing in ratification and credible follow-through in the Greek negotiations have eroded terms of day-to-day implementation. Both confidence in the entire European project, sides need incentives to stick with it and the negotiators on the Iran deal overcame an deterrents to defecting from it. Above all, even deeper trust gap. With arguably more at conditioning further, essential debt relief for stake, and despite the involvement of more Greece on its execution of the deal should be players with overlapping and, at times, used as a way to commit both sides.

A track record of failed implementation – antagonistic agendas, entrusting the process to professional diplomats, rather than elected of accepting bailouts without implementing the reforms needed to regain solvency – politicians, clearly paid off.

creates a climate in which deal making becomes ever more difficult. The risks are too high, especially when every development in the talks is spun for partisan advantage, to make leaders look smart, to label winners and losers, or to undermine progress by nitpicking the data.

It is to the credit of European leaders involved in the negotiations that they have been able to reach a deal in the face of enormous uncertainty.

They have committed not just financial resources but also significant political capital at a make-orbreak moment for Europe.

Given the lack of trust between the parties to the deal, the situation will remain extremely volatile for some time.

Quantitative data will be necessary to monitor Greece’s progress on carrying out the agreed reforms, as well as to determine the extent of further debt relief. But neither Greece nor Europe will regain a sense of stability merely because the data add up.

Their leaders’ personal qualities – their unshakable will and determination to make the deal stick – must add up, too.

Lucy P. Marcus is CEO of Marcus Venture Consulting. Stefan Wolff is Professor of International Security at the University of Birmingham. © Project Syndicate, 2015. www.project-syndicate.org

Broken trust...

Marcuard’s Market update

by GaveKal Dragonomics People are more likely to change their spouses than change their banks. The Greek crisis has tested this adage to the limit. For five years now, Greek banks have endured a “bank jog” of deposits out of the domestic banking system and into mattresses, foreign accounts and even bitcoins.

Amazingly, however, some EUR 130 bln in household and business deposits have stayed put. But when Greek banks reopen, who can doubt that the jog will turn into a run, or even a sprint?

If only a quarter of Greek depositors were to decide that keeping cash in institutions liable to be frozen for two weeks at a politician’s whim is not for them, that would mean EUR 32.5 bln heading for the door. Meanwhile, Greek banks have less than EUR 2 bln in cash at hand, according to one report, which raises the question: how can the Greek government conceivably re-open its banks?

There are two possible answers: 1) The Greek government cannot re-open its banks in any normal sense. Instead, Greece will have to follow the trail blazed by Iceland and Cyprus of enforcing capital controls and limiting withdrawals. In both economies, such bank controls contributed to a subsequent decline in GDP of almost double digit magnitude. Stringent controls on the movement of capital would surely have similar consequences in Greece. Add extreme fiscal tightening—a massive increase in value-added tax, and deep cuts in pension benefits coupled with an increase in retirement age—to the mix, and it is hard

to see how the combination of capital controls and tighter fiscal policy could do anything for Greek growth but trigger another collapse, rendering all forecasts for tax receipts and debt reduction invalid. This simple reality helps explain the reluctance of Europe’s policymakers (or at least the economically literate ones, which excludes Francois Hollande) to sign up to a plan that Greece would be utterly incapable of delivering.

2) European policymakers ask the European Central Bank to backstop Greece, providing Greek banks with unlimited funding. In this scenario, it is likely that between EUR 25 bln and EUR 50 bln would flow straight from the ECB’s printing presses into Greek pockets via Greek bank tellers. Having taken advantage of ECB liquidity to monetise a sizable portion of Greece’s savings, the Greek government would then be free to leave the euro at a greatly reduced cost—hardly a palatable option for Europe’s politicians.

In terms of their career prospects, the first option—in essence “extend and pretend”—is the least risky for the EU’s Eurocrats. Yes, it would condemn Greece to many more years of economic stagnation, just as it would condemn the Eurocrats to more late night meetings in Brussels and Frankfurt over holiday weekends when everyone would rather be at the beach. But it would keep the show on the road for everyone else, and would not cause massive disruption (outside Greece). Conversely, the second option— throwing a lot of good money after bad—risks leaving policymakers with egg on their face should Greece then decide to quit the euro in three to six months time. If Greece were to leave, who would want to be the finance minister that signed off on the last line of credit worth tens of billions of euros?

All of which brings us to the title of this article: “Broken Trust”.

Today, not only is the trust of the Greek people in their domestic financial institutions completely broken—and without trust, it is hard for capitalism to function, because capital gets hoarded instead of being allocated. As we clearly saw over this weekend, the trust between European governments is also severely compromised. In turn, this raises the question: How long will foreign investors retain their trust in the euro as a stable store of value?

Optimists argue that an “extend and pretend” solution that allows the current show to remain on the road is the most likely scenario. Moreover, with few foreign investors overweight eurozone assets, while everyone is overweight the US dollar, such an outcome is likely to prove bullish for the euro in the near term. As a result, the contrarian trade would be to buy the euro and European risk assets on the premise that the Europeans will once again manage to “get it together”.

Against that, the sorry spectacle offered to foreign investors over the past couple of weeks and the continued breakdown in trust should, at the margin, put more pressure on the ECB as the one functioning European institution to get even more involved, and to print money ever more aggressively. All else being equal, over time this should lead the euro lower.

So, perhaps the single most important question for global investors becomes whether the euro’s March low of EUR 1.05 to the US dollar gets taken out. If it does, parity before the year’s end will become a realistic target, with resulting implications for US Federal Reserve policy tightening, the Nikkei’s outperformance, eurozone bond yields, etc.

July 15 - 21, 2015

14 | PROPERTY | financialmirror.com

Myrianthousa wellness spa opens in Kalopanayiotis During his recent visit to inaugurate major public infrastructure projects in Kalopanayiotis, President Nicos Anastasiades also opened the ‘Myrianthousa’ spa and wellness centre located within the Casale Panayiotis.

The centre takes its name from the Setrachos river that runs down the Marathassa valley which boasts the “myriad anthi” (myriad of blossoms) deriving from the cherry, apple and almond trees all around.

The village is also known from older times for its thermal and mineral sources, used for healing purposes and in recent decades bottled for consumption.

The wellness centre and spa includes hydrotherapy and mud therapy, sauna and steam therapy, a ‘natural snow’ room, as well as relaxation rooms.

Natural products widely used include honey, regional grapes, eucalyptus, olive and almond oil, as well as citrus essence oils and herbs from the wider Troodos area.

The centre is fully equipped and is operated by qualified staff for sessions of personal calm, body and spirit harmony, wellness and revitalisation.

A stay at any of the 26 agrotourism units at the Casale Panayiotis can now be combined with sessions at the wellness centre and spa, while outdoor activities include a

Strong dollar curbs international buyers of US homes In the first four months of 2014, 2.5% of all homes sold in the United States were sold to foreign buyers. In the same period in 2015, that percentage dropped to 2.0%, down by nearly a fifth. Total U.S. home sales rose by 9% year over year for the same period.

According to a report in June from the National Association of Realtors (NAR), three-quarters of real estate agents reported that foreign exchange rates have a moderate to very significant effect on their foreign buyers.

Five countries account for 51% of all home purchases by foreign buyers: Canada, China (including Hong Kong and Taiwan), Mexico, India and the United Kingdom. And just four states account for half of all international sales: Florida, California, Texas and Arizona. More than 55% of international sales are all cash. According to the NAR report, unit sales of homes to foreigners declined by 10% in the 12 months between April 2014 and March 2015.

Eurozone countries experienced the largest currency decline compared with the dollar, down 23% in the fourmonth period from January through April 2015, compared with the same period in 2014. Sales to eurozone buyers dropped 32%. The Australian dollar fell 16% year over year and U.S. home sales to Australian buyers fell 24%. The British pound lost 10% compared with the greenback and purchases by U.K. buyers fell by 29%.

In each of the past three years, Chinese buyers have dominated the international sales numbers. Chinese buyers purchase homes valued at an estimated $12.8 bln in 2013, $22.0 bln in 2014 and a projected $28.6 bln in 2015. The Hong Kong dollar actually has appreciated against the U.S. dollar, and the Chinese yuan had changed little until equity prices began to collapse last month.

Hardest hit by the strong dollar are Canadians, who have seen the loony depreciate by 12% and who have cut their home buying in the United States by 34%. Almost half of sales to Canadians were located in the Miami-Fort Lauderdale-Palm Beach area, where home prices have risen as much as 8% year over year, according to CoreLogic. Coupled with a depreciating currency, the cost of house in south Florida jumped from 20% to 25% between the first four months of 2014 and the same period this year. (Source: 24/7 Wall St.com)

visit to the nearby St John Lambadistis monastery, a UNESCO designated cultural heritage site, trout fishing,

hiking, cycling or even mountain biking and quad safaris in the nearby mountains.

Sunrise opens Gardens Hotel in Protaras

The Sunrise Hotels Group has added the Gardens Hotel in Protaras to the chain, which opened in May and lies only 200 metres from the popular ‘Sunrise’ beach.

One of the biggest hotel investments in the past year, the Sunrise Gardens has 102 rooms, 24

family rooms, four suites, two restaurants and bars, three outdoor pools and a gym, as well as all the modern amenities and facilities, including free wi-fi in all areas.

The venture has also been a boost to the local economy as it has created 30 new job positions, while using

local contractors and labour, which has been a critical factor during recent difficult years of the economy.

The Gardens Hotel joins the other group properties – the Sunrise Pearl Hotel and Spa, the Sunrise Beach Hotel and Brilliant Hotel Apartments. www.sunrise.com.cy

Aristo Developers staff hold annual blood donation Aristo Developers held its annual voluntary blood donation at the head office in Paphos last week. This year’s drive was held in memory of fellow staff Anna Aristodemou, Keti Dolianiti, Anna Bata and Aki Iacovou.

The impressive turnout of staff and management, together with a stream of new donors, was a crowning achievement for the Paphos General Hospital Blood Bank. The significant amount of blood collected has already proven critical for the needs of a considerable number of citizens in hospital.

The company’s CEO and General Manager, Theodoros Aristodemou, thanked all the volunteers who generously donated blood, for contributing to the success of this annual event, and for their sincere expression of solidarity towards their fellow citizens.

July 15 - 21, 2015

financialmirror.com | PROPERTY | 15

Trying to understand certain mentalities µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

There are some things which I just cannot understand. We all believed that with the recent revelations about bribes and the enthusiastic way with which the Auditor General deals with unusual, to say the least, cases, that society would have overcome some of the older policies and attitudes. And yet, some attitudes still prevail, usually regarding the same stakeholders, which makes us wonder that behind every proposed bill, that eventually becomes law, there are such interventions that would be mildly described as “curious”.

For instance, we finally had some progress with the framework for the ‘casino resort’ where the building coefficient was set at 50%, and after deducting for green spaces, urban commitments, roads, etc, you might need around 300 donums (about 400,000sq.m.) of land. With the 50% coefficient determined by our MPs, perhaps these “wise men” who imposed this rate, will also inform us that the building of the central Casino Resort will not exceed two floors, something that would not surprise us considering their logic. Also, it is prohibited for state land to be used where the potential investor will be pumping in 500 mln euros.

But why? Why should the government not rent the land on a 99-year lease and benefit from steady annual income? Why should this privilege be limited only to private entrepreneurs? Surely, it should be up to the investor to decide.

At some stage there was also a proposal that the land fro the ‘casino resort’ also include golf. This would mean that such projects could only be developed in Paphos, while casinos in Las Vegas are located in the city centre with high-rises of 15 to 30 floors, and without a golf course. Who, then would really benefit from a casino resort of this type? Why should such an investment not be on the coast, maybe even on state land, where the resort operator would gain from a fast-track of relaxation of planning laws? It is clear that there are certain MPs, who either for their “love” for tourism development or for other reasons, are influenced by specific

owners. At the end of the day, for some of us who know the real “who’s who” of Cyprus, it is obvious to which owners the law seems to be directed.

Now let us discuss the laws about the height of the casino building and the hotel resort.

The ground floor, which will comprise the large gaming area without many columns, should not support the weight of each floor above. So, the other floors for rooms, etc. could be built to a height of 10 storeys, but this would mean a separate annex.

Otherwise, a beachfront location where players would be able to spend time or holidays with their families, cannot stay together in the same complex because of the exclusion of state land.

And here can one find such large areas of land? Ayia Napa (near the church), in Larnaca near the Mackenzie are or on Turkish Cypriot land, agricultural land near the beach of western Larnaca, east of Limassol and Paphos with the existing golf courses. Nicosia also has large areas of land, such as the Aglantzia and Makedonitissa areas, but these are not appropriate. Of course, the final choice should be the investor’s but we have not allowed for that decision to be taken fairly by designating in advance which areas are “most suitable”.

Once again, no serious concern into the

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matter by our members of parliament, as long as they are serving the interests of their own. And then we wonder why the state cannot participate in the project by providing public land, especially when the memorandum with the Troika of investors calls for the disposal of state-owned assets and property worth EUR 1.5 bln.

The situation is curious, suspicious even, because these are the facts. The President of the Parliamentary Committee (Zacharias Zachariou) has rightly stated that the more restrictions we impose, the quicker the interest of the investor will diminish. But who listens to him?

But why should we be in the least concerned or bothered with the casino worth half a when the water sports sector cannot follow the ‘prior actions’ proposed by our international lenders, simply because some ‘serious’ deputies insist that ant licensed operator of sae and beach sports should have experience in this area of at least 2-5 years.

Apart from the other silly limitations on this matter, this means that no one will be able to apply for a beach sports license, not even for the next 30 years. So, the Troika inspectors are right to ask, how can a bunch of 20 people influence the law? By the way, whatever happened to those gangs of municipal workers in Paralimni who were stealing some 200,000 euros a year from

public funds, by not declaring the rents collected from sunbeds and umbrellas and keeping the cash to themselves? No wonder the Minister of Interior is furious with the incompetent MPs for not only not passing the right laws through parliament, but also amending them in such a way that will cause us trouble in years to come.

Talk about Paralimni, I should remind you about the case of the “developers” who have put up seven containers in Protaras and converted them to “holiday homes”. Three years ago, I wrote to the Mayor and to the District Officer of Famagusta (who, truth be told, replied that this was a matter for the municipality) and sent photographs and town planning maps to newspapers for which there was no response. I have also mentioned before of the EUR 1 mln investment for volleyball courts that was abandoned. It seems that the Auditor General has now discovered these cases.

Perhaps, from now we should be sending our complaints directly to the Auditor General’s office.

Basically, this confirms that the indifference is credited solely to the local authorities. Why, then, should foreign investors be attracted to Cyprus when they can see and hear of such phenomena of corruption and incompetence which are published only in the English-speaking press and the international media?

As for the bill the Government wanted to push through to relieve property owners who mortgages were fully paid but whose title deeds remained stuck with the original developers, I wonder, why did parliament purposely postpone the discussion? I believe that here there is a curious attitude among some of our “well to do” deputies, while the statement of the Minister of Interior of “interest” that benefit lenders is an indication of what is going on. It is indeed surprising how such an important bill, that was deemed urgent and in the public interest, got delayed and will not b discussed or voted on because “the House will go on holiday.”

In conclusion, let me quote from an article in the local press that ended by asking, “why, mother, did you not let me become a porter so that I, too, could get a fat state compensation of 1 mln euros?” www.aloizou.com.cy ala-HQ@aloizou.com.cy

July 15 - 21, 2015

16 | WORLD MARKETS | financialmirror.com

Microsoft spent $9.4 bln on a sinking ship Less than one and a half years after Microsoft completed the acquisition of Nokia’s mobile phone division for $9.4 bln, the company announced a new plan to restructure its phone hardware business. The plan that involves a massive $7.6 bln write-down and the layoff of up to 7,800 employees is all but an admission of defeat, as Microsoft still hasn’t managed to gain traction in the smartphone industry. Looking at the chart, it doesn’t come as much of a surprise that buying Nokia turned out to be flop. The former market leader was already in steep decline, when Microsoft decided to shell out $9.4 bln for its handset business.

Going forward, Microsoft plans to trim down its bloated smartphone line-up and focus its efforts on business customers, the low-cost segment and high-end devices. (Source: Statista.com)

OPEC forecasts crude oil demand growth for 2015-2016 The Organisation of Petroleum Exporting Countries (OPEC) released its July Oil Market Report on Monday, and the cartel raised its forecast of 2015 global demand growth by 100,000 barrels per day to 1.28 mln. Total consumption in 2015 is now pegged at 92.61 mln bpd, up from the prior forecast of 92.5 mln.

OPEC also has raised its forecast for 2016 global demand growth to 1.34 mln bpd, with total demand expected to reach 93.94 mln.

The cartel reported as well that the average price of a barrel of oil from its reference basket fell by $1.95 a barrel in June, from $62.16 in May to $60.21. OPEC noted that money

Major US companies to add 100,000 new jobs A coalition of 17 companies announced a job creation program called the “100,000 Opportunities Alliance,” which has a goal of being the nation’s largest employer-led group committed to creating jobs for 16- to 24-year-old Americans.

Among the companies involved in the coalition are Alaska Air Group Inc. (NYSE: ALK), CVS Health Corp.

(NYSE: CVS), J.C. Penney Co. Inc. (NYSE: JCP), JPMorgan Chase & Co. (NYSE: JPM), Starbucks Corp. (NASDAQ: SBUX), Target Corp. (NYSE: TGT) and Wal-Mart Stores Inc. (NYSE: WMT).

The coalition will hold a jobs fair in Chicago on August 13, where the companies expect to make at least 200 onthe-spot job offers and hire a total of at least 1,000 Chicago-area youth over the next 18 months. The Chicago event will kick-off hiring and training efforts across the country with the goal of “engaging 100,000 Opportunity Youth by 2018.”

The impetus behind the coalition came when Starbucks announced in March that it planned to hire 10,000 lowincome youth over the next three years. Some of those will be replacements for current employees who leave the company, but Starbucks expects the majority to be new jobs at the company’s stores.

Starbucks CEO Howard Schultz told The Wall Street Journal, “We’re not displacing jobs, but creating incremental opportunities in most of these companies.”

The Journal also noted that the other companies are “largely creating new hourly-wage jobs focused mostly on young African-Americans and Latinos.”

According to Monday’s announcement, there are 5.6 mln American youth who are out of school and not employed, while there are 3.5 mln unfilled U.S. jobs.

managers continued to cut net long positions in the futures market.

Total OPEC crude oil production in June averaged 31.38 mln bpd, up 283,000 from May’s total. That is the highest monthly total so far in 2015 and well above the annual averages for 2013 and 2014. The total is based on non-OPEC estimates.

Total non-OPEC supply is forecast to average 57.69 mln bpd in 2016, up 530,000 barrels a day compared with the cartel’s May forecast, while noting that the forecast is “associated with a high level of risk.” U.S. product is forecast to grow from an estimated total of 13.85 mln bpd (including

NGLs and other liquids) this year to an average of 14.18 mln bpd in 2016.

Total world oil supplies are now forecast at about 92.77 mln bpd in 2015, about 150,000 barrels a day more than total demand. From a producer’s point of view, that is a welcome improvement over the recent oversupply totals of more than 1 mln bpd.

The news on Monday regarding a potential deal between Greece and its lenders has not overcome the possibility in traders’ minds that a nuclear deal will be struck with Iran, leading to the possibility that Iranian production could rise by nearly 2 mln bpd. (Source: 24/7 Wall St.com)

Will Apple launch iPhone 7 too soon?

By Douglas McIntyre Rumours reported in the press claim that Apple Inc. (NASDAQ: AAPL) will release the iPhone 7 before the end of 2015. The rumours have been specific. Apple already has ordered 90 mln units. Also, the iPhone 7 may change very little from the iPhone 6, which raises the issue of whether the iPhone 7 will be released too soon, given the ongoing demand for the current version.

The iPhone 6 is ten months old and barely will have passed its first birthday when the iPhone 7 is released. By almost any measure, the iPhone 6 has been successful. The first weekend the smartphone was available, over 10 mln units were sold. Apple sold more than 61 mln iPhones in the most recently reported quarter, up 40% from the same quarter last year.

According to Barron’s, Raymond James analysts increased their forecasts for iPhone sales in the quarter about to be announced, plus September, to as many as 50 mln units. In

the relentless cycle of rapidly updated smartphone models, perhaps Apple management does not want to fall behind.

Apple’s share of the smartphone industry profits has reached 92% among the top eight smartphone makers, according to reports of data from Canaccord Genuity, which analysed firstquarter data. If so, Apple has more than raw market share to defend.

However, what does Apple need to defend itself against?

Samsung, Apple’s multiyear rival, released its Galaxy S6 later than Apple did the iPhone 6. It has not sold well enough to challenge the iPhone 6’s dominate position. Samsung has lost its momentum in the smartphone sector. A new version of the Galaxy must be a year away, based on typical upgrade cycles.

Apple management has made a calculated risk, which is that the demand for the iPhone will go on at the levels it posted last quarter. But only if it keeps an aggressive upgrade cycle, they believe. By the end of the year, or early next, the market will tell if Apple acted too quickly while consumers barely have learned how to use their new iPhone 6 models.

(Source: 24/7 Wall St.com)

How often do Americans upgrade their phones?

When it comes to smartphone upgrades, there are three different types of people. There are those who can’t wait to get their hands on any new model their brand of choice churns out.

There are those who upgrade their device whenever their contract is up for renewal and there are those who stick to their device until it no longer works or becomes totally obsolete.

According to the surprising results of a Gartner survey among 15,000+ U.S. smartphone users, the majority belongs to the latter group; 54% of smartphone owners stated to stick it out with their device until the bitter end, while only 2% of the respondents admitted to purchasing a new phone whenever a new model arrives.

Interestingly, iPhone users tend to upgrade their phones more frequently than those using Android devices.

While 51% of Apple devotees usually upgrade to a new model as soon as their

provider allows it, the majority of Android users patiently wait for their phones to bite the dust before splashing out for a new device. (Source: Statista.com)

July 15 - 21, 2015

financialmirror.com | WORLD MARKETS | 17

The purpose of the stock market Marcuard’s Market update

by GaveKal Dragonomics When you’ve been around for as long as we have, you can’t help but come to a few conclusions—most of them unhappy. The first conclusion is that the stock market was invented to make as many people as possible as miserable for as much of the time as possible. In this sense, the stock market is a roaring success.

The second conclusion is that none of the explanations you hear advanced at the beginning of a fall in the stock market are ever the real reason for the market’s decline. There is immense admiration for all those commentators at Bloomberg and the Wall Street Journal who are able to declare each morning that “the stock market went down yesterday because…” . How can they be so certain? The stock market is one enormous game of bonneteau. The “house” whiffles around three upturned cups and a single coin. When the movement stops, the punter has to guess which of the three cups conceals the hidden coin. For the house, the name of the game is to trick the punter into concentrating on the wrong cup, so he—or she— misses what is really going on.

The stock market is a master at this game. In recent decades, we cannot recall a single occasion when the explanations advanced at the beginning of an incipient bear market turned out to be the genuine drivers of the market’s decline. Only much later did anyone piece together the real reasons for the market’s slump, usually far too late to be any practical use for investors wondering whether or not they should buy back in.

Armed with this knowledge, let’s look at the current market turmoil, and ask “What does this bastard want me to look at ?” The obvious answer is China and Greece.

So, deep down, we should be looking out for something else. And that something else is the US economy—which even as we speak could be entering a recession, probably with falling prices to boot.

Yes, yes, as Wimbledon champion John McEnroe used to protest: “You cannot be serious!” Perhaps not, but in our

www.marcuardheritage.com

experience serious people seldom make money in the markets. More often it is those whom the euphemistic British like to call “characters” who come out ahead.

So here we go. When the US Federal Reserve first rolled out its “unconventional monetary policy”, fronted by its dreadful zero interest rate policy, we wrote a paper entitled The High Cost Of Free Money. The point was that the stock market was going to go up, but that the economy would not grow—or rather that growth would at best be anemic. The recommendation was for investors to be invested in shares, but to realise that they were skating on very thin ice, since the basic mechanism at the heart of economic growth—the

home to roost. We have never understood how serious economists could believe that by fixing prices they could stimulate growth. Now, reality may be about to teach them something they did not learn at university.

If we’re correct, there could be a significant impact on the 2016 US presidential campaign, the future role of the Fed and other central banks, and on the economic profession in general (the last being the least important, of course).

In conclusion: reduce the volatility of your equity portfolios by as much as you can, extend the duration of your bonds, and sell low quality bonds.

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

Belarussian Ruble British Pound * Bulgarian Lev Czech Koruna Danish Krone Estonian Kroon Euro * Georgian Lari Hungarian Forint Latvian Lats Lithuanian Litas Maltese Pound * Moldavan Leu Norwegian Krone Polish Zloty Romanian Leu Russian Rouble Swedish Krona Swiss Franc Ukrainian Hryvnia

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

15390 1.5457 1.7772 24.62 6.7812 14.2567 1.1004 2.238 283.14 0.64037 3.1381 0.3912 18.8 8.1045 3.771 4.0206 56.9589 8.5408 0.9469 21.3

AUD CAD HKD INR JPY KRW NZD SGD

0.7423 1.2696 7.7517 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 3.7759 0.7080 0.3027 1508.50 0.3850 3.6413 3.7503 12.4619 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

process of creative destruction—was being suppressed. In a nutshell, the game was to remain invested in equities, so long as a recession was not looming.

Equipped with this knowledge, some time ago we set out to build a recession indicator for the US. Today the indicator is at zero, and one by one the economic signals are turning— in the wrong direction. If the past is any guide, continuous unemployment claims—which are going up—should be higher in three months time than they were two years ago.

Since 1966, this has never happened without the US going into recession, except once in 1985-1986.

So the real issue in the markets may not be China or Greece, but the US. After years of false prices for interest rates and exchange rates, it looks as if the chickens are coming

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 Note:

The Financial Markets

* USD per National Currency

Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

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

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.19 0.51 -0.08 0.06 -0.81

0.24 0.54 -0.04 0.09 -0.79

0.29 0.58 -0.01 0.10 -0.77

0.46 0.74 0.06 0.13 -0.71

0.78 1.05 0.17 0.24 -0.61

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.91 1.10 0.11 0.15 -0.72

1.27 1.36 0.21 0.17 -0.60

1.56 1.58 0.35 0.22 -0.44

1.81 1.75 0.50 0.28 -0.27

2.18 2.00 0.82 0.42 0.05

2.51 2.22 1.21 0.63 0.39

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1000 0.9091

100 JPY

1.5454

1.0561

0.8104

1.4049

0.9601

0.7368

0.6834

0.5244

0.6471

0.7118

0.9469

1.0416

1.4633

123.39

135.73

190.69

0.7674 130.31

Weekly movement of USD

CCY

Today

135.08

GBP EUR JPY

1.0395

CHF

1.5454 1.1000 123.39 0.9469

CCY\Date

16.06

23.06

30.06

07.07

14.07

USD GBP JPY CHF

1.1224

1.1212

1.1140

1.0978

1.0948

0.7189

0.7109

0.7081

0.7041

0.7070

138.55

138.60

136.08

134.51

1.0424

1.0389

1.0354

1.0350

Last Week %Change 1.5493 1.0975 122.49 0.9465

+0.25 -0.23 +0.73 +0.04

July 15 - 21, 2015

18 | WORLD | financialmirror.com

The age of Megaprojects

By Nancy Alexander We seem to be entering a new age of megaprojects, as countries, in particular those of the G-20, mobilise the private sector to invest heavily in multi-million (if not multibillion or multi-trillion) dollar infrastructure initiatives, such as pipelines, dams, water and electricity systems, and road networks.

Already, spending on megaprojects amounts to some $69 trln a year, roughly 8% of global GDP, making this the “biggest investment boom in human history.” And geopolitics, the pursuit of economic growth, the quest for new markets, and the search for natural resources is driving even more funding into large-scale infrastructure projects.

On the cusp of this potentially unprecedented explosion in such projects, world leaders and lenders appear relatively oblivious to the costly lessons of the past.

To be sure, investments in infrastructure can serve real needs, helping meet an expected surge in the demand for food, water, and energy. But, unless the explosion in megaprojects is carefully redirected and managed, the effort is likely to be counterproductive and unsustainable. Without democratic controls, investors may privatise gains and socialise losses, while locking in carbon-intensive and other environmentally and socially damaging approaches.

To begin with, there is the issue of cost effectiveness.

Rather than adopting a “small is beautiful” or a “bigger is better” philosophy, countries must build “appropriate scale” infrastructure suited to its purposes.

Bent Flyvbjerg, a professor at the University of Oxford specialised in programme management and planning, studied 70 years of data to conclude that there is an “iron law of megaprojects”: they are almost invariably “over budget, over time, over and over again.” They are also, he adds, subject to the “survival of the unfittest,” with the worst

projects getting built, instead of the best.

This risk is augmented by the fact that these megaprojects are driven largely by geopolitics – not careful economics.

From 2000 to 2014, as global GDP more than doubled to $75 trln, the G-7 countries’ share of the world economy dropped from 65% to 45%. As the international arena adjusts to this rebalancing, the United States has begun to worry that its hegemony will be challenged by new players and institutions, such as the China-led Asian Infrastructure Investment Bank.

In reaction, the Western-led institutions, such as the World Bank and the Asian Development Bank, are aggressively expanding their infrastructure investment operations, and are openly calling for a paradigm shift.

The G-20, too, is accelerating the launch of megaprojects, in the hope of boosting global growth rates by at least 2% by 2018. The OECD estimates that an additional $70 trln in infrastructure will be needed by 2030 – an average expenditure of a little more than $4.5 trln per year. By comparison, it would take an estimated $2-3 trln per year to meet the Sustainable Development Goals. Clearly, with megaprojects, the potential for waste, corruption, and the buildup of unsustainable public debts is high.

The second issue that must be considered is planetary

boundaries. In a March 2015 letter to the G-20, a group of scientists, environmentalists, and opinion leaders warned that ramping up investment in megaprojects risks irreversible and catastrophic damage to the environment.

“Each year, we are already consuming about one-and-a-half planets’ worth of resources,” the authors explained.

“Infrastructure choices need to be made to alleviate rather than exacerbate this situation.”

Similarly, the Intergovernmental Panel on Climate Change cautions that “infrastructure developments and long-lived products that lock societies into greenhouse-gasintensive emissions pathways may be difficult or very costly to change.” And, indeed, the G-20 has put in place few social, environmental, or climate-related criteria for the “wish list” of mega-projects that each member country will submit to its summit in Turkey in November.

The third potential problem with megaprojects is their reliance on public-private partnerships. As part of the renewed focus on large-scale investments, the World Bank, the International Monetary Fund, and other multilateral lenders have launched an effort to reengineer development finance by, among other things, creating new asset classes of social and economic infrastructure to attract private investment. “We need to tap into the trillions of dollars held by institutional investors… and direct those assets into projects,” said World Bank Group President Jim Yong Kim. By using public money to offset risk, the institutions hope to attract long-term institutional investors – including mutual funds, insurance companies, pension funds, and sovereign-wealth funds – who together control an estimated $93 trln in assets. Their hope is that tapping this huge pool of capital will enable them to scale-up infrastructure and transform development finance in ways that would have been previously unimaginable.

The trouble is that public-private partnerships are required to provide a competitive return on investment. As result, according to researchers at the London School of Economics, they “are not regarded as an appropriate instrument for [information technology] projects, or where social concerns place a constraint on the user charges that might make a project interesting for the private sector.”

Private investors seek to sustain the rate of return on their investments through guaranteed revenue streams and by ensuring that laws and regulations (including environmental and social requirements) do not cut into their profits. The risk is that the quest for profit will undermine the public good.

Finally, the rules governing long-term investment do not effectively incorporate long-term environmental and social related risks, as emphasised by trade unions and the United

Nations Environment Programme. Pooling infrastructure investments in portfolios or turning development sectors into asset classes could privatise gains and socialise losses on a massive scale. This dynamic can increase levels of inequality and undermine democracy, owing to the lack of leverage that governments – much less citizens – may have over institutional investors. In general, trade rules and agreements compound these problems by putting the interests of investors over those of ordinary citizens.

Left unexamined, the push toward megaprojects risks – in the words of the authors of the letter to the G-20 – “doubling down on a dangerous vision.” It is critical that we ensure that any transformation of development finance be crafted in a way that upholds human rights and protects the earth.

Nancy Alexander is Director of Economic Governance at the Heinrich Boell Foundation, North America. © Project Syndicate, 2015 - www.project-syndicate.org

July 15 - 21, 2015

financialmirror.com | WORLD | 19

What energy shortage?

By Jostein Eikeland If we were able to capture and use the energy from just two minutes of sunlight falling on the earth, it would be enough to fuel our cars, light and heat our buildings, and provide for all of our other electricity needs for an entire year.

Simply put, we humans are not facing a shortage of energy.

We are facing a technical challenge in capturing it and delivering it to consumers; and one of the most efficient ways to meet that challenge is to invest in better ways to store it.

Many of the world’s problems today can be traced to energy use, from conflicts over oil supplies and concerns about greenhouse-gas emissions to lost productivity and output stemming from shortages and blackouts. In many of the poorest parts of the world, the lack of energy stifles economic development. Globally, more than 1.3 billion people have no access to electricity; and some 2.6 billion have no access to modern cooking facilities. More than 95% of these people are in Sub-Saharan Africa or developing Asia, and 84% live in rural areas.

During the run-up to the recent presidential election in Nigeria, for example, a woman was asked what she wanted the candidates to deliver. She replied with a one-word answer: “Light.” Electricity, a basic commodity, would allow

her to continue to work and her children to study.

Unreliable or unavailable energy is a problem in much of Africa and the Indian sub-continent, as well as some other parts of Asia. According to a report by the International Energy Agency, improvements to the energy sector could provide the equivalent of a decade of growth in some of the poorest parts of the world.

Our global energy crisis has been aggravated by a lack of innovation. According to a study by the United States government’s Lawrence Livermore National Laboratory, more than 60% of the energy we use is lost between the time it is generated and the time it is consumed. This includes the inefficiency in converting fossil fuels to electricity, losses during transmission, wasteful consumer behavior, and the need to maintain a reserve to prevent blackouts.

A new wave of innovation is required, one that can eliminate waste, reduce pollution, and broaden access to energy around the world. That means focusing on efficiencyboosting technologies such as wireless communication, machine-to-machine communication, smart metering, and better production management.

Renewable energy sources, including solar and wind power, are well positioned to contribute to energy needs in both mature and emerging economies. But, because the sun does not always shine, and the wind does not always blow, energy from these sources is unstable and intermittent. And this will continue to be a problem unless, and until, we are able to store power from renewable sources efficiently.

Studies by the US Western Electricity Coordinating

Council have found that finding better ways to store energy could cut total waste by about 18% and boost the efficiency of electricity use by up to 11%. Better energy-storage methods would also make it easier to deliver electricity to hard-to-reach areas that are currently underserved, as well as help make the best use of often-scarce sources of power.

One well-tested method for storing energy is to use excess capacity to pump water into reservoirs, so that it can be used later to power turbines when demand is high. But this approach is practical only in mountainous areas, making it unsuitable as a mass-market solution. Promising areas of research include grid-scale batteries with the ability to charge and discharge tens of thousands of times and data analytics to optimise the use of the batteries and make the grid as efficient as possible.

It is not enough to generate energy. We must also use it efficiently, and the wide-scale adoption of state-of-the-art storage technology will be an essential part of the solution.

Ensuring that the world’s energy supplies are stable, efficient, accessible, and affordable will take time. But breakthroughs are on the horizon. Our task is to keep our sights there.

Jostein Eikeland is founder, Chairman, and CEO of Alevo. © Project Syndicate, 2015. www.project-syndicate.org

The Paris climate-change spectacular most of them owned by the supermajors – is some $28 trln.

The fossil-fuel industry’s influence is evident in the fact that governments worldwide are expected to spend some $5.3 trln this year subsidising it,

By Neth Dano and including the massive outlays necessary to counteract its Pat Mooney adverse health and environmental effects. In other words, the values of a Hollywood blockbuster. The cast governments meeting in Paris spend more will be huge: presidents and prime ministers subsidising the causes of climate change at center stage, supported by thousands of than they do on global health care or, for that extras, including protesters, riot police, and matter, on climate-change mitigation and busloads of media. The script may still be adaptation.

But that will not be part of the story in under wraps, but the plot has already leaked: This time, in sharp contrast to the failed Paris. There, the global public will be negotiations in Copenhagen in 2009, the presented with a narrative premised on two unproven forms of “geoengineering,” planet is going to win.

It is a seductive plot, but one that does proponents of which seek to manipulate the not quite hold together. Goodwill and hard planetary system. The effort that will receive bargaining, the world will be told, paid off. the greatest amount of attention is bioGovernments have agreed to voluntary energy with carbon capture and storage reductions in greenhouse-gas emissions that (BECSS). In May, the United States will prevent the planet from heating more Department of Energy convened a private than 2 degrees Celsius. Then, in a stunning meeting to discuss this technology, which deus ex machina, it will be revealed that the will be the fig leaf used by the supermajors to world’s largest fossil-fuel companies – the protect their assets.

Deploying BECSS, however, would so-called supermajors – have agreed to bring net emissions to zero by 2100, by capturing require the world to maintain an area 1.5 carbon at the source, sucking it out of the times the size of India, full of fields or forests atmosphere, and storing it underground. capable of absorbing vast amounts of carbon The planet will have been saved, and the dioxide, while still providing enough food for economy will be free to flourish. Cue the a global population that is expected to exceed nine billion by 2050. By then, the music and roll the credits.

The trouble is that the script is fiction, not technology’s advocates promise, biological documentary. The technology required has sequestration will be joined by programmes yet to be invented, and bringing net that capture emissions as they are released or emissions to zero simply is not possible. And, pull them out of the air to be pumped into like a Hollywood production, the Paris deep subterranean shafts – out of sight and conference’s message will have been heavily out of mind.

Fossil-fuel producers promote carbon influenced by those who have the most capture to allow them to keep their mines money.

The math is not difficult to follow. The open and pumps flowing. Unfortunately for world’s energy infrastructure – finely tooled the planet, many scientists consider it for the use of fossil fuels – is worth $55 trln. technically impossible and financially The paper value of the fossil-fuel reserves – backbreaking – especially if such technology The United Nations Climate Change Conference in Paris in December will feature all the tightly choreographed production

is to be deployed in time to avert chaotic climate change.

Preventing temperatures from rising out of control will require a second geoengineering fix, known as solar radiation management. The idea is to mimic the natural cooling action of a volcanic eruption, by using techniques like the deployment of hoses to pump sulfates 30 kilometres into the stratosphere to block sunlight.

The United Kingdom’s Royal Society believes that the need for such technology may be unavoidable, and it has been working with counterparts in other countries to explore ways in which its use should be governed. Earlier this year, the US National Academies of Science gave the technique a tepid endorsement, and the Chinese government announced a major investment in weather modification, which could include solar radiation management. Russia is already at work developing the technology.

Unlike carbon capture, obstructing sunlight actually has the potential to lower global temperatures. In theory, the technology is simple, cheap, and capable of being deployed by a single country or a small

group of collaborators; no UN consensus is required.

But solar radiation management does not remove greenhouse gases from the atmosphere. It only masks their effects. If the hoses shut down, the planet’s temperature will soar. The technology could buy time, but it surrenders control of the planetary thermostat to those who hold the hoses.

Even the technology’s advocates concede that their computer models predict that it will have a strong negative impact on tropical and subtropical regions. Climate change is bad, but geoengineering has the potential to make it worse.

The story that the Paris conference’s producers will ask viewers to believe relies on technologies that are no more effective than smoke and mirrors. It is important that we learn to see past them. The curtain will rise on a set of false promises, and it will close with policies that can lead only to mayhem – unless the audience gets into the act.

Neth Dano is Asia Director and Pat Mooney is Executive Director at the ETC Group. © Project Syndicate, 2015

July 15 - 21, 2015

20 | BACK PAGE | financialmirror.com

Winning the fight for global education In 2000, when the world adopted the Millennium Development Goals (MDGs), a promise was made: education is a right, and every child must be educated. Last week’s Oslo Summit on Education for Development confirmed the growing consensus within the global education community about what must be done to honor that pledge.

Norwegian Prime Minister Erna Solberg and Foreign Minister Borge Brende are to be congratulated. They not only helped to turbocharge the discussion, but also – and more important – helped to forge policymakers’ resolve to find the resources that will be required to get the job done under the upcoming Sustainable Development Goals (SDGs, which will succeed the MDGs).

Indeed, the first achievement of the Oslo summit was a call to get much more serious about closing the $39 bln annual gap in external funding needed to ensure that every child attends pre-primary, primary, and secondary school.

This is the bedrock of the proposed SDG to “ensure inclusive and equitable quality education and promote life-long learning opportunities for all.”

At the meeting’s close, Norway announced the establishment of a Commission on Financing Global Education Opportunities. The new commission, convened by Norway, Indonesia, Chile, and Malawi, and headed by former British Prime Minister Gordon Brown, will make the case for investment in education and reversal of the decline in overall funding. I believe this gives education the same opportunity that the health sector had following the adoption of the MDGs. At that time, the world secured the donor funding and introduced the innovating finance mechanisms that enabled widespread vaccine distribution and led to better ways to combat HIV, malaria, and other diseases. Today, we need to unlock the same doors to ensure that governments,

By Julia Gillard philanthropists, the private sector, and others step up to meet the world’s education needs.

The Oslo meeting also advanced work that is already underway to establish a cohesive response to the education crisis afflicting tens of millions of children caught up in war, civil strife, epidemics, and natural disasters. Children across Africa, the Middle East, and Asia have been driven out of school – many for years – compounding their misery and jeopardising their futures. The aim under the emerging approach is to have a new programme that responds to these children’s needs ready to start next year.

The Oslo meeting also affirmed new horizons. No one spoke more eloquently than Malala Yousafzai, the Pakistani schoolgirl and Nobel Peace Prize laureate. Her appeal for 12 years of quality primary and secondary education for all children electrified the meeting’s participants. “If nine years of education is not enough for your children, then it is not enough for the rest of the world’s children,” she declared.

“The world needs to think bigger and it needs to dream bigger.”

And so we shall. As world leaders head to Addis Ababa this week for the Third International Conference on Financing for Development, they will be guided not only by what happened in Oslo, but also by other important recent markers of global sentiment. For example, education has been endorsed repeatedly as the highest development priority in UN My World Surveys.

Likewise, in May, the Incheon Declaration of the World Education Forum endorsed quality education for all and called for the Global Partnership for Education (GPE) to be scaled up and strengthened.

The draft outcome document for the upcoming conference in Addis reflects the rapidly emerging consensus: “We will scale up investments and international cooperation to allow all children to complete free, equitable, inclusive, and quality early childhood, primary and secondary

education, including through scaling up and strengthening initiatives, such as the Global Partnership for Education.”

So what needs to be done in Addis – and beyond – to take this agenda forward?

For starters, it is essential that advocacy efforts to ensure better resourcing of the current GPE model continue, accompanied by a strategy to attract new donor governments and new private-sector and philanthropic engagement.

Moreover, there is a critical need to design innovative financing solutions that will work at scale, as well as to ensure better donor coordination, while efforts within developing countries to create functioning taxation systems and transparent government accounting must be better coordinated with efforts to improve domestic resource mobilisation.

Last but not least, it is essential to identify and agree on the best approach to meeting the educational needs of children in crisis and conflict.

As with the MDGs’ success in achieving its health targets, ensuring the capacity to meet the world’s educational needs will require exploring seed financing and then upscaling, after appropriate due diligence, new ways of working. Much can be done to create global goods platforms for educational inputs like books, technology, professional support materials for teachers, and student learning assessment mechanisms.

By bringing to bear the efficiencies that come with scale, such an approach promises to support country-led education planning and implementation.

The GPE’s members – 60 developing-country partners, donor countries, civil-society organisations, teachers associations, private-sector actors, and others, including UN agencies –are all ready to realise the SDG vision. Those most committed to these goals know that this is the time, this is our fight, this is what we must do for our children throughout the world.

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

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