Financial Mirror 2015 07 22

FinancialMirror Issue No. 1143 €1.00 July 22 - 28 , 2015

OREN LAURENT

JIM LEONTIADES

Has Germany imposed an impossible deal on Greece?

The Euro is destroying the European Movement PAGE 11

PAGE 12

Is Tsipras the new Lula?

VAROUFAKIS: EUROPE’S VINDICTIVE PRIVATISATION PLAN - PAGES 10 - 13

Is this the last year for property buyers’ bargains?

SEE PAGE 15

July 22 - 28, 2015

2 | OPINION | financialmirror.com

FinancialMirror

Seriously, can Greece move forward?

Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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For Alexis Tsipras, last week’s “capitulation” to lenders’ demands and his about-turn on the principles and declarations against austerity that got him elected, was bad.

For Greece, parliament reluctantly voting the ‘prior actions’ package and the mild Cabinet shuffle that followed the rebellion from within his own party, was good.

But the Prime Minister faces a second “crash test” on Wednesday with deputies voting on the measures that have been proposed in order to get a multi-billion line of financing and a lifeline to the cash-strapped banks. Hopefully, reason will prevail and these measures too, will pass, as this will mean an effective implementation of a plan that was generally ignored over the past five years, bringing matters to the edge of the abyss Greece finds itself today.

Already, banks re-opened on Monday, after two weeks of long queues at ATMs where Greek were humiliated to a daily withdrawal of 60 euros.

However, the difference with the capital controls that were imposed on Cyprus just over two years ago was that Greek savers were not subjected to the harsh bail-in to prop up their banks. The experiment in Cyprus, generally worked but the Eurogroup decided not to go down the same path.

Another measure tested in Cyprus, rather unsuccessfully, was the long capital controls that were imposed not only on individuals but also on businesses, with affected SMEs and the services sector accounting for about 90% of the island’s

economic output. As a result, small business continue to suffer even today, because the money supply running dry in 2013 has decimated companies’ cash flows, forced many to resort to layoffs and a lot are still struggling to pay their taxes and dues, which the government does not seem to understand.

Learning from the experiment of Cyprus and from the snail-paced reforms on the island, that slowed down the financing tranches from the Troika, Athens must learn to act fast in order to remove as much of the capital controls as possible, and as fast as possible. Otherwise, the Greek economy will simply slow down and halt to a final stop, without any indication of when it can restart again.

European politicians and economists have generally admitted that the belief that fiscal austerity would raise income, rather than lower it, was a mistake and many are trying to make amends, at least by showing more compassion towards the Greeks.

Furthermore, instead of taking the deal on offer last January in exchange for debt relief, Athens lost too much time.

But provided the government carries out its promises on privatisation, labour market and pension reform, these structural reforms are far more important than the fiscal targets, while Greece will now also benefit from unlimited monetary support from the ECB through the ‘quantitative easing’ programme.

To ensure a sustainable recovery, perhaps it is about time Tsipras gets serious and opposition forces lend a hand. Otherwise, we will be faced with yet another tragedy.

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 22 - 28, 2015

financialmirror.com | CYPRUS | 3

Food and drink costs less F r a p p é €2 2 a t P r o t a r a s , d o w n f r o m €4 4-5 last year

Prices have gone down at several coastal food and beverage establishments, the Cyprus Tourism Organisation said, adding that there has also been a sharp drop in cases where local businesses charged more than what their price list showed.

CTO Quality Assurance Department Deputy Director Giorgos Pericleous said that the price observatory has alarmed many coastal food and beverage establishments and has led them to cut their prices.

He said that the price of a frappe, the popular iced coffee drink, has gone down to 2 euros in some in parts of the tourist coastal area of Protaras, from 4 to 5 euros in previous years.

A comprehensive list is available at www.visitcyprus.com.

“It seems that there is a good momentum,” CTO Acting Director General Annita Demetriades told a press conference, speaking about the rights of consumers during their holidays in Cyprus, adding that “data for the first six months of the year shows an increase in arrivals of almost 6%”.

First half tourist arrivals exceeded one million, she said, noting that the drop in the number of tourists from Russia was more than covered from traditional markets.

Demetriades said that CTO and other stakeholders’ efforts have borne fruit and that revenue from tourism has increased as well.

“Nonetheless, there is a decline in the

Russian market, which was expected. We have achieved increased numbers from other markets that have covered the gap and this way we can manage the drop from Russia,” she said.

Demetriades said competition has led owners of coastal businesses to reduce their prices, if they find out that they are more expensive, compared with the consumer price observatory, prepared by the CTO. She noted that consumers have the right to complain to the CTO on 22691100 (up to 3pm) if they find out that they paid more than what the pricelist of the establishment says and the owner could be prosecuted.

Demetriades added that 57 beaches now

carry the Blue Flag for cleanliness, while 37 have access for the disabled.

She said that special equipment has been installed at five beaches to allow handicapped people to get into the water and the plan is to add a further five, while the “Sea Mobile” app developed in cooperation with the Oceanographic Centre of the University of Cyprus has general information about beaches.

Alternative activities to beach tourism include the agrotourism programme for rural establishments, the seven Wine Routes with information about 41 wineries, religious and cultural tourism and the ‘Short Breaks’ programme.

Cyprus breaks 1m tourist mark in 1H 2015, UK up The number of tourist arrivals breached the 1 mln level in the first half of this year, for the first time in almost a decade, according to official statistics, suggesting that the drop from Russia has been compensated by a an increase from the U.K. and Germany.

The Cyprus Tourism Organisation said this was “encouraging news and several conclusions are deducted from this data.”

In the January-June period, tourist arrivals reached 1,036,000, up 5.7% from the first half of 2014, according to the statistical service Cystat.

However, June arrivals totaled 337,000, down 1.5% from the yearearlier record monthly figure, making last month the second best June ever.

For the first half, the biggest number of arrivals of just over 400,000 was from the U.K., up 14% year-on-year, followed by a 25% increase from Germany, 42% from Greece and 49% from Israel.

In the period, tourists from Russia were less by 21%, but still remained the second best market.

“Based on all the data, this fall is manageable,” the CTO said, explaining that 2014 was an extraordinary year for Russian tourists and it was before the EU and western sanctions kicked in over the Ukraine crisis, sending the country into recession and the rouble tumbling.

July 22 - 28, 2015

4 | CYPRUS | financialmirror.com

Iran deal to help in Syria, Lebanon crises - Mogherini, Netanyahu to visit Foreign Minister Ioannis Kasoulides has welcomed the agreement reached on Iran’s nuclear programme and noted the EU’s contribution towards the achievement of the agreement.

During the EU Foreign Affairs Council (FAC), chaired by High Representative for Foreign and Security Policy, Federica Mogherini, Kasoulides said the agreement paves the way for the solution of problems in the Middle East countries, like Syria, Lebanon and Yemen.

As regards the peace process in the Middle East, he said that what is needed are small and stable steps in the coming months which can enforce the efforts to restart the peace process.

Bloomberg survey sees better growth, unemployment unchanged A Bloomberg survey of seven economists has indicated an improved GDP growth rate of 0.7% for the whole of the year, up from a contraction of 0.4% indicated in the previous forecast.

For 2016, the survey sees a batter than expected 1.5% growth rate, compared to 1.1% in the previous survey, while GDP in 2017 is expected to expand slower at 1.3%, compared to 1.9% in the previous forecast.

The survey, conducted between July 10 and 17, saw CPI inflation at -1%, 0.2% in 2016 and flat in 2017.

As regards unemployment, the surveyed economists do not expect a significant change over the current levels, with the 2015 average seen at 16.1% (16.0% in the previous survey, 15.8% in 2016 and 15.5% in 2017.

The current account deficit is seen at -4.0% of GDP this year, compared to a smaller -0.8% in the previous survey, with a -3.5%% deficit next year.

Finally, the seven economists expect the 2015 state budget to be lower at -1.4% of GDP, greatly improved from the -2.9% in the previous survey. For 2016, they expect it to be at -1.5% of GDP and -0.5% in 2017.

Defence budget cut by 8% The defence budget of Cyprus was reduced by almost 8% between 2010 and 2015, according to the annual report of the Cyprus Centre for Strategic Studies.

The report notes that for every Greek Cypriot National Guardsman there are 3.4 Turkish soldiers and adds that while the military situation in Cyprus remains basically unchanged since 2002, in terms of defence expenditure there have been drastic reductions on the side of the Cyprus government due to political and economic considerations. Defence budget declined from EUR 345.4 mln in 2010 to 318.9 mln in 2015, while armaments and maintenance have been reduced from EUR 105.4 mln to 68.7 mln for the corresponding years.

According to the report, the pressure on military expenditure is expected to continue in the foreseeable future.

In terms of military personnel, in 2015 the National Guard numbered between 8,500 and 12,500 and 50,000 reservists. The entire human military resources in the Republic, including the Greek continget ELDYK of 950 soldiers, is estimated at 63,450.

The Turkish troops total 43,000, with 3,500 Turkish Cypriot conscripts and 26,000 reservists. The total number of the military personnel on the Turkish side stands at 72,500. As regards battle tanks, the National Guard currently has 164, compared to 348 of the Turkish Forces.

As regards naval and air force presence, the Turkish Air Force and Navy enjoy extreme superiority in the Cyprus theatre both in the air and the sea.

He also said that Mogherini and Special Representative of the EU for the Middle East Fernando Gentilini must continue and strengthen their contacts with the interested parties.

Meanwhile, Mogherini, Israel’s Prime Minister and the UAE Foreign Minister are expected to pay a visit to Cyprus over the next two weeks.

Federica Mogherini will visit on July 24, Israeli Prime Minister Benjamin Netanyahu on July 28 and United Arab Emirates (UAE) Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan on July 29.

Government Spokesman Nicos Christodoulides said that Mogherini will meet with President Nicos Anastasiades and Foreign Minister Ioannis Kasoulides and that they will

discuss the regional role of Cyprus as an EU member state, the role which Cyprus can play as a bridge between the Middle East and Europe.

Mogherini’s visit most probably also concerns President Anastasiades’ initiative for Netanyahu and Palestinian President Mahmud Abbas to be invited to address the European Council.

As regards Netanyahu’s visit, Christodoulides said that the Israeli Prime Minister will discuss with President Anastasiades bilateral issues and issues concerning the Middle East region.

President Anastasiades visited Israel in mid June and invited Netanyahu to visit the island.

Bank of Cyprus sells Uniastrum for €7m Bank of Cyprus has finally disposed of its Russian subsidiary Uniastrum, albeit for a cash deal of EUR 7 mln, but ridding itself of about EUR 700 mln in risk weighted assets.

Following the deal, the last overseas subsidiary earmarked for sale in an effort to deleverage the bank from “non-core assets”, including a similar sale in Ukraine last year, its net exposure to Russia is now reduced to EUR 114 mln of loans and real estate assets which will “be reduced over time”, according to an announcement.

However, the island’s largest lender said it will retain its two representative offices in Moscow and St. Petersburg.

CB Uniastrum Bank LLC operates a network of 120 branches, focusing on retail and businesses in Russia, and employs 2,000 staff.

BOCY’s 80% stake in the bank and a leasing subsidiary have been sold to Artem Avetisyan, the majority shareholder in Bank Regional Credit, 147th biggest in Russia by assets, and the deal is expected to be completed by the end of the third quarter. During the fourth quarter of 2014, the Group’s operations in Russia were reclassified and treated as a disposal group held for sale.

The announcement said that “in light of the deteriorating economic conditions in Russia since mid-December 2014, the bank proceeded to reassess its operations in that country and significantly increased the level of provisions for impairment of its loans and other assets, reflecting a deliberately more conservative stance regarding the Russian economic outlook and significantly reducing the group’s exposure. Specifically, the bank recorded EUR 289 mln of provisions for impairment during the fourth quarter of 2014 and the first quarter of 2015 in relation to its Russian operations. In addition to these provisions, an impairment loss of EUR 84 mln was recognised against the carrying value of non-current assets within IFRS 5 measurement scope during the fourth quarter of 2014.”

The transaction carries a nominal consideration of EUR 7 mln and results in an accounting loss of EUR 29 mln, EUR 24 mln of which is from the technical unwinding of a foreign currency translation reserve. The remaining EUR 5 mln reflects a loss against the net book value of the assets and validates the accuracy of the write downs taken previously.

Deutsche Bank AG, London Branch, acted as financial advisor and Linklaters as legal advisor.

In March, when BOCY released its audited results for 2014, the total loss of discontinued operations for the year amounted to EUR 303 mln, of which a loss of EUR 299 mln related to the Russian operations, EUR 36 mln to the

Ukrainian operations disposed in the second quarter of 2014 and a profit of EUR 36 mln from the Greek operations due to the reversal of a provision recognised initially in 2013.

At the time, the bank raised its provisions for impairment of customer loans in Russia by EUR 30 mln “due to further information which became available.”

“The results of the fourth quarter were negatively affected by increased provisions and impairments in Russia, as well as the classification of the Russian operations as held for sale,” CEO John Hourican had said in a statement on February 25.

Hourican’s two main objectives had been to shrink the bank back to its core activities by selling off unprofitable assets and to reduce the bank’s high risk exposure to nonperforming loans, currently running at a national average of 50% of all loans.

In statements released to the media, the bank said it has deleveraged its balance sheet by EUR 3.5 bln, disposing of its Ukranian operations, its investment in the Romanian Banca Transilvania, its loans in Serbia, assets in Romania and the UK loan portfolio acquired from Laiki Bank.

“The bank is running a process to dispose of its operations in Russia,” the statement added, suggesting that Uniastrum, itself at the heart of a struggle by control by its former owners Gagik Zakaryan and George Peskov, would no longer burden the Group with a deterioration of its loanbook and deposits.

Recent Russian news reports suggested that the main contenders for Uniastrum included Alfa-Bank and BaltInvestbank, but that Avetisyan’s Bank Regional Credit had made the best offer.

On June 1, Uniastrum’s capital amounted to 6.6 bln roubles (EUR 110 mln) and with assets of 50.6 bln roubles (EUR 820 mln) was ranked 102nd biggest in Russia.

According to Interfax-CEA, Kostroma-based Bank Regional Credit is the 147th biggest by assets of 26.4 bln roubles (EUR 430 mln), less than half of Uniastrum, and has 18 offices.

Energy regulator quits ahead of sector reforms The Chairman of the Cyprus Energy Regulatory Authority (CERA) George Shammas has resigned and already informed the President last month. His term in office was supposed to expire at the end of January 2016.

Shammas told reporters that his resignation has been already accepted

by President Anastasiades and he asked to remain in office until September 30.

Shammas said that the main reason behind his decisionwas that he

had completed his task at CERA, noting that it would be much better for the regulatory framework of the electricity market to be implemented by a new Chairman. As he said, the implementation of the regulatory framework will last 3-4 years.

July 22 - 28, 2015

financialmirror.com | CYPRUS | 5

RCB Bank opens 2 new branches, 2 more soon Limassol-based RCB Bank, one of four systemic banks in Cyprus that passed the ECB stress tests last October with flying colours, has opened two new branches, one in Nicosia and one in Limassol, raising the total network to four, while it also plans to open two more by the end of summer.

The new branch in Nicosia is on 28th October Avenue in Engomi, and the new one in Limassol is on Kolonakiou street in Linopetra.

All RCB Bank branches are open from 9 am to 5 pm, despite the efforts of trade unions to open at 8am and close at 2.30, rendering Cyprus banking system

internationally uncompetitive.

Suggesting that RCB plans to expand its operations, the company said in an announcement that the opening of new branches “constitutes yet another step in realising RCB Bank’s plan to increase its local market operations and thus further solidify its leading position as a trustworthy, Cypriot bank.”

RCB Bank was established in 1995, is a members of the SSM mechanism and under direct supervision of the European Central Bank. As of March 31, its assets amounted to over EUR 11 bln and owner equity to EUR 500 mln. The bank also operates a branch in Luxembourg.

PwC Cyprus adds 3 new partners PwC Cyprus, the biggest of the ‘Big Four’ firms in the number of employees, has admitted into partnership three senior executives - Vassilios Vrachimis, Varnavas Nicolaou and Christos Charalambides.

They join the existing body of partners, whose number now rises to 42, only three of whom are women.

Vassilios G. Vrachimis has been with PwC team for the past 17 years, serving in both Cyprus and the United Kingdom. He is a CFA Charterholder and Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW). He specialises in delivering Assurance and Advisory Services to the banking and financial services sectors.

Varnavas N. Nicolaou joined PwC in London in 2000 and in 2003 joined PwC Cyprus when he became a member of the Institute of Chartered Accountants in England and Wales

(ICAEW). He specialises in indirect taxation and advisory services, mainly for multinational companies active in financial services, real estate, investment and capital management, international transactions and cross-border projects.

Christos S. Charalambides joined PwC Cyprus in 1999 and has been a member of the Institute of Chartered Accountants in England and Wales (ICAEW) since 2002. He specialises in domestic and international tax planning for companies active in Cyprus, as well as for multinational companies active in financial services, energy, raw materials, real estate and retail trade.

PwC Cyprus currently employs 900 staff and is a member of the PwC network of firms in 157 countries with more than 195,000 people.

July 22 - 28, 2015

6 | CYPRUS | financialmirror.com

Juncker appeals for solution, pledges funding H opes to vis it ‘reunified’ islan d nex t ye ar

European Commission President JeanClaude Juncker concluded a two-day visit to Cyprus on Friday and appealed to communities on both sides of the divide to keep up with the present momentum of peace talks and reach a solution the soonest possible.

He said that he hopes to visit a reunified Cyprus next year.

On Thursday, he told both community leaders that the Commission and the entire European family would stand by the side of Cypriots when a solution is reached and would not abandon them when the burden of the high cost of reunification is raised.

Addressing members of parliament before his final meeting with President Nicos Anastasiades and his departure from the island, the former Prime Minister of Luxembourg appealed to politicians to seize the moment and not leave it to the next generation He referred to family members he lost to concentration camps during World War II and said that if Europe could make peace within itself, “why should it not be impossible to do it here”.

“The past should not stand in the way of progress,” he said.

In his address to the plenary, House President Omirou welcomed Juncker and his pledge on Thursday for more active EU involvement to help Cyprus reach a political settlement, and his reappointment of Pieter Van Nuffel as the Commission President’s personal representative for Cyprus.

On Thursday, Juncker praised Anastastasiades and the Cypriot people for their commitment to the economic recovery programme, noting that “tough decisions and commitment paid off in Cyprus, as they did in Ireland, Portugal and Spain,” and expressing hope that “others will take note”, possibly a hint towards Greece.

Cyprus is expected to conclude its 3-year “bailout” programme in March 2016 with the present rate of cutbacks in the public sector and a controlled fiscal budget suggesting the government will not fully utilise the EUR 10 bln financial assistance package. But technical teams from the Troika of international lenders (EC, ECB, IMF) visiting the island this week, as well as the Heads of Mission arriving on Friday, are expected to express serious concern about the slow

progress in public sector reform, such as privatisations of power and telecom utilities and deleveraging of state assets, autonomy of the state hospitals and introduction of a national health scheme, and the wider reform of the civil service linked to meritocracy and slower pay increase.

In statements after his meeting in Nicosia with President Anastasiades on Thursday, Juncker said that “Cyprus found itself in a difficult economic position in 2013 but the Cyprus I am visiting today is very different.

The economy is beginning to grow, the financial sector has stabilised and you are again ready to take advantage of the opportunities of the future,” he noted.

He said that he saw Cyprus as “a beacon of stability and European values in a troubled part of the world.”

Juncker, accompanied by his “good friend” and Commissioner Christos Stylianides, said that this was his first official bilateral visit to an EU member state since he became President of the Commission, noting that he feels very close to Cyprus by heart and by personal friendship with Anastasiades.

The Cypriot President said that discussions included how Cyprus could benefit from the European Fund for Strategic Investment “which paves the way for much needed new investments in member states” and underlined Cyprus’s significant investment needs.

He said that he and President Junker share the view that a comprehensive settlement to the Cyprus problem would benefit all parties, the EU and the wider region.

“Turkey’s role in reaching a settlement is vital, and we expect that Turkey will contribute concretely to the efforts to reach a settlement,” he added.

Referring to the Cypriot economy, Anastasiades said that “we have successfully returned to the international markets and, since the beginning of July, we participate in the ‘quantitative easing’ programme of the European Central Bank.”

He also said that they discussed developments in the energy sector, that he informed Juncker on the latest developments in the hydrocarbons and energy sector in Cyprus, and discussed with him the different energy projects and proposals in the region,

as well as the possibilities for financial support from European funds.

In his comments on CyBC radio on Friday morning, Foreign Minister Ioannis Kasoulides said that “Juncker has always been positive to Cyprus, and even Greece.”

“Need I remind you that on that terrible night of March 13, 2013, Luxembourg was the only state that took a positive and sympathetic stance towards Cyprus. I remember him at the (European) Parliament as well, where he spoke the previous day a Prime Minster of Luxembourg very supportively of Cyprus.

Asked if things would have been different has Juncker been Eurogroup chairman, a position from where he stepped down a few months earlier, Kasoulides said “they might not have been, but when somebody handles such matters with sympathy, that do not insult, and do not humiliate, that is what matters.”

The Foreign Minister expressed his disappointment from his partners in the EU, especially in the Eurozone, because as regards Greece “we do not accept the way matters were handled and the attitude mainly towards Greece. The result may have been the same, but at least with some respect.”

As regards the EU’s increased role in the UN-mediated peace talks, Kasoulides said that Van Nuffel’s role would be to liaise with the EC and Juncker and to ensure that the EU norms and the acquis is respected and implemented in any future solution.

Referring to Mustafa Akinci’s comments that the EU’s role would not be a primary one in reaching a framework agreement, he said that any solution would have to confirm with EU rules and principles.

As regards Juncker’s comments on Thursday after a joint lunch with Akinci and Anastasiades that the long-standing dispute over the protected designation of origin (PDO) of the island’s native goat’s cheese, the ‘halloumi’ or ‘hellim’, had reached some breakthrough, Kasoulides said that an independent control mechanism has been decided which will be appointed by the Ministry of Agriculture and would inspect the cheese on both sides.

“This is about how it will be and through the ‘Green Line regulations’ (of trade between both communities across the divide) the legal basis will be stated which will allow the commercial use of the product.

This will be discussed at the next states” of the talks between the bicommunal technical groups and the two leaders.

Bureau Veritas is control body for halloumi, PDO expected Exports estimated at about

Bureau Veritas has been appointed as the control body in charge quality control of the island’s traditional ‘halloumi’ goat’s cheese, lifting the final obstacle for the semi-soft white cheese to secure the long awaited protected designation of origin (PDO).

This means that dairy producers on both sides of the island’s divide will be able to export their products freely and combat any attempt by cheese-makers in other countries to copy or label halloumi, or ‘hellim’, as their own.

The decision was announced by the European Commission in Brussels, a day after Commission President Jean-Claude Juncker had a joint meeting with Cyprus President Nicos Anastasiades and Turkish Cypriot leader Mustafa Akinci in Nicosia after he said that the deadlock on the subject had been broken.

Agriculture Minister Nico Kouyialis had been shuttling back and forth to Brussels for just over a year, trying to raise political objections to the PDO, which had been hampering export opportunities for both Greek Cypriot and Turkish Cypriot communities.

Exports from the Republic are estimated at about EUR 85-90 mln a year, while hellim shipments from the Turkish

€8 5 - 9 0

mln a year

Cypriot side are a fraction of that, but account for nearly 25% of all exports.

The PDO for halloumi, as well as issues such as mobile phone interoperability and the opening up of the Famagusta port in exchange for allowing Cyprus-flag vessels to dock in ports in Turkey, are some of the many ‘confidence building measures’ being discussed by Anastasiades and Akinci during the UN-mediate peace talks that attained a fresh momentum after the Turkish Cypriot leader was elected two months ago.

The EC announcement on Friday said that “a temporary solution to the common understanding on a temporary solution for Halloumi/Hellim, to be implemented pending the reunification of Cyprus, (has been) reached under the guidance of President Juncker on 16 July 2015.”

It said that “the internationally accredited body Bureau Veritas is appointed, in accordance with Article 39 of Regulation (EU) No 1151/2012 of the European Parliament and of the Council on quality schemes for agricultural products and foodstuffs, as the body in charge of the control tasks provided for by this regulation.”

It added that the reports made by Bureau Veritas will be

sent to the competent authorities of the Republic of Cyprus and to the Commission, a bone of contention among some Turkish Cypriot producers who do not want any form of control by the Republic.

“A proposal to modify the Green Line Regulation, in order to facilitate trade, will be adopted by the Commission on the same day of the publication in the Official Journal of the formal application to get the registration of Halloumi/Hellim as a protected designation of origin on the basis of Regulation (EU) No 1151/2012. As foreseen by the EU Treaties, the Commission will ensure the full respect of the relevant EU law.”

July 22 - 28, 2015

July 22 - 28, 2015

8 | COMMENT | financialmirror.com FOOD, DRINK and OTHER MATTERS with Patrick Skinner

By the sea-side

In our early days in Cyprus, our children – then in their 20s – used to come over most years in the summer holidays. Our Mini Moke was in daily use, and I think it knew its way to some of the best beaches and seaside eating places.

One of these, perhaps the favourite of all, was a secluded little bay just south of Avdimou, where you could swim, sunbathe and have a very simple meal of grilled fish, salad, chips and beer or wine. Our youngest son, a vegetarian, enjoyed Halloumi, egg and chips on regular visits. In the depths of a wet and cold English winter we often talk about times spent there.

My long-time friend and occasional contributor, Francis Geldart reminded me that the café-restaurant is still going strong, serving simple, well-cooked fresh meals, so I asked for a review. In these days of pre-cooked, fast-food, this place is a continuing joy!

Melanda Beach Restaurant – a family affair Business is booming at the Melanda Beach Restaurant, and I think it deserves to be.

Carefully cooked fish at fair prices has to be the recipe for success, particularly when the restaurant is sited in one of the prettiest unspoilt bays between Limassol and Paphos.

Andreas and Maria Tsiolos opened their small kiosk in 1979 serving sandwiches and cold drinks to visitors to Melanda Bay. They no doubt had high hopes for their new venture, but not in their wildest dreams could they have imagined how the family business would flourish over the years. Nearly 200 lunches were served on a recent mid-July Sunday!

The restaurant is now operated by the Tsiolos team – leader Makis (Andreas and Maria’s

A happy family business

Happiness is a fresh fish lunch by the blue, blue sea…

son), wife Maria, queen of the kitchen, and two sons Andreas and Angelos who lead the impeccable friendly service. Daughter Efi helps out at weekends. Andreas has supplemented all he learned about the restaurant business from his grandpa and dad with a four year catering course at Nicosia University.

And what about the food? Melanda does not go in for fancy gourmet fish dishes which so often spoil rather than enhance the basic component. The fish served is mainly grilled, always with the benefit of experience and care. Four recent visits to Melanda with groups of friends and inputs from others highlight the camalari, whitebait, octopus, bream, bass, as being particularly tasty. Prices are fair, ranging from 20 euros for a fish mezze and 9-15 euros for other fish dishes. For non fish eaters there is the usual selection of chops, chicken and also steak and kidney pie. The moussaka gets a particularly high mark. One friend who ordered a pork chop said it was delicious and got a second free of charge as compensation for missing out on the fish!

Makis, to his credit, is open to suggestions. A hint that the prawns are slightly overcooked will surely be followed up, as was a previous comment about the chips which are, today, fresh, hand-cut and truly delicious!

The wine list is limited but reasonably priced. A good local wine is available by the carafe at 7 euros for 75 cl., but our table’s preference was for a bottle of Vasilikon at 15 euros, which is a perfect partner for fish under the Cypriot sun. Sparkling water is served in sensible medium sized bottles.

Presuming that diners don’t have much room left after their salad and generous sized fish portions, only a few desserts are offered. The home made crème catalan flavoured with lemon and the baklavas are delicious. The restaurant is closed between November 30 and March 10. This is the period when the Tsiolos family sets to work on renovation and improvements. Last winter the toilet block was extended and would now warrant five star rating for a taverna washroom facility. Melanda Beach Restaurant has always been kept spruce and spotlessly clean.

Directions: approximately halfway between Limassol and Paphos, take Exit 38 off the highway (Avdhimou, Prastio, Pachna), drive towards the sea and follow the signs to Melanda.

Opening hours: daily for lunch and dinner except Monday evening.

Cost of meal for two: approx. 50 euros

Moët & Chandon brand ambassador in Cyprus Pierre-Louis Araud, Maître de Maison and Brand Ambassador of the Champagne house Moët & Chandon, was in Cyprus recently for a two-day presentation to oenophiles, banqueting managers and sommeliers from leading hotels and restaurants.

Pierre-Louis arranged for a special menu hosted by Photos Photiades Distributors, that included some of the most popular champagnes from Epernay, including the Grand Vintage 2003, the 68th from the Maison, “a profound champagne, one that announces its colours without artifice, intrigues by its honesty. A wine that, having weathered all challenges, has come through with

a robust serenity, a formal generosity and a comfortable presence,” according to the company. This is a blend of Pinot Meunier 43%, Pinot Noir 29% and Chardonnay 28%. Prior to joining the Maison in 2011, Pierre-Louis held a senior position at Rothschild France Distribution as Brand Ambassador and Product Manager within the spirits division in 2009-2011. From 2005 to 2008, he worked for Deloitte Consulting in a consumer business capacity as part of a He is responsible for overseeing public relations activities for the Maison’s Department of Heritage and Hospitality including the communication of wine messages within France and abroad.

July 22 - 28, 2015

financialmirror.com | MARKETS | 9

As collapse of IBM continues, CEO under pressure

By Douglas McIntyre As International Business Machines Corp.’s (NYSE: IBM) financial results continue a remarkable collapse, its CEO, Ginni Rometty, becomes ever more optimistic in her view of the company’s future. Rometty’s public comments are either a sign of self-delusion or a means to keep a job on which her grip weakens by the quarter.

Consider that IBM posted a 13.5% drop in revenue to $20.8 bln in the second quarter and that net income fell 16.6% to $3.6 bln.

Measure that against her reaction: “Our results for the first half of 2015 demonstrate that we continue to transform our business to higher value and return value to shareholders. We expanded margins, continued to innovate across our portfolio and delivered strong growth in our strategic

imperatives of cloud, analytics and engagement, which are becoming a significant part of our business.”

The marks of the transformation are that sales across every major IBM division fell last quarter.

Rometty’s excuse for results is that the company has entered new businesses that

Netflix continues to grow Thanks to continued strong international growth, Netflix added 3.3 mln subscribers in the second quarter of 2015. The popular streaming platform now boasts a total of 65.6 mln subscribers, 42.3 mln of which are based in the United States. International subcribers accounted for more than 70% of Netflix’s subscriber growth in the second quarter, as the company’s international push continued.

Netflix generated $1.64 bln in revenue between April and June, a 23% increase over last year’s June quarter.

Meanwhile net profit declined by more than 60% to $26 mln, mainly due to costs related to the company’s international expansion. In a letter to shareholders, CEO Reed Hastings explained that the company plans to operate around break-even through 2016 and to rake in substantial profits starting in 2017. (Source: Statista.com)

show promise: “Revenues from the company’s strategic imperatives — cloud, analytics, and engagement — increased more than 20% year-todate (more than 30% adjusting for currency and the divested System x business). Total cloud revenues increased more than 50% (more than 70% adjusting for currency and the divested System x business) yearto-date, and is $8.7 bln over the last 12 months, adjusted for the divested System x business. The annual run rate for cloud delivered as a service — a subset of the total cloud revenue — increased to $4.5 bln from $2.8 bln in the second quarter of 2014.

Revenues from business analytics increased more than 10% (more than 20% adjusting for

currency) year-to-date. Revenues from mobile more than quadrupled, and social revenues increased more than 30% (more than 40% adjusting for currency), both yearto-date.”

In point of fact, the cloud computing and business analytics fields are among the most crowded of the efforts of the world’s largest tech companies. In what is called the “cloud infrastructure services” sector, IBM will need to claw its way ahead of leaders Amazon.com Inc. (NASDAQ: AMZN) and Microsoft Corp. (NASDAQ: MSFT) and fight against other companies such as Oracle Corp. (NYSE: ORCL) and Google Inc. (NASDAQ: GOOGL) for a barely modest piece of what is left.

Rometty’s comments try to support her case that IBM’s cloud efforts can grow quickly enough to offset the rapid fall in sales from its traditional businesses. As it turns out, the results show her efforts are not anywhere close.

July 22 - 28, 2015

10 | GREECE | financialmirror.com

The good news from Greece Greece has reopened its banks, paid its dues to the European Central Bank and cleared its arrears with the International Monetary Fund. After five years of panEuropean economic depression and the near-death experience in Greece this month,

Marcuard’s Market update

by GaveKal Dragonomics can we finally say that the euro crisis is over?

The conventional answer is definitely not.

According to the vast majority of political commentators and economists, ranging from left-wing Keynesians such as Joseph Stiglitz and Paul Krugman, to conservative monetarists like Wolfgang Schauble in Germany and Charles Gave here at Gavekal, the Greek bailout was little more than an analgesic. It may dull the pain for a short period, but the deep-seated malignancies of the single currency project will continue to spread like cancer, with a dismal prognosis for the euro and perhaps even for the EU as a whole.

Luckily for Europe, and for risk assets around the world, these prophecies of doom are likely to prove wrong. In the end, the painful and chaotic negotiations of recent weeks may actually have produced a tolerable deal for both Greece and the rest of the eurozone. Far from marking the beginning of a new phase of the crisis, this settlement may go down in history as the end of a long series of desperate political gambles that ultimately created the conditions for economic recovery across Europe by correcting some of the worst design flaws introduced into the single currency by the Maastricht Treaty’s misguided monetary and fiscal rules.

To express guarded optimism about the Greek deal is not to condone either the provocative arrogance of former Greek finance minister Yanis Varoufakis, or the pointless vindictiveness of Schauble, his German opposite number.

Their unnecessary feud, fuelled by personal vanity, inflicted enormous costs on both countries.

Nor is it to deny economic criticisms of the bailout provisions levelled both by progressive Keynesians like Stiglitz and by conservative monetarists like Hans-Werner Sinn.

The arguments against creating a European single currency in the first place, and then against allowing Greece to cheat its way into membership, were absolutely valid

back in the 1990s, and in theory they still are. But this does not mean that breaking up the euro would be desirable, or even tolerable, in practice today.

Joining the euro was certainly ruinous for Greece, but there is always “a great deal of ruin in a nation,” as Adam Smith remarked almost 250 years ago, when the loss of its American colonies appeared to threaten Britain with financial ruin.

The great virtue of capitalism is that it adapts to ruinous conditions and even finds ways of turning them to advantage. The US in the mid-19th century was very badly suited to a single currency and a single economic structure, as demonstrated by the civil war, which was provoked as much by single currency tensions as by moral abhorrence of slavery. Italy would probably be better off today if Giuseppe Garibaldi had never unified it into a single economy. But once unification has happened, the pain of dismantling the political and economic settlement usually overwhelms the apparent gains from a breakup, at least in the eyes of the citizens and political leaders of the time. This seems to be the case in Europe today, as clear majorities of voters are saying in all euro countries, including Germany and Greece.

Thus the question that should have been asked throughout the euro crisis was not whether the single currency would break up, but rather what political reversals, economic sacrifices and legal subterfuges would be needed to prevent a break-up.

The good news is that Europe now has some persuasive answers. The bad news is that the Greek government, in its flirtations with academic game theory, completely misjudged its negotiating strategy. Instead of taking the deal on offer last January—an exchange of symbolic political concessions

by Greece for debt relief by Europe on terms very similar to those now accepted by prime minister Alexis Tsipras—Athens completely misjudged the four pre-conditions necessary for a successful bailout; conditions which now promise to stabilise the Greek economy and the euro, despite last week’s widespread scepticism.

1) First and foremost, Europe has overcome what could be described as the

“original sin” of the single currency project.

This was the Maastricht Treaty’s prohibition against “monetary financing” of government deficits by the ECB and the related ban on national governments mutually supporting each other’s debt burdens. In January, ECB president Mario Draghi effectively sidestepped both these obstacles by announcing a quantitative easing programme so enormous that it will finance the entire deficits of all eurozone governments (in theory now including Greece) and that will, in addition, mutualise a significant proportion of their outstanding stock of government bonds.

2) Secondly, European governments have belatedly understood the most basic principle of public finance. Government debts never have to be repaid, provided they can be rolled over in an orderly manner or monetised by a credible central bank. But for this to be possible, interest payments must always be made on time and the sanctity of debt contracts must always take precedence over electoral promises on pensions, wages or public spending. Now that the Tsipras government has been forced to acknowledge the unqualified priority of debt service obligations, Greece should have no great problem supporting its debt burden, since this is no heavier than Japan’s or Italy’s and can now benefit from unlimited monetary support from the ECB. 3) Thirdly, the domestic politics of Germany, Spain, Italy and several northern European countries, required a ritual

humiliation of radical Greek politicians and of the voters who openly defied the EU’s institutions and austerity demands. Having achieved this, EU leaders have no further reason to impose austerity on Greece or to strictly enforce the terms of this month’s bailout. Instead, they have every incentive to demonstrate the success of their “tough love” policies by easing austerity to accelerate economic growth, not only in Greece but across the whole eurozone.

4) This leads to the final issue which the Tsipras government, along with many commentators, naively misunderstood throughout the Greek crisis: European political economy always relies on what might be described as “constructive hypocrisy”. In any political system, there is a gap between public declarations and genuine intentions. But in the complex multi-national structure of the EU, this gap becomes an enormous gulf. On paper, the Greek bailout will impose a fiscal tightening, thereby aggravating the country’s economic slump. But in practice, Greece’s budget targets will surely be allowed to slip, provided the government carries out its promises on privatisation, labour market and pension reform. These structural reforms are far more important than the fiscal targets, both in symbolic significance for the rest of Europe and for the Greek economy itself. Moreover ECB monetary support, which can now be extended to Greece, will transform Greek financial conditions, drastically reducing interest rates, allowing banks to recapitalise, and gradually making private credit available for the first time since 2010. This easing of conditions for private borrowers could easily compensate for any modest tightening of fiscal policy, even if budget targets were strictly enforced by bailout monitors, which seems unlikely.

In short, the essential conditions now seem to be in place for a sustainable recovery in Greece. Majority opinion among economists and investors has a long record of failing to spot major turning points; so the near-universal belief today that Greece faces permanent depression is no reason to despair.

Banks reopen, Merkel urges swift bailout talks Greek banks opened once again on Monday after remaining shut for three weeks, the first sign of a return to normalcy after a deal to start talks on a new package of bailout reforms.

However, capital controls will remain and payments and wire transfers abroad will still not be possible. The stock market will also remain closed until further notice.

Limits on cash withdrawals have been made slightly more flexible, with a weekly limit of EUR 420 replacing the daily EUR 60 limit.

“That’s not a normal life so we have to negotiate quickly,” Anegla Merkel said in an interview with German public broadcaster ARD. The Chancellor said it would be possible to talk about changing the maturities of Greece’s debt, or reducing the interest Athens has to pay after the first successful review of the new bailout package to be negotiated.

Berlin, the biggest contributor to eurozone bailouts, would do all it could to bring talks to a successful conclusion but would “negotiate hard” to ensure Athens

stuck to agreements, she said.

“That certainly won’t be easy because there are things that we have discussed with all of the Greek governments since 2010 that have never been done, but that have been done in other countries like Portugal and Ireland,” she said.

Greeks will be able to deposit cheques but not cash, pay bills as well as have access to safety deposit boxes and withdraw money without an ATM card.

The tough terms of the bailout will see tax hikes, pension cuts, strict curbs on public spending, an overhaul of collective bargaining rules and a transfer of EUR 50 bln of state assets into a special privatisation fund. In exchange, Greece is hoping to receive loans of up to EUR 86 bln.

Increases in value added tax agreed under the bailout terms have also taken effect, with VAT on food and public transport jumping to 23% from 13%.

Acceptance of the bailout terms that meant the banks could reopen marked a turnaround for Prime Minister Alexis Tsipras, after months of difficult talks and a referendum that rejected a less stringent deal proposed by the lenders.

He sacked party rebels in a government reshuffle last Friday and is seeking a swift start to talks on the bailout accord with European partners and the IMF before elections, likely in September or October.

For the first time in months, technical teams representing the creditors are expected in Athens next week, to assess the state of the economy.

Tsipras, who barely has time to eat or sleep, according to his mother, faces a fresh challenge in parliament on Wednesday to approve a second wave of reforms tied to its economic rescue.

On Sunday, pro-government newspaper Avgi said the vote would be a “crash test” that could even result in the prime minister’s resignation. Tsipras’ coalition holds 162 seats in parliament, but in last Wednesday’s vote, only 123 government MPs backed the bailout — just over the minimum 120 required to sustain a minority government.

Nearly a quarter of Syriza’s lawmakers — 39 out of 149 — failed to support the reforms bill, which passed thanks to solid support from opposition parties.

July 22 - 28, 2015

financialmirror.com | GREECE | 11

Europe’s vindictive privatisation plan

By Yanis Varoufakis

On July 12, the summit of eurozone leaders dictated its terms of surrender to Greek Prime Minister Alexis Tsipras, who, terrified by the alternatives, accepted all of them. One of those terms concerned the disposition of Greece’s remaining public assets.

Eurozone leaders demanded that Greek public assets be transferred to a Treuhand-like fund – a fire-sale vehicle similar to the one used after the fall of the Berlin Wall to privatise quickly, at great financial loss, and with devastating effects on employment all of the vanishing East German state’s public property.

This Greek Treuhand would be based in – wait for it – Luxembourg, and would be run by an outfit overseen by Germany’s finance minister, Wolfgang Schäuble, the author of the scheme. It would complete the fire sales within three years. But, whereas the work of the original Treuhand was accompanied by massive West German investment in infrastructure and large-scale social transfers to the East German population, the people of Greece would receive no corresponding benefit of any sort.

Euclid Tsakalotos, who succeeded me as Greece’s finance minister two weeks ago, did his best to ameliorate the worst aspects of the Greek Treuhand plan. He managed to have the fund domiciled in Athens, and he extracted from Greece’s creditors (the so-called troika of the European Commission, the European Central Bank, and the International Monetary Fund) the important concession that the sales could extend to 30 years, rather than a mere three. This was crucial, for it will permit the Greek state to hold undervalued assets until their price recovers from the current recession-induced lows.

Alas, the Greek Treuhand remains an abomination, and it should be a stigma on Europe’s conscience. Worse, it is a wasted opportunity.

The plan is politically toxic, because the fund, though domiciled in Greece, will effectively be managed by the troika. It is also financially noxious, because the proceeds will go toward servicing what even the IMF now admits is an unpayable debt. And it fails economically, because it wastes a

wonderful opportunity to create homegrown investments to help counter the recessionary impact of the punitive fiscal consolidation that is also part of the July 12 summit’s “terms.”

It did not have to be this way. On June 19, I communicated to the German government and to the troika an alternative proposal, as part of a document entitled “Ending the Greek Crisis”: “The Greek government proposes to bundle public assets (excluding those pertinent to the country’s security, public amenities, and cultural heritage) into a central holding company to be separated from the government administration and to be managed as a private entity, under the aegis of the Greek Parliament, with the goal of maximising the value of its underlying assets and creating a homegrown investment stream. The Greek state will be the sole shareholder, but will not guarantee its liabilities or debt.”

The holding company would play an active role readying the assets for sale. It would “issue a fully collateralised bond on the international capital markets” to raise EUR 30-40 bln, which, “taking into account the present value of assets,” would “be invested in modernising and restructuring the assets under its management.”

The plan envisaged an investment programme of 3-4 years, resulting in “additional spending of 5% of GDP per

annum,” with current macroeconomic conditions implying “a positive growth multiplier above 1.5,” which “should boost nominal GDP growth to a level above 5% for several years.” This, in turn, would induce “proportional increases in tax revenues,” thereby “contributing to fiscal sustainability, while enabling the Greek government to exercise spending discipline without further shrinking the social economy.”

In this scenario, the primary surplus (which excludes interest payments) would “achieve ‘escape velocity’ magnitudes in absolute as well as percentage terms over time.” As a result, the holding company would “be granted a banking license” within a year or two, “thus turning itself into a full-fledged Development Bank capable of crowding in private investment to Greece and of entering into collaborative projects with the European Investment Bank.”

The Development Bank that we proposed would “allow the government to choose which assets are to be privatised and which not, while guaranteeing a greater impact on debt reduction from the selected privatisations.” After all, “asset values should increase by more than the actual amount spent on modernisation and restructuring, aided by a programme of public-private partnerships whose value is boosted according to the probability of future privatisation.”

Our proposal was greeted with deafening silence. More precisely, the Eurogroup of eurozone finance ministers and the troika continued to leak to the global media that the Greek authorities had no credible, innovative proposals on offer – their standard refrain. A few days later, once the powers-that-be realised that the Greek government was about to capitulate fully to the troika’s demands, they saw fit to impose upon Greece their demeaning, unimaginative, and pernicious Treuhand model.

At a turning point in European history, our innovative alternative was thrown into the dustbin. It remains there for others to retrieve.

Yanis Varoufakis, a former finance minister of Greece, is Professor of Economics at the University of Athens. © Project Syndicate, 2015 - www.project-syndicate.org

Euro destroying European movement “Terrorists”, “blackmail”, “lack of trust” are just some of the terms voiced during the recent negotiations between Greece and its Eurogroup partners. There were even suggestions that Greece should leave the common currency altogether. Such ill will is a far cry from the spirit which characterised the early days of the European movement.

The movement toward a united Europe began in the aftermath of World War II. Building on the common heritage and interests of Europe’s people, five countries united into a Common Market whose aim was to bring together the nations of Europe for purposes of peace and trade. National interests were protected by a provision requiring unanimous approval of major decisions.

The most fundamental change in the movement towards a united Europe has undoubtedly been the formation within the broader European Union of a group of countries which set out to create a common currency. The Eurogroup of 19 countries rapidly became the dominant force of the European movement, overshadowing the broader European Union of 28 nations.

Reservations in the Beginning Not everyone thought the group formed about a common currency would succeed. Some of the current problems were anticipated, some were not. It was never anticipated that a member country would emerge and come to dominate the decision making of the entire group, as is the case today with Germany.

Nor was it anticipated that this dominant member country would also be so strongly committed to a particular

By Dr. Jim Leontiades Cyprus International Institute of Management economic philosophy, using its dominance to influence the entire group toward its preferred economic policies.

Germany’s strong commitment toward what has been termed “austerity economics” has, against increasing opposition, shaped the economic policies and decisions of the Eurogroup.

A Lose/Lose Agreement The aim of the recent Greek negotiations was to arrive at a win/win solution to Greece’s economic problems. The result, as incorporated in the MOU, might more accurately be described as lose/lose.

Firstly, there is the damage to Greece itself. Based on austerity economics, the new MOU calls for new taxes, more debt and reduced spending, and is the medicine prescribed for a country with deficient demand, unemployment, empty shops and crowds of pensioners outside banks trying to get money to feed themselves. Much the same formula was applied previously. Why should the outcome be different?

There is every likelihood that it will not.

The IMF, itself a member of the Eurogroup, issued a statement which substantially comes to the same

conclusion, declaring the Greek debt unsustainable and the measures required of the Greek economy to be unrealistic and inadequate.

Greece must share a good part of the blame. The incompetence and corruption which has been endemic in Greece for many years, even before the establishment of the Eurogroup, must bear major responsibility. PM Alexis Tsipras, although a brave negotiator, exacerbated what was already a desperately mismanaged Greek economy.

The European movement itself is already a major loser.

Once associated with prosperity and unity, it has now become associated with the Eurogroup’s acrimonious meetings. Where there was at one time growing commonality across much of Europe, there are now divisions, distinctions as between and lenders and borrowers, rich and poor, North and South. For those countries unfortunate enough to require aid from the Eurogroup, the result has been record unemployment which persists (Spanish unemployment still at 24%) even when there is an improvement in GDP. Potentially the greatest damage to the European movement will result from the increasing dominance of Germany over its European partners. This is not helped by the growing discrepancy between German economic prosperity and the much poorer economic conditions in countries such as Greece and Cyprus. “German protectorate” is the term some have used to describe the current Greek situation. The bad feeling goes both ways. To quote a lead article in the Financial Times, “the euro is already poisoning Germany’s attitude toward Europe and Europe’s attitude toward Germany” (14.07.2015).

July 22 - 28, 2015

12 | GREECE | financialmirror.com

Has Germany imposed an impossible deal on Greece?

By Oren Laurent President, Banc De Binary

The Greek debt crisis may appear to have come to resolution on paper, but the reality is that nothing is further from the truth. The terms and conditions imposed upon Greece by Europe are near impossible to satisfy and a deeper, broader crisis is bound to ensue unless dramatic debt forgiveness is enacted.

Greece has been presented with an impossible deal: a EUR 86 bln bailout in exchange for austerity measures that are threatening to tear the country apart from the inside. Such is Greece’s determination to remain part of the common currency area that anti-austerity politicians have agreed to the unthinkable. In fact, Prime Minister Alexis Tsipras has had to radically reshuffle his cabinet to maintain a modicum of support amidst a swelling tidal wave of dissent.

In recent weeks, the Greeks have been placed under tremendous political pressure to bend to a deal that is impossible to satisfy. The former Finance Minister Yanis Varoufakis went as far as to say that all economic reforms being imposed upon Greece have already failed. For many European nations, the idea of a Grexit is a nonstarter. That

the Greek Prime Minister was forced to reshuffle his cabinet to replace opponents with proponents of the reforms is an indictment of just how difficult the terms of the bailout deal really are.

Greece is being forced to agree to a near impossible deal which it cannot possibly hope to satisfy given the massive debt-to-GDP ratio, capital flight, historic unemployment levels and complete loss of consumer confidence in the Greek economy. And even with all the concessions made by Greece, it is still not a done deal since European parliaments must vote in favour of the bailout and attendant repayments. Greek banks have been closed for weeks, and customers have only been able to withdraw EUR 60 per day as rigid constraints have been placed on the Greek banking system.

There have been positive developments with the bailout, since a EUR 7 bln European Union-wide emergency fund has been approved as a bridging loan for the country. With debt repayments due to the International Monetary Fund and the European Central Bank, the bridging loan will come in handy. But there is also something else taking root in Europe, and it doesn’t necessarily bode well for Germany. For decades, Germany has either been the beneficiary or the financier in Europe. But what has transpired with the Greek deal has got tongues wagging. The harsh terms and conditions of the bailout deal have caused a loss of credibility for Germany.

Many observers and participants to the talks considered the German position to be too harsh for a country that is

finding it increasingly difficult to breathe under such punitive financial constraints. What is clear is that German interests are taking precedence over European unity.

However, the Bundestag agreed to another bailout, and Chancellor Angela Merkel reluctantly consented to yet another bailout. There is talk that the European Union of today is not what the European Union of old was intended to be. For many analysts, the antagonist in this drama is Germany which is increasingly eager to sever ties with poorly performing European Union countries which it considers to be a burden on national interests. Time will tell whether the Greeks will be able to make good on their repayments, austerity measures and European Union standing. For now the can has been kicked down the road and the Greeks have had to digest a very bitter pill.

Please note that this column does not constitute financial advice.

Is Tsipras the new Lula?

By Jeffrey Frankel Professor of Capital Formation and Growth at Harvard University Greek Prime Minister Alexis Tsipras has the chance to become to his country what South Korean President Kim Dae-jung and Brazilian President Luiz Inácio Lula da Silva were to theirs: a man of the left who moves toward fiscal responsibility and freer markets. Like Tsipras, both were elected in the midst of an economic crisis. Both immediately confronted the international financial constraints that opposition politicians can afford to ignore.

On assuming power, Kim and Lula were able to adjust, politically and mentally, to the new realities that confronted them, launching much-needed reforms. Some reforms were “conservative” (or “neoliberal”) and might not have been possible under politicians of the right. But others were consistent with their lifetime commitments. South Korea under Kim began to rein in the chaebols, the country’s huge family-owned conglomerates. Brazil under Lula implemented Bolsa Familia, a system of direct cash payments to households that is credited with lifting millions out of poverty.

Tsipras and his Syriza party, however, spent their first six months in office still blinkered about financial realities, unable to see things from the perspective of others. The decision to hold a referendum on the bailout terms set by Greece’s creditors showed that they were politically blinkered as well.

If Tsipras were reading from a normal script, he would logically have asked Greeks to vote yes. But he asked them to vote no, which they did by a surprisingly wide margin. He evidently thought that this would strengthen his hand; instead, it merely strengthened the position of those Germans convinced that the time had come to let Greece drop out of the euro.

Only a week after the referendum, Tsipras finally faced up to reality: Greece’s euro partners are not prepared to offer easier terms. On the contrary, they are insisting on more extensive concessions as the price of a third bailout.

The only possible silver lining to this sorry history is that some of Tsipras’s supporters at home may now be willing to swallow the creditors’ bitter medicine. One should not underestimate the opposition that reforms continue to face among Greeks. But like Kim and Lula, Tsipras could marshal political support from some on the left who reckon, “If he

now says that these measures are unavoidable, there truly must be no alternative.” (The same thing has of course happened on the right: Only Nixon could go to China.)

None of this is to say that the international financial realities a country faces are necessarily always reasonable.

Sometimes global financial markets’ eagerness to lend results in unreasonable booms, followed by abrupt reversals.

Foreign creditor governments can be unreasonable as well. The misperceptions and errors by leaders in Germany and other creditor countries have been as damaging as those on the part of the less-experienced Greek leaders. For example, the belief that fiscal austerity raises income, rather than lowering it, even in the short run, was a mistake, as was the refusal in 2010 to write down the debt. These mistakes explain why Greece’s debt/GDP ratio is even higher today than it was then.

Each side’s refusal to admit its mistakes reinforced the other side’s stubbornness. The Germans would have done better to admit that fiscal austerity is contractionary in the short run. The Greeks would have done better to admit that democracy does not mean that one country’s people can vote to give themselves other countries’ money.

In terms of game theory, the fact that the Greeks and Germans have different economic interests is not enough to explain the poor outcome of negotiations to date. The

difference in perceptions has been central. “Getting to yes” in a bargaining situation requires that the negotiators not only have a clear idea of their own top priorities, but also that they understand what the other side wants most.

A “bad bargain” would call on each side to forego its top priorities. The European Central Bank should not have to agree to an explicit write-down of Greek debt. And Greece should not have to run a substantial primary budget surplus for now. Under a relatively “good bargain,” the creditors would modify interest rates and extend maturities further, as the International Monetary Fund now suggests, so that Greece does not have to pay the unpayable over the coming years, in exchange for growth-enhancing structural reforms.

One hopes that the awful experience of the last six months has led both sides to a clearer perception of economic realities and priorities. This will be necessary if the two sides are to arrive at a good bargain, rather than a bad one – or even an outright failure to cooperate, so that Greece effectively drops out of the euro.

A recurrent theme of the Greek crisis since it erupted in late 2009 is that both the Greeks and the eurozone’s creditor countries have been reluctant to consider lessons from previous emerging-market crises. After all, they said, Greece was a eurozone member, not a developing country. That is why, for example, the ECB and European Commission initially did not want Greece to go to the IMF and did not want to write down Greek debt.

Emerging market crises do hold important lessons. If Tsipras can now follow the course taken by Kim and Lula, he will serve his country well.

Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University. © Project Syndicate, 2015. www.project-syndicate.org

July 22 - 28, 2015

financialmirror.com | GREECE | 13

The ultimate responsibility for Greece still lies with Greece Angela Merkel and Jeroen Dijsselbloem who demand the hated austerity measures that Greeks rejected when they elected Syriza and rejected again when they voted ‘no’ in the referendum on the bailout, terms which Tsipras has now almost entirely capitulated to.

Of course, nobody is saying that reinstating the drachma would solve Greece’s problems entirely.

It would likely cause a whole new slew of problems, including bank runs, the collapse of the Greek banking system, and large-scale Associate Editor - Pieria.co.uk inflation. Yet it would, at least, set Greece on the path to a solution.

Remaining in the eurozone under the currency. (And that applies not just to Greece and southern Europe, but also to Germany charge of politicians who couldn’t seem to and northern Europe, as we are likely to see care less about Greek unemployment, debt should the currency union prevail without deflation, and who don’t recogise the the creation of a full fiscal union). The necessity of debt relief in putting Greece onto harmonisation of borrowing costs that a more sustainable economic trajectory just occurred in the wake of the currency’s kicks the can down the road. It doesn’t deal creation — flooding the periphery with with the problem. It just pretends that cheap money — is a long-shattered illusion. maybe, at some point in the future the Worse, the European Central Bank only half- problem will be solved. Of course, with the heartedly stands behind sovereign debtors, Greek debt remaining unsustainable — even support which as we have seen in Greece can in the eyes of the IMF — and the creditors be removed altogether should a national remaining unforgiving, this seems more like government stray too far from the ordoliberal a matter of postponing Grexit than fixing privatising orthodoxy demanded by Germany Greece. And meanwhile, the battered Greek economy must just eat up huge hikes in and her allies.

This effectively turns the euro into a bad taxes, including a 10% VAT hike, and the parody of the gold standard. The euro has battered Greek poor must just eat up more become a crisis magnifier and a crisis huge rounds of government spending cuts accelerator, turning what by historical and privatisations to assuage foreign standards were relatively mild Greek fiscal creditors.

Tsipras and his party have completely troubles that might have been otherwise ameliorated through a little devaluation, a failed to achieve its objective of an easing of little inflation, and more efficient tax austerity. They have completely failed to collection into an almost decade-spanning achieve a settlement that deals with the deflationary saga from which Greece and immediate troubles low growth and mass unemployment first, and the long-term Europe is yet to emerge.

And yet even now after years of deflation issues relating to pensions, spending and tax and mass unemployment, above 70% of collection over the longer-term. (In Greeks want to stay in the euro. That means medicine, dealing with the heart attack staying under the rule of hard-nosed, hard- before the blood pressure issues would be faced austerians such as Wolfgang Schaüble, obvious. But not so, it seems, in economics).

It should be quite clear by now what membership of the German-dominated currency union entails, especially for Greeks who have seen their country’s unemployment rate and youth unemployment rate balloon in the duration of the euro crisis.

The euro is a tragically badly designed

By John Aziz

Its strategy seems to have been to brusquely ask its creditors for relief. Its creditors — for reasons, I think, of rigid orthodoxy — thumbed their nose at Greece, portraying the Greeks as a bunch of stupid, rude, lazy buffoons. In the long run, this is counterproductive for the creditors as much as it is for the Greeks, if they want to see repayment of the debt, and economic growth in the continent.

But beyond asking, and making a few references to German debt writedowns in the wake of the Second World War, as well as the Nazi occupation of Greece, Tsipras appears to have had no strategy at all. It seems Tsipras — like the vast majority of his fellow Greeks — doesn’t want to jeopardise Greece’s euro membership. And, as Paul Krugman argues, this was never going to be enough to get Greece a better deal. The choice the Greeks should have offered the creditors was “give us sustainable terms or we leave”. If the creditors didn’t have the imagination to realise that giving the Greeks sustainable

terms would be good for Europe as a whole (including the creditors), then the Greeks should have had the chutzpah to leave.

Being in a currency union run by a bunch of ordoliberals who are quite happy to destroy the village with mass unemployment and economic depression in order to “save it” is not safe. It’s not hygienic. It is — for Greece, as well as the other eurozone members — dangerous.

And at this point, we must admit that it is self-inflicted. If Greece wants to stay in the German-dominated currency union, this is the cost. They — not the Greeks — are making the rules. Maybe the European project is a form of ordoliberal imperialism.

But — to be fair — it is not being imposed at the end of a rifle. If the Greeks don’t like living by Merkel and Schaüble’s ridiculous rules — heck, if Greece truly wishes to be a sovereign country and not a German vassal — they must move out. The fact that the Greeks are unwilling to do this is prolonging their crisis and compounding their tragedy.

Somehow, there is a Greek side to Europeans

By Dr Rainer Zitelmann On July 10, the Frankfurter Allgemeine Zeitung carried one of the best articles on the crisis in Greece I have read, a piece by Richard Fraunberger titled “At a Crossroads.” It articulates certain ideas that are as provocative as they are worth pondering: “Without a cultural and mental shift, Greece will never advance to the level of a modern European state, no matter what sort of reform the EU pushes for. But this is not the sort of shift that can be decreed. A shift requires awareness and plenty of time.”

“Greeks hope without thinking, says the Greek philosopher Stelios Ramfos. They take leave of their common sense. For them, politics is like witchcraft. No one is giving serious thought to the question of how the unemployment could be rolled back. The government will take care of it, even if it means creating government jobs. Government and pensions, these are the sacred cow.”

However, I should like to add: somehow, there is a Greek

side to most Europeans. That is why the Greek exit from the eurozone is such a tough question for them to answer. The notion that “the government will take care of it” is rather widespread in Europe, not just in Greece and not just among the political left. Sure, the opinion is more widespread among the French than it is among the British, but generally speaking, Europeans are inclined to have faith in government rather than in the forces of the market. The difference being that the notion is particularly prevalent in Greece.

The article goes on to say: “Greeks also have a different way of handling rules. While Europe is governed by the primacy of rules, the primacy of breaking rules governs Greece.”

Is it still safe to say that, though? Yes, it is, because the term “rules” is largely alien to the Greek. For them, playing by the rules is at most one of several options for action, nothing more. But has not the Eurozone crisis turned most Europeans into Greeks? Has not every rule in the book been suspended? Can you think of a single rule spelled out in the Maastricht Treaty that has not been breached yet? And do not the rules of the ECB and of the various bailout plans come up for discussion on a daily basis to twist them in a “shrink to fit” approach? Are the rules that were agreed just years ago and signed into law not broken day in, day out?

There is no way for Greece to be saved, because it lacks every kind of requirement. The most important prerequisite

would be to understand the truth about one’s own situation.

Such understanding is always the first step en-route to recovery. But there is no sign of it at all. What good does it do when the Greeks promise to get reforms under way that they themselves reject out of hand? Just in recent days, Alexis Tsipras stated time and again that he considers the reforms a misguided approach, even if he just consented to them.

If the eurozone member states cannot even cope with the comparatively minor issue of Greece (2% share in the crossEuropean GDP), it is perfectly obvious that the supposedly ever-so-effective protective mechanisms, bailout plans and all the rest of it have ceased to work. How will an umbrella that cannot protect you from a slight drizzle because it is full of holes and tears protect you from a shower of rain, to say nothing of a downpour? What if not Greece, but Italy or France, for example, had to be “bailed out”? The answer is in the question.

The Greeks are merely holding up a mirror to our faces.

The malaise of the European welfare state presents itself here in its most extreme symptoms – the distrust vis-à-vis the market, the erosion of the principles of the rule of law, and a naive faith in the ability of Big Government to straighten things out in some way.

Dr. Rainer Zitelmann is one of Germany’s leading real state experts. info@zitelmann.com

July 22 - 28, 2015

14 | PROPERTY | financialmirror.com

The numbers are promising, but have attitudes changed?

Short-term economic indicators and the economy as such might be improving, but if we are not vigilant the next economic mishap might catch us off guard and develop into a full-blown crisis again.

The real estate sector is problem-ridden.

It might be wise that from now on we adopt the successful practices of other countries and change our state tactics to replicate them. We should seriously consider starting from point zero.

TITLE DEEDS A strong example is that of the issue of title deeds. In 2013, the issue of about 100,000 deeds was still outstanding.

As part of our memorandum for reform, the Troika of international lenders had set the end of 2014 as the very last date for the issue to be resolved.

2014 is long gone, we are in the middle of 2015 and despite a herculean effort by the state agency responsible for it, the issue of around 40,000 to 50,000 title deeds is still pending.

The main reason for this monstrous delay are the wrong procedures we’ve been following for decades and which are not willing to change to bring about positive results.

BUREAUCRACY Each case has to be dragged through a considerable number of state agencies if the procedure is to be finalised.

This can take up to 3-4 years, despite the fact that it occupies quite a number of civil servants.

By George Mouskides and George Mavreas A common glitch is that in the midst of this lengthy procedure, an owner might interfere with the building (eg. change the structure of a veranda), and put the procedure on hold.

Even though the Town Planning Dept. offered an amnesty in the past to shorten the issue of titles, the plan never worked as our attitude and procedures remained unaltered.

In other words nothing has changed.

IMPORTED BUT EFFICIENT If we take the UK as our example, we can see that once a building is finished, and before anyone takes occupancy, a title deed is issued. The trick behind this success is that checks are carried out during the construction period and not after it is finished. Take into account that a lot of these checks are the responsibility of private sector civil engineers.

Honestly now, is that too difficult for us to follow here in Cyprus?

Another example of bad practice is the fact that a good number of commonly-owned apartment buildings have been left to deteriorate for a number of years and their value has plummeted.

Another serious market problem is that of ‘trapped’ property buyers who are without title deeds despite having fulfilled all their obligations. Outstanding issues between developers and the state have left these honest buyers in limbo. When the state finally decided to tackle the issue our honourable Members of Parliament decided it was time for their summer holidays and deferred the issue for some time in September.

RENT LAW The antiquated rent law is another hindering block for the real estate sector and nobody seems to be interested to tackle it. You might also want to add to the list the problems generated by tenants not paying their rent. Court procedures are so lengthy they often cause despair. Instead of court clerks putting pen to paper to record proceedings, surely the state could invest some money to provide them with modern stenography machines and make the system more efficient.

The conclusion is that not only do we lack strategy and planning in the real estate sector, but we are not even proactive, either. Our tax system is not well planned. We let problems pile up before we decide to act but then again we employ solutions after we make sure they will not disturb the ‘system’. The numbers will change, production will increase, but we need an attitude change at the same time. Procedures must change to become simpler and more effective. What we need is serious surgery, not just painkillers.

George Mouskides is General Manager, FOX Smart Estate Agency. George Mavreas is a Registered Valuator.

Leptos sees investment opportunity in Chania Out of every crisis there is opportunity and the phrase could not be more true in the case of Greece, where despite the economic situation, quality projects are still in great demand, mainly by foreign investors.

“Many people want to be by the seaside especially in the Greek islands of Crete, Paros and Santorini,” said Harris Menelaou Sales and Marketing Manager of Leptos Estates in Greece.

The company has recently released the “Aphrodite” seafront resort in Chania, set on the Cretan shores with an intricate mix of design, comfort and construction, inspired by Mediterranean living. Extensive use of local materials and lush landscaped gardens of local character, ensure the development is at one with the environment.

“Aphrodite” offers 1, 2 and 3 bedroom apartments and penthouses, 3 bedroom townhouses and villas, enhanced by a large themed communal area comprising of a large swimming pool and children’s pool, landscaped gardens and sun terraces.

A property management service, as well as rental and maintenance service are some of the additional benefits that owners of these properties will be able to enjoy.

For information, prices and terms of payment, call (+30) 28210 20830, contact infochania@LeptosEstates.gr or visit www.leptosgreece.com

Office markets in German cities continue to grow In its July 16 issue, the Immobilien Zeitung reported about the persistently high demand on the office markets of the leading German cities. Berlin’s office market, for instance, ended the first semester of 2015 with a record turnover of 337,000 sqm, an increase by well over 20%, as the paper reported on the basis of figures from major estate agencies.

At the moment, the majority of market analysts put the prime rent in Berlin at 23.00 euros/sqm, which is 0.50 euros/sqm more than was registered during the prioryear period. Since 2014, the average rent rose by 4% to 13.23 euros/sqm according to Catella Property, and to 13.75 euros/sqm according to Colliers.

The office market in Düsseldorf achieved the finest mid-year result in five years due to several major lease signings in H1 2015. Depending on what estate

agency you ask, the reported take-up ranged from 166,805 sqm (Catella) to 208,000 sqm (Aengevelt). Then again, the average rents reportedly dropped by 10% to 13.30 euros/sqm during H1 2015, according to Savills. The drop is explained by many major contract signings in peripheral office markets, as Panajotis Aspiotis of Savills was quoted as saying.

Calculations by CBRE suggest that there are 300,000 sqm of office accommodation on the market in Munich.

However, there are virtually no voids in downtown areas inside the ring road (Mittlerer Ring), nor are there any major developments in the near-term pipeline.

The Munich branch of Colliers determined that no more than 90,000 sqm will come on-stream in inner city locations between now and 2017.

In Frankfurt am Main, 323 new leases

signed during H1 2015 added up to a total take-up of 180,000 sqm, which represents the mean between the total quoted by several estate agencies. Roughly three out of four contracts were signed for units of less than 5,000 sqm, according to BNP Paribas Real Estate (BNPPRE). The prime rent was anywhere between 35.50 euros/sqm (JLL) and 39.00 euros/sqm (CBRE). The rent average climbed by one euro/sqm, and now equals between 18.50 euros/sqm (Savills) and 20.00 euros/sqm (Colliers).

The mid-year turnover in Hamburg totalled 1.95 bln euros according to stats released by JLL, which would exceed the five-year mean by 94% and the ten-year mean by 75%. Figures quoted by G&B suggest that 45% of the turnover represented package deals. (Source: German Real Estate News, info@zitelmann.com)

July 22 - 28, 2015

financialmirror.com | PROPERTY | 15

Is this the last year for buyers’ bargains? µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

Is 2015 the last year for opportunities real estate market? Some believe so, because sales in the first half of 2015 increased compared with the same semester of 2014, there seems to be economic recovery and therefore this is the end for bargains and deals.

I don’t share this view, without first questioning the statistics issued by the Lands Surveys Dept. By reducing VAT to 5% and transfer fees by 50% or even zero, it is true that there was an increased interest.

This interest is expected to increase further with the approval of the bill for transfers prior to 31.12.2016, the release of the mortgaged properties, as well as markets that will be exempt of the capital gains tax.

These measures, together with the legislation on passports and visas, permanent residence for foreigners (whose applications are seeing a growth rate) suggest a positive direction for the future, especially in view of the limited number of new construction projects available.

Real estate prices indicate, even to a small extent, a descending path. It should be stressed that the demand for land and agricultural land is not expected to recover any time soon because of the large supply and the large stock of land planned to be divided into plots (which are now on hold).

There is increased demand, which is encouraging, for apartments in selective locations and high cost homes in the EUR 800,000 - 1.1 mln range for coastal units.

In the category of holiday homes, Protaras remains as the primary target for Nicosians while Limassol is in great demand for high net worth foreign buyers, followed by Paphos primarily for British buyers (the strengthening of the sterling against the euro helps) and the interest from the Arab world is focused in Larnaca, where two specialist offices recently opened. Staying in Larnaca, with the new state of affairs in Iran, as well as the increase in direct flights from other Arab countries, the interest for the city of Kition is bound to increase.

Certainly, the lack of funding is the main reason that still holds back or restricts the demand in the market and most buyers either have trouble finding funding (even in the case of loans for 30% of the value, while the 100% payment in cash may even cause certain tax issues, as regards declaration an transparency.

That which we expect to receive the biggest increase is the sector of holiday homes with secured title deeds. A remarkable effort is being undertaken by the Land Registry to increase the pace of issuing titles, but for the process to reach their office a great deal of bureaucracy still needs to be overcome that has not changed as regards the issuing of planning permission or building permit, securing final approval

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

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certificate, etc.

It is also assumed that the “opportunities” diminish as time passes. True, the best bargains were in 2012 due mainly to jittery Britons who were selling their holiday or retirement their homes almost in a panic, but now the quality in the demand for such these holiday homes has declined, perhaps pushing prices lower.

I believe, therefore, that maybe 2015 is the last year for a certain type of quality opportunities. The market is expecting the course from the foreclosures by banks but I do not think that this will create particular opportunities, particularly in units with title deeds. The new buyer will have to pay the transfer fees, to secure the title, to undertake repairs, etc. and finally add his profit. Perhaps foreclosures will create opportunities for commercial or industrial properties - and to a lesser degree for vacant plots or good quality residential estates, while i n v e s t m e n t opportunities (eg

modern offices for rent especially in Limassol) are still not producing a high yield, despite the fact that rents are at about EUR 20 / sq.m. I must add that I have yet to see commercial offices for sale that fall in the category of distress sales or forced sales.

Certainly, the situation as it is today is gradually improving, but our market remains so fragile and continuous changes that it is difficult to draw final conclusions even for the medium term, while the various announcements by developers or real estate agents and others referring to a rapid recovery are rather driven by their own interests.

Recently, we have seen a widening in the gap between the asking price and the final agreed price.

There is so specific percentage to suggest this because the seller determines the final price and it still depends on the pressure and the need for the seller. But generally a variation of 5% - 10% depending on the quality of the sale is a good indication.

On a final note, we are all waiting to see what the future holds, including any prospects of a Cyprus settlement. www.aloizou.com.cy ala-HQ@aloizou.com.cy

July 22 - 28, 2015

16 | WORLD MARKETS | financialmirror.com

How PayPal’s market cap measures up When eBay announced in September 2014 that PayPal would be spun off into a separate company, stock markets applauded the decision and the company’s share price soared. Spinning off PayPal, which was responsible for most of eBay’s revenue growth recently, was supposed to give the payment provider more flexibility to navigate a rapidly evolving market space in order to stay on top of the online payments industry in the face of intensifying competition.

After the spin-off was completed on Friday, PayPal started trading on the NASDAQ on Monday morning.

The company’s valuation, just shy of $50 bln, confirmed that those who argued that PayPal was the more valuable part of eBay’s business were actually right. Today’s chart illustrates how PayPal measures up against other big names in the tech industry in terms of market capitalisation. (Source: Statista.com)

Did Apple sell 50 mln iPhones this quarter?

By Douglas McIntyre How many Apple Watch units did Apple Inc. (NASDAQ: AAPL) sell in the most recent quarter, results of which will be reported this week? Did iPod sales top iPad sales? Has the Mac cut into sales of tradition personal computers? None of those things matter if Apple did not sell 46 mln or so iPhones.

Most of Wall Street has put together research that shows Apple will sell 44 mln to

48 mln iPhones. Anything below 46 mln will send the stock into a spiral, dropping it well down from its nearly 52-week high. Apple shares trade near $130, up 37% in the past year. The company’s market cap has reach $747 bln. The number two public corporation in terms of market cap is energy juggernaut Exxon Mobil Corp. (NYSE: XOM) at a mere $405 bln.

Apple’s revenue in the April quarter reached $58 bln, with iPhone sales of 61 bln.

Apple management said that revenue in the most recent quarter would be $46 bln to 48

bln. Apple is notorious for offering very conservative forecasts. Some analysts believe that this tactic allows the company to almost always beat expectations, which in turn drives its stock higher.

Expectations for the quarter about to announced, however, have already outrun Apple’s forecast. Analysts, based on consensus, have posted expectations at the very high end of Apple’s prediction.

For Apple to truly top what Wall Street expects, it would have to have sold 50 mln iPhones last quarter. Almost any forecast

that high has as a foundation in Apple’s sales in China. Management has said several times that extraordinary sales in China will not only be the key to success now, but will be the major driver of Apple’s success in the years to come.

Did Apple sell 50 mln iPhones in the last quarter? That result is the only thing that can lift the stock higher. Apple may release a new iPhone in the current quarter, but if it did not sell 50 mln in the most recent quarter, no one will care. (Source: 24/7 Wall St.com)

EUR/USD Short-term Technical analysis Analysing the daily chart of EUR/USD it is clear that the pair is moving in a downtrend. We observe the formation of a bearish failure swing reversal pattern which occurred between June 18 and July 10.

The first top (A) was formed on June 18 with high price at 1.14351. A bottom (B) followed on July 7, with low price at 1.09151, which was again followed by a second top (C) on July 10, with the high price 1.12150 being lower than the previous top (C < A).

We then observed a downward movement, breaking the bottom of the swing (B) and continuing until Friday, July 17, when the price closed at 1.0817. Since we see a break and a

By Constantinos Miaris FX Prop-trader YESFX Ltd www.yesfx.com.cy close of a candlestick below level B, indicating that the bearish reversal pattern is confirmed, the price is more likely going to move further down.

Target can be set simply by measuring the vertical

distance from point A to point B. We then use that distance as a target from the break point of level B and further down, to see that the price is likely to reach the level around 1.0395.

Fibonacci levels also confirm our target setting. By using Fibonacci measurement from point B to point C, we get the first target (161.80) around 1.0730. The second Fibonacci target (261.80) is around 1.0430, close to our swing target, indicating that over the next few days, the EUR/USD currency pair is more likely going to move further down to 1.0730 and if that level breaks, the price might reach the area of 1.0395 – 1.0430.

July 22 - 28, 2015

financialmirror.com | WORLD MARKETS | 17

Be greedy when others are fearful Marcuard’s Market update

by GaveKal Dragonomics “Be fearful when others are greedy, and greedy when others are fearful,” as Warren Buffett may or may not have said. Either way, when it comes to Chinese equities, this is sound advice. The -30% slide in the Shanghai Composite index over the last month stunned a market in which greed had been pumped up to stratospheric levels by a 153% rally over the previous 12 months. As with all previous leverage-propelled booms, the runup eventually rolled over into a deleveragingdriven crash. Unsurprisingly the attendant volatility has instilled investors with a greatly heightened fear of owning Chinese stocks.

At first glance, international investors did not need to worry too much. As far as most were concerned, the sell-off in onshore Chinese Ashares was an isolated event, given that foreigners owned only a tiny fraction of domestically-listed equities. But as the slump intensified, Asian companies which depend on Chinese demand, or that are proxies for China’s growth, found themselves increasingly vulnerable to selling pressure. Japanese tourismrelated stocks, Korean exporters and Australian miners all tumbled much more than their respective home markets.

Meanwhile, mainland investors, who had been caught off-guard by the wholesale suspension of A-shares and the bans on stock sales imposed by Chinese regulators, turned to the Hong Kong market as a cash machine.

Unable to monetise their onshore portfolios, they cashed in shares acquired through the Hong Kong market as a liquid alternative. This dynamic explains, at least in part, why repatriation flows from Hong Kong to mainland China through the Shanghai-Hong Kong Stock Connect channel have surged to more than RMB1trn a day in the last two weeks, reversing the usual direction of travel. At the same time, the Hang Seng China AH premium index soared to a six year high of 149, indicating that Ashares were valued at a 49% premium to their Hong Konglisted counterparts.

Yet, although valuations in Hong Kong may now look attractive, investors remain fearful. Although Beijing has done its utmost to assure the domestic market that The Xi Jinping Put is firmly in place, the administrative support measures announced on July 11 have created almost as many fears as they have quelled. The Unequal Sell-Off In Chinese Stocks, which could have been a healthy deleveraging process, has been badly distorted by official intervention. With a quarter of Shanghai A-shares still suspended, there are widespread doubts about what will

www.marcuardheritage.com

Verizon’s earnings were not good enough

Verizon Communications Inc. (NYSE: VZ) reported second-quarter 2015 results before markets opened on Tuesday. The telecom giant reported quarterly EPS of $1.04 on revenues of $32.22 bln up from $0.91 on revenues of $31.48 bln a year ago. Wireless added 1.1 mln net retail connections in the second quarter, of which all were postpaid (contract) subscribers. At the end of the quarter, Wireless claimed 35.56 mln retail accounts and 109.5 mln retail connections. Average revenue per (postpaid) account (ARPA) fell 3.8% y-o-y to $153.73 a month. Verizon claimed 6.82 mln Internet connections and 5.77 mln video connections to its FiOS fiber network at the end of June, up 8.1% and 6.4%, respectively. The situation is less upbeat when we look at net additions in the wireline business. Verizon added 26,000 net video subscribers in the quarter and 72,000 net Internet subscribers, down 74% and 48.2%, compared with 2Q 2014.

These numbers will weigh on shares.

happen when trading resumes. And now that the authorities have torn up the rulebook, it will inevitably take time to rebuild confidence in the onshore market and to re-establish Beijing’s commitment to free market principles. In the meantime, the A-share market’s inclusion in MSCI and FTSE benchmarks will remain on hold.

On the other hand, the direct economic impact of the A-

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

share crash will be small, given that less than 7% of China’s urban population own stocks. The Chinese property market appears to have entered a recovery cycle, which reduces the risk of a hard landing. And policymakers have opted to maintain currency stability, and are acting judicially to support economic activity rather than throwing caution to the winds in an all-out bid to re-ignite growth. Against this backdrop, good quality companies are still good quality, but are available at a marked down price.

Hong Kong-listed companies are especially interesting.

Beijing’s heavy-handed intervention has highlighted Hong Kong’s strengths as a deep, transparent, well-functioning market; a safe place for investors who want a piece of China.

The notion that Shanghai or Shenzhen can replace Hong Kong as China’s international financial center has been put back by years. With Hong Kong-listed shares at their cheapest relative to global equities in more than ten years, there are plenty of solid stocks that have been unfairly sucked into the mainland’s slump. Time to get greedy.

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

15150 1.5582 1.802 24.9411 6.8756 14.4187 1.0851 2.246 285.12 0.64765 3.1818 0.3956 18.9 8.2217 3.7927 4.0628 57.0101 8.6355 0.9615 21.9

AUD CAD HKD INR JPY KRW NZD SGD

0.7368 1.299 7.7508 63.5825 124.36 1157.98 1.513 1.3681

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

0.3770 7.8112 29160.00 3.8154 0.7080 0.3031 1503.00 0.3850 3.6412 3.7503 12.4067 3.6729

Azerbaijanian Manat AZN Kazakhstan Tenge KZT Turkish Lira TRY Note: * USD per National Currency

1.0485 187.05 2.6843

AMERICAS & PACIFIC

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

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

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

Investments in foreign currencies are subject to exchange rate fluctuations.

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

ASIA

The Financial Markets 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 -0.07 0.06 -0.79

0.24 0.54 -0.04 0.09 -0.76

0.30 0.58 -0.02 0.10 -0.75

0.46 0.75 0.06 0.13 -0.70

0.80 1.08 0.17 0.25 -0.59

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.96 1.15 0.10 0.15 -0.67

1.30 1.41 0.18 0.16 -0.58

1.58 1.61 0.29 0.20 -0.43

1.81 1.76 0.43 0.26 -0.29

2.15 1.98 0.71 0.39 0.02

2.45 2.19 1.07 0.59 0.32

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.0851 0.9216

100 JPY

1.5582

1.0400

0.8041

1.4360

0.9585

0.7411

0.6675

0.5161

0.6418

0.6964

0.9615

1.0433

1.4982

124.36

134.94

193.78

0.7732 129.34

Weekly movement of USD

CCY

Today

133.78

GBP EUR JPY

1.0371

CHF

1.5582 1.0851 124.36 0.9615

CCY\Date

23.06

30.06

07.07

14.07

21.07

USD GBP JPY CHF

1.1212

1.1140

1.0978

1.0948

1.0766

0.7109

0.7081

0.7041

0.7070

0.6916

138.60

136.08

134.51

135.08

1.0389

1.0354

1.0350

1.0395

Last Week %Change 1.5454 1.1000 123.39 0.9469

-0.83 +1.35 +0.79 +1.54

July 22 - 28, 2015

18 | WORLD | financialmirror.com

Europe’s airpocalypse

By Asit K Biswas and Julian Kirchherr

European policymakers like to lecture the rest of the world on air pollution. Asia, and China in particular, is a favourite target for criticism. Indeed, it sometimes seems as if no major environmental conference is complete without a presentation by European policymakers on their continent’s supposed “best practices,” which the rest of the world should emulate. When it comes to air pollution, however, Europe might consider doing less talking and more listening.

Air pollution is a growing concern across Europe. The World Health Organisation has called it the continent’s “single largest environmental health risk,” estimating that 90% of Europe’s citizens are exposed to outdoor pollution that exceeds WHO air-quality guidelines. In 2010, some 600,000 European citizens died prematurely because of outdoor and indoor air pollution, and the economic costs have been put at $1.6 trln, roughly 9% of the European Union’s GDP. London and Paris suffer from particularly severe airquality problems. Nitrogen dioxide levels in some parts of London regularly reach 2-3 times the recommended limit. In the United Kingdom, air pollution kills some 29,000 people a year, putting it second only to smoking as a cause of premature death. Paris may be even worse off; in March, after air-pollution levels surpassed Shanghai’s, the city imposed a partial driving ban and introduced free public transportation.

Sadly, Europe’s policymakers do not seem up to the challenge. George Osborne, the UK’s chancellor of the exchequer, has argued against British leadership in the fight against climate change. “We are not going to save the planet by shutting down our steel mills, aluminum smelters, and paper manufacturers,” he declared in 2011.

Osborne is not alone. With European politicians arguing that introducing environmental safeguards will hurt the EU’s already-weakened economy, it comes as little surprise that measures to limit air pollution fall far short of the mark. The EU’s proposed standards regulating toxic emissions from

coal plants are even less strict than China’s, Greenpeace reports. Yet various European politicians have called for watering them down even further, with Hungary suggesting that they be scrapped altogether.

To be sure, air pollution levels in Asia are truly worrisome. The continent is home to nine of the world’s ten most polluted countries, according to Yale University’s 2014 Air Quality Ranking. New Delhi is ranked as the most polluted city on earth, with air pollution exceeding safe levels by a factor of 60. Owing to Beijing’s unhealthy air, foreign companies pay a “hardship bonus” of up to 30% to employees working there.

But at least policymakers in Asia have recognised the problem and are taking steps to address it. China, for example, has declared a “war on pollution.” By 2017, Beijing – once dubbed “Greyjing” by the international media – will spend some CNY 760 bln ($121 bln) to combat air pollution.

At the heart of China’s measures are improved public transportation, green trade, and a revision of the energy mix. The government has decided to install bus stops every 500 metres in city centres, reduce tariffs to 5% or less for a list of 54 environmental goods, and decommission many outdated and inefficient coal plants. The share of non-fossil fuels in primary energy consumption is expected to increase to 20% by 2030. These targets are likely to be rigorously implemented, given strong political support from the very top.

Meanwhile, in India, the state governments in Gujarat, Maharashtra and Tamil Nadu are about to launch the world’s first cap-and-trade schemes for particulates. India’s Supreme Court even suggested an extra charge on privately owned diesel vehicles in New Delhi.

Other parts of Asia are also taking steps to improve air quality. Vietnam aims to construct eight urban rail lines in the coming years. Bangkok, which has been tackling air pollution since the 1990s, has planted 400,000 trees. And Japan is offering subsidies for hydrogen cars and creating

new pedestrian-only areas.

Europe, as one of the world’s wealthiest regions, ought to be at the forefront of the effort to promote environmental sustainability. When it comes to air pollution, however, Europe’s policymakers should stop preaching to others and focus on fixing their own problems.

Asit K. Biswas is Distinguished Visiting Professor at the Lee Kuan Yew School of Public Policy in Singapore and cofounder of Third World Center for Water Management. Julian Kirchherr is a doctoral researcher at the School of Geography and the Environment, University of Oxford. © Project Syndicate, 2015 - www.project-syndicate.org

Europe: The end of an Empire Marcuard’s Market update

by GaveKal Dragonomics Economic growth derives from one of two sources. Either it comes from a rationalisation of talent, which we call Ricardian growth, or it comes from new inventions, which we call Schumpeterian growth. Of the two, Ricardian growth is easier to achieve. As barriers to trade, to the movement of people, or to the free flow of capital are dismantled, inefficiencies get squeezed out and growth can soar.

Bearing this in mind, it is obvious that the primary engine of growth across Europe over the past few decades has been the constant drive towards unification. In fact, we would go as far as to argue that between 1980 and 2010, one of the most prominent macrotrends globally was the incessant growth of what we came to call the “European Empire”.

This search for empire took on many forms, from territorial expansion (mostly into Eastern Europe following the fall of the Berlin Wall), through efforts to establish common regulations for the telecom, financial, healthcare industries and other sectors, to the desire to forge an ever closer political union.

But building an empire is a costly business, which is why imperial projects

always need their own currencies; no empire was ever built on someone else’s dime. The dream of European Empire therefore gave birth to the economic fallacy of the euro. As long as the European Empire remained in expansion mode, the euro itself—even though loaded with internal contradictions—was a structurally strong currency. As each new country was absorbed into the Empire, more companies needed euros for working capital, more individuals saved in euros, and more central banks padded their reserves with the common currency.

For 30 years the structural trend was towards increasing European integration, with Ricardian growth as a consequence. It is now obvious, however, that the best the European Empire can hope for is to stall at its present borders. And even that seems to be beyond the capacity of Europe’s current leaders. Consider the following: - Territory: If nothing else, the Ukraine conflict demonstrates that Russia has drawn a clear line beyond which it will not allow the European Empire to expand. In the absence of a political implosion in Russia, it is hard to see where Europe can expand territorially from here. Iceland? Not much of a prize (and the Icelanders have cooled to the idea).

Turkey? With civil wars and ISIS on its borders, hardly a compelling proposition.

- Politics: The challenge of every empire

has always been to keep its political institutions flexible enough to adapt to different cultures, yet solid enough to create a genuine union. The Greek debacle proves that Europe’s leaders have failed this test.

Worse, a number of European leaders (Schauble, possibly Merkel, even Juncker?) now seem keener to embrace a Gaullist-style decolonisation process, getting rid of awkward imperial possessions as quickly as possible, than to adopt genuine political reforms in order to cure the Empire’s peripheral ills.

- Borders: Surely the saddest sight in Europe this year has been the tens of thousands of African and Arab migrants risking their lives to reach the Empire’s shores. Almost as sad has been the inability of European governments to agree a common policy to deal with this humanitarian tragedy. Instead, France and Austria have re-instated their borders with Italy and are refusing passage to darkskinned individuals without papers, in contravention of the Schengen Agreement.

- Vision: Beneath the Greek, Ukraine, and Mediterranean refugee crises, the real problem undermining the foundations of the European project is the differing visions of what the European Empire should look like.

No two nations offer similar visions—from the UK threatening Brexit, to the Germans who see in the EU the promise of European

peace, to Poland which sees a guarantee against Russian interference. Even within nations, the idea of a European Empire is losing its appeal—as shown by the rise of the Dansk Folkeparti, the French Front National, the Five Star movement and the Northern League in Italy, UKIP, Podemos and others.

There is no European leader strong enough, or inspiring enough, to unite his own country, let alone the broader continent, around a single binding vision.

So looking past all the debate about the sustainability of Greece’s debt, and the consequences for global markets of another potential “Lehman moment”, perhaps we should simply acknowledge the Greek crisis for what it is: the death-knell for the European dream of empire. The growing European reality is the return of borders, of national preferences, and of opt-outs. At best, the European Empire has stalled. At worst, it will start to shrink in a way that will jeopardise Ricardian growth across the continent. All else being equal, this will mean slower growth in the use of the euro, which now has surely become a structurally weak currency.

In the long run, people do not like to save in the structurally weak currency of a shrinking empire, a reality which means that European bonds are likely to underperform those of other, non-shrinking, empires—the US and China—for the foreseeable future.

July 22 - 28, 2015

financialmirror.com | WORLD | 19

Saying ‘no’ to the warmongers The accord struck in Vienna to rein in Iran’s nuclear activities has warmongers fulminating. Citizens worldwide should support US President Barack Obama’s brave effort to outmaneuver them, taking heart from the fact that the signatories include not just the United States, but all five permanent members of the UN Security Council plus Germany.

Many of the warmongers are to be found in Obama’s own government agencies. Most Americans struggle to recognise or understand their country’s permanent security state, in which elected politicians seem to run the show, but the CIA and the Pentagon often take the lead – a state that inherently gravitates toward military, rather than diplomatic, solutions to foreign-policy challenges.

Since 1947, when the CIA was established, the US has had a continuous semi-covert, semi-overt policy of overthrowing foreign governments. In fact, the CIA was designed to avoid genuine democratic oversight and provide presidents with “plausible deniability.” It has gone on to topple dozens of governments, in all regions of the world, with no accountability there or at home.

I recently examined one period of CIA activity in my book To Move the World: JFK’s Quest for Peace.

Soon after Kennedy assumed the presidency in 1961, he was “informed” by the CIA of its plot to overthrow Fidel Castro. Kennedy felt stuck: Should he sanction the planned CIA invasion of Cuba or veto it? New to the gruesome game, Kennedy tried to have it both ways, by letting it proceed, but without US air cover.

The CIA-led invasion, executed by a motley group of Cuban exiles at the Bay of Pigs, was a military failure and a foreign-policy disaster, one that led to the Cuban Missile Crisis the following year. During the missile crisis, most senior security officials advising the president wanted to launch military action against Soviet forces, a course that could well have ended in nuclear annihilation. Kennedy overruled the warmongers, and prevailed in the crisis through diplomacy.

By 1963, Kennedy no longer trusted the advice of the

By Jeffrey D. Sachs military and the CIA. Indeed, he regarded many of his putative advisers as a threat to world peace. That year, he used diplomacy relentlessly and skillfully to achieve a breakthrough nuclear agreement with the Soviet Union, the Limited Test Ban Treaty.

The American people strongly – and rightly – supported Kennedy over the warmongers. But three months after the treaty was signed, JFK was assassinated.

Viewed through the lens of history, the main job of US presidents is to be mature and wise enough to stand up to the permanent war machine. Kennedy tried; his successor, Lyndon Johnson, did not, and the debacle of Vietnam ensued. Jimmy Carter tried; Reagan did not (his CIA helped to unleash death and mayhem in Central America throughout the 1980s). Clinton mostly tried (except in the Balkans); George W. Bush did not, and generated new wars and turmoil.

On the whole, Obama has tried to restrain the warmongers, yet he has given in to them frequently – not only by relying on weaponised drones, but also by waging covert wars in Syria, Libya, Yemen, Somalia and elsewhere.

Nor did he truly end the US wars in Iraq and Afghanistan; he replaced troops on the ground with US drones, air strikes, and “private” contractors.

Iran is surely his finest moment, a historic milestone that demands full-throated approval. The political difficulty of making peace with Iran is similar to that of JFK’s peacemaking with the Soviet Union in 1963. Americans have been suspicious of Iran since the Islamic Revolution of 1979 and the subsequent hostage crisis, in which Iranian students held 52 Americans at the US embassy for 444 days. But their suspicion also reflects jingoistic manipulation and a lack of perspective on US-Iran relations.

Few Americans know that the CIA overthrew a democratic Iranian government in 1953. Iranians had had the temerity to elect a progressive, secular prime minister who believed that the country’s oil belonged to its people, not to the United Kingdom or the US. And few Americans recall that after the coup, the CIA installed a brutal police state under the Shah.

Likewise, following the 1979 Iranian Revolution, the US armed Saddam Hussein’s Iraq to go to war with Iran, resulting in hundreds of thousands of Iranian deaths in the 1980s. And US-led international sanctions, imposed from the 1990s onward, have aimed to impoverish, destabilise, and ultimately topple the Islamist regime.

Today, the warmongers are trying to scuttle the Vienna accord. Saudi Arabia is in a violent struggle with Iran for regional supremacy, with geopolitical competition converging with the Sunni-Shia rivalry. Israel, the Middle East’s only nuclear power, wants to retain its strategic monopoly. The US warmongers seem to view any Islamist state as ripe for toppling.

Obama is correct that America’s true interests, and those of the world, are with peace, not continued conflict, with Iran. The US is not a partisan in the Shia-Sunni struggle; if anything, the US confronts mainly Sunni terrorism, funded from Saudi Arabia, not Shia terrorism backed by Iran. Obama is also right that, despite Israel’s arguments, the agreement will reduce the possibility of Iran ever becoming a nuclear state.

The best way to ensure that outcome is to normalise relations with it, help its economy recover, and support its integration into the international community. Iran is a great and ancient culture. Its opening to the world as a place of business, tourism, the arts and sports would be a boon to global stability and prosperity.

The new treaty will verifiably prevent Iran from developing a nuclear weapon for at least a decade – and keep it bound to nuclear non-proliferation thereafter. This is the time to begin a broader US-Iran rapprochement and build a new security regime in the Middle East and the world that leads toward full global nuclear disarmament. To get there requires, above all, replacing war (including the CIA’s secret wars) with commerce and other forms of peaceful exchange.

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

Not a People’s Republic - an Empire Marcuard’s Market update

by GaveKal Dragonomics We often say that money managers are not paid to forecast, but to adapt. The challenge, of course, is knowing what to adapt to. For example, an investor picking up a copy of the Financial Times will be left scratching his head over the importance of the Greek crisis to the future of the eurozone, the likely impact of coming US Federal Reserve rate hikes, and how the deepening oil supply glut will affect global markets.

In our latest Quarterly Strategy Chartbook, we elected to bypass all these hoary old questions to focus solely on what we believe to be the single most important macro-trend of our time: China’s attempt to transform itself from a typical (if large) emerging market into an empire.

In his must-read book East And West, Cyril Northcote Parkinson recounted the rise and fall of empires across the Eurasian landmass since the beginning of civilisation, and proposed that “one of the strongest motives for human interference [in another country’s affairs] is the spectacle of fumbling ineptitude. ‘Oh, for heaven’s sake,’ we burst out, ‘I’ll do it for you!’ ” Of course, one can argue these words, written in 1963, reflect

the author’s cultural upbringing, no doubt loaded with a hefty dose of Rudyard Kipling’s “white man’s burden”. For, at the end of the day, the main driving force behind empirebuilding is usually an attempt by the center to source commodities ever more cheaply, and in turn to churn out manufactured goods for sale ever more profitably to the periphery.

In this respect, there is little about China’s growing empire that is original. Beijing’s “Belt and Road” plan, its “Silk Road Fund”, the railways it is building in Central Asia, and the ports around the Indian Ocean, are all reminiscent of a saying every Westerner learnt as a child: “All roads lead to Rome”. In Asia, in the 21st century, all roads will lead to Beijing.

Of course, empires through history have found that building the roads (or railways or ports) was the easy bit. Maintaining security along those roads, and getting along with the locals, proved more challenging. This is why maintaining an empire is an extremely costly (and ultimately temporary) exercise. And it is why empires have always needed their own currencies (whether sterling for the British Empire, the US dollar for the post-war American era, or the euro for the 1980-2010 attempt to build a European empire). Simply put, building an empire on somebody else’s dime is a non-starter, which is why, given its geopolitical ambitions, China today has little

choice but to embrace the internationalisation of the renminbi.

Now the interesting bit for investors is that growing empires usually breed strong currencies. As the empire expands, more trade gets denominated in the empire’s currency, more companies need working capital in the empire’s currency, and more individuals begin to save in the currency of the empire. At the same time, wealthcreators at the empire’s fringes buy assets at the seat of the empire’s power, and real estate at the center of the empire appreciates disproportionately. A clear example over recent decades, has been the growing use of the euro as a store of value, a unit of account, and a currency of exchange. As the “European empire” expanded to the east, the demand for euros kept growing and the euro was, for a couple of decades a “structurally strong” currency.

Today, as China starts to roll out its own imperial project, should we not expect use of the renminbi to grow, not only across Asia, but perhaps also as far afield as Europe and Africa?

And won’t this new structural demand for renminbi help to keep Chinese interest rates low, and the currency strong, at least while the Empire is expanding?

This does not mean China will necessarily be successful in its attempt to build an empire. For a start, Beijing lacks a genuinely

efficient diplomatic service, which historically has been a prerequisite for peaceful expansion.

As Parkinson observed, “the mere ascendancy of the one civilisation… must eventually create an atmosphere of resentment. Nor is the hostility directed against tyrannical rulers as such. Hatred springs rather from being treated, however kindly, as inferiors”. Already, in most of its imperial bridgeheads (Angola, Sri Lanka, Myanmar) China is experiencing mounting political resistance, caused by the heavyhanded treatment of locals by Chinese businesses (which, to use Parkinson’s words, are often not shy of treating the local population as “inferior”).

Nevertheless, the geopolitical reality remains that—at a time when the European empire has visibly stalled, the American empire seems to have lost its appetite for foreign entanglements (look at the mess it has left behind in the Middle East), and the Russian empire is fighting a rear-guard action for global influence—the Chinese empire is laying railroad tracks across Eurasia, pushing roads into Indochina, and building pipelines through Pakistan. If all else is equal, this at the very least argues for a stronger renminbi going forward, and lower Chinese interest rates as more people, companies and governments start to save increasing amounts in renminbi.

July 22 - 28, 2015

20 | BACK PAGE | financialmirror.com

Lebanon: Is door now open for Iranian investments in the energy sector?

ANALYSIS

By Middle East Strategic Perspectives Lebanon was most likely a marginal topic on the sideline of nuclear discussions in Vienna, but the nuclear agreement between Iran and the P5+1 group is expected to have direct implications on local Lebanese politics. Since the deadlock in Lebanon is largely a reflection of a regional deadlock, it would be reasonable to expect a possible regional appeasement to contribute to unlocking the situation in Lebanon.

The immediate post-Iran deal period is expected to be a period of hesitation and testing until the time is ripe for broad arrangements. While the overall regional balance will tip in favour of the Iranians, in Lebanon, arrangements between Iranianbacked factions and Saudi-backed factions are inevitable, both at the political and business levels.

While the world prepares for investments in Iran, we take a more Lebanese-centred

Lebanon’s oil refinery facilities remain derelict due to the decades of civil war and rivalries

approach and look at how the deal could free up Iranian investments in Lebanon, particularly in the energy sector, long limited by sanctions, and a certain reluctance from certain Lebanese sides.

In the past, Iran expressed repeated

interest in the Lebanese energy sector.

Tehran offered to rehabilitate the country’s two refineries (currently inactive and used for storage only), build a power plant under favourable terms, and proposed to supply Lebanon with oil and natural gas. These

projects faced a number of challenges, and their feasibility was not always ensured. Now that sanctions are lifted, these, and other projects, are expected to be reactivated. It is going to be much harder now to justify rejecting cooperation with Iran. Just like some Lebanese understandably seek cooperation with Gulf countries, and their companies, (the head of the Parliament’s Energy Committee and Future Movement MP Mohammad Qabbani insist on organising a second prequalification round ahead of proceeding with the offshore tender, to allow companies “from Kuwait, Saudi Arabia and Qatar” to participate in the tender and “help us exploit our resources”) others will be actively seeking to associate Iran and Iranian companies in the energy sector.

Today, the lifting of sanctions removes an important obstacle, but many other questions are left unanswered. Backed by an extensive and influential network of Lebanese-Iranian businessmen, Iran perceives Lebanon as a platform for developing its (business) presence in the Eastern Mediterranean, a region of rising strategic importance for Tehran. www.mesp.me