Financial Mirror 2015 10 14

FinancialMirror KENNETH ROGOFF

JEFFREY FRANKEL

The French Exception

Why support the TPP?

PAGE 17

Issue No. 1153 €1.00 October 14 - 20, 2015

PAGE 18

Weak states, poor countries

NOBEL LAUREATE ANGUS DEATON ON POVERTY vs DEMOCRACY - SEE PAGE 11

Could Volkswagen ‘accident’ save Europe?

SEE PAGE 15

October 14 - 20, 2015

2 | OPINION | financialmirror.com

FinancialMirror GMI is first step in right direction Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

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Kudos to Labour Minister Zeta Emilianidou for seeing through and sticking to strict criteria for the low-income family benefit, known as the Guaranteed Minimum Income (GMI).

This was a scheme introduced to help alleviate the financial pain of truly low-earning households or those with no income or already receiving benefits due to serious disabilities.

Although the programme’s EUR 60 mln annual payout, which averages out to just under 200 euros per month, will not necessarily make them rich overnight, it will at least provide for a respectable amount to improve the quality of life of the beneficiaries, many of whom are far below the poverty line.

When news of the GMI first came out, the government did not employ proper marketing methods to defend its case. Instead, many above-average earners thought this was a bonus to supplement their 13th salary.

That is why on Monday it was revealed that more than half of those rejected had deposits of 25,000 euros up to 1 mln, while 60% of those turned down had assets or property worth over 200,000 euros. Of these, 94 even had properties worth more than 1 mln.

The audacity of the latter category to go

through the trouble of sending in an application with the hope that they might get some of the pickings, cannot be described by normal logic.

Then again, what the ministry failed to mention was that the majority of those who applied and were rejected were in the public sector or aboveaverage pension earners, formerly of the public or semi-government sectors.

Despite assurances given at the launch of the programme, this data must now be sent over to the Inland Revenue for verification and if anyone is found to have evaded taxation, simply because of an acquaintance or relative in the civil service, then they should be fined and those who aided them, censured.

What the Labour Minister should now work on, with an equal amount of zeal, is how to help the long-term unemployed who have been shunned from all subsidies and grants, simply because they are not university graduates and out of work.

Sacrificing middle-aged and highly experienced or skilled workers, in order to cater to the parents of these university leavers was the biggest mistake which we hope will be fixed very soon.

The knowledge of the young budding entrepreneurs should be tapped, by all means.

But so should the vast experience and practical know-how of the unemployed, middle-aged workforce, struggling to make ends meet.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

Red tape hits construction, CSE takeover laws The growth of the construction sector is under threat due to red tape and apathy by civil servants, according to a major developer, while the CSE changes the takeover laws to allow broader ownership by primary shareholders, according to the Financial Mirror issue 640, on October 12, 2005.

Construction red tape: Costas Michaelides, founder chairman of the CSE-listed construction

20 YEARS AGO

Cyserve services show, from Ledra to Forum Cyprus is to host its first services exhibition, Cyserve 95, as the island aspires to become a regional hub for business, while Louis was in talks with InterContinental to rename the Ledra Hotel in Nicosia, according to the Cyprus Financial Mirror issue 130, on October 11, 1995.

Services exhibition: Employers federation OEV Director Antonis Pierides launched the new Cyserve

company, said the sector is suffering from long delays in permits, rampant violation of safety rules by subcontractors, massive increases in cost and ever increasing government taxes and fees.

CSE takeovers: The stock exchange is undergoing radical changes after splitting into the Main, Alternative and Parallel markets, with the family ownership cap raised from in the Alternative sector 70% to 74.99%, which would deprive strategic investors as the 25% free-float remains. The Parallel cap is then raised to 80% or the maximum 90%.

95 exhibition in an effort to transform Cyprus into a regional service centre, as the sector accounts for 65% of GDP. Saving on flights: President Clerides travelled to New York for the annual UN General Assembly and to meet SG Boutros Boutros Ghali.

But the news was that he chose British Airways over the national carrier from Larnaca to London, reportedly saving the

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GDP growth: Real GDP growth is expected at 4% in 2005, up from 3.7% in 2004, with the budget deficit seen at 2.9% of GDP, compared with 4.2% in 2004.

The Economist’s EIU projects 3.6% GDP growth in 2005 and 3.0% in 2006.

Jobless up: Unemployment rose to 3.3% in September, from 3.1% a year earlier, but below the 3.6% seen in August. The biggest rise was in construction and the biggest fall in public education, where unemployed teachers were hired in September.

BOCY shares up: Bank of Cyprus shares closed at a new high of EUR 4.24 (CYP 2.43) in Greece, on four times the volume traded in Cyprus. Since the start of the year, BOCY is up 58%.

In other news, commentators were talking about Angela Merkel, Germany’s new and first woman Chancellor…

taxpayer a “significant amount”.

Louis Forum: Inter-Continental and Louis have signed a franchise agreement that will rename the Ledra Hotel in Nicosia to Forum

by Inter-Continental. The Ledra has a new wing with 90 new luxury rooms and suites.

Bank ratings: Limassol-based Capital Intelligence has raised its rating on all three Cypriot banks. Bank of Cyprus benefited from “sound strategies” and “strong performance of international operations.” Popular Laiki “is well placed to respond to current challenges and maintain domestic market share”, while it said that Hellenic Bank “rapidly progressed to become the third largest financial institution.”

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October 14 - 20, 2015

financialmirror.com | CYPRUS | 3

€4.5mln a month in GMI aid to 23,500 Aim is to tackle unemployment and undeclared work, says Minister

A monthly payout of 4.5 mln euros is distributed to some 23,500 beneficiaries in the form of the Guaranteed Minimum Income aid, which the government says is well within its budgetary capabilities.

The Ministry of Labour and Social Insurance that introduced the scheme last year to help low-income families and ‘vulnerable’ groups, said that 12,670 applications were approved, in some cases involving more than one recipient per household.

These are jobless people, long-term unemployed, low-income earners and ‘special needs’ families that depend on state hand-outs because of ailments.

This means support to those who really need the aid,” the Ministry said, adding that many of the recipients had never received benefits or were not eligible.

More than half of the applicants who were rejected had deposits of 25,000 euros up to 1 mln, while 60% of those turned down had assets or property worth over 200,000 euros.

Of these, 94 even had properties worth more than 1 mln.

Of those rejected on income criteria, 80% had revenues of more than 1,000 a month and half earned 1,500 or more.

The ministry administer benefits of 522

mln euros, whil social benefits are distributed to those eligible for child support or single parents, low-pension earners, those suffering from chronic illnesses, World War II veterans, social pensions, extreme handicaps, paraplegics, tetraplegics, blind and those in need of mechanised or other assistance (wheelchairs, etc.).

Meanwhile, Minister Zeta Emilianidou

said that the aim is to is intensify efforts to tackle the problem of unemployment and the phenomenon of illegal and undeclared work.

In her address at the 15th Congress of the Construction Workers’ and Miners’ Federation over the weekend, she said that the drastic reduction in demand during 2009-2011 seriously hampered the construction sector thus reducing its

contribution to GDP to 7.8% in 2011 from 11.7% in 2008, while whereas employment in construction increased from 9.8% in 2000 to 12.1% in 2008, it dropped to 6.7% in the second quarter of 2015, or from 46,217 persons down to 24.374.

In September, for the first time since November 2012, the registered unemployed fell below 40,000, for an annual decrease of 10.8% compared to the same month last year.

In August, long-term unemployment fell by 5.5% year-on-year, mostly from the sectors of services, commerce and constructions.

The Labour Market Observatory showed that in August the number of unemployed for more than six months reached 19,333 people, down by 1,128 persons or 5.5% y-oy. Statistics showed that those in the labour force out of work for more than six months accounts for 47% of all registered unemployed.

Most long-term unemployed are in the services sector (26%), followed by trade (19%) and constructions (15%).

The majority of long-term unemployed are Greek Cypriots (84%), followed by European citizens (8%), foreigners (3%) and Pontian Greeks (3%).

October 14 - 20, 2015

4 | CYPRUS | financialmirror.com

Cyprus Capital Partners to launch €100 mln SME fund Cyprus Capital Partners, the Nicosiabased private equity fund manager, is in the process of raising EUR 100 mln to invest in small and medium-sized enterprises with activities and profitability abroad.

The company’s CyCap Opportunity Fund is a private equity investment fund “targeting venture, growth and expansion opportunities arising from the exceptional circumstances now emerging in Cyprus.”

However, the firm’s Director, Thomas Kingston, said that the fund is not interested in the high-risk distressed mortgage market, currently burdened with more than 50% of the island’s private debt in the form of nonperforming loans. Kingston estimates that loan managers will not be interested to buy loan packages to turn the NPLs into longterm revenue streams, but will focus on acquiring assets through loans market with which they are connected.

In comments to the Cyprus News Agency, he said that investment funds will not be interested in household loan portfolios,

primarily for ethical reasons.

“One is ethics, fund managers cannot even think about a family losing their home, you don’t want to be in that business, a few fund managers want to be in that business.

That’s probably a problem the banks have to solve,” he said.

Under certain conditions, he said, investment funds could enter the household loan market, depending on the discount of the bank (from the nominal value) and the size of the bank, and if there is enough room in the loan to give the borrower enough freedom to begin paying back.

Kingston noted that there should be a distinction between the purchase and sale of houses and the funds entering a market and manage business loans and large loans for the property sector.

“It is important to separate these two.

Fund managers are rarely interested in the mortgage loans, loans that have to do with people’s homes”, he said, adding that funds are interested in commercial loans, in real

Wargaming trims HB stake, Ross ups BOCY Online gaming giant Wargaming.net, one of Hellenic Bank’s three major shareholders, has trimmed its stake in the lender from 26.2% to 24.8%, according to a stock exchange filing.

The announcement said that Wargaming sold 49,213,490 ordinary shares to an unspecified buyer, but remains the second biggest investor after New York-based fund Third Point. Local investment fund Demetra is the third largest, while the European Bank of Reconstruction and Development (EBRD) recently acquired a 5.38% stake by purchasing Hellenic’s outstanding stock for EUR 20 mln. The EBRD is already a 5% investor in Bank of Cyprus having pumped in EUR 120 mln last year.

On the other hand, BOCY’s vice chairman Wilbur Ross has bought 6,363,050 of the lender’s share via the WLR Recovery Fund V.L.P., at a cost of 16.62c a share, the bank disclosed in stock exchange filing.

The billionaire investors is probably averaging up his stake, having pumped in EUR 400 mln of his own money and that of clients last year at 24c a share, for a 19% control.

The Ross purchase will only improve the Vice Chairman’s personal stake by 0.1 percentage point, still below the 5 per cent benchmark.

ECB buys bonds under QE The Eurosystem resumed buying Cyprus government bonds in the secondary markets on Wednesday within the context of the ECB quantitative easing programme, with the debt bought so far totalling EUR 98 mln with an average maturity of 5.32 years.

Central Bank of Cyprus spokeswoman Aliki Stylianou said that the Cypriot bond purchases are expected to further compress the bonds’ yields in the secondary markets.

This is the second time since July that the ECB has been buying Cyprus bonds as part of the QE programme.

Stylianou said that when the first round of bond-buying started, yields dropped by 30 basis points, while as at September 30, the yields were down a further 5 points.

Secondary market buyers are mainly banks and investment funds that hold Cyprus government bonds, following the favourable review of the Cyprus bailout plan, while the ECB’s QE programme may also buy asset-based securities (ABS) and covered bonds, where Bank of Cyprus said that its own mortgage covered bonds have become eligible assets for Eurosystem credit operations.

This follows a rating upgrade to Baa3 from B1 by Moody’s, allowing the island’s biggest lender, that was “bailed in” by depositors in 2013 after it was forcibly merged with failed Popular Laiki Bank, to reduce its emergency liquidity assistance (ELA) reliance from EUR 11.4 bln in April 2013 to a current level of 4.5 bln.

estate to a certain degree but also in companies that can produce things and contribute to the real economy.

He also expressed the view that fund managers will come to Cyprus looking for potentially lucrative assets that happen to be attached to NPLs and will use the NPLs as a way of acquiring that asset, as opposed to buying a basket of loans and turn it into a revenue stream.

As he said, the idea is to take these NPLs and turn them into assets that generate revenue year on year. He also said that there is interest in buying the loans in order to convert that debt into equity. As an equity holder, he said, the fund will help that company turn around and become more valuable.

Speaking on the large amount of nonperforming loans in the Cypriot banks, he expressed the view that setting up a bad bank is the best way to address the problem.

“The banks themselves have the opportunity to turn NPLs into performing

loans and one way to do that is a bad bank, where a bank will establish a finance company they will hire specialists who know how to take a long-term view on these loans and slowly rehabilitate the loans into performing loans”, he said, adding that what the banks suffer from is time and capital.

According to the company’s website, the CyCap Opportunity Fund has been granted the distinguished European EuVECA designation, and is registered both in Cyprus with the Cyprus Securities and Exchange Commission and across the EU with the European Securities and Markets Authority.

The fund’s 10-year life-cycle allows CyCap to cultivate a long-term investment approach. “While targeting opportunities in Cyprus, our efforts seek to facilitate growth and expansion both locally and internationally, allowing our portfolio companies to leverage the unique regional position of Cyprus; at the epicentre of adjacent markets in the EU, the Middle East, Eastern Europe and Africa.”

MPs want Central Bank to resolve CHF loans problem

B an k s fa ce €2 2 50 m l n in l os se s i f l o ans co nv ert ed to Eu ro Parliament told the Central Bank of Cyprus and the commercial banks that they have ten days to come up with a solution that would allow the conversion of Swiss franc loans into euros, otherwise they would adopt legislation of their own.

With housing loans in CHF estimated at EUR 1.05 bln as at the end of August, Central Bank officials said such a forced conversion would hamper local banks with a further EUR 250 mln in losses.

CBC official Elena Gregoriades told the parliamentary Committee of Financial and Budgetary Affairs on Monday that the Bank of Cyprus would suffer losses of EUR 147 mln, Hellenic Bank 11 mln and Alpha Bank Cyprus 10 mln. She added however that Alpha Bank would suffer higher losses as its calculations concerns only primary residence and not all housing loans.

“The CBC believes that any government-imposed remedy would yield significant losses to the banking institutions with negative effects to financial stability in a period the banks are recovering from the problems of the past, entailing a significant legal but also moral hazard,” a document submitted to the Committee said.

Gregoriades also said that in case a law providing the conversion of only housing law is approved, perhaps other borrowers that received loans in Swiss franc for consumer could appeal to the Court against the Republic for discrimination.

She advised against settling the issue by law noting that the CBC should be given time to consult with the banks so that they improve their already offered solutions.

However, Committee acting president Angelos Votsis said the banks should absorb the losses from the loan conversion.

Last week, analysts George Mountis and Costas Zeniou of Delfi Partners said that around 11,000 borrowers will be affected, with the total in CHF denominated loans estimated at EUR 2.58 bln as at the end of August, more than double the Central Bank estimates.

However, this figure has been dropping steadily, with January data suggesting the total loans stood at EUR 3.62 bln.

Currently, borrowers in Swiss francs have seen their loans inflate as a result of the Swiss currency gaining significant strength against the euro. At present, a euro trades at less than 1.1 Swiss francs, whereas some borrowers have borrowed at rates above 1.6.

On September 21, Members of Parliament asked the Central Bank of Cyprus (CBC) to investigate the cost to local

banks to convert mortgages in CHF to euros at their original exchange rates.

“The significant volume of CHF denominated loans in the Cyprus is suggestive of the banks’ foreign currency loan selling practices in previous years,” Mountis and Zeniou said in a joint article.

“It’s not too difficult to estimate the full extent of the damage. The billion euro question concerns the legality of these loans, particularly whether Cypriot banks were transparent in communicating risks involved. There is already a precedent set for CHF loans in Croatia, Greece and Hungary, where the banks bear the FX hit.”

“This is not the only case where a European court has ruled in favour of the consumer when it comes to foreign denominated loans. A recent court decision in Athens called for the banks to pay for the full extent of the foreign currency hit. The court cases stress that European consumers are protected against dubious selling practices that banks evidently engaged in.”

Mountis and Zeniou said that “some banks have handled the CHF issue more responsibly than others. Most banks are willing to share at least some of the burden of foreign currency loans and our restructuring practice has forced banks to negotiate up to 100% of the foreign exchange loss, especially in the case of mortgages or personal loans.

Whereas some banks deal with each case individually, others employ universal policies of 5-12% write-offs. The Greek subsidiaries appear to be more advanced at dealing with these types of cases, settling at much higher write-offs.”

October 14 - 20, 2015

financialmirror.com | CYPRUS | 5

“Recovery has started, a need for prudent policies”, says EU Commission The economic recovery in Cyprus has started following almost four year of recession, the European Commission said, noting however the authorities need to continue prudent policies in light of existing risks. Reforms are part of the memorandum agreed with the Troika of international lenders, including the Commission, the ECB and the IMF, in order to receive the EUR 10 bln bailout package. So far, Cyprus has utilised only 7 bln of that amount and indicated it will not need much more as it exits the programme next March.

In a report on the seventh economic adjustment programme review, the Commission notes that the economic recovery has started, but unemployment remains high.

Economic growth returned to positive territory in the first quarter of 2015, led by professional services and tourism and, on the demand side, private consumption, partly supported by lower energy prices, lower interest rates and the euro depreciation, the report adds, noting that although the labour

market shows signs of stabilisation, unemployment remains high, hovering at around 16%.

Regarding the fiscal developments, the report said that they continue to exceed expectations, with a primary surplus of 1.2% of GDP at end-June 2015, about 0.9pp of GDP better than envisaged in the sixth review.

Taking into account the latest developments and updated macroeconomic projections, the 2015 government primary balance target has been revised from a surplus of 1.5% of GDP to a surplus of 1.9% of GDP. “The authorities will need to continue implementing their budget prudently in light of existing risks, notably related to the uncertain fiscal impact of recently enacted tax reforms. If required, additional measures should be taken in order to achieve as from 2017 a lasting primary surplus of between 3% and 4% of GDP, which is warranted to maintain public debt firmly on a sustainable downward path,” the report noted.

With regard to the banking sector, the Commission said that the situation is

Trade deficit narrows in Jan-Aug

gradually improving, but a stronger implementation of financial sector reforms is needed to guarantee a sustainable stabilisation of the banking system.

“Even if there are some early signs that the rise of non-performing loans is levelling off, a decisive reversion of the NPLs trend has still to materialise. Addressing the excessive level of non-performing loans in the banking system remains the number one priority,” the report noted.

The Commission highlights delays in the field structural reforms, noting that reforms such as the privatisation process and the public administration reforms are “critical to restore sustained economic growth”.

Other reforms have suffered from delays. It pointed out the law on the state-owned enterprises’ corporate governance, the reform of the health sector has not progressed much since the last mission, as well as the implementation of the Immovable Property Tax reform that has been postponed to 2016 due to late adoption of the design of the new tax system.

The trade deficit narrowed to EUR 2.15 bln in the first eight months of the year, compared to 2.27 bln in the same period in 2014, according to the Statistical Service Cystat.

Total imports in August reached EUR 405.8 mln, of which 286.6 mln was from EU member states and 119.2 mln from third countries.

Total exports in August reached EUR 97.3 mln, of which 50.9 mln to other EU member states and 46.4 mln to third countries.

Last week, Cystat said that the trade deficit for January-July dropped to EUR 1.84 bln from EUR 1.95 bln in the same period of 2014. Total imports were up at EUR 2.97 bln from EUR 2.86 bln in January-July 2014, while exports improved to EUR 1.125 bln from EUR 914 mln in January-July 2014.

July 2015 imports reached EUR 454.9 mln and exports totalled 130.7 mln.

UCy revises GDP growth to 1.3% Up from 1.1% in August report; projection for 1.5% in 2016 The recovery of economic activity in Cyprus is forecast to continue in the following quarters, according to the Economic Research Centre of the University of Cyprus, with real GDP growth for 2015 revised upwards from 1.1% in August to 1.3%.

This is far more optimistic than projections by the European Commission and the IMF that weaker growth (0.5%) for 2015.

Real output is estimated to expand (y-o-y) by 1.9% and 2.6% in the third and fourth quarters, respectively, the October UCy monthly report said.

The projected growth rates for the second half of 2015 should, of course, be interpreted in the light of the low levels of GDP reached during the corresponding period in 2014, the UCy report said, adding that real GDP growth in 2016 is forecasted at 1.5%, revised significantly up from 1.1% in the August survey.

“The upward revisions to the forecasts resulted from the strengthening of y-o-y real GDP growth in the second quarter in Cyprus and in the EU as well as from further improvements registered in a number of domestic leading indicators during the third quarter,” the monthly report said.

The main drivers of the projected increase in real activity are: - Growth (y-o-y) in real GDP and employment accelerated in the second quarter. Notably, the pickup in a number of activity-related domestic leading indicators continued during the third quarter.

- Stronger growth in the euro area and steady growth in the UK during the second quarter, as well as further increases in European economic sentiment indicators in the third quarter, support the recovery in Cyprus.

- The recent reductions in domestic lending interest rates amid conditions of weak demand and elevated unemployment are found to facilitate economic recovery.

Furthermore, the return of domestic economic confidence to pre-crisis levels and the good fiscal performance are estimated to contribute to growth.

- Lower international oil prices and inflation in the EU are expected to benefit economic activity in Cyprus through their effects on real incomes, and on both domestic and external

demand.

- The weakening of the euro against key currencies, most notably against the British pound, is expected to boost domestic activity in the following quarters through exports, particularly tourism services.

- Further reductions in the European lending rates and in the borrowing costs of euro area governments (with the exception of Greece) reflect ECB’s accommodative monetary policy stance, which is also backing the recovery process in Cyprus.

Downside risks to the growth projections are associated with the following: - The high levels of non-performing loans pose major risks to the stability of the banking system and to the outlook for the economy. Ineffective implementation of the new insolvency and foreclosure legal framework and bottlenecks in the introduction of legislation for the sale of loans could delay the restoration of healthy credit conditions and economic growth.

- Delays in the implementation of structural reforms agreed in the economic adjustment programme (e.g. public administration, privatisations, health system) may create risks to public finances, Cyprus’s market borrowing costs and, therefore, to economic activity.

- Deterioration of the external economic environment namely (i) the worsening of the outlook for the Greek economy, (ii) the downturn in Russia and (iii) weaker than expected growth in the euro area and the UK, as a result of a slowdown in emerging markets, especially in China, could pose risks to the recovery momentum in Cyprus.

Upside risks to the economic outlook relate to the following: (i) a longer period of lower oil prices with positive effects on consumption; (ii) limited negative spillovers from adverse economic developments in Greece due to the recent weakening of the connections between the Cypriot and Greek banking systems; and (iii) investment decisions linked mainly to tourism, energy and financial services as well as public investment efforts for the expansion/improvement of infrastructure.

CPI inflation in 2015 is projected at -2.1%, with 2016 CPI inflation estimated to remain slightly below zero mainly driven by the lower international oil prices combined with sluggish domestic demand.

“The forecasts for CPI inflation are revised downwards from -1.7% and 0.7% for 2015 and 2016 respectively, in the August issue, to -2.1% and -0.4% for the current and next year respectively. The downward revisions resulted from a larger contraction of the general price level in the third quarter compared to the first half of the year, driven mainly by lower energy prices and subdued domestic demand,” the UCy report said.

October 14 - 20, 2015

6 | CYPRUS | financialmirror.com

Fitch upgrades BOCY mortgage covered bonds A week after securing “eligible asset” investment grade for Eurosystem credit operations, Fitch Ratings has upgraded Bank of Cyprus mortgage covered bonds to ‘B’ from ‘B-’.

The rating action follows the restructuring to a conditional pass-through (CPT) from a soft bullet liability structure on eptember 29, the rating agency said, adding that the outlook is ‘stable’ and reflects the slower pace of underlying asset quality deterioration, compared with 2013 trends, despite continued economic pressure.

The ‘B’ rating is based on BOCY’s Long-term Issuer Default Rating (IDR) of ‘CCC’, an unchanged IDR uplift of 1, a revised Discontinuity Cap (D-Cap) of 8 notches (Minimal Discontinuity) from 0 (Full Discontinuity) and the 47% committed overcollateralisation (OC).

Last week, Bank of Cyprus announced that its retained mortgage covered bonds have become eligible assets for Eurosystem credit operations, following a rating upgrade to Baa3 from B1 by Moody’s Investors Service. The rating of the covered bonds is placed at the same level as the Baa3 local currency country risk ceiling for Cyprus.

Moody’s raised the rating of the bank’s mortgage covered

bonds, following amendments to the bank’s Covered Bond Programme documentation, which converted the covered bonds to conditional-pass-through covered bonds and increased over-collateralisation for the covered bonds on a committed basis.

Following the upgrade to an investment grade rating, the covered bonds have become eligible collateral for the Eurosystem credit operations and, therefore, have been placed as collateral for accessing funding from the ECB. Through this transaction, the bank said it has raised EUR 550 mln of ECB funding for the repayment of Emergency Liquidity Assistance (ELA). Prior to the rating upgrade, the covered bonds were used as collateral for ELA. Taking into account the above repayment, coupled with customer deposit inflows experienced during the third quarter of 2015, the bank said it has repaid a total of EUR 1.4 bln of ELA funding since June 30, reducing ELA to a current level of EUR 4.5 bln.

With this transaction the bank said the Group reached another milestone in its efforts to restore its financial strength and is part of the Group’s strategy to normalise its

funding structure and reduce its reliance on ELA. In total, the reduction in ELA is EUR 6.9 bln since its peak of 11.4 bln in April 2013.

BOCY ‘best’ for Private Banking Global & Banking Finance magazine has named Bank of Cyprus the Best Bank for Private Banking in Cyprus, confirming the bank’s successful strategy in offering bespoke solutions and integrated products and services in the area of wealth management, through the provision of banking services, investment services and discretionary asset management services.

“This recognition by Global & Banking Finance is ever more important in today’s macroeconomic environment as it reaffirms the bank’s ability to meet the competition and to successfully respond to its clients’ financial needs, and emphasises its clients’ loyalty and trust,” the bank said in an announcement.

Chelco boosts tax unit, Tsielepis is new ‘VAT Expert’

Baker Tilly hires HR manager for SE Europe Yiorgos Christodoulides, former Head of the Bank of Cyprus Group HR Division, join Baker Tilly Cyprus on October 21 from where he will be responsible for the audit and advisory firm’s human resources in Cyprus, Romania, Bulgaria and Moldavia.

The recent start of operations in Greece opens new challenges for the Baker Tilly network and recruiting the right people and managing personnel is critical at the present stage.

Heading the HR Division for Baker Tilly South East Europe, Christodoulides has more than 20 years of experience in HR management issues, having most recently worked as HR Director for the Lanitis Group that operates in Cyprus, Greece and the Arabian Gulf.

Apart from his senior management role, Christodoulides will also enhance the Baker Tilly Cyprus office and regional network in the areas of advisory services, personnel assessment, development and rewards, talent management and recruitment procedures.

Alexis Tsielepis, Managing Director of Limassol-based Chelco VAT Ltd., has earned the coveted Expert in European Value Added Tax (VAT) diploma after achieving the highest grade ever awarded in the history of the degree.

After a year and half of classes in Belgium and Barcelona, a verbal and written examination and a 105-page thesis, Tsielepis scored an unprecedented 95%.

The ‘Expert in EU VAT’ degree is awarded only to the very best indirect tax practitioners from all over Europe who attempt the course.

The degree is administered and awarded by the VAT Forum, an international partnership of indirect tax specialists. Tsielepis is the first and only Cypriot to have attempted the degree and soon after the results of the examination were announced, he was invited to represent the Forum as a Partner, which is another first for a Cypriot tax consultant.

“VAT is not as straightforward as it may seem,” an elated Tsielepis commented shortly after the graduation ceremony in Brussels on September 30. “It is a highly specialised subject that takes a lot of effort and dedication to master.”

He added that it was not the grade or the accolades that mattered.

“It is the fact that my knowledge of VAT is now on a different level,” he said. “Having successfully completed this admittedly demanding degree, I now feel confident that I can benefit my clients, associates and students with truly knowledgeable, comprehensive and reliable indirect tax advice.”

A Fellow Chartered Accountant (FCA), Tsielepis sits on various committees charged with VAT and other tax matters and has authored a number of tax syllabuses and articles on matters pertaining to Cyprus and EU indirect taxation.

He is also an ACCA grader and examiner and advises reputable international professional bodies on advanced Cyprus VAT and taxation.

Through Chelco VAT Ltd, which specialises in strategic VAT planning and compliance, Tsielepis lectures extensively on VAT to private and public companies, professionals and institutions as well as government agencies and departments.

A week earlier, affiliate chartered accountants Costas Tsielepis & Co Ltd, Chartered Accountants announced the appointment of Nicolas Papapanayiotou, BSc, MBA, FCCA, as Senior Manager of its Taxation Department.

Nicolas holds a BSc in Economics and Accounting and an MBA in Financial Management from the University of Hull. He is a Fellow Chartered Certified Accountant (FCCA) and a member of the Institute of Certified Public Accountants of Cyprus (ICPAC).

He had over ten years of experience with the tax department of Deloitte Cyprus in the fields of national and international tax advisory and compliance and provided direct tax advice across a range of industries, including financial, oil and gas, shipping, trading, investment and banking. His experience also includes tax due diligence and international tax planning.

Alexis Tsielepis, Director and Head of Taxation of Costas Tsielepis & Co, said that Papapanayiotou’s appointment was necessitated due to the rapid expansion of the firm’s taxation department and the increasing need to provide its local and international clientele with highly specialised, timely and more in depth tax advice.

“His appointment will further improve the efficiency and effectiveness of the department,” Alexis said, adding: “Our industry is rapidly changing for the better. The role of the tax advisor in today’s demanding world of global tax administration is now more important than ever, and rightly so.”

October 14 - 20, 2015

CYPRUS | 7

Two explosions a world apart: from disaster comes new power

H o w R o ys P oyia d jis a n d M ar tu a S itor us p a r t ne r e d t o c r e a te th e la r g e s t b i of ue l p la n t i n Ja p a n

By Wintress Von Mayer Altenenergymag.com On March 11, 2011, a magnitude 9.0 undersea earthquake off the coast of Japan created a tsunami of 40-meter high waves that swept over the island, causing mass destruction and over 15,000 deaths. One of the most devastating results of this event was the nuclear meltdown at the Fukushima nuclear power plant, resulting in evacuation of almost 500,000 people.

Just four months later, another power plant accident made headlines—this one a conventional power plant in Cyprus. In this case, the Vassiliko power plant was caught in an explosion at a nearby naval base, where a brush fire swept into the arms depot and ignited containers full of highly explosive material, causing 13 deaths.

Both island nations suffered disasters that knocked out a significant amount of their power. But they emerged from their disasters in completely different ways. And when entrepreneur and financier Roys Poyiadjis, a Cypriot who lives in New York, tried to break into the Cyprus energy market, he eventually ended up with a good investment—but not the one he expected.

Right Idea; Wrong Market Shortly after the explosion in Cyprus knocked out half the country’s electricity, Poyiadjis had an idea: he could help his native country by building a power plant, which would also be a great business investment for his family office. He quickly created a new energy company, Cyprus Independent Power, and hired a former Minister of Energy to be the CEO. Next, Poyiadjis contracted Wartsila, a Finnish power solutions company, to analyse the situation and oversee the plant’s engineering, procurement, and construction operations. Wartsila located a barely used power plant for sale in Japan which was owned by Toshiba. Poyiadjis hired Vincent Dunlevy, an upstate New Yorker with extensive experience in the power generation business, to negotiate the purchase from Toshiba. The plan was to purchase the power plant, decommission it, and deploy it onto a power barge for operations in Cyprus.

By September 2012, the operation was off to a great start — Dunlevy completed the purchase, and engineering, and design for relocating and deploying the plant in Cyprus. But Cyprus’s financial situation was deteriorating quickly due to the Greek bank crisis. The exposure of Cypriot banks to overleveraged local property companies, the Greek financial crisis, and a downgrading of the government’s bond credit rating created financial instability for the nation.

“We decided that it wasn’t the right time to enter the power market in Cyprus,” said Poyiadjis. “That was disappointing, as we were looking forward to forming the first independent power producer in Cyprus. But in the meantime, we owned a power plant and had an entire engineering team in Japan.”

After some consideration, Poyiadjis decided that the project would go ahead, but in an entirely different part of the world.

An Economic Game-Changer Around the same time that Cyprus was struggling with a weak economy, Japan was dealing with an entirely different kind of crisis: finding a safer source of energy. After the Fukushima disaster, the country made the decision to move away from nuclear power. Because Japan imports their fossil fuels, a more economical — and environmental — solution was to incentivise renewable energy sources. After the meltdown, the Ministry of Economy, Trade, and Industry (METI) devised a plan to offer a generous feed-in tariff for energy generated by renewable sources. The tariff guarantees financial incentives to companies generating power using renewable energy sources.

Poyiadjis and Dunlevy decided to revamp the project and form a company called ICC Energy Limited to pursue this opportunity in Japan. They chose the Kashima port in the Ibaraki district, 115 km from Tokyo for the building site to allow easy access from the water and reduce the cost of trucking fuel. The first step was to gain a license from METI, for the 40 MW Toshiba power plant that the Poyiadjis family office recently purchased — a level of power that made them the largest biofuel plant in the country. With the feed-in tariff, the plant’s 20-year power purchase agreement is valued at $1.5 bln.

But moving the project to Japan wasn’t the only gamechanger for ICC. The move also meant that they’d be switching from a conventional fuel (they’d planned to use heavy fuel oil in Cyprus) to a rather unconventional source: palm oil stearin, a non-edible byproduct created from

processing palm oil, which is mostly produced from the oil palms in Malaysia and Indonesia. Palm oil stearin provides a renewable energy source with low carbon dioxide emissions.

In 2013, Poyiadjis’s friend and clean tech investment banker Jesse Pichel introduced him to Martua Sitorus, the co-founder of Wilmar International, which is the largest palm oil producer in the world.

Poyiadjis travelled to London to meet with Martua Sitorus and explained ICC’s business model and strategy, and in order to get the project off the ground, it was paramount to have a consistent supply of palm oil.

“It was crucial for us to build a partnership with someone who could supply both capital and palm oil, and could take an entrepreneurial approach to the opportunity,” said Harris Stasis, a director of ICC Energy.

Sitorus was impressed with the plan: In early 2014 — a few months after his meeting with Poyiadjis — the Sitorus family office made an investment in ICC Energy, and Wilmar International agreed to provide the necessary fuel.

“I believe Martua saw this biofuel power plant as a great investment opportunity in Japan and a platform for expansion,” said Poyiadjis. “This particular plant has the ability to expand by another 100 MW, which would potentially make it the largest biofuel plant in the world. We already have the land, and we’re grandfathered into the high tariff rate.”

The Cyprus explosion created the original idea, but Poyiadjis’s plan didn’t end up the way he expected. It may have turned out even better, and when the power plant goes live in the autumn of 2016, Poyiadjis’ plan will also benefit the Japanese people — and the environment.

“In terms of impact, the plant will provide 50,000 households with green energy,” said Poyiadjis.

Arbitration conference to discuss future of dispute resolution The Chartered Institute of Arbitrators, Cyprus Branch, is marking the international organisation’s centenary with the third Alternative Dispute Resolution (ADR) conference to be held in Nicosia next week.

“ADR Prospects in the new Century, The Future” will discuss and explore the elements that are needed to expand its prospects in the new century, explained CIArb Cyprus Branch chairperson Anna Iacovou Stylianou.

Spakers at the forum to be held at the Hilton Cyprus on October 22, include the British High Commissioner D. R. Todd, Costas Clerides – Attorney General of

Cyprus, Alecos Markides – Advocate, Arbitrator and Ex Attorney General, Andreas D. Mavroyiannis – Ambassador, George Erotocritou – Justice Supreme Court of Cyprus, Andrew Demetriou - Chartered Arbitrator, Dr. Odysseas Michaelides – Auditor General, Axel Reeg – Trustee, CIArb UK, William McLaughlin – Chartered Arbitrator, Dr. Nayla Comair Obeid – Chartered Arbitrator, President of CIARB 2017, and David Goldberg - Partner, White & Case, UK- Moscow.

The subjects of the discussion include “Do not make war – Make ADR! The example of Cyprus and the great challenge of

resolving a longstanding political problem through mediation”; “The need for a new domestic Arbitration Act in Cyprus. Why and How?”; “The need for re-introducing ADR Clauses in Public Works Contacts in Cyprus”; “The future of ADR in the next 100 years”; “Those who cannot remember the past are condemned to repeat it”; “The different approaches of common law and civil law within Europe”; “A case study of Cyprus: What we can learn from recent case law on arbitration”; “Ethics must be a matter for everyone involved in arbitrations and be included in training for arbitrators and counsels” and will conclude with a

debate on “Powers of Arbitrators – They have enough and who needs ethics”.

The Institute was founded in 1915 and now has over 13,000 members in more than 100 countries. The CIArb is a non-for-profit charity which works in the public interest through its international network of more than 30 branches and chapters.

The Cyprus Branch was founded in 1976 and has 97 members. It is also an approved provider of the Institute’s Courses and provides courses for all levels of CIArb membership.

For information raining.ciarbcybranch@gmail.com

October 14 - 20, 2015

8 | COMMENT | financialmirror.com

READY, STEADY….

WARM THE BAG

FOOD, DRINK and OTHER MATTERS with Patrick Skinner

The invasion of the Ready Meal Regular readings of this page – I hope there are a few! – may remember that Mary and I lived in Cyprus from 1991 to 2011. In those 21 years, we only came back to Britain a couple of times. So, when – mostly for family reasons, certainly not the weather – we re-settled there, we expected that “every day” restaurant catering would be improved. My word, were we in for a shock! Cooks had mostly vanished from kitchens; we had returned to the “Land of the Ready Meal”.

In our tally of 24 lunches and dinners on a two week trip to the west of England and Wales, just two had been prepared by a chef. Last week, on a visit to the south coast, we had one meal fresh from the stove; at a friend’s house. All the rest, in our hotel, pubs and restaurants were “out of a bag”. If you are visiting the UK and planning to tour outside of the big cities, be prepared! Unless you are prepared to spend upwards of 100 euros for a meal for two – when you can do very well indeed by following recommendations in a splendid annual publication called “The Good Food Guide”.

“Ready meals” are generally perfectly edible, of course. But, not being fresh, they are lacking in taste and texture. So, cherish your kebabs!

When travelling I have always culled recipes for my articles, books and for our table. No luck since we’ve been back in the UK. So for my recipe this week, I have to delve back into my file of Favourites.

Some older readers may remember the English weekly humorous magazine, “Punch”, of which I have many enjoyable memories, as I worked as their PR consultant for a few years. There is a wonderful collection of 2,000 of the cartoons (see picture) which appeared in its pages between 1841 and 1992, when, in common with many other printed publications, competition from TV and other media diminished its advertising revenue and circulation to unprofitable levels and it closed.

Looking through my copy (there are copies so it may still be found on-line for reasonable sums and for the laughs you will get, worth every penny!) for foodie cartoons, and thinking about a rabbit recipe this week, I came upon this 1920 drawing.

Margaret (not satisfied with parental explanation of the recent disappearance of a pet rabbit): “Mummy, is… is this Gladys?”

A scene you see in rural France and which is not unfamiliar in Cyprus – caged rabbits, ready for despatch and for the pot. Pictures like this make some people squirm, because they don’t like to see the live animals that are going to give up their lives for our edification. But, Etsi eine i zoi.

RABBIT STIFADO Ingredients (serves 4-6) 1 rabbit, about 1.5kg cut into 8-10 pieces 500g small onions, peeled but not chopped 500g ripe tomatoes, peeled and chopped 4 tbsp olive oil 2 bay leaves and pinches of fresh rosemary and oregano 25cl meat or chicken stock 2 tbsp wine vinegar 1 des-sp sugar, salt and pepper Up to 75cl of dry fruity red wine 2 tbsp flour Method 1. Heat the oven to 175C. 2. In a large frying pan, heat oil.

3. Roll rabbit pieces in flour and fry in hot oil until browned all over.

4. Add the onions and fry for around five minutes. You can use frozen baby onions, in which case de-frost them and proceed.

5. Add tomatoes and cook for a further five minutes. Remove and put into a large ovenproof saucepan or casserole.

6. De-glaze the pan with stock. Pour this and the wine into the casserole.

7. Put the lid on the pot and cook for three-four hours on very slow heat or in the oven set at 175C. Serve with jacket or boiled potatoes, noodles or very fresh crusty bread, village salad and a robust red wine with good acidity.

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

Stefanos in Mexico for Dons of Tequila final Stefanos Athanasiou, owner of the Madame Bar in Limassol, is in Mexico this month to take part in the finals of the Dons of Tequila cocktail competition.

Stefanos was one of 17 chosen in national competitions by the local distributors of Jose Cuervo tequila who won a trip to the 250-year old distillery in La Rojeña, Tequila. There, the finalists will be given the chance to harvest their own crop of agave on the Jose Cuervo estate, blend it into their very own Tequila which will be batched and labelled under their own name.

The 17 finalists are Clément Maucuit, of France; Erica Rossi, of Italy; Andy Walch, of Switzerland; Lee Daniel Hobbs, of Germany; Lefteris Petrogeorgakis, of Greece; Laura Duca, of UAE; Thiago Sanchez, of Brazil; John Anderson Bautista, of Colombia; Jair Rosas, of Peru; Ariel Rosario, of Puerto Rico;

Nicolas Lamborizzio, of Argentina; Edwin Arenas, of Chile; Angelica Castro, of Philippines; Tessa Kerslake, of New Zealand; Sung-Min Park, of Korea; Koji Esashi, of Japan; and Stefanos Athanasiou, of Cyprus.

Becoming a Don of Tequila is the ultimate accolade, fit only for the very best,” said Juan-Domingo Beckmann, Jose Cuervo CEO. “We are excited to see how the bartenders fare in what is bound to be a tough final.”

The group of finalists will be put through a series of challenged where a panel of expert judges will determine their “passion, grit and cojones” to decide the next Don of Tequila. Jose Cuervo’s Dons of Tequila competition is part of a long-term education platform, at the heart of which sits the Dons website providing a “definitive resource” on the brand.

October 14 - 20, 2015

financialmirror.com | COMMENT | 9

Building customer loyalty through social media

By Mariana Antonescu When ‘social media’ first emerged, it was largely viewed as a way to build brand exposure. There is no doubt that social media sites offer tremendous opportunity in terms of marketing, but focusing a social media strategy solely on marketing can be somewhat limiting. Social media is actually far more powerful and it’s an effective way to build customer loyalty as it creates the perfect environment for brands to communicate directly with their consumers, to interact, engage and form a bond that can result in brand loyalty.

Savvy marketers have long been well aware that taking the time to build customer loyalty is one of the best long-term investments that they can make for their business. From creating brand advocates which can help increase social reach, protect online reputation and boost sales through referrals – to establishing relationships that can help a business increase its brand recognition, the value of creating a passionate customer base is huge.

According to research carried out by governmental statistics services in Cyprus, 67% of the people who use the Internet are connected to social media networks. Further research suggests that 70% visit social networks every day and spend more than 30 minutes per visit. With this nearly-constant online engagement, opportunities to

establish brand loyalty are virtually endless – but an effective social media strategy is key.

As companies design their social media programmes, they need to carefully consider how they can create a social media experience that is unique to their brand, offers customers value and exploits the power of the social communities.

Companies should therefore consider the following to lay the foundation for a successful social media programme that will help them encourage customer loyalty among users on social media.

Provide stellar customer service.

Today’s social consumer is much more empowered, and often feels entitled. In fact, according to Forbes, 50% of all Facebook users and 80% of Twitter users address an inquiry to a company via social media and expect customer support in 24 hours or less.

Social media is the perfect outlet to build a significant customer service experience due to its immediacy and cost efficiency.

When an issue arises on social media, acknowledge it and address it as quickly as possible. Be honest, don’t over promise and under deliver. Use tools like Hootsuite and SocialBro to track your social media tags and mentions, sort your positive and negative feedback and really understand how your company is doing. Take the extra step to go above and beyond and achieve the best customer service possible because it really pays off. Providing support builds up loyal brand advocates ready to spread the positive word about the brand, influence other users through positive reviews and increase brand awareness through sharing.

Feature your fans in your content.

Selfies aside, no one wants to see inside pictures of your headquarters…unless you’re the CIA. So, if your social media channels are filled with pictures of employees at cubicles just know that’s like watching paint dry.

Embed social media posts from fans that have shared your content or said something great about your brand to their followers. Put them in the spotlight and let them know how much you appreciate them. Once they see the reciprocity, they’ll make your brand a priority and become one of your most valuable marketing assets. No one does this better than Coca-Cola. From asking customers to post pictures of their favourite Coke bottles to asking them to update on the Facebook page their favourite Coke moment, Coca-Cola is hands down the social media customer loyalty king.

Encourage sharing. Customers like to know that their opinions are valued. Let them know that you respect what they have

to say by encouraging them to review your services and products on your social media accounts. Review customer feedback regularly and integrate it into your brand activities. Doing so will strengthen engagement with the brand and will build valuable relationships.

Starbucks accomplished this with “My Starbucks Idea” campaign, where fans can provide ideas and recommendations that can better their experience.

Remember, value comes not from the social media platform itself but from how a particular platform it’s used. Take the time to follow these simple steps and start building online customer loyalty today.

Mariana Antonescu (MBA) is a graduate of the European University Cyprus and a business consultant with a special interest in the field of Social Media Marketing. www.mari10.blog.com

Opening up the online payments market, so as to reduce fees and fraud risks Updating EU rules on payment services will cut the cost of paying bills, by enabling new market players to use mobile and online tools to make payments on a client’s behalf, MEPs said voting a law on Thursday. These rules, informally agreed

by MEPs and ministers last May, also aim to make online payments safer, by laying down data protection and liability rules for all online payment service providers.

The law now needs to be officially endorsed by EU member states before it can enter into force.

“The EU payment services market remains fragmented and expensive, costing EUR 130 bln, or over 1% of EU GDP, a year. The EU economy cannot afford these costs, if it wants to be globally competitive,” said lead MEP Antonio Tajani (EPP, IT), adding that “the new regulatory framework will reduce costs, improve the security of payments and facilitate the emergence of new players and innovative new mobile and internet payment methods.”

The draft law was approved by 578 votes to 29, with 52 abstentions.

A payer using an online account will have the right to use payment software, devices and applications provided by an authorised third party and to have payments executed on his or her behalf by this provider. For example, payers who have no credit or debit card will be able to authorise new market entrants such as SOFORT in Germany, Trustly in Scandinavian countries or IDEAL in the Netherlands to use their bank details to make payments from their accounts.

Payment service providers’ charges should not exceed their direct costs. Additional charges for using payment instruments, such as credit and debit cards, for which banks’ “interchange” processing fees are already regulated, will be prohibited.

A bank servicing a payer’s account could deny a third party service provider access to it only for objectively justified

and substantiated security reasons which have been reported to the supervisory authorities. This safeguard should preclude any possibility of banks “blocking” the market for new payment services.

Third-party payment service suppliers, for their part, would be required to ensure safe authentication of the user and reduce the risk of fraud. They would have to ensure that a user’s personal payment data transit through the safe channels and that they are shared only with the user’s consent.

In the event of an unauthorised payment being made from his or her account, the holder should not lose more than EUR 50 if the payment instrument was lost, stolen or misused. A service provider that fails to act to prevent such a fraud after a notification of a loss, or does not require strong customer authentication when necessary, could be

deemed liable for its client’s losses and ordered to remedy the financial damage.

The payment services directive (PSD2) is the most recent set of EU rules on payments, which also covers online payment services. In 2012, the single euro payments area (SEPA) was introduced requiring banks to comply with SEPA rules that enables their clients to use a single bank account to make euro payments to and from all SEPA countries, the 28 EU member states plus Iceland, Liechtenstein, Norway, Switzerland and Monaco. This makes payments faster and cheaper with no differentiation between national and crossborder euro payments.

In 2014, the interchange fees were capped and surcharging prohibited for consumer cards under the Multilateral Interchange Fees (MIF) regulation for card-based payment transactions.

October 14 - 20, 2015

10 | COMMENT | financialmirror.com

Greece has a long history of defending the West

By Constance Baroudos Only five of 28 NATO members meet the alliance goal of dedicating two percent of gross domestic product to defense: the United States, United Kingdom, Estonia, Poland and Greece. As threats increase around the European continent, including a potential conflict between Russia and the Baltic states, NATO members need to increase defense spending obligations to be able to respond with strength. One example of the significance of allies is Greece’s defeat of the Italians in World War II, marking the first victory against the Axis, and delaying Adolf Hitler’s invasion of the Soviet Union.

World War II took place from 1939 to 1945 and was a battle between western democracy and totalitarianism, a political system in which the state holds total power over society and controls all aspects of public and private life. The two military alliances that formed were the allies and the Axis. In 1939, Italian Dictator Benito Mussolini viewed Greece as an easy conquest and decided to occupy the country. First, the Italians torpedoed the Greek cruiser Elli and then Mussolini presented an ultimatum to Athens in writing on October 28, 1940 demanding for Greece to allow Italian troops to enter the country or face attack. Greek Dictator Ioannis Metaxas initially hoped to remain neutral during the war, but he rejected the ultimatum. As a result, Italian troops began entering Greece from Albania and the west coast.

Even though Mussolini’s troops were armed with tanks, guns, dive bombers and fighter planes, they proved ineffective against the Greeks. Italian troops had difficulty navigating through the mountainous terrain, and overcoming the Greeks’ will to protect their homeland and survive. The mechanized tactics that allowed the Germans to achieve quick advances in Poland, Belgium and France were ineffective in Greece. After six weeks of battle, a population of only 7 million Greeks forced the Italians back to Albania.

Greece’s military strategy and defense skills impressed the world because it was the first defeat of the Axis and seven months’ time was gained due to the courageousness of the Greeks.

The first defeat of the Axis changed the climate of the war.

The victory demonstrated the low morale of Italian troops, gave hope and faith to the British and other distraught nations and played a critical role in saving Europe and the Western world from totalitarian rule. Media outlets at the time compared the unexpected conquest to the famous battles of the American Revolution: Lexington, Valley Forge and Bunker Hill. Spain was so impressed with the defeat that it signed a financial treaty with England stating it will not join the Axis. Greeks are so proud of this defeat that each year October 28th is celebrated as a national day of pride as “Ohi Day” (which means “no”).

Since the Greeks pushed the Italian forces back to Albania, the United Kingdom gained advantage by establishing bases on Greek islands, the most important in Crete, tightening the blockade in the Mediterranean and cutting Italy’s lines of communication to Albania across the Adriatic and to Africa. The British were also able to transfer ships to transport troops and equipment from the North Atlantic to the Mediterranean and from Australia to ports in the Red Sea to defend the Suez Canal and to invade Libya. England supported the Greek army in the air and placed troops and equipment in Greece.

While Europe was celebrating, Hitler decided to send troops to attack Greece from the north and east in the spring of 1941, delaying the invasion of the Soviet Union. Instead of surrendering, Greece once again chose to fight and kept the invaders at bay for weeks with help from the British. As a result, Hitler lost men and material and more time was gained for the allies to prepare. As the Germans advanced against Greek and British forces, the Greek government of King George II,

the Greek Army and the British Expeditionary Force along with Australians and New Zealanders were evacuated to the Greek island of Crete.

Greek women fought with men during these invasions.

They would roll rocks on the heads of the enemy, shovel snow to clear the roads so Greek soldiers could pursue the opponent, and would carry 80-pound packs of supply and ammunition up steep mountains. Women also plowed deep trenches in the farmland where enemy planes might land and the uneven ground caused many German planes to crash.

Greek women even used machine guns to down enemy planes from the sky.

Eventually, Crete was taken over by the Germans, Italians and Bulgarians. In response, Greeks travelled in small boats to Egypt to continue fighting with the allies in North Africa and later in the invasion of Italy. The desert front in Egypt consisted of two brigades, an Air Force of 5,000 men, and 30 Greek warships operated with the naval units of the allies in the North Sea. Greek merchant vessels would also provide assistance to the Russian fleet and air force in large naval operations. Once again, many women were among the fighters in North Africa. Greek guerillas were also resisting the Axis on the mainland and in other parts of Greece.

Greek guerillas along with Australians and New Zealanders would creep from the mountains and destroy invaders’ communications lines and bridges, and attack German military posts and Bulgarian, German and Italian officers in the night. Guerilla tactics were successful because there were

few roads that linked Greece and central Europe. Blowing up bridges would disrupt rail traffic to and from Athens for days.

As a result of the German invasion, about 100,000 Greeks died of starvation in the first year. The country grew enough food to feed the population, but the government was unable to organize the collection and transportation of the goods.

The Greek population was on the brink of extinction as 1,000 people a day were dying and about one in seven children survived. King George II met with American leaders and addressed the U.S. Congress, asking for aid to Greece. The world tried their best to help: the U.S. provided food and financial help through the Greek War Relief Association and the Red Cross, Canada donated 15,000 tons of wheat monthly, and assistance was also provided by the International, Swiss, and Swedish Red Cross.

Despite the European continent’s suffering, Greece and about 20 other countries wrote off a large chunk of German loans after World War II and restructured the remaining debt by extending the repayment schedule, and granting a lower interest rate in the 1953 London Agreement. West Germany’s debt repayment schedule was linked to its ability to pay because the deal tied repayment to its current and expected trade surpluses. Thus, Germany was free of difficult debt payments, trading partners were incentivized to buy German goods, and its economy was able to grow. Perhaps such a sweet deal should be given to Greece today to help its struggling economy.

President Franklin D. Roosevelt acknowledged the Greek’s determination to battle totalitarianism with the allies in WWII. Not only did Greece protect its homeland, marking the first defeat of the Axis in WWII, but it allowed the British to tighten the blockade in the Mediterranean and cut Italy’s communication lines, allowing for extra months of time for allies to prepare. As a result, Greece played a crucial role in saving western democracy and defeating the spread of totalitarianism by allowing allies to create strategic bases that assisted with victory. Greece’s experience is one example that illustrates the importance of the NATO alliance – countries that stick together will have more opportunities to defend themselves and each other as they respond to crises. However, to be able to protect one another, members of the alliance must all do their part by investing in defense capabilities that at least meet the minimum NATO requirement on spending.

Constance Baroudos is a Policy Analyst and Program Director at the Lexington Institute in Arlington, Virginia http://lexingtoninstitute.org/

October 14 - 20, 2015

financialmirror.com | COMMENT | 11

Weak states, poor countries In Scotland, I was brought up to think of policemen as allies and to ask one for help when I needed it. Imagine my surprise when, as a 19-year-old on my first visit to the United States, I was met by a stream of obscenities from a New York City cop who was directing traffic in Times Square after I asked him for directions to the nearest post office. In my subsequent confusion, I inserted my employer’s urgent documents into a trash bin that, to me, looked a lot like a mailbox.

Europeans tend to feel more positively about their governments than do Americans, for whom the failures and unpopularity of their federal, state, and local politicians are a commonplace. Yet Americans’ various governments collect taxes and, in return, provide services without which they could not easily live their lives.

Americans, like many citizens of rich countries, take for granted the legal and regulatory system, the public schools, health care and social security for the elderly, roads, defense and diplomacy, and heavy investments by the state in research, particularly in medicine. Certainly, not all of these services are as good as they might be, nor held in equal regard by everyone; but people mostly pay their taxes, and if the way that money is spent offends some, a lively public debate ensues, and regular elections allow people to change priorities.

All of this is so obvious that it hardly needs saying – at least for those who live in rich countries with effective governments. But most of the world’s population does not.

In much of Africa and Asia, states lack the capacity to raise taxes or deliver services. The contract between government and governed – imperfect in rich countries – is often altogether absent in poor countries. The New York cop was little more than impolite (and busy providing a service); in much of the world, police prey on the people they are supposed to protect, shaking them down for money or persecuting them on behalf of powerful patrons.

Even in a middle-income country like India, public schools and public clinics face mass (unpunished) absenteeism. Private doctors give people what (they think) they want – injections, intravenous drips, and antibiotics – but the state does not regulate them, and many practitioners are entirely unqualified.

Throughout the developing world, children die because they are born in the wrong place – not of exotic, incurable diseases, but of the commonplace childhood illnesses that we have known how to treat for almost a century. Without a state that is capable of delivering routine maternal and child health care, these children will continue to die.

Likewise, without government capacity, regulation and enforcement do not work properly, so businesses find it difficult to operate. Without properly functioning civil courts, there is no guarantee that innovative entrepreneurs can claim the rewards of their ideas.

The absence of state capacity – that is, of the services and protections that people in rich countries take for granted – is

By Angus Deaton

“Without effective states working with active and involved citizens, there is little chance for the growth that is needed to abolish global poverty” - Angus Deaton one of the major causes of poverty and deprivation around the world. Without effective states working with active and involved citizens, there is little chance for the growth that is needed to abolish global poverty.

Unfortunately, the world’s rich countries currently are making things worse. Foreign aid – transfers from rich countries to poor countries – has much to its credit, particularly in terms of health care, with many people alive today who would otherwise be dead. But foreign aid also undermines the development of local state capacity.

This is most obvious in countries – mostly in Africa – where the government receives aid directly and aid flows are large relative to fiscal expenditure (often more than half the total). Such governments need no contract with their citizens, no parliament, and no tax-collection system. If they are accountable to anyone, it is to the donors; but even this

fails in practice, because the donors, under pressure from their own citizens (who rightly want to help the poor), need to disburse money just as much as poor-country governments need to receive it, if not more so.

What about bypassing governments and giving aid directly to the poor? Certainly, the immediate effects are likely to be better, especially in countries where little government-to-government aid actually reaches the poor.

And it would take an astonishingly small sum of money – about 15 US cents a day from each adult in the rich world – to bring everyone up to at least the destitution line of a dollar a day.

Yet this is no solution. Poor people need government to lead better lives; taking government out of the loop might improve things in the short run, but it would leave unsolved the underlying problem. Poor countries cannot forever have their health services run from abroad. Aid undermines what poor people need most: an effective government that works with them for today and tomorrow.

One thing that we can do is to agitate for our own governments to stop doing those things that make it harder for poor countries to stop being poor. Reducing aid is one, but so is limiting the arms trade, improving rich-country trade and subsidy policies, providing technical advice that is not tied to aid, and developing better drugs for diseases that do not affect rich people. We cannot help the poor by making their already-weak governments even weaker.

Angus Deaton, Professor of Economics and International Affairs at Princeton University’s Woodrow Wilson School of Public and International Affairs, is the 2015 Nobel laureate in economics. He is author of The Great Escape: Health, Wealth, and the Origins of Inequality. © Project Syndicate, 2015 - www.project-syndicate.org

October 14 - 20, 2015

12 | PROPERTY | financialmirror.com

Leptos says Venus Gardens Phase II sold out Leptos Group said its Venus Gardens project has sold out in the second phase and is now moving on to the third phase.

The 100,000 sq.m. project, with 200 hilltop independent and semi-detached villas, near Paphos, is a luxury gated community that will boast large communal greens, two communal swimming pools, a clubhouse, as well as tennis court.

New owners and their families will enjoy nearby services such as high quality medical treatment at special the Iasis hospital, owned by the Leptos Group, considered to be amongst the best equipped and staffed hospitals in Cyprus. Leptos Venus Gardens residents also have exclusive benefits, rewards and discounts in all Leptos Calypso Hotels and Resorts in Cyprus and Greece.

Outlook for Europe’s building materials ‘stable’ as US and UK strengthen The outlook for the European building materials sector will remain stable over the next 12 to 18 months as robust sales volume growth and stronger pricing in North America, the UK and some emerging markets will support anticipated average EBITDA growth for the sector of around 2%-4% for the period, says Moody’s Investors Service.

“Our outlook for the European building materials sector remains within our stable range as solid growth in sales volumes of

building materials, including cement, aggregates and ready-mix concrete, and stronger pricing in North America, the UK and some emerging markets, such as Egypt underpin steady EBITDA growth,” said Falk Frey, author of the report. “Our forecast is towards the upper end of the 4% to +4% EBITDA growth range for a stable outlook.”

Moody’s notes that while sales volumes and prices for building materials are picking up pace in North America, the

situation in Europe (excl. UK) and Asia remains mixed.

LafargeHolcim Ltd (Baa2 stable), the world’s largest building materials producer, expects cement volumes to increase in all group regions in 2015 with the exception of Europe (excl. UK), the Middle East and Africa.

While the North American market is strong, overcapacity in Indonesia will pressure margins, particularly those of highly exposed HeidelbergCement AG

Win a lighting fixture with #MeetTheExperts by PGS Lighting Electrical Last summer, PGS Lighting Electrical launched the Facebook campaign #MeetTheExperts, through which three professionals from the company’s highly qualified personnel offer tips for appropriate lighting. Thanasis Gotsopoulos, lighting consultant, Zambella Neofytou, lighting decoration consultant and Christos Asprou, electrical consultant, share their knowledge and expertise with the audience, providing

London dominates global luxury property market When the super rich snap up luxury real estate, more often than not, London is their city of choice. According to Knight Frank, prices for prime real estate in the British capital have skyrocketed in recent times, rising faster than any other city over the past ten years. This is despite a steady stream of luxury housing becoming available on the market. High-rise and high-end skyscrapers are becoming increasingly common in London. In 2009, 524 properties valued at $5 mln and higher were sold in London, compared to 476 in Manhattan and 388 in Hong Kong. In 2014, the number of ultraprime properties sold in London grew to a whopping 1,638, quite a distance ahead of the Big Apple’s 796. London’s dominance of the global luxury property market is set to continue for the next decade at least, though it could be surpassed by New York by 2024, driven by projects such as the 1,396 ft Park Avenue Tower, set to become the tallest residential building in the world. (Source: Statista)

(Ba1 stable), which generated 19% of its consolidated EBITDA from the region in 2014. Peers such as LafargeHolcim, which gets less than 5% of group consolidated pro forma revenue from Indonesia, will be less affected.

Mergers and acquisitions will continue to reshape the industry into 2016 and beyond because the cement industry is still very fragmented in most countries, even after the creation of LafargeHolcim’s earlier this year.

ideas and suggestions for integrated lighting solutions.

The campaign culminates this month with a big competition on the PGS Lighting Electrical Facebook page.

Fans are asked to choose their favourite out of three lighting fixtures recommended by the three experts, to enter the draw and win it.

The winner will be announced on October 31. After that, Thanasis, Zambella and Christos will be at the winner’s disposal to suggest correct placement and installation of the gift based on their space.

PGS Electrical Supplies Ltd has been working in the field of electrical supplies and lighting equipment for over 30 years, with 11 stores around Cyprus and its Headquarters in Paralimni. www.pgses.com

October 14 - 20, 2015

financialmirror.com | PROPERTY | 13

What lies behind Shacolas and the Limni project? µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

In a democracy, everyone is free to express his or her own views. However, when these views contain disdain and poor information, that is bad, which makes me wonder if the various Internet sites hosting a lot of unrelated content bear some legal responsibility for their blatant mistakes.

From one of those weird sites, I received a comment from an unknown person, with the headline I have used above.

The author was probably not even born the year that the Dutch investors purchased the Limni region back in 1983 or was playing ball in the schoolyard and thus is possessed by such hatred that he did not even bother to conduct the most basic of research, even if he reaches a conclusion of his own based on that research.

• The property was purchased in 1983 (we did the market valuation) by Dutch a company with a potential to mine copper.

• During our research at the time, there was no mention from the British colonial rule about restoration of the area to its natural habitat.

• The project was out of commission and had the following elements: i. There was a huge crater full to 20% by toxic water (from copper) which was seeping into the groundwater aquifer thereby contaminating other water sources in the area. ii. There were two huge mounds of carcinogenic tailings which with the slightest wind was transported west (in powder form) affecting neighbouring villages. iii. There was a jetty that has ruined and the sea, some 200 meters in, was red from the remnants of copper that flowed over when loading into barges. iv. The beach was abandoned with similar copper tailings on the surface.

There is much more information for those who either do not remember or did not visit the area before the purchase by the Dutch, a company that had further drilling rights in north western part in the area of the neighbouring villages.

The author of the website suggests that the new owner (Shacolas) should continue the drilling, judging from what is happening in Greece with the discovery of and digging for gold, despite the protests. Is he serious?

Let’s look at what we have now: i. All the contents from the mounds of carcinogenic hills containing the copper and toxic tailings have transferred into the crater which has now been closed and the land is being reused for golf or other purposes. ii. The beach has been cleaned up and trees planted. iii. The seabed has been cleaned up and the damaged jetty has been rebuilt. iv. Some 300,000 trees have been planted for the ecological restoration of the area. v. Small pockets of land have been bought up by the project developers and integrated into the wider project.

The project developers, just like scores of others, have applied for the construction of a golf course. So, what’s the problem?

The developer is trying to create a golf course-resort for the benefit of the company, but also for the benefit of the region (see similar reactions to the Anassa hotel). Local authorities, villages and of course the locals are looking forward to it and want to see the start of the project, which will create jobs in the area. Certainly, the uneducated columnist, who may have been paid by others, wants to leave

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the unemployment level at 16% (higher in north western Paphos district) and seem content with the same income from tourism (as per the Troika memorandum) and keep the locals on their donkeys.

The author even suggests that the late President Clerides should be to blame and that he altered the building coefficient for the residences of the Shacolas Group project. How stupid can one be! These regulations had existed for 30 years before Clerides.

The author also includes a statement by Green MP George Perdikis about the “quality of democracy”. In this connection, it is incomprehensible how the Environment Commissioner has reported the Republic of Cyprus to the EU authorities, while on a generous income/budget of 150,000 euros a year paid by us taxpayers, without taking into account the high rate of unemployment, a recovery in the construction industry, and our emigrating youth (potential architects, engineers, contractors, etc.).

The Limni rehabilitation cost has to date reached the amount of more than 32 mln euros and still has nothing tangible, due to obstacles, delays and bureaucracy.

First of all, there is the quality of life of the residents of the area to consider, including employment opportunities, raising the standard of living, job opportunities for the next generations to help preserve the inhabitants in their villages and encouraging the return of those who have chosen to emigrate, to other districts or even countries. The recent decision of the European Court on the matter for Hungary is relevant and should be considered when keeping a balance of sustainable environment and encouraging economic growth.

So, then, who is “hiding” behind this project? Is it the true concern of past and present governments and others for a better future for the region and Cyprus in general?

The uneducated writer also referred to the Mall of Cyprus.

I do not want to abuse the editorial space offered to me, but rest assured, I will return on this matter too. www.aloizou.com.cy - ala-HQ@aloizou.com.cy

October 14 - 20, 2015

14 | MARKETS | financialmirror.com

Will the Russian Bear live up to its name with the rouble? substantial profits while the market anticipates the direction of the Fed. As long as US interest rates remain in the 0-0.25% range, commodities traders and investors will be more likely to take on riskier assets in emerging market economies. We have seen a sharp decline in the share price of major mining companies such as Glencore PLC (GLEN), Rio Tinto (RIO) and BHP Billiton (BLT). These mining companies face heavy debts and declining ROE as a result of multi-year low commodities prices. Copper is at a sixyear low, and crude oil is also languishing. Russia shares the same fate as its fellow EM economies as it is heavily reliant on mining and energy production. But the Fed’s decision not to raise interest rates is an important one for Russia and it will prevent a steep slide in the rouble’s crosscurrency exchange rate.

By Oren Laurent President, Banc De Binary

President Vladimir Putin is at it again, this time in Syria. The Russian military has filled the vacuum left by the U.S. and is expanding its operations against opponents of Syria’s ruler, Bashar al-Assad. The Russians have purportedly initiated operations against ISIS, but there is evidence to the contrary, with rebels being targeted. This begs the question: What is Vladimir Putin doing in Syria?

Russia’s intransigence in the Ukraine and now in Syria is as much about drumming up nationalistic fervour as it is an opportunity to detract from the economic and social upheaval at home. The Russian rouble has been rated as the second worst performing currency among 24 emerging market currencies over the past 12 months according to Bloomberg.

In the same timeframe, the rouble has depreciated by 36% against the USD. These are indeed worrying statistics for an economy that is chiefly based on the export of energy commodities (gas and oil).

Russian aggression in the Ukraine sounded the death knell for the Russian economy, with punitive sanctions being imposed by the U.S. and its European allies. However the rouble has sharply appreciated since January 2015. It opened the year at 58.1157 to the greenback and by October 8, the rouble was trading at 62.9421 to the dollar. This does not tell an accurate picture of how far the rouble has fallen, because if we go back to February 2014 the currency has depreciated by as much as 45% against the USD. After Russia formally annexed the Crimean Peninsula (claiming that the majority of its residents wanted unification with Russia), the West decried Russia’s actions and slapped all sorts of sanctions on the country. Russia responded in kind, and relations grew tense between the superpowers. President Obama has been unwilling to engage with Russia militarily, and prefers instead to use multilateral measures such as sanctions and diplomatic condemnation to chastise his adversary.

What is the state of the Russian economy?

The Russian economy is largely dependent on strong commodities prices, since most of Russia’s performance is

The largest tech acquisitions Earlier on Monday, Dell announced the acquisition of EMC (including VMware) in a deal worth a staggering $67 bln. Going forward, EMC and Dell will form one of the largest privately held corporations in the world, while VMware will remain a separate publicly traded company. The deal, which is subject to regulatory approval, would be the largest M&A deal involving two pure technology companies (AOL’s acquisition of Time Warner was larger but Time Warner is technically a media company), shattering the record previously held by HewlettPackard’s acquisition of Compaq in 2001 for what would now be $33.6 bln. (Source: Statista)

Car Sales Sharply Down as Rouble Slides based on energy commodities like crude oil. The price of crude oil has plunged between 40% and 50% in the last year, and since it is denominated in US dollars, valuable foreign exchange revenues are being lost by oil-producing countries.

Russia has seen a sharp decline in its available forex reserves.

The Russian central bank has been selling dollars to prop up the rouble, and even advanced dialogue with China to create another reserve currency for the world, other than the USD. Capital flight from Russia continues unabated, and the Russian authorities are responding by slashing interest rates to stimulate economic activity at home. Various analysts are bearish on prospects for the rouble before the end of the year, with a consensus estimate decline of a further 4% expected.

As one of the BRICS nations, Russia also faces the same anxieties as Brazil, India, China and South Africa – notably the prospect of an interest rate hike in the U.S. Should the Fed decide to hike interest rates at its next meeting in October, perhaps in December, the Russian rouble will plunge further. The fact of the matter is that higher interest rates in the U.S. make the dollar inherently more attractive. This means that currencies like the rouble, the real, the rupee, the yuan and the Rand will be exchanged for dollars. With a higher yield in a more stable economy, capital flight from emerging market economies will accelerate. However analysts are generally united in their consensus that a Fed rate hike will not take place in 2015, and will possibly only come to pass by March 2016. This gives emerging market economies and their currencies a breather in the form of several months within which to generate

The Russian economy is facing increasing pressures at home in the form of declining new-car sales. The sharp depreciation of the rouble since 2014 has made cars markedly more expensive. To try and alleviate the pressures on consumers, the authorities have opted for a 50 basis point rate cut. Nobody is quite sure how far the rouble will fall, but some are suggesting a decline to 70 or 75 against the US dollar.

Year-on-year, new-car sales plunged by 29% in September.

This follows a lacklustre month in August 2015. With more expensive imports, the price of manufacturing and assembly of vehicles in Russia has also increased. But the government does not want to rush into propping up the rouble since this will hurt Russia’s export potential.

At $50 per barrel for Brent crude, Russia will certainly start benefiting from the increasing revenue stream. For the current year, the motor industry in Russia is anticipating a 37% reduction in new-car sales. Russia has already been downgraded by credit ratings agencies, and its economy is set to contract even further by the year’s end.

Please note that this column does not constitute financial advice.

October 14 - 20, 2015

financialmirror.com | MARKETS | 15

Could Volkswagen save Europe?

Marcuard’s Market update

by GaveKal Dragonomics Volkswagen’s stock price has rebounded more than 20% since its early October low, but there remains uncertainty about the firm’s future. Since news of the diesel polluting scandal broke, $30 bln has been wiped off VW’s market value, and you do not need to be conspiratorial to see a scenario that has the value of the German carmaker’s equity going to zero.

The broader questions remain very much in play: how will the German economy react to the VW shock and will

Europe’s entire diesel automobile market be hit? It is not hard to construct downside risk scenarios, but what is less appreciated is the “upside risk” in the event that VW’s problems turn into a major economic event.

The more the VW crisis deepens and spreads, it becomes likely that a major political reaction will emerge, possibly in the form of a huge car-scrapping scheme financed by Berlin.

Certainly, it is becoming clear that the events of 2015 — in particular the VW scandal and the migrant crisis — will likely mark the zenith of Germany’s savings frenzy, and the start of a more growth-friendly and euro-compatible economic policy. This has to be good news.

Even with the VW share price having fallen -50% (peak-totrough) since the scandal broke, things can obviously get much worse. With “cheatware” embedded in 11 mln cars, replacement costs and potential fines could reach EUR 100

www.marcuardheritage.com

bln globally — almost twice VW’s current market value and five times its cash flow. As with General Motors and Chrysler in 2009, VW may get bailed out by both its regional and federal governments. With VW accounting for about 10% of German exports and given the brand reputation of “Das Auto”, the fallout could easily exceed the effect of China trade slowing. We will get a clearer idea of the impact on business sentiment with upcoming surveys (ZEW comes out Tuesday, PMI on October 23, IFO October 26).

So, how does such a negative scenario generate upside?

The worst case scenario for VW implies some kind of “repayment” to VW owners at market-value, which would produce the largest ever car-scrapping scheme. What’s more, it would ultimately be financed by the German government!

For Berlin, EUR 100 bln would amount to just five months of Germany’s current account surplus.

Yet assuming that each car owner was recompensed at an average EUR 10,000, the German fiscal transfer would represent about 1.2% of GDP in Belgium, 1% in Austria, 0.5-0.6% in Spain, Portugal and Sweden and 0.4% in Italy, France and the UK. And this does not account for the large-scale classaction suits that Germany’s European neighbours would be well advised to encourage. Moreover, German domestic demand would also get a boost as 2.8 mln VW cars would have to be replaced in the domestic market, representing at least EUR 28 bln, or 0.8% of GDP. Such a huge car-scrapping scheme could in fact grow even larger if Europe’s whole diesel market — representing 50% of car registrations — is called into question as a result of a less hazy picture emerging on Europe’s actual pollution situation. It is entirely plausible that EU governments make a major move to favour other technologies and finance an accelerated switch from diesel, to hybrid and electric cars.

Conversely, it is, of course, entirely possible that the costs involved for VW are lower as EU governments choose to protect VW and more broadly the diesel lobby through a patch-up solution. In any case, the pressure on Germany to

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.

spend its huge savings will not abate. The International Monetary Fund predicts that Germany will record a current account surplus of 8.5% of GDP this year, a significant fiscal surplus, and a public debt ratio that is 40% less than that of the rest of the eurozone, the US and UK. This is an aberration that cannot last. In this respect, 2015 has already seen two developments that point to a reversal — the introduction of a national minimum wage in January, and the recent decision to finance the entry of millions of migrants, which is leading Germany to produce the first significant aggregate fiscal stimulus of a G7 country since 2010. The Volkswagen crisis might well represent a third significant historical “accident” of the same vein in less than a year. Europe should rejoice.

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

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

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

17250 1.5239 1.7171 23.803 6.5513 13.7405 1.1388 2.33 273.48 0.61719 3.0321 0.377 19.6 8.1051 3.7184 3.8768 62.7965 8.1242 0.9598 21.6

AUD CAD HKD INR JPY KRW NZD SGD

0.7303 1.3058 7.7499 65.1 119.66 1149.43 1.4917 1.4003

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

0.3772 7.8064 29956.00 3.8513 0.7084 0.3018 1505.60 0.3850 3.6413 3.7500 13.4518 3.6729

AZN KZT TRY

1.046 275.6 2.9484

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:

* USD per National Currency

The Financial Markets Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

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

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.19 0.51 -0.12 0.04 -0.78

0.25 0.54 -0.08 0.06 -0.76

0.32 0.58 -0.05 0.08 -0.72

0.53 0.75 0.02 0.12 -0.67

0.84 1.04 0.13 0.24 -0.55

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.75 0.94 0.05 0.10 -0.69

0.99 1.12 0.12 0.11 -0.64

1.21 1.28 0.22 0.14 -0.54

1.41 1.41 0.33 0.19 -0.40

1.72 1.63 0.60 0.30 -0.14

2.02 1.84 0.94 0.49 0.18

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.1384 0.8784

100 JPY

1.5239

1.0418

0.8356

1.3386

0.9151

0.7340

0.6836

0.5483

0.6562

0.7470

0.9599

1.0928

1.4628

119.68

136.24

182.38

0.8021 124.68

Weekly movement of USD

CCY

Today

135.41

GBP EUR JPY

1.0880

CHF

1.5239 1.1384 119.68 0.9599

CCY\Date

15.09

22.09

29.09

06.10

13.10

USD GBP JPY CHF

1.1259

1.1142

1.1209

1.1123

1.1310

0.7298

0.7180

0.7390

0.7335

0.7384

135.06

134.07

133.82

133.86

1.0889

1.0817

1.0882

1.0844

Last Week %Change 1.5164 1.1123 120.35 0.9749

-0.49 -2.35 -0.55 -1.54

October 14 - 20, 2015

16 | WORLD | financialmirror.com

China is not collapsing

By Anatole Kaletsky One question has dominated the International Monetary Fund’s annual meeting this year in Peru: Will China’s economic downturn trigger a new financial crisis just as the world is putting the last one to bed? But the assumption underlying that question – that China is now the global economy’s weakest link – is highly suspect.

China certainly experienced a turbulent summer, owing to three factors: economic weakness, financial panic, and the policy response to these problems. While none on its own would have threatened the world economy, the danger stemmed from a selfreinforcing interaction among them: weak economic data leads to financial turmoil, which induces policy blunders that in turn fuel more financial panic, economic weakness, and policy mistakes.

Such self-reinforcing financial feedback is much more powerful in transmitting global economic contagion than ordinary commercial or trade exposures, as the world learned in 2008-2009. The question now is whether the vicious circle that began in China over the summer will continue.

A sensible answer must distinguish between financial perceptions and economic reality. China’s growth slowdown is not in itself surprising or alarming. As the IMF noted, China’s growth rate has been declining steadily for five years – from 10.6% in 2010 to a projected rate of 6.8% this year and 6.3% in 2016.

Where Syria and Iraq’s foreign fighters come from The United States and its allies have conducted over 5,000 airstrikes against the so-called Islamic State since August 2014.

Even though the air campaign has prevented ISIS from expanding its territorial gains on the ground, it has not deterred foreign fighters from joining the group in droves. A recent report from the Homeland Security Committee estimates that there were at least 3,500 foreign fighters in Syria and northern Iraq in 2012. In 2014, that grew to over 18,000 from 80 different countries. By 2015, the number of foreign militants reached more than 25,000 from 100 different nations.

Tunisia is the largest origin country, according to the report, with no fewer than 5,000 fighters present in the region in 2015.

Saudi Arabia comes second with an estimated 2,275 while at least 2,000 more militants made their way from Jordan. Russia recently joined the air campaign in Syria and it too is a significant origin country for militants. The Homeland Security Committee estimates that there are at least 1,700 Russian fighters in Syria and northern Iraq, while there are approximately 700 each from Germany and the United Kingdom. (Source: Statista)

This deceleration was inevitable as China advanced from extreme poverty and technological backwardness to become a middle-income economy powered by external trade and consumer spending. It was also desirable, because rapid growth was hitting environmental limits.

Even as the pace of growth slows, China is contributing more to the world economy than ever before, because its GDP today is $10.3 trln, up from just $2.3 trln in 2005.

Simple arithmetic shows that $10.3 trln growing at 6% or 7% produces much bigger numbers than 10% growth starting from a base that is almost five times smaller. This base effect also means that China will continue to absorb more natural resources than ever before, despite its diminishing growth prospects.

Yet China is causing high anxiety, especially in emerging countries, largely because financial markets have convinced themselves that its economy is not only slowing, but falling off a cliff. Many Western analysts, especially in financial institutions, treat China’s official GDP growth of around 7% as a political fabrication – and the IMF’s latest confirmation of its 6.8% estimate is unlikely to convince them. They point to steel, coal, and construction statistics, which really are collapsing in several Chinese regions, and to exports, which are growing much less than in the past.

But why do the skeptics accept the truth of dismal government figures for construction and steel output – down 15% and 4%, respectively, in the year to August – and then dismiss official data showing 10.8% retail-sales growth?

One reason can be found in the financier George Soros’s concept of “reflexivity.” Soros has argued for years that financial markets can create inaccurate expectations and then change reality to accord with them. This is the opposite of the process described in textbooks and built into economic models, which always assume that financial

expectations adapt to reality, not the other way round.

In a classic example of reflexivity, when China’s stock-market boom turned into July’s bust, the government responded with a $200 bln attempt to support prices, closely followed by a small devaluation of the previously stable renminbi. Financial analysts almost universally ridiculed these policies and castigated Chinese leaders for abandoning their earlier pretenses of marketoriented reforms. The government’s apparent desperation was seen as evidence that China was in far greater trouble than previously revealed.

This belief quickly shaped reality, as market analysts blurred the distinction between a growth slowdown and economic collapse. In mid-September, for example, when the private-sector Purchasing Managers’ Index (PMI) came out at 47.0, the result was generally reported along these lines: “The index has now indicated contraction in the [manufacturing] sector for seven consecutive months.”

In fact, Chinese manufacturing was growing by 5-7% throughout that period.

The supposed evidence was wrong because 50 is the PMI’s dividing line not between growth and recession, but between accelerating and slowing growth. Indeed, for 19 out of the PMI’s 36 months of existence, the value has been below 50, while Chinese manufacturing growth has averaged 7.5%.

Exaggerations of this kind have undermined confidence in Chinese policy at a particularly dangerous time. China is now navigating a complex economic transition that involves three sometimes-conflicting objectives: creating a market-based consumer economy; reforming the financial system; and ensuring an orderly slowdown that avoids the economic collapse often accompanying industrial restructuring and financial liberalisation.

Managing this trifecta successfully will require skillful juggling of priorities – and

that will become much more difficult if Chinese policymakers lose international investors’ trust or, more important, that of China’s own citizens and businesses.

Vicious circles of economic instability, devaluation, and capital flight have brought down seemingly unbreakable regimes throughout history. This probably explains the whiff of panic that followed China’s tiny, but totally unexpected, devaluation of the renminbi.

The renminbi, however, has recently stabilized, and capital flight has dwindled, as evidenced by the better-than-expected reserve figures released by the People’s Bank of China on October 7. This suggests that the government’s policy of shifting gradually to a market-based exchange rate may have been better executed than generally believed; even the measures to support the stock market now look less futile than they did in July.

In short, Chinese economic management seems less incompetent than it did a few months ago. Indeed, China can probably avoid the financial meltdown widely feared in the summer. If so, other emerging economies tied to perceptions about China’s economic health should also stabilize.

The world has learned since 2008 how dangerously financial expectations can interact with policy blunders, turning modest economic problems into major catastrophes, first in the US and then in the eurozone. It would be ironic if China’s Communist leaders turned out to have a better understanding of capitalism’s reflexive interactions among finance, the real economy, and government than Western devotees of free markets.

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

October 14 - 20, 2015

financialmirror.com | WORLD | 17

The French exception?

More than ever, the French economy is at the centre of the global debate about how far one can push the limits of state size and control in a capitalist democracy. To those on the left, France’s generous benefits and strong trade unions provide a formula for a more inclusive welfare state. To those on the right, France’s oversized and intrusive government offers only a blueprint for secular decline. For the moment, the right looks right.

Once nearly the economic equal of Germany, France has fallen well behind over the past decade, with per capita GDP now about 10% lower. France may punch above its weight politically, but it punches far below its weight economically.

Whenever someone proposes turning the eurozone into a transfer union, as France’s economy minister, Emmanuel Macron, recently did, the presumption is that Germany will carry everyone else on its shoulders. But why should only Germany have that responsibility? France’s economy is roughly three-quarters the size of Germany’s. Persuading the Germans that the French are willing and able to pay their fair share could make room for a lot of necessary compromises that until now have seemed impossible.

For now, few people feel confident about France’s economic future. The good news is that France is not quite as French as it pretends to be. Yes, there is a 35-hour workweek, but companies can negotiate around the limit by offering to pay more for overtime. The effective workweek for most workers is perhaps closer to 39 hours.

Yes, France has sought to limit the car service Uber, whose business model has arguably been one of the most transformative and important advances of the decade. But, while this is a triumph for taxi unions and a tragedy for passengers and Uber drivers, France has also started focusing on nurturing small, high-potential technology companies.

The French government is no longer placing all its bets on big, state-led projects, as it did in the 1970s heyday of massive investment in high-speed trains and Airbus.

By Kenneth Rogoff President Francois Hollande has given Macron wide berth to try to implement desperately needed structural reforms of labor and product markets. Of course, it remains to be seen just how much political support such market-oriented policies can sustain.

Progressive economists love the French government for spending a staggering 57% of GDP, compared to government expenditures of 44% of GDP for Germany. And it must be acknowledged that the French government provides excellent value in some key areas. France’s health service justly receives much better reviews than the United Kingdom’s. French citizens might pay a lot of taxes and suffer a high degree of regulation, but at least they get something in return.

Worryingly, it is not clear how well France’s culture of inclusiveness can ever extend to immigrants. The same strict firing laws and high levels of minimum wages that are intended to protect native French workers from globalisation make it much more difficult for newcomers to land jobs. Yet virtually every study of global inequality suggests that gains from allowing greater labour mobility dwarf gains from redistributing income among natives. By contrast, the more liberal labour laws in the United States and the United Kingdom ensure more opportunities for outsiders.

The centre of Paris and other French cities may be grand, but many immigrants from North Africa and elsewhere live in squalid ghettos on the outskirts. Although the precise rate of unemployment for particular ethnic groups is not known

(French law precludes collecting data by ethnic classification), anecdotal evidence suggests much higher levels of joblessness for immigrants and their descendants.

True, the government provides generous welfare benefits; but this alone does not produce inclusiveness. Strong popular support for Marine Le Pen’s anti-immigration National Front party, together with French recalcitrance about accepting migrants escaping the war in Syria, indicates the problems with applying the French model in diverse societies.

Another obstacle to applying the French model elsewhere is that France enjoys certain unique advantages that are arguably critical to its success. Elite French managers are widely considered among the best in the world, and are frequently selected to head major international corporations.

Corruption is certainly a problem, but significantly less so than in most of the eurozone’s south. (The Italian state is also large and intrusive, but it does not produce the highquality public services that the French government does.)

Lastly, France arguably has one of the world’s most favourable natural environments, with fertile soil and an exceptionally temperate climate.

A healthy French economy would do wonders to help lift the eurozone out of its malaise. It could also provide an example to countries everywhere of how inclusive capitalism can work. But that assumes that the government will embrace the structural reforms that France’s economy so desperately needs.

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

The hidden debt burden of emerging markets

By Carmen Reinhart As central bankers and finance ministers from around the globe gathered for the International Monetary Fund’s annual meetings here in Peru, the emerging world is rife with symptoms of increasing economic vulnerability. Gone are the days when IMF meetings were monopolised by the problems of the advanced economies struggling to recover from the 2008 financial crisis. Now, the discussion has shifted back toward emerging economies, which face the risk of financial crises of their own.

While no two financial crises are identical, all tend to share some telltale symptoms: a significant slowdown in economic growth and exports, the unwinding of asset-price booms, growing current-account and fiscal deficits, rising leverage, and a reduction or outright reversal in capital inflows. To varying degrees, emerging economies are now exhibiting all of them.

The turning point came in 2013, when the expectation of rising interest rates in the United States and falling global commodity prices brought an end to a multi-year capitalinflow bonanza that had been supporting emerging economies’ growth. China’s recent slowdown, by fueling turbulence in global capital markets and weakening commodity prices further, has exacerbated the downturn throughout the emerging world.

These challenges, while difficult to address, are at least discernible. But emerging economies may also be experiencing another common symptom of an impending crisis, one that is much tougher to detect and measure: hidden debts.

Sometimes connected with graft, hidden debts do not usually appear on balance sheets or in standard databases.

Their features morph from one crisis to the next, as do the players involved in their creation. As a result, they often go undetected, until it is too late.

Indeed, it was not until after the eruption of the 1994-

1995 peso crisis that the world learned that Mexico’s private banks had taken on a significant amount of currency risk through off-balance-sheet borrowing (derivatives). Likewise, before the 1997 Asian financial crisis, the IMF and financial markets were unaware that Thailand’s central-bank reserves had been nearly depleted (the $33 bln total that was reported did not account for commitments in forward contracts, which left net reserves of only about $1 bln). And, until Greece’s crisis in 2010, the country’s fiscal deficits and debt burden were thought to be much smaller than they were, thanks to the use of financial derivatives and creative accounting by the Greek government.

So the great question today is where emerging-economy debts are hiding. And, unfortunately, there are severe obstacles to exposing them – beginning with the opaqueness of China’s financial transactions with other emerging economies over the past decade.

During its domestic infrastructure boom, China financed major projects – often connected to mining, energy, and infrastructure – in other emerging economies. Given that the lending was denominated primarily in US dollars, it is subject to currency risk, adding another dimension of vulnerability Some of these debts are not reflected in the standard data to emerging-economy balance sheets. sources Even where data exist, the figures must be interpreted with care. For example, data collected on a project-by-project basis by the Global Economic Governance Initiative and the Inter-American Dialog could provide some insight into added to the list. (This highlights the importance of tracking Chinese lending to several Latin American economies. For net, rather than gross, reserves.)

In short, though emerging economies’ debts seem largely example, it seems that, from 2009 to 2014, total Chinese lending to Venezuela amounted to 18% of the country’s moderate by historic standards, it seems likely that they are annual GDP, and Ecuador received Chinese loans exceeding being underestimated, perhaps by a large margin. If so, the 10% of its GDP. Chinese lending to Brazil was closer to 1% of magnitude of the ongoing reversal in capital flows that emerging economies are experiencing may be larger than is GDP, while lending to Mexico was comparatively trivial.

But actual disbursements may have fallen short of the generally believed – potentially large enough to trigger a original plans, meaning that these countries’ debts to China crisis. In this context, keeping track of opaque and evolving are lower than estimated. Alternatively – and more likely – financial linkages is more important than ever. the data may not include some projects, lenders, or Carmen Reinhart is Professor of the International Financial borrowers, meaning that the debts could be much higher.

Moreover, other forms of borrowing – such as trade System at the Kennedy School of Government, Harvard finance, which is skewed toward shorter maturities – are not University. included in these figures. Currency-swap agreements, which © Project Syndicate, 2015 - www.project-syndicate.org have been important for Brazil and Argentina, must also be

Estimated stock of debt to China at the end of 2014, as a share of GDP

October 14 - 20, 2015

18 | WORLD | financialmirror.com

Why support the TPP?

By Jeffrey Frankel Professor of Capital Formation and Growth at Harvard University

Agreement among negotiators from 12 Pacific Rim countries on the Trans-Pacific Partnership (TPP) represents a triumph over long odds. Tremendous political obstacles, both domestic and international, had to be overcome to conclude the deal. And now critics of the TPP’s ratification, particularly in the United States, should read the agreement with an open mind.

Many of the issues surrounding the TPP have been framed, at least in US political terms, as left versus right. The left’s unremitting hostility to the deal – often on the grounds that the US Congress was kept in the dark about its content during negotiations – carried two dangers. A worthwhile effort could have been blocked, or President Barack Obama’s Democratic administration could have been compelled to be more generous to American corporations, in order to pick up needed votes from Republicans. In fact, those concerned about labor rights and the environment risked hurting their own cause. By seeming to say that they would not support the TPP under any conditions, Obama had little incentive to pursue their demands.

Seen in this light, the TPP that has emerged is a pleasant surprise. The agreement gives pharmaceutical firms, tobacco companies, and other corporations substantially less than they had asked for – so much so that US Senator Orrin Hatch and

some other Republicans now threaten to oppose ratification. Likewise, the deal gives environmentalists more than they had bothered to ask for.

Perhaps some of these outcomes were the result of hard bargaining by other trading partners (such as Australia). Regardless, the TPP’s critics should now read the specifics that they have so long said they wanted to see and reconsider their opposition to the deal.

The most controversial issues in the US are those that are sometimes classified as “deep integration,” because they go beyond the traditional easing of trade tariffs and quotas. The left’s concerns about labor and the environment were accompanied by fears about excessive benefits for corporations: protection of the intellectual property of pharmaceutical and other companies, and the mechanisms used to settle disputes between investors and states.

So what, exactly, is in the finished TPP? Among the environmental features, two stand out. The agreement includes substantial steps to enforce the prohibitions contained in the Convention on International Trade in Endangered Species (CITES). It also takes substantial steps to limit subsidies for fishing fleets – which in many countries waste taxpayer money and accelerate the depletion of marine life. For the first time, apparently, these environmental measures will be backed up by trade sanctions.

I wish that certain environmental groups had devoted half as much time and energy ascertaining the potential for such good outcomes as they did to sweeping condemnations of the negotiating process.

The critics apparently were too busy to notice when the agreement on fishing subsidies was reached in Maui in July. But it is not too late for environmentalists to get on board. Similarly, various provisions in the area of labor practices, particularly in Southeast Asia, are progressive. These include measures to promote union rights in Vietnam and steps to crack down on human trafficking in Malaysia.

Perhaps the greatest uncertainty concerned the extent to which big US corporations would get what they wanted in the areas of investor-government dispute settlement and intellectual property protection. The TPP’s critics often neglected to acknowledge that international disputesettlement mechanisms could ever serve a valid purpose, or that some degree of patent protection is needed if pharmaceutical companies are to have sufficient incentive to invest in research and development.

There was, of course, a danger that such protections for corporations could go too far.

The dispute-settlement provisions might have interfered unreasonably with member countries’ anti-smoking campaigns, for example. But, in the end, the tobacco companies did not get what they had been demanding; Australia is now free to ban brand-name logos on cigarette packs. The TPP also sets other new safeguards against the misuse of the dispute-settlement mechanism.

Likewise, the intellectual property protections might have established a 12-year monopoly on the data that US pharmaceutical and biotechnology companies compile on new drugs (particularly biologics), thereby impeding

competition from lower-cost generic versions. In the end, these companies did not get all they wanted; while the TPP in some ways gives their intellectual property more protection than they had before, it assures protection of their data for only 5-8 years.

The focus on new areas of deep integration should not obscure the oldfashioned free-trade benefits that are also part of the TPP: reducing thousands of existing tariff and non-tariff barriers.

Liberalisation will affect manufacturing sectors such as the automotive industry, as well as services, including the Internet.

Liberalisation of agriculture – long a stubborn holdout in international trade negotiations – is noteworthy. Countries like Japan have agreed to let in more dairy products, sugar, beef, and rice from more efficient producers in countries like New Zealand and Australia. In all these areas and more, traditional textbook arguments about the gains from trade apply: new export opportunities lead to higher wages and a lower cost of living.

Many citizens and politicians made up their minds about TPP long ago, based on seemingly devastating critiques of what might emerge from the negotiations. They should now look at the outcome with an open mind. They just might find that their worst nighttime fears have vanished by the light of day.

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

Targeting non-communicable diseases

By John C. Lechleiter

Around the world, one of the major factors destroying lives and hampering economic growth is also one of the hardest to address. Non-communicable diseases (NCDs) – such as heart disease, diabetes, and cancer – now account for two-thirds of all deaths worldwide. In addition to cutting lives short, NCDs exact a massive economic toll on their victims, their families, and their communities, sapping economic productivity and driving up medical costs. Over the next two decades, the total economic losses from NCDs could top $30 trln.

Addressing the complex challenge posed by NCDs will require a coordinated international effort. Fortunately, there have been some important recent steps in that direction. In September, the United Nations adopted the Sustainable Development Goals, a set of 17 objectives that will guide the global development agenda for the next 15 years. Alongside targets like eliminating poverty and measures to protect the environment is a commitment to reducing mortality caused

by NCDs – the first time the UN’s official development agenda has taken direct aim at the problem.

This is a welcome milestone, but it is only the first of many on a long road. The physical and economic burdens associated with NCDs fall the hardest where they are least easily borne: low- and middle-income countries, where 80% of NCD-related deaths occur. Millions of people who have recently escaped poverty could be pushed back into it as a result.

The attention and peer pressure generated by the SDGs can help drive progress. But achieving the targets will require sustained focus, drawing on the resources and expertise of governments, international non-profit organizations, and, crucially, the private sector.

My experience in the health sector has led me to conclude that two important factors will prove crucial in addressing the challenges posed by NCDs. Progress will depend, first and foremost, on crafting effective local approaches that can be adapted, replicated, and scaled up. There are no one-size-fitsall solutions to problems like diabetes or heart disease. But, given that NCDs afflict communities in all parts of the world, there is much common ground that need not be continually rediscovered.

In 2013, for example, the Carlos Slim Foundation conducted a rigorous baseline assessment at eight primarycare clinics to understand the state of diabetes prevention and treatment. Based on the data gathered during the study, the Foundation piloted what is known as the CASALUD model to improve screening, treatment, and prevention using low-cost, user-friendly devices that can measure a range of relevant vital signs, including blood glucose levels.

Participating clinics have been equipped with an online system to track drug inventories and avoid shortages.

The approach was so effective that Mexico’s health office is using the CASALUD model as the basis for its national campaign to fight obesity, which can fuel diabetes and other

NCDs – a great example of scaling up based on local experience.

The second key to success in the fight against NCDs is a commitment to tapping the resources of the private sector. This includes not only the mobilisation of private investment, but also the deployment of the vast amounts of technical, operational, and locally tailored expertise that private companies have gained in the course of doing business around the world. By forming partnerships with governments and international and local organisations, companies can help reduce the impact of devastating and costly diseases.

I know this because my company is involved in just such an effort: the Lilly NCD Partnership, in which we are cooperating with partners and the governments of India, Mexico, South Africa, and Brazil to tackle NCDs. In Brazil, for example, we are working closely with key local organisations, including the Federal University of Rio Grande do Sul, to improve disease prevention – with a focus on helping mothers who were diagnosed with gestational diabetes while pregnant and are now at risk of developing type 2 diabetes.

Programs like ours demonstrate what can be achieved through substantive, locally driven public-private partnerships around the world. Ensuring the success of the SDGs – including the reduction of mortality from NCDs – will require companies to move beyond traditional philanthropy and forge creative solutions to socioeconomic problems. If we recognise that innovation stems from understanding local conditions and optimising the vast resources of the private sector, we can ensure better health – and more rapid economic growth – far into the future.

John C. Lechleiter is Chairman, President, and CEO of Eli Lilly and Company. © Project Syndicate, 2015. www.project-syndicate.org

October 14 - 20, 2015

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A fish called development

By Oby Ezekwesili, Jose Maria Figueres, and Pascal Lamy The just-adopted Sustainable Development Goals (SDGs) are expected to herald the start of a new era in global development, one that promises to transform the world in the name of people, the planet, prosperity, peace, and partnership. But there is an ocean of difference between promising and doing. And, while global declarations are important – they prioritise financing and channel political will – many of today’s pledges have been made before.

In fact, whether the SDGs succeed will depend to a significant degree on how they influence other international negotiations, particularly the most complex and contentious ones. And an early test concerns a goal for which the Global Ocean Commission actively campaigned: to “conserve and sustainably use the oceans, seas, and marine resources for sustainable development.”

When political leaders meet at the tenth WTO Ministerial Conference in Nairobi in December, they will have an opportunity to move toward meeting one of that goal’s most important targets: prohibition of subsidies that contribute to overfishing and illegal, unreported, and unregulated fishing by no later than 2020.

This is not a new ambition; it has been on the WTO’s agenda for many years, and it has been included in other international sustainable development declarations. But, even today, countries spend $30 bln a year on fisheries subsidies, 60% of which directly encourages unsustainable, destructive, or even illegal practices. The resulting market distortion is a major factor behind the chronic mismanagement of the world’s fisheries, which the World Bank calculates to have cost the global economy $83 bln in 2012.

In addition to concerns about finances and sustainability, the issue raises urgent questions about equity and justice.

Rich economies (in particular Japan, the United States, France, and Spain), along with China and South Korea, account for 70% of global fisheries subsidies. These transfers leave thousands of fishing-dependent communities struggling to compete with subsidised rivals and threaten the food security of millions of people as industrial fleets from distant lands deplete their oceanic stocks.

West Africa, where fishing can be a matter of life and death, is being particularly hard hit. Since the 1990s, when foreign vessels, primarily from the EU and China, began to fish on an industrial scale off its shores, it has become impossible for many local fishers to make a living or feed their families.

The state of global youth unemployment Millions of young people are still struggling to find a job around the world. Global youth unemployment grew significantly between 2007 and 2010 but has now stabilised at just over 13%, according to a recent report from the International Labour Organisation.

Despite that stabilisation, however, today’s rate of youth unemployment remains significantly higher than its pre-crisis level of 11.7%. According to the ILO, the rate of unemployment can be partly attributed to increasing numbers of young people enrolling in education, resulting in a shrinking labour force. While the ILO welcomed the education factor, it also voiced concerns about its uneven nature. 31% of people in low-income countries have no educational qualifications at all compared to 6% in lower middle-income countries and 2% in upper middle-income countries. (Source: Statista)

From 1994 to 2005, Senegal’s catch fell from 95,000 to 45,000 tons, according to government estimates, and the country lost half of its fleet of traditional wooden pirogues. As the fish stocks collapsed in 2005, 5,000 people decided to put their redundant fishing boats to a different use, by fleeing to the Spanish Canary Islands. A year later, more than 30,000 others made the same perilous journey, and an estimated 6,000 drowned. Senegalese and Mauritanian fishermen and their families are also among the thousands of people risking their lives to get to Europe today.

On the high seas, the distortion is even larger. According to fisheries economists, subsidies by some of the world’s richest countries are the only reason large-scale industrial fishing in areas beyond coastal countries’ 200-mile exclusive economic zones is profitable. But fish do not respect international boundaries, and it is estimated that 42% of the commercial fish being caught travel between countries’ exclusive zones and the high seas. As a result, industrial fishing far from shore undermines developing countries’ coastal, mostly artisanal, fisheries.

Eliminating harmful fisheries subsidies by 2020 is not only crucial for conserving the ocean; it will also affect our ability to meet other goals, such as our promises to end hunger and achieve food security and to reduce inequality within and among countries.

The credibility of both the WTO and the newly adopted SDGs will be on the line in Nairobi. The Global Ocean Commission has put forward a clear three-step programme to eliminate harmful fishing subsidies. All that is needed is

for governments finally to agree to put an end to the injustice and waste that they cause.

Fortunately, there are encouraging signs. Nearly 60% of the WTO’s membership supports controlling fisheries subsidies, with support from the African, Caribbean, and Pacific Group of developing countries – together with the EU’s contribution to improve transparency and reporting – giving new momentum to the effort. Among the initiatives being put forward in advance of the Nairobi meeting is the so-called “NZ +5 proposal.” Co-sponsored by New Zealand, Argentina, Iceland, Norway, Peru, and Uruguay, the plan would eliminate fisheries subsidies that affect overfished stocks and contribute to illegal, unreported, and unregulated fishing.

The Global Ocean Commission urges the remaining 40% of the WTO’s members – and especially the biggest players currently blocking this process – to accept the relatively modest proposals on the table. A sustainable future for our planet and its oceans depend on it.

Oby Ezekwesili, a former Nigerian Education Minister and cofounder of the anti-corruption organization Transparency International, is a Global Ocean Commissioner. José María Figueres, former President of Costa Rica, is Co-Chair of the Global Ocean Commission. Pascal Lamy, a former directorgeneral of the World Trade Organization, is a Global Ocean Commissioner. © Project Syndicate, 2015 - www.project-syndicate.org

October 14 - 20, 2015

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Big Oil, Big Tobacco, Big Lies

By Kelle Louaillier and Bill McKibben Over the last few years, a growing number of people have been taking a hard look at what is happening to our planet – historic droughts, rising sea levels, massive floods – and acknowledging, finally, that human activity is propelling rapid climate change.

But guess what? Exxon (now ExxonMobil) had an inkling of this as early as 1978.

By the early 1980s, Exxon scientists had much more than an inkling. They not only understood the science behind climate change, but also recognised the company’s own outsize role in driving the phenomenon. Recognising the potential effects as “catastrophic” for a significant portion of the population, they urged Exxon’s top executives to take action. Instead, the executives buried the truth.

There may be a silver lining to this infuriating story: the recent investigation that exposed Exxon’s deceit could end up catalysing the action needed to address the looming climate crisis. After all, similar revelations about the tobacco industry – what the major cigarette companies knew and when they knew it – transformed the public-health landscape.

In 1996, a series of lawsuits forced tobacco companies to release millions of internal documents, which confirmed what public-health advocates and policymakers had long suspected: as early as the 1950s, the industry knew that nicotine was addictive and that cigarettes caused cancer. But, to protect its own interests, Big Tobacco deliberately misled the public, doing everything possible to cast doubt on

scientific findings that it knew to be accurate. Such tactics enabled the industry to delay, for more than 50 years, regulation that could have saved millions of lives annually.

After the revelations, however, it was clear that the tobacco industry was a malevolent force that did not belong in the policymaking process. With Big Tobacco out of the picture, and armed with evidence of the real effects of tobacco consumption, health advocates were finally able to compel their governments to act.

In 2003, world leaders agreed to the Framework Convention on Tobacco Control (FCTC), negotiated under the auspices of the World Health Organisation. Today, the treaty covers 90% of the world’s population and has contributed to a significant decline in sales for global tobacco corporations. Over time, it will save hundreds of millions of lives (and save governments’ health-care budgets huge sums).

Big Oil, it is now clear, has been following Big Tobacco’s playbook. In 1997, almost two decades after it began studying climate change, it quashed its research, claiming that climate science was “far from clear” and thus that it did not “support mandated cuts in energy use.”

Beyond suppressing its own findings, ExxonMobil (and its peers) funded and promoted junk science and attacked scientists who warned of the impending climate disaster. The fossil-fuel companies’ approach was so effective that the media are only now beginning to recognise the leading role the industry played in creating – almost out of whole cloth – the so-called “climate debate.”

But perhaps Big Oil’s biggest success was diminishing the political will to implement appropriate regulation. Even after the international community adopted the United Nations Framework Convention on Climate Change (UNFCCC) in 1992, the fossil-fuel industry managed to block meaningful progress – to the point that, if serious action is not taken soon, the entire process could unravel.

In Europe, Royal Dutch Shell’s lobbying so diluted the European Union’s efforts that there are now no binding targets for renewables or energy efficiency for individual countries. The company even sent a letter to the European Commission’s president claiming that “gas is good for Europe.” Shell and other oil companies are now promising to work as “advisers” to national governments on how to deal

with climate change.

Just as the tobacco files drove the tobacco industry out of policymaking processes, the Exxon investigation should compel world leaders to eliminate the fossil-fuel industry from efforts to solve the climate crisis.

After all, no policy can succeed if those who shape it are betting on its failure.

The turning point for tobacco-related public-health policy came when the industry’s depravity became indisputable.

Now, that moment has come for the climate movement. We cannot simply hope that the fossil-fuel industry will change its ways. As an alliance of human-rights groups, environmental activists, and corporate-accountability advocates already is demanding, we must kick the industry out of the policymaking process altogether.

Exxon’s scientists were right: the effects of climate change on many communities are catastrophic. With so many lives at stake – and such clear evidence of the threat – Big Oil, like Big Tobacco before it, should be treated for what it is: Big Trouble.

Kelle Louaillier is President of Corporate Accountability International. Bill McKibben, a scholar in environmental sciences at Middlebury College and a member of the American Academy of Arts and Sciences, is a co-founder of 350.org. © Project Syndicate, 2015. www.project-syndicate.org

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