Financial Mirror 2015 09 09

FinancialMirror JOSEPH STIGLITZ

KENNETH ROGOFF

Fed up with the Fed

The art of capital flight

PAGE 18

Issue No. 1149 €1.00 September 9 - 15, 2015

PAGE 20

Shipping can contribute more MARITIME SECTOR CAN PLAY LEADING ROLE IN RECOVERY - SEE PAGES 10-11

Paphos still top choice for foreign property buyers

SEE PAGE 12

September 9 - 15, 2015

2 | OPINION | financialmirror.com

FinancialMirror

Paphos: the Cinderella of tourism

Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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Paphos harbour was once again transformed into an open stage over the weekend, where an audience of about 6,500 enjoyed three nights of opera in a truly unique environment, with the background sound effects of waves crashing onto the set’s centrepiece, the historic castle.

It was not just Rossini’s ‘Cinderella’ that was in the limelight this year, but a general overhaul of how the ancient Greco-Roman city of Agapinor, home to some of the finest mosaics, the landing place of Saint Paul (also visited by Pope Benedict) and the nearby birthplace and temple of Aphrodite will become European Capital of Culture for 2017, along with Aarhus, Denmark’s second largest city and half its age.

Mayor Phedon Phedonos, who inherited a dilapidated office marred by years of corruption, is trying his best to clean up the town and judging from the growing number of complaints, he must be doing a good job. The grumbling has been coming from those who knowingly have been breaking the law, but hid behind the excuse of “if no one did anything for 40 years, why should we now?”

The question is, “why not?”

First off was the demolition of illegal structures and expansion of businesses where they shouldn’t have. Next on his target list is to

try and bring order to the haphazard way with which licenses have been afforded to restaurants and bars. There are a number of commendable establishments, at affordable prices, but they shouldn’t pay for the mistakes of others.

The roads and pavements in some areas are non-existent, for reasons we all know too well about, arising from the recent scandals implicating public officials and sewerage contractors. The occasional sign saying “this road will be ready by XXXX” will go a long way to convince natives and holidaymakers, as well as the tour companies that send them Whereas Paphos has one of the most efficient and reliable bus networks, it needs to do more for other motorists, more than half of whom are tourists or long-stay visitors.

The government has pledged to support the town when it stages the 2017 cultural festival.

But it should not wait that long. President Anastasiades announced funding for a host of infrastructure projects, but the town needs a major cash injection, and fast, as hosting the culture capital is less than a year and half away, which in planning terms is just around the corner.

The European Capital of Culture for 2017 must (and will) succeed as it will be the first time after the 2013 economic crash that Cyprus will show a fresh face, one that will help attract more tourists to the whole of the island and even investors in the longer term.

THE FINANCIAL MIRROR THIS WEEK November now expected to be written off. Meanwhile, Greek and U.S. experts into the crash near Athens airport are said to be focusing their inquiry on the Boeing 737-300’s compression system.

EIU ups forecast: The Economist Intelligence Unit marginally raised its forecast for growth to 3.8% for 2015, compared with 3.7% in 2004, based on higher inflation levels of 2.3% from an increase in oil prices and their impact on consumer

prices. Fiscal performance seems to be improving as both the fiscal deficit and public debt as a percentage of GDP are expected to fall on improved tax collection and an effort to reduce public spending.

Zodia crossing: Turkish Cypriot leader Mehmet Ali Talat said that the Bostanci (Zodia) crossing will open, having criticised the Greek Cypriot side for delaying the opening for over a year.

Egyptian comedy: The cast of an Arabic television drama starring prominent Egyptian actors were chased by Cyprus police, believing that the guns used in a “mafia hit” scene were real. The crew were later allowed to continue, but only after embarrassing Cyprus’ image throughout the Middle East media.

Zivanaris claimed that LogosNet “had acted illegally” by launching its service three weeks ahead of Cytanet’s own commercial operations.

Logos also attracted more than 100 new subscribers in a single day when it announced rates far below Cyta.

“Give us the keys”: Francoudi & Stephanou boss Nicos Stephanou, marking the company’s centenary, called for the state to hand over the keys to Limassol port so that the private sector could improve business after major container companies

announced they were pulling out of Cyprus due to high costs and inflexible working hours. (Ed’s Note: It took the government 20 years to realise that something was totally wrong).

Christis increases share: Christis Dairies was continuing on its path of increasing market share, with local sales of fresh milk and exports of cheese and halloumi expected to break past the CYP 10 mln mark for the first time, making it the leading dairy company on the island.

Can CAIR survive? In an opinion piece, the troubled national carrier was criticised for objecting to the government granting alternative licenses to operators such as Air Malta, as part of the Europewide “open skies” competition, as it was afraid of losing its coveted monopoly and justifying the highlypaid staff and officials. A comment written by a soothsayer, perhaps?

10 YEARS AGO

Crash investigations, growth at 3.8% Aviation experts were trying to pinpoint the cause of the Helios crash on August 14 that killed all 121 people on board, while the EIU issued a forecast of 3.8% growth for the economy, according to the Financial Mirror issue 635, on September 7, 2005.

Helios probe: Libra Holidays Group, parent of Helios Airways, issued a negative profit warning, with the goodwill paid for the full acquisition in

20 YEARS AGO

LogosNet cut, port privatisation plea The Internet war was well underway with statecontrolled Cyta cutting off vital lines to LogosNet, the new alternative provider owned by the Church, while Francoudi & Stephanou said it wanted the keys to help improve Limassol port, according to the Cyprus Financial Mirror issue 126, on September 6, 1995.

Internet wars: Cyta cut off specific telephone lines, suspending the th provision of access by individuals to LogosNet, the Church-owned TV and radio station that launched the island’s second Internet service last week. Cyta Chairman Michalakis

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September 9 - 15, 2015

financialmirror.com | CYPRUS | 3

Economy recovers after 3-year recession HICP falls -1.9% in August for 9th month in a row

The economy recorded a positive growth rate for the second quarter in a row, suggesting that it has recovered from the three year recession in which it had plunged in the fourth quarter of 2011.

The Statistical Service Cystat published on Tuesday growth data according to which the economy grew during the second quarter by 1.2% compare to the same quarter of 2014, having already recorded a 0.2% growth rate in the first quarter of 2015.

The data confirms a flash estimate for GDP growth in the second quarter announced by Cystat on August 14.

This is the second quarter in a row the economy recorded growth after it cvontracted for 14 consecutive quarters.

Based on seasonally and working day adjusted data, GDP growth rate in real terms is estimated at +0.8%.

The flash estimate had forecast a growth of 0.9% in the second quarter.

Compared to the last quarter, GDP grew in the second quarter by 0.5%, confirming Cystat’s flash estimate.

Positive growth rates were recorded in manufacturing, trade, hotels and restaurants, transport, communication, the professional, scientific and technical activities and administrative and support service activities as well as the financial service activities. ¡egative growth rates were recorded in construction, electricity as well as the activities of households as employers.

Seasonally adjusted GDP rose by 0.4% in both the euro area and the EU28 during the second quarter of 2015,

compared with the previous quarter, according to a second estimate published by Eurostat.

In the first quarter, GDP grew by 0.5% in both areas.

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.5% in the euro area and by 1.9% in the EU28 in the second quarter of 2015, after +1.2% and +1.7%, respectively, in the previous quarter.

GDP increased in all member states, except France where it remained stable. The highest growth compared with the previous quarter was in Latvia (+1.2%), Malta (+1.1%), the Czech Republic, Spain and Sweden (all +1.0%), followed by Greece and Poland (both +0.9%), Slovakia (+0.8%), Estonia,

Croatia, Lithuania, Slovenia and the United Kingdom (all +0.7%). The lowest growth rates were registered in the Netherlands, Austria and Romania (all +0.1%).

Meanwhile, deflationary pressures continued for the ninth month in a row in August, having started in December 2014, according to the Harmonised Index of Consumer Prices published by Cystat.

Harmonised inflation fell in August by -1.9% compared to August 2014, when inflation was up by 0.8%.

July recorded a deflation of 2.4%.

During the first eight months of 2015, harmonised inflation was -1.6% compared to the same period of 2014.

€50 mln 30-day T-bills yield 1.31% The Finance Ministry has raised EUR 50 mln during a 30-day Treasry-bills auction on Tuesday, the Public Debt Management Office said.

“During today’s 30 Day Treasury Bills Auction, tenders for a total amount of EUR 120.5 mln were submitted, out of which 50 mln total nominal value have been accepted with a weighted average yield of 1.31%,” a press release said.

It added that “the accepted yields ranged between 1.10% and 1.42%.”

September 9 - 15, 2015

4 | CYPRUS | financialmirror.com

‘Lagarde list’ under tax scrutiny Finance Minister Harris Georgiades confirmed on Tuesday that the tax authorities have received data containing deposits of Cypriot individuals or entities held at HSBC in Switzerland, noting that this list is subject to “sophisticated scrutiny.”

“The tax authorities have received information about Cypriot depositors, included in this list, or other persons under a Cypriot address,” who may have allegedly failed to pay their tax dues, he said, confirming a report by daily “Politis” that Cyprus has received the so-called Lagarde list, a leaked list of deposits held in HSBC in Switzerland.

Noting that having a bank account abroad is not illegal and that the inclusion of a person in this list does not suggest that this person is a tax evader, Georgiades said that the tax authorities, as they do in all such cases, will check to see whether these deposits have been generated from income that has been taxed.

“In any case, this list will be subject to sophisticated scrutiny from the state’s tax authorities which, under the law, are the sole responsible bodies to process such information,” he added.

Responding to press questions, the Finance Minister said that if a person included in this list intends to pay his taxes this person will be subject to the provisions of the law, that is he will be obliged to pay the tax, as well as the penalties.

Furthermore, Georgiades said that he has not received or seen this list “given the political sensitivity that everyone understands.”

“The list has been given under certain

Trade deficit drops €93 mln in 1H The trade deficit fell by EUR 92.9 mln in the first six months of this year, mainly due to an increase in exports

by EUR 196.7 mln, according to the Statistical Service Cystat.

The trade deficit reached EUR 1,520.1 mln in JanuaryJune, compared to EUR 1,613.0 mln in the same period last year.

Total imports and arrivals, including all imports from third countries and other EU member states, reached EUR 2,498.2 mln compared to EUR 2,394.4 mln in the same period of the previous year.

Total exports and dispatches, including all exports to third countries and other member states, were recorded in January-June at EUR 978.1 mln compared to EUR 781.4 mln in January-June 2014.

In June, total imports and arrivals (imports from third countries and arrivals from other EU member states) reached EUR 446.6 mln, while total exports and dispatches (exports to third countries and dispatches to other EU member states), including stores and provisions, reached EUR 126.9 mln.

Exports of domestically produced goods, including stores and provisions, reached EUR 65.3 mln in June whilst exports and dispatches of foreign goods, including stores and provisions, were EUR 61.6 mln.

PwC Cyprus hosts 90 graduates, to join training programmes PwC Cyprus has welcomed 90 university graduates who will join the firm’s ACA and ACCA professional training schemes.

Evgenios Evgeniou, CEO of PwC Cyprus and Philippos

conditions stipulated in EU directives, it will be scrutinised by the those competent under the law to do so and it is not up to me or any other political person to examine, see or give any information on this list,” he explained, noting that these issues are confidential under the law.

He noted that if the Parliament wants to make this information public, they should amend the existing legislation which stipulates that these issues are governed by

confidentiality.

The leaked list containing deposits held by various nationals in HSBC in Switzerland has been dubbed the “Lagarde list,” as Christine Lagarde, then France’s Minister of Finance, was given in 2010 the list which includes deposits of Greek persons and companies in Switzerland to the Greek authorities.

Meanwhile, the Tax Department said it is processing the data to make the most of the information, according to Taxation Commissioner Yiannakis Lazarou.

The Lagarde list contains about 2,000 names with undeclared accounts at the Swiss branch of HSBC in Geneva.

Lazarou said that after communicating with the French tax authorities, the Cyprus Tax Department recently acquired the Lagarde list in accordance with a European directive for administrative cooperation in the area of taxation.

As he explained, the list was sent to the Department in digital form and it includes both natural and legal persons.

“The list is being processed so that we can make the most of the data therein”, Lazarou said.

Oil companies expect higher cost from move to Vasiliko Moving the oil companies’s storage facilities from the Larnaca seafront to the Vasilikio area will entail additional costs, representatives of the companies told the House Energy Committee, which convened in the presence of Energy Minister Yiorgos Lakkotrypis.

The companies did not exclude the possibility of a hike in fuel prices.

The Minister briefed the committee on the process of removing the petroleum facilities, pointing out that the state itself has moved its reserves, achieving even more reduced costs.

Speaking before the committee, the representatives of the oil companies said that there are technical difficulties in moving the facilities to Vasiliko, arguing that there will be increased costs that must be passed on to the consumer. The cost of moving, they stressed, should not be a deterrent.

However, the Minister noted that the prices the government has offered to companies for rent of land is

quite favourable and that the property held by the companies along the Larnaca seafront will gain value.

He added that if everyone shows goodwill, they will be able to maintain their costs at today’s levels.

The Minister also said that by the end of the month a report by experts on the effective control of fuel imports, the costs of companies and other related issues is expected to be concluded.

Moving the installations of oil companies to Vasiliko area should be concluded by the end of January 2017.

According to the Minister, everything seems to be on track, apart from some technical difficulties which will be overcome.

A Representative of the Department of Town Planning said that the planning process regarding the development of the area following the removal of the facilities has already begun and a presentation at the Larnaca municipal council is scheduled for October 12.

Soseilos, Head of Human Capital, welcomed the new members during an event in which they had the opportunity to learn more about the organisation and their training programme.

During the financial year ended on June 30, PwC had recruited over 170 people, including 70 university graduates who embarked on the firm’s 2014 ACA and ACCA professional training schemes.

The results achieved by PwC trainees in the professional examinations reflect the high quality of training offered, with pass rates being well above the international average. In addition, during the financial year 2015, seven trainee accountants of PwC achieved worldwide and all-Cyprus awards in the professional examinations of the Institute of Chartered Accountants in England and Wales (ICAEW) and the Association of Chartered Certified Accountants (ACCA).

September 9 - 15, 2015

financialmirror.com | CYPRUS | 5

Oil, gas and diplomacy Cyprus, Egypt and Israel up the ante in energy, trade and security relations

Egypt and Israel sent two new diplomats to Cyprus on Friday, just as the three neighbours are upping the ante in their energy, trade and security relations.

Cairo’s Ambassador Hussein Abdelkarim Tantawy Mubarak presented his credentials, a day after President Anastasiades and Abdel Fattah El Sisi had a telephone conversation to discuss energy cooperation, despite the recent discovery of an enormous offshore gasfield in Egyptian waters, the biggest in the eastern Mediterranean.

Some had feared that Italian ENI’s discovery of 30 trillion cubic feet (tcf) at the Zohr field, which is in close proximity to the border of Cyprus’ offshore Block 11, currently licensed to French oil giant Total, would upset negotiations to sell Cyprus gas to Europe via BG’s plant in Egypt.

Egyptian officials were quick to reiterate their good relations with Cyprus and that the two countries would maintain negotiations for future gas sales, not expected before 2018 or 2020.

The discovery within the Egyptian Exclusive Economic Zone (EEZ) also sent shivers down the backs of the Israelis, that had so far maintained the lead for the biggest discovery at the Leviathan gasfield, as the new supply could make future Israeli gas exports redundant as well.

But Egypt does not want to burn its bridges with its neighbours, at least not within the political turmoil and Islamic extremism that has swept across the Middle East. On the other hand, no matter the magnitude of the discoveries, Egypt’s growing population and economy will continue to make it a mainly net buyer of natural gas for domestic use.

Cyprus Government Spokesman Nicos Christodoulides said that the Anastasiades-El Sisi conversation focused on the fact that the Zohr discovery wil probably raise the importance of the region’s gasfields.

“It is our determination that we should develop cooperation at all levels.”

Presenting his credentials, Egypt’s Ambassador Mubarak said that Cyprus can be a bridge between the peoples on the north and the south of the Mediterranean and praised the support the island expressed after the 2013 revolution.

President Anastasiades said “we are witnesses to a robust bilateral relationship without precedent, which can be enhanced even further. You arrive in Cyprus at an interesting time.

“The realisation of the second Cyprus-Egypt-Greece Tripartite Summit Meeting, in Nicosia and the Declaration adopted at the level of the Heads of States, puts in practice the cooperation between our countries to achieve stability and prosperity in the region to the common benefit of our peoples.”

“Shortly, we expect that the expansion of this cooperation will be achieved,” he said, adding his congratulations for the hugely important discovery of a gas field offshore Egypt which will certainly transform the energy sector and have a decisive impact on the economy for the benefit of the Egyptian people.

“Undoubtedly, the said gas field is yet another proof of the

richness of the Mediterranean Sea in natural resources and has the potential of not only enhancing the existing cooperation between neighbouring countries in the hydrocarbon sector but also of creating new synergies between them for the benefit of their peoples and of the region as a whole.”

Presenting her credentials, Israel’s Ambassador RaviaZadok, a long-term director of the Middle East Desk at the Ministry of Foreign Affairs in Jerusalem said Cyprus’ unique location in the eastern Mediterranean, as well as its respected political leadership, may serve as a fertile ground to establishing a network of regional cooperation, in which Israel and Cyprus may play a leading role.

“Under the Cypriot leadership, we can create an enhanced regional cooperation on security, energy security, tourism and economic development, serving as an accelerator for stability in our region. Challenges of terror and Islamic extremism make this regional cooperation more relevant than ever before.”

In his response, President Anastasiades said that his visit to Israel and the follow-up visit of Prime Minister Netanyahu here in Nicosia, later in July, “reflect the special bond between our two countries. There are, of course, numerous other exchanges at different levels across the board and our officials consult frequently on a variety of issues.”

“The discovery of vast reserves of hydrocarbons in the eastern Mediterranean has the potential to transform our region, unleashing economic development and prosperity, and promoting peace and stability. Cyprus stands ready to fully cooperate with its neighbours to promote these goals.

Spokesman Christodoulides said that Anastasiades also had a meeting with Yitzhak Tshuva, the Director of Delek Drilling, a joint venture partner in the Cyprus Aphrodite gasfield and Israel’s Leviathan, and submitted the company’s development plan regarding the gasfields, exports and sales.

He said that Energy Minister Yiorgos Lakkotrypis will now

respond to the Delek plans so that substantial talks can now begin for the future utilisation of Cyprus natural gas exports.

Delek’s Yossi Abu told reporters that “we are committed to develop the Aphrodite Block with the same strategy that we have already submitted, basically to supply the Cyprus and Egyptian markets (with natural gas) in a quick an effective manner. We have already started the upstream process to these markets and we are in talks with potential buyuers of exported gas.”

Regarding noises from the opposition political parties, doubting the prospects from the gas fields in Cyprus waters and in the region, Christodoulides “the subject of energy if very important and calls for patience.”

Earlier in the week he and Lakkotrypis had talked about “significant news” in the energy sector, at a time when French Total had failed to find satisfactory gas reserves within its Cyprus EEZ license, while ENI had delayed future prospecting.

On Thursday, Lakkotrypis met with representatives of British Gas (BG), reportedly interested in obtaining gas from the Aphrodite prospect in Block 12, processing it at their LNG plant in Egypt and then re-exporting it to Europe.

The minister also said that BG is in contact with the Block 12 partners (Noble Energy, Delek and Avner) as well as with the state-owned Cyprus Hydrocarbons Company (CHC).

According to the Cyprus News Agency, the Block 12 consortium and CHC are in consultations with ten other organisations interested in the gas, including Union Fenosa, operators of the other LNG terminal in Egypt at Damietta.

Over the last few days, since the announcement of the Zohr find, the minister has been in frequent communication with his Egyptian counterpart, Sherif Ismail.

Both countries’ officials have stressed that the recent discovery does not negate Egyptian interest in Cypriot gas imports, although Ismail did indicate that the final decision rests with the oil and gas companies.

Joint action needed to IS provocations, Cyprus to host 274 refugees Cyprus Foreign Minister Ioannis Kasoulides told his counterparts taking part in an international conference for “Victims of Ethnic and Religious Violence in the Middle East”, in Paris, on Tuesday, that any reaction to provocations by Daesh (Islamic State) must be comprehensive.

More than 60 delegations, including the UN, the EU and other international organisations took part in the conference co-hosted by France and Jordan.

Addressing the conference, Kasoulides highlighted the need “for a comprehensive reaction to the Daesh provocations.” Referring in particular to the protection of cultural heritage, the Cypriot foreign minister shared Cyprus’ experience in this area.

Daesh’s goal is evident, he said, through the destruction and exploitation of cultural wealth it seeks on the one hand to destroy historic and cultural roots and on the other to ensure funding through the illegal trade of archaeological artefacts.

Kasoulides proposed the creation of a legal framework on the basis of a UN Security Council resolution placing the

burden of proof on the legal provenance of an artefact on the buyer and the seller.

Meanwhile, the UN High Commission for Refugees commended the Cypriot authorities for the prompt and successful search and rescue operation on Monday that saved the lives of 115 Palestinian and Syrian refugees fleeing the war in Syria.

Among those rescued were 42 children, some of whom travelling alone without their parents or relatives. Most of the refugees lost their belongings at sea and came ashore without shoes or additional clothing.

On Monday, the UNHCR said that refugees were placed at the tent camp in Kokkinotrimithia, while three families with special needs were taken to the more appropriate reception centre at Kofinou village.

According to UNHCR, “while the authorities are doing their best to meet the immediate basic material needs of the rescued refugees at the Kokkinotrimithia camp, the tent facility does not, and cannot, offer reception conditions in accordance with common EU legislation”.

The UNHCR urged the government to place all the

rescued refugees in the Kofinou Reception Centre where the living conditions are generally better and is operating at less than half capacity.

So far this year, Cyprus received 1,025 asylum applications. This represents 0.2% of total applications filed in the EU, according to the UNHCR. On the basis of a proposed plan by European Commission President Jean – Claude Juncker for distribution of refugees to EU member states, Cyprus should host a total of 274 refugees.

In his State of the Union address in Strasbourg, on September 9, Juncker is expected to present his plan on how to deal with the refugee crisis, sources said. The Juncker proposal is expected to include the plan for distribution of 120,000 refugees from Greece, Italy and Hungary the three most affected countries to the other EU countries.

The proposal is likely to provide that France and Germany host the majority of refugees, 24,031 and 31,443 respectively, followed by Spain (14,931) and Poland (9,287).

Malta will be asked to host the smallest number of 133 and Estonia to 373.

September 9 - 15, 2015

6 | CYPRUS | financialmirror.com

‘Public will be informed on issues agreed at peace talks’ President Nicos Anastasiades briefed parliamentary party leaders on Tuesday on the various issues reviewed during the ongoing UN-led peace talks, assuring at the same time that when issues are agreed at the negotiating table, the public will be promptly informed.

At the same time, the two communities’ chief negotiators, Andreas Mavroyianis and Ozdil Nami, concluded another day of talks on determining the criteria for property compensation or return, prior to the two leaders’ meeting next week.

In his remarks to reporters after the party leaders’ meeting at the Presidential Palace, government spokesman Nikos Christodoulides said President Anastasiades “presented a comprehensive and most detailed briefing as to where we are right now on the various issues that are being discussed at the negotiating table”.

He said the President replied to questions by the leaders or representatives of the parliamentary parties.

“The negotiation is of course an evolving process, we still have a long way to go in this effort. On our part, we remain committed to the need for hard work and

Chamber leaders highlight benefits of a solution The leaders of the Greek Cypriot and Turkish Cypriot chambers of commerce have highlighted the economic benefits of a solution during a joint interview.

Cyprus Chamber of Industry and Commerce (KEVE) President Phidias Pilidis, and Turkish Cypriot Chamber of Industry (KTTO) Chairman Fikri Toros told the Turkish Cypriot Bayrak radio station that the cooperation between the two chambers had played an important role towards building peace on the island.

Pilidis said resolving the Cyprus issue would benefit all sectors of the economy and that the island would become a major investment centre in the region.

He estimated that per capita income would increase 70% in 20 years.

Toros said the benefits “would be immense”.

“One cannot expect to compete in an environment of political instability. With reunification, the island will become a centre of economic prosperity,” he said.

Meanwhile, Finance Minister Haris Georgiadis emphasised that huge opportunities and perspectives will emerge with the reunification of Cyprus both in local and international levels on economy.

Speaking to the daily Politis, Georgiadis said: “I will only say one thing, Turkey has the 18th largest economy in the world and it is right beside us” and added “a solution will provide opportunities to access Turkish markets “ Furthermore, Georgiadis said, “we will evaluate our participation in Europe together with the Turkish Cypriots; our excellent geographical position and the advantages of our economy”.

The Minister indicated that new investment opportunities, cooperation and partnerships will be established. He also added that solution of the Cyprus problem and the establishment of economic and commercial relations with Turkey will expand their perspectives such as maritime, service, tourism and energy sectors.

negotiation, in order for those conditions to be created that will allow us to have a positive outcome towards the direction of achieving what I would call, the common goal, which is none other than ending the occupation and reunifying our homeland.”

Regarding the issue of property and the criteria pertaining to it, the spokesman repeated the Greek Cypriot

side’s position that “the lawful owner has the first say in the property”.

He urged everybody not to make assumptions on issues that are on the negotiating table.

He said the President has made it clear to all parliamentary parties that they can be informed at any time by the negotiator on the documents on the negotiating table and anything exchanged between the two sides.

“We have some distance to go. If there are conditions that lead to the conclusion of some important issues, of course, the President will immediately make relevant statements” on the matter, the spokesman added.

He emphasised that the President will not present to the people of Cyprus a plan which he himself does not agree with or which does not correspond to the peoples’ expectations.

“We hope to reach a solution and rest assured that the necessary time will be given so that the Cypriot people, who will have the final say and will vote on its provisions, will not have the slightest doubts (as to its contents),” Christodoulides added.

‘Solution will benefit both sides’ of Cyprus Photiades in ‘humble appeal’ to leaders to seize the moment Well known businessman Photos Photiades, founder of the Photiades Group of drinks companies, has appealed to both community leaders to sit down before entering substantial talks “and with a sound mind, determine with all honesty what it is that would benefit all of the people of Cyprus, in the longer term.”

Appealing to both Nicos Anastasiades and Mustafa Akinci, both of whom Photiades believes are genuine in their effort to reach a settlement, he said that they should see the real benefits and prospects that Cyprus could have, after a fair solution.

Cyprus, he said, could play a crucial geostrategic role and through a solution would gain the trust of the EU as a secure partner in the eastern Mediterranean and the Middle East, especially with countries that Cyprus already enjoys excellent relations.

“As a hub, Cyprus could become the golden bridge between EU member states and our neighbours and secure a leading role for our small nation. This is a realistic approach and after peace and stability settle in, Cyprus could become a sought-after international business centre for the whole troubled region,” Photiades said.

“Already the European Council’s Vice President and High Commissioner for Foreign Affairs Federica Mogherini highlighted this fundamental advantage that Cyprus has,” he said, adding that Commission President Jean-Claude Juncker “has repeatedly expressed his open support and his commitment to a genuine European-based solution.”

Photiades added that when such a solution is reached, Cyprus could also be recognised as an ideal place to host a major international, EU or UN organisation, due to its proximity to the troubled area.

He said, however, that such a solution could only come from a viable solution, with promises for a safe future, based on European principles and put an end to all sort of adventures that Cyprus could otherwise get into.

The veteran businessman, who set up the Carlsberg brewery in the early 1960s, said he has seen a lot of fear, darkness, instability and doubt all these years since independence, with a solution imposed on Cypriots that led to the continued pain and suffering of both peoples.

“On the contrary, a clear solution with a vision would allow Cyprus to undertake and develop its own independent role for the EU and its neighbours with the relevant rewards,” Photiades said, adding that the recent finds of hydrocarbons could transform it into one of the richest nations in the world, with some benefits even trickling back to the two guarantor powers, Greece and Turkey, instead of burdening them, as is the case today.

However, he warned that the two leaders, as well as the Turkish Cypriots in general, “who are also victims of the Turkish occupation”, should not disregard some historical facts, such as the Nihat Erim plan devised in the 1950s for the complete occupation of the island, which constitute the pillars of Turkish policy on the Cyprus issue.

“These reports continue to be the basis of Ahmet Davutoglu’s dogma, as appears with fanaticism in the ‘deep state’. For a proper solution to the Cyprus problem to get underway, Turkey must unequivocally declare that it has abandoned its ambitions and withdraw its troops and settlers,” Photiades said.

He added that the occasional talk among Turkey’s leaders for a quick solution, even within 2015, is not accompanied by any specific commitment for any withdrawal, which suggests that Turkey wants a solution based on its own terms.

“This is a golden opportunity that should not be lost by the two community leaders. A solution should ensure full independence and long-term security. This is the only way that all the residents of this island will eventually enjoy growth and prosperity,” Photiades concluded.

September 9 - 15, 2015

COMMENT | 7

Denmark advertises how bad it is to refugees Denmark’s immigration ministry published advertisements in Lebanese media aimed at discouraging migrants from coming to the country.

The adverts, published in four Lebanese newspapers, note that Denmark has reduced social benefits to migrants significantly, that those given asylum will not be allowed to have their families brought to the country during the first year, that a residence permit is delivered only to those who speak Danish, and that rejected asylum seekers are swiftly sent back to their home countries.

Lebanon, a country of 4 mln, is hosting 1.1 mln Syrian refugees.

Danish social media reacted sharply to the publications, many opinions noting that the authorities’ move sharply contrasts with Germany’s welcoming attitude to refugees.

The measures were one of the first announcements made by the new right-wing government following a parliamentary election in June.

The immigration ministry said Denmark seeks to reduce the number of asylum seekers, but still expects 20,000 refugees this year compared to 14,000 in 2014.

In fact, Europe’s refugee crisis has already spilled into Denmark as some 800 people entered the country from Germany and tried to head to Sweden on Monday.

Prime Minister Lars Lokke Rasmussen told journalists after an emergency meeting of party leaders that most of the 800-1,000 refugees who had come to Denmark since Saturday would not seek asylum in the country.

Rasmussen, head of a new minority government dependent on support from a right-wing party, said border controls were no solution, criticised European Union states for not following rules on asylum seekers and said refugees who had entered over the weekend must register in the

country.

The prime minister said the refugees should seek shelter for the night and wait until Danish police coordinated their transfer to Sweden with Swedish authorities.

“We hopefully can reach a situation where people who want to seek asylum in Sweden can do that,” he told journalists.

“As a Danish authority, we cannot support people getting to Sweden, if it does not happen with a degree of acceptance from the Swedish authorities,” he said.

Danish television channels on Monday showed videos of refugees taking trains from Jutland, in the western part of Denmark connected to Germany, to Copenhagen, where they can ride to Sweden in 35 minutes by train.

Verhofstadt slams Tusk for ‘not doing his job’ Guy Verhofstadt, the leader of the liberal ALDE group in the European Parliament, slammed Council President Donald Tusk for not playing his role in solving the refugee crisis.

Verhofstadt, a former Belgian Prime Minister, criticised Tusk for refusing to come to the European Parliament’s plenary session in Strasbourg this week. During the Parliament’s opening session on Monday, Verhofstadt’s proposal to summon Tusk to Strasbourg was supported by acclamation.

“It is incomprehensible to me that Tusk doesn’t seem to understand he has a key role to play in solving this crisis.

“If nothing else, he should come to the European Parliament to explain why EU member states have totally failed to reach a common position; this is one of the biggest human tragedy since the foundation of the EU. Why is he refusing to organise an extraordinary summit to deal with this humanitarian disaster? It is unacceptable that he refuses to do his job,” Verhofstadt stated.

Verhofstadt compared the refugee crisis to the eurozone crisis, when many summits and Eurogroup meetings were held to seek solutions.

“EU member states met more than 80 times to find a deal with Greece, but cannot now even try and put in place a solution to avoid the loss of more lives. Money seems to be more important than human lives,” the ALDE leader said.

In the meantime, Tusk delivered a speech at the annual dinner of Bruegel, a Brussels-based economic think tank, in which he addressed the migration challenge and called on EU leaders to “redouble their efforts, when it comes to solidarity with the members facing this unprecedented migratory wave”.

Tusk said that an “enormous effort” was demanded of EU institutions, which implied a major increase in spending.

“The present wave of migration is not a one-time incident but the beginning of a real exodus, which only means that we

will have to deal with this problem for many years to come.

Therefore it is so important to learn how to live with it without blaming each other,” he stated.

The Polish Council President is known to be sympathetic to the positions of central European countries who are reluctant to take in migrants and who reject the mandatory quotas and a permanent mechanism for the relocation of refugees, as they were proposed by the Commission.

“We need to think about our Europe with greater tenderness and patience. We need to protect her not only against external threats when they appear, but also against internal temptations for revolutionary and total changes,” Tusk said.

The Council President also touched upon the push to improve the Economic and Monetary Union, insisting that the reform should take place without a treaty change.

“I am well aware that some politicians, not least in Germany, would disagree, but their claims are either an overstatement or an excuse not to change. […] If someone is not convinced, then I invite them for a trip across Europe to check the chances of a harmonious treaty change ratification process. My bet is zero,” Tusk said.

Other videos focused on several dozen refugees walking along a busy motorway to Copenhagen because, as they said, they wanted to join their families in Sweden, or expected to have relatives join them there far more quickly than in Denmark.

Sweden has taken by far the largest number of refugees per capita in Europe. With over 80,000 asylum seekers accepted last year, it is second to only Germany.

Rasmussen’s Liberals Party formed a government in July after winning 34 seats out of 179 in Denmark’s parliament.

During the election campaign, all parties sharpened their rhetoric against immigration.

The right-wing Danish People’s Party won more seats than the Liberals, but refused to join the government, believing it would have more influence over policy outside of the cabinet. Its leader, Kristian Thulsen Dahl, has blamed Germany for the stream of refugees into Denmark and argued for border controls, so refugees coming from Germany could be sent back, according to the Dublin agreement on registering asylum seekers.

“German politicians must take responsibility for what they have done by opening the border and welcoming people from the south,” he said. In a Facebook post, he stated that Germany’s decision to receive Syrians had broken the Schengen agreement.

The prime minister explained that he had spoken to German Chancellor Angela Merkel on Sunday and that only a European solution would solve the crisis. Danish rules on accepting refugees are seen as stricter than in many other European countries.

“I think it is clear for everyone that the European asylum system is under huge pressure and in fact broken in some cases,” Rasmussen said before the parties met.

Romania to accept refugees if admitted to Schengen Romanian Prime Minister Victor Ponta said that his country will request admission to the EU’s Schengen borderless area if mandatory quotas to accept refugees are decided by the Union, according to EurActiv.

For many years now, Romania has fulfilled all the criteria required to join Schengen, but has been prevented by older member states that link its accession to progress in fighting corruption and improving the country’s lawenforcement system.

Like Bulgaria, Romania was admitted to the EU in 2007 on the condition that a so-called “Mechanism of Cooperation and Verification” set up by the European Commission monitors its progress until deficiencies are removed.

“Solidarity means both rights and obligations, so if they want us to have the same obligations, they have to give us the same rights,” Ponta told reporters in Bucharest on Monday. “Romania has suffered an injustice over the Schengen issue. The countries that are now asking for our solidarity are the same countries that keep postponing our Schengen entry.”

Commission President Jean-Claude Juncker is to unveil an ambitious plan on Wednesday in response to the refugee crisis overwhelming Europe. 160,000 refugees are expected to be relocated from Italy, Greece and Hungary.

A Reuters report disclosed that Romania will be asked to accept 6,351 of them, while Germany will take in more than 40,000 and France 30,000.

Romania can accommodate as many as 1,500 refugees in existing facilities, Ponta said.

Bulgaria is in a similar situation to Romania with respect to Schengen. Bulgarian newspapers report that Ponta has spoken on the phone with Prime Minister Boyko Borissov, and that the issue discussed was the refugee crisis.

The Bulgarian government press service rejected allegations that the refugee crisis has been linked to the two countries’ admission to Schengen.

When Bulgaria and Romania joined the EU on January 1, 2007, there were shortcomings regarding judicial reform and the fight against corruption in both countries. In the case of Bulgaria, problems also remained regarding the fight against organised crime.

September 9 - 15, 2015

8 | COMMENT | financialmirror.com

INVERT YOUR TART! Patrick Skinner turns his pastry upside down “Don’t you ever eat dessert?” runs the opening line of an email I received the other day.

“Come on, Patrick, let’s have a good recipe or two”.

Being of a certain age, with slightly diminished appetites, Mary and I don’t often prepare dessert for our evening meal, which tends to be a “One Plate” job. When we have guests, though, we do turn to and produce something sweet to follow the main event.

Of all the recipes we know, one of the most delicious is the French one for “Upside Down Apple Tart”. Below is the one we have used for many years. When I looked in my files for a picture, though, I couldn’t find one, so I borrowed this one from the British supermarket chain Tesco’s website, which has some wonderful food ideas! (www.realfood.tesco.com)

FOOD, DRINK and OTHER MATTERS with Patrick Skinner sufficiently caramelised – if this is the case put it under the grill till its bubbling and then bring it to the table.

The “Tatin” method also works very well with savoury tarts. Plain part-cooked onions, shallots, par-boiled sliced potatoes, or tomatoes… as well as mixtures thereof.

Tomato ‘Tarte Tatin’ with basil You can make this one any way you like – as one tarte or as individual ones.

Ingredients 350g /13 oz small cherry or tiny plum tomatoes 350g /12 oz puff pastry, with flour for rolling out 1 tbsp milk for glaze Fresh basil leaves Olive oil Salt and pepper 1 des-spn brown sugar Method: 1. If using frozen, de-frost the pastry.

2. Lightly oil the flan/pie dish or ramekins.

3. If using individual ramekins or baby pie dishes, briefly roll tomatoes in warm olive oil in a small saucepan first.

4. Put a couple of basil leaves into each ramekin and sprinkle a pinch or two of sugar over.

5. Top with tomatoes filling the ramekin to the rim and adding salt and pepper.

6. If using halved tomatoes, put them cut side down in the oiled flan dish, sprinkle lightly with sugar between layers add seasoning, olive oil and basil sprigs.

7. Roll out the puff pastry and leave to rest for five minutes.

8. For ramekins, cut into squares and glaze them with milk on the underside of the lid.

The lid should fall over the ramekin by up to 1 cm and can be pinched at the corners to create a tartlet.

9. For a one-piece ‘tarte’, roll out the pastry and tuck the edges into the flan dish. Glaze top with milk 10. Ramekins: bake for about 25 minutes in hot oven (190C/375F) - or until pastry is well puffed. One tarte; this may take longer - up to 40 minutes. Allow to rest for 5 minutes and turn out carefully so that the pastry forms the base.

11. Serve warm.

“Tarte Tatin” - Serves 6 Pastry: 250 g / 8 oz / 2 cups of all-purpose flour 1 tablespoon sugar 110 g / 1/4 lb butter 125 ml / 4 fl oz / 1/2 cup lukewarm slightly salted water 6 firm, sweet apples 250 g / 8 oz / 1 cup sugar 3 tbsp melted butter Pinch of cinnamon 250 ml / 8 fl oz / 1 cup whipping cream Method: 1. Knead flour, sugar and butter quickly and lightly with fingertips. The pix should look like fine breadcrumbs.

2. Add salted water a little at a time.

3. Press dough into ball, wrap in waxed paper and chill 2 hours.

4. Peel, quarter and core apples.

5. In an ovenproof skillet heat half the sugar until melted and caramel coloured.

6. Arrange apples over caramel.

7. Pour melted butter over apples and sprinkle with rest of sugar and cinnamon.

8. Cook on fop of stove a few minutes. Remove and let cool down a bit.

9. Roll out pastry and fit it over apples, tucking it in so if doesn’t touch sides of skillet.

10. Bake in a medium (180-190C) oven 30 minutes until pastry is golden.

11. Quite quickly, using oven gloves, grab the two sides of the pan and invert on to a serving dish. The apples should be slightly caramelised. Serve warm with whipped cream.

NOTE: Perfectionists have a hot grill ready at this time, in case the top of the tarte is not

Right side up Tomato Tarte So simple to make this good looking tomato tarte. After baking the pastry with tomatoes or tomato pieces topping it, it is adorned with crumbled Feta cheese, basil leaves and some anchovy fillets.

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

TRAVELS RECALLED – REAL MEALS ON STEEL WHEELS More people eat meals in hotels and restaurants than ever before. Similarly millions eat on aeroplanes, buses and trains. It used to be an interesting experience and you often got a good meal, especially on the train, where proper chefs cooked the food. Nowadays, what hot food you get is usually heated up in a plastic container and is ghastly. I can see no reason why this should be. It is possible to create tasty and enjoyable “Ready Meals”, but sadly this is all too frequently not the case. Fortunately, they are only found in a small proportion of eateries in Cyprus; much less than in very many other countries. Keep it that way!

The first meal I ever ate on a train was during the onehour journey from England’s famous south coast resort, Brighton to London. As a young chap of 24, I worked for a film company and on that day I was escorting a film actor of some note from a morning press preview of his latest film, at a Brighton cinema, back to London. We sat in the

Pullman dining car and ate a very well prepared meal of Mulligatawny soup, roast lamb with peas and potatoes, concluding with apple pie and cream.

I remembered that meal when I sampled the latest one recently. It was a toastie (toasted sandwich). A terrible bacon toastie; one of the worst snacks I can recall. Not in a “greasy spoon” transport café but by a disgruntled young Frenchman in the buffet of a slightly grubby Eurostar train from Brussels to London. From a limited range of offerings, I had ordered one for myself and one for my wife.

Disgruntled Frenchman had shunted two parcels into his microwave and a minute or two later tipped them into plastic containers. They were advertised as being provided

by Waitrose, the up-market British supermarket group, and it is an outlet for its food they should withdraw from, quickly.

It got me thinking about eating on trains and to my surprise I realised I had chalked up almost half a century of doing so. Some of them were memorable! More of them, soon.

September 9 - 15, 2015

financialmirror.com | WORLD | 9

Putting Apple’s iPhone business in perspective When Apple holds its highly-anticipated keynote on Wednesday, millions of people will be watching, curious what the world’s arguably most secretive company has to unveil. But even though much of the attention ahead of the event has been focused on what Apple may present besides the new iPhone models (a giant iPad? a revamped Apple TV?), it’s the iPhone presentation that is most important to Apple’s future.

After the first iPhone was released in 2007, it quickly became Apple’s largest cash cow, accounting for 69% of the company’s revenue in the 2014 holiday quarter. In the past quarter, Apple generated more revenue selling iPhones than Google, eBay and Facebook did combined.

So, whatever Apple’s upcoming keynote has in store, the company’s investors will probably be happy as long as the new iPhones are received positively. (Source: Statista)

Italy ‘star’ among bailout economies, Cyprus ‘roaring ahead’ With recent events in Greece bringing bailouts back into the headlines, PwC economists have assessed how the five Eurozone bailout economies – Cyprus, Greece, Ireland, Portugal and Spain – have been performing.

The analysis shows that despite being the first to enter a bailout in 2010, Greece is now back to square one. Where do the other peripheral economies stand on their recovery path?

Ireland – the star performer: Ireland has been the ‘poster boy’ of economic reform in the peripheral economies. Ireland grew by 5.2% in real terms in 2014 and PwC economists expect output to expand by a further 3.9% this year. Ireland was the first of the bailed-out peripheral economies to see GDP break through its pre-crisis output level.

Spain – financial sector restructuring is working: PwC economists expect strong growth of around 3% this year to gradually improve the financial system’s profitability and further reduce non-performing loan ratios. Spain has also

kept its structural reform momentum going in the past 12 months with policy aimed at bringing down its high unemployment rate in the medium term. For these reasons, Spain is placed highly on the bailout path and is expected to exceed its pre-crisis GDP level by 2017.

Portugal – coming along but work still to do: Portugal has also made progress since the beginning of its bailout, but not to the same extent as Ireland and Spain. The economy is experiencing a cyclical upturn, growing in 2014 for the first time since 2010. But it still has to deal with a few structural issues. For example, its public debt to GDP ratio stands at 130%, the second highest of the five bailout economies.

Cyprus – roaring ahead: Greece has fallen behind Cyprus, which has now shifted its reform attention from public finances ¯with the government posting a healthy primary surplus of 2.9% of GDP ¯to structural reforms in the health and telecommunications markets. Cyprus is therefore still at

the ‘reform, reform, reform’ stage of its programme, but making decent progress.

According to PwC economists, there are three things that businesses should watch out for in the Eurozone over the coming weeks and months: * The policy response to any ‘wobbles’ in the latest Greek bailout discussions; * Any signs of strengthening growth in the periphery; * The preparations for the European Banking Authority (EBA) banks stress tests, which will be carried out next year.

“Over the longer-term, the big issue is the high stock of public, and in some cases private, debt. Achieving primary surpluses should help to stabilise public debt levels,” said PwC senior economist Richard Boxshall.

“But the real benefits will come through stronger nominal GDP growth rates, particularly once inflation levels revert back to their target rate of around 2%.”

Flexible working critical to job creation Savings on fixed office space translate into jobs and growth

The majority or about 81% of business people around the world report that capital freed up from lengthy leases and underoccupied space should be invested in growth and employment. This puts flexible working firmly at the heart of the economic agenda for national governments that should also be doing more to promote flexible working, according to the latest Regus survey of more than 44,000 senior executives in more than 100 countries.

Respondents indicated that tax and nontax incentives for promoting flexible working should also be offered by governments along

with more promotion of flexible working options. Additionally, as global business people reveal that capital freed up from lengthy office leasing could be invested in employment, it follows that over half of respondents also say flexible working can contribute to reducing youth unemployment.

Business people globally also agree that flexible working is critical to ensuring underrepresented demographics such as carers, returning mothers, parents and older workers remain in the workforce.

“Flexible working plays an important part in creating jobs and boosting the economy as money saved on lengthy leases and under-occupied office space can instead be invested in growth and the creation of new jobs,” said Katerina Manou, Regional General Manager Regus-Balkans and Cyprus.

“Flexible working can also help the economy by encouraging underrepresented demographics to remain or return to the workforce boosting GDP,” Manou said, adding that “by allowing workers to better reconcile

their professional and personal lives, flexible working means that older workers, parents, carers, returning mothers and workers in

general can continue to remain in employment and contribute to the overall economy.”

September 9 - 15, 2015

10 | SHIPPING | financialmirror.com

Shipping can contribute more Maritime sector can play a leading role in the recovery of the economy Despite its already large contribution of about 7% to the island’s GDP, shipping can contribute more and play a leading role in the recovery of the economy, says Transport, Communications and Works Minister Marios Demetriades.

Over the last years, the shipping sector witnessed a significant development and now constitutes one of the main pillars of the economy employing around 4,500 people onshore, the Minister said ahead of next week’s Maritime Cyprus conference. And unlike other open registries, Cyprus is also a major base for international shipping operations and shipping related activities, while Cyprus-based ship management companies manage about 20% of the world’s third party managed fleet.

“Now, more than ever before, Cyprus needs a flexible, modern and even more efficient maritime administration to deal with the rapid changes in shipping. We need to become more aggressive in the way we pursue business and upgrade our Maritime Administration. This is one of our main goals and we have already started working towards that direction,” Demetriades said, explaining that all means of communication, especially electronic, should be provided in an efficient and effective way, 24 hours a day, 7 days a week.

“It is expected that the shipping industry will find its way out of the crisis and be able to stand on its own feet again, as has done in the past. The importance of shipping is highlighted by its ability to move the world trade in the most efficient way, with the least economic and environmental cost. Through the crisis, shipping has emerged stronger and promises better days for the world economy.

“It seems that the impact of the crisis on our shipping industry is manageable and our overall shipping infrastructure remains intact. The wealth of knowledge and expertise of our shipping industry, ‘navigates the industry to calm waters’ and even more enables it to identify and exploit effectively and efficiently new emerging opportunities that arise.”

Demetriades said that although the Department of Merchant Shipping is still a government office, it has successfully aligned its structure in order to provide the local industry and foreign users of the Registry with quality and timely services.

“However, we need to change and become more flexible in order to further promote the sector of shipping in this very

competitive environment. Our recently completed study proposes a number of measures that ensure more flexibility, fast and efficient service, upgrading of the online services provided, reliability and high quality services.

The Minister said that the study identified the following five pillars: 1. The development and implementation of a National Shipping Promotion Strategy; 2. Cooperation within the Cyprus Maritime Cluster; 3. Establishment of Shipping Incentive Schemes;

4. Fine tuning of the Ship Registry Pricing Policy; 5. Development of the One-Stop-Shipping Shop.

Three working groups where established in order to examine and analyse the various measures proposed by the study and to suggest ways of implementation. The working groups consist of government officials and stakeholders of the maritime cluster.

At the same time, the study for the restructuring of the Department itself (part of the general study to restructure the Ministry) is expected to finish by the end of this year.

BSM reports 20% rise in vessels under management Bernhard Schulte Shipmanagement (BSM), one of the oldest maritime companies operating on the island, reported a 20% increase in the number of vessels under its management over the last year.

The company said in an announcement that the increase “comes as no surprise against the backdrop of a fast growing economy that Cyprus has been demonstrating in recent times.”

Particularly over the last six months, the country has attracted many private equity firms and shipping companies, such as Ridgebury Tankers, who have set up a presence in Cyprus.

“With an increasingly strong governmental support and the solid commitment from ship managers, shipping on the whole is gaining Cyprus a leadership position as a ship management centre among Europe, Asia and Africa,” said Arthur McWhinnie, Managing Director of BSM Cyprus.

An active member of the board of the Cyprus Shipping Chamber and the Cyprus Marine Environment Protection Association, McWhinnie said “having been the first entrant in the ship management sector in Cyprus, BSM has not only established a business presence in this market since 1972, but has been instrumental in helping develop the island as a leading ship management hub both

regionally and globally. Our global network across 30 locations provides seamless connectivity to resources around the clock, a crucial element in running an efficient network of global ship management centres.”

He said that BSM’s high quality crew and

reliable shore based staff are equally noteworthy assets that have propelled the company forward in this highly competitive industry.

The role of Cyprus as a training centre that completes BSM’s global training network was also emphasised in 2013, with

the inauguration of their new, wholly-owned Maritime Training Centre in the heart of Limassol, where cadets are trained annually in a state-of-the-art training facility to learn and develop competences.

BSM Cyprus manage a fleet of about 95 vessels, and it also runs vessels out of Venezuela. The Venezuela branch office is in operation for the last 20 years, and observes Latin America for further growth prospects.

“While an increasing number of companies moving to Cyprus reflect the island’s strong economic and geographical position, it also translates increase competition. It becomes even more crucial for BSM to stay ahead in terms of minimum loss time, vessel availability and top quartile in safety,” McWhinnie said.

BSM will be hosting a customer hospitality event on Tuesday, September 15, at its Maritime Training Centre in Limassol to coincide with this year’s Maritime Cyprus conference.

September 9 - 15, 2015

financialmirror.com | SHIPPING | 11

CSC: New incentives and pricing to boost flag New incentives and a pricing policy are being introduced as part of a wider National Shipping Strategy that will create advanced dynamics and help Cyprus “stay in the game” of world maritime industry, according to Thomas Kazakos, Director General of the Cyprus Shipping Chamber.

Having overcome the financial crisis in 2013, that has also helped revise the banking sector’s relationship with the shipping sector, Kazakos believes that the circumstances are favourable for Cyprus to exploit new opportunities.

Based on the findings of a study on the “Future of Shipping in Cyprus”, commissioned by the Ministry of Transport, “a positive momentum has been created towards the further enhancement of the service capabilities and capacity of the Cyprus Maritime Administration,” he said.

Cyprus has set a new course by expanding and developing the shipping sector and the flag even further, with the aim of remaining highly competitive.

“The key to responding to the new shipping environment and challenges is to remain attractive and to introduce intelligent measures that will give a competitive edge,” Kazakos said.

New incentives and a pricing policy will be introduced, while according to the findings of the recent study, a number of proposals have been put forward by the Chamber, with the sole purpose of enhancing even further the image and shipping infrastructure of Cyprus as a top-ranking shipping centre.

“By introducing specific measures based on the findings of the study, Cyprus will be able to maintain and develop even further a flexible, quality, user friendly and lessbureaucratic shipping environment that will encourage existing and future clients to register more ships and establish their base of operation in Cyprus,” Kazakos added.

Looking ahead, the CSC’s chief executive said that “the resumption of the negotiations for the solution of the Cyprus problem has created a positive climate, a development for which the Cyprus Shipping Chamber believes it should be promptly and constructively exploited.

“We are hopeful that the announcement of low-level ‘Confidence Building Measures’ from both communities will pave the way for the introduction of further high-policy

Confidence Building Measures, such as the full lifting of the Turkish embargo on Cyprus ships, as a mutually acceptable solution will have positive benefits for the Cyprus Ship Registry and Cyprus shipping as a whole, not to mention the benefits for the EU and Turkey.

Furthermore, the recent discovery of offshore natural gas reserves near the coast of Cyprus creates even greater prospects for Cyprus shipping which will play a key role in gas and oil transportation by sea.

Now more than ever before, Cyprus needs a modern and even more efficient Maritime Administration to deal with shipping. Such a policy will also fit in well with the “EU Integrated Maritime Policy” and the spirit of the “Limassol Declaration” which was successfully concluded during the Cyprus EU Presidency in 2012.

“Through such measures, Cyprus will be able to create a positive impetus towards the medium and long-term development of its shipping industry without additional spending,” Kazakos said.

The Cyprus Registry currently ranks as the tenth largest

merchant fleet worldwide and the third largest in the European Union with 1,000 ocean going vessels of a gross tonnage exceeding 20 mln.

Considering that Cyprus is, in effect, the only “EU approved Open Registry”, the new “Tonnage Tax” system gives Cyprus a competitive advantage over other EU maritime nations.

The new “Tonnage Tax” system contains most of the favourable features found in tonnage tax systems of other traditional EU maritime countries. It extends the favourable benefits applicable to owners of Cyprus flag vessels and shipmanagers, to owners of foreign flag vessels and charterers. What really makes the new incentives even more appealing is that any EU or even non-EU ship operator may benefit from this very competitive shipping taxation system and also be able to have a quality EU flag on their ships.

Furthermore, by setting up therefore, a shipping company tax resident in Cyprus and having an EU flag ship either owned, managed or chartered, then the whole set of shipping companies based in third countries (non-EU flag ships) can also enter the new Cyprus competitive tonnage tax regime.

In addition, there is no income tax on the wages of officers and crew employed on Cyprus flag ships.

From an implementation point of view, the Cyprus Maritime Administration is continually being strengthened with specialised personnel at the Shipping Department. A network of inspectors has been set up at the most important ports around the world which has contributed substantially to the increase of inspections of Cyprus-flag ships. Thus, the control mechanisms of the Department of Merchant Shipping have been improved with a direct impact on the number of detentions of Cyprus ships around the globe, in particular with regard to detentions for serious deficiencies.

Furthermore, taking into account the escalation of piracy, the Cyprus government and the Cyprus Shipping Chamber introduced a pioneering piece of legislation which governs the use of armed guards onboard Cyprus flag ships, which has been officially approved by parliament and is fully in force since 2012. Cyprus ship operators now have a fully legitimate tool to deter attacks and defend their cargoes and crews against Piracy.

VTS services 80 vessels at Vasiliko jetty The recent discovery of natural gas reserves, as well as the establishment by Vitol partners of a major energy storage hub near Limassol, have created new opportunities for companies such as Vasiliko Terminal Services, a sister company of Lavar Shipping.

The flagship company of the RPT Group, Lavar Shipping, established in 1965 by Pantelis Tsanos, was one of the very first shipping companies in Cyprus and has played a leading role in the evolution of the industry and the establishment of the island as a maritime hub. It is currently one of the top three shipping agencies in Cyprus, with an employee base of 30 Cypriot professionals.

VTS has provided marine services at the Vasiliko terminal of pilotage, towage, mooring and sludge collection services, since November 2014 Following aicense agreement signed with the Cyprus Ports Authority, VTS has serviced over 80 vessels at the VTTV jetty and has invested EUR 15 mln in two new ASD tugboats - VTS Keryneia and VTS Ammochostos unique to Cyprus and region.

“VTS has invested heavily in equipment infrastructure in order to perform marine services to the highest international standards, adhering to very strict health and safety procedures,” said Group CEO Reginos Tsanos.

“As a Cyprus-based and owned company we take pride in being able to set an industry standard within our own country, and hope to contribute to the growth and development of the energy and other sectors, as well as to the rejuvenation of the Cypriot economy.”

“The Cypriot shipping industry that my father boldly stepped into in 1965 is a world

away from the environment in which we operate today”, said CEO Reginos Tsanos.

“Then in its infancy, he had the foresight to identify the opportunities that our island had to offer, but at the same time had to overcome a number of difficulties and

challenges.”

Today, Lavar Shipping is a multi-faceted organisation, offering traditional and specialised maritime services to the local and international industry, with its experienced agency team providing services including

port agency, forwarding, husbandry, and technical support.

Lavar Shipping also plays an important role in ship-to-ship operations performed off Limassol Port limits and at designated points of anchorage.

September 9 - 15, 2015

12 | PROPERTY | financialmirror.com

Paphos still top choice for overseas buyers Paphos continues to present for the first eight months of 2015, the highest figure in property purchase contracts by foreign buyers submitted to the Department of Land and Registry during this period, representing 39% of all deal, followed by Limassol with 26%, Larnaca with 20%, Famagusta with 8% and Nicosia last 7%.

Paphos has managed, thanks to the targeted efforts by local property developers, to remain in first position and to attract foreign buyers and investors who express their preference mainly in beachfront villas or apartments, as well as organised property developments which provide security, convenience and multiple services.

Thus, Paphos has taken the lead as the prime destination in the property market and the best choice to obtain a permanent residency by overseas buyers.

Furthermore, town and the region is moving steadily towards the preparation to welcome the thousands of tourists, visitors and investors as it leads up to becoming the European Capital of Culture for 2017.

“Just like the previous year, the property development sector continues to be the mainstay of our region’s economy contributing decisively to growth and development,” said Leptos Group Marketing Director Sakis HadjiAlexandrou.

He also appealed to government officials to continue helping with the procedures that have been relaxed for obtaining a permanent residency as well as other incentives, and the implementation of major infrastructure projects announced by President Anastasiades earlier this year, that will have a major impact on the region’s GDP growth.

Policy differences to widen credit gap among U.K. housing associations

German residential companies’ credit quality to remain robust, says Moody’s

English housing associations’ credit strength could increasingly diverge from their counterparts in Wales and Scotland because recent government policy changes have created a more challenging business environment for the sector in England, Moody’s Public Sector Europe (MPSE) said in a report.

“The English policy environment has abruptly deviated from the policy stances taken by the Welsh Assembly and the Scottish Parliament,” said Roshana Arasaratnam, author of the report. “The shift in policy direction, particularly in relation to rent setting, will create a more challenging business environment for English housing associations, compared to that in Wales or Scotland.”

Government policy towards social housing providers is a key rating driver because it shapes the operating environment in which housing associations make their strategic decisions.

In July’s budget, the UK government announced a 1% annual reduction in English social housing rent for four years, reversing the previous 10-year formula which set rents annually at the Consumer Price Index (CPI) measure of inflation plus 1%.

Other UK government policies and announcements, such as ongoing welfare reforms, the extension of the “Right to Buy” scheme and proposals for higher earning social housing tenants to pay market rent rates, have already created a more challenging environment for housing associations in England.

The budget announcement highlighted the different policy choices being made locally in England, Scotland and Wales with regard to rent setting, capital grants and welfare reform. Social housing providers’ borrowing needs are shaped by the response of individual associations to different policy frameworks.

Debt levels have been increasing in all three regions, with declining capital grants and strong investor demand for long-dated bonds fuelling the accessing of capital markets. English housing associations are expected to continue accessing the capital markets directly, while Scottish and Welsh housing providers are anticipated to display a more muted appetite for bond issuance due to their lower funding needs.

While regional regulatory frameworks share similar objectives, the English regulator faces a more challenging operating environment, Moody’s concluded.

German residential property companies’ credit quality will remain strong over the next 12-18 months on the back of steady rental growth, low interest rates and conservative financial policies aimed at reducing leverage, Moody’s Investors Service said.

“Rising rents coupled with conservative financial policies will underpin and strengthen German residential property companies’ credit metrics through 2016,” said Roberto Pozzi, author of the report.

Deutsche Wohnen A.G. (A3 stable) will benefit the most from rising rents,

reflecting its large exposure to metropolitan areas where positive demographic changes and limited construction of new dwellings are driving the highest rental growth, such as Berlin, Frankfurt and Munich.

Deutsche Wohnen and Grand City Properties S.A. (Baa2 stable) will continue with their consolidation strategy because of the large cost savings that go with increased scale.

With only 7-8% of total housing units owned by professional private property companies, the German residential market remains highly fragmented and offers abundant

opportunity for portfolio growth via acquisitions.

Conversely, LEG Immobilien AG (Baa1 stable) will remain more focused on organic growth.

Deutsche Wohnen’s commitment to keeping leverage at 40-45% will support its credit quality, whilst Grand City Properties has publicly stated that it intends to maintain its loan-to-value at 50%.

Reflecting their more conservative financial policies, German residential companies are now targeting leverage below 50% (versus traditional 50%55%), supported by solid asset values.

German market for luxury housing grows As both the Frankfurt Algemeine Zeitung and the Süddeutsche Zeitung, along with Die Welt, reported, some 3,000 luxury residential properties worth a combined EUR 3.7 bln were sold in Germany’s top seven locations in 2014.

According to a report issued by Dahler & Company, this represents an increase of close to 25% over 2013.

Dahler & Co. defines luxury residential properties as those that cost more than EUR 750,000.

Of the almost 3,000 luxury villas and apartments that changed hands in 2014, Munich had the most active market.

The 920 transactions in the city were worth a total of EUR 1.2 bln (+41% YoY).

Germany’s other major cities also reported high demand, although supply often lagged behind. The number of luxury properties sold in Berlin actually fell last year. As reported by Dahler & Co., 468 luxury properties worth a total of EUR 595.4 mln swapped owners in Berlin in 2014. In 2013 there were 480 sales worth EUR 636 million.

The number of detached and semi-detached houses sold

in Berlin last year was lower than during the preceding year, whereas condominium sales were slightly higher. Taken together, Berlin saw the weakest developments in comparison to the other six cities covered

by Dahler & Co.’s market study.

Einar Skjerven of the Skjerven Group hasn’t budged in his positive assessment of Berlin’s housing market.

Skjerven is clear, “Apartments in any other modern metropolis, anywhere else in the world, are nowhere near as cheap to buy as they are in Berlin. The market still hasn’t reached equilibrium. Prices will continue to rise, maybe not as quickly as in the past, but they are still heading higher.”

Last year alone, Skjerven sold condominiums with a combined value of more than EUR 60 mln. Almost 40% of his buyers came to his company via Facebook. At Strausberger Platz in Berlin, Skjerven is looking for buyers for 170 apartments. He has made the neo-classical apartments ready for investors. Skjerven has a strong track record of selling apartments in Charlottenburg, Mitte, Friedrichshain and Prenzlauer Berg via his Part-B Immobilien subsidiary. (www.Zitelmann.com)

September 9 - 15, 2015

financialmirror.com | PROPERTY | 13

Do we really want foreign investments in Cyprus or not? µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

I wonder sometimes if we, Cypriots, suffer from a form of schizophrenia as we do not know what we want and while various decisions taken by the State are indeed welcome, in many cases they clearly suggest that private interests were preferred at the expense of the State.

On the one hand we have 40,000 unemployed with a higher percentage of unemployed among young scientists, engineers, technicians, the growing phenomenon of the welfare groceries and the need to attract deposits back to our banks and on the other hand, actions seem to suggest the opposite.

• Casino - probably the best that has happened in recent years, but what is the reason to exclude government properties from the bidding stage, thus depriving state assets of the opportunity to earn income (were there private interventions Mr. President which you should have ignored?)

• Incentives for large development projects - who is paying attention to the noises made by the Technical Chamber (ETEK) and who did not to realise what was really happening when more than 20% of the Chamber’s members are unemployed or underemployed.

• Environment – it certainly must be protected, but the environment is there to serve the economy and society in general, not vice versa.

• Limni resort - from a toxic waste dump the whole region has been transformed into an attractive natural environment, while our handsomely paid Environment Commissioner reported us to the EU for whatever alleged violations. Why have you not sacked her, Mr. President, if, as you say, this

project is in the public interest?

• Mall of Cyprus - sold for EUR 200 mln and the banks received fresh money. The new owner has promised to implement compensatory measures within the walled city of Nicosia and other areas, which should be seen as a precondition for the ‘relaxation’ of the Mall’s future extension but not an outright rejection. This way, everybody gets to gain.

• Akamas - the stumbling block of 25 years will not be resolved easily, so let Mr. Photiades proceed with his Fontana Amorosa project within a strict time frame of five years which then promises to replicate the internationally renown Costa Esmeralda project in Sardinia. If he does not proceed with the project, then the permit should be cancelled.

• See what has happened in the case of the luxury Anassa hotel where the eternally evil-oriented environmentalists have been complaining about, but it has turned out to be an international star in our tourism product.

• Planning Zones – this is the most impractical measure as the building coefficient along our coastal areas is 15-20% building factor and the so-called “incentives” to increase the factor to 20-25% is simply pathetic, since the whole philosophy of low building factors for beachfront projects is wrong.

• Conversion of hotels - I could write a voluminous book about the various decisions of the State and the different opinions held by district planners with clear examples where simple procedures are overlooked thus violating all the objectives set forth by the state.

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• Natura - who will pay the millions in compensations?

• Technology Park – a ridiculous strategy that limits only 2-storey buildings and these only with a coefficient of 45%. Why not a 100% building coefficient? Why not 5-6 floors? What is the problem? Instead of getting the project off the ground, we are still waiting for Bill Gates to express an interest.

• Old port of Limassol – the whole concept proved successful, while the objectors raised by private interests should be investigated an someone should be held accountable.

• Who will pay for the poor planning of a building coefficient of 20% for marinas that was eventually (and rightly so) raised to 200%?

These and many more blatant examples of poor planning or lack of administration started with good intentions but ended up in a totally different direction. Who, then, has taken any responsibility within the state mechanism for all these amateurish decisions and has any government official and other consultants to the state ever been sacked?

What is really needed is for the state to have an advisory body that would consist of non-political people and would cover all issues related to proper technical advice and consultation offered to the State.

Perhaps, leading personalities, such as former president George Vassiliou, would be ideal to head such a council, or even an outsider or foreign advisor who would have no political obligations or feel such pressure from anyone in Cyprus. Such a council should consists of local and foreign consultants and include economists, international auditors, bankers, town planners, members from ETEK and so many others.

Thus, this advisor to the state should comprise only of competent capable people from the private sector rather than current and former public and semi-public servants, nor trade unionists or politicians, while even the University of Cyprus could contribute to undertake an independent assessment of such a body.

If the political parties and the President clarify their commitments and if they cannot distance themselves, then perhaps such a body would be a solution, in order to have the sole objective of rebuilding the economy and reviving employment, thus giving some hope to future generations.

www.aloizou.com.cy ala-HQ@loizou.com.cy

September 9 - 15, 2015

14 | MARKETS | financialmirror.com

US economy remains in contention for a Fed rate hike

By Oren Laurent President, Banc De Binary

Global markets remain abuzz with the possibility of a September rate hike in the U.S. However, recent statements by key individuals and policymakers have confused traders as to the timing and scope of a rate hike. Just the other day, the dovish President of the Boston Federal Reserve Bank alluded to no special urgency in opting for a rate hike just now. Dr Eric Rosengren has not given his blessing to a Fed rate hike in September, but he alludes to the need to see inflation hitting the Fed’s 2% annual rate.

Presently, there is too much slack in U.S. labour markets to expect higher inflation. However, the Labour Department released a report with upward revisions (245,000) for each of the months of June and July, but a much weaker jobs growth in August. The lukewarm report was enough to buoy dollar sentiment, and more importantly the unemployment rate in August declined to a 7-year low. Economists had been forecasting an increase in Non-Farm Payroll employment of 220,000 jobs in August, but the actual number was markedly lower at 173,000.

LOW UNEMPLOYMENT PRIMES MARKET FOR FED RATE HIKE In July, the unemployment rate in the U.S. was 5.3%, but in August the number declined to 5.1%. Such is the positive

feeling about the world’s largest economy that the President of the Richmond Federal Reserve – Jeffrey Lacker – has been hinting at raising the Fed interest rate regardless. But an interest rate hike in the U.S. is likely to have dire consequences for global markets, notably emerging market economies. As talk of a U.S. rate hike gains favour, foreign countries exchange their currencies for the USD. This bolsters the strength of the greenback and weakens other currencies.

Emerging market countries like BRICS (Brazil, Russian, India, China and South Africa) countries have suffered immeasurably over the past several months. This is particularly true in the sense that massive capital flight has been taking place. Brazil is in financial ruin with its President at just 8% approval and no support in Congress; Russia is in a quagmire, China has gone into meltdown and the South African mining and energy sectors have all but collapsed and taken the currency down with them. During times of economic uncertainty, it is the emerging market economies that face a loss of confidence.

USD RALLY AGAINST BASKET OF CURRENCIES The dollar has made strong gains against multiple currencies including the GBP (1.5187), the EUR (1.1102), the JPY (119.3500) and the CHF (0.9739). The dollar made even stronger gains against a basket of currencies before meeting strong resistance and declining to present levels.

Against the AUD, the USD hit a 6.5 year high of 0.6928 and against the NZD it is challenging the key 0.61 resistance level. It is currently trading at 0.6340. But what’s good for currencies is not necessarily good for equities. Now, investors are trying to figure out precisely when the Fed rate

hike will take place. The S&P 500 Index slipped 1.5% in NY after the jobs report. The DJIA slipped 1.6% after the report.

This is now the sixth such decline for the S&P 500 Index in just under two weeks.

The month of September is one of the worst for the S&P 500 Index with an average decline of 1.1%. Some of the many positive factors that are now working against the stock market are the following: - Payrolls have increased; - June and July employed was revised upwards; - Lowest unemployment rate since April 2008 – 5.1%; - Hourly earnings have increased and more workers are working longer.

Come September 16-17, the FOMC will seriously be considering meeting its 2% annual inflation rate by way of an interest rate hike in the region of 0.25 points. The likelihood of such a rate hike has spiked from 28% to 36% given the jobs report. For now, it’s going to be another week of high volatility until the September meeting is over. Stocks are going to come in for some serious tap and the USD is likely to enjoy a short-term surge until Janet Yellen, Stanley Fischer and policymakers post their report.

Please note that this column does not constitute financial advice.

Shanghai Composite index oscillates, GBP ends losing-streak Markets Report b

By Lukman Otununga, Research Analyst at FXTM

The China trade figures released overnight on Monday continued to highlight further weakness in the China economy, with both exports and imports declining. The continual decline in imports suggests that China is shifting away from an import dependent nation to one which is encouraging consumers to look more within the domestic market for its products and services. This change in approach will translate to further weakness for economies that have become dependent on demand from China.

The Shanghai Composite Index was acting indifferently once again on Tuesday, oscillating between gains and losses and trading +0.76% higher although the major market was over 1% lower. The Nikkei 225 has been trading in the red, while other Asian equities such as the Hang Seng and ASX200 have shown some positive gains as of writing. Market participants will now shift their focus towards the latest China inflation data on Thursday and if the announcement prints below the expectations of 1.9%, there will be further concerns of weakness in China. Any negative data will expose China to further periods of heavy pressure. After being on the end of an extended losing streak against most it its counterparts, the GBP appreciated on Monday.

The Sterling gained versus all of its 16 major counterparts and while this could be a technical correction after such heavy pressure, investors are preparing for the Bank of England (BoE) monetary policy decision later in the week. A rate hike in September is unlikely, but market participants will focus on the tone of the statement and any clues on when the central bank may begin to raise UK rates. In the last MPC vote, only Ian McCafferty decided it was time for an interest rate, if another member follows this pattern, then the GBP may gain across the board.

No one is expecting a UK rate rise this Thursday with benchmark interest rates almost guaranteed to be kept at 0.5%, where they have been for more than six months.

Data from the UK has been robust but inflation needs to pick up, this is a necessary factor in increasing the likelihood of an interest rate hike by the BoE.

In the commodities division, Gold has sunken slightly lower. The global decline of commodities and steady appreciation of the USD continues to add pressure on this precious metal. If data from the United States this week is robust, then more pressure may be experienced for Gold which may trigger a selloff to the next relevant support at 1110.0. The major catalyst for a potential heavy selloff in Gold continues revolve around whether the Fed begins to raise US rates this year.

NZDUSD: Sentiment for the NZD remains bearish due to a combination of different reasons, such as the interest rate policy from the RBNZ and probability of downside economic pressures due to the events in china. The NZDUSD is bearish on the daily timeframe. As long as prices can keep below the 0.6500 resistance, a further decline to the 0.6050 support may be expected.

NZDJPY: The risk-off environment has provided the JPY with consistent strength. The NZDJPY is technically bearish on the daily timeframe. Prices are trading below the 20 SMA and the MACD has crossed to the downside. A

break below 76.50 may offer a route back to 72.00. A move back above 78.80 invalidates this daily bearish outlook.

NZDCAD: The NZDCAD is technically bearish on the daily timeframe. The 0.8350 may act as a light resistance which may open a path to the next relevant support at 0.8100. If prices trade back above 0.8450, this daily bearish outlook becomes invalidated.

NZDCHF: This pair is bearish on the daily timeframe, but currently ranges. Support can be found at 0.6050 and resistance at 0.6250. A break below the 0.6050 support may open a path to 0.5700. A move back above 0.6250 invalidates this bearish outlook.

For more information, disclaimer and risk warning visit: www.ForexTime.com FXTM is an international forex broker regulated by the Cyprus Securities and Exchange Commission (CySEC), and FT Global Limited is regulated by the International Financial Services Commission (IFSC)

September 9 - 15, 2015

financialmirror.com | MARKETS | 15

The RMB, the HKD and a flood of cash Marcuard’s Market update

by GaveKal Dragonomics If nothing else, Monday’s announcement that China spent US$94 bln of its foreign reserves in August to prevent the renminbi from falling against the US dollar should convince the doubters that China has no intention of being a mercantilist “currency warrior”. As a result, any bearish case against the renminbi should not rest on the government’s intentions—in spending its US$94 bln, the People’s Bank of China has made it clear that it will hold a ‘line in the sand’,

at least for the coming weeks and months—but instead must rely on the idea that we will continue to see massive capital flight out of the renminbi into other currencies.

Now foreigners hold only a limited amount of renminbi.

After all, China has been running sizeable, and growing, trade surpluses for the past two decades. Thus, any structurally bearish view on the renminbi has to be based on the idea that the Chinese themselves will quit on their own currency and move a sizable portion of their pool of domestic savings, most of which is sitting in cash at the bank, into foreign currencies.

To some extent this is what has been happening in Hong Kong over the past four weeks. Since the launch of the offshore renminbi, or CNH, market in mid-2010, Hong Kong residents have been accumulating bank deposits, CDs and bonds in CNH. For Hong Kongers—whose local currency, the Hong Hong dollar, is pegged to the US dollar— transferring savings into CNH was widely seen as: a) an easy way to capture a few extra points of yield, and b) a “free” call option on the continued appreciation of the renminbi against the US dollar. But last month’s ill-timed and ill-explained change in China’s foreign exchange policy undermined these

www.marcuardheritage.com

premises. Since then, Hong Kong investors holding renminbi have been rushing for the exit, helping to open a record gap between the offshore CNH and the onshore CNY exchange rates (see the chart below).

The flows out of the CNH and into the Hong Kong dollar have been strong enough to force the Hong Kong Monetary Authority to intervene on at least three separate occasions to prevent the Hong Kong dollar appreciating beyond its HKD 7.75 to the US dollar limit, spending a total of almost HKD 18.6 bln (US$ 2.4 bln). The last time the HKMA intervened in the market was in April, when money was pouring into the Hong Kong stock market as locally-listed H-shares began to surge in emulation of China’s soaring onshore A-share market. Of course, this time around, the underlying flows are not driven by greed and hopes for a Hong Kong bull market, but by fear of renminbi depreciation.

Still, the fact remains that liquidity is now flowing back into the Hong Kong dollar. As investors, the question we should ask ourselves is: Where will all those new Hong Kong dollars end up? Will they: 1) Sit in cash, earning no return? For the next few weeks, this is a distinct possibility. But it is not a likely long term outcome.

2) Head back into CNH to capture the extra yield? This is a possibility if Chinese policymakers manage to convince investors that their goal is not devaluation, but to establish the renminbi as a reserve currency for Asia and the world. A few more months of intervention, a stable renminbi, and the promise of inclusion in the special drawing rights basket may do the trick. If so, by year-end Hong Kong’s large savings may start flowing back into renminbi again, triggering a narrowing of the CNH discount and a tightening of spreads.

3) Chase yield in US dollar bonds? Possible, though as of now there are few signs of this. If Hong Kong savings were really moving into US dollar assets, the HKMA would have to defend the Hong Kong dollar from weakening, not strengthening.

4) Chase yield in Hong Kong-listed stocks? This is a strong possibility. Part of the attraction of the CNH market was that it offered a great “yield to volatility” proposition. If retail investors now conclude the volatility of the CNH trade has structurally changed, they may well switch to a higheryielding asset class, even at the cost of more volatility. And few markets offer a wider gap than Hong Kong between short rates (effectively zero) and dividend yields (around 4.5%).

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.

5) Plunge into domestic real estate? This is Hong Kong we are talking about so pouring more money into real estate is always a possibility! Having said that, current valuations appear especially stretched, and the recent rise of the US dollar (and hence the Hong Kong dollar) means that real estate opportunities elsewhere may be more tempting.

Putting it all together, we believe that it makes sense to continue to monitor the Hong Kong dollar, the HKMA’s interventions, and the CNH-CNY discount. The fact that yesterday’s HKMA intervention, at around US$ 400 mln, was weaker than last week’s is an encouraging sign that the selling pressure on the CNH may be starting to abate. If this is the case, then the coming weeks are likely to see a stabilisation of Asian equity, currency and bond markets.

WORLD CURRENCIES PER US DOLLAR CURRENCY

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

17820 1.5344 1.7493 24.206 6.6744 13.998 1.1179 2.355 281.04 0.62876 3.0888 0.3841 19.2 8.2917 3.7838 3.958 68.7564 8.4385 0.9742 21.65

AUD CAD HKD INR JPY KRW NZD SGD

0.6978 1.3279 7.7502 66.5775 120.07 1200.4 1.5888 1.4252

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

0.3771 7.8080 29856.00 3.9271 0.7080 0.3022 1510.00 0.3849 3.6413 3.7503 13.8751 3.6728

AZN KZT TRY

1.042 244.29 3.0122

AMERICAS & PACIFIC

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

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

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira

Note:

The Financial Markets

CODE

* 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 -0.04 0.09 -0.73

0.54 0.74 0.04 0.13 -0.67

0.86 1.05 0.15 0.24 -0.56

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.86 1.01 0.08 0.11 -0.66

1.13 1.21 0.15 0.13 -0.59

1.37 1.37 0.26 0.15 -0.49

1.57 1.51 0.38 0.19 -0.36

1.89 1.71 0.65 0.31 -0.09

2.20 1.89 1.01 0.52 0.23

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1179 0.8945

100 JPY

1.5344

1.0265

0.8328

1.3726

0.9182

0.7450

0.6690

0.5428

0.6517

0.7286

0.9742

1.0891

1.4948

120.07

134.23

184.24

0.8114 123.25

Weekly movement of USD

CCY

Today

132.63

GBP EUR JPY

1.0822

CHF

1.5344 1.1179 120.07 0.9742

CCY\Date

04.08

11.08

25.08

01.09

08.09

USD GBP JPY CHF

1.0886

1.0915

1.1494

1.1214

1.1156

0.6980

0.7011

0.7286

0.7284

0.7286

134.85

136.02

137.20

135.29

1.0546

1.0739

1.0728

0.0776

Last Week %Change 1.5361 1.1267 120.13 0.9637

+0.11 +0.78 -0.05 +1.09

September 9 - 15, 2015

16 | WORLD | financialmirror.com

Who will suffer the most from climate change?

By Bill Gates A few years ago, Melinda and I visited with a group of rice farmers in Bihar, India, one of the most flood-prone regions of the country.

All of them were extremely poor and depended on the rice they grew to feed and support their families. When the monsoon rains arrived each year, the rivers would swell, threatening to flood their farms and ruin their crops. Still, they were willing to bet everything on the chance that their farm would be spared. It was a gamble they often lost. Their crops ruined, they would flee to the cities in search of odd jobs to feed their families. By the next year, however, they would return – often poorer than when they left – ready to plant again.

Our visit was a powerful reminder that for the world’s poorest farmers, life is a highwire act – without safety nets. They don’t have access to improved seeds, fertiliser, irrigation systems, and other beneficial technologies, as farmers in rich countries do – and no crop insurance, either, to protect themselves against losses. Just one stroke of bad fortune – a drought, a flood, or an illness – is enough for them to tumble deeper into poverty and hunger.

Now, climate change is set to add a fresh layer of risk to their lives. Rising temperatures in the decades ahead will lead to major disruptions in agriculture, particularly in tropical zones. Crops won’t grow because of too little rain or too much rain. Pests will thrive in the warmer climate and destroy crops.

Farmers in wealthier countries will experience changes, too. But they have the tools and supports to manage these risks.

The world’s poorest farmers show up for work each day for the most part emptyhanded. That’s why of all the people who will suffer from climate change, they are likely to suffer the most.

Poor farmers will feel the sting of these changes at the same time the world needs their help to feed a growing population. By 2050, global food demand is expected to increase by 60%. Declining harvests would strain the global food system, increasing hunger and eroding the tremendous progress the world has made against poverty over the last half-century.

I’m optimistic that we can avoid the worst impacts of climate change and feed the world – if we act now. There’s an urgent need for governments to invest in new clean-energy innovations that will dramatically reduce greenhouse-gas emissions and halt rising temperatures. At the same time, we need to recognise that it’s already too late to stop all of the impacts of hotter temperatures. Even if the world discovered a cheap, clean energy source next week, it would take time for it to kick its fossil fuel-powered habits and shift to a carbon-free future. That’s why it’s critical for the world to invest in efforts to help the poorest adapt.

Many of the tools they’ll need are quite basic – things that they need anyway to grow more food and earn more income: access to financing, better seeds, fertiliser, training, and markets where they can sell what they grow.

Other tools are new and tailored to the demands of a changing climate. The Gates Foundation and its partners have worked together to develop new varieties of seeds that grow even during times of drought or flooding. The rice farmers I met in Bihar, for instance, are now growing a new variety of flood-tolerant rice – nicknamed “scuba” rice – that can survive two weeks underwater.

They are already prepared if shifts in the weather pattern bring more flooding to their region. Other rice varieties are being developed that can withstand drought, heat, cold, and soil problems like high salt contamination.

All of these efforts have the power to transform lives. It’s quite common to see these farmers double or triple their harvests and their incomes when they have access to the advances farmers in the rich world take for granted. This new prosperity allows them to improve their diets, invest in their farms, and send their children to school. It also pulls their lives back from the razor’s edge, giving them a sense of security even if they have a bad harvest.

There will also be threats from climate change that we can’t foresee. To be prepared, the world needs to accelerate research into seeds and supports for smallholder farmers.

One of the most exciting innovations to help farmers is satellite technology. In Africa, researchers are using satellite images to create detailed soil maps, which can inform farmers about what varieties will thrive on their land.

Still, a better seed or a new technology can’t transform the lives of farming families until it’s in their hands. A number of organisations, including a non-profit group called One Acre Fund, are finding ways to ensure that farmers take advantage of these solutions. One Acre Fund works closely with more than 200,000 African farmers, providing access to financing, tools, and training. By 2020, they aim to reach one million farmers.

In this year’s Annual Letter, Melinda and I made a bet that Africa will be able to feed itself in the next 15 years. Even with the risks of climate change, that’s a bet I stand by.

Yes, poor farmers have it tough. Their lives are puzzles with so many pieces to get right – from planting the right seeds and using the correct fertiliser to getting training and having a place to sell their harvest. If just one piece falls out of place, their lives can fall apart.

I know the world has what it takes to help put those pieces in place for both the challenges they face today and the ones they’ll face tomorrow. Most importantly, I know the farmers do, too.

Bill Gates is Co-Chair of the Bill & Melinda Gates Foundation. © Project Syndicate, 2015. www.project-syndicate.org

September 9 - 15, 2015

financialmirror.com | WORLD | 17

Using antibiotics wisely

By Jim O’Neill To solve the problem of antimicrobial resistance, the world needs not only new drugs, but also new behaviour – by all seven billion of us. Because of the misuse and overuse of antibiotics, common infections such as pneumonia and tuberculosis are becoming increasingly resistant to existing treatments; in some cases, they have become completely immune.

The threat is global in scale. According to the Review on Antimicrobial Resistance, which I chair, drug-resistant infections kill at least 700,000 people every year. By 2050, if nothing is done to address the problem, some ten million people a year could be dying from maladies that were once treatable.

Developing new drugs is an important approach in a coordinated response to fight antimicrobial resistance. But it will not be enough. We also need to reduce our demand for antibiotics and understand that they can sometimes do more harm than good. According to one estimate, nearly half of all prescriptions for antibiotics in the United States are inappropriate or unneeded. So the steep rise in antibiotic resistance is hardly surprising.

Improving people’s understanding of the problem will be crucial to reversing this trend.

Most people are either completely oblivious to antimicrobial resistance or incorrectly believe that it is an individual’s body that becomes drug resistant – not the bacteria itself. A better understanding of when to use antibiotics, and how to use them effectively, will help people use them responsibly.

We need campaigns like the one introduced by the

Australian charity NPS MedicineWise, which held a competition for videos promoting public awareness of antibiotic use. The result was a series of short, witty films explaining simply and humorously how antibiotics can be misused.

These types of efforts are needed worldwide, particularly in the largest and most rapidly growing countries. The BRIC countries – Brazil, Russia, India, and China – consume fewer antibiotics per person than the US. But they are rapidly catching up as the rate of antibiotics consumption outstrips the pace of economic growth.

Pessimists will claim that behaviours are hard to change, especially when doing so depends on explaining the science of germs to uneducated audiences. That line of thinking brings to mind one of the most abhorrent arguments against making HIV medicines affordable for patients in lowerincome countries: People in Africa have no watches, so they will not be able to take their antiretroviral medicine three times a day.

The truth, as researchers have shown, is that Africans are perfectly capable of reliably adhering to antiretroviral therapy – often more so than North Americans. Indeed, in July, UNAIDS announced that the goal of having 15 million people on life-saving HIV treatment by the end 2015 was met ahead of schedule.

Every year on December 1, World Aids Day highlights the issue and raises global awareness. We need a similar effort to address the perils of antimicrobial resistance. European Antibiotic Awareness Day, on November 18, is a good start; but we must also find new, creative ways to spread the message.

Technological innovation brings unprecedented opportunities to reach people directly. Roughly 95% of Chinese and 75% of Indians use mobile phones regularly. In areas where literacy rates are high, sending text messages can be a rapid and effective way to spread a message. Research in Europe and the US shows that 90% of text messages are read within three minutes of being received.

Social media are another powerful and relatively cheap tool to reach millions of people. In China – home to the world’s largest Internet base, with 641 million users – 80% of doctors use smartphones for professional purposes, including by providing medical advice via social media, with some practitioners attracting millions of followers. Enlisting these medical social-media superstars to educate the public on the urgency of antimicrobial resistance is an exciting opportunity.

An anti-smoking social-media campaign led by the World Health Organisation provides another model that could be followed. Posts by Chinese celebrities were used to increase awareness of a law banning smoking in indoor public spaces.

In some parts of the world, the best way to combat drug resistance will be to encourage changes in behaviour that reduce the spread of infections and minimise the need for treatment. Proper hand washing is a great place to start. In India, a clever campaign called SuperAmma used images of people exposed to unsanitary situations to encourage hand washing. The campaign successfully and sustainably increased regular hand washing from 1% of the groups involved to about 30%.

The cost of a global effort to raise awareness of the threat of antimicrobial resistance would be miniscule compared to the amount being spent to develop new drugs and technologies, which in any case will take years to become available. Countries should urgently put in place educational campaigns and begin to change behaviors. Together, we can break our bad antibiotic habits.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management, is Commercial Secretary to the UK Treasury, Honorary Professor of Economics at Manchester University, a visiting research fellow at the economic think tank Bruegel, and Chairman of the Review on Antimicrobial Resistance. © Project Syndicate, 2015. www.project-syndicate.org

Ifo: Eastern Germany to continue to lag behind in the next 25 years The economies of the eastern federal states will lag behind those of the western states in the years to come, as “everything suggests that eastern Germany will not be able to catch up over the next 25 years”, said Joachim Ragnitz, deputy head of the Ifo Dresden office to mark a quarter century of German unification.

“The convergence between eastern and western Germany in terms of economic output came to a halt 20 years ago. Since 1995, GDP per capita has remained at 75% of the western German average. We should abandon the illusory idea of a convergence of living conditions in east and west”, Ragnitz argued.

This GDP percentage would be significantly lower if only the areas of the former GDR are compared with the territory of the former Federal Republic, including West Berlin. In terms of net income per capita, however, there is a much higher percentage of convergence in the standard of living. The reason for this is the redistribution within the tax and transfer system, from which the eastern states benefit disproportionately.

Ragnitz based his pessimistic prognosis on structural factors that cannot be changed in the short term, such as the lack of highly productive large enterprises in eastern Germany.

The reason for this deficiency, according to previous studies by the Ifo Institute, is particularly the policy of rapid wage convergence, a policy that resulted from the

proxy wage negotiations conducted by the western German social partners prior to the privatisation of the Treuhand enterprises.

“Presently, a declining and aging population are slowing down economic momentum.

“However, it should not be overlooked that a number of successful businesses have been established in eastern Germany and that there is indeed a positive outlook for individual growth centres, like Dresden,

Leipzig, Jena as well as Berlin and its environs”, he added.

Experience in western German states shows, however, that the catching-up of individual economic areas is the exception rather than the rule. Even in former West Germany, there is a large number of structurally weak regions such as Lower Bavaria or North Hesse, which despite enormous regional policy efforts have not managed to converge on the stronger

regions.

“The ‘equivalence of living conditions’ guaranteed in the Constitution is not based on economic power and cannot be measured solely on the basis of material variables”, Ragnitz stated.

To mark the 25th anniversary of German unification, the Ifo Institute has scheduled various events, such as a cooperation with the Political Academy Tutzing, and a highprofile conference in Dresden on October 8.

September 9 - 15, 2015

18 | WORLD | financialmirror.com

Fed up with the Fed

By Joseph E. Stiglitz At the end of every August, central bankers and financiers from around the world meet in Jackson Hole, Wyoming, for the US Federal Reserve’s economic symposium. This year, the participants were greeted by a large group of mostly young people, including many African- and Hispanic Americans.

The group was not there so much to protest as to inform. They wanted the assembled policymakers to know that their decisions affect ordinary people, not just the financiers who are worried about what inflation does to the value of their bonds or what interest-rate hikes might do to their stock portfolios.

And their green tee shirts were emblazoned with the message that for these Americans, there has been no recovery.

Even now, seven years after the global financial crisis triggered the Great Recession, “official” unemployment among AfricanAmericans is more than 9%. According to a broader (and more appropriate) definition, which includes part-time employees seeking full-time jobs and marginally employed workers, the unemployment rate for the United States as a whole is 10.3%. But, for African-Americans – especially the young – the rate is much higher. For example, for African-Americans aged 17-20 who have

graduated high school but not enrolled in college, the unemployment rate is over 50%.

The “jobs gap” – the difference between today’s employment and what it should be – is some three million.

With so many people out of work, downward pressure on wages is showing up in official statistics as well. So far this year, real wages for non-supervisory workers fell by nearly 0.5%. This is part of a long-term trend that explains why household incomes in the middle of the distribution are lower than they were a quarter-century ago.

Wage stagnation also helps to explain why statements from Fed officials that the economy has virtually returned to normal are met with derision. Perhaps that is true in the neighborhoods where the officials live.

But, with the bulk of the increase in incomes since the US “recovery” began going to the top 1% of earners, it is not true for most communities. The young people at Jackson Hole, representing a national movement called, naturally, “Fed Up,” could attest to that.

There is strong evidence that economies perform better with a tight labour market and, as the International Monetary Fund has shown, lower inequality (and the former typically leads to the latter). Of course, the financiers and corporate executives who pay $1,000 to attend the Jackson Hole meeting see things differently: Low wages mean high profits, and low interest rates mean high stock prices.

The Fed has a dual mandate – to promote full employment and price stability. It has been more than successful at the second, partly because it has been less than

successful at the first. So, why will policymakers be considering an interest-rate hike at the Fed’s September meeting?

The usual argument for raising interest rates is to dampen an overheating economy in which inflationary pressures have become too high. That is obviously not the case now.

Indeed, given wage stagnation and the strong dollar, inflation is well below the Fed’s own 2% target, not to mention the 4% rate for which many economists (including the International Monetary Fund’s former chief economist, Olivier Blanchard) have argued.

Inflation hawks argue that the inflation dragon must be slayed before one sees the whites of its eyes: fail to act now and it will burn you in a year or two. But, in the current circumstances, higher inflation would be good for the economy. There is essentially no risk that the economy would overheat so quickly that the Fed could not intervene in time to prevent excessive inflation. Whatever the unemployment rate at which inflationary pressures become significant – a key question for policymakers – we know that it is far lower than the rate today.

If the Fed focuses excessively on inflation, it worsens inequality, which in turn worsens overall economic performance. Wages falter during recessions; if the Fed then raises interest rates every time there is a sign of wage growth, workers’ share will be ratcheted down – never recovering what was lost in the downturn.

The argument for raising interest rates focuses not on the wellbeing of workers, but that of the financiers. The worry is that in a low-interest-rate environment, investors’ irrational “search for yield” fuels financial-

sector distortions. In a well-functioning economy, one would have expected the low cost of capital to be the basis of healthy growth. In the US, workers are being asked to sacrifice their livelihoods and wellbeing to protect well-heeled financiers from the consequences of their own recklessness.

The Fed should simultaneously stimulate the economy and tame the financial markets.

Good regulation means more than just preventing the banking sector from harming the rest of us (though the Fed didn’t do a very good job of that before the crisis). It also means adopting and enforcing rules that restrict the flow of funds into speculation and encourage the financial sector to play the constructive role in our economy that it should, by providing capital to establish new firms and enable successful companies to expand.

I often feel a great deal of sympathy for Fed officials, because they must make close calls in an environment of considerable uncertainty. But the call right now is not a close one. On the contrary, it is as close to a no-brainer as such decisions can be: now is not the time to tighten credit and slow down the economy.

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University. His most recent book, co-authored with Bruce Greenwald, is Creating a Learning Society: A New Approach to Growth, Development, and Social Progress. © Project Syndicate, 2015. www.project-syndicate.org

China confronts the markets

By Jeffrey Frankel Professor of Capital Formation and Growth at Harvard University China’s current economic woes have largely been viewed through a single lens: the government’s failure to let the market operate. But that perspective has led foreign observers to misinterpret some of this year’s most important developments in the foreign-exchange and stock markets.

To be sure, Chinese authorities do intervene strongly in various ways. From 2004 to 2013, the People’s Bank of China (PBOC) bought trillions of dollars in foreign-exchange reserves, thereby preventing the renminbi from appreciating as much as it would have had it floated freely. More recently, the authorities have been deploying every piece of policy artillery they can muster in a vain attempt to moderate this summer’s plunge in equity prices.

But some important developments that foreigners decry as the result of government intervention are in fact the opposite.

Exhibit A is the August 11 devaluation of the renminbi against the dollar – a move that invoked for US politicians the old adage, “Be careful what you wish for.” The devaluation – by a mere 3%, it should be noted – reflected a change in PBOC policy intended to give the market more influence over the exchange rate. Previously, the PBOC allowed the renminbi’s value to fluctuate each day within a 2% band, but did not routinely allow the movements to cumulate from one day to the next. Now, each day’s closing exchange rate will influence the following day’s rate, implying adjustment toward market levels.

The authorities probably would not have moved when they did had it not been for growing market pressure for a depreciation that could help counteract weakening economic growth. In fact, bolstering growth might have been the primary motivation for the country’s political leaders, even as the PBOC remained focused on advancing the longer-term

objective of strengthening the market’s role in determining the exchange rate.

But the two motivations are consistent: market forces would not be placing downward pressure on the renminbi if China’s economic fundamentals did not warrant it. The American politicians who demanded that China float its currency may have anticipated a different outcome – somewhat unreasonably, given that market forces reversed direction in mid-2014 – but one can hardly blame the Chinese for taking them at their word.

To be sure, China remains far from embracing a freefloating currency, let alone a fully convertible one, which would require further liberalisation of controls on crossborder financial flows. Unification of onshore and offshore markets is more important than a floating exchange rate in determining whether the International Monetary Fund will include the renminbi in the basket of currencies used to determine the value of its reserve asset, the Special Drawing Right. Much commentary on the subject has underestimated the importance of the criterion that the currency be “freely usable.”

Nonetheless, many are fretting that China’s exchange-rate adjustment has triggered a “currency war,” with other emerging economies devaluing as well. But, more than a year after the economic fundamentals swung against emerging markets (and especially away from commodities) and toward the United States, this adjustment was due.

Though the Chinese move likely influenced the timing, other devaluations would have inevitably taken place. Warnings about competitive devaluations are misleading.

Exhibit B in the case against attributing financial developments in China to government intervention is the stock-market bubble that culminated in June. According to the conventional wisdom, the authorities consistently intervened not only to try to boost the market after the collapse, but also during its year-long run-up, when the Shanghai Stock Exchange composite index more than doubled. The finger-wagging implication is that Chinese policymakers, particularly the stock-market regulator, have only themselves to blame for the bubble.

There is undoubtedly some truth to this story. It seems clear that the extraordinary run-up in equity prices was fueled by a surge in margin financing of stock purchases, which was legalised in 2010-2011 and encouraged by the PBOC’s monetary easing since last November. Likewise, there was plenty of support for the bull market in government-sponsored news media, for example.

But what many commentators fail to note is that China’s regulatory authorities took action to try to dampen prices over the last six months of the run-up. They tightened margin requirements in January, and again in April, when they also facilitated short-selling by expanding the number of eligible stocks. The event that ultimately seems to have pricked the bubble was the China Securities Regulatory Commission’s June 12 announcement of plans to limit the amount that brokerages could lend for stock trading.

This is precisely the kind of counter-cyclical macroprudential policy that economists often recommend.

But, whereas advanced economies rarely implement this advice, China and many other developing countries do tend to adjust regulation, including reserve requirements for banks and ceilings on homebuyers’ borrowing, countercyclically.

One could criticise the Chinese regulator on the grounds that the effect of its moves to increase margin requirements did not last long; or one could criticise it on the grounds that its moves caused the recent crash. But, either way, these measures were intended to stem the rise in market prices, rather than to contribute to it.

This is not a trivial point. Nor is the fact that the PBOC’s interventions in the foreign-exchange market over the last year have aimed to dampen the renminbi’s depreciation, not add to it. Given this, it is facile to blame China’s problems on government intervention.

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

September 9 - 15, 2015

financialmirror.com | WORLD | 19

Inflation, the Fed, and the Big Picture

By Carmen Reinhart Inflation – its causes and its connection to monetary policy and financial crises – was the theme of this year’s international conference of central bankers and academics in Jackson Hole, Wyoming. But, while policymakers’ desire to be prepared for potential future risks to price stability is understandable, they did not place these concerns in the context of recent inflation developments at the global level – or within historical perspective.

For the 189 countries for which data are available, median inflation for 2015 is running just below 2%, slightly lower than in 2014 and, in most cases, below the International Monetary Fund’s projections in its April World Economic Outlook. As the figure shows, inflation in nearly half of all countries (advanced and emerging, large and small) is now at or below 2% (which is how most central bankers define price stability).

Most of the other half are not doing badly, either. In the period following the oil shocks of the 1970s until the early 1980s, almost two-thirds of the countries recorded inflation rates above 10%. According to the latest data, which runs through July or August for most countries, there are “only” 14 cases of high inflation (the red line in the figure).

Venezuela (which has not published official inflation statistics this year) and Argentina (which has not released reliable inflation data for several years) figure prominently in this group. Iran, Russia, Syria, Ukraine, and a handful of African countries comprise the rest.

The share of countries recording outright deflation in consumer prices (the green line) is higher in 2015 than that of countries experiencing double-digit inflation (7% of the total). Whatever nasty surprises may lurk in the future, the global inflation environment is the tamest since the early 1960s.

Indeed, the risk for the world economy is actually tilted toward deflation for the 23 advanced economies in the

sample, even eight years after the onset of the global financial crisis. For this group, the median inflation rate is 0.2% – the lowest since 1933. The only advanced economy with an inflation rate above 2% is Iceland (where the latest 12-month reading is 2.2%).

While we do not know what might have happened were policies different, one can easily imagine that, absent quantitative easing in the United States, Europe, and Japan, those economies would have been mired in a deflationary post-crisis landscape akin to that of the 1930s. Early in that

terrible decade, deflation became a reality for nearly all countries and for all of the advanced economies. In the last two years, at least six of the advanced economies – and as many as eight – have been coping with deflation.

Falling prices mean a rise in the real value of existing debts and an increase in the debt-service burden, owing to higher real interest rates. As a result, defaults, bankruptcies, and economic decline become more likely, putting further downward pressures on prices.

Irving Fisher’s prescient warning in 1933 about such a debt-deflation spiral resonates strongly today, given that public and private debt levels are at or near historic highs in many countries. Especially instructive is the 2.2% price

decline in Greece for the 12 months ending in July – the most severe example of ongoing deflation in the advanced countries and counterproductive to an orderly solution to the country’s problems.

Median inflation rates for emerging-market and developing economies, which were in double digits through the mid-1990s, are now around 2.5% and falling. The sharp declines in oil and commodity prices during the latest supercycle have helped mitigate inflationary pressures, while the generalised slowdown in economic activity in the emerging world may have contributed as well. But it is too early to conclude that inflation is a problem of the past, because other external factors are working in the opposite direction. As Rodrigo Vergara, Governor of the Central Bank of Chile, observed in his prepared remarks at Jackson Hole, large currency depreciations in many emerging markets (most notably some oil and commodity producers) since the spring of 2013 have been associated with a rise in inflationary pressures in the face of wider output gaps.

The analysis presented by Gita Gopinath, which establishes a connection between the price pass-through to prices from exchange-rate changes and the currency in which trade is invoiced, speaks plainly to this issue. Given that most emerging-market countries’ trade is conducted in dollars, currency depreciation should push up import prices almost one for one.

At the end of the day, the US Federal Reserve will base its interest-rate decisions primarily on domestic considerations.

While there is more than the usual degree of uncertainty regarding the magnitude of America’s output gap since the financial crisis, there is comparatively less ambiguity now that domestic inflation is subdued. The rest of the world shares that benign inflation environment.

As the Fed prepares for its September meeting, its policymakers would do well not to ignore what was overlooked in Jackson Hole: the need to place domestic trends in global and historical context. For now, such a perspective favours policy gradualism.

Carmen Reinhart is Professor of the International Financial System at the Kennedy School of Government, Harvard University.

The current global financial crisis During the last month, global markets have been roiled by the financial crisis that emanated from China, but propagated to other parts of the world. To put things into

Korea.

Currencies and stock markets plunged across the region, even in places as far as Latin America, threatening a global recession. So, how did this crisis start and what are the fundamental reasons behind it?

By George Theocharides Cyprus International Institute of Management

perspective, during the month of August more than $5 trln has been lost from global equity values amid fears that the growth rate and prospects for the world’s second largest economy, China, are worse than previously expected. On top of that, the US Fed seems to be ready to raise interest rates (either in the Autumn or early next year) after many years of a low interest-rate environment, despite the slowing global economic growth.

Some argue that the current crisis is reminiscent of the East Asian crisis of 1997 that started from Thailand, and spread quickly to other East Asian tigers such as Indonesia, Malaysia, Philippines, and South

How did it start?

Chinese stock markets and its benchmark, the Shanghai Composite Index, have been rising rapidly in the last few years, with some fearing that it was a bubble about to burst. This index peaked by mid-June and then began to fall at an accelerated pace. In an effort to save the capital markets, the government used aggressive tactics such as banning short sales, stopping initial public offerings, prohibiting the sales of shares by all major investors, and instructing state-owned funds as well as investors to buy up shares to raise prices. Then, in an unprecedented move just prior to the opening of the markets on August 11, the Chinese central bank decided to devalue the yuan by around 2% against the dollar and thus de-peg it from the US currency. Only two days later, Chinese

officials decided to reverse this decision and halt the devaluation by intervening in the currency markets when needed.

Since then, they spent almost $200 bln in currency markets to halt this devaluation that they started. The Chinese market has also lost around $4.5 trln since the peak of the market in early June.

The shocks from China did not go unnoticed in other places around the world, with stock markets tumbling one after the other. Just in the US, more than $2 trln in value has been wiped out from stock markets in the last month, while the MSCI AllCountry World Index dropped 6.5% in August, its biggest drop since May 2012. The begging question of course is what are the fundamental reasons behind this crisis?

Fundamental reasons behind the crisis Certainly, one reason behind the current crisis emanating from China is the realisation from global investors that the growth in the Chinese economy is slowing down. The growth of China’s GDP of 7.4% for last year was the slowest in the last 24

years, while the expectation is that this year China will not be able to achieve its target of 7%. At the same time, investors seemed to lost faith in the incoherent policy actions of the Chinese officials, given what has happened in the last month.

Furthermore, given the recent good US economic conditions, US officials are poised to raise interest rates soon (the first time since 2006) fearing future high levels of inflation after years of monetary easing. This expectation puts more pressure on global equities, and that is why we have been observing a movement of investors to safe havens, i.e. away from the dollar and moving to the euro and the yen, as well as to safe Treasury securities (this is described as “flight to quality”).

Lastly, some argue that what we have been experiencing these days is a correction of prices, i.e. equity prices around the globe were inflated, and now investors are moving the prices back to their fundamental value.

George Theocharides is an Associate Professor of Finance at Cyprus International Institute of Management (CIIM) and the Director of the MSc in Financial Services www.ciim.ac.cy

September 9 - 15, 2015

20 | BACK PAGE | financialmirror.com

The art of capital flight

By Kenneth Rogoff

What impact will China’s slowdown have on the red-hot contemporary art market? That might not seem like an obvious question, until one considers that, for emergingmarket investors, art has become a critical tool for facilitating capital flight and hiding wealth. These investors have become a major factor in the art market’s spectacular price bubble of the last several years. So, with emerging market economies from Russia to Brazil mired in recession, will the bubble burst?

Just five months ago, Larry Fink, Chairman and CEO of BlackRock, the world’s largest asset manager, told an audience in Singapore that contemporary art has become one of the two most important stores of wealth internationally, along with apartments in major cities such as New York, London, and Vancouver. Forget gold as an inflation hedge; buy paintings.

What made Fink’s elevation of art to investment-grade status so surprising is that no one of his stature had been brave enough to say it before. I am certainly not celebrating the trend. I tend to agree with the philosopher Peter Singer that the obscene sums being spent on premier pieces of modern art are disquieting.

We can all agree that these sums are staggering. In May, Pablo Picasso’s “Women of Algiers” sold for $179 mln at a Christie’s auction in New York, up from $32 mln in 1997.

Okay, it’s a Picasso. Yet it is not even the highest sale price paid this year. A Swiss collector reportedly paid close to $300 mln in a private sale for Paul Gauguin’s 1892 “When Will You Marry?”

Picasso and Gauguin are deceased. The supply of their paintings is known and limited. Nevertheless, the recent price frenzy extends to a significant number of living artists, led by the American Jeff Koons and the German Gerhard Richter, and extending well down the food chain.

For economists, the art bubble raises many fascinating

questions, but an especially interesting one is exactly who would pay so much for high-end art. The answer is hard to know, because the art world is extremely opaque. Indeed, art is the last great unregulated investment opportunity.

Much has been written about the painting collections of hedge fund managers and private equity art funds (where one essentially buys shares in portfolios of art without actually ever taking possession of anything). In fact, emergingmarket buyers, including Chinese, have become the swing buyers in many instances, often making purchases anonymously.

But doesn’t China have a regime of strict capital controls that limits citizens from taking more than $50,000 per year out of the country? Yes, but there are many ways of moving money in and out of China, including the time-honoured method of “under and over invoicing.”

For example, to get money out of China, a Chinese seller might report a dollar value far below what she was actually paid by a cooperating western importer, with the difference being deposited into an overseas bank account. It is extremely difficult to estimate capital flight, both because the data are insufficient and because it is tough to distinguish capital flight from normal diversification. As the late MIT economist Rüdiger Dornbusch liked to quip, identifying capital flight is akin to the old adage about blind men

touching an elephant: It is difficult to describe, but you will recognise it when you see it.

Many estimates put capital flight from China at about $300 bln annually in recent years, with a marked increase in 2015 as the economy continues to weaken. The ever-vigilant Chinese authorities are cracking down on money laundering; but, given the huge incentives on the other side, this is like playing whack-a-mole.

Presumably, the anonymous Chinese buyers at recent Sotheby’s and Christie’s auctions had spirited their money out of the country before bidding, and the paintings are just an investment vehicle that is particularly easy to hold secretively. The art is not necessarily even displayed anywhere: It may well be spirited off to a temperature- and humidity-controlled storage vault in Switzerland or Luxembourg.

Reportedly, some art sales today result in paintings merely being moved from one section of a storage vault to another, recalling how the New York Federal Reserve registers gold sales between national central banks.

Clearly, the incentives and motives of art investors who are engaged in capital flight, or who want to hide or launder their money, are quite different from those of ordinary investors. The Chinese hardly invented this game. It was not so long ago that Latin America was the big driver in the art market, owing to money escaping governance-challenged economies such as Argentina and Venezuela, as well as drug cartels that used paintings to launder their cash.

So how, then, will the emerging-market slowdown radiating from China affect contemporary art prices? In the short run, the answer is ambiguous, because more money is leaking out of the country even as the economy slows. In the long run, the outcome is pretty clear, especially if one throws in the coming Fed interest-rate hikes. With core buyers pulling back, and the opportunity cost rising, the end of the art bubble will not be a pretty picture.

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

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