Financial Mirror 2015 07 29

FinancialMirror ANTONIS LOIZOU The mortgages saga, our MPs and the Georghadji List PAGE 13

OREN LAURENT

Issue No. 1144 €1.00 July 29 - August 4 , 2015

The impact of a Fed interest rate hike on markets PAGE 14

‘We are among friends’ NETANYAHU-ANASTASIADES DISCUSS ENERGY, REGIONAL SECURITY - PAGE 3

Varoufakis: The lethal deferral of debt restructuring SEE PAGE 11

July 29 - August 4, 2015

2 | OPINION | financialmirror.com

FinancialMirror

“We feel we are among friends”

Published every Wednesday by Financial Mirror Ltd.

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Prime Minister Benyamin Netanyahu felt the urge to state the obvious – that in the hell-hole of the Middle East, Israel feels that Cyprus is a true friend.

And why shouldn’t it be?

Cyprus has on numerous occasions, almost with all Presidents of the Republic, offered assistance, mediation and even the grounds for shuttle diplomacy between the Israelis and the Palestinians.

Before that, it tolerated the use of force during several waves of uprisings, as long as the end justified the means.

On a security level, Cyprus and its tiny naval and air services, have been active in search and rescue exercises and operations off the island’s coast, while it has on occasion tolerated the fly-over of Israeli fighter jets.

All because the Jewish state had a falling out with Turkey and has been desperately trying to cling on to a new ally, much closer to home than Washington or London.

Once the long-delayed Cyprus casino resort gets underway and opens its doors to international clientele, will Israeli gamblers and holidaymakers have turned their back on Turkey for good?

More importantly, Israeli needs to share the

pipeline whereby it will send its offshore natural gas to Egypt for processing and onwards for export, but has been hinting that all’s not over as regards its (energy) ties with Turkey, with which it still shares military and other cooperation, either directly or via Ankara’s satellite Azerbaijan.

Despite the declarations of sharing “common values, concerns and visions”, it is Israel that needs to show its true friendship towards Cyprus, not the other way round. This tiny island has given all that it has and can. It has opened its doors to Israeli tourists and investors. We host numerous hi-tech and forex companies, all set up with Israeli funds or knowhow.

Perhaps Netanyahu does not possess the political finesse or sensitivity needed, but instead of declaring his friendship, which others have in the past described as “brotherly”, he should have posed the question: What can WE do for YOU? Gas pipelines, trade and security are natural parts of good neighbourhood policy.

But is that enough?

Is it not time that in the search for regional stability, this “friendship” be upgraded to “partnership”? Unless, of course, Israel has not given up on its old “friendship” with Turkey.

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 29 - August 4, 2015

financialmirror.com | CYPRUS | 3

Netanyahu visits for pipeline talks Regional security, defence cooperation also on the agenda

Israeli Prime Minister Benjamin Netanyahu was in Cyprus on Tuesday for a short visit to discuss prospects of energy cooperation and a pipeline project with President Nicos Anastasiades. This was his second visit having met with President Christofias in Nicosia three years ago.

Tuesday’s discussions focused on supply security and the diversification of routes, as western European consumers look to the new gasfields in the eastern Mediterranean to reduce their dependence on natural gas from Russia.

With Egypt and Jordan also vying for the newfound gas in Israeli waters, considered as the biggest discoveries of the decade, a three-way consortium involving Israel, Greece and Cyprus may also supply electricity produced from cheap natural gas to European consumers.

Last November, the European Commission already stated its readiness to support the EuroAsia Interconnector, a 1,500km undersea cable from Israel to Crete, via Vasilikos in Cyprus, that will have a two-way capacity of 2,000 megawatts at its initial phase. Developers DEH Quantum Energy had said in the past that there could be a prospect of doubling that capacity to 4,000MW, thus securing energy stability, both in Israel and in western Europe.

Anastasiades was in Israel in June for a number of meetings with President Reuven Rivlin and Netanyahu, as well as Delek Group executives over development plans for the Aphrodite gasfield in Cyprus waters, held by Delek Group and Noble Energy.

“We feel among friends”, Netanyahu said during the press conference in Nicosia, adding that “we are also close because of our shared values, concerns and visions.”

The two leaders said their talks included the latest developments in Cyprus, the Middle East peace process, energy, defence and security, regional developments such as Syria and the agreement on the Iranian nuclear deal, as well as Anastasiades’ initiative to invite the Israeli and the Palestinian leaders to the EU Council.

Netanyahu said that “we are blessed by God that there is energy under the water and we want to take it out.”

“We think that by cooperating with each other we can take it out more easily and we can market it better”, he said.

President Anastasiades said that this frequency in bilateral visits is indicative of the close relations between Cyprus and Israel, and of the depth of a shared agenda.

During the deliberations, Anastasiades said they exchanged views on an array of issues.

“In particular, we discussed in concrete terms the way forward in our energy cooperation, as well as regional prospects, such as the potential for the East-med pipeline and the possibility of the Eurasia interconnector”, he said.

Anastasiades briefed Netanyahu on his discussions with President Tusk and the EU High Representative, Mogherini regarding his initiative to invite the Israeli Prime Minister, as well as Palestinian Authority President Mahmoud Abbas, to one of the upcoming European Councils.

The Cypriot President said that he had the opportunity to discuss the trilateral cooperation between Cyprus, Israel and Greece on Monday in a telephone conversation with Prime Minister Tsipras, who expressed his commitment and readiness to further develop the trilateral cooperation.

Netanyahu referred to cooperation in economy and tourism, by saying that they want to increase tourism, investments and economic activities in both ways. “I think

that this is again something beneficial to both our peoples”, he added.

On the issue of security, Netanyahu said that we are faced with a very unstable world that presents new dangers which come primarily from militant to Islam, either led by radical Shiites headed by Iran or led by radical Sunnis at the moment headed by ISIS. The Prime Minister of Israel stressed that “we want to achieve peace and peace is depended on security and ultimately if you don`t have the capacity to defend the peace, it will collapse very rapidly in our area”. He added, however, that the peace also depends to willingness of parties to talk to one another.

Netanyahu was accompanied by senior adviser Eli Groner and National Security Council head Yossi Cohen, while the Cypriot team included Foreign Minister Ioannis Kasoulides, Defense’s Chrstoforos Fokaides and Energy and Tourism Minister Giorgos Lakkotrypis.

Tusk to visit Talks between Prime Minister Benjamin Netanyahu and President Nicos Anastasiades included bilateral ties, regional matters, EU-Israeli relations and the tripartite cooperation between Cyprus, Greece and Israel.

Syria and Iran were also discussed, as well as the initiative undertaken by President Anastasiades as regards the Middle East issue.

In the context of this initiative, European Council President Donald Tusk will visit Cyprus on September 8 and then continue to the Middle East, starting with Israel on September 9 and the Palestinian Authority on September 10, and possibly Egypt as well.

The top European official may be accompanied by President Anastasiades during his Middle East tour.

Greek Prime Minister Alexis Tsipras is expected to visit Israel in the first ten days of September in order to finalise the tripartite meeting initiated last year.

Israel to make ‘small changes’ to gas roadmap Israel’s cabinet has postponed a vote on the gas roadmap, but is expected to be raised within the next two weeks, with the Ministry of National Infrastructure, Energy and Water Resources saying that the plan was final, and any changes in it would be unimportant.

The Globes business news site reported that Prime Minister Benjamin Netanyahu and Minister of National Infrastructure, Energy and Water Resources Yuval Steinitz are expected to insert several changes into the roadmap corresponding to the public comments made during the earlier hearing.

These include the possibility of linking the gas price to one of the global averages, probably the average index in Organisation for Economic Cooperation and Development (OECD) countries, or reducing the price in the plan by $0.20-0.25.

Also under consideration is state encouragement for the development of the small and medium-sized reservoirs through either a state guarantee for the developers or partial or full state financing for a pipeline.

Another possibility is that Delek Group and Noble Energy will be told to sell the

Karish and Tanin reservoirs within 14 months, or the state will sell them at any price, even $1, to bring in new players and encourage competition, while avoiding the current dependence on the gas monopoly.

After changes are made to the gas roadmap, the final version will probably be submitted to the ministers towards the end of next week, and it is intended to hold a discussion and vote on it the following Sunday. There is still no timetable for submitting the roadmap to the Knesset, but there is no plan to drag out the decision

until after the Knesset recess. The Knesset may be summoned for a special session in August; otherwise, the roadmap will reach the Knesset on September 2, when a special session on the state budget has already been scheduled.

It is not yet clear whether approval of the gas roadmap will be by the cabinet or the Knesset. Knesset approval is not legally required, but political sources believe that in order to appease Minister of the Economy Aryeh Deri, the roadmap may nevertheless be brought to the Knesset for a vote.

July 29 - August 4, 2015

4 | CYPRUS | financialmirror.com

EU publication paves way for halloumi PDO registration The traditional soft-cheese halloumi is set to get its Protected Designation of Origin (PDO) registration very soon, Agriculture Minister Nicos Kouyialis said just after the European Commission published the application to register the names Halloumi in Greek and Hellim in Turkish, for a cheese produced in all the territory of Cyprus.

“After many years we managed to overcome one more obstacle. The application was published, paving the way for the final registration of halloumi. There will be a procedure for objections of 6-7 months and I hope that everything will go well,” he said.

He added that there will also be a modification to the Green Line Regulation in order to allow Turkish Cypriots to trade halloumi through the ports of the Republic.

Kouyialis also said that he will announce incentives to support sheep and goat farming.

Some European countries are expected to object to the halloumi registration as a PDO, especially European countries with high production of milk and dairy products.

According to the application, halloumi is made of fresh sheep or goat’s milk or a mixture thereof, with or without cow’s milk added, rennet, fresh or dried Cypriot mint leaves and salt. The proportion of sheep or goat’s milk or the mixture thereof must always be greater than the proportion of cow’s milk. The milk used for making halloumi is Cypriot full-fat milk.

The milk must be pasteurised or have been heated to a temperature above 65C. It must not be condensed milk or contain milk powder, casein salts, colourings, preservatives or other additives. It must not contain antibiotics, pesticides or other harmful substances.

The sheep and goat’s milk comes from local breeds and their crosses that have adapted to the island’s climate. The cow’s milk comes from black and white cows that were gradually introduced in Cyprus, starting at the beginning of the 20th century, and are now very well adapted to local conditions. Halloumi cheese must be packaged within the defined geographical area.

Meanwhile, 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.

Exports from the Republic are estimated at about EUR 8590 mln a year, while hellim shipments from the Turkish Cypriot side are a fraction of that, but account for nearly 25% of all their exports.

BOCY sale of Uniastrum is ‘credit positive’ says Moody’s New CEO expected to replace Hourican in 2 weeks

Cyprus aspires to become regional medical centre Cyprus can become a leading medical centre in the region providing first class care to locals and visitors, President Nicos Anastasiades said on Saturday as he inaugurated the first Robotic Surgery Department at the private Mediterranean Hospital in Limassol.

The President acknowledged that much remains to be done in state hospitals and expressed hope that new Minister of Health George Pamborides, who takes office on Monday, will put an order where needed and proceed with the implementation of the National Health Scheme.

Education has also played a significant role with the University of Cyprus signing a cooperation agreement with the Shacolas foundation to develop a medical school, while the private University of Nicosia celebrated its first medical graduates this year, as part of a programme with St George Hospital in London.

Anastasiades welcomed the upgrading of private hospitals in Cyprus. It contributes significantly, he said, not only to avoiding costs when sending patients abroad, but most importantly it helps Cyprus become an important regional medical centre, something that was missing.

“I believe this creates conditions for a promising future of the health sector which can benefit society at large and the country in general,” he added.

Furthermore, he said that the initiative of the private hospital to create a Department of Robotic Surgery is not only something that the government supports but encourages, in order to enrich the options a patient has.

2015 to close on a positive note Dinos Kakkouras, President of the Association of Travel Agents (ACTA, has said that those involved in the travel industry believe that this year’s tourist season is set to close on a positive note.

Kakkouras said that initial estimates of a 25% drop in tourist arrivals from Russia seem to have been overturned in that the reduction is now estimated to be around 20%, with an anticipated further decline.

In addition to this, there is a significant increase in the number of tourists mainly from the UK, German and Swedish markets but also from France, Holland, Poland, Israel and Greece - in spite of the country’s problems – which has given the tourist industry a boost.

The sale of Russian subsidiary Uniastrum to a smaller bank for EUR 7 mln will be credit positive for the Bank of Cyprus, according to Moody’s, a transaction that will incur an accounting loss of EUR 29 mln but will help reduce its risk-weighted assets significantly.

Having over-exposed the bank to the high-risk Greek and Russian markets in the past decade, the previous management drove Bank of Cyprus to the brink of bankruptcy in 2013 when it showed to have an unsustainable amount of Greek government toxic bonds. As a result, these bonds were written down, the bank’s losses exceeded EUR 1 bln and it lost its Greek franchise network, together with now-defunct Laiki Popular Bank which it inherited. Laiki also burdened BOCY with its ECB-approved emergency liquidity assistance, amounting to about EUR 11 bln at the end of 2013 and prudently reduced to less than half as of March this year.

Last week, Bank of Cyprus said it had agreed to sell its turbulent 80% stake in Uniastrum for a mere EUR 7 mln to Artem Avetisyan, the majority shareholder in Bank Regional Credit, 147th biggest in Russia by assets, but it also rid itself of about EUR 700 mln in risk weighted assets.

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

BOCY bought into Uniastrum in 2008 for EUR 371 mln and has since seen only losses and shrinking deposits at bank’s 120 branches, employing 2,000 staff. This has prompted members of the Cyprus parliament to call for a probe into the investment, suggesting that this was the beginning of the downfall of the once-mighty Cyprus bank.

Following a similar sale in Ukraine last year, BOCY’s net exposure to Russia is now reduced to EUR 114 mln of loans and real estate assets which will “be reduced over time”, the

bank had said in a statement. It will retain its rep offices in Moscow and St Petersburg.

The credit for the bank’s deleveraging goes mainly to its outgoing CEO John Hourican, who announced that he was stepping down at the end of August, half way through his contract, having sold all the overseas and “non-core” assets, and refocused the island’s largest lender to a “primarily Cypriot” bank.

Having failed to agree on a successor, the next board meeting at the end of July will determine the new CEO who will be announced in early August, according to bank sources.

The rating agency said that BOCY will now have to focus its efforts on reducing its high rate of non-performing loans, accounting for about 53% of its gross loans. This rate is doggedly high and a concern to analysts as long as the bank has not yet started to significantly dispose of distressed loans or reschedule troubled mortgages due to an eight-month delay by parliament to pass a package of measures on foreclosures and insolvencies that protect borrowers as well.

In earlier statements, the bank said it had 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,” it had added earlier this year, 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.

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.

Aristo acquitted in Paphos land case A court in Paphos has acquitted Theodoros Aristodemou, his wife Roulla and two others, from charges of fraud and forging public documents in relations to a land deal in the Skali area where Aristo Developers had been preparing a major project.

The Aristodemou couple, who were acquitted together with the company’s draftsman Christos Solomonides and former municipal engineer Savvas Savva, issued a statement saying despite their humiliation they have been vindicated and have full faith in the justice system that finally prevailed.

“We will take legal action all those who consciously

took part or assisted in this crime,” it added.

The court had heard that the company had been granted a permit for 177 plots but this was allegedly falsified later by replacing the approved architectural plans with amended ones, which ceded the company an additional area of 2,730 square metres for development at the expense of the legally mandated green space and road network. The land was estimated to be worth around EUR 1.1 mln.

Reading out the ruling, presiding judge Dora Sokratous said the state prosecutors had failed to prove intent to defraud the public beyond a reasonable doubt.

July 29 - August 4, 2015

financialmirror.com | CYPRUS | 5

Bank deposits reach new year-low Total deposits in June fell by EUR 398.3 mln to EUR 45.8 bln, the lowest level of the year, according to data published by the Central Bank of Cyprus.

The annual growth rate stood at -5.5%, as compared with -5.4% in May, when deposits showed a net decrease of EUR 213.6 mln.

The outstanding amount of loans reached EUR 62.6 bln in June. Total loans saw a net increase of EUR 453.4 mln, as compared with a net decrease of EUR 7.6 mln in May. The annual growth rate stood at -1.9%, unchanged from May. The Central Bank’s data showed that deposits of people living in Cyprus were reduced in June to EUR 32 bln, while deposits of third country nationals were down to EUR 11.35 bln.

Deposits of citizens of other Eurozone countries increased

to EUR 2.4 bln, while deposits of households recorded a slight decrease and dropped to EUR 22.26 bln.

The loans of Cypriot citizens dropped in June to EUR 49.17 bln from EUR 49.23 bln in May. Loans of citizens of Eurozone member states were also reduced to EUR 3.65 bln, from EUR 3.73 bln in the previous month.

On the other hand, a marginal increase was recorded in loans to citizens of third countries, reaching EUR 9.72 bln, from EUR 9.71 bln in May. The data shows that loans of households (residents of Cyprus) increased in June to EUR 21.5 bln. Consumer loans increased to EUR 2.83 bln, house loans increased to EUR 11.42 bln and other loans also increased to EUR 7.24 bln.

Bailout programme on track, no new measures, NPLs a concern Officials from the Troika of international lenders said that Cyprus was on track with its economic adjustment programme following a ?10 bln bailout plan in 2013, and that no new fiscal measures were needed, but that some issues, such as privatisation and the extremely high levels of non-performing loans were still a concern.

Senior officials from the European Commission said upon completing their seventh assessment of the Cyprus programme on Friday that the reform agenda remains the same and no new measures are required, unless there is a clear need for them.

The Cyprus government hopes to be in a position to exit the programme in March 2016, three years after it was introduced, and possibly even record a surplus by not utilising all the funds allocated by the EC, the ECB and the IMF. The Troika delegates stressed the needs to resolve the NPLs problem, with the loans outstanding for over 90-days and not serviced for six month now corresponding to just over 50% of the banking system’s loanbook.

They also said that the state mechanism handling these ‘bad loans’ as well as the banks ought to speed up their processes, as this will also help relieve thousands of homeowners who have repaid their mortgages but still do not have title deeds, as these are deposited by developers as guarantees for

other unrelated projects.

Cyprus lost six months of implementing the bailout programme after the government dragged its feet on critical foreclosures and insolvencies laws from last October, while parliament delayed their passage on a populist platform.

As regarding privatisations and public administration reforms, the Troika officials said that “progress is still being made but there is the need to increase the pace of reforms”. .

“We see that Cyprus is emerging out of recession, growth is timidly on the up,” a senior EC source said.

The Troika has now set three prior actions for the disbursement of the next tranche of ?500 mln of aid.

These include the adoption of the bill on the issuance of title deeds of exposed borrowers, the approval by the Cabinet of the bills on the civil service reform and the establishment of a new company under the privatisation process of state-owned telecommunication authority Cyta.

The privatisation and split up into commercial operator and network owner of telco Cyta and the Electricity Authority of Cyprus, aims to raise about ?1.4 bln for the state by 2018, including from the outsourcing of services and management at Limassol port, which should be completed by mid-2016, as well as the sale of other stateowned assets.

Troika says NPLs is still the number one priority, must “speed up reforms” Increasing the pace of reform will be essential for the island’s economic adjustment programme, the Troika of international lenders said in a joint statement on Monday, adding that addressing the high level of non-performing loans held by banks is the number one priority. Staff teams from the International Monetary Fund, the European Commission and the European Central Bank concluded their seventh review of EUR 10 bln bailout programme that started in March 2013. The government is optimistic it will conclude the programme by March next year and will probably not utilise all of the funds allocated.

“Cyprus’s programme, which is supported by financial assistance from the European Stability Mechanism (ESM) and

the IMF, aims to promote economic recovery and job creation by restoring financial sector stability, strengthening the public finances, and implementing reforms to increase long-run growth,” the joint statement said.

According to the lenders, “the teams have reached staff-level agreement on policies that could serve as a basis for completion of the review, reflecting the progress and policies under the program”.

They said that “the financial situation of the banks is gradually improving, and there is tentative evidence that the slow pace of debt restructuring is picking up. The fiscal targets in the first half of 2015 were met with substantial margins. In addition, the authorities are making progress on their structural reform agenda”.

In statements after the meeting with the heads of the Troika, Finance Minister Harris Georgiades said on Friday that the most important point of the evaluation was the upward revision of the expectations for 0.5% GDP growth in 2015, compared to a contraction of 0.5% estimated last Spring.

“The prudent fiscal policy will continue and I think that the combination of fiscal consolidation with the return to growth and the gradual adjustment of the economy that we have achieved, is perhaps the most important success of the Cypriot programme and confirms the need to continue to follow this prudent but effective policy to promote reforms and consolidation,” he said.

The emphasis is now on further promotion of the major structural changes that both the economy and the country need. Georgiades said that before the end of August the Cabinet should adopt the bill related to the reform of the civil service, and the bill that facilitates the attraction of a

strategic investor for Cyta.

The bill pending before parliament on the issuance of title deeds to borrowers who are exposed to developers is scheduled to be debated in the plenary on September 3 as deputies failed to put the matter to a vote prior to closing the House for a summer recess.

Georgiades added that the bill to regulate and allow the sale of loans should be approved by parliament by the end of September and will also safeguard the rights of borrowers, which are not affected by the sale of loans.

Regarding the health sector, the Finance Minister said that among the important reforms to be promoted is the administrative and financial autonomy of public hospitals, adding that significant progress has been achieved in this direction by the outgoing Health Minister Philippos Patsalis, who resigned last week and has been replaced by George Pamborides.

July 29 - August 4, 2015

6 | CYPRUS | financialmirror.com

FBME ‘shocked’ at FinCEN ruling, ‘unwarranted’ allegations FBME said that the U.S. Treasury’s FinCEN ruling on Thursday to maintain it as a “primary money laundering concern” has failed to consider the evidence of forensic investigations and reports, and makes allegations which the bank says are unwarranted.

The Financial Crimes Enforcement Network (FinCEN) issued a final rule saying that according to “Special measure five”, it has severed access to the U.S. financial system for FBME Bank Ltd., formerly known as the Federal Bank of the Middle East. It added that the ruling prohibits U.S. financial institutions from opening or maintaining correspondent accounts or payable through accounts for or on behalf of FBME. In July, 2014, FinCEN claimed that FBME was used by its customers to facilitate money laundering, terrorist financing, transnational organised crime, fraud, sanctions evasion, and other illicit activity internationally and through the U.S. financial system.

Also, that “FBME has systemic failures in its anti-money laundering controls that attract high-risk shell companies, that is, companies formed for the sole purpose of holding property or funds and that do not engage in any legitimate business activity; and FBME performs a significant volume of transactions and activities that have little or no transparency and often no apparent legitimate business purpose.”

However, only this week, the Council of Europe’s anti-money laundering watchdog, MONEYVAL, said that Cyprus banks seem to have made significant progress in banking checks and will report on its next assessment in September.

FBME’s shareholders, who established the bank in 1982 and relocated its jurisdiction first to the Cayman islands and later to Tanzania, suggest that the “fiasco”, as described in a series of media announcements, was the result of the incompetence of the Central Bank of Cyprus to properly investigate the FinCEN allegations. They have also alluded that the CBC-appointed administrators have purposely run the bank’s Cyprus operations

into the ground with the hope of selling its assets to another investor.

The shareholders, Lebanese-born AyoubFarid and Fadi Saab, issued a statement saying that “the CBC surely knows the truth regarding FBME’s operations through its long supervision of the bank’s branch.

Immediately before and since FinCEN’s announcement, the CBC has commissioned its own investigations conducted by international specialists from PwC and Kroll, and by Central Bank of Cyprus staff. Given the potential importance of the insights of these investigations it is extraordinary that none of the results have been disclosed to FBME as one would have expected.”

FBME says that since 2008 it has invested EUR 134 mln in the Cyprus economy, while in 2012 FBME rushed to the government’s aid when Cyprus needed to sell EUR 240 mln in sovereign debt, while in 2014 the Ministry of Finance said an agreement had been reached in principle for a further investment of $300 mln.

The debacle has turned out to be an embarrassment to the Cyprus government, as it faced an appeal by the Saab brothers to the arbitration court of the International Chamber of Commerce, while the banking supervisor’s reputation has been tarnished by hundreds of FBME customers who have been hampered by the stringent controls imposed by the CBC. In an announcement on Friday, FBME said that it is confident that the compliance of the bank’s systems, personnel and performance is consistent with the highest standards of international anti-money laundering (AML) controls and know-yourcustomer (KYC) practices and considers the position taken by FinCEN to be disproportionate to the underlying facts, the conduct of FBME Bank and the interests of depositors and counterparties.

FBME added that it was “shocked at FinCEN’s Final Rule in both the findings expressed and the terminology employed, especially given the full cooperation FBME Bank has extended to FinCEN over the past

12 months and the constructive dialogue that has taken place, and is studying all options.”

In justifying its ruling, FinCEN said it “received information from a variety of sources, including comments from the public, during the [initial] 60-day comment period. After a careful and deliberative review of all available information, FinCEN determined that finalising the proposed rule and imposing special measure five is

warranted and necessary to protect the U.S. financial system.”

“The finalisation of this rule is significant,” said FinCEN Director Jennifer Shasky Calvery, “because it demonstrates that the United States will not allow a compromised foreign bank to send dirty funds through the U.S. financial system.”

Despite the public allegations, FinCEN has so far failed to determine the source or beneficiaries of these alleged ‘dirty funds’.

FBME to sue US Treasury over FinCEN “errors” The Federal Bank of the Middle East said in a statement on Monday that the final rule of the Financial Crimes Enforcement Network (FinCEN), released 23 July 23, “cannot withstand scrutiny”.

“Although the bank and its advisors made best efforts over the past year to explain the bank’s AML and operational systems, transactions and activities, the serious factual and legal errors that permeate the supposed ‘final rule’ suggest that it was written by persons who disregarded the relevant submissions along with other information that was readily available to them,” FBME Ltd said in a statement.

The bank added that it intends “to pursue all available redress to defend itself vigorously against this arbitrary and unjustified action, including by filing suit against the US Treasury Department in federal court in Washington DC”.

CoE’s Moneyval sees progress in banking checks The Council of Europe’s anti-money laundering watchdog said that Cyprus banks seem to have made significant progress in banking checks and will report on its next assessment in September.

Money laundering – the process through which criminals give an apparently legitimate origin to proceeds of crime – is an expanding and increasingly international phenomenon. Current estimates of the amount of money laundered worldwide range from $500 bln to a staggering $1 trln, with disastrous effects on the global economy, especially on vulnerable, developing economies.

In its annual report for 2014, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) said that it conducted two follow-up reports on the Special Assessment of Cyprus.

From its previous report ion December 2013 when MONEYVAL said that “while the focus of the (Central Bank of Cyprus) efforts had been on strengthening the financial system in Cyprus, it was clear that much work still needed to be done” with another report scheduled in

March 2014.

The follow-up report suggested that “he outcome of the analysis confirmed the expectations of the CBC and did not give rise to any particular areas of concern which required a significant alteration to the CBC’s supervisory priorities.”

In total, the CBC conducted comprehensive onsite examinations at eleven banks in 2014, but the CoE watchdog added that “while it was noted that measures to strengthen and improve AML/CFT programmes had been implemented, some weaknesses were identified.”

In June 2014, the CBC conducted a short focused visit (1 to 2 days each) at nine banks. Overall, the banks were found to have been implementing the recommendations made in the MONEYVAL Special Assessment Report.

“Weaknesses were identified in some areas and guidance for improvement was given to the banks concerned. No sanctions were imposed since the purpose of these visits was mainly to exercise oversight over the implementation of the recommendations,” the report said.

The 15 banks (out of a total of 32 banks in Cyprus) which were selected by the CBC for closer scrutiny (either by receiving a comprehensive examination or a focused visit) together comprised over 85% in total assets and 68% in deposits of the entire banking sector. The selection was made on the basis of the risk-based off-site tool recently implemented by the CBC. Further developments were reported in relation to the setting up a register of ‘blacklisted’ third party introducers. Cyprus has been requested to provide a report to the 48th Plenary in September 2015 on further progress made in relation to the Special Assessment.

The general conclusions of the annual report said that “the emergence of IS in 2014 underlined once again the importance of its mission on financing of terrorism.

MONEYVAL’s work on AML is also central to the protection of the Rule of Law in Council of Europe states (and other States and territories covered by MONEYVAL).

This is because effective anti-money laundering measures take the profit out of crime and disrupt organised criminality.”

July 29 - August 4, 2015

financialmirror.com | COMMENT | 7

SEE to remain distressed for 2-3 years Elements subsidiary Alpen Invest wins CFI award for best fund managers

Elements Capital Partners, a Cyprus-based investment house that focuses on distressed assets and private equity opportunities in south eastern Europe, plans to raise funds under management in order to have the financial arsenal to grab opportunities in the area.

With some EUR 900 mln already under management, and taking an equity position of over EUR 20 mln each time, the company’s founders aim to raise their asset strength and someday reach the level of the clients they serve.

“This region will continue to remain distressed for the next 2-3 years,” said Savvas Liasis, partner in the firm and chairman of the award-winning affiliate Alpen Invest.

“Usually we get the mandate from the owners themselves, who are either in a difficult situation or need fresh capital to grow. We would normally take an equity position for 3-5 years, usually for our clients that include major fund managers or fund-of-funds in western Europe and the U.S.,” Liasis said.

Potential target markets include Cyprus, Greece, Serbia, Slovenia and Croatia, he said, which are markets which are not yet saturated and where investments in non-performing loan portfolios are lucrative.

The specialised teams at Elements and the Slovenia-based Alpen Invest have helped the group position itself among the bigger international players, some whom used to be rival and now are their clients.

“Bank of America managed to outbid us on a deal we were working on for six months. Now, they are our clients,” Liasis

said.

Andreas Georgallis, Chief Operations Officer at Elements, said that in most cases the owners stay on with a minority stake, while anyone from their 30-strong team, in Slovenia or the office in Cyprus, would assist to turn the company around.

In June, Elements Capital Partners, along with the USbased investment fund York Capital Management LLC, finalised the purchase of receivables (and obligations) against Istrabenz, one of the largest holding companies in Slovenia, of approximately EUR 46.7 mln from BAWAG, and banks belonging to the Erste Group.

Istrabenz is a strategic holding company, with its shares listed on the Ljubljana Stock Exchange since 1997. The core activity of the holding is investment management (strategic and portfolio). The purchased amount of claims represented 34% of Istrabenz’s overall restructured financial debt.

“The purchase of receivables from Istrabenz will enable us to expand our expertise into the fields of tourism and energy, two sectors also crucial to the Cypriot economy into which we are looking to expand in the near future,” said Liasis.

Speaking about receiving the award for Best Fund Management Team in South Eastern Europe from Capital Finance International, Liasis said that this confirms Alpen

Invest’s position as one of the leading asset management companies in south eastern Europe. In February, Alpen Invest was declared the best Slovenian fund management company for 2014 by the country’s leading financial newspaper Moje Finance. Two of its funds – “Alpen.Emerging” and “Alpen.Developed” – also received top ratings, while the managers of the two funds were named among the top five Slovenian fund managers of the year.

“South eastern Europe is on the move, and the prospects for growth are constantly increasing. In this rapidly evolving environment, we are delighted to have positioned Alpen Invest as a reference point for investors, and to be achieving recognition for our efforts”, said Liasis.

In their report, the CFI award judges in London applauded Alpen Invest – under Cypriot control since 2014 – for putting place a number of comprehensive processes that “ensure risk profiles are properly managed at all times”, and noted that the company also “closely adheres to transparent investment policies that are centred on client concerns and aspirations”. They also emphasised the company’s concern for investors, noting that Alpen Invest’s professionals “strongly believe that Slovenian companies presently being privatised are significantly undervalued and thus offer excellent short and medium term upward potential”. This year’s award winners included German pharma Bayer, HSBC, PwC, and Baker & McKenzie consulting firms and MetLife Insurance.

July 29 - August 4, 2015

8 | COMMENT | financialmirror.com

PICK A PACKET OF PASTRY OR TWO…

There’s a lot to be said for a good tart or pie Among the pies and pastries that arrive on our table, one of my favourites is rabbit pie.

Having enjoyed this delicacy in several countries, I can assure you that the Cyprus rabbit is as good as any. Being “tame”, it doesn’t have the gamey flavour of a wild rabbit or hare, but the meat is plentiful and delicious. Rabbit portions can be served in many ways.

Start by dismembering the animal, into five or six parts, according to size. Your butcher will certainly do this, but this can sometimes be a bit haphazard resulting in lopsided portions, so you may prefer doing it yourself. You want to end up with two back legs; the saddle, which may be cut into two pieces, or four if it is a large rabbit; and the chest and front legs (which is not a very meaty part). You will be left with some ribs and other odd bones, which can be set aside, along with the liver (very tasty on its own), the head, kidneys and heart, which may be cooked with a casserole or used for stock.

Use what you want and freeze the rest. If you want a tender rabbit, buy a small young one.

The big ones can be tough, needing longer cooking, but make an excellent casserole.

FOOD, DRINK and OTHER MATTERS with Patrick Skinner 11. Heat the stock until bubbling.

12. Mix the corn flour and water and swirl into the hot stock to thicken. Taste for flavour and season if necessary.

13. Spoon about a cupful of stock into the rabbit mixture and simmer.

14. Roll out the pastry in two pieces, one slightly larger than the other.

15. Put the larger piece of pastry in the base of the pie dish. Trim.

16. Spoon in the rabbit mixture and cover with the other piece of pastry.

17. Brush with beaten egg, or milk, and bake in the oven for about 25 minutes, or until the pastry has risen and is golden brown.

I find this pie is always enjoyed, making a change from pies made with chunks of meat.

The thickened stock makes a good sauce. I put a spot of Muscat in it and a little more salt and pepper and reduce it by about a third.

What better than MASH to go with the pie and gravy? Root vegetables mashed with potato, perhaps. Or, some swede, a turnip, a carrot or two or celeriac – any one, or a couple of these make great mash.

Feuilleté de Champignons

Don’t Run Out of Puff

Ingredients for four servings

Turn a spot of Pastry dough into a super snack lunch

4 cups (or good handfuls) of fresh button mushrooms, each one cut in half 1 walnut sized knob of butter and one tbsp olive oil 125ml white wine 1 flat tsp sugar Salt and pepper A couple of sprigs of chopped parsley 1 des-spn flour

A 375 gram packet of fresh puff pastry can be cut into six good portions. If there are less than six to serve, what you don’t use can be frozen.

Fresh, it keeps for at least ten days in the fridge.

It’s a useful and inexpensive way to make a meal.

All you need to do us roll out each piece of pastry to an oblong about 12cms x 7cms, brush with beaten egg or milk (for a golden, glossy top) and bake for 20 minutes or so in your oven heated to 200C / 180C Cyclotherm.

For a jolly lunch try this mushroom sauce.

Confuse everyone by giving the dish its French name (there’s posh for you)

Method 1. Pre-cook your four pieces of puff pastry and keep warm.

2. On high heat melt the butter in the oil until, it’s sizzling and beginning to brown.

3. Throw in the mushrooms and fry quickly (about 2–3 minutes).

4. Before they start to throw their juice, lower the heat and sprinkle over the flour.

5. Season and stir.

6. Pour over the wine and stir gently until you have a good sauce of not runny or thick texture.

7. Cook gently for 2 – 3 minutes.

8. Open up each pastry, put on plates and spoon the mushroom sauce over the bottom.

9. Put the “lid” on and serve. Fresh green beans are a good accompaniment.

Patroclos Rabbit Pie My recipe uses the front leg/chest portion.

Ingredients (for four portions) 1 340 g pack of “Jus-Rol” puff pastry 1 rabbit portion (as above) 2 thick slices of Lountza Eight medium sized mushrooms 1 medium-large onion 2 cloves garlic Several sprigs of fresh sage Salt and pepper 2 tsps corn flour (corn starch) and a little water 1 pie dish (oblong about 20x25 cms for preference)

WINE MATCH: I think this dish is best with a fairly astringent dry white wine – a little more than a simply Xynisteri varietal. Perhaps one with a good slug of Semillon added.

Yaskouris of Pachna’s white works well, too.

Method 1.

In a medium saucepan put the rabbit joint and cover with water and a chicken stock cube, or use home-made chicken stock.

2.

Bring to boil, cover and simmer gently for about two hours.

3.

De-frost pastry (one hour).

4.

Pre-heat oven to 220C .

5.

When the rabbit meat is cooked, remove from pan and let cool, reserve stock.

6.

With a sharp knife remove rabbit meat from the bones.

7.

In your food processor, whizz the lountza, mushrooms, onion, garlic and sage for a few seconds (or coarsely mince). Remove and set aside.

8.

Now, briefly whizz the rabbit meat or coarsely mince.

9.

In a non-stick frying pan, melt a good dab of butter (or 2 tbsps of oil) and fry the lountza/onion mixture until it is almost cooked through.

10. Add the rabbit meat, turn heat down low and cook for a few minutes stirring regularly.

COOK’S TIP: if you use recipes that have been created in America or Australia you may find the measurements are given in “Cups” or fractions of them. It’s a nuisance having to convert them to grams or pounds and ounces, and there is a simpler method – buy a set of measuring cups like mine. The four give you quarter, half, three-quarter and one cup measures. Widely available in supermarkets and kitchen retailers.

Go to www.eastward-ho for more recipes, food and wine news and notes.

Coffee Island adds Ethiopia Yukro to its ‘specialty coffee’ Coffee Island is expanding its MicroFarm Project with limited edition specialty coffees from specific producers around the world, by introducing the Ethiopia Yukro from the country’s Gera district.

This follows the recent introduction of the Rwanda Gashonga Red Bourbon.

The Ethiopia Yukro is available for espresso or

filter coffee at its own espresso bars and for retail in 200 gr packages. The supplies are expected to last 3-4 months, until the introduction of the next speciality coffee.

Launched in Patras in 1999, Coffee Island presently boasts 259 outlets in Greece and Cyprus. www.coffeeisland.gr

July 29 - August 4, 2015

financialmirror.com | COMMENT | 9

UK and France see euro reform as possible ‘win-win’ Britain and France have agreed that efforts by eurozone nations to shore up the single currency after the Greek crisis could go hand-in-hand with wider reforms the UK needs to stay in the European Union, according to the newsblog Euractiv.

Prime Minister David Cameron wants assurances that non-eurozone EU members such as Britain will not see their influence wane in the wider 28-country bloc as the eurozone integrates more, before he puts British membership (‘Brexit’) of the EU to a landmark referendum by 2017.

With the prospect of near-bankrupt Greece’s exit from the zone narrowly averted for now, France and Germany have floated ideas to strengthen the 19-member currency union, for example with its own budget, “government” and parliament.

French Economy Minister Emmanuel Macron, hosting Chjancellor of the Exchequer George Osborne, said a “fair set of rules” were needed to protect the interests of those outside the euro.

“We need a fair treatment of the ‘out’ countries,” Macron told a joint news conference with Osborne after the two visited a so-called “incubator” of French high-tech start-ups in Paris’ trendy Marais district.

“It is the right moment to reform a lot of things,” he said, adding that he believed that agreement between Britain and its EU partners in this area was possible.

Osborne said some of the proposals for eurozone reform took it in an “interesting direction” but added, “If we are going to see the eurozone integrating further, then we have

also got to make sure that the interests of those who are not in the eurozone such as the UK are properly protected.”

Neither minister would be drawn on details of negotiations due to take place on the sought-after reforms or the timetable of a possible referendum.

The Independent on Sunday reported that Cameron wants to press ahead with the vote within the next 12 months, with a polling day pencilled in for June 2016.

The PM deflected the question on a visit to Indonesia on Monday, telling accompanying British reporters, “I’ll just get on doing the negotiation and then set the date.”

Osborne said the timing would be determined by the substance of a possible accord with capitals such as Berlin and Paris, which have signalled they would prefer the question resolved before they hold national elections in 2017.

“If we have a deal that we can recommend to the British people before then, then of course we can have the referendum before then,” said Osborne, reaffirming the government’s line.

Britain is seeking a batch of reforms ranging from a streamlining of EU red-tape to measures to safeguard Britain’s position as a global financial centre and more contentious ones including cutting welfare and in-work benefits to non-British EU citizens.

With French and other officials having said that they would find it hard to accept anything that involved outright change of the EU’s treaties, Cameron last month suggested that agreement to change treaties at a later date could be sufficient. Macron would not be drawn on whether that too would be a “red line” for Paris, saying only, “the process will depend on the results of the discussions.”

France is traditionally particularly sensitive to any attempt to roll back EU labour, public health and food safety legislation. It is not yet clear whether Britain will demand changes or exemptions in these areas.

Osborne was due to hold talks with Finance Minister Michel Sapin, Foreign Minister Laurent Fabius and Prime Minister Manuel Valls while in Paris. Trips to other EU capitals to make the British case are planned in coming weeks.

Brussels orders France to reclaim Ryanair subsidies The European Commission’s ongoing battle with Ryanair over illegal state aid has entered a new stage. The EU’s competition authority announced on July 27 that it would take France to court for its failure to recover illegal state aid given to Ryanair and Transavia, according to newsblog EurActiv France.

Brussels had ordered France on July 23, 2014 to reclaim nearly EUR 10 mln it had paid to the two low-cost airlines to help them set up operations at the airports of Pau, Nimes and Angouleme.

Ryanair was ordered to repay EUR 6.4 mln of aid it received for its base at Nimes airport, EUR 2.4 mln for Pau-Pyrénées airport and EUR 870,000 for Angoulême, where the company has since ceased its operations.

Transavia, a branch of Air France, was also ordered to repay EUR 430,000 in illegal state aid.

“Through various contractual and marketing arrangements with the airports,

the airlines paid less than the additional costs linked to their presence in the airport,” the Commission said.

One year after the Commission’s decision, the airlines are yet to return the illegal aid.

The process suffered delays when the carriers took the French government to court after the authorities issued the initial recovery order.

“Ryanair has also appealed two out of three of the Commission’s decisions (concerning Pau and Angouleme) before the EU General Court,” the Commission said.

Unlike an appeal in French law, these appeals have no “suspensory effect under EU law, meaning that France continues to be under an obligation to recover the incompatible aid,” the European executive added.

For several years, Ryanair has faced repeated accusations of benefiting from illegal state aid in France and other EU countries, to ensure the company continues to serve regional airports.

Despite adopting more flexible guidelines on state aid for airports and airlines in February 2014, Brussels is still pursuing several companies and airports over illegal subsidies.

Aside from the cases of Angouleme, Pau

and Nîmes, the EU executive found that Ryanair had also received an “undue economic advantage, estimated at around EUR 318,569” in its agreement with the airport of Altenburg-Nobitz in Germany, which it has ordered the carrier to repay.

Change EU treaty so countries can leave the eurozone Altering the eurozone treaty to allow states to leave or be expelled will help guarantee the future stability of the EMU, argues Thomas Schuster.

By Thomas Schuster After five months of agonising negotiations, the eurozone head of state, the Greek and several national parliaments paved the way to an agreement on a third bailout package. It will include tough reforms like cutting pensions and increasing taxes in exchange for a further EUR 86 bln of financing over three years.

Is this third rescue package really the final act in this Greek tragedy?

Unfortunately not. On the contrary, agreeing on this compromise of political

reforms for cash only means kicking the can down the road. This does not solve the central problem that Greece has to run a sustainable budget meeting the rules set by the European Monetary Union. And with this compromise, Greece has to rely on foreign help from the EU and the IMF beyond the foreseeable future.

So, what would be a sustainable solution to the Greek euro crisis? It is a central construction fault of the European Treaty that neither an exit nor an expulsion from the European Monetary Union is possible.

Nearly every private organisation – be it a choir or a political party – has rules on how to leave the organisation or how to be expelled in the case of some wrongdoing.

The euro bloc has neither.

Thus, I recommend that the European Union revise the Treaty to enable both exit and expulsion from EMU. If not Greece, sooner or later another country will want to leave the eurozone. And in fact, no one can prevent a sovereign state from doing so. A

clear set of rules would merely minimise the negative impact of the uncertainty that would arise from a country leaving the eurozone.

Introducing a right to expel is even more important than a right to exit. With that possibility at hand, the Greek crisis could have been solved much earlier. What is the current threat from euro finance ministers if a crisis state does not carry out the reforms agreed upon? They can only stop the financial assistance.

But unfortunately, this is no threat at all since as a consequence, the crisis state would be forced to default on its debt, resulting in huge financial losses for the remaining euro members. And this is exactly the game Alexis Tsipras has been playing. He knows quite well that the German chancellor Angela Merkel would have a hard time explaining to the German people that Greece will not pay back much of the debt it owes Germany. Only the threat of expulsion is an effective one.

For example, from the very beginning of its existence, the International Monetary Fund has introduced the right to expel a country that does not pay back its debt. It is called compulsory withdrawal (article 26 of the IMF’s Articles of Agreement).

The central problem of the eurozone is that it lacks tools to adequately deal with crisis states that are not willing to carry out economic reforms. Even if the Greek crisis is solved, the next euro slump is waiting around the corner – be it in five, ten or 20 years.

To weatherise the eurozone ship, it is absolutely essential that the European Treaties be revised to introduce the right of every euro state to exit EMU and to establish the right of the euro members to expel a state that does not follow the rules.

Thomas Schuster is professor of economics and quantitative methods at BadenWürttemberg Cooperative State University Mannheim.

July 29 - August 4, 2015

10 | GREECE | financialmirror.com

Why the Greek deal will work

By Anatole Kaletsky Now that Greek banks have reopened and the government has made scheduled payments to the European Central Bank and the International Monetary Fund, does Greece’s near-death experience mark the end of the euro crisis? The conventional answer is a clear no.

According to most economists and political commentators, the latest Greek bailout was little more than an analgesic. It will dull the pain for a short period, but the euro’s deep-seated problems will metastasise, with a dismal prognosis for the single currency and perhaps even the European Union as a whole.

But the conventional wisdom is likely to be proved wrong. The deal between Greece and the European authorities is actually a good one for both sides. Rather than marking the beginning of a new phase of the euro crisis, the agreement may be remembered as the culmination of a long series of political compromises that, by correcting some of the euro’s worst design flaws, created the conditions for a European economic recovery.

To express guarded optimism about the Greek deal is not to condone the provocative arrogance of former Greek Finance Minister Yanis Varoufakis or the pointless vindictiveness of German Finance Minister Wolfgang Schäuble. Neither is it to deny the economic criticism of the bailout provisions presented by progressives like Joseph Stiglitz and conservatives like Hans-Werner Sinn.

The arguments against creating a European single currency and then allowing Greece to cheat its way into membership were 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. Joining the euro was certainly ruinous for Greece, but there is always “a great deal of ruin in a nation,” as Adam Smith remarked 250 years ago, when losing the American colonies seemed to threaten Britain with financial devastation.

The great virtue of capitalism is that it adapts to ruinous conditions and even finds

ways of turning them to advantage. The United States in the mid-nineteenth century was badly suited for a single currency and a single economic structure, as evidenced by the Civil War, which was provoked as much by single-currency tensions as by moral abhorrence to slavery. Italy would probably be better off today if Garibaldi had never launched unification.

But once unification has happened, the pain of dismantling the political and economic settlement usually overwhelms the apparent gains from a break-up. This seems to be the case in Europe, as clear majorities of voters are saying in all eurozone countries, including Germany and Greece.

Thus, the question was never whether the single currency would break up, but what political reversals, economic sacrifices, and legal subterfuges would occur to hold it together. The good news is that Europe now has some persuasive answers.

Indeed, Europe has overcome what could be described as the “original sin” of the single-currency project: the Maastricht Treaty’s prohibition of “monetary financing” of government deficits by the ECB and the related ban on mutual support by national governments of one another’s debt burdens.

In January, ECB President Mario Draghi

effectively sidestepped both obstacles by launching a programme of quantitative easing so enormous that it will finance the entire deficits of all eurozone governments (now including Greece) and mutualise a significant proportion of their outstanding bonds.

Moreover, European governments have belatedly understood the most basic principle of public finance. Government debts never have to be repaid, provided they can be extended in a cooperative manner or bought up with newly created money, issued 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 regarding pensions, wages, and public spending. Now that Prime Minister Alexis Tsipras’s government has been forced to acknowledge the unqualified priority of debt servicing, and can now benefit from unlimited monetary support from the ECB, Greece should have little problem supporting its debt burden, which is no heavier than Japan’s or Italy’s.

Finally, Germany, Spain, Italy, and several northern European countries required, for domestic political reasons, a ritual

humiliation of radical Greek politicians and voters who openly defied EU institutions and austerity demands. Having achieved this, EU leaders have no further reason to impose austerity on Greece or strictly enforce the terms of the latest 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 throughout the eurozone.

This raises a key issue that the Tsipras government and many others misunderstood throughout the Greek crisis: the role of constructive hypocrisy in Europe’s political economy. Gaps between public statements and private intentions open up in all political systems, but these become huge in a complex multinational structure like the EU. On paper, the Greek bailout will impose a fiscal tightening, thereby aggravating the country’s economic slump. In practice, however, the budget targets will surely be allowed to slip, provided the government carries out its promises on privatisation, labour markets, and pension reform.

These structural reforms are much more important than fiscal targets, both in symbolic terms for the rest of Europe and for the Greek economy. Moreover, the extension of ECB monetary support to Greece will transform financial conditions: interest rates will plummet, banks will recapitalise, and private credit will gradually become available for the first time since 2010. If budget targets were strictly enforced by bailout monitors, which seems unlikely, this improvement in conditions for private borrowers could easily compensate for any modest tightening of fiscal policy.

In short, the main conditions now seem to be in place for a sustainable recovery in Greece. Conventional wisdom 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.

Anatole Kaletsky is Chairman of the Institute for New Economic Thinking and the author of Capitalism 4.0, The Birth of a New Economy. © Project Syndicate, 2015. www.project-syndicate.org

How the eurozone survived The Greek crisis has strained nerves on the eurozone debt market, but unlike four years ago there has been no contagion of financial uncertainty across the single currency bloc, according to EurActiv.com.

The chaotic nature of the bailout negotiations which nearly sent Greece into default exacerbated market volatility, but the rise in yields was largely confined to Greek bonds.

While in 2011 Greece’s problems rippled across the eurozone as spooked investors demanded higher returns from other countries that in turn pushed them into financial trouble, this time yields barely budged.

This year “there was pollution, but not contagion” to other eurozone countries, said Patrick Jacq, a debt market specialist at French bank BNP Paribas.

“There was no contagion, that is the big difference with three or four years ago,” said Frederic Gabizon, who heads up bond markets at HSBC. In a sort of self-fulfilling prophecy four years ago, investors worried about the sustainability of the debt of weak eurozone nations demanded higher returns. This weakened the finances of those countries.

Portugal ended up needing to take a full EU-IMF bailout in 2011, while Spain got away with just a bailout of its banks in 2012.

This year, even at the most difficult moments in the negotiations between Greece and its creditors, “there weren’t massive movements to sell the bonds” of Spain or Italy, said Gabizon.

Bond market specialist Jean-Francois Robin at the investment bank Natixis said “the magnitude is completely different” this year.

He cited as an example the rate of return to investors on 10- year Portugese sovereign bonds, which shot up to 18% at the beginning of 2012, but only rose to 3% this time.

The first bond emission by the European Union after Athens and the eurozone nations agreed on a third bailout to Greece worth up to EUR 86 bln, demonstrated the confidence of investors, said Gabizon, who led the operation.

“In just one hour and 15 minutes it generated demand of EUR 1.8 bln, or three times the 600 mln the EU wanted to borrow for five years, for a borrowing rate of 0.272%, a real

success,” he said.

The reaction by markets this time around demonstrated the situation had changed significantly since 2011.

“The eurozone is better organised, and member states are also in a different shape. Portugal and Spain have undertaken considerable reforms,” said Robin, adding that economic growth has also resumed.

“Above all, the European Central Bank is out there buying bonds every day,” added Robin, referring to the quantitative easing (QE) programme launched in March, under which the ECB purchases around EUR 60 bln of debt of eurozone member countries and companies.

The programme provides powerful support to bond markets and keeps interest rates low. But even that didn’t prevent an upward swing in the second quarter of the year.

In the first quarter, galvanised by the ECB’s announcement of its QE programme, sovereign yields dropped, in some cases into negative territory, as investors sought a safe haven investment amid fears of recession and deflation. “(But) the second quarter was very tumultuous,” said

July 29 - August 4, 2015

financialmirror.com | GREECE | 11

The lethal deferral of Greek debt restructuring

By Yanis Varoufakis

The point of restructuring debt is to reduce the volume of new loans needed to salvage an insolvent entity. Creditors offer debt relief to get more value back and to extend as little new finance to the insolvent entity as possible.

Remarkably, Greece’s creditors seem unable to appreciate this sound financial principle. Where Greek debt is concerned, a clear pattern has emerged over the past five years. It remains unbroken to this day.

In 2010, Europe and the International Monetary Fund extended loans to the insolvent Greek state equal to 44% of the country’s GDP. The very mention of debt restructuring was considered inadmissible and a cause for ridiculing those of us who dared suggest its inevitability.

In 2012, as the debt-to-GDP ratio skyrocketed, Greece’s private creditors were given a significant 34% haircut. At the same time, however, new loans worth 63% of GDP were added to Greece’s national debt. A few months later, in November, the Eurogroup (comprising eurozone members’ finance ministers) indicated that debt relief would be finalised by December 2014, once the 2012 programme was “successfully” completed and the Greek government’s budget had attained a primary surplus (which excludes interest payments).

In 2015, however, with the primary surplus achieved, Greece’s creditors refused even to discuss debt relief. For five months, negotiations remained at an impasse, culminating in the July 5 referendum in Greece, in which voters overwhelmingly rejected further austerity, and the Greek government’s subsequent surrender, formalised in the July 12 Euro Summit agreement. That agreement, which is now the blueprint for Greece’s relationship with the eurozone, perpetuates the five-year-long pattern of placing debt restructuring at the end of a sorry sequence of fiscal tightening, economic contraction, and programme failure.

Indeed, the sequence of the new “bailout” envisaged in the July 12 agreement predictably begins with the adoption – before the end of the month – of harsh tax measures and medium-term fiscal targets equivalent to another bout of stringent austerity. Then comes a mid-summer negotiation of another large loan, equivalent to 48% of GDP (the debt-toGDP ratio is already above 180%). Finally, in November, at the earliest, and after the first review of the new programme is completed, “the Eurogroup stands ready to consider, if necessary, possible additional measures… aiming at ensuring that gross financing needs remain at a sustainable

level.”

During the negotiations to which I was a party, from January 25 to July 5, I repeatedly suggested to our creditors a series of smart debt swaps. The aim was to minimise the amount of new funding required from the European Stability Mechanism and the IMF to refinance Greek debt, and to ensure that Greece would become eligible within 2015 for the European Central Bank’s asset-purchase programme (quantitative easing), effectively restoring Greece’s access to capital markets. We estimated that no more than EUR 30 bln (or 17% of GDP) of new, ESM-sourced financing would be required, none of which would be needed for the Greek state’s primary budget.

Our proposals were not rejected. Although we had it on good authority that they were technically rigorous and legally sound, they simply were never discussed. The political will of the Eurogroup was to ignore our proposals, let the negotiations fail, impose an indefinite bank holiday, and force the Greek government to acquiesce on everything – including a massive new loan that is almost triple the size we had proposed. Once again, Greece’s creditors put the cart before the horse, by insisting that the new loan be agreed before any discussion of debt relief. As a result, the new loan deemed necessary grew inexorably, as in 2010 and 2012.

Unsustainable debt is, sooner or later, written down. But the precise timing and nature of that write-down makes an enormous difference for a country’s economic prospects.

And Greece is in the throes of a humanitarian crisis today because the inevitable restructuring of its debt has been used

as an excuse for postponing that restructuring ad infinitum.

As a high-ranking European Commission official once asked me: “Your debt will be cut come hell or high water, so why are you expending precious political capital to insist that we deliver the restructuring now?”

The answer ought to have been obvious. An ex ante debt restructuring that reduces the size of any new loans and renders the debt sustainable before any reforms are implemented stands a good chance of crowding in investment, stabilising incomes, and setting the stage for recovery. In sharp contrast, a debt write-down like Greece’s in 2012, which resulted from a programme’s failure, only contributes to maintaining the downward spiral.

Why do Greece’s creditors refuse to move on debt restructuring before any new loans are negotiated? And why do they prefer a much larger new loan package than necessary?

The answers to these questions cannot be found by discussing sound finance, public or private, for they reside firmly in the realm of power politics. Debt is creditor power; and, as Greece has learned the hard way, unsustainable debt turns the creditor into Leviathan. Life under it is becoming nasty, brutish and, for many of my compatriots, short.

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

the Greek crisis Jacq, citing two periods of significant rises in bond yields.

And analysts agreed that Greece played no role in those surges, which began before a Greek euro exit had become a serious possibility.

“There were several catalysts, including better than expected economic statistics and declarations by market heavyweights arguing rates were too low and calling for a sell-off. That’s when the market took off,” said Jacq, who anticipates more placid activity in the near term.

“The summer should be calmer [...] but come September - between the looming rate rise by the US Federal Reserve and negotiations on Greece’s debt restructuring - volatility could make its return,” said Robin.

What Greece must do: Eurozone leaders reached an agreement on a programme to save Greece from bankruptcy after 17-hour talks on July 13. If approved, this will be the third rescue programme for Greece in five years. It will be managed by the European

Stability Mechanism (ESM), the eurozone permanent crisis resolution fund that was initially set up five years ago in an effort to save Athens from bankruptcy.

Here is a look at what Greece has to do: - request continued support from the International Monetary Fund after its current IMF programme expires in early 2016; - streamline consumer tax and broaden the tax base to increase revenue; - make multiple reforms to the pension system to make it viable. Initial reforms are due now, others by October; - safeguard the independence of the statistics agency; - introduce laws that would ensure “quasi-automatic spending cuts” if the government misses its budget surplus targets; - overhaul the civil justice system to make it more efficient and reduce costs; - carry out product market reforms that include allowing stores to open on Sundays, broadening sales periods, opening up pharmacy ownership, reforming the bakeries and milk market and opening up closed and protected

professions, including ferry transport; - privatise the electricity transmission network operator, unless alternatives with the same effect can be found; - overhaul the labour market, which includes reviewing collective bargaining, industrial action and collective dismissal regulations; - tackle banks’ non-performing loans and strengthen bank governance; - increase the privatisation programme, transferring EUR 50 bln worth of Greek assets to an independent fund, based in Greece, to carry out the privatisations; - modernise, strengthen and reduce the costs of administration; - allow members of the institutions overseeing Greece’s reforms - the European Central Bank, IMF and European Commission, previously known as the ‘troika” - to return to Athens and consult with on all relevant draft legislation before submitting it to public consultation or to parliament; - reexamine, with a view to amend, legislation passed in the last six months that is deemed to have backtracked on previous bailout commitments.

July 29 - August 4, 2015

12 | PROPERTY | financialmirror.com

Leptos opens Basilica Design Centre in Kato Paphos Leptos Estates recently opened its new Basilica Design Centre (BDC) in Kato Paphos boosting its support to customers locally and overseas by offer complete home decorating and furniture solutions.

“Our aim is to supply a full interior design service to suit our client’s individual requirements to a standard second to none.

Our team of designers are on hand to assist with all aspects of interior design and home furnishing from choosing furniture (indoor and outdoor), window dressing, electrical appliances, accessories, customisation of product and designer items, coupled with floor plan layouts,” said Rachael Sharrock, Chief Interior Designer of the Leptos Group.

“Our objective is to provide a customised and personalised service. With today’s expectations we can offer elegance and style, creating a warm, harmonious, highly comfortable and sophisticated haven,” she added.

“Basilica Design Centre” is located at Leptos Basilica Gardens, Leda street, Kato Paphos, Tel 26 880 222, email : info@leptosestates.com

Construction material index down 2.1% The Price Index of Construction Materials for the period January – June declined by 2.10%, year on year, according to data released by the Statistical Service Cystat.

In June, the index reached 102.22 units (base year 2010=100.00), recording a decrease of 0.31% compared to May.

English Housing Associations’ finances under pressure English Housing Associations could struggle to maintain their current financial performance after recent government policy changes made their operating environment more challenging, Moody’s said in a report.

“The cumulative impact of recent changes in government policy have created a more difficult operating environment for housing associations,” said Roshana Arasaratnam, Vice President - Senior Credit Officer, and author of the report. “The sector’s overall credit profile could deteriorate if housing associations are unable to maintain their current financial projections.”

Moody’s report comes after the UK government’s 8 July announcement of a 1% annual reduction in social housing rent. Ongoing welfare reforms and the extension of the “Right to Buy” scheme, where housing associations’ tenants could get the chance to buy their housing association home at a discount, add to the uncertain outlook.

Moody’s forecasts that the rent reduction means housing associations’ turnover will grow more slowly than anticipated; and projects an average loss of 7% of turnover, cumulatively over the next four years, from the proposed rent reductions. Income from new housing will offset the nominal cut in rents, but rental income will grow at a much slower pace in future.

Housing associations’ property sales could form a higher share of their turnover as social housing revenue growth slows. The percentage of the associations’ revenue gained from social housing could fall to 67% in 2017 from 76% in 2014. Median operating margins could also fall to 26% by 2019 from 30% in 2014 as increasing costs exceed the growth in turnover.

The recent policy changes could lead to the housing associations’ eroding their cash reserves more quickly than expected, reducing their short-term liquidity.

Housing associations may tap undrawn credit facilities, which would increase anticipated debt levels. At the same time, planned capital spending on new and existing homes may be postponed or scaled back, reducing the need for new debt and limiting the impact on their balance sheets.

Shacolas sells malls to Atterbury Group of S. Africa The NK Shacolas Group, the largest retail operator in Cyprus, has sold its two commercial properties in Nicosia to the Johannesburg-listed Atterbury Property Group for EUR 194 mln.

This continues Group founder Nicos Shacolas’s love affair with South Africa, having sold its controlling stake in the island’s second mobile operator to the MTN Group.

The funds raised from disposing of assets are expected to pay down debts estimated at 180 mln and help finance the next phase of development and completion of the ambitious Limni Resort, a luxury golf and holiday home project near Polis Chrysochous that has stumbled upon objections from state environment services and other groups.

The announcement said that Group subsidiaries Woolworth (Cyprus) Properties Plc, Ermes Department Stores Plc, ITTL Trade Tourist & Leisure Park Plc and Woolworth Commercial Centre Plc have sold the land of the The Mall of Cyprus and The Mall of Engomi to Atterbury Cyprus Limited, a subsidiary of the South African giant and owns and develops mega-projects.

Atterbury’s portfolio includes 11 malls, chief among them being the 131 000 sq.m. Mall of Africa, South Africa’s biggest single-phase shopping mall development to date that will open in April 2016.

As part of the transaction, the return on investment for the Shacolas Group is estimated at EUR 71 mln.

Woolworth Properties still owns a plot of 10,890 sq.m. next to the Mall of Cyprus worth EUR 9 mln for which Atterbury will have the first right of refusal over the next two

years.

Meanwhile, the Shacolas Group issued a statement on Monday responding to criticism from the ETEK chamber of engineers and architects, that had alleged last week that due to a state relaxation the value of the Mall of Cyprus had risen

by EUR 20 mln.

“This is untrue,” the statement said, adding that instead the government had proceeded with a universal upgrade of several commercial areas throughout Cyprus as incentives to boost the economy. The Mall of Cyprus is included among the many designated areas.

“However, is it not a contradiction that a development permit was granted to another mall, on the outskirts of Nicosia, twice the size of our Mall?” concluded the announcement.

UK buy to let RMBS performance improves slightly, says Moody’s The performance of the UK buy-tolet (BTL) residential mortgagebacked securities (RMBS) market improved slightly in the three months ended May, according to the latest indices published by Moody’s.

The 90+ day delinquency rate decreased to 0.64% in May from 0.66% in February, representing a 4% drop, while outstanding

repossessions remained stable at 0.09% in May. Cumulative losses increased marginally to 0.83% in May from 0.81% in February.

Moody’s annualised total redemption rate decreased to 8.57% in May from 9.01% in February.

New players in the prime mortgage market and pre-crisis legacy assets

hold the keys to deal issuance for the next 12 months. They accounted for almost half of all newly issued UK RMBS from January 2014 to June 2015, at 15 out of 33 deals (GBP 8.2 bln out of total issuance of GBP 27.9 bln).

Moody’s forecast that UK house prices will rise by up to 5% in 2015, but at a slower pace than in 2014.

July 29 - August 4, 2015

financialmirror.com | PROPERTY | 13

Release of mortgages, our bright MPs and the “Georghadji List” µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

It is incomprehensible how a proposal for a progressive law on the part of the State has not been approved by the House Interior and Finance Committees. How is it possible to have a proposal that frees property owners trapped by mortgages, there is a specific memo from the State, the Troika of lenders have accepted such a measure, together with the Central Bank, yet our and parliamentarians entertain us yet again by voting no to the bill.

What is the reason, then, why an MP would want to keep these buyers trapped? Do they not realise that in addition to their release from this nightmare of a problem, it will also give a timely boost that will help revive the housing market, increase confidence among foreign and other existing buyers who will become real-life promoters, rather than detractors of the Cyprus real estate market?

Interior Minister Socratis Hasikos wondered whether the deputies were representing the interests of lenders when they reiterated their proud ‘NO’. Such an idea has so far never even crossed our mind, but I am obliged to classify th actions of our delightful MPs as a betrayal to the troubled citizens of the Republic as well foreign home owners. Now that the Minister suggested it, perhaps there is some smoke in his words of fire. Could it be that lenders keep those MPs who said NO close to them and with some form of blackmail convinced them to follow this decision? I certainly do not believe such a scenario, but we are all human and anything can happen.

This whole debacle reminds me of the time when a list was leaked, allegedly (but later refuted) by the Central Bank Governor Chrystalla Georghadji, that numbered the

“Could it be that lenders keep those MPs who said NO close to them and with some form of blackmail convinced them to follow this decision? I certainly do not believe such a scenario, but we are all human and anything can happen” outstanding mortgages held by MPs or their immediate family members, that were considered as “non performing” as they had exceeded 90 days without any payment and had not been serviced for 6 months. Not much had been investigated about the rest on the list, but as soon as the heroic MPs learned of its existence they foamed at the mouth and were furious, accusing the Governor of exerting influence and power over elected deputies. And what is their problem? Were they the only ones with delays or non-payments whose names were published daily in the newspapers and online publications?

The whole contradictory conduct of the Members of Parliament is so incomprehensible that it reaches a new level in the already ridiculed actions of our deputies who have degraded the image of the House and politics in general. And just so as not give the impression that all deputies should be criticised, an effort was made to try and identify the individual MPs who voted NO in both committees, but it was impossible to get this information from the

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minutes of the House so as to publish their names and for the whole business world, as well as the unfortunate citizens of this Republic to be proud of them.

Kudos to the Minister of Interior who continues to press the issue publicly lest we exit from this situation which smacks of vested interests.

The new law concerning the reduction of transfer fees (by the end of 2016), the exemption from capital gains tax for purchases to be made by the end of 2016 (regardless of when they are resold) is the best thing right now for the real estate market, as are the measures for permanent residence visas and passports to thirdcountry national investing in our country.

With all these positive measures I expect that we will see the first signs of recovery in 2016 and it is for this reason that we need to correct the ills of the current system, because the international market of property

investors will not give us a second chance.

Maybe from now on, when financing development projects for sale, lenders should be more careful when they disburse these funds, while sellers should provide the buyer simultaneously with the signing of the sales contract all the necessary release documents to free them from any mortgage and other burdens. Surely there can not be a 100% perfect system, for example what happens if a project is not completed, or is delayed for other reasons. But perhaps there should also be special circumstances to cover projects without titles, whereby these would have special insurance or provisions for the benefit of the buyer or the lender. Such a measure may be significant, but it must be discussed properly with all stakeholders to determine whether it is feasible or not. www.aloizou.com.cy ala-HQ@aloizou.com.cy

July 29 - August 4, 2015

14 | MARKETS | financialmirror.com

The impact of a Fed interest rate hike

By Oren Laurent President, Banc De Binary

The Fed is likely to increase the interest rate by a quarter percent before the end of the year. This has boosted dollar demand, and will result in strong USD performance in Q3 and Q4 of 2015. However, the level of domestic investment may decline if borrowing rates rise too much.

The Federal Reserve Bank is expected to raise interest rates by a quarter percentage point before the end of 2015.

Additionally, US policymakers expect that inflation will remain at historically low levels for at least the next five years and the economic growth rate will increase at a decreasing rate. These announcements were presented to policymakers during the meeting that took place on June 16 to 17.

However, these views are not shared by those who determine interest-rate policy in the US. These analysts and governors – many of whom are outside Washington – will generate their own interest-rate forecasts, growth rates and other economic predictions. Based on the estimations of economic analysts, it is likely that the Fed will raise interest rates to 0.35 percentage points by Q4, 2015. Presently the Fed funds rate is approximately 0.13%.

How Interest-Rate Hikes Impact Economic Variables The implications of interest-rate hikes are important as they pertain to the US dollar index, confidence in the US economy, and global economic prosperity. Since the USD is the world’s reserve currency, any change in interest rates will inevitably impact upon commodities prices, investments in Third World economies, and business confidence in the US. Typically, when interest rates rise, the cost of investments in the domestic economy becomes more expensive. In order to counter the effect of increased borrowing costs, expected revenue projections must increase. More importantly for domestic housing, increased interest rates imply that the costs of mortgages and long-term loans will increase, dampening investment in property. One of the most

important economic barometers is residential investment.

Increased home sales in the US were pivotal to the economic recovery that has taken place since the 2008 global crisis.

Policymakers Push for Rate Hike The Federal Reserve is interested in maintaining an interest-rate between 0% and 0.25%. This rate is used as a control mechanism for short-term interbank lending. In all, 15 of 17 policymakers are intent on raising interest rates for 2015, with the majority signalling a desire for just one interest-rate hike. It is unlikely that the inflation rate will reach the Fed’s desired range of 2 percentage points for the year, but GDP is expected to increase by 1.74 percentage points this year to Q4, 2020.

Rising interest rates also decrease the consumption of durable goods, because the financing costs are higher.

Increased interest rates will also add to America’s national debt for the same reasons.

On a positive note, those with money invested in banks and financial institutions will be earning more interest, and

those with strong dollar holdings in Forex will see the USD gaining ground against a basket of currencies as it becomes the preferred currency. While this will certainly hurt exporters, importers will be able to purchase more foreign goods and supplies with fewer dollars. It’s a mixed bag, but the momentum is clearly with the greenback!

Please note that this column does not constitute financial advice.

Emerging currencies’ pain continues as history repeats itself Markets Report b

By Jameel Ahmad, Chief Market Analyst at FXTM

In line with expectations, markets concluded the week suffering losses with the combination of alarming data from China and resumed selling in commodities weighing heavily on investor sentiment. With economic data from China causing concern and the depressed commodity prices leading to pressures on both global inflation prospects and those economies reliant on commoditylinked exports, it looks like recent history is repeating itself from the beginning of the year where the divergence in economic sentiment between the United States and those suffering from changing market conditions was heavily highlighted.

While the economic momentum in the US might not be as powerful as it was at the start of the year, the data remains robust and job creation is consistently proving itself to be the star performer of the US economy. At the same time, economic data from China continues to threaten further weakness in the economy and the figures from Europe remain largely unconvincing. This basically means that we are looking at the increased prospects of the divergence in economic sentiment between the US and everywhere else returning as a dominant theme in market sentiment once again.

When you also take into account that the Federal Reserve should be raising interest rates during the second half of the year, probably in September, this paints an overall positive picture for the USD. However, the emerging markets’ currencies are taking

complete punishment from numerous different directions.

A wide collection of them have hit milestone lows in the previous nine months, with this being a global phenomenon not restricted to any specific geographical regions.

This has included the currencies of Brazil, Chile, Columbia, Indonesia, Malaysia, Mexico, South Africa, Turkey and Russia with the reason for the damage extending much further than the US interest rate outlook.

It is the combination of the threat of slowing trade from China, the price of commodities having not yet found a floor, and the expectations for the Fed to begin normalising monetary policy, that are behind this suffering and with these threats showing no signs of going away, these currencies are still exposed to further lows. It is important to begin stepping away from looking at the US interest rate outlook because the US economy is

performing consistently and it is just a matter of time before the Fed begins raising rates. What does this mean? It is time to begin focusing on China because the correlation between concerns over China data and consequent pressure in commodities is extensive.

What investors and those interested in the emerging markets really need to begin focusing attention on is the economic data from China and resumed selling in commodities.

Although the China GDP target of 7% is seen as a crucial benchmark after the government announced this level at its objective for growth, China can actually handle slower than expected growth as it attempts to shift its economy towards being more domestically inspired. However, other economies cannot handle a China that is possibly entering a deeper than previously expected downturn with this weighing on raw material exports and this ultimately means there could be more punishment when it comes to the pressures in the emerging markets.

For information, disclaimer and risk warning visit: www.ForexTime.com

FXTM is an international forex broker regulated by the Cyprus Securities and Exchange Commission (CySEC), and FT Global Limited is regulated by the International Financial Services Commission (IFSC).

July 29 - August 4, 2015

financialmirror.com | MARKETS | 15

What price US growth stocks?

Marcuard’s Market update

by GaveKal Dragonomics

Ever since US equities bottomed in March 2009, glamour stocks such as Google, Amazon and Netflix have been at the forefront of the rebound, leading the Nasdaq composite to an all time high last week.

While we continue to prefer other markets over the US, recent moves in mega-cap US growth stocks have set us wondering how long the outperformance of growth stocks over value stocks can last. After all, even Federal Reserve chair Janet Yellen has sounded the alarm over pricey valuations for these momentum counters.

Before assessing the outlook for growth stocks relative to value stocks, we must first account for the outperformance of the growth sector. Some investors argue that growth is scarce, therefore companies that can generate growth should be rewarded. Others retort that ultra-loose monetary policy has inflated a bubble, and that the high level of US margin debt is fueling an unsustainable run-up in favoured stocks.

Our hypothesis is that the market rewards appropriate investment decisions. Therefore growth stocks—those which reinvest their earnings and borrow to generate future growth—should outperform when borrowing costs for businesses are set at a level that encourages efficient capital allocation.

Efficient investment takes place in a macroeconomic environment in which the cost of capital is close to the anticipated return on capital—in other words, when the Wicksellian spread for businesses is close to the optimum level. In contrast, when the cost of capital is too low relative to returns on capital, growth companies tend to make illconsidered investments, and get punished for them by investors.

When this happens—as in the late 1970s and from 2003-

www.marcuardheritage.com

07—value stocks, which are seen as assets that store rather than create value, tend to outperform.

So what is the optimum Wicksellian spread for the business sector? We look at the spread between the seven year moving average of nominal US GDP growth (as a proxy for the return on capital) and the yield on Baa-rated corporate bonds (as a proxy for the cost of capital). By trial and error, we find that the optimum spread is from -1.5pp to -3.5pp.

In other words, when returns on capital are between 1.5pp and -3.5pp below the cost of capital, businesses are operating in an environment that encourages efficient investment. The US corporate sector has been operating in the Wicksellian optimum ever since the end of the financial crisis. This goes a long way to explain the outperformance of growth stocks.

What cost of capital will be needed to maintain this optimum in the future? Given our belief that the real structural growth rate for the US is around 2.3%, and assuming 2% inflation, the long term optimum for Baa corporate yields is roughly 5.8% to 7.8%. When Baa corporate bond yields are within this range, investors should overweight growth stocks relative to value stocks.

Assuming no US recession materialises in the mid-term and seven year nominal GDP growth crawls back to 4.3% from its current 2.8%, and with the Baa bond yield likely to move higher from 5.2% given the gradual upward trajectory of treasury yields, the Wicksellian spread for the business sector looks set to remain within its optimum range over the medium term.

Of course, frothy valuations for some glamour stocks could prompt a temporary rotation into “safer” value stocks, as we saw in March 2014.

But so long as borrowing costs continue to promote quality investment (which is not the same as high capital expenditure), US-focused equity investors should continue to overweight momentum stocks.

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.

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

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

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

15120 1.5593 1.7728 24.499 6.7648 14.1852 1.103 2.26 280.52 0.63716 3.1304 0.3892 18.65 8.1626 3.7312 4.0011 60.094 8.551 0.9645 22.06

AUD CAD HKD INR JPY KRW NZD SGD

0.7312 1.302 7.7507 63.955 123.77 1164.4 1.5009 1.3671

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

0.3771 7.8142 29160.00 3.7741 0.7080 0.3027 1505.00 0.3850 3.6412 3.7500 12.5607 3.6730

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

1.0438 187.27 2.7534

AMERICAS & PACIFIC

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

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

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 -0.08 0.06 -0.79

0.24 0.54 -0.06 0.09 -0.76

0.29 0.58 -0.02 0.10 -0.74

0.47 0.75 0.06 0.13 -0.69

0.80 1.07 0.17 0.25 -0.59

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.93 1.13 0.10 0.14 -0.68

1.25 1.37 0.18 0.16 -0.62

1.52 1.56 0.29 0.20 -0.49

1.73 1.70 0.42 0.25 -0.36

2.05 1.90 0.68 0.37 -0.08

2.34 2.08 1.03 0.58 0.23

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1037 0.9060

100 JPY

1.5602

1.0371

0.8081

1.4136

0.9397

0.7322

0.6647

0.5179

0.6409

0.7074

0.9642

1.0642

1.5043

123.75

136.58

193.07

0.7792 128.34

Weekly movement of USD

CCY

Today

136.04

GBP EUR JPY

1.0589

CHF

1.5602 1.1037 123.75 0.9642

CCY\Date

30.06

07.07

14.07

21.07

28.07

USD GBP JPY CHF

1.1140

1.0978

1.0948

1.0766

1.1022

0.7081

0.7041

0.7070

0.6916

0.7078

136.08

134.51

135.08

133.78

1.0354

1.0350

1.0395

1.0371

Last Week %Change 1.5567 1.0766 124.26 0.9633

-0.23 -2.52 -0.41 +0.09

July 29 - August 4, 2015

16 | WORLD MARKETS | financialmirror.com

Will the UK be hiking rates at the same time as the Fed?

By Jon C. Ogg Investors have had years and years now to prepare for a Federal Reserve interest rate hike cycle in the United States. There remains much debate on the magnitude of how much tightening will be seen, how fast that tightening will actually take short-term interest rates up once it starts, and ultimately how high the interest rates will really go.

That being said, there is about to be a very large discrepancy in the world of how central banks are treating their economies. The United States may be followed by the United Kingdom in an interest rate hike cycle, while the European Central Bank, the Bank of China, the Bank of Japan and many central banks in South America and other growth markets are still figuring out how to ease rates or to keep pursuing their own quantitative easing measures.

However, can the global economy handle rising interest rates in the United States and in the United Kingdom at the same time the rest of the economies are still in an easing mode? Unfortunately no one will really know until they see it occur. China is trying to

stabilise its own stock market and its economy right now.

Europe is still trying to get itself some magical growth. Brazil and other markets in South America are just not living up to their growth potential.

The CME trades Fed Funds Futures, and the so-called 100% chance of an interest rate hike to just 0.25% is not until November of 2015. That figure had been September and October in recent months, but the global situation remains weak despite a likely resolution of Greece and Iran.

There is not currently a 100% chance being priced in for a 0.50% Fed Funds rate until April of 2016. The current 100% chances of higher interest rates beyond the 0.50% is as follows: 0.75% in September 2016, 1.00% in January 2017, 1.25% in May 2017, and 1.50% in October 2017.

Fed Funds Futures can of course change, and rapidly. Still, this is real world money that trades around the prediction of when interest rates will really rise.

So, what happens if the United Kingdom is gradually raising interest rates at more or less the same time as the United States?

On the United Kingdom, Credit Suisse’s strategy team said: “We are currently

forecasting that the tightening cycle starts in February and that the initial path of tightening is gentle. The market seems to share that view. But we think the risks are that once tightening starts, it could proceed faster than the market expects. And the data such tightening is dependent upon could be strong. Our analysis suggests that neither rising rates nor a stronger pound could precipitate a UK slowdown in 2016. So, in

the absence of an external economic shock, a data-dependent MPC could comfortably raise rates once a quarter.”

As a reminder, the European Central Bank has committed to its own asset buying under ‘quantitative easing’ until at least September 2016. Japan remains addicted to quantitative easing, while China is trying to do whatever it can think of on any given day to keep its markets and economy higher.

Why Facebook must crush its estimates Facebook Inc. (NASDAQ: FB) is scheduled to release its most recent earnings report on Wednesday. Thomson Reuters has consensus estimates of $0.47 in earnings per share (EPS) on $3.98 bln in revenue. The same period in the previous year had $0.42 in EPS and revenue of $2.91 bln.

This incredible, fast-growing company remains the face of social media and was the newest addition to the Merrill Lynch US 1 list. Facebook has been grinding higher over the past year after a big run up in 2013 to early 2014, when the stock almost doubled. And the social m e d i a behemoth doesn’t look to be slowing down as analysts across Wall Street continue to recommend the stock and have moved price targets higher.

The Merrill Lynch team feels that, overall, investors will continue to migrate to what they call “high-quality” growth stocks, perhaps beginning to eschew momentum darlings that are probably way overpriced. The analysts point to the fact that Facebook has easy second-quarter comparisons to last year for this quarter and through the rest of 2015.

It has been no secret that Facebook has been a meteoric rise. For a serious growth story and with its dominant position in social media set, it is not even deemed overly expensive by serious growth stock investor metrics. Still,

By Chris Lange

Facebook’s valuation should start turning heads here on a relative basis.

The driving issue is not just that Facebook already passed

Wal-Mart in market cap. That is old news. Now Facebook has passed General Electric, and it even recently surpassed JPMorgan in market cap as well.

Facebook’s market cap is right around $272 bln, about $10 bln larger than the market cap of GE and about $15 bln higher than JPMorgan. Facebook’s market cap is now about $40 bln larger than WalMart’s.

A few analysts chimed in on Facebook ahead of earnings: - Morgan Stanley reiterated a Buy rating and raised its price target to $110 from $94.

- Brean Capital reiterated a Buy rating with a $108 price target.

- Oppenheimer reiterated a Buy rating with a $100 price target.

Shares of Facebook were up 1.7% at $97.05 on Friday afternoon, within its 52-week trading range of $70.32 to $99.24. The stock has a consensus analyst price target of $99.23.

(Source: 24/7 Wall St.com)

Is the bar set too low for Twitter’s earnings?

Twitter, Inc. (NYSE: TWTR) was scheduled to report its second-quarter financial results on Tuesday. The consensus estimates from Thomson Reuters call for $0.04 in earnings per share (EPS) on $481.13 mln in revenues. In the same period of the previous year, the social media company posted EPS of $0.02 and $312.17 mln in revenue.

Just looking at where the stock is right now, it is hovering just above its 52-week lows. So far year to date shares are down 1.3% and even down 8.5% in the last 52weeks. It’s very possible that analysts may have taken an overly negative tone on the

estimates ahead of earnings considering these lows. Needless to say it would appear that the bar is set incredibly low.

Given the purpose of social media to network, connect and share information, Twitter must stay on the cutting edge of these trends, continually improving its users’ experience as well as its own network.

Through a recent partnership with Google Inc., Twitter has succeeded in doing both, according to a key analyst.

Canaccord Genuity thinks Twitter has done well in executing on the initiatives set out during its analyst day back in November.

However little traction has actually been

made on the user front. The brokerage firm thinks there could be a lag between product roll-outs and monthly active user (MAU) growth.

However the Google integration may have a sizable impact. Google attracts the most traffic of any property globally on desktop and mobile, and visitors specifically to its U.S. mobile search property represent an opportunity to expose 100 mln monthly users to Twitter content.

Only a few weeks into the partnership, a proprietary survey from Canaccord Genuity has shown that real-time tweets already show up in 54% of the Google search queries

sampled. Twitter yet again proves its legitimacy as a live news platform, as 90% of news-related searches surface tweets.

Ultimately, Canaccord Genuity believes that this is just the beginning for the Twitter/Google integration. Rolling out to desktop and international could significantly increase the reach and the performance of these tweets.

The firm estimates the integration currently could add about 3.5 mln additional visitors to Twitter from Google with this first iteration. This impact could potentially expand to greater than 40 mln over time.

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FT and Economist sales match NYT value The Financial Times was sold to Nikkei, the large Japanese media company, for $1.3 bln. The FT’s publisher, Pearson Group admitted its 50% of The Economist was also on the block. Some estimates of the value of this 50% of The Economist put it as high as $600 mln. The value of these transactions, at nearly $2 bln, could match the market capitalisation of The New York Times (NYSE: NYT), which is not for sale, according to its controlling shareholder. The New York Times Company may wish to revisit that decision in light of Pearson’s M&A activity.

Pearson management made the odd comment that Nikkei could carry the standards of The Financial Times, as the UKbased company no longer could. John Fallon, Pearson’s chief executive, said: “Pearson has been a proud proprietor of the FT for nearly 60 years. But we’ve reached an inflection point in media, driven by the explosive growth of mobile and social.

In this new environment, the best way to ensure the FT’s journalistic and commercial success is for it to be part of a global, digital news company.”

In terms of global and digital, Nikkei barely qualifies.

As Pearson continues to restructure as an education company, it’s management admitted over the weekend: “Pearson confirms it is in discussions with The Economist

Group Board and trustees regarding the potential sale of our 50% share in the Group. There is no certainty that this process will lead to a transaction.”

One set of buyers may be current owners of the other half, which are comprised mostly of a group of wealthy families. Perhaps they can ensure the journalistic independence of The Economist Group better than Pearson can. However, the reason for this argument has no apparent foundation.

The price put on The FT Group and The Economist Group are well beyond the ability of buyers to “get their money back” over any foreseeable future. These brands carry a value beyond financial ones. And, presumably, the chance to maintain the editorial independence enjoyed over a period which spans back more than a century is critical to the decisions of buyers as well.

There are very few journalism brands which carry the weight that the FT Group and Economist Group do. Among those brands is The New York Times. Its revenue in the last reported quarter was $384 mln, down almost 2%. The company lost over $14 mln, compared to a profit of $1.7 mln in the same quarter a year ago. The Times management pointed out that it had several one-time items in the 2015 quarter. One-time items have become regular as the company continues to cut costs. Observers of the Times financials regularly point out that the primary reason the company posts profits at all is that expenses are cut more than revenue falls.

Every time a major journalism brand is sold for a large premium above its financial value, the sale of The New York Times comes up again. These observations always carry with them the reality that the company is worth much more than its market capitalisation, because it is such an important media brand. If so, its market cap, at $2.2 bln is much too low.

The New York Times financials make it inevitable that the controlling trust set up by the Sulzberger family and its

relatives, which control over 90% of the B Class shares, will need to find capital to fund the company’s future. As some highly regarded old media print brands, which have only recently moved into the digital age, find new well-funded buyers, analysts say it is time for the Times to revisit its financial future as well, particularly if it wants to safeguard its editorial independence well into the future.

McGraw Hill acquisition latest big media deal In a Monday morning press release, McGraw Hill Financial Inc. (NYSE: MHFI) announced that it has agreed to acquire SNL Financial in an all-cash deal worth about $2.23 bln. The total purchase price is partially offset by about $550 mln in tax benefits resulting from the transaction.

SNL Financial is privately held by an affiliate of private equity firm New Mountain Capital and by current and former SNL management team members.

This is the single biggest media deal in a week that has seen Pearson plc (NYSE: PSO)

sell its Financial Times newspaper for $1.3 bln to Japan’s Nikkei and then put Pearson’s 50% stake in The Economist magazine up for sale, and that could fetch another $600 mln or so for the British company that is transforming itself into an education company. Last year, Pearson sold its financial data company Mergermarket Group to a London-based private equity group for $624 mln.

Where the SNL acquisition makes a fair amount of sense given McGraw Hill’s overall business, the transaction involving the FT

and The Economist appeals to vanity buyers. It’s like buying a professional sports team minus the same likelihood of turning a profit. And if the FT and The Economist can change hands, what about the New York Times? Perhaps Amazon founder and CEO Jeff Bezos wants another newspaper to add to his burgeoning media empire that already includes the Washington Post and an investment in Business Insider.

McGraw Hill, the parent company of Standard & Poor’s, Platts, J.D. Power and Associates, and the majority owner of the

S&P Dow Jones Indices joint venture, said will fund its acquisition of SNL with approximately $525 mln in cash and $1.7 bln in new debt. The company expects the transaction to close in the current quarter and to be accretive to 2016 adjusted diluted earnings per share.

McGraw Hill’s stock traded down about 6% in the mid-morning on Monday at $99.33 in a 52-week range of $73.96 to $109.13. The stock closed at $105.58 on Friday and has a consensus price target of $117.25.

Will US Q2 GDP challenge the 3% growth mark?

US Gross Domestic Product (GDP) will be released on Thursday morning. Bloomberg has the consensus economist estimate as a gain of 2.9% for the second quarter, with a range from economists of 1.9% to 3.5%. It may seem unexciting with a 2.9% gain expected versus a 3.0% unofficial target of a normal growth pattern, but it would compare to the final first quarter GDP reading of -0.2%.

Leadership is expected to come from a rebound in consumer spending, followed by residential investment. Investors should not be surprised at all when they see weak readings around the exports component of GDP this week as that pesky US dollar strength is making US exports less and less competitive on a global scale. In fact, major companies keep signaling how revenue and earnings are being eaten up foreign exchange.

Monday’s report of a stronger than expected Durable Goods orders might have given some cover for stronger than expected GDP. Unfortunately, the same amount that the June report beat expectations by was

roughly the same worsening that the May reports were revised by.

The new orders under Durable Goods rose 3.4% for the big ticket items, boosted by aircraft orders, computers, motor vehicles, and in machinery and fabricated metals.

Each report on GDP is meant to act as the current yardstick measurement for how the overall economy is growing. It effectively covers every sector of the US economy, but it has a massive exposure of roughly 70% around consumer spending.

GDP reports matter, but much of the data has been seen that influences those reports.

The GDP’s first estimate is also given two revisions and the socalled Final GDP report is often very different from the initial view on GDP.

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The 10 jobs in the U.S. with the and it employs one of the largest civilian workforces in the world. The U.S. Postal Service reported 2013 revenue of $67.3 bln, an increase from the year before. However, the USPS remains unprofitable, having posted a $5.3 bln operating loss in its latest fiscal year.

By Thomas C. Frohlich 24/7 Wallst.com

Although the U.S. unemployment rate has been steadily declining for some time, jobs remain scarce for many Americans. While some trades and skills remain in demand or carry the promise of strong job security, other jobs do not.

Chiropractors led the nation’s workforce with an unemployment rate of just 0.1% in 2014. The acting profession, on the other hand, had the worst job security last year with an unemployment rate of 32.7%.

The occupations with the lowest unemployment rates tended to require far more education, and employees were typically paid higher wages compared to less secure professions. Seven of the ten most secure professions required at least a bachelor’s degree, while others often required even more qualifications. All but two of the occupations with the lowest unemployment rates had median wages greater than $60,000 in 2012. Dentists and other medical professionals such as doctors and surgeons were frequently paid more than $150,000 in 2012.

A strong job market for a particular profession is undoubtedly positive for those workers. Yet, such a trend may be short-lived.

Farmers and postal service mail carriers, for example, had among the lowest unemployment rates. Yet, the two professions are projected shrink by 19.3% and 26.8% between 2012 and 2022, respectively. On the other side of the spectrum, insulation workers and construction trades were among the least secure occupations. However, the two professions are both expected to grow by more than 30%.

While the most secure occupations typically required high levels of education, the professions with the lowest job security tended to have few requirements, if any. In other words, a greater investment in job qualifications pays off in the form of consistent work.

Broader trends are critical in determining employment rates of specific jobs. The most secure professions include several medical occupations, which is likely due at least in part to the aging population of baby boomers, who increasingly require medical care as they age.

To identify the easiest and hardest jobs to keep, 24/7 Wall St. reviewed 2014 unemployment rates among workers in 564 occupations provided by the Bureau of Labor Statistics (BLS).

Workers are considered unemployed based on the job they held most recently. Occupations with an experienced labour force of less than 50,000 were not included. An experienced labour force excludes new entrants, or those entering the labour force for the first time.

Estimated employment growth between 2012 and 2022, median 2012 wages, labour force totals, and typical education requirements for each job also came from the BLS. Compliance officers were excluded to narrow the list of occupations with the best job security to ten.

These are the professions with the best and worst job security:

8. Speechlanguage pathologists Unemployment rate, 2014: 0.9% (tied-eighth highest) Median annual pay, 2012: $69,870 Employment change, 2012-2022: 19.4% As for most occupations with the lowest unemployment Despite a low unemployment rate, projections expect a 19% drop in farming employment rates, speech-language within in a decade pathologists had higher incomes than the median salary stability. in most professions. A typical speech-language pathologist Nearly three-quarters of farmers were self-employed. And earned nearly $70,000 in 2012. Employment is also projected because farming equipment is expensive, and the overall to grow by nearly 20% by 2022, one of the better growth rates investment necessary to be a farmer is very high, leaving the reviewed. Speech pathologists address communication profession can be virtually impossible. The BLS forecasts a disorders in children and adults brought on by brain injury, more than 19% decline in farming employment by 2022, one developmental delay, emotional problems, and a range of of only two low-unemployment professions where the BLS other causes. projected a decrease in employment.

9. Postal service mail carriers Unemployment rate, 2014: 0.9% (tied-eighth highest) Median annual pay, 2012: $56,490 Employment change, 2012-2022: -26.8% Many Americans and businesses now favour email and other forms of electronic communication over snail mail — that is, delivery by the postal system. This partly explains the 26.8% projected decline in employment among mail carriers, one of the worst forecasts reviewed. Yet, less than 1% of postal workers were unemployed last year. Postal service mail carriers are clearly still largely indispensable to the transport of tangible items. It is also a major presence in the United States.

The U.S. Postal Service handles 40% of all mail globally,

7. Detectives and criminal investigators Unemployment rate, 2014: 0.8% Median annual pay, 2012: $74,300 Employment change, 2012-2022: 2.0% The majority of detectives and criminal investigators are employed by local governments or the federal executive branch. The median income of detectives and investigators was $74,300 in 2012, among the higher figures reviewed. If a detective or investigator was employed by the federal government, he or she could likely make far more, with such employees frequently earning more than $100,000 annually as of 2012. While high levels of education are often a requirement for professions with the lowest unemployment rates, detectives and investigators are typically only required to have a high school diploma in addition to law enforcement experience.

10. Farmers, ranchers, and other agricultural managers Unemployment rate, 2014: 1.0% Median annual pay, 2012: $69,300 Employment change, 2012-2022: -19.3% Only 1% of American farmers were unemployed last year, the tenth lowest unemployment rate among all occupations. Unlike many other professions, employment as a farmer may not guarantee economic As demand for airline travel continues to grow, so will the need for airline engineers

6. Medical, dental, and ophthalmic laboratory technicians Unemployment rate, 2014: 0.4% (tied-5th highest) Median annual pay, 2012: $33,070 Employment change, 20122022: 6.7% Medical and dental technicians service and help make a range of prosthetics and appliances, such as dentures, dental crowns, and eyeglasses. Unlike most of the relatively secure professions, such

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best job security technicians are not typically highly educated, and they are paid far less than most Americans. The median pay of medical and dental laboratory technicians was just $33,070 in 2012, one of the lower incomes reviewed. The profession is projected to grow, albeit slowly, with the BLS estimating a 6.7% growth between 2012 and 2022. Still, the unemployment rate among workers in the profession is among the lowest. As is the case with other medical professions, the low unemployment rate among laboratory technicians is likely due in part to growing demand for medical services, particularly among the aging baby boomer generation.

5. Physicians and surgeons Unemployment rate, 2014: 0.4% (tied-5th highest) Median annual pay, 2012: Greater than $187,200 Employment change, 2012-2022: 17.8% Less than 0.5% of physicians and surgeons were unemployed last year, a lower rate than for the vast majority of occupations.

The BLS also forecasts the number of physicians and surgeons to grow by 17.8% by 2022, one of the faster growth rates reviewed. The large and aging baby boomer population partly explains this growth trend. The requirements for physicians and surgeons typically include education and training that span more than a decade and that can be very demanding. Physicians and surgeons examine, counsel, and perform procedures on patients with physical injuries and diseases. Those employed in the occupation are also well compensated, with a median pay of more than $187,000 in 2012, one of the highest earnings.

4. Aerospace engineers Unemployment rate, 2014: 0.3% Median annual pay, 2012: $103,720 Employment change, 2012-2022: 7.3% Aerospace engineers were frequently paid six-figure salaries in 2012. Because many of those employed in this occupation work on national defense projects, prospective employees are also often heavily screened and require security clearances.

Most aerospace workers do not work for the government, however. Aerospace products and parts manufacturing employed 38% of workers, more than any other sector. While

World’s biggest employers Given the size of their populations, many people generally assume that the world’s largest employers are Chinese or Indian. However, according to research published by the World Economic Forum, the US Department of Defense boasts a workforce of 3.2 mln people, making it the largest global employer. The Chinese military, the People’s Liberation Army, is in second position with a force of 2.3 mln.

Walmart and McDonald’s come third and fourth with 2.1 and 1.9 mln employees respectively (the number for McDonald’s includes franchises).

England’s National Health Service (NHS) makes a surprising appearance in fifth place with a 1.7 mln strong workforce – more than Indian Railways or the Indian armed forces. (Source: Statista.com)

the profession is expected to grow 7.3% by 2022, slower than the average growth rate across all occupations, airplane and parts manufacturing is among America’s most robust industries. Plane routes and fleets are perhaps at capacity, but demand for new planes is still very high. For example, Boeing — a global leader in airplane manufacturing — reported a backlog of nearly $500 bln, with roughly 5,500 commercial airplane orders.

3. Physician assistants Unemployment rate, 2014: 0.2% (tied-2nd highest) Median annual pay, 2012: $90,930 Employment change, 2012-2022: 38.4% Physician assistants perform a range of duties that also vary considerably by location. In more rural areas where there are considerably less doctors, for example, assistants may perform many tasks ordinarily performed by physicians.

In general, however, physician assistants perform routine procedures such as setting broken bones, drawing blood, and taking x-rays.

Additionally, physician assistants often work closely with patients, recording their progress, counseling them, and providing treatment. A typical physician assistant was paid nearly $91,000 in 2012, and employment is expected to grow by 38.4% by 2022, both nearly the highest figures reviewed.

2. Dentists Unemployment rate, 2014: 0.2% (tied-2nd highest) Median annual pay, 2012: $149,310 Employment change, 2012-2022: 15.9% In addition to a bachelor’s degree, dentists must attend dental school, followed by a one- to two-year residency. To practice, dentists must also receive a state administered license. Most dentists are generalists, but many are

orthodontists, endodontists, or specialise in other fields such as pediatrics, pathology, and public health. The median income of dentists was nearly $150,000 in 2012, one of the highest incomes compared to every other occupation. The BLS also projects employment in the field to grow nearly 16% by 2022, also among the higher rates.

1. Chiropractors Unemployment rate, 2014: 0.1% Median annual pay, 2012: $66,160 Employment change, 2012-2022: 14.6% Just one in every 1,000 chiropractors was unemployed last year, the lowest figure among all occupations reviewed by the BLS. Chiropractors are required to complete a Doctor of Chiropractic degree, and they often seek additional professional degrees. Chiropractors typically take a more holistic approach to health, as they consider the entire entire body and state of a patient’s health. Chiropractic methods vary widely but share a drug-free approach by which musculoskeletal and nervous system disorders are addressed with manual manipulations of the body. According to the American Chiropractic Association, there is also a growing trend towards specialisation and advanced training in the field. The median income of chiropractors was $66,160 in 2012, and employment is projected to grow nearly 15% by 2022, both among the higher figures reviewed. (Source: 24/7 Wall St.com)

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Fighting corruption won’t end poverty

By Ricardo Hausmann Countries are poor because governments are corrupt.

And, unless they ensure that public resources are not stolen, and that public power is not used for private gain, they will remain poor, right?

It certainly is tempting to believe so. Here, after all, is a narrative that neatly aligns the promise of prosperity with the struggle against injustice. As Pope Francis said on his recent trip to Latin America: “corruption is the moth, the gangrene of a people.” The corrupt deserve to be “tied to a rock and cast into the sea.”

Perhaps they do. But that won’t necessarily make their countries more prosperous.

Consider the data. Probably the best measure of corruption is the World Bank’s Control of Corruption Indicator, which has been published since 1996 for over 180 countries. The CCI shows that while rich countries tend to be less corrupt than poor ones, countries that are relatively less corrupt, for their level of development, such as Ghana, Costa Rica, or Denmark, do not grow any faster than others.

Nor do countries that improve in their CCI score, such as Zambia, Macedonia, Uruguay, or New Zealand, grow faster.

By contrast, the World Bank’s Government Effectiveness Indicator suggests that countries that, given their income level, have relatively effective governments or improve their performance, do tend to grow faster.

For some reason – probably related to the nature of what NYU’s Jonathan Haidt calls our “righteous minds” – our moral sentiments are strongly related to feelings of empathy in the face of harm and unfairness. It is easier to mobilise against injustice than for justice. We are more enthusiastic to fight the bad – say, hunger and poverty – than to fight for, say, the kind of growth and development that makes food and sustainable livelihoods plentiful.

Sometimes switching from the “bad” to the

corresponding “good” is simply a matter of semantics: to fight against racism is to fight for nondiscrimination. But, in the case of corruption, which is a bad that is caused by the absence of a good, attacking the bad is very different from creating the good.

The good is a capable state: a bureaucracy that can protect the country and its people, keep the peace, enforce rules and contracts, provide infrastructure and social services, regulate economic activity, credibly enter into inter-temporal obligations, and tax society to pay for it all. It is the absence of a capable state that causes corruption (the inability to prevent public officials, often in collusion with other members of society, from subverting decision-making for private gain), as well as poverty and backwardness.

Some might argue that reducing corruption entails the creation of a capable state; the good is created out of the fight against the bad. But is it? Teachers and nurses often do not show up for work, but that does not mean that performance would improve much if they did. Policemen may stop asking for bribes, but that will not make them any better at catching criminals and preventing crime. Curtailing side-payments does not imply the ability to manage concession contracts or collect taxes.

Aside from prosecuting some bad apples, measures to fight corruption typically involve reforming procurement rules, public financial-management systems, and anticorruption legislation. The underlying assumption is that the new rules, unlike the previous rules, will be enforced.

That has not been Uganda’s experience. In 2009, under pressure from the aid community, the government enacted what was billed at the time as the best anti-corruption legislation in the world; and yet all corruption indicators have continued moving south.

Uganda is not an exception. My colleague at Harvard, Matt Andrews, has documented the failure of public financial management reforms designed to prevent graft. And the reasons for these failures are not specific to financial management.

All organisations need to be perceived as legitimate. They can create this perception by actually performing the function for which they were created, which is difficult.

Alternatively, they can borrow from the natural world a

strategy called isomorphic mimicry: just as non-poisonous snakes evolve to resemble a poisonous species, organisations can make themselves look like institutions in other places that are perceived as legitimate.

And this is what the anti-corruption agenda often ends up stimulating: the creation of organisations that are more obsessed with abiding by the new and burdensome processes than they are with achieving their stated goals. As Harvard’s Lant Pritchett, Michael Woolcock, and Andrews argue, when inept organisations adopt “best practices” such as financial management systems and procurement rules, they become too distracted by decision-distorting protocols to do what they were established to do.

As Francis Fukuyama has pointed out, the development of a capable state that is accountable and ruled by law is one of the crowning achievements of human civilisation. It involves the creation of a shared sense of “us,” an imagined community on whose behalf the state acts.

This is not an easy task when societies are deeply divided by ethnicity, religion, or social status. After all, who is the state for? All Iraqis or just the Shia among them? All Kenyans or just the Kikuyu? What is to prevent the ethnic group currently in power from diverting resources to itself on the argument that “it’s our turn to eat?” Why shouldn’t those currently in control of the state transform it into their patrimony, as in Venezuela, where, more than two years after former President Hugo Chávez’s death, his daughters still occupy the presidential residence?

The fight against corruption mobilises all of us because we want to do away with evil and injustice. But we should remember that casting the bad into the sea does not imply the sudden appearance on our shores of the good that we need.

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

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