Financial Mirror 2015 09 02

FinancialMirror OREN LAURENT It’s a market correction, not a market meltdown PAGE 14

JEAN PISANI-FERRY

Issue No. 1148 €1.00 September 2 - 8, 2015

A tale of two theories as global growth disappoints PAGE 16

EU asylum system collapses THOUSANDS OF MIGRANTS FLOCK TO NORTHERN EUROPE - SEE PAGE 10

Is the antiquated system of awarding the cheapest bidder in the public interest?

SEE PAGE 13

September 2-8, 2015

2 | OPINION | financialmirror.com

FinancialMirror

Migrant crisis to be solved at home

Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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It is strange how everybody has only now jumped onto the ‘migrant’ bandwagon, calling for “something to be done”, when the problem had been staring us in the face for the past many years.

As the ability to accommodate ten times more economic refugees than ever before, the humanitarian support systems have failed, while no one is talking about solving the root of the problem.

On the one hand, EU member states with developed economies that are enjoying a boom in exports (Germany, northern Europe), have seen their unemployment levels drop below the psychological level of 5% and in some German towns even below 2%. This, in turn, has prompted many to open their doors to cheap migrant workers, the same way as California and Texas tolerate lowcost Mexican labour, because they all have a shortage in workhands. In the same way, many are delighted by the fact that the majority of the Syrian migrants (or voluntary refugees) are the ones who can afford the $6-10,000 per person fee charged by the traffickers. Many of the Syrians have cash, enough to help them settle down with comfort and a number of them are highly educated, suggesting that they will go for semi- and skilled work.

Alas, the same is not true for the refugees from central and northern Africa and other Middle Eastern conflict zones.

As crude as it may sound, even in the drownings

and the deaths of migrants packed into trucks, there seems to be a two-tiered standard of have and have-nots, judging from their ability to travel on-land through Turkey, then with small dinghies to Greece and onwards to the Skopje and Serbian borders in an effort to reach western Europe.

It is clear that EU High Commissioner for Foreign Affairs Federica Mogherini has inherited a humanitarian disaster, compounded by her predecessor’s incompetence to deal or attempt to mediate in regional issues, from Libya to Yemen, from Syria to Iraq.

The EU and the west has clearly failed and has no common foreign policy to deal with these conflicts, where states such as Qatar, Saudi Arabia and Turkey promote their own petty interests, regardless of the impact their alliances have on the region’s (in)stability. Even Iran is playing a dangerous game by funding or militarily supporting one or another side in order to establish its hegemony in parts of this world.

Northern Europe may be able to afford to open its doors, for now, but the strain is on the southern periphery states where rescue and health services have been stretched beyond their limits, and very often without any funding to support these actions.

For a change, the EU needs to show a common policy and secure political stability in all of the Middle Eastern and northern African conflict areas as too much time was wasted on the Iran nuclear deal, the earlier conclusion of which could have helped contain or even prevent some of today’s conflicts that have blown up beyond control.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

Tourism up, but Irish stranded Tourism arrivals were up in July, confirming a somewhat recovery, but the impact from the Helios crash was not yet known as hundreds of Irish holidaymakers were stranded in Paphos after the airline cancelled its flights, according to the Financial Mirror issue 634, on August 31, 2005.

Tourism up: Tourism figures for July confirm the recovery in the sector, as arrivals reached 338,972, up nearly 11% from 305,978 in July 2004. For the seven-

20 YEARS AGO

Russian banks ‘safe’, Logos on the Web The Russian banking crisis was getting worse with the Central Bank saying Cyprus OBUs were safe, while Church-owned Logos TV was about to venture into the world wide web as a provider, according to the Cyprus Financial Mirror issue 125, on August 30, 1995.

Russia crisis: The Russian banking crisis which started a week ago is set to worsen as more smaller banks are forced to shut down, but the Cyprus-based Russian offshore banking units are safe, said Andreas Philippou, Chief Senior Manager at the Central Bank

month period, Jan-July arrivals reached 1,357.890, up 7% from 1,267,830 from a year earlier. If this pace continues, it will be the best year for tourism since 2000.

Irish stranded: Hundreds of Irish passengers finally reached Dublin after being stranded at Paphos airport when Helios cancelled their flights. This follows similar cancellations of the Athens and Prague as the nation is still in shock after the August 14 crash that killed 121 people as it approached Athens airport. Tourism officials were worried about a negative impact for the

island in general as all international news media reported the crash of “a Cypriot airline”, raising worries about all traffic to the island.

Senior service: More than one in ten Cypriots over the age of 65 is actively employed, and that proportion is rising, according to the Labour Force Survey. In all, 9,512 people or 11% of the over-65s are in employment, although the work ranges from just one to the full 40 hours a week..

De-mining: Mine clearing continued in the Ayios Dhometios-Kermia area, by the EU’s Mine Action Centre, with a total of 30 minefields identified. So far, 13 minefields have been cleared in eth project funded by the EU and UNDP. Oh, and the price of crude oil “dropped” ten years ago to $65/barrel as tropical weather worries eased and natural gas futures sold off.

of Cyprus. He said this had been predicted from the start of the year when a moratorium on the registration of new Russian banks was imposed.

Logos on Web: Logos, the Churchowned broadcaster, is venturing to take the Word of God (and others surfing on the Web) into the world wide web information superhighway. This is the first private Internet service provider to challenge Cyta and the University of

Cyprus. The annual rent will be CYP 99 and 1.2c/4 minutes, while Cyta charges 5.2c a minute and higher annual subscription fee.

Software piracy: Business Software Alliance (BSA) Cyprus is clamping down on software piracy as the new Windows 95 has forced many illegal copies of Windows 3.1 to be revealed, causing problems to major corporates. The reason was also the high charge by Microsoft in Cyprus where compared to $89 in the US, the new Windows was selling for CYP 85 here, CYP 50 in the UK and CYP 65 in Greece.

Turkey holds key: Turkish Prime Minister Tansu Ciller has conceded before a US Congressional Committee that the key to a solution in Cyprus may rest in Ankara, according to Democrat Congressman Robert Menendez.

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September 2-8, 2015

financialmirror.com | CYPRUS | 3

‘Crucial months ahead’ from October Anastasiades ‘cautiously optimistic’ as talks continue on property, governance

The months ahead will be crucial towards reaching a solution to the Cyprus problem, the UN Secretary General’s Special Adviser on Cyprus Espen Barth Eide said on Tuesday after meeting President Nicos Anastasiades.

Eide described the talks earlier in the day between Anastasiades and Turkish Cypriot leader Mustafa Akinci after a summer break as “very interesting”.

“We are basically now discussing how to move forward and what are the next steps, and how we can continue to build on this momentum that we have”, the UN diplomat added.

The two leader’s representatives had been working hard last week to agree on the agenda for the day’s meeting, where reports suggested the property issue was once again high on the priority list.

Eide said that there is still a lot of work to be done, “there are issues that we have yet to go into and then there are issues where we have strategic understanding and we need to fill in the details and there’s a lot of work in the detail in order to get all this right”.

“The basic message is: strong, effective leadership leaderled process moving forward, but as we move forward we also find areas that we have to deeper look into”, he added.

Emphasising the good mood, Eide said “the trust is strong and increasing with every meeting and what I really want to say is that I am deeply impressed by the two leaders, the way they are able to work together honestly, being clear on their positions but also trying to accommodate and find ways to understand the other side”. He said good attitude doesn’t solve all problems but “it creates the best possible framework in which we try to overcome the quite important

issues that are still there”.

Eide said there will be a new leaders’ meeting on September 14 and many negotiators’ meetings between that “and after that is the General Assembly of the UN and when the General Assembly is done, we are into October, and I think the months from then will be very decisive when it comes to really packing all this together into something that can finally be agreed”.

Asked if the UN Secretary General will meet the leaders together in New York, Eide said Ban ki Moon will meet both of them, but separately.

After the meeting at the UN-controlled area of the old Nicosia airport, Eide said the two leaders concentrated their discussion on the current state of play, and in particular on

property and governance-related matters and that they reaffirmed their commitment to maintain and build upon these efforts between now and their next meeting.

Recalling that the negotiators met 11 times, Eide said that Andreas Mavroyiannis and Ozdil Nami increased the frequency of their meetings and deepened their discussions on core issues to push forward progress both leaders want to see. “They have maintained their clear focus on reaching a mutually beneficial solution for all. When necessary they have called upon the presence of members of the Working Groups of Experts, particularly on issues related to property, the economy and EU matters,” he noted, adding that the Working Groups of Experts have also met separately, equipped with guidance from the negotiators.

However, in earlier comments Anastasiades said he was “cautiously optimistic” after the positions put forward by the other side in Tuesday’s meeting.

He also had a telephone conversation with European Commission President Jean-Claude Juncker with whom they discussed the latest developments on the Cyprus problem and referred to the supporting role that the EU can play in the ongoing dialogue.

On his part Juncker expressed the willingness and readiness of the European Commission to contribute to the ongoing effort for a solution to the Cyprus problem.

Anastasiades and EC President also discussed the developments in the eastern Mediterranean, with emphasis on the energy sector, and underlined the added value that the exploitation of the (natural gas) reserves in the area will have in the efforts of the EU to create a new energy route to the member states of the Union.

September 2-8, 2015

4 | CYPRUS | financialmirror.com

BOCY boosts funds, profits continue Bank of Cyprus, the island’s biggest lender that was twice bailed out by shareholders and depositors, has reported two quarters of profits, improved its funding structure, boosted capital and lowered its reliance on EU emergency funds.

The bank on Wednesday announced after-tax profits of EUR 31 mln for the second quarter, which added to the EUR 29 mln in the first, gives a first half figure of EUR 60 mln, a significant turnaround from the EUR 337 mln losses it reported in the final quarter of 2014.

“The second quarter results demonstrate that we are continuing to make good progress against our strategic objectives and we are progressively improving our key financial metrics,” said outgoing CEO John Hourican, who is expected to leave at the end of September, half-way through his contract, to return home to Ireland.

The bank said that it improved its funding structure, with the loans-to-deposits ratio declining from 138% at the end of March to 136% at the end of June, while customer deposits increased from 51% of total assets in the first quarter to 54% in the second.

The biggest burden on the new shareholders’ backs had been the EUR 11.4 bln in emergency liquidity assistance (ELA) it had inherited after Laiki Popular Bank crashed in 2013 and all its liabilities were forced onto Bank of Cyprus, itself resorting to a bail-in of about EUR 4 bln in depositors funds the same year and then raising EUR 1.1 bln in fresh capital from new investors last year, including billionaire fund manager Wilbur R Ross.

Coop Bank 1H profits drop to €46.7m, NPLs at 58% The Cooperative Central Bank reported a net profit EUR 46.7 mln in the first six months of the year, down from EUR 85.6 mln in the same period of 2014, due mainly to a drop in net interest income to EUR 166.7 mln compared to EUR 203.5 mln in the first half of 2014.

The bank raised its provisions for loan impairments in the first half by EUR 51.5 mln compared to EUR 53.6 mln the year before.

Total loans dropped to EUR 9.9 bln in June from EUR 10.1 bln in December, while overall deposits rose from EUR 12.4 bln to EUR 12.7 bln.

Non-performing loans rose in June rose to EUR 7.6 bln or 58% of the bank’s loanbook, up from EUR 7.3 bln or 55.8% in December.

Executive Chairman Nicolas Hadjiyiannis said that the Cooperative sector will implement a 12-month strategic plan to manage its NPLs, starting from September, and that a US firm has been recruited to support the implementation of the plan and to transfer best practices and international expertise.

Up until the end of August, the Cooperative Central Bank has restructured 6,500 loans worth EUR 550 mln with the aim to reach EUR 900 mln by the end of the year.

Alpha Bank losses drop in 1H Alpha Bank Cyprus Ltd, a wholly owned subsidiary of the Greek bank, said it reduced its after tax loss of EUR 15.1 mln in the first half of the year compared to a net loss of EUR 31.7 mln in the same period last year.

The drop in net losses resulted from a 52% drop in provisions for loan impairments to EUR 34.3 mln offsetting a 29% annual drop in overall revenue to EUR 45.4 mln in January to June.

Overall expenditure fell 3.9% to EUR 24.6 mln while deposits stood at EUR 1.9 bln, 8.6% below the respective 2014 figure of EUR 2.2 bln.

Loan in arrears (NPLs) stood at EUR 1.7 bln or 58.7% of the bank’s loanbook, adding that the exposure drops to 55.8% when the portfolio of Emporiki Bank Cyprus Ltd is taken into account.

The bank said it halved its ELA exposure by EUR 1 bln during the second quarter to EUR 5.9 bln, thanks to a continuation of positive customer flows and deleveraging, and by a further EUR 500 mln post quarter-end to a current level of EUR 5.4 bln, confirmed by the Central Bank of Cyprus earlier this week.

According to the first half results announcement, Bank of Cyprus strengthened its capital position in the second quarter, with its Common Equity Tier 1 capital (CET1) ratio increased by 100 basis points to 14.9% due to a reduction of risk weighted assets (RWA) and organic capital generation.

During the second quarter it also deleveraged its balance sheet by a further EUR 1.3 bln, for a total 23% reduction of its overall balance sheet or by EUR 7.6 bln since June 30, 2013.

The other problem the bank is struggling with is the huge portfolio of non-performing loans (NPLs), with the first foreclosure actions only reported this month after parliament delayed the relevant legal framework and insolvencies bill for nearly a year.

The bank said its loans in arrears for more than 90 days were reduced by EUR 143 mln during 2Q2015 and totalled EUR 12.65 bln at June 30, accounting for 53% of gross loans, despite improving the provisioning coverage ratio to 43%.

“The adoption of the foreclosure legislation and insolvency framework, coupled with the improved fundamentals of the Cypriot economy, are significant steps in enabling the Bank to tackle its delinquent loans and to

improve its asset quality,” Hourican said in a statement.

“Addressing the Group’s asset quality problem remains the key priority. Loan quality shows further signs of stabilisation, with the level of problem loans decreasing and the provisioning coverage gradually increasing,” he added.

“The bank’s strengthened capital position and overall improvement in its financial position enhance its funding options and will facilitate access to the capital markets for wholesale funding, subject to market conditions and investor appetite, allowing the bank to further normalise its funding structure.”

“Post quarter-end, we have reached an agreement for the sale of the majority of our Russian operations (subsidiary Uniastrum). The sale allows the further de-risking of the balance sheet, the elimination of future potential risks relating to the Russian operations, the release of risk weighted assets and, therefore, the improvement of the Group’s regulatory capital position.”

Turning to the Cyprus economy, Hourican said it “is showing further signs of stabilisation amidst a relatively unfavourable external environment. In order to support the recovery of the Cypriot economy, the bank has introduced new lending schemes and other initiatives to support local businesses, creating the conditions to help boost domestic economic activity. Through specific, deliberate and welltimed actions we are delivering a stronger, more focused institution capable of supporting the recovery of the Cypriot economy.”

HB breaks even with €0.5m profit in 1H, €12m loss in 2Q Hellenic Bank reported a net profit of EUR 543,000 in the first half of the year, a major turnaround from the EUR 95 mln loss in the first six months of 2014, while the second quarter was hit by a higher provisioning for non-performing loans, resulting in a net loss during the period of ?12 mln.

Profits from ordinary operations reached EUR 20 mln in the second quarter and EUR 42 mln for the first half. Net interest income (NII) decreased by 31% to EUR 73 mln for the half, compared to EUR 106 mln in the same period last year due to the lowering of interest rates and the simultaneous increase in non-performing exposures.

“The hit from the loans interest rates reduction is immediate whereas the benefit from the decrease in deposit interest rates will materialise gradually upon deposits renewal,” the bank said in an announcement.

Non-interest income amounted to EUR 46 mln for the first six months of 2015 and improved by 50% on a quarter to quarter basis.

Thus, Group total net income at June 30 reached EUR 119 mln and total expenses EUR 77 mln, of which personnel costs were EUR 39 mln and administrative and other expenses EUR 35 mln.

“Conditions remain fragile and the non-performing exposures (NPEs) remain at unprecedented levels, reaching 61% as at the end of June,” said CEO Bert Pijls.

“During the second quarter of 2015 we continued our efforts in managing our Non-Performing Loans, and in this respect we have built further provisions achieving a coverage ratio of 46%. I expect that it will take a few more quarters of GDP growth for NPLs to stabilise and subsequently improve and reduce. Until then, some volatility may remain.”

CEO Pijls said he was encouraged by developments in the real estate sector.

“The number of transactions are up versus last year and prices are more stable. In fact, according to the RICS index, residential real estate prices increased during the first quarter by 0.6%. This is good news because moderate house price inflation will aid the real estate recovery, which in turn will fuel further GDP growth and create jobs. In this context, I very much welcome the recent tax incentives announced and implemented by the government. As a result of those initiatives we have already received a number of initial expressions of interest from potential investors.”

“Residential mortgage lending is currently at levels not

seen since 2010. There is pent-up demand, mortgage rates and real estate prices are attractive and many clients believe that now is a good time to get back into the market, especially given the tax incentives.”

At June 30, total assets were marginally down at EUR 7.4 bln (2014: EUR 7.6 bln), while the net loans to deposits ratio remained stable at 51%.

On a year to date basis, deposits dropped by 2% to EUR 6.2 bln, compared to EUR 6.3 bln in December 2014.

The bank said that liquidity remains strong as its total cash and deposits with banks were maintained at EUR 3.2 bln and it is the only systemic bank in Cyprus which has no dependence whatsoever on the ECB’s Emergency Liquidity Assistance (ELA) programme.

The total gross loans amounted to EUR 4.4 bln. Thus, the Group’s capital adequacy exceeds the ECB’s minimum requirements, with the Common Equity Tier 1 (CET 1) Ratio at 13.5% on June 30, the same time the Group’s capital adequacy ratio was 18.1%.

September 2-8, 2015

financialmirror.com | CYPRUS | 5

Shacolas Group announces lower earnings in 1H The four main publicly-traded companies comprising the Shacolas Group reported reduced earnings in the first half of 2015, “due to low purchasing power of the consumers caused by the prolonged unemployment and the reduced household income,” that have impacted the retail operations, including its share in airports management.

The Group’s flagship company, Cyprus Trading Corp Plc (CTC), with retail consumer and property subsidiaries, suffered the most, as turnover dropped 5% from EUR 142.54 mln in the first half of 2014 to EUR 135.42 mln this year.

Gross profit and other income dropped nearly 8% from EUR 38.96 mln to EUR 35.89 mln. Profit from discontinued operations was drastically reduced from EUR 45.1 mln to EUR 5.1 mln in the first half, pushing into the red with a loss of EUR 2.13 mln, compared to a profit of EUR 39.96 mln last year. This resulted in a loss per share of -1.82c, compared to earnings per share of 39.15c in January-June 2014.

Post-results, the subsidiary companies Woolworth (Cyprus) Properties Plc and Ermes Department Stores Plc disposed of their shares held in ITTL Trade Tourist and Leisure Park Plc and Woolworth Commercial Centre Plc, owners of the Shacolas Emporium Park and of The Mall of Engomi, to the South African-owned Atterbury Cyprus Ltd. Looking ahead, Uber (young fashion) and Next Kids and a cafeteria have commenced their operations at the Mall of Engomi and has enriched its product range within the fast moving consumer goods operations, which “by the end of the year is expected to be significantly increased.”

Finally, the construction of a new 4,000 sq.m. Super Home DIY Store in Spyros Kyprianou Avenue in Larnaca, opposite Debenhams Zenon, “is well under way and is expected to commence its operation before the end of 2015.”

Ermes Department Stores Plc, the holding company for Superhome Center (DIY) Ltd, C.W. Artopolis Ltd, Fashionlink S.A. and motor distributor Scandia Company Ltd. saw turnover drop 3% to EUR 68.4 mln from EUR 70.7 mln in the

RCB Bank opens 5th branch, one more to go Limassol-based RCB Bank, one of four systemic banks in Cyprus that passed the ECB stress tests last October with flying colours, has opened a new branch in Nicosia, raising the total network to five, while it also plans to open one more soon.

The new branch is located on the central Limassol Avenue at the entrance of Nicosia and will provide services to both local retail and corporate clients, with the benefit of all branches operating at the more business-friendly hours of 9am to 5pm, despite labour agreements forcing other banks to roll down their shutters by 3pm In July, RCB announced it was opening two new branches, one in Nicosia on 28th October Avenue in Engomi, and one in Limassol on Kolonakiou street in Linopetra.

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

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

Last November, the bank announced that it raised $124.2 mln in fresh equity after Otkritie Financial Corporation Bank, the second largest privately owned and sixth largest bank in Russia, acquired a 20% stake.

After the deal, Russia’s VTB Group reduced its stake to 46.29% and RCB Bank, formerly the Russian Commercial Bank, was no longer considered a subsidiary bank, even though VTB also maintains a minority stake in the parent Otkritie Holding. Since 1997, Otkritie has also had a presence in Cyprus through its financial services and brokerage firm, Otkritie Finance (Cyprus) Limited.

first half of 2014. Gross profit and other income dropped 7% to EUR 24.4 from EUR 26.4 mln, with the net loss for the period amounted to EUR 2.79 mln compared to a profit of EUR 7.79 mln in the same period in 2014.

Loss per share dropped to 1.71c from a EPS of 4.32c in the first half of 2014.

Profit from discontinued operations for the first six months of 2015 represents the share of profit from ITTL, while the profit shown for the same period of 2014 relates to the disposal of the investment of the Group in CTC-ARI Airports Ltd and in Cyprus Airports (F&B) Ltd. Woolworth (Cyprus) Properties Plc reported a net profit of EUR 3.2 mln, compared to EUR 2.2 mln in the first half of 2014, or an EPS of 1.3c compared to 1.9c last year. The company’s investments include ITTL Trade Tourist and Leisure Park Plc, owner of the Shacolas Emporium Park that includes “The Mall of Cyprus” and IKEA, and Woolworth Commercial Centre Ltd, owner of land in Engomi housing the “The Mall of Engomi”.

Other investments include a 47% stake through associated companies in Cyprus Limni Resorts & Golf Courses Plc.

The last company, Cyprus Limni Resorts and Golf Courses Plc, owner and developer of the Group’s ambitious Limni Bay coastal leisure and golf resort at Polis Chrysochous, has had launch delays due to red tape and an inter-governmental conflict over environmental permits.

“The company currently proceeds with the completion of the detailed design work on the master plan and the various elements of the resort including infrastructure, golf courses and buildings and has submitted the necessary applications for building permits and submission in order to be able to progress with construction works as soon as possible. It has also applied for planning permits based on the new incentives for golf courses,” the company announcement said.

Limni has obtained written approvals by the Ministerial Council, through which it was encouraged to proceed with the development.

The loss attributable to shareholders for the first six months of 2015, reached EUR 494,250 from EUR 485,619 in the same period last year. The company has minor revenues from agricultural activities, while operational expenses relate to the maintenance of the immovable property.

September 2-8, 2015

6 | CYPRUS | financialmirror.com

Retail bond sales plummet after rate cut The monthly issue of 6-year retail bonds, the government’s alternative financing method after the economy crashed two years ago, plunged to their lowest level after the government announced a disincentive of a lower interest rate starting from the September series.

The Public Debt Management Office of the Ministry of Finance said that the ninth series attracted a cumbersome 52 bids for just EUR 3.8 mln, a far cry from the August issue of EUR 30 mln and EUR 31 mln the month before. The bids ranged from EUR 1,500 to EUR 400,000 and all offers were from Cypriot nationals, as opposed to previous issues that attracted non-EU foreign investors, keen to pump in at least EUR 300,000 to secure a residence permit or about EUR 3 mln to qualify for citizenship.

The reason for the drop was the reduction in the average 6-year yield to 2.79%, down from the 4% average at the launch of the programme.

However, the PDMO tried to give a spin to the announcement by saying that the programme was successful and had raised EUR 154.4 mln so far this year, above the annual target of EUR 120 mln based on the anticipated monthly issue of EUR 10 mln.

Bids for the tenth series for October will open from September 1 to 18 and will be issued on October 2.

The retail bond offer, that is restricted to individuals and supposed to have a monthly cap of EUR 10 mln, with the aim of raising EUR 100-120 mln a year, has to date raised EUR 215 mln for the government that has only this year returned

to the markets following an austere bailout programme imposed the Troika of international lenders in 2013.

The interest rate for the 2015 series had been adjusted downwards by 0.25 percentage points and ranged from 2.50% for the first year to 5.50% in the final year. These are subject to 3% tax on interest, far more attractive than the 30% tax imposed on bank deposit interest.

In May, the PDMO said it was lowering the interest rate on future bonds starting from the September series, to 2.5% for the first 24 months, 2.75% for 24-48 months, 3.00% for 4860 months and 3.25% for 60-70 months.

The annual coupon rate when the series was first launched in May 2014 started from 2.75% and averaged at an attractive 4% over a six-year period.

Fiscal deficit rises to €69m in January-July Services, consumers boost econ sentiment to 7-year high A rise in confidence in the services sector and among consumers helped boost the monthly Economic Sentiment Indicator (ESI) by 6.6 points in August to 106.9, the highest level since the index started to take a downturn in late-2008.

In July, the ESI had dropped to a year-low of 100.3, having stabilised in the first five months of the year in the 103-104 range.

The Economics Research Centre of the University of Cyprus said that the climate change was driven by mainly positive responses to the monthly survey with a dose of optimism for current and future prospects among business, households and the economy in general.

The prospects in the construction sector also improved and were seen as “less negative” in August compared to July. On the other hand, the climate in the retail sector and manufacturing worsened, due to lower sales in the past quarter. However, the forecasts for increased activity in the retail sector suggest an improvement.

The marginal drop in the manufacturing sector confidence is linked to reduced orders and a negative outlook for future orders in the next quarter.

The UCy ERC added that the ESI “suggests volatile fluctuations compared to 2014 that predetermines a turning point in the economy from one of deflation to growth of GDP.”

Unemployment up in July Unemployment was slightly higher and reached 16.3% in July compared to June (16.2%) but marginally lower than July 2014, when it reached 16.4%.

The euro area seasonally-adjusted unemployment rate was 10.9% in July, down from 11.1% in June, and from 11.6% in July 2014, according to Eurostat. This is the lowest rate recorded in the euro area since February 2012.

The EU28 unemployment rate was 9.5% in July, down from 9.6% in June, and from 10.2% in July 2014. This is the lowest rate recorded in the EU28 since June 2011.

Among EU member states, the lowest unemployment rates in July were recorded in Germany (4.7%), the Czech Republic and Malta (both 5.1%), and the highest in Greece (25.0% in May 2015) and Spain (22.2%).

Compared with a year ago, the unemployment rate in July fell in 23 member states, increased in three and remained stable in Belgium and Romania. The largest decreases were in Bulgaria (11.5% to 9.4%), Spain (24.3% to 22.2%), Greece (27.0% to 25.0% between May 2014 and May 2015), Portugal (14.1% to 12.1%), Ireland (11.3% to 9.5%) and Croatia (16.9% to 15.1%). The biggest increases were registered in Finland (8.7% to 9.7%), France (10.3% to 10.4%) and Austria (5.7% to 5.8%).

The central government posted fiscal deficit of EUR 69 mln, or 0.40% of GDP for the January-July period, compared to a surplus of EUR 65.5 mln or 0.37% in the same period of 2014, justified by a fall in revenue.

According to the consolidated accounts and administered funds on a cash basis, released by the Ministry of Finance, the central government presented a primary surplus (the balance excluding interest payments) of EUR 278 mln compared to a EUR 412 mln surplus in January-July 2014.

Public revenue and grants from January to July reached EUR 3.64 bln, down 3.61% from EUR 3.77 bln in JanuaryJuly 2014.

Revenue for the first seven months of the year declined by 2.65% to EUR 3.59 bln compared to EUR 3.69 in the corresponding period of 2014. Revenue from taxes declined by 1.77% to EUR 3.05 bln from EUR 3.10 bln in January-July last year. Revenue from income tax accelerated by 2.38% in January-July to EUR 577 mln compared to EUR 563 mln in the same period last year. Revenue from other direct taxes dropped 13.92% to EUR 532.7 mln from EUR 619 mln in January-July 2014.

Indirect taxes for January-July this year saw a marginal reduction of 0.03% to EUR 1.37 bln, whereas import taxes declined by 8.73% to EUR 15.5 mln in the seven months of 2015 compared to EUR 17.05 mln of the corresponding period of 2014.

Revenue from excise duty rose by 0.63% in January-July of 2015 to EUR 363.4 mln compared to EUR 361.1 mln in the corresponding period of 2014.

VAT revenue increased by 2.8% in January-July to EUR 826 mln compared with EUR 804 mln in 2014. Revenue from other indirect taxes slumped 12.61% to EUR 165 mln compared to EUR 189 mln in January-July 2014.

Contributions to Social Security rose by 3.32% to EUR 569 mln compared to EUR 551 mln in the January-July 2014, while non-tax revenue declined by 7.34%, whereas grants for the January-July period declined by 47.12% Public expenditure and net lending recorded a marginal decline of 0.05% to EUR 3.70 bln in January-July 2015

compared with EUR 3.71 bln in the same period of 2014.

Public sector wages and salaries reached EUR 914.55 mln down 1.85% from EUR 931.8 mln in January-July 2014.

Expenditure for goods and services declined by 2.20%, whereas expenditure for subsidies rose by 0.52%.

Interest payments for January-July 2015 declined marginally to EUR 346 mln compared with EUR 347 mln in the same period of 2014.

Social security payments in the seven months of 2015 declined by 4.66% to EUR 852.7 mln compared with EUR 894 in January-July 2014, whereas pension and gratuities rose by 3.28% to EUR 334.7 mln compared to EUR 324.1 mln in the same period of 2014.

Social pensions rose by 0.27% to EUR 36.37 mln from EUR 36.27 mln, whereas other current transfers rose by 6.38%.

Capital expenditures declined by 4.01% in January-July to EUR 93 mln compared with EUR 96.7 mln in the same period of 2014.

The current balance from January to July stood at EUR 24.05 mln compared with EUR 162.3 mln in January-July 2014.

80,000 property owners to get title deeds More than 80,000 property owners will soon secure their title deeds after parliament is expected to approve on Thursday the bill regarding trapped property owners by insolvent land developers.

The discussion of the bill was completed on Tuesday and the bill will be brought before the plenary where it is expected to be passed unanimously, according to portal Stockwatch.

During the committee meeting the government submitted a revised version of the bill which includes the majority of suggestions by political parties.

AKEL is expected to submit a proposal for a two year suspension of the law on property foreclosures in cases where buyers repaid 80% of their debt to the developer and are unable to repay the remaining 20% due to the economic crisis.

On the other hand, the Democratic Party (DIKO) will submit an amendment which provides that the repayment of transfer expenses be made in 12 equal, interest-free

instalments and if an instalment is not paid, the buyer will owe the remaining amount.

According to data submitted in the joint session of the House Finance and Interior committees, the director of the Land Registry Andreas Socratous said that of the 48,000 properties without a title deed, 4% of the cases, or 2,000 properties relate to developments that have been approved but not completed, or developments that are incomplete and will not be able to secure a title.

Another 14,000 properties refer to cases where land developers initiated the procedure for issuing title deeds voluntarily. For 12,000 cases, a procedure for issuing a title deed has started by the director of the Land Registry including 8,000 cases for which plans are prepared.

For some of the 20,000 remaining cases, developers will initiate the procedure for issuing title deeds, while for another number of property units the director of the Land Registry will initiate a procedure for issuing titles.

September 2-8, 2015

COMMENT | 7

Cinderella’s fairytale opera ‘almost sold out’ in Paphos Organisers of this year’s “Pafos Aphrodite Festival” have seen a last-minute rush for ticket sales for the opera next month for the famous melodrama “La Cenerentola” (Cinderella) by Gioachino Rossini, due to an improvement in the economic situation that had affected attendance in 2013 and 2014.

This year’s opera, the 17th so far, will be held at the medieval castle in the harbour on September 4, 5 and 6 with a team of acclaimed artists hailing from the French lyrical group, Ramfis Productions Avignon, joined by the Cyprus Symphony Orchestra for the third year in a row.

The side stands have the seats that sell the fastest, said a spokesperson for the organisers. Tickets at EUR 25 to 50 are still available online at http://tickets.pafc.com.cy/opera/ while tickets for the central stands are selling for EUR 40 to 70, she said.

Hotels, that are partners together with all the Paphos municipalities in the non-profit company that hosts the opera each year, are also selling tickets directly through their own reservation systems as many are offering short-stay packages, with lavish opera-themed dinners and transfers.

Other hotels are offering a single night bed and breakfast rate, including opera tickets, starting from EUR 59 per person.

The most popular nights for the opera, that accommodates 7,000 people over the three-day event, are the premier on Friday (September 4) and on the Saturday, with the Sunday event regarded as a more relaxed and performance.

Some 40% of ticket sales are from overseas, including direct sales and packages pre-sold to tour operators, with the best sales coming from Germany, while the remaining 60% of ticket sales are traditionally from local residents, Cypriots or foreign, who buy the ticket online or reserve them and pay at the box office.

Coming out of the economic crisis, corporate ticket buyers are also returning this year to complement the main sponsors Ministry of Culture and the Cyprus Tourism Organisation, as well as forex company Banc De Binary.

This year’s opera will also be milestone for Paolo Panizza who will direct the event for the third year, while Massimo Taddia will conduct the orchestra. A team of Cypriot choristers will accompany the lyric choir “Amintore Galli” from the Italian city of Rimini.

Paphos Mayor Fedonas Fedonos, ex-officio President of the board of the organiseing company, said that in the past 17 years, Paphos and Cyprus have left their own mark on the cultural map of Europe, highlighted by the fact that the town has been designated as Cultural Capital of Europe for 2017.

This year’s sponsors also include the Shacolas Group, the Kanika Hotels Group, that will provide catering and host the VIP stand, and media sponsors MyDestinationCyprus the DIAS group with Sigma television.

More information about the opera is also available at http://www.pafc.com.cy/

September 2-8, 2015

8 | COMMENT | financialmirror.com

Cyprus Classics

FOOD, DRINK and OTHER MATTERS with Patrick Skinner

The first in an occasional series of what I believe to be the best recipes Cyprus has to offer – what could it be other than…

MAGNIFICIENT MOUSSAKA Moussaka is classic Greek/Cyprus food and the best place I know to eat an authentic one is in London. Even there, it’s variable. Not surprising, I suppose, because, as every Italian housewife has her own recipe for a Bolognaise Sauce, so it seems every Greek home, restaurant or taverna has its variation of Moussaka. Is there a proper, classic, way to make it?

Maybe not, but I like to think so.

Firstly, I believe the meat used should be lamb, minced – Cyprus taverna keepers, please note! I would think that of the hundreds of times I ate Moussaka outside of my home the meat used was pork. Secondly, the meat should be the main ingredient. Here are three examples…

A corner of the buffet table

their request we gave them a typical Cypriot meal. This included several trays of bubbling golden topped Moussaka, lots of roast potatoes and various salads.

1. UGLY! Vegetables to the fore in this one! A good Béchamel sauce topping, but slices of aubergine not well enough cooked, and thick pieces of potato on the base. Not very appealing.

Alas too many like this are offered around Cyprus – nothing worse than a “wet” Moussaka!

2. MEATY BUT DULL. No potatoes here. Layered minced meat and thin slices of cooked aubergine, completed by a thick Béchamel with grated cheese, browned under the grill. Nice, but it doesn’t look juicy enough.

They closely observed the Moussaka “Prep” – ladling the lamb Ragu mixture into the baking dishes, followed by layering the thick Bechamel sauce over, prior to browning under the grill.

The delicious lamb ragú mixture is superb with pasta, or rice.

Lamb Ragu recipe 50g / 2 oz fatty Pancetta or streaky bacon 300g / 1O oz lamb fillet trimmed and finely diced or coarsely minced A pinch of chilli powder 1 1/2 tsp dried oregano 1 garlic clove, chopped Salt 4 tbsp olive or sunflower oil 1 00 g / 3 1/2 oz firm, fresh button mushrooms, chopped 1 small onion, finely chopped 4 tbsp red wine 1 tbsp red wine vinegar 1 1/2 tbsp tomato paste diluted with 4 tbsp warm water 1 tbsp flour

Method

3. A GOOD ONE. A thin layer of potatoes cooked al dente and then sliced, as a base, then further layers of meat sauce and sliced cooked aubergine. Just about enough Béchamel with grated cheese and browned in a hot oven.

Frankly, I am happy to leave out the potato and increase the amount of meat sauce. I also like my aubergine peeled, sliced thinly and cooked through. The best way to do this is to brush the slices with olive oil and grill them on both sides until they start to brown.

My most memorable Moussaka was a few years back when Mary and I played host to some young Japanese TV show prize winners on a world tour, with an accompanying TV crew. At

1. Heat a heavy medium-large non stick frying pan.

2. Put the diced Pancetta or fatty bacon into the pan, stir-fry to melt the fat.

3. Add the lamb, season with the chillies, oregano and garlic and brown well on all sides.

4. Sprinkle with salt, cook for about 30 seconds and then lift the meat out with a slotted spoon and set aside 5. Add the oil to the pan and heat.

6. Add the mushrooms and sauté for 5 minutes.

7. Lift out the mushrooms and set aside with the lamb.

8. Put the onion into the saucepan and sauté gently until soft.

9. Pour in the wine and vinegar and boil briskly until the liquid has nearly all evaporated.

10. Add the diluted tomato paste to the pan with the flour.

11. Cook, stirring constantly, for 2 minutes or so. Sprinkle with some salt.

12. Return the lamb and the mushrooms to the pan and cook, covered, until the lamb is very tender, about 30-45 minutes.

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

September 2-8, 2015

financialmirror.com | WORLD | 9

IMF says China slows; Caixin China PMI collapses

By Douglas McIntyre International Monetary Fund (IMF) chief Christine Lagarde said what the economic world already knows. The Chinese economy is slowing and the slowdown will touch the rest of the world. Data from the carefully followed Caixin research agency confirmed this.

Lagarde made her comments in Indonesia in an address titled “Poised for Take-Off — Unleashing Indonesia’s Economic Potential,” in which her main focus was the

future of the local economy. However, part way through her speech, she said: “Other emerging economies, including Indonesia, need to be vigilant to handle potential spillovers from China’s slowdown and tightening of global financial conditions.”

Lagarde did not have to wait long to get more evidence.

The Caixin PMI Index release said: “Chinese manufacturers saw their operating conditions deteriorate between July and August at the fastest rate seen in more than six years, according to the latest Caixin China Manufacturing Purchasing Managers’ Index released Tuesday.

Fitbit fends off Apple to retain lead in worldwide wearables market Despite the arrival of strong competitors such as Apple and Xiaomi, Fitbit has retained the lead in the global wearables market in the second quarter of 2015.

The maker of fitness tracking devices shipped 4.4 mln units between April and June, an increase of more than 150% over last year’s June quarter. Fitbit’s focus on fitness tracking functionality appears to resonate well with customers who value simplicity over the added functionality of competing devices.

Speaking of added functionality, Apple managed to sell 3.6 mln Apple Watches in its first quarter on the market. Remarkably, the Apple Watch with its steep starting price even outsold Xiaomi’s ultra-cheap Mi Band, which retails for less than $20.

Overall, the wearables market more than tripled in size compared to last year’s second quarter. Between April and June, 18.1 mln wearable devices were shipped around the world according to IDC’s estimates. (Source: Statista)

“The August manufacturing PMI of 47.3 represented a slight increase from a preliminary flash reading of 47.1 posted earlier in the month. But it was down from 47.8 in July.

“August thus marked the sixth, successive month in which the index came in below the 50-point mark, the dividing point between business growth and contraction among the companies surveyed.”

There are several well-articulated reasons that the Chinese economy has dropped toward what might be considered a recession, given such powerful advances in gross domestic product for years. The first of

these is that the central government hid the correct numbers to make it appear that China was still healthy. Another is that the central government’s efforts to entice the private sector toward being self-supporting have failed. Another theory is that China’s cheap labor is not as attractive for manufacturers as cheaper labour in places like Vietnam and Mexico.

No matter what the reason, the Chinese government has started to scramble to support its stock market and what seems to be a sharp dive in the fortunes of its flagging private sector. Unless those efforts take hold soon, the IMF view is right.

September 2-8, 2015

10 | EUROPE | financialmirror.com

Trainloads of migrants reach Austria and Germany, as EU asylum system collapses Trainloads of migrants arrived in Austria and Germany from Hungary on Monday as European Union asylum rules collapsed under the strain of a wave of migration unprecedented in the EU, according to EurActiv.

As thousands of men, women and children - many fleeing Syria’s civil war - continued to arrive from the east, authorities let thousands of undocumented people travel on towards Germany, the favoured destination for many.

The influx is a crisis for the European Union, which has eliminated border controls between 26 “Schengen area” states but requires asylum seekers to apply in the first EU country they reach - something that is often ignored as migrants race from the fringes of the bloc to its more prosperous heart.

In line with EU rules, an Austrian police spokesman said only those who had not already requested asylum in Hungary would be allowed through - but the sheer pressure of numbers prevailed, and trains were allowed to move on.

“Thank God nobody asked for a passport [...] No police, no problem,” said Khalil, 33, an English teacher from Kobani in Syria. His wife held their sick baby daughter, coughing and crying in her arms, at the Vienna station where police stood by as hundreds of migrants raced to board trains for Germany.

Khalil said he had bought train tickets in Budapest for Hamburg where he felt sure of a better welcome after traipsing across the Balkans and Hungary.

“Syrians call (Chancellor) ‘Mama Merkel’,” he said, referring to the German leader’s relatively compassionate response so far to the migrant crisis.

Late on Monday, a train from Vienna to Hamburg on which migrants were travelling was met in Passau, Germany, by police wearing bullet-proof vests, according to a Reuters witness.

Police entered the train and migrants were asked to accompany them to be registered. About 40 people were seen on the platform.

Merkel, whose country expects some 800,000 migrants this year, said the crisis could destroy the Schengen open borders accord if other EU countries did not take a greater share.

“If we don’t succeed in fairly distributing refugees then of course the Schengen question will be on the agenda for many,” she told a news conference in Berlin. “We stand before a huge national challenge. That will be a central

challenge not only for days or months but for a long period of time.”

Merkel likened the test Germany faces in coping with the flood of refugees to the challenge of reunifying the country 25 years ago, and called on citizens to show flexibility, patience and openness.

She said Germany must speed up the vetting of asylum applications, build more centres for new arrivals and ensure that the costs of tackling the crisis were fairly shared between the federal government, states and municipalities.

In some of her strongest language to date, she also promised “zero tolerance” towards hate crimes and harassment of refugees.

She stopped short of singling out other European countries for refusing to take on refugees but made clear that it was important for the bloc to reach agreement soon on a common asylum policy that spread the burden more widely.

But it is far from certain her view will prevail when EU ministers hold a crisis meeting on September 14. Britain, which is outside the Schengen zone, says the border-free system is part of the problem, and a bloc of central European countries plans to oppose any binding quotas.

Refugees who managed to board the trains heading west on Monday mixed with well-heeled business travellers and tourists, some of whom were angry over the delays to their journey.

Outside Vienna station, thousands of supporters of the migrants chanted, “Refugees are welcome here”.

“These people need help, they have come from a horrendous situation, we should not think twice about helping them,” said Ottwin Schober, a retiree from Vienna who was moved by the discovery of a truckload of 71 dead migrants in Austria last week.

Austrian authorities have stopped hundreds of refugees and arrested five traffickers along the highway from Hungary where the abandoned truck was found near the Hungarian border.

Interior Ministry official Konrad Kogler denied the clampdown, which includes increased checks on the eastern borders, violated the Schengen accord on free movement.

“These are not border controls,” said Kogler. “It is about ensuring that people are safe, that they are not dying, on the one hand, and about traffic security, on the other.”

At Munich, police said around 400 migrants had arrived on a train from Hungary via Austria, mostly Syrian refugees.

Mohammad al-Azaawi, 18, from Syria, said he had abandoned his engineering degree and fled the country after being wounded by a car bomb. He showed reporters scars on his stomach.

His brother Ahmed said they had paid 3,000 euros to make their way via Turkey, Greece, Madedonia, Serbia, Hungary and Austria. The family had had to sell their house to raise the money.

The European Union could soon fund and set up new reception facilities for asylum-seekers in Hungary as it is already doing in Italy and Greece, Migration and Home Affairs Commissioner Dimitris Avramopoulos said on Monday.

Saying he would travel to Budapest soon, Avramopoulos told reporters that the EU executive was ready to offer further help to the government as it takes in large numbers of people crossing the Balkans to reach the European Union and would “if necessary, set up a hotspot in Hungary”.

“Hungary is under pressure, as is the case of Greece and Italy,” Avramopoulos said near the Channel Tunnel terminal at Calais, where he was reviewing efforts by France to manage asylum seekers trying to reach Britain.

Hotspots will serve in part to bolster national efforts to process requests for refugee status. They have also been promoted by Germany, France and other wealthier states to help ensure their southern neighbours register and fingerprint those arriving, rather than allow them to head north unchecked.

Greek coastguard rescues 2,500 migrants in 3 days The Greek coastguard has rescued about 2,500 migrants and refugees off the country’s eastern islands over the past three days, authorities said on Monday, as the flow of people trying to cross into Europe continued unabated, according to the EU news and policy site EurActiv.

Greece has seen a surge in the number of refugees arriving by rubber dinghies from Turkey, with aid agencies estimating about 2,000 crossing over daily in August, mostly from conflict-ridden places such as Syria, Iraq and Afghanistan.

The numbers of migrants being picked up by the coastguard have been rising steadily over the past week and the figures for the past three days are at the higher end of those seen this summer, a coastguard official said.

All interceptions of migrant boats in Greek waters are classified as coastguard rescues even if the vessels are not in any danger or need any help.

After a hiatus of a few days last week, Greek authorities resumed ferrying Syrian refugees to the mainland by ship on Saturday and the latest group of 2,500 refugees arrived at the port of Piraeus earlier on Monday.

Most of them are expected to make their way to the border with Skopje as part of their journey into northern Europe, suggesting larger crowds could amass at the

border in the coming days after numbers shrank last week.

Tensions peaked at the Greek side of the border last month when Macedonian police

fired tear gas and stun grenades to drive back angry crowds.

Overwhelmed authorities later gave up and have since allowed refugees to cross over.

Conditions at the border remain calm at the moment but a new flare-up of tensions could emerge if Hungary closed its borders, Stathis Kyrousis, head of Doctors Without Borders’ migration operations in the Balkans told Reuters.

Hungary - which has been scrambling to reinforce borders to cope with the migrant influx - plans to tighten migration laws this week and set up holding camps near Serbia.

“If Hungary closes its borders, there is a greater chance that Skopje will follow and this will make tensions more likely,” he said.

More than 300,000 people have crossed the Mediterranean this year, including nearly 181,500 arriving in Greece and 108,500 in Italy, according to the UN High Commissioner for Refugees.

An average of 1,700 migrants crossed into Greece daily in July, with the number topping 2,000 daily in August, Kyrousis said.

The arrivals in recent days were continuing at the higher end of levels seen this summer, with 4,000 people arriving on the island of Lesbos on Saturday alone, he said.

September 2-8, 2015

financialmirror.com | EUROPE | 11

Democratising the Eurozone

By Yanis Varoufakis

Like Macbeth, policymakers tend to commit new sins to cover up their old misdemeanours. And political systems prove their worth by how quickly they put an end to their officials’ serial, mutually reinforcing, policy mistakes. Judged by this standard, the eurozone, comprising 19 established democracies, lags behind the largest non-democratic economy in the world.

Following the onset of the recession that followed the 2008 global financial crisis, China’s policymakers spent seven years replacing waning demand for their country’s net exports with a homegrown investment bubble, inflated by local governments’ aggressive land sales. And when the moment of reckoning came this summer, China’s leaders spent $200 bln of hard-earned foreign reserves to play King Canute trying to hold back the tide of a stock-market rout.

Compared to the European Union, however, the Chinese government’s effort to correct its errors – by eventually allowing interest rates and stock values to slide – seems like a paragon of speed and efficiency. Indeed, the failed Greek “fiscal consolidation and reform programme,” and the way the EU’s leaders have clung to it despite five years of evidence that the programme cannot possibly succeed, is symptomatic of a broader European governance failure, one with deep historical roots.

In the early 1990s, the traumatic breakdown of the European Exchange Rate Mechanism only strengthened the resolve of EU leaders to prop it up. The more the scheme was exposed as unsustainable, the more doggedly officials clung to it – and the more optimistic their narratives. The Greek “programme” is just another incarnation of Europe’s rosetinted policy inertia.

The last five years of economic policymaking in the eurozone have been a remarkable comedy of errors. The list of policy mistakes is almost endless: interest-rate hikes by the

“The last five years of economic policymaking in the eurozone have been a remarkable comedy of errors” European Central Bank in July 2008 and again in April 2011; imposing the harshest austerity on the economies facing the worst slump; authoritative treatises advocating beggar-thyneighbor competitive internal devaluations; and a banking union that lacks an appropriate deposit-insurance scheme.

How can European policymakers get away with it? After all, their political impunity stands in sharp contrast not only to the United States, where officials are at least accountable to Congress, but also to China, where one might be excused for thinking that officials are less accountable than their European counterparts. The answer lies in the fragmented and deliberately informal nature of Europe’s monetary union.

Chinese officials may not be answerable to a democratically elected parliament or congress; but government officials do have a unitary body – the sevenmember standing committee of the Politburo – to which they must account for their failures. The eurozone, on the other hand, is governed by the officially unofficial Eurogroup, which comprises the member states’ finance ministers plus representatives of the ECB and, when discussing “economic programmes in which it is involved,” the International Monetary Fund.

Only very recently, as a result of the Greek government’s intense negotiations with its creditors, did Europe’s citizens

realize that the world’s largest economy, the eurozone, is run by a body that lacks written rules of procedure, debates crucial matters “confidentially” (and without minutes being taken), and is not obliged to answer to any elected body, not even the European Parliament.

It would be a mistake to think of the standoff between the Greek government and the Eurogroup as a clash between Greece’s left and Europe’s conservative mainstream. Our “Athens Spring” was about something more profound: the right of a small European country to challenge a failed policy that was wrecking the prospects of a generation (or two), not only in Greece, but elsewhere in Europe as well. The Athens Spring was crushed for reasons that had nothing to do with the Greek government’s left-wing politics. Time after time, the EU rejected and denigrated common-sense policies.

Exhibit A is the two sides’ positions on tax policy. As Greece’s finance minister, I proposed a rate reduction for sales tax, income tax, and corporation tax, in order to broaden the tax base, increase revenues, and give Greece’s broken economy a boost. No follower of Ronald Reagan would quarrel with my plan. The EU, on the other hand, demanded – and imposed – increases in all three tax rates.

So, if Greece’s tussle with its European creditors was not a left-right standoff, what was it? The American economist Clarence Ayres once wrote, as if describing EU officials: “They pay reality the compliment of imputing it to ceremonial status, but they do so for the purpose of validating status, not that of achieving technological efficiency.” And they get away with it because the eurozone’s decision-makers are not obliged to answer to any sovereign body.

It is incumbent upon those of us who wish to improve Europe’s efficiency, and lessen its gross injustices, to work toward re-politicizing the eurozone as a first step toward democratising it. After all, doesn’t Europe deserve a government that is at least more accountable than that of communist China?

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

Moscovici optimistic about Greece’s future and eurozone recovery European Commissioner for Economic and Financial Affairs Pierre Moscovici has said he has “no reason to doubt” the eurozone’s economic growth prediction of 1.5% for 2015, according to the EU news and policy site EurActiv France.

The turbulence of the international markets will not destabilise the European economy, Pierre Moscovici said on Tuesday.

The French Commissioner said that the Chinese and Russian authorities were making significant efforts to ensure stability.

He added that at this stage, there was “no reason to doubt the validity” of the European Commission’s economic forecast for the next two years, and that these predictions would be reviewed in November this year.

Last May, the Commission predicted growth in the eurozone of 1.5% for 2015 and 1.9% for 2016.

“We are closely following the financial and economic developments in China and Russia,” Moscovici said. “The authorities of these countries, both monetary and political, are making significant efforts to preserve stability. I am convinced that the recent developments on the financial markets, which are still in process, will not destabilise the European economy.”

The Commissioner also spoke of Greece,

and said he believed “sincerely that the EU had broken the deadlock”, and insisted on the fact that the Commission had confidence

in how the ongoing process was being handled.

Elections are scheduled in Greece for

September 20, when Alexis Tsipras will attempt to form a more centrist, europhile majority government.

September 2-8, 2015

12 | PROPERTY | financialmirror.com

Title deeds: Don’t destroy the forest to save a tree

By George Mouskides

Instead of the government taking radical steps to solve the root of a problem it is happy to resort only to half measures to fix some of the old problems.

I am referring to the bill tabled by the government to protect trapped real estate buyers.

We as an association fully support the content of such a bill, to protect those who have or are willing to fulfill their obligations towards developers but cannot obtain a title. The problem arises because banks or the tax department are blocking the transfer of titles to the buyers when the developer has overdue liabilities.

Blame the past It is true that bad practices of the past are plaguing the real estate sector and the state is trying to solve them now by adopting half-measures.

Why do we say this? The reason is that if the bill wins the vote of the parliament this coming Thursday it will not solve

the source of the problem. It will also not help all ‘trapped’ real estate buyers. There are currently thousands of properties without a title deed. The bill will do nothing to help the thousands of owners who bought and paid for their property without knowing when the title will be issued.

As the procedures and legislation stand now, people buying properties do not know if they will ever obtain a title deed.

Authorities A simple fact is causing 99% of the problems and is making the relations between developers, buyers, banks and municipal authorities problematic.

The fact is that title deeds are not issued on time.

A lot of things take place between the day a sales contract is signed and the day titles are issued.

The longer the time that lapses, the bigger the problems.

Let us not forget the numerous cases of foreigners, especially British expats, who wanted to sell their properties after 2008 but could not do so as they had no title deeds.

In order to solve this problem the day the developer delivers the keys into the hands of the buyer must be the same day the title is issued and transferred in the name of the buyer.

This is the best policy and is followed internationally, in

Greece, the UK, etc.

Project Engineers To be able to achieve this it is vital that checks are carried out by the authorities during the construction of a building.

We might also need to involve the engineers responsible for the construction who will verify compliance to the rules and regulations.

The Ministry of Interior must be the one to design the new procedures. We can offer our experience and expertise.

Perhaps the state’s bureaucrats need to decide that things must finally change; different government departments and processes must merge, private sector professionals should be engaged and the use of the Internet and technology increased.

Do not get me wrong; we applaud the spirit of the tabled bills, to solve problems created over the years. However, most importantly we must adopt simple new practices and avoid the existing ones short-circuiting the whole system.

More simply put, title deeds must be delivered to the buyer on the same day of the delivery of the property, to avoid problems in the future.

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

Aristo Developers says 1,000 title deeds are ready Aristo Developers announce that more than 1,000 property owners were informed in August that their title deeds were ready.

The company said that these title deeds, relating to properties worth a total EUR 250 mln, are free from any encumbrances and are available for immediate transfer.

Thus, even if these properties had paid their mortgages or loan in full, and had been blocked at the Land Registry as being linked to other Aristo projects, they are no

longer ‘trapped’ and the owners are free.

Following the recent incentives announced by the government of zero or reduced transfer fees, Aristo Developers has called on its customers to take advantage of this opportunity and proceed to obtain their title deeds without further delay.

The company added that “no problems or inconsistencies are observed in the projects in relation to their planning

licences and therefore the rate of issuing separate title deeds from the Cyprus Lands Authority is very high, perhaps the highest recorded in the Paphos District where Aristo Developers mainly operates.”

The company said it has also been working systematically and consistently to ensure that, when further title deeds are issued for its developments, these will be relieved from any encumbrances allowing for hassle-free transfers to beneficiaries.

Regus Limassol moves to new address Zilli opens menswear store at Limassol Marina Premium menswear store Zilli has just opened its first outlet in Cyprus, making the Limassol Marina property the latest in its network of 62 stores across 21 countries.

The House of Zilli was born in 1965 when Alain Schimel bought a small specialist leather workshop in Lyon. Five decades later, creativity, experience and outstanding materials are responsible for the iconic collections of leather jackets, coats, suits, shirts, footwear, knitwear and denim, all of which have confirmed Zilli as the craftsmen of modern luxury.

Zilli is another premium shop by EK Luxury Group joining Graff jewellery, Halcyon Gallery and Shiraz carpets at the waterfront development. Audemars Piguet watches are the next highly anticipated arrival in the series of luxury shops at the Marina where luxury apartments are ready to move into and the first exclusive villas with private berths or direct access to the beach have just been delivered to their owners.

For information call 25 051 355 or visit www.zilli.com or the Limassol Marina, site www.limassolmarina.com

Regus has moved its business centre in Limassol to a new address, Victory House on the central Makarios Ave., which is strategically located in the centre of town with quick access to the Limassol port, according to Regus Balkans and Cyprus General Manager Katerina Manou.

The new centre offers ample parking for customers and visitors, a business lounge, virtual office, day office, meeting rooms and hot desk services, videoconferencing services and 24 hour access to the facilities.

Regus, which also operates a business centre in Nicosia at the Jacovides Tower on Griva Digheni Ave., has been operating on the island as a franchise since 2001 and as a directly managed business since November 2012. For information visit www.regus.gr or call+357 22 503 000, 25 040 000 (Fax: +357 25 040 123).

Leptos Estates launches new website

Leptos Estates has given a complete facelift and relaunched its website www.leptosestates.com which has been designed to improve user friendliness and appeal on all devices. The new website is the result of 6 months of planning and development by the Leptos team and WebTheoria Ltd .

Leptos Estates was established 55 years ago and is now the leading property developer with a land bank of 325 prime locations in Cyprus and Greece. To date, the company has delivered more than 25,000 homes and has offices and sales representatives in 75 countries.

“Our goal with this new site is to provide our visitors with an easier way to learn about our company’s product portfolio and activities,” stated Sakis Hadjialexandrou, Leptos Group Marketing Director.

“Our new-state-of-the-art website has a fresh modern look, is easy to use and is very informative. It will be consistently updated with publications and new posts referring to our activities and services,” added Charis Hadjipanayiotou, Leptos Estates web coordinator.

September 2-8, 2015

financialmirror.com | PROPERTY | 13

Is the lowest bid the best offer? µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

Because of the objections very often raised, which has by now become routine in bids for the public and semi-public sector for services offered, tenders continue to place a condition that “the award is based on the lowest bid.”

Thus, and without considering the knowhow, experience and history of the tenderer, the tender awarded goes to the cheapest. This may not be wrong, but is it in the public interest? So, we end up with a system where whatever the experience of a tenderer, outsourcing work to our own area of property development or real estate, all kinds of bids are submitted with a difference range from EUR 1,000 up to 5,000.

This huge difference, as an indication, especially in cases that result in the courts, such as expropriation, feasibility studies, etc., the recipient is obliged under the terms of the offer to go to the cheapest.

In a recent case, the difference from our bid of EUR 3,500 to the successful bidder (one-man office with a history of two years) was a mere 300 euros. The case eventually ended up in court, where we as defendants appeared on behalf of the owner and our colleague represented the expropriation authority. The outcome is still pending, but in courts, apart from expert and scientific knowledge, a huge part of the argument is based on impression the witness will give the court. So if there is no relevant experience and the defendant’s presentation is successful, it is understood that this will be against the public interest.

Of course we’re not to say that anyone who has no experience should be rejected, but a basic professional experience (depending on the severity of the case) is necessary. This reminds me of the notorious assessment of the premium property opposite Hilton hotel (for the Qatari project) where we submitted a bid (and won) for EUR 5,000, while the other bidders put in for 20,000. Our office was accused of all sort of things, to which was added the comment the technical chamber ETEK that “there should be a minimum level for fees” etc. So, I now ask ETEK – where has “the cheapest” rule gone? Do they adopt or reject it at will?

Perhaps, the best way is for tenders to first consider the basis of experience and knowhow, and at the second stage to opt for the cheapest bid. Looking to find the most suitable solution, the regulations for tenders are not feasible because the Tenders Council will raise objections. In the case of the Qatar investment, and to the credit of then president Demetris Christofias who was harshly critical of the system, the whole deal was up in the air because of oppositions and

delay surrounding the issue. The other party may have failed to convince the Tender Board, but on the other who paid for the whole delay? The whole deal may have eventually gone belly up for other reasons, but imagine what would happen if we had all been in agreement and the transaction failed because of our own appeals and objections process.

Another case with similar tenders was assigned to two agencies for the estimation of a property held by a public organisation for which a four-page presentation was submitted, but without supporting evidence after which our office (the most expensive bidder) was assigned to assess the two previous reports, which took us almost 1 1/2 month and a report of around 30 pages – naturally, the number pages certainly does not make sense if the content is not of relevant quality. In the past, we have also been assigned environmental impact studies which are often dished out in a haphazard way, to which ETEK (here we agree with them) argued that the quality of the reports should seriously be taken into consideration.

This is where we need ETEK to stand firm in its interventions to the state or public services and a system where the non-runner up tenderer would indeed have the right to protest, but not to stop the whole procedure that would cause further unnecessary delays. The problem is particularly obvious in architectural competitions where work stops because of these procedures (such as the Paphos

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The growth of the Cyprus economy and the implementation of such projects should be the primary goal, especially in view of the current economic situation and perhaps a change should be introduced in the law to award the lowest tenderer some form of compensation if the cheapest bid was initially disqualified for other valid reasons.

It is not fair that the process is constantly one-sided to the detriment of the state.

Further education in all matters is necessary.

However, the recent comment by Transport and Communications Minister Marios Demetriades regarding the new project for a national museum in Nicosia was the worst.

Asked how the cost of the project will be reduced from EUR 70 mln to 50 mln, as estimated by quantity surveyors, he was completely negative undermining the profession, while to the question of who will undertake the task in the planning and oversight stage, up until the final tender is awarded, and if someone will monitor or follow up on the decision, he had no response.

So, this project is crucial project of monumental importance for tourism and revenue inflow to the capital, will probably never be implemented unless there are changes in attitudes or otherwise. www.aloizou.com.cy ala-HQ@aloizou.com.cy

September 2-8, 2015

14 | MARKETS | financialmirror.com

This is a market correction, not a market meltdown dramatic selloff during the final hour of trading on Tuesday.

The S&P 500 is merely 1% better off than it was after all the gains it accumulated until the end of 2013.

By Oren Laurent President, Banc De Binary

Investors remain on the back foot as ailing equities markets around the world continue to cause uncertainty with fund managers. Friday, August 21 and Monday, August 24 hit global bourses incredibly hard, but by Tuesday, August 25, European markets erased much of the losses and U.S. markets appeared headed into positive territory. However, in the final trading session on Tuesday, U.S. markets plunged into the red after holding steady for most of the day.

The big question on everyone’s mind is this: Where to next?

It is clear that China is staring down a barrel. On the first day of last week the Shanghai stock market plunged 8.5%, losing trillions of dollars. Chinese equities have shed over 40% since their recent highs in June, resulting in one of the largest worldwide selloffs since the 2007/8 global crisis. The People’s Bank of China (PBoC) enacted urgent measures to slash the main interest rate, but so far precious little has helped. We have seen the authorities attempting to do everything in their power to jumpstart the ailing Chinese economy which they claim is growing at 7% per annum.

Analysts are highly sceptical about that figure and many believe that the true figure could be half that.

Despite the interest-rate cut, the Shanghai Composite ended the day on Wednesday, August 26 some 1.3% lower. It wasn’t only Chinese equities that were hurting, European stocks also fell as volatility gripped global markets once again.

The Shanghai Composite dropped to an 8-month low on Wednesday on the back of bearish sentiment among investors and traders. Highly erratic trading activity characterised the Chinese bourses, with the Shenzhen

Composite plunging 3.1 percentage points after rallying during the course of the day.

Economic Performance of Chinese Equities The rout is significant in China. The CSI 500 small-caps dropped some 28%, while the CSI 300 shed 25% last week alone. The negative sentiment in Chinese equities is somewhat surprising given the strong gains posted by Chinese insurers and banks whose stocks rallied on the back of rate cuts. Among others, Ping An Insurance rose 5%, Bank of China jumped 4.8% and there was a 9.3% spike in shares of China Merchants Bank.

The People’s Bank of China (PBoC) is looking at as many ways as possible to restore market confidence. One of the biggest problems facing China is capital flight. Since the economic slowdown and currency devaluation, international investors have been pulling their money out of China, or earmarking funds for other investment opportunities – notably U.S. equities. European markets managed to recoup some of their losses for the day after opening lower. But the good news is that U.S. futures are higher, following the

Predictions Moving Forward Credit bubbles in China, a rampant U.S. dollar, and historically-low interest rates in Europe and the U.S. have combined to create the perfect storm in equities markets.

That coupled with geopolitical crises have fuelled the uncertainty and volatility with major currencies. Economic weakness in China has led to a global commodities meltdown with prices of oil, copper, precious metals and other produce dropping significantly. Massive capital flight from BRICS countries and other emerging market economies has seen these currencies depreciate at an unprecedented rate.

We cannot discount the fact that global GDP is declining, as evidenced by the dramatic appreciation of the USD against a basket of currencies. Long-term loans in USD are now markedly more expensive and emerging market currencies are coming under tremendous pressure. Mexican equities have to-date plunged 22% for the year, Brazilian equities are down 45%, and Korean equities are down 25% over the same period. These trends are commonplace among emerging market economies. The Dow Jones Industrial Average showed some steel when it surged after the opening bell on Wednesday, August 26. But equities are a long-term investment and stock markets invariably go through many cycles.

Note that this column does not constitute financial advice.

China markets continue to look vulnerable Markets Report b

By Jameel Ahmad, Chief Market Analyst at FXTM

Markets are waking up to further signs of economic weakness in China following another PMI contraction overnight from Monday.

While it is true that expectations were for a contraction anyway, the data just provided further confirmation that economic momentum is slowing down in China with the economy looking further exposed and increasingly vulnerable to dropping below Beijing’s 7% GDP before the end of the current quarter.

The chances of GDP growth falling below the government’s target are intensifying each time an economic announcement is released from China, mainly because all data is consistently pointing towards the economic momentum declining.

What does the data mean for the PBoC? The central bank is going to remain under intense pressure to continue reinvigorating economic momentum with this including the heightened possibility of more interest rate cuts, loans available for banks and probably further Yuan devaluation. Market participants should make no mistake at all, the government GDP target at 7% is absolutely critical, and the PBoC will do whatever it takes to limit the probability and increasing threat of this target being missed.

What is the threat to the global economy with China slowing down?

The greatest risk is that exports and basically trade relations with China are set to decline. As peculiar as this might sound, China can actually handle slower economic growth because the economy is in a transitional stage where it is trying to diversify from any particular sector and build a domestic reliance.

The problem with this is that those economies which are dependent on trade with China will have to handle the fallout from this, which ultimately will mean less trade from China.

RBA and Australia Despite the Reserve Bank of Australia (RBA) leaving interest rates unchanged once again on Monday, the AUDUSD remains under pressure. The central bank is refraining from talking down the currency on such a regular basis, and the major reason is because it is fully aware that the currency will decline anyway with the China risks continuing.

Australia is a major trading partner with China, meaning that the Australian economy is naturally going to face downside pressures with the China economy continuing to show weakness. The positive news for Australia is that the RBA’s interest rate cuts earlier this year are showing signs of improving domestic data with a combination of retail sales, construction output and other releases coming in above expectations recently.

GBPUSD and FTSE After suffering a completely unexpected and sudden reversal that saw the GBPUSD dramatically tumble from two-month highs towards near two-month lows within three days, the GBPUSD is trying to find stability. The comments from BoE Governor Mark Carney over the weekend that the UK economy is somewhat protected from global shocks was a likely attempt to raise investor sentiment towards the Pound and UK markets, while also preventing the FTSE from further losses.

Speaking of Carney, it’s quite clear that he would like to begin raising UK interest rates and there is still optimism that this can begin early next year. While the recent aboveexpectation core inflation readings and further economic improvements will encourage further calls to begin raising UK interest rates, it’s probable that the ECB is going to at least threaten further monetary easing, and this might encourage reluctance from the BoE because the interest rate differentials would encourage further downside movement in the EURGBP. Emerging Markets It shouldn’t be understated how pivotal the recent rally in WTI will be towards allowing the emerging market currencies to recover what were brutal losses throughout

the summer months. The sharp bounce in commodities like WTI will allow some of these EM currencies to begin recovering sharp losses, with economies linked to commodity exports noticing an improvement in investor sentiment.

Bearing in mind that it was the Malaysian Ringgit that was punished the most throughout the late summer months, this could also be the currency which benefits and welcomes an opportunity to recover losses. In the longer term there are still risks ahead such as the fallout of declined China trade and increased inflation pressures, but WTI continuing to rally will at least allow the USDMYR to target 4.15.

The Indonesian economy is heavily reliant on commodity exports, so it is natural to expect the sentiment towards both the Indonesian markets and Rupiah to improve following the sharp gains in WTI. Indonesia is still at risk to further downside pressures when you take into account that GDP forecasts are already missing expectations and that China is a major trading partner for Indonesia, however the improved investor appetite for oil still represents a welcome opportunity for the Rupiah to recover some losses.

While India is far more protected than other emerging markets when it comes to downside pressures and is actually impressing investors when it comes to its economic performance in 2015, the Indian Rupee still hit a fresh two-year low above 66 against the USD last week.

While the sentiment towards India is robust, it is the threat from the central bank that it might not yet have concluded monetary easing, despite already acting on more than one occasion this year, that is restricting the currency from recovering losses.

For information, disclaimer and risk warning note, 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)

September 2-8, 2015

financialmirror.com | MARKETS | 15

The three options for RMB policy Marcuard’s Market update

by GaveKal Dragonomics In the three weeks since its abrupt -3% devaluation, the renminbi has reverted to a remarkably narrow trading range against the US dollar. However, this rediscovered stability does not reflect any market belief that the renminbi is now appropriately valued following its modest fall.

On the contrary, it is the result of heavy intervention by the People’s Bank of China to keep the onshore spot rate steady at around CNY6.4 to the US dollar. In the near term, this fits with policymakers’ assertions that China’s exchange rate adjustment is complete (last week Premier Li Keqiang reiterated this stance, telling a delegation from Kazakhstan that the renminbi will not see “sustained depreciation”).

In the longer run however, repeated intervention to maintain the currency’s stability is at odds with the “more flexible exchange rate mechanism” the central bank announced just three weeks ago. This contradiction casts doubt over the PBOC’ s intentions: whether it is serious about moving to a more flexible currency regime, or whether it has simply re-imposed a de facto peg at a different level against the US dollar. As we see it, the central bank has three options: 1. Continued intervention to maintain exchange rate stability. The objective of this strategy would be to reduce market expectations for further deprecation, as participants betting on further renminbi weakness capitulate in the face of the PBOC’s superior firepower. If successful, the PBOC could scale back its interventions, allowing the renminbi more leeway to float freely. The risk for the PBOC would be if its interventions fail to overcome depreciation expectations. In that case, it would have achieved little or nothing by last month’s move, which would neither have

www.marcuardheritage.com

advanced exchange rate reform, nor introduced the greater degree of volatility the International Monetary Fund is demanding as a condition for the renminbi’s inclusion in the Special Drawing Rights basket. What’s more, failure would be expensive. With China’s capital account more open than in the past, and the central bank easing policy at home, intervention to maintain exchange rate stability is getting increasingly costly.

As daily turnover in the onshore spot market has shot up from US$15 bln to US$50 bln over the last few weeks, traders estimate that the PBOC and its agents have spent between US$100 and US$150 bln of China’s foreign reserves to maintain the renminbi’s exchange rate. Of course, with US$3.7 trln in reserves, in theory the central bank can go on intervening for years to come. However, policymakers will gain little by running down China’s reserves at a pace of US$150 bln a month. As a result, while the PBOC may adopt a strategy of continued intervention in the near term, say through President Xi Jinping’s visit to the United States later this month, it is not a viable course of action over the long term.

2. Cease intervention and allow a sizeable devaluation. A large one-off move could have the merit of curtailing expectations for further depreciation.

Following a -10% or -15% fall, significant renminbi buying interest would emerge, avoiding the feedback loop of capital outflows that would accompany a gradual depreciation. However, the costs entailed by such a strategy would be considerable. China’s leaders have repeatedly rejected the notion of competitive devaluation, so a large oneoff depreciation would be a diplomatic disaster, wrecking Beijing’s currency credibility.

Moreover, a big one-off devaluation would inflict severe damage on the balance sheets of those Chinese companies, including many state-owned enterprises, which have borrowed in US dollars without hedging their exchange rate risk.

3. Scale back intervention and allow a gradual depreciation. Chinese policymakers prefer to move gradually whenever possible. Both interest rate liberalisation and capital account opening were pursued one step at a time, and when the consensus argued that the renminbi was deeply undervalued, the central bank only allowed a gradual appreciation. A gradual depreciation now would avoid inflicting a major shock on the economy, and so would be politically acceptable. However, there would be risks. A slow and protracted slide in the currency could heighten expectations for further depreciation to come, so fuelling self-reinforcing capital outflows—the opposite of the inflows attracted by the renminbi’s long years of slow appreciation.

Each strategy has risks. The current “peg and intervene” approach can work for a month or two, but can only be a stop-gap policy. The best outcome for the PBOC would be if its interventions allayed depreciation expectations and renminbi buyers re-emerged. However, that looks farfetched. Of the other two options, a gradual depreciation looks more likely than a one-off devaluation, not because of its economic merits, but because it is politically more acceptable and because experience argues for a gradualist approach. The risk is that it will just reinforce depreciation expectations.

What the PBOC really needs at this point is a weaker US dollar, but that of course, is beyond the reach of its policymaking.

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

17250 1.5361 1.7356 23.976 6.6236 13.8874 1.1267 2.355 278.95 0.62378 3.0644 0.381 19.19 8.3018 3.7579 3.939 65.0218 8.4273 0.9637 21.8

AUD CAD HKD INR JPY KRW NZD SGD

0.7087 1.3158 7.75 66.355 120.13 1171.39 1.5737 1.411

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

0.3772 7.8037 29856.00 3.9234 0.7080 0.3020 1508.00 0.3850 3.6390 3.7504 13.3301 3.6728

AZN KZT TRY

1.0465 241.01 2.9159

AMERICAS & PACIFIC

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

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

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

Investments in foreign currencies are subject to exchange rate fluctuations.

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

ASIA

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira Note:

The Financial Markets

* USD per National Currency

Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

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

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.20 0.51 -0.11 0.05 -0.79

0.27 0.54 -0.06 0.08 -0.76

0.33 0.59 -0.03 0.09 -0.73

0.52 0.75 0.05 0.13 -0.68

0.83 1.05 0.16 0.24 -0.57

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.81 1.02 0.09 0.13 -0.71

1.09 1.23 0.17 0.14 -0.63

1.33 1.40 0.28 0.17 -0.51

1.53 1.54 0.40 0.22 -0.39

1.84 1.74 0.65 0.34 -0.11

2.12 1.91 0.99 0.55 0.19

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1551 0.8657

100 JPY

1.5794

1.0624

0.8365

1.3673

0.9197

0.7242

0.6726

0.5297

0.6332

0.7314

0.9413

1.0873

1.4867

119.54

138.08

188.80

0.7874 126.99

Weekly movement of USD

CCY

Today

137.20

GBP EUR JPY

1.0728

CHF

1.5794 1.1551 119.54 0.9413

CCY\Date

21.07

28.07

04.08

11.08

25.08

USD GBP JPY CHF

1.0766

1.1022

1.0886

1.0915

1.1494

0.6916

0.7078

0.6980

0.7011

0.7286

133.78

136.04

134.85

136.02

1.0371

1.0589

1.0546

1.0739

Last Week %Change 1.5706 1.1060 124.27 0.9763

-0.56 -4.44 -3.81 -3.58

September 2-8, 2015

16 | WORLD | financialmirror.com

A tale of two theories

By Jean Pisani-Ferry Global growth disappoints again. A year ago, the International Monetary Fund expected world output to rise 4% in 2015. Now the Fund is forecasting 3.3% for the year – about the same as in 2013 and 2014, and more than a full percentage point below the 2000-2007 average.

In the eurozone, growth in the latest quarter was underwhelming. Japan has returned to negative territory. Brazil and Russia are in recession. World trade has stalled. And China’s economic slowdown and market turmoil this summer have created further uncertainty.

True, there are bright spots: India, Spain, and the United Kingdom are beating expectations. The United States’ recovery is solid. Africa is doing well. But, overall, it is hard to deny that the global economy lacks momentum.

This is partly because trees cannot grow forever: China’s economy could not continue to get 10% bigger every year. And in part, it is because growth is not unconditionally desirable: Citizens may be better off with a little less of it, and more clean air.

But many countries are still poor enough

The world’s top cities for female entrepreneurs Where in the world are women most likely to found a business? According to the Global Startup Ecosystem Ranking 2015, the number of female entrepreneurs is now significantly higher than in previous years. Even so, it is much lower than the number of men starting new businesses. In 2012, approximately 12% of global startups had a female founder and this increased to 18% in 2015.

When it comes to the top global cities for female entrepreneurs, four of the top ten are in the United States. Chicago grabs top spot with women accounting for 30% of new startups. Boston is close behind with 29%. Silicon Valley and Los Angeles come third and fourth with 24 and 22%, respectively. (Source: Statista)

to be endowed with strong growth potential, and many others, though rich, have not yet recovered from the global financial crisis. So there must be something else holding growth back.

There are essentially two competing explanations. The first, the Secular Stagnation Hypothesis, has been proposed

by Larry Summers. Its key premise is that the equilibrium interest rate at which demand would balance supply is currently below the actual interest rate.

This seems paradoxical, because interest rates are close to zero in most advanced economies. But what matters is the real rate of interest, that is, the difference between the market rate and inflation. Aggregate economic balance may require a negative real interest rate; but with inflation at an alltime low – the IMF expects it to be negative this year and next in the advanced economies, and zero in the emerging economies – this is not feasible.

There are several reasons why the equilibrium interest rate could have reached negative territory. Some are structural: saving is high globally, especially in Asia but also in Europe, where aging countries like Germany put money aside for retirement. At the same time, the new digital economy is less capital-intensive than the old brick-andmortar economy. This may be accentuated in the future by the advent of the so-called sharing economy.

Other factors are temporary. In several countries, debt-financed housing booms have left households and companies overleveraged; and governments have reduced deficits to contain their own debt. As a result, there are likely to be too few investors and too many savers.

The Secular Stagnation Hypothesis is worrying, because it gives few reasons to believe that things will improve by themselves. True, debt deleveraging is not without limits. But it is impeded by slow growth and, thanks to high unemployment and weak global demand, persistently low

inflation. Worse, over the longer term, low investment undermines productivity, while protracted unemployment destroys skills.

Both reduce future potential growth.

A vicious circle, it seems, is at work. The way to break it, according to Summers, is to sustain monetary stimulus and boost demand aggressively through fiscal policy.

The alternative explanation for the persistence of weak global growth has been best formulated by the Bank for International Settlements, an organisation of central banks. The BIS maintains that excessively low interest rates are a big reason why growth is disappointing.

This explanation may seem even more paradoxical than the first, but the logic is straightforward: Governments often try to escape the hard task of improving economic efficiency through supply-side reforms and rely on demand-side fixes instead. So, when confronted with a growth slowdown caused by structural factors, many countries responded by lowering interest rates and stimulating credit.

But cheap credit promotes bad investment and excessive debt, which borrowers often are unable to repay. More fundamentally, investment is a bet that cannot pay off if growth is structurally depressed. Artificial growth promotion only ends in tears.

Furthermore, the BIS claims that credit may well aggravate structural deficiencies.

Housing bubbles and investments in dubious projects result in a waste of resources and a misallocation of capital that ultimately dampens potential growth. The best example is perhaps Spain in the 2000s, where students left university before graduating to take part in the real-estate frenzy. Amassing useless concrete and losing human capital, the country lost twice.

So here, too, the logic points to a vicious circle: Slower growth leads to artificial remedies and further erosion of long-term growth potential.

The BIS argues in favor of fiscal restraint,

debt restructuring if needed, and swift normalization of monetary policies – quite explicitly criticizing the US Federal Reserve’s caution and the European Central Bank’s aggressive stance.

Both theories are internally consistent.

Both also fit only some of the facts.

The Secular Stagnation Hypothesis accounts well for the mistakes made in the eurozone in the aftermath of the global recession, when sovereigns attempted to deleverage while companies and households were unwilling to spend, and the ECB was keeping monetary policy relatively tight. The BIS’s explanation reads like a summary of the woes of China, where growth has slowed from 10% to 7% or less, but the authorities still push investment amounting to almost half of GDP and promote all sorts of lowreturn projects.

So which theory fits the facts better globally? So far, it is odd to claim that advanced countries have stimulated demand excessively. Persistently low employment and near-zero aggregate inflation do not suggest that they have erred on the side of profligacy. True, financial recklessness remains a risk, but this is why regulatory instruments have been added to the policy toolbox. So the BIS’s call for across-theboard monetary normalization is premature (though this does not mean that reforms should wait).

In the emerging world, however, the mismatch between growth expectations and actual potential has often become a serious issue that demand-side stimulus and endless debt accumulation cannot cure. Rather, governments should stop basing their legitimacy on inflated growth prospects.

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

September 2-8, 2015

financialmirror.com | WORLD | 17

The countries shrinking fastest worldwide A recent report by the United Nations projected that the world’s population will reach 9.7 bln in 2050 before topping 11.2 bln in 2100. However, it is easy to forget that some countries are not growing at all. The World Economic Forum put a list of the fastest shrinking countries together, using World Bank population data.

Even though it is technically an unincorporated U.S. territory, Puerto Rico comes first, having experienced a population drop of 1.3% or 47,442 people between 2013 and 2014. Latvia comes second with a 1.1% drop while Lithuania is in third place having experienced a 1.0% fall during the same period.

A falling population can usually be attributed to emigration and/or death rates exceeding birth rates. (Source: Statista)

The future is (getting) old

By Brigitte Miksa The aging of our societies is one of the greatest success stories of the twentieth century. More than three decades have been added to the lives of hundreds of millions of people over the last hundred years. This is an accomplishment well worth celebrating; but we must also bear in mind that with increased longevity come significant long-term economic consequences – and that many societies are aging at a record speed.

Last year, the OECD warned that the world was aging at an unprecedented rate and that this could help slow global annual economic growth from an average of 3.6% this decade to about 2.4% from 2050 to 2060. OECD countries in particular will be hit by a double demographic shock. Not only will their societies be rapidly aging; diminishing income gaps between rich countries and emerging economies are likely to slow immigration flows, shrinking the workforce by 20% in the eurozone and 15% in the United States.

Demographic researchers divide countries into four categories, according to the share of the over-65 population: young (less than 7% aged 65 or over), aging (7-13%), aged

(14-20%), and super-aged (more than 21%). Today, just three countries – Germany (21%), Italy (22%), and Japan (26%) – qualify as super-aged societies. In the next five years, they are expected to be joined by Bulgaria, Finland, Greece, and Portugal. In the following decade, Europe will continue to age, with another 17 countries, including Austria, France, Sweden, and the United Kingdom, expected to become super-aged, along with Canada, Cuba, and South Korea.

During this period, the challenges of rapid societal aging will confront mainly the developed world. But, by 2040 some 55 countries will be struggling to manage an older population, with the US, China, Singapore, Thailand, and Puerto Rico joining the ranks of the super-aged.

What makes the phenomenon even more remarkable is the speed at which these transitions are taking place. When France went from being a young country to an aging one in 1850, slavery was still legal in the US, the light bulb had yet to be invented, and Germany had yet to become a unified country. It took another 130 years, for the country to become an aged society in 1980. France is expected to become superaged in 2023.

For many years, Japan was considered to have the most rapidly aging population on earth. It went from having the youngest population among G-7 countries in the early 1960s to being the world’s oldest country in 2008. But if current projections hold true, several countries will accomplish a similar transformation a decade faster.

Indeed, today the world’s most rapidly aging country is South Korea, which became an aging society in 1999, is expected to become an aged one in 2017, and will be a superaged one in 2027. In other words, South Korea will undergo in less than three decades a transformation that will have taken France nearly 175 years. And while South Korea may be getting old the fastest, it leads a closely bunched group of countries that includes Bangladesh, Singapore, Thailand, and Vietnam.

Iran, still categorised as young, is another contender for the title of fastest-aging country. Aging is a product of rising life expectancies and falling fertility rates. The speed of the decline in fertility rates has been dramatic around the world; in Iran, it has been nothing less than astonishing, dropping from seven children per woman in 1984 to 1.9 in 2006. This will certainly have long-term consequences as the workingage population declines and the elderly population soars. Iran

is expected to stay young until after 2020, but could then become super-aged less than 30 years later.

And yet, whatever the adverse economic impact of aging, it is important to consider the alternative. Countries such as Sierra Leone, Lesotho, Central African Republic, and Zimbabwe have among the lowest life expectancies on the planet. They face many challenges – famine, corruption, conflict, lack of access to clean water and education, AIDS, and Ebola – but rapid societal aging is not one of them. A rapidly aging population may be a problem, but, overall, it is a pretty good problem to have.

Brigitte Miksa is Head of International Pensions at Allianz Asset Management. © Project Syndicate, 2015 www.project-syndicate.org

September 2-8, 2015

18 | WORLD | financialmirror.com

How safe substances become dangerous

By Henry I. Miller Since the development of the science of toxicology in the 16th century, its guiding principle has been that “the dose makes the poison.” It is a rule that applies to the medicines used by patients worldwide many billions of times a day. The right dose of aspirin can be a therapeutic godsend, but consuming too much can be lethal. The principle even applies to foods: large amounts of nutmeg or licorice are notoriously toxic.

The risk that a substance poses broadly depends on two factors: its inherent capacity to cause harm and one’s exposure to it. It is a simple idea, but even some presumptive professionals seem unable to grasp it – as evidenced by the decision by the International Agency for Research on Cancer (IARC), a component of the World Health Organisation, to classify the commonly used herbicide 2,4-D as “possibly carcinogenic to humans.”

When it comes to herbicides, the IARC seems to be on a losing streak. The organisation recently classified glyphosate, another popular herbicide, as “probably” carcinogenic, a conclusion at odds with those of regulatory agencies around the world.

Similarly, not a single governmental agency has deemed 2,4-D a carcinogen. Earlier this year, the United States Environmental Protection Agency (EPA) concluded that “based on weight of evidence consideration of the available data, 2,4-D would be classified as ‘Not Likely to be Carcinogenic to Humans.’” The European Food Safety

Authority also recently concluded that “2,4-D, as currently manufactured, is unlikely to have a genotoxic potential or pose a carcinogenic risk to humans.”

The decision by the IARC to classify substances like 2,4-D and glyphosate as potentially harmful is likely to cause alarm among farmers and consumers, who will wonder about the appropriateness of its continued use in commercial agriculture or gardening. This would be a shame, because these are highly effective and widely used herbicides, and when the IARC makes its decisions, it does not consider whether the substance in question is actually likely to cause cancer in the real world. Its panels do not assess whether a chemical will cause cancer – only if it is capable of causing cancer.

As a result, the IARC has in the past classified aloe vera, acrylamide (a substance created by frying foods, such as French fries and potato chips), cell phones, working night shifts, Asian pickled vegetables, and coffee as “probable” or “possible” carcinogens. This is because it ignores the dosage, failing to consider the likelihood of coming into contact with enough of the substance to cause actual harm. In the case of coffee, for example, one would need to drink more than 50 cups a day, for an extended period of time, before any deleterious effects became likely.

Classifying 2,4-D as a cancer risk to humans ignores extensive research and analysis conducted by health authorities worldwide, including the United Nations WHO/FAO Joint Meeting on Pesticide Residue (JMPR). This body evaluates the risks of substances like 2,4-D, considering real-world variables such as the amounts in soil and nearby water, exposure to animals passing through treated fields, and the potential for direct human contact.

In reviews beginning in 1970, the JMPR has always found that when 2,4-D is applied correctly, it does not pose a health

threat to anyone or anything on land or water. This finding has been affirmed by numerous government agencies, including the European Food Safety Authority, the EPA, the US Department of Agriculture, and Health Canada.

When the IARC, which restricts its panels to consider only a narrow spectrum of selected publications, makes a mistaken decision, the effects are harmful. Its rulings give credibility to chemophobic activists looking for headlines and raise the likelihood that substances wrongly labeled as harmful will be replaced by other products that could pose greater risks or provide fewer benefits.

If products such as glyphosate and 2,4-D were to become unavailable, farmers would be forced to resort to other methods to control weeds – none of them as efficient.

Indeed, many of the alternatives would be more toxic or require more tillage, resulting in damaging soil erosion, increased CO2 emissions, decreased crop yields, greater production costs, and higher consumer prices.

Nor would the problem be limited to farmers. There are more than 100 prescribed uses for 2,4-D, including the control of invasive weeds on lawns, in forestry, and to enhance safety along highways, power line corridors, and rail lines. The process the IARC uses in coming to conclusions is not only scientifically wrong; it is harmful. Its decisions, which have wide exposure, pose the greatest risk to human and other animal life – at any dose.

Henry I. Miller, a physician, is the Robert Wesson Fellow in Scientific Philosophy and Public Policy at Stanford University’s Hoover Institution. He was the founding director of the Office of Biotechnology at the US Food and Drug Administration. © Project Syndicate, 2015 - www.project-syndicate.org

Taking the offensive against tuberculosis

By Gunilla Kallenius

Tuberculosis is one of the world’s deadliest diseases. In 2013 alone, it accounted for 1.5 million deaths, including one-fifth of adult deaths in low-income countries. Although the estimated number of people contracting TB annually is decreasing, the decline has been very slow.

And, given the increasing prevalence of multidrug-resistant TB, the trend could be reversed.

Nonetheless, the world now has a narrow window of opportunity to eradicate TB. Taking advantage of it will require the rapid development and dissemination of effective diagnostic tools, novel drug treatments, and innovative vaccines, in conjunction with efforts to ensure that health-care systems are equipped to deliver the right care. This will be no easy feat.

The good news is that the international community seems eager to act. The World Health Organisation’s post-2015 Global TB Strategy, which was endorsed by the World Health Assembly in May 2014, aims to eradicate TB by 2035. The Sustainable Development Goals, which will be formally adopted in September by the United Nations’ 193 member states, foresee achieving that objective five years sooner.

To stem the development and spread of drug-resistant TB requires a two-pronged global effort: ensuring early detection and adequate treatment of patients with drugsensitive TB, and finding new ways to treat patients infected with drug-resistant strains.

The problem is that existing tools for TB diagnosis, treatment, and prevention have

severe limitations.

For starters, there is no fast point-of-care diagnostic test for TB. In low-income countries, the dominant diagnostic method is sputum microscopy, an outdated approach that fails to detect TB in about half of all infected patients, with an even lower success rate for young children and patients coinfected with HIV. Indeed, no more than one in ten children with TB is diagnosed by sputum microscopy.

Moreover, for patients infected with multi-drug-resistant TB, treatment with the currently available drugs is successful only half the time, even under the best conditions. And the therapeutic process is tough, lasting at least two years and involving up to 14,600 pills and hundreds of injections – with severe side effects.

New TB drugs with novel mechanisms of action are badly needed, not only to treat multi-drug resistant TB, but also to shorten the treatment time for drug-sensitive TB. Here, there is some promising news: Bedaquiline recently became the first new TB drug to be approved by the US Food and Drug Administration in 40 years. But

Bedaquiline has yet to prove its capacity to treat drug-resistant TB effectively, and there are very few other candidates in the pipeline.

Similar problems arise in prevention. The Bacille de Calmette et Guérin (BCG) vaccine – the only one available for the disease, and the main pillar of TB prevention – is only partly effective.

Indeed, while it protects children from the worst forms of the disease, it does not protect anyone against the most common variant, pulmonary TB. As a result, it has done little to reduce the number of TB cases.

And, although several new vaccine candidates have passed preliminary clinical tests, BCG will remain the only available vaccine for years to come.

The challenges are clearly formidable.

But, with millions of lives at stake, backing down is not an option.

It comes down to research – a fact that the WHO global strategy recognises. But scaling up investment in diagnostic tools and treatments for TB costs more money than has been allocated. Of the estimated EUR 1.73 bln ($2 bln) that is needed annually for research and development, only

EUR 589 mln was invested in 2013.

Making matters worse, critical donor funding – provided by a very limited number of actors, mostly government agencies and philanthropic groups in OECD countries – fell by nearly 10% last year. At present, a single philanthropic donor, the Bill & Melinda Gates Foundation, supports more than 25% of research on new tools to fight TB. As for the private sector, pharmaceutical companies have been withdrawing from TB research, as part of a general trend away from anti-infective drugs toward the development of new drugs for chronic illnesses. Pfizer exited TB research in 2012, followed by AstraZeneca in 2013 and Novartis last year.

Closing the funding gap and ending the scourge of TB will require the involvement of more – and more diverse – donors. If the private sector is unwilling to do its part, it is up to governments to step in with a sustained commitment – manifested in direct contributions, as well as efforts to create the right incentives – to achieving the SDG target to which they have agreed.

In short, eradicating the TB epidemic presupposes efforts to ensure that healthcare systems are capable of delivering the right care. And the right care requires rapid development and dissemination of new tools, including quick point-of-care diagnostic tests, safe and fast-acting drugs, and an effective TB vaccine.

Gunilla Källenius is Professor of Clinical Science at Karolinska Institute, Solna, Sweden. © Project Syndicate, 2015. www.project-syndicate.org

September 2-8, 2015

financialmirror.com | WORLD | 19

America’s incarcerated economy Laura Tyson and Lenny Mendonca The United States has 5% of the world’s population and 25% of the world’s prison population – about 2.2 million people, five times as many as in 1980. One out of every 100 American adults is incarcerated – the highest per capita rate in the world, 5-10 times higher than in Western Europe or other democracies. The social and economic toll is similarly high.

The boom in America’s prison population in recent decades is the result of ramped up punitive crime-prevention measures, including tougher drug penalties and mandatory minimum sentences, backed up by growing numbers of police and other law-enforcement officials. Beyond the financial costs of larger police forces and increased pressure on the judicial system is $60 billion a year in spending on state and federal prisons, up from $12 billion 20 years ago.

And then there are the huge costs for those imprisoned (many for non-violent crimes) and for their families and communities – costs that fall disproportionately on the poor, the uneducated, African-Americans and Latinos, and the mentally ill.

Perhaps the worst part is that the expected benefits of America’s “get tough” approach have failed to materialise.

Indeed, there is only a modest correlation between higher incarceration rates and lower crime rates.

Moreover, the recidivism rate is shockingly high: according to a recent US Department of Justice report, more than one-third of released prisoners were rearrested within six months, and more than two-thirds were rearrested within three years. In order to reduce the size of the prison population, the recidivism rate must drop.

Of course, this is a complex problem. Released inmates face huge barriers to employment, housing, health care, and education. At least half face the added challenge of mental health and addiction issues. Yet very few have support networks to navigate re-entry to society.

Clearly, a new approach is needed – one that capitalises on the comparative advantages of the private sector, state authorities, and the federal government.

The federal government should rely on “progressive federalism” to catalyse and fund state-level programs to combat recidivism. Many of these programs can be based on pay-for-performance contracts, such as social impact bonds,

Where fathers receive the most paternity leave According to the World Economic Forum who used data based on an OECD report, South Korea and Japan offer dads the most paid paternity leave - about 52 weeks each. However, due to the cultural perception that raising a child is primarily a mother’s task, very few fathers actually avail of the generous leave on offer. In Sweden, 89% of men take paternity leave while less than 2% take time off in South Korea and Japan. Globally, 70 countries now provide paid paternity leave for fathers. In countries where paternity leave is short and well paid, more dads tend to take the opportunity to use it. (Source: Statista)

in which the federal and state governments share risk with private-sector actors.

Social impact bonds, or SIBs, require that private investors and other non-government actors cover most or all of the upfront cost of a pilot project, to be reimbursed by the contracting government agency only if independent evaluators conclude that the project achieves its goals and saves taxpayers money. The world’s first SIB, launched in the United Kingdom in 2010, focused on reducing recidivism rates among 3,000 prisoners at Her Majesty’s Prison Peterborough in Cambridgeshire, and showed promising results.

The first American SIB, aimed at reducing recidivism among juvenile inmates at New York City’s Rikers Island Correctional Facility, was not so effective. Indeed, last month, independent evaluators concluded that the programme had not met New York City’s targets.

But, far from being a failure, the Rikers Island project validated the pay-for-performance approach. New York City did not have to foot the bill for the failed effort, but officials gained valuable knowledge about what does and does not work. Based on this experience, another US firm is developing a SIB for a different recidivism project run by New York State.

In fact, many state-level pilot projects – some based on pay-for-success deals – to reduce recidivism are underway across the country. New York State and Massachusetts have launched statewide pay-for-success experiments. Minnesota and Texas have run pilot projects with promising results.

Georgia, using a $6 million grant from the Department of

Justice, is financing 15 separate pilot programmes that range from job-training and housing-support services for released prisoners to faith-based “inreach” programs for those still in prison.

These state projects collectively amount to a form of crowdsourcing – an effective method of testing a wide variety of innovative ideas, which can then be scaled up if they prove successful. In this sense, state and local governments are serving as “laboratories of democracy.”

This is where progressive federalism comes in. The federal government can work to sharpen and reinforce state efforts by providing funding and encouraging best practices, while avoiding imposing any ideology on the projects. The federally assisted pilot projects to combat recidivism in Georgia, for example, reflect both “liberal” and “conservative” strategies, supported by Democrats and Republicans, respectively.

Democrats want an active government that solves tough social problems, whereas Republicans want privatesector investment and innovation to do the job. But both parties like the idea of testing rival strategies in the real world, as evidenced by bipartisan support in Congress for a new federal fund to support pay-for-performance projects on a wide range of social problems, including health care, child care, and job training. The combination of pay-forperformance contracts and progressive federalism seems to meet both sides’ requirements.

The Violent Crime Control and Law Enforcement Act of 1994 – which provided funding for states to put more police on the beat, impose tougher prison sentences, and build more prisons – was an example of how the federal government can encourage action by state and local authorities. A new federal crime bill, incorporating pay-forsuccess contracts, could encourage states to take a smarter approach to crime, reducing mandatory prison sentences and investing in effective anti-recidivism programs. Such an approach would reduce incarceration and recidivism rates – and drastically cut the onerous social, economic, and moral costs of imprisonment.

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

September 2-8, 2015

20 | BACK PAGE | financialmirror.com

Cheap oil and global growth

By Anatole Kaletsky Violent swings in oil prices are destabilising economies and financial markets worldwide. When the oil price halved last year, from $110 to $55 a barrel, the cause was obvious: Saudi Arabia’s decision to increase its share of the global oil market by expanding production. But what accounts for the further plunge in oil prices in the last few weeks – to lows last seen in the immediate aftermath of the 2008 global financial crisis – and how will it affect the world economy?

The standard explanation is weak Chinese demand, with the oil-price collapse widely regarded as a portent of recession, either in China or for the entire global economy. But this is almost certainly wrong, even though it seems to be confirmed by the tight correlation between oil and equity markets, which have fallen to their lowest levels since 2009 not only in China, but also in Europe and most emerging economies.

The predictive significance of oil prices is indeed impressive, but only as a contrary indicator: falling oil prices have never correctly predicted an economic downturn.

On all recent occasions when the price of oil was halved – 1982-1983, 1985-1986, 19921993, 1997-1998, and 2001-2002 – faster global growth followed.

Conversely, every global recession in the past 50 years has been preceded by a sharp increase in oil prices. Most recently, the price of oil almost tripled, from $50 to $140, in the

year leading up to the 2008 crash; it then plunged to $40 in the six months immediately before the economic recovery that started in April 2009.

An important corollary for commodityproducing developing countries is that industrial metal prices, which really are leading indicators of economic activity, may well increase after an oil-price collapse.

In 1986-87, for example, metal prices doubled a year after oil prices fell by half.

A powerful economic mechanism underlies the inverse correlation between oil prices and global growth. Because the world burns 34 billion barrels of oil every year, a $10 fall in the price of oil shifts $340 bln from oil producers to consumers. Thus, the $60 price decline since last August will redistribute more than $2 trln annually to oil consumers, providing a bigger income boost than the combined US and Chinese fiscal stimulus in 2009.

Because oil consumers generally spend extra income fairly quickly, while governments (which collect the bulk of global oil revenues) usually maintain public spending by borrowing or running down reserves, the net effect of lower oil prices has always been positive for global growth.

According to the International Monetary Fund, the fall in oil prices this year should boost 2016 GDP by 0.5-1% globally, including growth of 0.3-0.4% in Europe, 11.2% in the US, and 1-2% in China.

But if growth is likely to accelerate next year in oil-consuming economies such as China, what explains plunging oil prices?

The answer lies not in China’s economy and oil demand, but in Middle East geopolitics and oil supply.

While Saudi production policies were clearly behind last year’s halving of the oil

price, the latest plunge began on July 6, within days of the deal to lift international sanctions against Iran. The Iran nuclear deal refuted the widespread but naïve assumption that geopolitics can drive oil prices in only one direction. Traders suddenly recalled that geopolitical events can increase oil supplies, not just reduce them – and that further geopolitics-driven supply boosts are likely in the years ahead.

Conditions in Libya, Russia, Venezuela, and Nigeria are already so bad that further damage to their oil output is hard to imagine. On the contrary, with so many of the world’s most productive oil regions gripped by political chaos, any sign of stabilisation can quickly boost supplies. That is what happened in Iraq last year, and Iran is now taking this process to a higher level.

Once sanctions are lifted, Iran promises to double oil exports almost immediately to two million barrels daily, and then to double exports again by the end of the decade. To do this, Iran would have to boost its total output (including domestic consumption) to six million barrels per day, roughly equal to its peak production in the 1970s. Given the enormous advances in oil-extraction technology since the 1970s and the immense size of Iran’s reserves (the fourth-largest in the world, after Saudi Arabia, Russia, and Venezuela), restoring output to the levels of 40 years ago seems a modest objective.

To find buyers for all this extra oil, roughly equal to the extra output produced by the US shale revolution, Iran will have to compete fiercely not only with Saudi Arabia, but also with Iraq, Kazakhstan, Russia, and other low-cost producers. All of these countries are also determined to restore their output to previous peak levels and should be able to pump more oil than they did in the

1970s and 1980s by exploiting new production technologies pioneered in the US. In this newly competitive environment, oil will trade like any normal commodity, with the Saudi monopoly broken and North American production costs setting a longterm price ceiling of around $50 a barrel, for reasons I set out in January.

So, if you want to understand falling oil prices, forget about Chinese consumption and focus on Middle East production. And if you want to understand the world economy, forget about stock markets and focus on the fact that cheap oil always boosts global growth.

Anatole Kaletsky is Chief Economist and CoChairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy. © Project Syndicate, 2015. www.project-syndicate.org

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