Financial Mirror 2015 09 16

FinancialMirror JEFFREY SACHS Syria needs Security

OREN LAURENT D-Day has arrived for Fed rate hike PAGE 14

Council solution

Issue No. 1149 €1.00 September 16 - 22, 2015

PAGE 16

Shipping wants ‘more Europe’

REGULATORY REFORM AND E-SHIPPING, DMS GETS FACELIFT - SEE PAGES 4-5

Greece goes to the polls (again) SEE PAGES 10 - 11

September 16 - 22, 2015

2 | OPINION | financialmirror.com

FinancialMirror Shipping: the game-changer in politics?

Published every Wednesday by Financial Mirror Ltd.

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It’s been a handful of years since Cypriots became ecstatic with the potential of oil and gas discoveries, with non-expert politicians making promises about how they would get crispy euros into the pockets of voter-citizens, making this a lucrative means to get the people to reject any form of solution to the Cyprob. Since then, the energy dream has almost but vanished, the excitement has subsided and business logic has gradually (but slowly) started to overcome nationalistic sentiment.

Turkey’s well anticipated arrogance did not help either, trying to poke its nose in other people’s business, once again based on an irrational sense of populism as opposed to the long-term ideals of the public good. Having seen with its own eyes the survey results from the Barbaros explorer, it realised that the Cyprus offshore gasfields would be beyond its reach and well outside the boundaries of the Turkish Cypriot “constituent state”, in the case of a federal solution.

This hardline attitude from Ankara has also misguidedly extended into the maritime sector, where apart from its low-labour cost shipyards, the Turkish flag has a minimal presence in ship-owning and ship-management, and nowhere near the experience and knowhow that the Cyprus-based companies have.

The fact that Cyprus is building up, brick by brick, its energy upstream (exploration) sector, with the

maritime fleet possibly contributing to a midstream (transport) industry, the only thing missing from the puzzle is the final piece of ‘downstream’ distribution (pipelines, marketing, refineries). With Egypt as yet undecided about its future needs for natural gas and the recent discovery in the Zohr gasfield possibly overturning Cypriot prospects for exports, it is only a matter of time that our other exporting neighbour, Israel, rekindles its one-time love relationship with Ankara and revises plans to pipe gas overland via Ankara to western European consumers.

As Israel would probably need to share the initial section of its undersea pipelines with Cyprus, this is where the Cypriot maritime sector comes in, as a global slowdown in consumer consumption and, hence, a slowdown in deliveries of raw materials to the Far East and re-export of goods, will make shipowners re-allocate their fleets, so that energy is shipped from the eastern Med to nearby refineries or pipelines, such as in Turkey.

Although Cyprus shipping would greatly benefit from a solution to the 41-year problem and the opening up of Turkish ports, in fact, Ankara (whatever regime is ruling) would benefit far more from a close partnership with Cyprus, beyond the other logistical benefits such as abandoning its financial support to the statelet in the north and maintaining a costly military presence on the island.

After all, a solution does not necessarily mean that Cypriots will go to bed with Turkey. They just need to have a respectable business agreement, as is the case with Israel, where relationships have yet to fully warm to a mutually beneficial level.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

BOC record in Greece, Cyta faces penalties The Bank of Cyprus stock price hit a record in Greece, closing at EUR 3.42 (CYP 1.96), while Cyta faces penalties and needs to reverse mobile phone charges to pre-April levels, according to the Financial Mirror issue 636, on September 14, 2005.

BOC in Greece: The Bank of Cyprus shares rallied by 2.4% on the Athens bourse and bucked the declining trend, with more than 5% now in the hands of foreign investors as the daily turnover

20 YEARS AGO

Election year budgets, BOC profits The Cabinet has approved the ‘election year’ budgets that see no VAT rise and CYP mln in sweeteners, while the Bank of Cyprus announced a 23% rise in profits, boosted by Greek operations, according to the Cyprus Financial Mirror issue 127, on September 13, 1995.

Budgets approved: The Council of Ministers has approved the three 1996 Budgets which see huge rise in deficits from CYP 221 mln to 342 mln, away from the 3% targets set by the Maastricht Treaty, but also a promise not to hike VAT and total tax beaks

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reached EUR 3.3 mln (CYP 12.89 mln), triple the average transaction of previous days.

Cyta penalties: The Competition Commission is considering imposing penalties on Cyta for not abiding immediately to raise mobile phone charges to pre-April levels and violated its dominant position, while Areeba also secured a court

order to force Cyta to reverse its charges.

UN corruption: UN Secretary General Kofi Annan said he will allow US officials to press criminal charges against Cypriot Benon Sevan for allegedly taking $150,000 in bribes as former head of the UN’s oil-forfood programme in Iraq.

GVA growth: Financial and business services have been the fastest growing sectors since 2004 with the gross value added showing output rose 5.2%, with construction coming in a close second at 5.17%.

Fed hike: The Federal Reserve raised interest rates by a quarter point to 3.5% and restated a plan to carry out further increases at a measured pace. At the time, Gold was selling at $438/ounce and crude oil was at $62.7/barrel for Brent and $63.6 for WTI.

amounting to CYP 30 mln. The budget deficit is set to rise to 4.1% of GDP from 2.7%.

BOC profits: Bank of Cyprus announced first half results with operating profits up from CYP 13.1 mln in the last year to CYP 16.1 mln, with Chairman Solon Triantafyllides proposing a 6% interim dividend.

He said the rise was due mainly to

spectacular profits abroad, mainly Greece. (Ed’s note: Those were the days...)

Cylink ISP: A new Internet Service Provider will start its services soon with CyLink connected to the European EUNet network that has 250 points of presence in 38 countries. The retail fee is CYP 10 for set up and CYP 10 a month after that.

Oncology Centre: The ceremony for the laying of the foundation stone for the Bank of Cyprus Oncology Centre in NIcosia will be held this week, headed by President Glafcos Clerides and Archbishop Chrysostomos. (Ed’s note: Imagine how far we have come in the past 20 years with the Centre now an integral part of our health system and society in general).

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September 16 - 22, 2015

financialmirror.com | CYPRUS | 3

Next bailout payment of €500 mln in October, €125 mln from IMF The Eurogroup welcomed the positive seventh review of the Cyprus economic adjustment programme in July that now paves the way for the approval procedures in a number of member states, after which the ESM board of governors will formally approve the disbursement of EUR 500 mln in October.

Eurogroup President Jeroen Dijsselbloem, Commissioner Pierre Moscovici and Head of ESM Klaus Regling expressed warm words on the progress achieved by the Cypriot economy.

In its statement on Cyprus, the Eurogroup said that the fiscal developments continue to exceed expectations, the financial situation of the banks is showing signs of gradual improvement and some progress has been noted on important growth-enhancing reforms.

The Eurogroup noted that it was encouraged that the economic recovery in Cyprus is gaining strength, the labour market is showing signs of stabilisation, although unemployment remains high, and that the economy showed overall resilience in the past months.

It said that addressing the excessive level

of non-performing loans remains a top priority for Cyprus in order to reignite credit growth and ensure that banks continue to improve their resilience.

“In this regard, we stress the importance of an effective implementation of the recently enacted insolvency legislation and of the enhanced foreclosure framework, together with other measures adopted recently to speed up the reduction of arrears.

The determined pursuit of financial sector reforms, including legislation to facilitate the sale of loans, remains necessary to secure a decisive reversal of the non-performing loan

trend.

“The Eurogroup commends the Cypriot authorities for the progress that has been made to date, and calls on them to keep up the reform momentum. The timely implementation of the growth-enhancing reform agenda, including privatisation and public administration reform, is essential in order to restore Cyprus’ growth potential, while safeguarding the protection of the most vulnerable groups”, it added.

The statement said that the Eurogroup agrees to endorse in principle the updated Memorandum of Understanding, as well as the disbursement of the next tranche of financial assistance to Cyprus.

“We consider that the necessary elements are now in place to launch the relevant national procedures, paving the way to the formal approval by the ESM governing bodies of a disbursement of EUR 500 mln in October. Concurrently, the IMF Executive Board is expected to decide on the disbursement of about EUR 125 mln”, it concluded.

Employment up in 2Q Employment increased in Cyprus in the second quarter of the year by 0.1%, compared to the previous quarter and by 0.3% compared to the year-earlier quarter, according to Eurostat.

The number of persons employed increased by 0.3% in the euro area and by 0.2% in the EU28 in the second quarter of 2015 compared with the previous quarter, Eurostat said based on national accounts estimates.

In the first quarter of 2015, employment increased by 0.2% in the euro area and 0.3% in the EU28. These figures are seasonally adjusted.

Compared with the same quarter of the previous year, employment increased by 0.8% in the euro area and by 0.9% in the EU28 in the second quarter of 2015 (after +0.8% and +1.0% respectively in the first quarter of 2015).

Portugal (+1.3%) and Greece (+1.2%) recorded the highest increases in the second quarter of 2015 compared with the previous quarter, followed by Ireland and Spain (both +0.9%), Estonia (+0.8%), Luxembourg and Slovakia (both +0.7%). Decreases were recorded in Finland (-0.3%), the United Kingdom (-0.2%), Bulgaria and Lithuania (both -0.1%).

September 16 - 22, 2015

4 | MARITIME CYPRUS | financialmirror.com

ªaritime sector wants “more Europe” on shipping issues Regulatory reform is needed to cut down on red-tape, say shipowners

Shipping and ship owner’s associations have called for “more Europe” including the creation of a common regulatory system and completion of the single.

Speaking at the Maritime Cyprus conference in Limassol, Thomas Rehder, President of the European Community Shipowners’ Association said that “as long as shipping is not as easy and straight forward as running a truck, we have not completed the European Single Market.”

International Maritime Organisation Secretary General Koji Sekimizu said that the governance of the international shipping has always been, is and will always be the subject of politics. “This is a simple fact. Politics has played a major role in the governance of the international shipping”, he said.

Sekimizu added that all the states have a responsibility for the governance of international shipping as this is a global issue. He also noted that universality is a value which IMO has together with the shipping industry generated over the last five and a half decades.

He said that the IMO is moving ahead when it comes to implementation, and that it has adopted a very important legislation to establish member states’ audit system. “And IMO is going to look into the performance of the flag state and portal state,” he stressed.

“My point is that the global system was created by governments and industry and together with the IMO. I am sure this system will continue to serve a sustainable shipping industry,” he added.

Assistant Commandant for Prevention Policy of the US Coast Guard, Paul Thomas, said that all the stakeholders, including NGOs, politicians and the shore side aspects of this industry, need to work together, to build a system of governance in order to meet the challenges that shipping faces in the future.

“There are significant challenges, including the reputation that this industry has as being lawless,” he said, noting that there are other challenges as well, such as the need to continuously grow the capacity of the systems, not just as it concerns the ships but also regarding the ports, and that the environmental footprint must be decreased.

Thomas said that those challenges require all stakeholders to work together to allow this industry to flourish. “I don’t see it as a competition or even as an opposition but as each of the stakeholders have a critical role to play,” he noted.

Vice Chairman of the International Chamber of Shipping Kerin Orsel said that she is impressed by cooperation between the government and the shipping industry in Cyprus adding that this is a very good example to be followed.

She said that the relationship between the ICS and the IMO is based on cooperation, adding that “we are all committed to continue improving maritime safety and protecting the environment”.

“At this moment Europe wants to make a voice and is creating rules and regulations which is sometimes ahead of the IMO and which all brings us in a very difficult

Transport Minister Marios Demetriades speaking as a panellist on the first day of the Maritime Conference on Monday

position”, she added.

Thomas Rehder added that he does not think that the relation between regulators and industry is antagonistic and controversial but complementary. “It should be complementary because European shipping is on the one hand a market leader in the world, over 40% of the world shipping is controlled in Europe, but on the other hand European ships spend over 90% of their time in non-European waters,” he noted.

Rehder referred to the agenda of Jean Claude Juncker’s Commission and how this is related with shipping. “We could go back to the agenda of the Juncker Commission.

Juncker understands the role of the Commission as very political and they have set a number of goals, amongst others the stimulation of growth, creation of employment, a digital agenda, and completion of the European Single Market.

And all of that very much under the perspective of improving Europe’s competitiveness on a world wide scale,” he pointed out. “But completion of the Single Market is a true European issue.”

As he explained, when someone looks at completing the Single Market there is no better example than short sea shipping. “It is in many ways a low hanging fruit to be picked,” he said, indicating that when a truck is used to transfer goods in Europe only one document is needed, but when a ship is used there are as much as 90 documentary steps to be fulfilled “and at the same time you have to deal with different countries” with different regulations, instead of dealing with just one set of EU regulations.

Host Transport, Communications and Works Minister Marios Demetriades said that presence of the IMO Secretary General at the conference “highlights the importance or the shipping industry worldwide. From our part, from the governments’ point of view, we will do what is possible not only to maintain the strength of our shipping sector but to enforce it and to increase it”.

In his opening address to the conference, read out by Demetriades, President Anastasiades said that the discovery of hydrocarbons in our Exclusive Economic Zone creates new prospects for our country and our economy and widens the horizons of our shipping industry.

Anastasiades said that the shipping industry in Cyprus is a sector that operates on a global scale, and whose size and international importance go far beyond the size of the country.

Today, he noted, “Cyprus is an international shipping power and a renowned maritime centre combining a sovereign flag and a resident shipping industry with high quality services and standards of safety and security”.

Despite the economic crisis during the last few years, he added, “shipping related companies continue to trust Cyprus as a base for their operations proving that the island remains, for a multitude of reasons, a good place to do business in and from”.

The shipping industry, he said, “is a vital sector of the Cyprus economy and a catalyst for economic growth. The government is now advancing on our structural reform agenda with the aim of setting the foundations for sustainable growth in the long run, attracting foreign direct investments and eventually creating a new economic model for the country”.

He assured the conference participants that the government “is fully committed to safeguarding the shipping and maritime sector by doing its utmost to guarantee its continuous sustainable growth.”

The President stressed that “the discovery of hydrocarbons in our Exclusive Economic Zone creates new prospects for our country and our economy. These new developments widen the horizons of our shipping industry, creating relevant synergies and opportunities. A whole new industry is currently being created in Cyprus to meet the needs of the offshore exploration and

production of gas and oil activities”.

“It is also anticipated that foreign shipping companies will relocate their offices and operations on our island in order to explore the benefits of the emerging east Mediterranean offshore market”.

Conference Chairman and Permanent Secretary of the Ministry of Transport, Alecos Michaelides, said that “we in Cyprus are very proud of our maritime tradition and culture and we put great emphasis to the needs of those who fly the Cyprus flag on the stern of their ships, a ‘high quality and respected flag’. At the same time, we provide all necessary assistance to our resident maritime cluster that grows in size steadily since the 1970s,” he concluded.

President Nicos Anastasiades presented the ‘Maritime Industry Personality of the Year’ award to Eleftherios Montanios during the welcome reception in Limassol on Sunday

September 16 - 22, 2015

financialmirror.com | MARITIME CYPRUS | 5

Regulations and e-shipping are part of a new shipping environment Andreas Chrysostomou, Acting Director of the Department of Merchant Shipping said that the government has already started the implementation of a study for the future of shipping in Cyprus, commissioned by the Ministry of Transport and Communications to enhance the competitiveness of the maritime sector. He said that the political will exists to develop and strengthen the role of Cyprus shipping in the international maritime scene at a more rapid pace.

He said that the second day of the Maritime Cyprus Conference in Limassol focused on “The New Shipping Environment” and how international bodies and new technologies impact the shipping industry Tuesday’s second session examined some of the factors that influence the regulatory decisions in international shipping and Transport Minister Marios Demetriades, with IMO General Secretary Koji Semimizu (left) and addressed some of the key challenges the Conference Chairman Alecos Michaelides shipping industry is facing today in relation to issues. the use of cyber-physical systems on board ships.

The discussion on “e-shipping” explored the impact of cyberThe debate was divided into two sessions, the first session focused on the subject “Do shipping people influence decisions?” while the physical systems on board ships and how these systems affect navigation, seafarers, safety and security of the vessels. second session focused on “e-Shipping”.

Panellists indicated that e-shipping should be ‘user needs led’ During the first debate, panellists focused on the regulatory decision making process, particularly maritime industry’s influence rather than led by technologists or regulators. Furthermore, the at the International Maritime Organisation and the European Union. panellists indicated that the success of “e-navigation” will rely heavily The panellists agreed that maritime industry can be influential in upon the proper involvement of all parties concerned and in some cases depending on the nature of the debate and the political particular the seafarers throughout its development and decisions taken, while they expressed concern about some of the implementation.

Some stressed that the aim of “e-shipping” is not to replace the environmental decisions taken in relation to shipping during the past years and questioned the methodology followed in order to reach seafarers on board vessels, but to assist seafarers in taking more informative decisions thus making the ships safer and more efficient. those decisions.

Concluding, the panellists indicated that despite the advanced The panellists further noted that the shipping industry should be proactive in adopting best practices. Additionally, they indicated that technological developments, “e-shipping” has not yet matured and coordinated action should be taken to persuade public opinion that further studies are required especially with regards to maintaining the shipping industry attributes great importance to environmental the cyber security which is vital for the ship and the port facilities.

Reunification of Cyprus will open new prospects for shipping sector, President tells shipowners A solution of the Cyprus problem will open new prospects for ships flying the Cypriot flag, President Nicos Anastasiades said in his address to the dinner hosted by the Cyprus Ship-Owners Association at the Presidential Palace on Monday.

Anastasiades spoke of the ongoing talks with Turkish Cypriot leader Mustafa Akinci which aim to reunify the island under a federal roof.

He pointed out that “it is well known than Turkey, which does not recognise the Republic of Cyprus, has imposed an embargo on vessels under the flag of Cyprus in Turkish ports.”

Consequently, a solution to the Cyprus problem will open new prospects for the ships flying the Cypriot flag, he added.

So far, he said, significant progress has been made in the talks, noting however that there are also hurdles “which we try, nevertheless, to address having as a basis the European acquis and the fact that Cyprus is

an EU member state.”

President Anastasiades then emphasised that “our objective is of course to be free from the occupation army, to reunify the country on the basis of a federal structure – as has been previously agreed, bizonal, bicommunal - but with strong powers for the central government and, most importantly, by safeguarding human rights.”

He expressed the hope that “our efforts will succeed, particularly if Turkey, which continues to be the occupying country, also contributes to this end.”

“We will continue this effort with determination”, he stressed, adding that the status quo is “unacceptable.”

At the welcoming reception in Limassol on Sunday, Anastasiades said that shipping companies continue to trust Cyprus as the base of their operations, despite the economic crisis and that the maritime industry continues to play a significant role in the country’s economic recovery.

He pledged that the government will do everything possible to develop the sector further and address modern challenges successfully.

The President referred to statistical data showing that the Cypriot economy has returned to growth in the first half of 2015.

“In this, I recognise the important contribution of the shipping industry,” he noted.

“Our country is considered one of the top maritime centres, since it ranks among the first three in the EU and is the tenth largest worldwide.

“A key factor for this is the cooperation between the public and the private sector,” the President concluded.

During the event, President Anastasiades awarded Koji Sekimizu, the outgoing Secretary-General of the International Maritime Organisation, an honorary plaque for his contribution in promoting the goals of the shipping sector.

Facelift for sector in 2016, new DMS director next month The maritime sector will get a facelift by next year, once the maritime strategic policy, drafted by the Ministry of Transport, is implemented in a bid to boost the shipping industry which contributes 7% to the island’s GDP, according to Transport Minister Marios Demetriades said.

The competent minister supervising the Department of Merchant Shipping (DMS) also said that this unit will finally get a new Director General, probably by the end of September, that will not change operations but will make things run smoother.

He said that the aim of the new strategy aims to promote the maritime sector despite the embargo which Turkey has been imposing on Cyprus-flag ships since 1983, ampers the island’s registry which ranks tenth in the world, third in the EU and a leader in ship management.

“There is no doubt that the Turkish embargo has a negative impact on our ship registry but this does not mean that there are no other issues to be tackled and this is what we shall do,” he said.

He added that the policy will include promotion campaigns but also new incentives regarding fees and taxes.

Demetriades did not elaborate as these incentives are being assessed by various committees.

He said that as part of the Ministry’s restructuring plan, the DMS will also be overhauled so that it will be in a position to cope with the needs and requirements of the modern maritime industry.

“Quality, flexibility, immediate service and credibility will make up the Department’s new corporate identity,” he said, adding that the DMS will acquire a new website and the Ministry is examining the possibility to serve DMS clients through the internet and smartphones.

He announced that the Ministry will appoint the new DMS Director, a position which has remained vacant since 2012 because of a ban on public sector hiring and promotions due to the financial crisis.

Cyprus Shipping Chamber former Chairman Eugen Adami said that geopolitics are also hampering the global shipping industry, noting that although the shipping industry is not responsible for the geopolitical problems, the embargoes from and to Russia have paralysed trade in the Black Sea. “We would only hope that geopolitically the world will come to a better balance so that consumption not only for the shipping industry but for the world will pick up and as soon as this happens the cargoes will flow again,” he concluded.

Young executives look at how to deal with challenges that lie ahead The Young Executives Session, attended by senior officials under 40, discussed how to “Challenge the Leadership Process”.

The discussion sought to examine what the challenges, setbacks and turning points faced by the young professionals are as well as the profile of a young leader. The panellists addressed the topics raised by drawing personal experiences and shared these with the audience.

It was suggested that the young professionals, in order to establish themselves as young leaders, need to be passionate about their profession and duties, be motivated

by curiosity to experience something different, invest time, participate in organisations, grab opportunities and take risks.

As milestones and turning points, reference was made to the validation and recognition that the targets have been finally reached, the gaining of acceptance especially by senior leaders and the establishment of one’s self as the goto person. Challenges to the young leader were seen to be acceptance and recognition, the building and management of relationships, coaching and required expertise.

Finally the young leader’s profile and characteristics were

extensively discussed and it was commonly concluded that a young leader should be ambitious, passionate, emotionally intelligent, innovative, intuitive, confident, loyal, adaptive to change and a risk taker where necessary.

The moderator of the discussion was Despina Panayiotou – Theodosiou, President of the Women’s International Shipping and Trading Association – WISTA Cyprus, while the panellists included Giulio Tirelli, Director, Portfolio & Application, Wärtsilä Italia S.p.A; Stella Kazamias, HR Manager, Interorient; and hilippos Ioulianou, Chairman, YoungShip Cyprus.

September 16 - 22, 2015

6 | CYPRUS | financialmirror.com

‘Lagarde list’ has 490 names, Minister tells MPs The so-called “Lagarde list” of Cypriot individuals and companies with deposits in the Swiss branch of HSBC bank, as received by the Cypriot authorities from France, contains 490 names, Finance Minister Harris Georgiades told the Parliament, adding that the government is determined to deal with this issue.

The issue was discussed in a joint session of the Parliamentary Public Expenditure Control and the Ways and Means Committee in the presence of Georgiades and Tax Commissioner Yiannakis Lazarou.

Georgiades noted that the data included in the list refer to deposit balances from December 2005 to December 2006. He noted that the natural persons are Cypriots nationals or persons under a Cypriot address, while there are natural persons or companies that are associated with more than one account.

“These are unprocessed data that have been received by the Tax Department and will be examined one by one,”

Georgiades added, noting that this list “without a doubt is included in the high risk category.”

The Finance Minister added that at the instructions of the Tax Commissioner, the tax authorities began to investigate these data, adding the process will determine the possible revenue for the state coffers due to outstanding taxes.

Replying to questions from MPs, Georgiades did not overrule the possibility the list to be officially submitted to parliament, provided that the legislature submit a detailed request. “When an official request is submitted by parliament, we will look into it and we will engage the Attorney-General, but the list should not be politically exploited,” he said.

On his part, Tax Commissioner Lazarou told parliament that the authorities have the capacity to investigate the list but they would request expert assistance should problems arise. He said the tax can be imposed retrospectively for up to 12 years.

Meanwhile, the Committees members said they will formally request the list to be submitted to the President of the House in order to prevent any suspicion that the list may be altered.

Committee Chairman Nicos Nicolaides said there was a significant and unacceptable delay on behalf of the government to obtain the list.

Ruling Democratic Rally MP Andreas Kyprianou pointed out there should not be excessive expectations in the public with regard to the list as these data concern deposits of a particular period in just one bank. He also said in case the list contains politically exposed persons these names should be published. On his part, opposition AKEL MP Aristos Damianou said Parliament should not substitute the tax authorities but should exert political pressure so that this issue cannot be covered up.

Marios Garoyian of DIKO said the state should avoid removing names from the list.

Focus is on building up economic support for a settlement, says Eide There is still ground to cover in the negotiations

Chinese investors keen on tech park Cyprus aims to attract Chinese high tech giants to invest in the first science and technology park in Pentakomo, near Limassol, while the two countries are working to promote the basis for bilateral cooperation between universities, academic institutions and companies.

The Energy and Trade Minister Giorgos Lakkotrypis and the Chinese Minister of Science and Technology Wan Gang signed a bilateral agreement to jointly promote innovation, science and research.

In statements after the signing in Nicosia, Lakkotrypis said that the aim is to enhance relations and make it easier for researchers, universities and academic institutions to collaborate and promote innovation.

He also underlined that the agreement “comes for Cyprus at a very good moment, when the government is getting ready to publish the tender for the creation of a science and technology park.”

The tender for the first park in Pentakomo is expected to be announced soon, after the necessary legal screening is completed by the Law Office of the Republic.

Lakkotrypis said the agreement can help Cyprus draw best practices from China, which is already managing 120 technology parks, and promote potential Chinese involvement.

Wan Gang noted that with Lakkotrypis, they confirmed the priorities of bilateral collaboration in the field of high-technology and new-technology parks.

The emphasis is on technology parks, as well as on potential collaboration between universities, research institute and companies, Wan Gang said, noting that their findings must be translated into practical productivity. Priorities include clean energy, renewable energy, ICT, biotechnology and nanotechnology, the Chinese Minister said.

He added that later this year, the first China-Cyprus science, technology and innovation commission meeting will be held in Beijing.

Wan Gang also noted the co-funding mechanism China has established with the EU and invited universities from China, Cyprus and other EU member states to benefit from it.

Cyprus has available funding of EUR 30 mln for the 2014-2020 period from the joint China-EU fund, that may be directed to common research projects.

The focus right now in the Cyprus peace talks is on building economic support for a settlement, Special Adviser of the UN Secretary-General on Cyprus Espen Barth Eide said, speaking after visiting President Nicos Anastasiades on Tuesday.

He described Monday’s meeting with Anastasiades and Turkish Cypriot leader Mustafa Akinci as very good, noting that he talked to the President about how to organise the time ahead. Because, he added, “we said in our statement (on Monday) that crucial months are coming, that we recognise progress has been made, we also recognise hard work remaining”.

Eide said the big question now is “how do we optimise our time in the coming months, which means which issues do we deal with and with which sequence and how do we connect all the dots”.

The Special Adviser said the conversations they are having now before the meetings coming up in New York, on the sidelines of the U.N. General Assembly, is about the overall picture of affairs.

The solution, he said, “is a big picture solution. It has many details and these details matter and they are serious, important issues but there is only a solution, if we connect the dots, and now we are in the connecting the dots phase, which is exactly where I think we should be in September”.

So, he continued, “I am happy with the state of affairs and I also reiterate as the leaders correctly said both in their statements and individually that there is a lot of work and there is little time and we have to get that work done.”

Eide added that “a particular focus right now is on building economic support for a settlement”.

Over the summer, he recalled, the EU leadership visited Cyprus and now the US Undersecretary of State, adding “I am going to have a lot of meetings over the next weeks in New York, using the opportunity of the whole world coming together, building willingness to help build that fund relatively quickly because the more we succeed on that front I think some of the crucial issues will be easier to solve”.

Replying to a question as to why the coming months are so crucial, he said “because these processes have a dynamic of their own.”

“Four months is in one sense very short because we have many decades of not solving the Cyprus problem, but it is also very intense and this type of momentum comes and it might go, so we really want to use it while we still have it,” he said.

This momentum, he added, is also “a reflection of the fact that the stars are well aligned now, they may not be well aligned all the time.

“Again both for the internal quality of the process but also for the surrounding circumstances, I think it would be good to use this opportunity when we have it”.

Replying to a question, he made it clear that “there is no timeline. It is quite quite important to underline that we haven’t even sought to have a timeline, because a timeline can be suffocating, because then the dates take dominance over substance”.

However, he said he is very happy to hear the leaders

repeatedly say “that there is no time to lose”.

Eide also said there is a decision that talks will be intensified after October.

“They are meeting all the time. But the leaders want to take more direct charge and that means significantly more frequent meetings from November on”, he added.

Asked if the elections in Turkey will affect the process, Eide said the primary focus is to deal with this between the two sides in Cyprus. “Of course we are aware of the electoral conundrums in several neighbouring states but the main issue to get as much done as possible what is within the control of the two leaders meeting in the negotiations”.

Government Spokesman Nicos Christodoulides said that there is still ground to cover in the negotiations, speaking after the meetings President Anastasiades had with US Assistant Secretary of State Victoria Nuland and Espen Barth Eide.

Christodoulides pointed out the negotiations are not yet at the stage of give and take, adding that during the meetings they reviewed the current situation and talked about how the process will continue.

“There is still a lot of ground to be covered. We have entered the stage of negotiating challenging chapters and hard negotiations are underway. We need to be patient to see how the process will evolve so that we can proceed with more safe predictions on the final goal,” he said.

Regarding the economic aspect of a solution, Christodoulides said that it is an important aspect. “What we are most interested in is to solve the financial aspect of the problem before a solution to the Cyprus issue”, he explained.

This, he said, is a matter that needs to be settled before a solution is put before the people in a referendum.

Christodoulides also reminded that there is no timeframe for a solution and that the effort is ongoing.

On the rotating presidency issue, Christodoulides said Turkish Cypriot leader Akinci considers it part of political equality. “For us, political equality is achieved through effective participation in the decision making process at a federal level. We have a disagreement on this. We are discussing it and there are alternative positions and views on our side”.

“As of November, apart from the almost daily meetings of the negotiators, the leaders are willing to meet more frequently, and according to the document that will be prepared by the negotiators on where there are disagreements, we will see how the whole procedure will continue”.

Regarding the meeting with Victoria Nuland, Christodoulides said the Cyprus problem, energy and the economy were among the issues discussed.

The spokesman described the meeting as “very good” during which there was a discussion on developments in the Cyprus problem, the talks at the negotiating table on all the aspects of the problem, and there was an extensive discussion on the issue of missing persons.

The issue of the missing persons, said the Spokesman, is a “first rate opportunity for Turkey to prove in practice what it states in public about the Cyprus problem”.

September 16 - 22, 2015

COMMENT | 7

Merkel at odds with her own party over refugees Germany’s Christian Democratic Union is not on the same page as its leader, Angela Merkel. Now the party must come to a decision on an immigration law, Der Tagesspiel reported.

Merkel, chair of the CDU, has suffered politically in the past by changing policy direction. The last time was in 2011, when the Chancellor announced an accelerated nuclear phase-out, despite having delayed the closure of Germany’s plants just prior.

This had disastrous consequences for Merkel’s party, especially in BadenWürttemberg, where the CDU lost one of its traditionally safe seats to the Greens and the SPD. Four years later and the CDU is reliving the experience all over again. Once more, it relates to a core theme of the party. This time it is “identity”. Again, Merkel’s party is sending out conflicting signals and questions will inevitably be asked as to whether the CDU’s policy is actually credible.

Firstly, the Chancellor opened up the border with Hungary to refugees, which bypassed the EU’s much-criticised Dublin system. Then the German authorities struggled to deal with the influx of tens of thousands of asylum seekers, which they have been unable to register properly.

Finally, Merkel has reestablished border controls, suspending Schengen arrangements on the Austrian border, in an attempt to deal with the chaos.

“Reintroduction of border controls is not a solution” When parliamentary faction and group leaders from both the CDU and the CSU met with Chancellor Merkel on Sunday evening in a Berlin restaurant, the post-Fukushima situation was raised, some participants of the meeting reported.

Next spring, the state elections of BadenWürttemberg and Rhineland-Palatinate will determine whether Merkel’s policymaking has lost her more support.

The Chancellor’s opening of the border a week ago “alarmed” her core voters, leading in turn to the “knock on effect” of more refugees than the authorities could handle and, eventually, the emergency steps taken on Sunday.

Merkel is reported to have argued that the

point that such a “humanitarian emergency” meant that no other course of action was possible. In her party’s national associations, however, the point of view that prevailed was that the opening of the borders was an action for which the country was not prepared. This perception was only reinforced, and, continued to worry CDU supporters, when Merkel was photographed at a refugee reception centre in Berlin, smiling and posing for selfies, in pictures that quickly made their way around the net.

One particularly bitter photo with the caption “Saint Joan of Arabia” made the rounds on social media.

Merkel sought to quell the anger that the visit had caused, stating that the pictures

with the refugees were not planned and could not have been prevented.

Open criticism by the CSU of the Chancellor’s opening of the borders was considered “unhelpful” in many circles. At the same time though, it is a view shared by many parts of the CDU itself. However, the Chancellor knows that the decision to open the borders, as with the post-Fukushima situation, is an action that most Germans support. The ripostes to Merkel’s initial movements include CDU faction leaders agreeing on asylum centres for refugees from the Western Balkans in every region, a residency obligation, the replacement of a monetary allowance with a non-cash alternative, and immediate deportation of individuals whose applications are not successful.

Mike Mohring, regional chairman of the CDU in Thuringia, stated, “We are going to do our utmost to ensure that the influx of refugees and asylum seekers is limited so as to not endanger our country’s integration.”

The fact that the CDU leadership decided on Monday that a new immigration law will be discussed at the party’s congress in December, has been described by party members as an “unfortunate signal” that has come at the “wrong time”. Armin Laschet, whose party commission has worked on the issue for a year, defended Germany’s decision to reintroduce border controls.

Berlin and London play hardball in shaping future vision for the EMU

By Jorge Valero EURACTIV.COM

The eurozone’s rulebook and its anti-crisis mechanisms have been bolstered since the sovereign debt crisis hit Europe at the end of 2009. But serious risks still loom large, as growth potential remains low and the bloc’s governance framework is “not fit for purpose”, Benoit Coeuré said after a meeting of EU finance ministers over the weekend .

“We need to have a vision” for the future of the euro area, said Pierre Gramegna, the Finance Minister of Luxembourg who is chairing the Ecofin Council of finance ministers this semester.

In his opinion, this vision should go beyond the Economic and Monetary Union (EMU) to also include growth, employment and welfare policies.

However, this ’big plan’ could meet obstacles along the way, as the United Kingdom and Germany are ready to play hardball in shaping this future.

While London is warning against further integration that could push non-eurozone members away from the EU single market, Berlin is dragging its feet on the mutualisation of risks among the single currency bloc, since the EMU remains incomplete.

The European Commission is currently working on a package to strike a balance between ’ins-and-outs’ in the eurozone and national responsibility versus risk sharing.

An EU source explained that the package, to be announced in the second half of October, will consist of proposals to strengthen the external representation of the euro, in particular in the International Monetary Fund (IMF); to revamp the EU semester; and to review the fiscal and macroeconomic rules (the so-called ’two-pack’ and ’six-pack’) in order to add a more social dimension. It will also include a plan to set up a eurozone system of competitiveness authorities; an advisory European Fiscal Board, to coordinate the existing fiscal councils; and set out the Commission’s general view on its plan for a EU deposit

guarantee scheme.

All these elements were already outlined in the so-called Five Presidents’ report. Most of the proposals are uncontroversial, although some member states are reluctant to continue creating new institutions that could add more burdens to the already baroque economic governance system. However, the EU deposit guarantee scheme has triggered Germany’s protest, even more after Commission President Jean-Claude Juncker announced in his state of the union speech that the legislative proposal will come by the end of the year, earlier than expected.

“To now start a discussion on further mutualisation of bank risks through a common deposit insurance or an European deposit reinsurance scheme is unacceptable,” the German delegation said in paper sent to the capitals ahead of the Ecofin Council.

Germany prioritises finalising the implementation of the existing rules, in particular the Bank Recovery and Resolution Directive (BRRD). Although the deadline was 31 December 2014, only half of the member states had fully adopted it by early August. The BRRD aims to reduce the cost of bank resolution by making the financial institutions pay the lion’s share before using taxpayer money.

The Luxembourg Presidency and the Commission played down Germany’s opposition. “It is not that the door is closed, but it is a matter of timing,” Gramegna said. He underlined that there is a “readiness” to move forward, but the eurozone needs first to strengthen national responsibility (i.e by implementing the BRRD) before discussing an EU deposit system. “Lets not put the car before the horses,” he told reporters.

Officials in Frankfurt and Berlin commented that an EU deposit guarantee scheme is needed to complete the banking union, its third pillar together with the Single Supervisory Mechanism and the Single Resolution Mechanism. But they also agreed that it would be “very hard” to make any progress against Germany’s will in the months to come.

A Eurogroup member said that Germany’s obstruction is just a negotiation tactic, and that Berlin’s position will find little traction among other member states.

However, the high-ranking official pointed out that the clash between eurozone and non-eurozone members is becoming more important.

George Osborne, Britain’s Chancellor of the Exchequer, warned his colleagues not to push the United Kingdom outside the EU. Moreover, the non-euro partners recalled that the single market, the banking union, and the upcoming capital market union affects the EU as a whole.

Member states outside the single currency are feeling “more and more excluded”, the source summed up on condition of anonymity.

In order to strengthen eurozone governance, the presidents of the European Commission, the Council, the Eurogroup, the European Parliament and the European Central Bank were invited to combine their efforts to prepare the “next steps for a better economic governance in the euro area”.

The report, presented last June, concluded that “for the euro area to gradually evolve towards a genuine Economic and Monetary Union (EMU), it will need to shift from a system of rules and guidelines for national economic policymaking to a system of further sovereignty sharing within common institutions, most of which already exist and can progressively fulfil this task”.

September 16 - 22, 2015

8 | COMMENT | financialmirror.com

LIGHTENING UP YOUR DIET… AND YOURSELF

FOOD, DRINK and OTHER MATTERS with Patrick Skinner

Patrick Skinner goes easy-on-the-waistline

10. Sprinkle over the capers and finely chopped garlic, or if you are not using these, simply arrange the peppers nicely and serve.

The email I was dreading arrived on my laptop last week. “Dear Patrick”, it read, “I want to lose weight – can you recommend a diet?” My simplistic answer would be “Eat less!”, but it’s not as easy as that. Changing any part of your lifestyle is in the mind, and only you can do it.

Diet, of course, is not only about weight. It’s about sugar-levels (and avoiding diabetes) and cholesterol as well. You can achieve and maintain good health through sensible eating. I maintain you can also enjoy every meal. Having lived in the Mediterranean for many years, I became accustomed to food that was generally good for you, provided one largely ignored most Cypriot taverna keepers’ custom of serving foreigners chips with everything. If you really do want a regime: look up The Mediterranean Diet. If you just want a bit of advice from this old hand, then…

1. Cut down on “dairy” (butter, cheese, cream especially) and animal fat; 2. Don’t snack between meals; 3. Use a polyunsaturated oil instead of fats for cooking; 4. Reduce the amount on the plate, e.g. instead of four roast potatoes, have three; two rashers of bacon and not three; one slice of buttered toast instead of two, and so on; 5. Eat less jam, cakes, buns and sugary puddings. Try to eat more fruit and vegetables, taking in natural sugar rather than the packed stuff.

For much of the time, we don’t have to bother with too many heavy dishes, because generally lighter plates of chicken, rabbit, fish and vegetables are sufficient for our needs. I shall try and offer you some healthy and tasty dishes from time to time. Cut them out and keep them and you will soon have a guide to keep fit food. I start with one of the best vegetables you can find for nourishment, the sweet pepper.

Steamed Chicken & Mushrooms

Pepperonata

One of the essences of Chinese cookery is the use of the steamer – but it seems most of us want all our far-eastern dishes fried, so you don’t see too many steamed dishes on offer in Chinese restaurants. Steaming not only keeps the flavours in, but also produces very nourishing food. This vaguely oriental main dish is jolly tasty.

Ingredients 500 g of boned fresh chicken 3-4 medium sized flat mushrooms or two cups of button mushrooms 2 slices of peeled fresh ginger, chopped 1 tbsp dry sherry or rice wine 1 tsp sugar 1 tsp cornflour 1 tsp sunflower oil 1 tsp salt Freshly ground black pepper and pinch or two of red pepper Method 1. Cut the chicken into small pieces.

2. Mix the chicken with the sherry, sugar, corn-flour and salt.

3. Slice the mushrooms and ginger very, very finely.

4. Grease an enamel or Pyrex plate with a little oil, and place the chicken pieces on it.

5. Put the mushrooms and ginger on top, sprinkle over the pepper and the sunflower oil.

6. Steam vigorously for 20 minutes. (Note: if you don’t have a steamer, stand the plate on a bowl in a very large pan one third filled with water, so that it is well above the water level.

Cover and keep the water bubbling reasonably).

7. Serve at once, with either plain steamed rice or noodles (ready-cooked, such as “Amoy”, are convenient)

A side-dish or part of an hors d’oeuvres, this is tasty and tangy.

Ingredients for 4-6 servings, or more in a buffet.

Four sweet peppers (one each of green, red, yellow and orange) 2 tbsp salad oil (olive or sunflower according to your taste) 2 tsp white wine vinegar 2 des-spoons capers (optional) 2 cloves garlic, finely chopped (optional) Salt and pepper The simple way to scorch peppers for your Pepperonata – a small propane gas-charged cook’s blow torch. It also shortens the time needed for caramelising sugar on nonslimming little numbers like Crème Brûllée.

Method 1. Heat grill to High.

2. Put your thumb in centre of each pepper and pull out core with seeds.

3. Gently open the peppers and press them as flat as possible.

4. Put on a baking tray under grill, shiny side (the outside) upwards.

5. Grill until each pepper is blackened and blistery all over (you will probably have to turn them round a bit during the grilling). If you have your own, or access to a little “flame thrower”, pictured here, the job is much easier.

6. When you’ve done your “burning”, let the peppers cool.

7. Gently remove all the char-grilled skin from the peppers with fingers and sharp knife.

8. Slice each pepper quite thinly and arrange by colour in a shallow dish.

9. Mix oil, vinegar, salt and pepper in a small jug or cup and pour over the peppers.

WINE TO ACCOMPANY: Definitely a chilled Rosé is called for here: Cornetto from Kolios; Fikardos’s Iocasti or Valentina, from Paphos district. From Limassol district there’s Vlasidis (pictured here with an ultra-modern bottle holder, in keeping with the winery!) and Hadjiantonas (Limassol). Nearer the capital there is the excellent rosé from AES Ambelis.

Leeks Provençal

Hot or cold – this is great as a “side” or part of a buffet.

Ingredients for 4 servings A couple of medium sized leeks, carefully washed and chopped into thickish rings.

25 cl of water or chicken stock.

A modest amount of water for cooking.

A few drops of white wine vinegar.

1 tbsp of olive oil.

2 tsp lemon juice.

Salt and pepper to taste.

1 tbsp tomato purée.

Method 1. Simmer leeks in water barely covering them until almost tender.

2. Drain and remove from pan.

3. In a frying pan, heat olive oil and stir in tomato purée and cook for a minute or two.

4. Pour in the water or stock, stir well, return to stove and reduce by about half.

5. Put back the leeks. Add lemon juice, salt and pepper, stir and cook gently for about a minute.

6. Remove from heat, sprinkle a few drops of vinegar over leeks and stir.

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

September 16 - 22, 2015

financialmirror.com | WORLD | 9

Millennials socking away 15% of their salaries Iron Man. Wonder Woman. Millennial Super Saver.

He or she is an ordinary human, 18 to 34, who saves at least 15% of his or her salary each year in a retirement savings plan. The mission: Save enough to retire comfortably. Or at least retire, according to Bloomberg.

An analysis by Fidelity Investments of the 13 mln participants in 401(k) plans in the U.S. that it administers found close to 421,000 of these young “super savers,” as Fidelity calls them, accounting for almost 20% of the millennial savers in Fidelity’s database. They save an average of 11% of their salaries; the other 4% comes from a company match. The overall average millennial contribution rate is 6.6%, which rises to 11% with the company match.

It helps that millennial super savers make a lot more money than their nonsuper-saving peers. The average big saver in the 18-to-34 age range makes $73,000 a year. That’s not investment banker money, but it’s nice compared with the $46,000 average for non-supersavers. Saving can be tough for everybody, but saving when you have a salary that’s 23% higher than the median for your peers is less painful.

Gen X super savers, meanwhile, had average salaries of $108,900, compared with $68,000 for Gen X-ers (ages 35 to 50) who didn’t save as much.

That salary difference enables those higher-earning millennials to save about $4,900 more a year than their peers. And that, in turn, gets them higher average employer matching contributions. The average overachieving millennial saver has an account balance of $43,000, compared with $11,000 for non-super-saver peers.

Saving 15% or more is something to aspire to. But starting to save early, and saving consistently, can also take you a long way. Fidelity found that millennials saving less than 15% but saving consistently for ten years had balances of more than $100,000. And there are young workers earning six-figure salaries who don’t save at all. The key is being proactive and staying the course when markets get chaotic.

America’s best Bachelor degrees by salary Attending and graduating from university can never guarantee you a well-paid job down the road. However, some bachelor degrees are more likely than others to make you a high earner.

Take Petroleum Engineering for example.

Despite the rise of renewable energy, a petroleum engineer in the United States can still expect a salary in the region of $101,000 in the first five years of his or her career, according to PayScale. The typical pay level in the mid-point of a petroleum engineer’s career is $168,000.

Graduates in Nuclear Engineering can also expect lucrative salaries. Pay during the early career phase averages $68,000, with mid-career median pay climbing to $121,000.

Interestingly, there is only one subject on the list of America’s best bachelor degrees by salary that is not engineering. The top three is rounded off by graduates in Actuarial Mathematics. They can expect a pay check of about $119,000 by the mid-point of their careers. (Source: Statista)

The super-saving ways of these millennials may have come from watching the pain that the 2008-09 stock market turmoil inflicted on baby boomers. A 2014 survey by T. Rowe Price found that millennials tend to have better financial habits than boomers. The Fidelity data show that 80% of the millennial super-savers actively enrolled in their 401(k)s rather than being automatically enrolled when they joined the company.

And how are these precocious savers investing? Some 63% of the millennial big savers at Fidelity aren’t invested in

a way the company considers “age-appropriate”—their portfolios don’t hold between 90% and 95% in equities.

About 10% are invested entirely in equities. That group isn’t unique in being heavily into equities, either—about 60% of millennials are 100% invested in a target-date fund, says Meghan Murphy, Fidelity’s director of thought leadership for workplace retirement, and those funds are big on stocks. Fidelity’s 2050 fund, for example, is about 94% in equities.

It’s not crazy to have such a high equity weighting at a young age, if you’re clear on the risks you’re taking and have a good emergency savings fund so you won’t turn to your retirement fund for cash in a pinch.

You have been doing it, right?

G20 at risk of losing entrepreneurial and job-creating cultures Governments must commit to and enact targeted education policies that support future generations of youth entrepreneurs, or else they risk losing out on years of jobs growth and new forms of innovation, warns a new report by EY, From classroom to boardroom: Creating a culture for high impact entrepreneurship. The study released alongside this year’s G20 Young Entrepreneurs’ Alliance (G20 YEA) Summit in Turkey, provides six actionable policy recommendations for G20 governments to consider that would help construct and nurture cultures of high-impact entrepreneurship over a sustained time period.

The report builds on recent EY research outlining the urgency needed to drive entrepreneurship to the top of the job-creation policy agenda. Youth unemployment remains high at 16% across the G20. But youths in the G20 still remain optimistic with 65% aspiring to be entrepreneurs and run their own business at some point in their careers.

Despite these aspirations, only 15% of entrepreneurs believe their country has a culture supportive of entrepreneurship.

At over 80%, there is overwhelming sentiment among this group for governments to raise awareness of entrepreneurs as job creators and teach skills in schools and universities to encourage business startups and innovation.

This approach would improve attitudes toward their work — creating more hospitable conditions in establishing businesses. EY research underscores that in cultures where targeted public policies on education and job-training are more prevalent, these markets develop entrepreneurship and innovation as engines of economic growth.

To account for this policy gap, the report lays a clear path for G20 governments to establish entrepreneurial cultures of high impact. This starts with education policy that provides countries with an institutional framework that can “supercharge” the entrepreneurial ecosystem and drive sustainable gains.

“With high youth unemployment in some G20 countries and with ever-present demands for innovation, sustainability and social inclusion, governments are increasingly focused on channeling support to high-impact entrepreneurship among youth. In pivoting education to focus on the tools and skills necessary, policies can support a culture supportive of entrepreneurship through a youth’s lifetime. The challenge then for policymakers is to uncover best-in-class policies to foster real improvement in entrepreneurial culture in their respective economies,” explained Rohan Malik, Emerging Markets and Deputy Global Government and Public Sector Leader at EY.

September 16 - 22, 2015

10 | GREECE | financialmirror.com

In search of a clean break with the past

By Michael Sarris Former Minister of Finance

This year marks the fifth anniversary of the acrimonious period in the Eurozone when Greece’s admission of gross violation of the agreed fiscal discipline rules marked the beginning of the Eurozone crisis.

Despite the rule violations, the Eurogroup decided to relax the key “no bail-out” rule and begin the provision of massive financial support to Greece, averting bankruptcy. This decision was based on fear of ‘contagion’ – the spreading of the crisis to similarly vulnerable economies in the Eurozone.

While a key objective of the Greek bail-out was to avert a financial crisis in Europe, it also provided financing for a primary deficit in the transition to a balanced budget. This was done on condition that Greece would agree to a tough adjustment programme of fiscal consolidation and structural reforms, negotiated and overseen by the Troika of creditors – the EU, the ECB and the IMF. It was, of course, known that fiscal austerity is contractionary on living standards for the majority of the population; but there was also widespread acceptance of a strong hypothesis that fiscal consolidation when accompanied by broader economic and structural reform can improve confidence and competitiveness and lead to growth.

The design of the first two adjustment programmes was balanced in its equal emphasis on spending cuts and tax increases on the one hand, and structural reforms on the other.

However, the actual implementation of meaningful structural reforms to encourage private sector investment, including foreign direct investment, an essential element of a strategy for growth, employment creation and debt sustainability lagged far behind.

A budget deficit of 15% of GDP was impressively virtually eliminated, but relatively little was done to implement the

“As people lost hope that the good days would resume any time soon, they turned towards the populism of the left and the xenophobic extremism of the right”

privatisation agenda, reduce bureaucratic impediments to private sector initiatives while combating corruption, improve the efficiency of the public sector, liberalise markets and professions, pursue active labour market policies and restructure education to improve the quality of outcomes and employment prospects.

Most of these areas are being revisited in the third Memorandum of Understanding (MOU) agreed this year with the creditors.

As structural reforms are not only politically more difficult to implement, they also typically take a long time to bear fruit, delaying their implementation has dealt a serious blow to the success prospects of the Greek programme. Worse, as people lost hope that the good days would resume any time soon, they turned towards the populism of the left and the xenophobic extremism of the right.

While failure to implement key agreed reforms was central to the poor performance of the Greek economy `ivity (known as the fiscal multipliers) in a structurally distorted, consumption-driven and relatively closed economy proved much larger than anticipated. Furthermore, the common belief that public debt was unsustainable discouraged foreign and domestic private sector investment impacting negatively employment and growth.

CIVIL SERVICE REFORM WILL TAKE TIME Finally, the legendary malfunctioning of the Greek public sector, led to giving priority to civil service reform, which takes time to produce results, at the expense of product market and tax reforms which normally have a quicker impact on output. A different sequencing of policy reform with emphasis on quick-impact measures, a less dogmatic and moralist lender stance on early debt relief that would have reduced uncertainty, and a more gradual fiscal adjustment would probably, with hindsight, have been more conducive to Greek recovery; but jumpstarting economic growth required gamechanging and politically demanding structural reforms which were not implemented.

Central to the failure to implement reform is a continuing consensus across the full range of the political landscape and most mass communication media that the agreements with the lenders are responsible for the problems of the Greek economy. This anti-Troika consensus includes successive governments which criticised heavily the reform agenda whilst in opposition and, once in office, failed to take real “ownership” of the programme and provide leadership to the society at large.

While implementation capacity limitations have played a part, experience with World Bank/IMF supported structural adjustment operations strongly suggests that

politically demanding reform agendas, confronting vested interests, are always difficult to implement but are almost impossible without ownership. The challenges in Greece are of course homegrown and pre-existing and the opposition to reform is strong despite the fact that the proposed reforms ultimately benefit the more numerous under-privileged citizens.

The privileged classes, which are state-fed and are benefiting from distortions, monopolistic practices and corruption, are strongly represented in all political parties, which in turn, champion their interest. This is where the Troika failed to communicate, to respond to the accusations of those interests during the implementation of the first two program agreements. They have not made a serious effort to explain the rationale of the reform programme through a more active engagement with civil society, and they have also done a disservice to the Greek people by not pushing much harder on the implementation of key structural reforms, while at the same time over emphasising and applauding fiscal austerity.

SHORTCOMINGS IN MONETARY UNION ALLOWED EXCESSIVE BORROWING During the Eurogroup discussions that eventually led to a third programme agreement for Greece, the Greek side argued that the shortcomings in the monetary union that allowed excessive borrowing in Greece and elsewhere in the periphery were

“While a key objective of the bail-out was to avert a financial crisis in Europe, it also provided financing for a primary deficit in the transition to a balanced budget”

as much to blame for the origins of the crisis as the more frequently discussed narrative of policy failures at the national level. They also argued that the mismanagement of the crisis by the Eurozone leadership, which failed to address the problem of debt sustainability upfront, put more weight on bailing-out European banks and, to enable Greece to service this debt, imposed an exceptionally harsh austerity programme on the Greek people, contributed heavily to the failure of the first two programs.

There is a lot of truth in this alternative narrative which identifies challenges that need to be urgently addressed, but reforming the Eurozone’s architecture and even reducing Greece’s debt burden will not by itself improve Greece’s competitiveness and growth prospects. Implementing farreaching structural reforms to make it attractive for private enterprise to employ, produce and export should be the key concern of policy makers and the wish of the vast majority of the Greek people.

As the Greeks finally choose to own, and stay on, the road to reform, the country will also benefit from EU initiatives to alleviate the debt burden for successful programme countries and will be able to argue for more room for fiscal expansion. Monetary stimulus by the ECB, structural reform and room for fiscal expansion could be the trilogy of simultaneous action to strengthen both aggregate demand and supply and open the way to faster growth. The challenge going forward is, therefore, less on the outcome of the September 20 elections and more on the forging of a strong social consensus to implement an aggressive structural reform programme to maximise growth prospects.

In parallel, any remaining fiscal adjustment should be gradual, rely less on tax increases, and put emphasis on pro-growth public expenditure restructuring. This will be the supreme test for the political leadership that emerges from the upcoming elections.

Michael Sarris, a former department director at the World Bank, served twice as Minster of Finance of Cyprus, including when the country adopted the euro and later sought an international bailout package in 2013.

September 16 - 22, 2015

financialmirror.com | GREECE | 11

Tsipras, Meimarakis spar in TV debate Less than a week before Greeks go to the second round of elections this year, the two key players in the race – SYRIZA leader Alexis Tsipras and conservative New Democracy chief Evangelos Meimarakis – went head-to-head in a live televised debate on Monday, clashing on issues ranging from corruption to the best way of securing debt relief, according to Kathimerini.

In a lively, and often tense, debate that lasted several hours, Tsipras and Meimarakis sought to convince thousands of undecided voters that their party is more capable than the other to lead Greece’s next government.

Questioned about potential alliances, Tsipras insisted that he believed SYRIZA would win an overall majority but that he would otherwise be prepared to form a “progressive” coalition. He ruled out an “unnatural” alliance with ND, saying, “We have radical differences on key issues.”

“I will try to create the necessary broader consensus so there can be a government,” he said.

Meimarakis, for his part, struck a very different tone, saying he wanted to reach agreement on common policy with Tsipras, with each party retaining its independence. He proposed the creation of a “national negotiating team” to hammer out a plan for the country’s future, noting that Greeks want to see cooperation.

If ND comes first, and secures the 50-seat bonus, Meimarakis said he would choose a cabinet with “the guts” to implement the third memorandum.

The two leaders clashed over corruption. Linking the conservatives to a string of corruption scandals, Tsipras noted that SYRIZA resumed an investigation into the Lagarde list of tax evaders with Swiss accounts. Meimarakis suggested that there were political reasons for the resumption of the probe.

He rebuffed accusations of corruption, saying SYRIZA took no action to tackle corruption despite its pledges to clash with oligarchs.

There were also vehement exchanges between the leaders

over their parties’ record while in power. Tsipras rejected claims by Meimarakis that the SYRIZA-led coalition destroyed the economy, dismissing the ND leader’s reasoning as that of “a person who drinks three bottles of whisky and a shot, wakes up in hospital the next day, and blames the shot.”

Meimarakis hit back at Tsipras, accusing him of forgetfulness and confusion. “He changed character the moment he signed the memorandum,” Meimarakis said of the former premier.

The issue of debt, and how to secure its lightening, was

another point of dispute, with Meimarakis criticising SYRIZA for insisting that Greece’s debt is unsustainable when the sustainability of debt is a prerequisite for creditors to lighten it.

The leaders sparred over the thorny issue of immigration too. According to Meimarakis, SYRIZA’s policies encouraged refugees to come to Greece. Tsipras insisted that the migration crisis is “complex” and condemned Meimarakis for using the term “illegal immigrants” when many of those arriving on Greece’s islands are refugees fleeing war.

Kammenos says he’ll quit politics if he doesn’t make it into parliament Independent Greeks (ANEL) leader Panos Kammenos said that he will not pursue a further career in politics if his party does not achieve the 3% threshold needed to make it into parliament in Sunday’s general elections.

“If the men and women of Greece don’t want me in parliament, I will not enter parliament. I will retire from politics if we [Independent Greeks] do not make it into parliament,” Kammenos told Antenna TV on Tuesday morning.

Kammenos, whose party was the junior partner in the previous coalition government with SYRIZA, said that public opinion polls showing the party at below 3%, “are probably trying to influence public opinion.”

He ruled out working with SYRIZA again if it were to team up with socialist PASOK, saying that “I will not sit on the same government as [Evangelos] Venizelos,” in reference to the former deputy prime minister and finance chief.

The head of the nationalist party added that he would be open to cooperation with centre-right To Potami, “if it clarifies its position on national issues.”

Meanwhile, SYRIZA and the New Democracy conservatives have been stuck in the same place in opinion polls for several weeks - virtually neck and neck and well short of parliamentary majority.

Their respective personal popularity ratings have also stagnated around or slightly below 45%.

Both Alexis Tsipras and Vangelis Meimarakis have so far given loyal voters

little reason to switch allegiance, having devoted much of their campaigns to trading accusations over the country’s ailing economy, institutionalised corruption and responses to the refugee crisis.

But voters yet to decide which party to

back or intending to abstain altogether - up to a fifth of the electorate according to some polls - offer a clearer target.

Voted into office in January on an antiausterity platform, Tsipras forced Sunday’s election by resigning in August, trying to

quell a rebellion in his party and win a stronger mandate to implement austerity measures under a EUR 86 bln bailout he initially opposed.

Neither he nor Meimarakis impressed commentators during a seven-party televised debate last Wednesday that many dismissed as a damp squib.

Both men have said they are anxious to avoid a second round of elections, though the former prime minister insists SYRIZA will have enough support to govern without New Democracy, while Meimarakis has repeatedly talked up the possibility of a grand coalition.

Such an alliance “would go against nature”, Tsipras told state ERT broadcaster on Sunday.

Chances of him winning Sunday’s poll outright look slim.

The few polls this month that have taken account of undecided voters’ preferences have also been unable to split the two parties, putting both on around 31% - well short of the 36.3% that took SYRIZA into office in late January.

But Tsipras’ insistence on rejecting a grand alliance could still prove decisive, pollsters say, citing evidence from weekend surveys that this drove a small swing in SYRIZA’s favour, with Meimarakis’ focus on a coalition making him appear weak.

Meimarakis recovered his poise during a news conference on Sunday.

“If he maintains that stance, he may reverse the trend that we saw in polls over the weekend,” a pollster said.

September 16 - 22, 2015

12 | PROPERTY | financialmirror.com

European home prices recovering, says ECB The European Central Bank (ECB) published an article Tuesday morning on the state of housing prices in the eurozone.

The recovery has not been particularly robust so far, but housing prices are moving up across several eurozone members.

The ECB noted that the annual rate of change in house prices began to increase in mid-2013 and had turned “mildly positive” in the second half of 2014. A similar pattern occurred in 2009 and 2010, however the sovereign debt crisis stopped further progress.

The report cites several reasons to believe that this turnaround is more likely to succeed: “House price increases appear to be relatively broad-based across groups of countries.

“Price increases seem to be less contingent on prices in metropolitan areas.

“The recovery is taking place in areas where earlier imbalances have already seen substantial corrections in housing prices.

“In addition to a more balanced starting point than in 2009 to 2010, the current recovery is being sustained by two factors: bank lending rates and credit standards have become more favourable, and the low interest rate environment could further sustain demand and boost housing prices.”

That said, however, the ECB also notes:

“The current euro area real house price upturn has been somewhat weaker than the typical increase observed historically during the initial phase of the upturn. … Indeed, since the latest euro area trough in 2013, only some countries (such as Germany) have seen an upturn in real house prices, while in others (such as Spain and the Netherlands) there has only been a broad stabilisation followed by a mild increase in prices, or even a further

decline (as in France and Italy). … The most recent household loan developments only seem to have heralded, so far, a relatively moderate increase in real house prices in the short to medium run.”

The better news, though, is that the collapse and recent recovery in housing prices in the eurozone are “in line with historical cyclical patterns,” even if the recovery has been weaker than normal.

Greek RMBS remained stable up to July Dutch delinquencies continue to decrease The performance of the Greek residential mortgage-backed securities (RMBS) market was stable in the three months ended July, according to the latest indices published by Moody’s Investors Service.

The 90+ day delinquencies of Greek RMBS transactions rose modestly to 7.3% of the current balance in July, from 6.9% in April.

The index of cumulative defaults

Delinquencies of the Dutch residential mortgage-backed securities (RMBS) market decreased and cumulative defaults increased modestly during the threemonth period ended June, according to the latest indices published by Moody’s Investors Service.

The 60+ day delinquencies of Dutch RMBS, including Dutch mortgage loans benefitting from a Nationale Hypotheek Garantie (national deposit guarantee), continued to decrease to 0.81% in June from 0.85% in March. The 90+ day delinquencies also continued to decrease to 0.62% in June from 0.66% in March.

Nevertheless, cumulative defaults increased to 0.76% of the original balance, plus additions (in the case of master issuers) and replenishments, in June from 0.65% in March. This compares to cumulative defaults of 0.43% in June 2014. Cumulative losses increased slightly to 0.15% in June from 0.13% in March.

Moody’s has assigned definitive credit ratings to two new transactions since the last publication of the Index on May 20, including one class of notes issued by Orange Lion 2015-11 RMBS B.V. and one class of notes issued by Orange Lion XII RMBS B.V. Moody’s has also upgraded the ratings on five classes of notes and affirmed the ratings on five classes of notes issued by two Dutch RMBS transactions; Lowland Mortgage Backed Securities 1 B.V. and Green Lion I B.V. The rating agency observed an increase in housing market activity that will boost the Dutch housing market’s recovery and raise recovery prospects in RMBS deals.

As of June, the 113 Moody’s-rated Dutch RMBS transactions had an outstanding pool balance of EUR 218.9 bln, representing a year-over-year decrease of 5.3%.

remained at 2.5% of the original pool balance in July, compared to April.

The prepayment rate index increased slightly to 1.5% in July, from 1.3% in April.

The outstanding pool balance of Greek RMBS transactions decreased by 2.6% in the quarter, to EUR 2,095 mln in July from EUR 2,150 mln in April, with six outstanding repayment deals.

On July 3, Moody’s downgraded and

Hellenic Bank adds 11 more ‘Green branches’ Hellenic Bank has added 11 more branches that have received the Green Offices certificate, raising the total to 26, or 46% of its entire branch network.

The “Green Offices” went to the following branches: Acropolis, Ayios Dhometios, Kennedy, Severis, Prodhromou and Engomi in

placed on review for downgrade the ratings on 14 notes and placed on review for downgrade the ratings on five notes in eight Greek structured finance transactions. This follows the July 1 actions in which Greece’s country ceiling was downgraded to Caa2 from B3 and Greece’s sovereign rating was downgraded to Caa3 from Caa2. Greece’s sovereign rating remains on review for downgrade.

Nicosia, Paphos Ave. in Limassol, Kitiou in Larnaca, Dherynia, Sotira and the Courts branch in Paphos.

The “Green Offices” is a pilot project that certifies building and offices in accordance to Foundation for Environmental Education (FEE) standards. The national coordinator for the project is the Cymepa environmental protection agency, whose General Secretary Michael Ierides presented the certificates during a ceremony in Limassol, attended by Environment Commissioner Ioanna Panayiotou and the bank’s General Manager for Operational Support, Phivos Leontiou.

Owning property is out of reach for most Germans The latest construction financing sentiment index released by Comdirect Bank found that 58% of those surveyed said that property prices in their region are too high, according to the Frankurter Algemeine Zeitung. In larger cities, the numbers were even higher – more than two-thirds complained about excessively high prices.

The Bundesbank has been monitoring

property price developments with concern, the central said. It takes the view that prices for property in Germany’s largest cities are overinflated by between 10-20%.

At the same time, 64% of those surveyed

by Comdirect think that current conditions mean that now is still a good time to buy a home. Nevertheless, this was 2% less than June’s figure.

An analysis published by Standard & Poors shows that house prices across the whole of Germany have risen by 20% over the last six years. In the big cities, prices have gone up much more rapidly, equating to 46% since 2009.

Forecasts reveal projected increases of 5% during 2015, 4.5% in 2016 and 3.5% in the following year.

September 16 - 22, 2015

financialmirror.com | PROPERTY | 13

Nicosia Museum – a midsummer night’s dream? µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

The existence of a modern museum in Nicosia is a top priority not only for cultural reasons, but also an investment that will greatly help the tourism traffic to the capital, both from local and foreign visitors with the relevant revenues for all businesses. Apart from the division of the city, the lack of a beach and, of course, the limited tourist attractiveness of the capital, the existence of a new museum will greatly help both local tourism and trade in general.

To their credit, the government has set down its priorities for the construction of the new Nicosia museum as soon as possible, but I wonder whether completing the project in 2016 is at all feasible, what with endless architectural competitions and contractors who usually end up in the courts (see the case of the Paphos Marina that has been on hold for 15 years). This may help the state finances for the year 2016, but it would be wrong to believe that the museum is not one of the infrastructure projects that will bring direct revenue to the state or even to Nicosia.

So, let’s consider the “profit and loss” balances for a new ‘national’ museum: • Location – it is planned to be built within the compound of the old Nicosia hospital. A suitable location in a comfortable area and near the Green Line that needs rejuvenation.

• Size - the current museum building dating back from the Colonian times (just goes to show how ‘modern’ it is) has an area of 5,000 sq.m. in the basement and 5,000 sq.m. on the ground floor. The new museum, along with all its support services, amounts to about 24,000 sq.m. Although this may seem to be more than twice the current space, don’t forget that a large number of exhibits now are not displayed due to lack of space. This area includes basements, etc., and I believe that any plan that is adopted should have some provision for further expansion in the future.

• The cost – this has already been determined at EUR 50 mln, an amount which is doubtful if it will suffice at all. If you deduct the architectural and administrative expenses of about 15%, the remaining balance is about EUR 43 mln, or 1,800 per sq. m. It is very doubtful if the budget will be sufficient, while the state coffers set up for this purpose, initially had EUR 40 mln, raised from taxes and revenues from betting, etc. which I believe has disappeared into thin air.

• A single ‘national’ museum? I believe that the new museum should cover the whole history of Cyprus and various small museums should be incorporated through special exhibits creating a superior environment with much higher traffic. Some of these ‘independents’ include the Struggle Museum, the Byzantine Museum, the so-called

National Art Gallery (does anybody visit it?), the Leventio Medieval Museum and others that could be housed in the new museum, while their previous premises (where possible) to be donated to the state, which in turn can be sold on the market to meet the additional costs required to build the Cyprus Musdeum. In this way a visitor can journey through the history of Cyprus in just one or two visits, making their stay more pleasant and relaxed. These mini-museums that are undervisited and need to be transferred include the Coinage Museum of the Bank of Cyprus, the Handicrafts Centre, a historical display of the events of 1974 with corresponding images from both sides), etc., while the National Art Gallery could reach some arrangement with the remarkable Leventio Gallery to collect all [pieces and exhibits under one roof, and as an alternative space.

• Type of museum - what kind of museum it will be is another matter. If we adopt the model of the British Museum in the heart of London, apart from a museum, it includes lecture halls, restaurants and even hosts weddings or social events that would earn good for the museum, while sales of copies and other material are an additional source of income.

Therefore, I would appeal to the Communications and Works Minister that we should first consider, way before architectural competitions are issued, what type museum we want and not to extend the current museum simply be expanding its volume.

As an alternative attraction that needs to be marketed properly, special ‘theme’ rooms can accommodate exhibits on loan from other museums, both Greek and others that may or may not be irrelevant to the Cypriot history, such as artefacts from Egypt, China, Russia, Britain, etc., perhaps

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with exchange programmes to accommodate and promote Cyprus history in their museums.

China - excluding several admirable exhibits that would be most welcome here, can you imagine if we were loaned some of the world-famous Chinese clay soldiers for 2-3 months?

Egypt could loan us some sarcophagi or mummies.

Russia, perhaps could consider loaning some pieces from the Hermitage.

Storage, is a new chapter altogether, that is a modern-day problem, where Cyprus could offer to host items from some of the most important museums in the region for safekeeping, such as from neighbouring Iraq, Syria, Lebanon, etc.

So, the new Cyprus Museum could become a huge point of attraction where visitors can see exhibits from the Museum of Ayia Napa with the Kyrenia II ship, exhibits from Dali, Kouklia, etc. These are all museums which due to their size cost the state millions in grants, while the history of Cyprus remains dispersed in micro-museums depriving both locals and foreigners from enjoying a historic walkthrough.

Certainly, such a proposal would have reactions because every one wants to have his or her own museum. But should this be at the expense of the state?

This way, perhaps, Nicosia could become an attraction yet again that needs to be revived.

We would have a ‘national’ Cyprus museum, but it could have multidimensional nature that would attract visitors as a destination in itself, similar to the Guggenheim or other architectural achievements. www.aloizou.com.cy - ala-HQ@aloizou.com.cy

September 16 - 22, 2015

14 | MARKETS | financialmirror.com

D-Day has come for the Fed rate hike

By Oren Laurent President, Banc De Binary

Global analysts are going to be glued to economic indicators in the run-up to the September 16-17 Fed FOMC meeting. What is being billed as possibly the most important economic announcement out of the US for the year has pundits split down the middle. The issue of course is whether or not the Fed will hike interest rates from their present rate at 0.25%. Federal Reserve Bank chairperson Janet Yellen has not given anything substantive away in the lead up to the policy decision this week. However, sentiment expressed by the vice-chairman Stanley Fischer indicates there is a possibility of a rate hike this time around.

The precarious predicament of global financial markets is something that has everybody concerned. The Chinese equities meltdown in August saw a dramatic decline in China’s foreign currency reserves of $93.9 bln. As China attempted to prop up the yuan by selling USD and buying CNY, currency traders and analysts contemplated the impact of such measures.

It is clear that there are structural cracks in the Chinese economy, and this extends well beyond the recent slump in equities prices. Trillions of dollars have been wiped off global markets since Chinese demand declined. We are also seeing plunging prices in energy stocks, mining stocks and related commodities as a result of weakness in the world’s secondlargest economy.

ECONOMISTS EVENLY SPLIT ON RATE HIKE POSSIBILITY

It is against this backdrop that Fed policymakers must come to a decision regarding US interest rates. Typically the Fed decision does not take the state of the global economy into mind when making a domestic interest-rate decision.

However in this particular instance, there is way too much instability owing to the interconnectedness of global markets. Everyone around the world is talking about the Fed rate hike.

On Thursday, the US central bank will make its announcement after a 2-day meeting of policymakers.

Presently, the statistics suggest that there is a 28% likelihood that the Fed will raise its lending rate from 0.25% to 0.5%. If this happens, it will be the first such rate increase in seven years. Economists however are more optimistic than general market sentiment suggests – and they are evenly split on the likelihood of a rate hike.

basic level, rate hikes make it more expensive for homeowners to take out mortgages, and it also makes credit card repayments that much more expensive.

There are several indicators that show a Fed rate hike is likely, including the increase in the US dollar index from a level of 90 to a level of 95. This indicates not only that the dollar is strengthening against a basket of currencies, but that the US economy overall is in good standing. We must bear in mind that the International Monetary Fund has cautioned central banks against raising interest rates for fear that it will derail the recovery of the global economy. The Fed is likely to take that into consideration at the 2-day meeting this week.

RATE HIKE - FACTORS TO CONSIDER THE US WILL LEAD BY EXAMPLE

There are several factors that point to a rate hike being a real possibility. For example, the US PMI figures for manufacturing and services are all positive and expansionary.

Anything over 50 is regarded as a growing economy, and anything under 50 is regarded as a contractionary economy.

It should be pointed out that China’s PMI numbers are hovering around 47-48 and that is clearly a sign of a contractionary manufacturing sector.

The fact that the US numbers are positive, albeit declining over time, suggests that it is the better performing economy in many ways. Stanley Fischer and Janet Yellen are targeting an inflation rate of 2%, and while that figure has not yet been reached it is not being billed as a prerequisite for a rate hike.

There are potential pitfalls to increasing interest rates in the US, and these are being carefully weighed in the run-up to the decision.

For example, a rate hike has the effect of making the cost of borrowed money more expensive. It also places an additional burden on companies that have long-term debts, short-term debts or other long-term loans obligations. This eats into the earnings per share figures and company profitability which ultimately drives the company stock price down on the Dow Jones or the NASDAQ. For these reasons, a rate hike has a contractionary effect on stock markets, but it will certainly boost dollar demand in the short term. At a

However it should not be forgotten that markets do not typically react completely once an economic announcement has been made. These types of decisions and the actions that surround them are factored into market activity long before the announcement itself is made. We cannot discount the fact that high levels of volatility have been driving markets lately, and a Fed hike would finally put paid to all the uncertainty that is swirling around. As a result, relief rallies may take place and equities may in fact reverse their downward trend. And with China slowing down, the world will now be looking to the #1 economy – the US – to lead by example. A Fed rate hike is the clearest such indicator that the US economy is sound!

Please note that this column does not constitute financial advice.

USD sensitivity ahead of retail sales Markets Report b

By Lukman Otununga, Research Analyst at FXTM

Weakness and unease continue to linger through the financial markets as most Asian equities have ventured back into red territory. The Shanghai Composite Index failed to appreciate on Tuesday’s trading sessions as the weak data from China pressured any solid move to the upside. On the other hand, European equities have had a positive day with the FTSE100 balancing around the 6083 mark. The pressures from the uncertainty over when the US Federal Reserve will begin raising interest rates have resulted in the American equities closing negatively in Monday’s session. It is likely that the jittery attitude market participants have inherited from the uncertainty over the Fed’s decision may translate into further losses in the New York session.

Optimism still exists within the German economy, as the German ZEW Economic Sentiment which was released in the European session printed at 12.1. This was below the expectations of 18.3 and resulted in the EUR being exposed to minor weakness before clawing back the losses against the USD. It is apparent that the USD is in a heightened state of sensitivity due to the looming FOMC statement this Thursday, a retail sales figure this afternoon above expectations may have an accelerating effect and further inspire bullish momentum on the USD. In the commodities currency division, the CAD has been of some interest as of late. Canada has entered a technical recession and the decline of oil prices has punished the Canadian economy which has translated to a weak CAD amongst its counterparts. With the possibility of the Fed hiking interest rates before the end of the year, there exists a monetary policy divergence between the BoC and the Fed. This may inspire further bullish momentum on the USDCAD which is already technically bullish on the daily timeframe. Support can be found at 1.3150 and

resistance at 1.3350. A breakout above 1.3350 can be seen as a technical catalyst for the resumption of the move up.

EURNZD: The EURNZD is technically bullish on the daily timeframe. Prices are above the daily 20 SMA and the MACD trades to the upside. A breakout above the 1.8000 resistance may open a path to the next relevant resistance at 1.8600. A move back below 1.7350 invalidates this bearish outlook.

AUDNZD: The AUDNZD currently trades within a wide range. Prices are above the daily 20 SMA and the MACD has crossed to the upside. A breakout above the 1.1300 resistance may open a path to the next relevant resistance at 1.14300.

GOLD: Gold remains bearish. The breakdown of the

light support at 1110.0 may provide a light resistance which should aid for a further decline back down to the next relevant support at 1080.0. A move back above the 1125.50 invalidates this daily bearish outlook.

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

September 16 - 22, 2015

financialmirror.com | MARKETS | 15

Deleveraging in the emerging world Marcuard’s Market update

by GaveKal Dragonomics There has been a lot of talk in recent weeks about the collapse in emerging market currencies, with extravagant comparisons to the 1997-98 crisis. In reality, there is no “crisis”. Over the last three years an equally-weighted index of major emerging market currencies has fallen no more against the US dollar than an index comprising the euro and the yen. And despite all the recent turbulence in financial markets, there have been no signs of unusual stress in short-

term funding markets, or of a credit crunch in any large emerging market economy.

Yet, although talk of an immediate crisis is exaggerated, there is a very real longer term adjustment under way as emerging market currencies have depreciated against the US dollar and emerging market corporates are forced to deleverage—an adjustment that will continue to depress both demand and asset prices in the emerging world over the medium term.

There is a big difference between currency depreciation in developed markets and emerging economies. In Europe and Japan, currency weakness is part and parcel of domestic reflation policies. By contrast, for emerging market economies depreciation tends to be deflationary. Falling currencies accelerate the reversal of the carry trades through which the emerging markets have built up foreign currency debts of some $6trln, denominated principally in US dollars.

And because the accumulation of those foreign currency debts encouraged, via the transmission mechanism of local banking systems, a build-up of domestic currency debt, the unwinding now under way is leading to a general deleveraging within emerging markets which is severely

www.marcuardheritage.com

depressing aggregate demand.

In the years following the 2008 financial crisis, manufacturers, transport groups, utilities, property developers and other large emerging market corporates took advantage of low international borrowing costs to sell US dollar bonds to international investors. Many then simply deposited the US dollar proceeds with local banks, using the funds as collateral against which they were able to borrow more cheaply in their local currencies. Those deposits then had a multiplier effect in local financial systems, helping banks extend local currency credit to other customers. As a result, on average since 2009, domestic credit in the emerging markets has grown 5pp faster than gross domestic product, pushing the ratio of domestic bank credit to GDP up to 90%, almost matching the peak reached in developed markets on the eve of the financial crisis.

However, with the US currency strong and international demand for emerging market debt now looking sated, it has become considerably more expensive to borrow in US dollars. As a result, the carry trade is being unwound, which is leading to a massive contraction in emerging market loan books and a deep slowdown in the velocity of money. In the past, such a combination of a maturing credit boom and slowing growth typically led to severe financial stress. This time around, better macroeconomic policymaking, stronger institutions, and better risk management—evident in longer debt maturities and reduced net foreign currency exposure—mean emerging markets are more resilient.

Nevertheless, credit tightening in the emerging markets puts the world in an uncomfortable position. The expansion of domestic balance sheets in the emerging markets following the 2008 financial crisis helped prevent the global economy from sinking into outright recession, as emerging market demand cushioned the impact of deleveraging in the developed economies. Now, however, it is questionable whether the anemic recovery of demand in the developed world will be sufficient to offset the slowdown in emerging markets. So what should investors expect as the deleveraging process takes hold?

Sales will remain weak, if not in recession, both in emerging and developed economies. Even if emerging market-led deflation raises disposable incomes in the developed world by reducing import costs, encouraging rich world consumers to re-leverage, the effect will be offset by the expectation of tightening from the Federal Reserve.

As a result, no further upward re-rating of equity valuations appears likely. Risk asset returns will remain poor, with rising volatility. In such an environment, equity returns will be driven by the ability of companies to grow earnings through margin expansion. We expect Japan to continue to rebuild margins, with Europe to follow.

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.

As emerging economies increasingly take the adjustment on their current accounts, emerging market currencies should start to stabilise, even as nominal growth remains sluggish. The ability to ease monetary policy to keep real rates down and moderate the output slowdown will distinguish the medium term winners from the worst hit.

China, India and Indonesia have the greatest room to ease.

The greatest risk to this muddle-through scenario is a further devaluation of the euro and the yen. Not only would this mean a further strengthening of the US currency and hence even tighter financial conditions in the US dollarbased emerging market world, it would also undermine European and Japanese consumer demand for goods imported from emerging market economies.

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

17760 1.5435 1.7312 23.944 6.605 13.8523 1.1295 2.385 277.19 0.62221 3.0569 0.3801 19.55 8.2051 3.7262 3.9076 67.2154 8.2554 0.9703 21.7069

AUD CAD HKD INR JPY KRW NZD SGD

0.7121 1.3249 7.75 66.435 119.82 1186.05 1.5848 1.4034

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

0.3772 7.8070 29856.00 3.8813 0.7085 0.3018 1509.00 0.3850 3.6418 3.7502 13.4951 3.6729

AZN KZT TRY

1.042 279 3.0625

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

0.21 0.51 -0.11 0.05 -0.79

0.27 0.54 -0.07 0.07 -0.76

0.34 0.59 -0.04 0.08 -0.73

0.54 0.75 0.03 0.13 -0.67

0.85 1.05 0.14 0.24 -0.56

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.86 1.02 0.07 0.10 -0.66

1.13 1.21 0.14 0.12 -0.58

1.36 1.38 0.25 0.15 -0.47

1.57 1.52 0.37 0.20 -0.34

1.89 1.72 0.64 0.33 -0.10

2.20 1.92 1.00 0.54 0.22

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1295 0.8853

100 JPY

1.5435

1.0306

0.8346

1.3665

0.9124

0.7389

0.6677

0.5407

0.6479

0.7318

0.9703

1.0960

1.4977

119.82

135.34

184.94

0.8098 123.49

Weekly movement of USD

CCY\Date

11.08

25.08

01.09

08.09

15.09

CCY

Today

USD GBP JPY CHF

1.0915

1.1494

1.1214

1.1156

1.1259

0.7011

0.7286

0.7284

0.7286

0.7298

136.02

137.20

135.29

132.63

135.06

1.0739

1.0728

0.0776

1.0822

1.0889

GBP EUR JPY CHF

1.5435 1.1295 119.82 0.9703

Last Week %Change 1.5344 1.1179 120.07 0.9742

-0.59 -1.04 -0.21 -0.40

September 16 - 22, 2015

16 | WORLD | financialmirror.com

Solving Syria in the Security Council

By Jeffrey D. Sachs The ongoing bloodletting in Syria is not only the world’s greatest humanitarian disaster by far, but also one of its gravest geopolitical risks. And the United States’ current approach – a twofront war against the Islamic State and President Bashar al-Assad’s regime – has failed miserably. The solution to the Syrian crisis, including the growing refugee crisis in Europe, must run through the United Nations Security Council.

The roots of US strategy in Syria lie in a strange – and unsuccessful – union of two sources of American foreign policy. One comprises the US security establishment, including the military, the intelligence agencies, and their staunch supporters in Congress. The other source emerges from the human-rights community. Their peculiar merger has been evident in many recent US wars in the Middle East and Africa.

Unfortunately, the results have been consistently devastating.

The security establishment is driven by US policymakers’ long-standing reliance on military force and covert operations to topple regimes deemed to be harmful to American interests. From the 1953 toppling of Mohammad Mossadegh’s democratically elected government in Iran and the “other 9/11” (the US-backed military coup in 1973 against Chile’s democratically elected Salvador Allende) to Afghanistan, Iraq, Libya, and now Syria, regime change has long been the coin of the US security realm.

At the same time, parts of the humanrights community have backed recent US military interventions on the grounds of the “Responsibility to Protect,” or R2P. This doctrine, adopted unanimously by the UN General Assembly in 2005, holds that the international community is obliged to intervene to protect a civilian population under massive attack by its own government. In the face of the brutality of Saddam Hussein, Muammar el-Qaddafi, and Assad, some human-rights advocates made common cause with the US security establishment, while China, Russia, and others have argued that R2P has become a pretext for US-led regime change.

The problem, as human-rights advocates should have learned long ago, is that the US security establishment’s regime-change model does not work. What appears to be a “quick fix” to protect local populations and US interests often devolves into chaos, anarchy, civil war, and burgeoning humanitarian crises, as has happened in Afghanistan, Iraq, Libya, and now Syria. The risks of failure multiply whenever the UN Security Council as a whole does not back

the military part of the intervention.

The US intervention in Syria can also be traced to decisions taken by the security establishment a quarter-century ago to overthrow Soviet-backed regimes in the Middle East. As then-Under Secretary of Defense Paul Wolfowitz explained to General Wesley Clark in 1991: “We learned that we can intervene militarily in the region with impunity, and the Soviets won’t do a thing to stop us… [We’ve] got about five to ten years to take out these old Soviet ‘surrogate’ regimes – Iraq, Syria, and the rest – before the next superpower [China] comes along to challenge us in the region.”

When al-Qaeda struck the US on September 11, 2001, the attack was used as a pretext by the security establishment to launch its long-desired war to topple Saddam. When the Arab Spring protests erupted a decade later, the US security establishment viewed the sudden vulnerability of the Qaddafi and Assad regimes as a similar opportunity to install new regimes in Libya and Syria. Such was the theory, at any rate.

In the case of Syria, America’s regional allies also told President Barack Obama’s administration to move on Assad. Saudi Arabia wanted Assad gone to weaken a client state of Iran, the kingdom’s main rival for regional primacy. Israel wanted Assad gone to weaken Iran’s supply lines to Hezbollah in southern Lebanon. And Turkey wanted Assad gone to extend its strategic reach and stabilise its southern border.

The humanitarian community joined the

regime-change chorus when Assad responded to Arab Spring protesters’ demand for political liberalisation by unleashing the army and paramilitaries. From March to August 2011, Assad’s forces killed around 2,000 people. At that point, Obama declared that Assad must “step aside.”

We don’t know the full extent of US actions in Syria after that. On the diplomatic level, the US organised the “Friends of Syria,” mainly Western countries and Middle East allies committed to Assad’s overthrow.

The CIA began to work covertly with Turkey to channel arms, financing, and non-lethal support to the so-called “Free Syrian Army” and other insurgent groups operating to topple Assad. The results have been an unmitigated disaster. While roughly 500 people per month were killed from March to August 2011, some 100,000 civilians – around 3,200 per month – died between September 2011 and April 2015, with the total number of dead, including combatants, reaching perhaps 310,000, or 10,000 per month. And, with the Islamic State and other brutal extremist groups capitalising on the anarchy created by the civil war, the prospect of peace is more distant than ever.

Military intervention led or backed by the US in Afghanistan, Iraq, and Libya has produced similar debacles. Toppling a regime is one thing; replacing it with a stable and legitimate government is quite another.

If the US wants better results, it should stop going it alone. The US cannot impose its will unilaterally, and trying to do so has merely arrayed other powerful countries,

including China and Russia, against it. Like the US, Russia has a strong interest in stability in Syria and in defeating the Islamic State; but it has no interest in allowing the US to install its choice of regimes in Syria or elsewhere in the region. That is why all efforts by the UN Security Council to forge a common position on Syria have so far foundered.

But the UN route can and must be tried again. The nuclear pact between Iran and the Security Council’s five permanent members (the US, China, France, Russia, and the UK) plus Germany, has just provided a powerful demonstration of the Council’s capacity to lead. It can lead in Syria as well, if the US will set aside its unilateral demand for regime change and work with the rest of the Council, including China and Russia, on a common approach.

In Syria, only multilateralism can succeed. The UN remains the world’s best – indeed its only – hope to stop the Syrian bloodbath and halt the flood of refugees to Europe.

Jeffrey D. Sachs, Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University, is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals. © Project Syndicate, 2015. www.project-syndicate.org

September 16 - 22, 2015

financialmirror.com | WORLD | 17

Reading, writing, and refugees

By Gordon Brown

Just days ago, Abdul al-Kader, his four-year-old daughter, Abdelillah, draped over his shoulders, was photographed standing at a dangerous intersection in Beirut, trying to sell biro pens to feed his family. The image of this Syrian refugee family’s plight, tweeted by a Norwegian, Gissur Simonarson, immediately went viral.

Within a day or two, £100,000 ($154,000) was raised to help Abdul, Abdelillah, and her nine-year-old sister, Reem.

When asked what he would do with the money, Abdul said he would use it to educate his children and their friends.

The story of Abdul and his children highlights an obvious, if overlooked, truth: far from seeking to scrounge off Europe, thousands of Syrian exiles are desperate to return home as soon as it is safe. It is sheer desperation that is forcing them to embark on life-threatening voyages.

And they are not alone. An astonishing 30 million children are displaced around the world: two-thirds to other parts of their countries, and the rest forced to flee from their homelands altogether.

Some refugees are victims of natural disasters – for example, the one million children recently made homeless by the earthquake in Nepal. Others are displaced by climate change. But the main reason for the rising number of refugees is violent conflict. Five years ago, war and fighting displaced roughly 5,000 children per day; today, that number is more than 20,000.

Aside from Afghanistan since the 1970s, Somalia since the 1980s, the Democratic Republic of Congo since the 1990s, and now Syria, the past year alone has seen refugees fleeing the Central African Republic, South Sudan, Iraq, Libya, Yemen, and Burundi. And, because the average time a refugee is away from his or her homeland is ten years, millions of refugee children could go without education for most of their childhood years.

That scenario – life on the streets, with some children trapped in slave-labour conditions, others trafficked for prostitution or forced into unwanted marriages, and all

vulnerable to extremists who seek to exploit their suffering – is so unacceptable that it forces us to act. While food, medicine, and shelter come first, education must be a high priority.

I found that out a few weeks ago while visiting a refugee centre in Beirut, where mothers pleaded with me to get their children into school. They understood that while nutrition and health care are vital to survival, education – which enables young people to prepare and plan for the future – is what gives them hope.

Yet, despite the efforts of international agencies, these vulnerable children will continue to fall through the cracks unless drastic action is taken now. Refugee children lose out because they benefit mainly from humanitarian aid, which maintains a short-term focus on shelter and food, and development aid, which is by its very nature long-term. Only 2% of humanitarian aid currently goes to schools, and aid agencies struggle to cope with emergencies.

To address this, plans are underway for a humanitarian fund that can provide money to keep schools operating through an emergency or to build new ones in refugee camps and settlements. Indeed, the real test for such a fund is in countries such as Jordan, Lebanon, and Turkey, where services are at a breaking point and some two million children – the majority with no schooling – are languishing in shacks, tents, huts, and squalid camps.

Turkey has 621,000 Syrian child refugees and needs additional school capacity for some 400,000. Lebanon has 510,000, with no room for 300,000. Jordan has 350,000, and is 90,000 places short.

Last week, the Global Business Coalition for Education and the charity Theirworld outlined a way forward that is economical and can be implemented immediately. The plan is simple: double shifts in existing schools, with local children attending during the first half of the day, and refugee children attending during the second half. The plan could ensure that one million refugee children are not condemned to lose their chance at an education.

Over the past year, thanks to international donors around the world and a determined education minister, Elias Bou Saab, 106,000 refugee children in Lebanon have been enrolled under a double-shift system. Starting with the

new autumn term, the total is set to rise to 140,000.

But the funding for this year is $30 mln short – and 60,000 of the students cannot be accommodated. And then there are the 300,000 children in Lebanon alone whose education needs remain to be met.

Normally in an emergency, there are no facilities, buildings, or staff to keep children in school. What is missing in Jordan, Lebanon, and Turkey, however, are not classrooms or trained teachers – there are plenty locally and among adult Syrian refugees – but the money to pay for them.

The sums are not large relative to the scale of the problem.

For just over $500 a year, or $10 per child per week, we can provide school places that would allow parents and children to do what they would prefer to do – be educated in the region.

Later this month in New York, I will ask the international community – old donors and potential new donors alike – to add another $250 mln to the $100 mln that we have already raised for Lebanon. If an impoverished refugee father is willing to give all he has to help children go to school, surely $10 dollars a week is not too much for the international community to offer to keep a refugee child off the streets.

Gordon Brown, former Prime Minister and Chancellor of the Exchequer of the United Kingdom, is United Nations Special Envoy for Global Education. © Project Syndicate, 2015 - www.project-syndicate.org

The business case for Europe’s refugees

By Lucy P. Marcus In the face of the largest influx of refugees into Europe in decades, the responses and policy proposals from the European Union and its member governments have varied enormously, and the debate has become deeply politicised.

International organisations and non-governmental agencies such as the UNHCR and the International Rescue Committee, and religious leaders such as Pope Francis and the Archbishop of Canterbury, have weighed in as well. But one group’s voice has been conspicuous by its absence: business.

While governments, charities, and donor organisations actively discuss how to share responsibility for refugees on all steps of their journey – from camps in Jordan, Lebanon, and Turkey to transit to settlement – European business has been strangely silent. But, at a time when business is more powerful than ever, with multinational corporations stretching around the world, the private sector must work with governments and NGOs to help address the short-term and long-term challenges posed by the massive refugee inflows.

Indeed, industry leaders in all sectors owe it to themselves to be involved from the start. Only by turning the challenges into opportunities can social, political, and economic risks be mitigated.

There has been one notable exception to the pattern of

private-sector silence. Just as German Chancellor Angela Merkel has been at the political forefront of the migration crisis, the Federation of German Industries (BDI) has been at the business forefront.

The BDI has spoken clearly and decisively about the benefits of refugees for business and has proposed changes to Germany’s labour laws and regulations, including fasttracking the newcomers’ right to work. In order to make business engagement and investment sustainable, the BDI has also sought assurances that migrants who find employment will not be deported.

Now it is time to hear from other countries’ business associations. How do the Confederation of British Industry or France’s MEDEF intend to respond? And what of individual multinational corporations? What legislative changes do they think they will need to aid governments and the EU in addressing the refugee crisis and ensuring long-term stability in Europe?

The challenge, everyone agrees, is not confined to managing the huge inflows and processing asylum applications. In the coming months and years, destination countries must lay the foundations for integrating refugees into their workforces. To wait too long is to miss an important opportunity to be involved in developing a strategy that works for businesses, governments, and societies alike.

Becoming involved early in the process of assessment, education, and integration planning would allow the private sector to help shape policy from the outset, rather than complaining about the government’s failures after the fact.

Business leaders can help identify the skills and abilities that would most benefit their sectors, establish guidance and training programs, and offer apprenticeships.

The benefits are clear. The refugees arriving on Europe’s

shores are often young, well educated, skilled, and eager to integrate quickly into society. They are an antidote to aging populations and low birth rates, and many come ready to work. By collaborating with the public sector, business can help to ensure that they get the training and jobs they need.

Business also has a role to play in helping to shape societal attitudes toward refugees. This is particularly true of publicfacing organisations. Football clubs across Europe are not only donating money, but also taking concrete steps to encourage a welcoming atmosphere, with welcome banners, training camps for refugees, and, in the case of Bayern Munich, language lessons.

Not all of these refugees will remain in Europe permanently. One day, many may return to their homeland.

When they do, they will have the skills to help rebuild their societies and economies, as well as provide strong ties to the country where they sought refuge. The importance of this investment in future state building, as well as business relationships, cannot be underestimated. Although the payoff may seem distant, investing in today’s refugees could make all the difference in building tomorrow’s strong, stable trading partners.

Europe’s refugee crisis continues to be viewed solely as a political problem, in part because that is how the media portray it. The only business coverage tends to focus on the financial impact caused by the disruption of transport links such as the port of Calais. But Europe’s refugee crisis is also a business problem. By addressing it now, business can turn that problem into an opportunity for all.

Lucy P. Marcus is CEO of Marcus Venture Consulting. © Project Syndicate, 2015 - www.project-syndicate.org

September 16 - 22, 2015

18 | WORLD | financialmirror.com

Will the Fed’s $4.5 trln balance sheet matter in its rate hike decision?

By Jon C. Ogg, 24/7 Wallst.com This week will bring yet another FOMC meeting where the U.S. Federal Reserve will release its decision on interest rates for Fed Funds. Whether or not that new announcement comes with a formal interest rate hike or not remains a point that is highly contested. What may matter more than whether Fed Funds rise to 0.25% from a range of 0.00% to 0.25% is how the Federal Reserve will deal with the real quantitative easing issue conundrum of what is close to a $4.5 trln balance sheet.

Of that $4.5 trln, about $4.2 trln is held directly securities. Those are Treasury debt, mortgage-backed securities, and agency notes. Now consider that a unilateral rise in interest rates will hurt the value of the fixed coupons that it owns.

To put the balance sheet of almost $4.5 trln into context, we would use the bank JPMorgan Chase’s balance sheet for a reference. The bank’s total loan portfolio was $791 bln – and its total deposit base was $1.28 trln. Wells Fargo’s total loan portfolio was $888.5 bln versus a total deposit base of $1.18 trln.

That means that all of the Federal

Reserve’s asset buying under quantitative easing is worth more than five times the loan balance of each Wells Fargo and JPMorgan. It is also almost 4-times the balance of each bank’s total deposit base.

Now consider the Resolution Trust Corp. as a comparison from the late 1980s and 1990s. The bank assets from the nearly 750 banks and thrifts came with a total assets of

almost $400 bln.

The good news here is that the Federal Reserve has a tentative plan. Their website even outlines this under a Monetary Policy Normalisation tab, as follows: “In response to the financial crisis, the Federal Reserve promoted economic recovery through sharp reductions in its target for the federal funds rate and through

purchases of securities. When economic conditions and the outlook for future economic activity and inflation warrant, the Federal Reserve expects to start the process of normalising the stance of monetary policy and the size and composition of its balance sheet. The timing and pace of policy normalisation will be determined so as to promote the Federal Reserve’s statutory mandate of maximum employment and price stability.”

The Fed’s July 29 FOMC statement also addressed its balance sheet policy. It said: “The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”

Additional normalisation tools already seem a bit dated from last year.

How the Fed will deal with unwinding close to $4 trln worth of securities still formally remains to be seen. Maybe we should really just ask whether that will take a matter of years or whether it will take decades.

Yandex wins as Google loses antitrust probe in Russia Stocks of companies that do business in or benefit from Russia have been pounded over the past year. Yandex N.V. (NASDAQ: YNDX) has sometimes been called by outsiders as the “Google of Russia.” That means that it has not been immune from the market selling. Now a local court ruling in Russia is helping Yandex.

Google Inc. (NASDAQ: GOOGL) was found to have violated Russian antitrust laws by requiring that manufacturers pre-install its search and services on their devices. Yandex had complained earlier to Russia’s Federal Anti-Monopoly Service. It had requested that Google should be forced into unbundling its services from the Android operating system and the application platform in Google Play.

Yandex’s complaint was reported to be that Android’s default options pushed mobile Web users to Google’s own services rather than to other services. This included maps and search functions of Google, and Yandex said that the

Netflix is about to get big in Japan After arriving on the shores of Australia and New Zealand, Netflix is continuing down its path of expansion. From autumn 2015, the streaming service will also be available in Italy, Spain and Portugal. More importantly, however, Netflix is about to make a big jump to Asia. From the early September, it will also be available in Japan, a move announced by the company. Currently, nearly 66 mln people worldwide stream movies and series via Netflix. By 2016, the company is aiming to have a global presence in 200 markets.

(Source: Statista)

efforts of Google limited consumers’ choices on services from Yandex and others.

While 24/7 Wall St. has not tracked any rankings and ratings on Yandex in Russia and in other countries, outside reports showed that Yandex had been losing market share to Google.

The reality is this is more of a gain for Yandex than it is a major loss for Google. Many such rulings are appealed.

Sometimes they remain in place, sometimes they are overturned. Yandex is believed to be more entrenched in Russia as “being more Russian,” but predicting how rulings and treatment will be in Russia is often hard to do on a historic view.

There is also a potential question about whether Russia might just be favouring a local company over an American one. After all, it is not as if relations between the United States and Russia are on solid ground.

Yandex’s shares listed in New York traded up 6.9% to

$12.05. It has a 52-week range of $9.94 to $31.59. Google shares closed down 0.4% at $623.24, against a 52-week range of $486.23 to $678.64.

Russia’s FAS said back on February 20: “The Federal Antimonopoly Service (FAS Russia) opened proceedings against Google Inc. upon elements of violating the antimonopoly law. Earlier the Antimonopoly Service received a complaint from Yandex about anticompetitive actions of Google.”

The Head of FAS, Igor Artemiev pointed out that “the EC has been conducting the investigation for already a long time, American Courts already made several decisions on the issue. We have been monitoring the situation closely for long, and when Yandex approached us, we opened a case against Google.”

FAS suspects that Google violated Part 1 Article 14 of No.135-FZ Federal Law “On Protection of Competition” and, possibly, some other Articles of No.135-FZ.

September 16 - 22, 2015

financialmirror.com | WORLD | 19

Organised crime costs U.S. retailers $30 bln Organised crime takes a huge bite out of retail sales, as much as $30 bln in the past year. That is slightly more than all the annual revenue of Sears Holdings Corp., parent of Sears and Kmart.

A new study by the National Retail Federation (NRF) describes the magnitude of the problem: “Retail loss prevention executives have their hands full, and when it comes to the organized crime gangs that wreak havoc on their stores, their inventory and their bottom line, retailers are getting more aggressive in their efforts to fight the $30 bln problem. According to the National Retail Federation’s 11th annual Organised Retail Crime Survey, which polled 67 senior retail loss prevention executives, nearly all (97%) retailers surveyed report that they have been a victim of ORC in the past year, up from 88.2% who said so last year.”

So, the size of the problem is extraordinary and can be added to the widespread problem of shoplifting by both consumers and employees. It is a wonder that, between organized crime gangs and shoplifting, retailers have any profits at all.

And the effects based on the bite organized crime takes are

tremendous: “Retailers on average report they have lost $453,940 per $1 bln in annual sales over the past year. Additionally, the

survey found on average retailers allocate approximately $434,032 to specific organised retail crime personnel in their company.

Among the primary efforts used by criminals are cargo theft and the misuse of gift card and return policies.”

The survey showed that much of the activity is concentrated in several cities: Los Angeles, Miami, Chicago, New York, Houston, Arlington/Dallas/Ft. Worth, San Francisco/Oakland, Baltimore, Orange County, Calif., Northern New Jersey.

While many retailers have called on and been helped by law enforcement groups, the progress has been modest: “NRF asked retailers about the support they get from law enforcement in the states where they have a presence and that have ORC laws, and the survey found 15.4% of those surveyed say they have noticed an increase in support from federal law enforcement, up from 9.6% who said so last year; 43.1% say they’ve noticed an increase in support from local/county law enforcement and 24.6% say support from state law enforcement has grown.”

So modest that the criminal activity may be outpacing help from legal authorities.

Sanctions deal would unlock Iranian banks’ growth potential, says Moody’s The lifting of nuclear-related trade and financial sanctions on Iran, should it materialise, would be credit positive for the country’s banks, Moody’s Investors Service said in a report on Wednesday.

According to the rating agency, increased trade and investment could boost growth in Iran’s banking sector and support asset quality of domestic banks, although such improvements would depend on the strengthening of banks’ capital levels and the implementation of structural reforms.

“We see significant upside potential for Iranian banks from increased economic activity if sanctions are lifted. This could include new regional business opportunities relating to trade finance, letters of credit and new investments and infrastructure

Countries with the biggest annual gambling losses With gross winnings predicted to hit $488 bln this year according to H2 Gambling Capital data reported by the Economist, the global gambling industry is absolutely massive. The United States is the world’s biggest market with gambling losses in 2014 reaching a staggering $142.6 bln.

National gambling losses in China are declining due to a corruption clampdown in Macau but it still comes second with $95.4 bln. Japan comes a distant third with just under $30 bln.

Australia had the highest annual gambling losses per person last year – about $1,130. (Source: Statista)

projects,” said Constantinos Kypreos, a senior credit officer at Moody’s.

Moody’s report also highlights that if and when sanctions are lifted, more than half of the official reserves which are currently frozen - estimated by the Institute of International Finance to total $92 bln - may be used, for example, to recapitalise government-owned banks or be invested in building the country’s infrastructure.

“Recapitalisation is much needed to unlock the growth potential of the Iranian banking sector,” said Kypreos. “The repatriation of frozen assets, and potential interest from foreign investors and financial institutions, would also allow domestic banks to strengthen their solvency levels,” he added.

Banks domiciled in countries with close ties and trade links to Iran, such as the UAE and Lebanon, but potentially also Western, Chinese and Indian banks, would likely be attracted to Iran’s diversified economy and significant trade flows, according to Moody’s.

“We anticipate increased longer-term business opportunities for Dubai banks if the Iranian economy opens up, particularly given the private sector nature of the Dubai economy and its strengths as a logistics hub,” noted Khalid Howladar - senior credit officer.

“In addition, a rise in inward investments from Iranian nationals could moderate the impact of the softening real estate market in Dubai,” he added.

However, physical expansion into Iran

would pose greater risks.

The rating agency notes that the still fragile operating and geopolitical environment would expose foreign banks to the asset quality issues inherent to emerging economies undergoing fast transformation, and would require prudent risk control and oversight.

Moody’s also notes that the entire Iranian banking system is Shari’ah compliant and is currently the largest amongst countries practicing Islamic finance.

“Given the sheer size of the banking system and the country’s financing needs, we expect a major boost to sukuk volumes,” said Howladar. “However, Shari’ah harmonisation across jurisdictions would likely remain difficult.”

September 16 - 22, 2015

20 | BACK PAGE | financialmirror.com

Are we seeing the end of malaria?

By Oluwatosin Omole, Babafemi Adenuga, and Joshua Adeoye For those on the frontline of the battle against malaria, news of the development of a vaccine against the parasite is an exciting development. In 2013, the disease was responsible for 584,000 deaths, nearly 90% of them in SubSaharan Africa; some 78% of its victims are children under the age of five. In the 97 countries in which malaria is endemic, it ravages the economic productivity of those who can least afford it: poor people with limited access to treatment and care.

In July, the European Medicines Agency approved RTS,S – a vaccine also known by its trade name, Mosquirix – for use in children from six weeks to 17 months old. The global health community has long appreciated the importance of a vaccine in reducing the disease’s burden, and the World Health Organisation is expected to make an announcement in November about the use of Mosquirix in countries where malaria is endemic, some 30 excruciating years after researchers at the pharmaceutical company GlaxoSmithKline (GSK) began working on the vaccine.

The approval is a significant step in the right direction for the prevention and control of malaria. It is also a testament to the enduring power of social philanthropy, partnerships, and international collaborations. However, many questions about the vaccine’s deployment – and its integration into the health systems of some of the world’s poorest countries – remain to be answered.

Cost is probably the most important issue. Many of the people who most need the new vaccine are poor. It remains to be seen whether “equity pricing” will be feasible, considering the millions of dollars invested into research and development. GSK has said that Mosquirix will be offered “not for profit”; but the pharmaceutical company still must break even.

And who will actually pay? Many African governments

have shown some willingness to invest in public health infrastructure in the past; but a political commitment to the vaccine could mean redirection of resources from other important tools, including rapid test kits, cheap drugs, safe insecticides, and long-lasting insecticidal bed nets.

International non-governmental organisations and private foundations have collaborated with the public sector in the fight against malaria, providing funds and bringing attention to the issue. It might be asking too much to expect them to pay for the vaccine.

There are also questions about some countries’ capacity to distribute the vaccine, as well as uncertainty about how it will hold up under real-world conditions. For example, the testing for Mosquirix did not account for the possibility that parents would neglect to use insecticide-treated nets for their children because of a false sense of safety and security provided by the vaccine.

Moreover, in order to maintain the vaccine’s efficacy, a booster needs to be delivered after the initial three doses.

Without it, effectiveness drops to non-protective levels. Will governments really be willing to spend millions of dollars on this?

Finally, many parents in Sub-Saharan Africa currently do not immunise their children for a variety of reasons, including distrust of health officials and ignorance. The polio

vaccine faced an uphill battle in Nigeria, and the new malaria vaccine could suffer a similar fate. Governments will have to decide whether to make its use compulsory or provide incentives for those who choose to vaccinate their children.

The approval of Mosquirix opens a promising new phase in the fight against malaria. But serious challenges abound.

To meet them, African countries must initiate, develop, and support homegrown research capacity and leaner models for delivering care. Research and investment in physical and social infrastructure must be a high priority as well.

In the time it has taken to read this article, five children will have died from malaria. Ten years from now, that statistic could be no more than a bad memory, thanks to Mosquirix. At the very least, the world now has a new weapon in the fight to reduce the disease’s toll.

Oluwatosin Omole is a resident physician in the Department of Community and Family Medicine at Howard University Hospital. Babafemi Adenuga is an associate professor in the Department of Community and Family Medicine at Howard University Hospital. Joshua Adeoye is a lecturer of Dental Public Health at Bayero University, Kano. © Project Syndicate, 2015 - www.project-syndicate.org

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