Financial Times Europe - Friday

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EUROPE
Friday February 22 2013
Lex
in depth
Slim chance of reward
from América Móvil
Analysis, Page 7
Three cheers to
a sinking sterling
Martin Wolf, Page 9
World Business Newspaper
Brussels
turns up
pressure
over Libor
Banks face f ines up to 30% of revenues
Syria blast
Damascus bomb kills scores
Rothschild
defeated
in Bumi
board bid
TOMORROW IN
FT WEEKEND
Brazil special
From Brazilian
attitudes to natural
resources and
plastic surgery to
interviews with
Roberto Setúbal,
Bruno Senna and
Ronaldo
By Guy Chazan and
Christopher Thompson in London
Financier Nat Rothschild has
been defeated in his bid to
replace the board of Bumi, the
Indonesian mining company he
helped to create.
At an extraordinary meeting
in London yesterday, sharehold-
ers rejected 19 of Mr Roth-
schild’s 22 resolutions, including
one that would have seen him
return to the board. Accompa-
nied to the meeting by his
mother, Lady Serena Roth-
schild, he claimed some success
after a “substantial majority” of
independent shareholders voted
for his proposals.
The miner announced that
Samin Tan, who Mr Rothschild
had sought to oust as chairman,
would step down and that a
search to replace the Indonesian
tycoon was already under way.
After the vote the financier
called on Bumi’s eight independ-
ent non-executive directors to
go, saying they had “demonstra-
bly lost the confidence of the
majority of nonaligned share-
holders”. But Nick von Schirnd-
ing, Bumi’s chief executive, said
the board had received a man-
date from the majority of inde-
pendent investors.
“I just really want to put
these two months of infighting
behind us and move on,” he
said.
Bumi was created in 2010 in a
$3bn deal that saw Indonesian
coal assets linked to the influen-
tial Bakrie family reversed into
a cash shell created by Mr Roth-
schild. But the company has
been dogged by corporate gov-
ernance scandals and allega-
tions of financial irregularities.
Mr Rothschild had proposed
to replace 12 of Bumi’s 14 direc-
tors. His plans were scuppered
after a big Bumi shareholder,
Indonesian businessman Rosan
Roeslani whose voting power
was restricted by the Takeover
Panel, sold his 10 per cent stake.
Life & Arts
fe &Arts
By Alex Barker in Brussels and
Caroline Binham in London
At least a dozen banks and
interdealer brokers are poten-
tially under the spotlight of
the three separate EU probes,
according to regulatory findings
and Financial Times investiga-
tions.
While US and UK financial
regulators have already fined
three banks including Barclays
and UBS over rigging inter-
bank lending benchmarks, only
Royal Bank of Scotland has so
far admitted to breaking
antitrust rules in a settlement
with
Banks and broker-dealers
ensnared in the Libor-rigging
scandal are facing fresh pres-
sure to settle with Europe’s top
competition authority as it
expands the scope of its probes.
The European Commission’s
18-month antitrust investiga-
tion, previously known to
include yen and euro denomi-
nated swaps, has been extended
to include Swiss franc-linked
instruments and poses a big reg-
ulatory threat to the financial
institutions
News Briefing
Oracle battles to
contain Java attacks
A series of cyberattacks on
companies including Apple,
Facebook and Twitter has
exposed pervasive flaws in
one of the computing world’s
most widely used pieces of
software in Java, according
to security experts.
Page 13
Small banks muscle in
The market share of the
global “bulge bracket”
investment banks in
arranging corporate bonds
and loans has fallen to an
all-time low, as smaller
groups muscle in.
Page 13;
The bulge bracket, Page 16
Bankia’s €19bn loss
Bankia will next week reveal
an annual net loss of more
than €19bn, the largest in
Spanish corporate history, as
the nationalised lender speeds
up its plan to close branches
and sell assets.
Page 13
Monti coalition doubt
Mario Monti branded his
centre-left opponents in Italy
communist “reincarnations”
in an attack that casts
further doubt on whether the
two sides would be able to
form a coalition government.
Page 4; www.ft.com/italydata
China drains cash
Beijing has drained $146bn,
a record amount of cash
from its banking system, to
counteract an explosion
in credit growth that had
sparked worries about
inflation.
Page 2
Israel’s Golan oil deal
Israel has granted a US
company a licence to explore
for oil and gas in the Golan
Heights in a move likely to
stir controversy ahead of a
visit to the region by
President Barack Obama.
Page 5; Philip Stephens, Page 9
Bombs hit Hyderabad
India’s major cities were on
high alert after two bombs
exploded in the commercial
area in the southern city of
Hyderabad at evening
shopping rush hour, killing
at least 12 people and
injuring 57 others.
Page 5
the
US
Department
of
Justice.
Unlike US antitrust regula-
tors, Brussels will not settle
with individual cartel members
and only concludes cases simul-
taneously with all groups
involved – a process that typi-
cally takes several years.
Société Générale and Crédit
Agricole were drawn into the
benchmark-rigging scandal
when the FT reported last sum-
mer that employees at the
banks communicated with a
Barclays euro swaps trader,
Philippe Moryoussef, who for-
merly worked at SocGen.
In its findings against Bar-
clays in June, the US Commod-
ity Futures Trading Commission
alleged that Mr Moryoussef –
identified only as “a senior
trader” in the report – “orches-
trated an effort to align trading
strategies among traders at mul-
tiple banks”. Traders at Deut-
sche Bank, HSBC and Rabobank
also
under
scrutiny,
according
to
people
familiar
with the probe.
The commission can impose a
maximum penalty equivalent to
10 per cent of a firm’s global
turnover for each cartel it is
found to be involved with. A
bank implicated in all three
investigations could, for exam-
ple, face fines of up to 30 per
cent of total revenues.
In a speech today in Paris, the
EU’s competition commissioner
will stress his determination to
pursue the cases and ensure
competition enforcement com-
plements actions of global
authorities against misconduct
and corruption.
Joaquín Almunia’s speech will
be interpreted as a warning to
financial institutions that are
holding out against antitrust
authorities. According to people
involved in the probe, Brussels
is informally exploring the
potential for settlements but
some companies are unwilling
to open discussions over what
they consider to be unfounded
allegations of wrongdoing.
communicated
with
Mr
Moryoussef.
The commission has not
named any banks or interdealer
brokers implicated in its current
investigations.
Editorial Comment, Page 8
‘Protest vote’, Page 15
www.ft.com/bumi
Syrian security agents carry an injured man after a car bomb exploded near the Damascus
office of the ruling Ba’ath party yesterday, killing more than 40 people
Report, Page 5
AP
Lower food prices on horizon as
US predicts bumper grain crops
Sovereign wealth
By Gregory Meyer in Arlington
Mr Glauber told the USDA’s
annual conference outside
Washington. The conference, a
premier gathering of agribusi-
ness, lobbyists and policy mak-
ers, traditionally provides the
first forecast of the upcoming
farming season.
The worst US drought in half
a century last year sent whole-
sale grain and oilseed prices to
record levels, fanning inflation
in emerging economies and
inflicting heavy losses on the
livestock industry. The price
pressure was only contained by
good global crops of rice,
another staple, which avoided a
repetition of the food crisis of
2007-08 that saw riots in more
than 30 countries across Africa
and Asia.
In February 2012, Mr Glauber
predicted prices of most field
crops
Analysts worry that the cur-
rent bearish forecast could be
premature as more than half the
US
The US government has painted
a bearish outlook for the prices
of corn, wheat and soyabean,
projecting that the country’s
farm production in 2013 will
bounce back sharply from the
devastation of last year’s
drought, bringing relief to con-
sumers worldwide.
Similarly optimistic forecasts
a year ago by Joseph Glauber,
chief economist at the US
Department of Agriculture, were
dashed by droughts that led to
stunted
mainland
remains
in
drought.
The drought has moved west-
ward from the central corn belt
to plains states such as Kansas,
threatening winter wheat crops.
However, Mr Glauber said its
persistence did not necessarily
presage damaging conditions
this summer. He estimated this
year’s corn crop at a record
14.53bn bushels, up 35 per cent
from last year. Soyabean pro-
duction would rebound 13 per
cent to 3.41bn bushels.
David Baudler, senior execu-
tive at Cargill, the world’s top
agricultural trading group by
revenue, said: “With an average
crop, we’re going to see a very
different marketplace.”
Global grain prices have also
softened as traders foresee
record South America harvests.
The eurozone’s central banks
made up to €14bn last year
from holding the sovereign
bonds of crisis-hit countries
racing to comply with deficit-
reduction targets, official data
suggest. The European Central
Bank said it earned €1.1bn in
interest from its share of
€208bn of sovereign debt from
Italy, Greece, Spain, Portugal
and Ireland amid efforts to
calm market fears.
harvests
and
record
prices.
Mr Glauber said in yesterday’s
crop outlook that corn prices
could fall by a third – and soya
by more than a quarter – if a
return
to
milder
weather
allowed higher yields.
“We should see record produc-
tion
would
fall
last
year
Subscribe now
Report, Page 3
of
corn
and
soyabeans.
thanks
to
larger
world
and
That
should
lower
prices,”
domestic supplies.
In print and online
Tel: +44 20 7775 6000
Fax: +44 20 7873 3428
email: fte.subs@ft.com
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FINANCIALTIMES
FRIDAYFEBRUARY222013
WORLDNEWS
China drains cash to curb inflation
Call for
US action
as student
debt cuts
demand
$146bn drawn from
economy this week
Government keeps
grip on real estate
ket,whichisdrivenheavily
byliquidityconditions,sold
offsharplyafterthecentral
bank’smove.TheShanghai
Composite,themainindex,
shed3percent.
Themovewaspartlya
technicalreversalofliquid-
ityinjectionsmadebefore
lastweek’sChinesenew
yearholiday,butanalysts
saiditalsoheraldedacau-
tiousshifttotightermone-
tarypolicyastheworld’s
second-largest economy
heatedup.
“Itisasignalthatthey
aregoingtochangethepol-
icystance. It’s just too
loose,” saidShenJian-
guang,aneconomistwith
MizuhoSecurities. “The
creditissuanceinJanuary
wasscary.”
Chinesecreditissuance–
whichincludeslendingby
banksandfinancingpro-
videdbynon-bankinstitu-
tions–surgedtoarecord
Rmb2.5tninJanuary,sur-
passingthemonthlytotals
inearly2009whenthegov-
ernmentunleashedastimu-
lussurge tobattle the
financialcrisis.
Inamonetarypolicy
reportpublishedatthestart
ofFebruary, thePeople’s
BankofChinasaidthat
controllinginflationwasa
priorityastheeconomy’s
recovery strengthened.
Chinaslippedto7.8per
centgrowthlastyear, its
slowestinmorethanadec-
ade,butithasbeenspeed-
ingupsincetheendofthe
thirdquarter.
The surge in lending
couldpresagefastergrowth
andhigher inflationthis
yearifleftunchecked.
Initsregularopenmar-
ketoperationsthisweek,
thecentralbankallowed
Rmb860bnof previously
issuedreverserepurchase
agreementstoexpire, in
effectundoingshort-term
liquidity injectionsmade
beforethenewyearholiday
whendemand for cash
spikes.
Ontopofthat, italso
issuedafurtherRmb50bn
inrepurchaseagreements,
drainingextracashfrom
theeconomy.Moreover, it
usedlongertenorsforapor-
tion–as longasthree
monthsinsteadoftheusual
seven-dayor28-daydura-
tion–tokeepthemoney
lockedupforlonger.
“It’sanormalisationof
monetarypolicy.Thereis
nodoubtthatthereissim-
plytoomuchliquidityin
thesystem,”saidYaoWei,
aneconomistwithSociété
Générale.
Thegovernmenthasalso
startedtotightenitsgrip
onthepropertysectorafter
a rebound inhousing
prices.OnWednesdaythe
StateCouncil,orcabinet,
saidthatcitieswithexces-
sivelyfastpriceincreases
must implement stricter
curbs onpurchases. In
recentweekslocalgovern-
mentsinthewealthyprov-
incesofGuangdong,Zhe-
jiangandJiangsuhaveall
takenstepstoincreasethe
costofmortgagestohome-
buyers.
China’snewhomeprices
rose1percentinJanuary
fromamonth earlier,
accordingtoSoufunHold-
ings,arealestatewebsite
thatsurveys100cities.
A property recovery
bodeswellfortheconstruc-
tionindustry,akeydriver
of theChineseeconomy,
but the government is
determined tokeep the
housingmarketundercon-
trol afterworking for
nearlythreeyearstodeflate
bubblyprices.
BySimonRabinovitch
inBeijing
Moneymatters
2.5tn
CreditissuedinChina
inJanuary(renminbi)
50bn
Repurchaseagreements
releasedbybank(Rmb)
ByShahienNasiripour
inWashington
Chinadrainedarecord
amountofcashfromits
bankingsystemthisweek,
counteractinganexplosion
increditgrowththathad
stokedconcernsaboutinfla-
tion.
Thecentralbankwith-
drewRmb910bn ($146bn)
fromtheeconomyviaopen
marketoperationsoverthe
pastthreedays,itsbiggest
weeklycashdrain.
TheChinesestockmar-
860bn
Expiredreverserepurchase
agreements(Rmb)
3%
FallinShanghaiComposite
indexafterwithdrawal
USregulatorsraisedthe
possibilityofallowingstu-
dentstorefinanceorease
termsontheirloans,aspol-
icymakerswarnthatgrow-
ingstudentdebtishurting
consumptionand future
creditcreation.
TheConsumerFinancial
ProtectionBureaulaunched
aconsultationyesterdayon
howtofacilitateincreased
debtwritedownsandrefi-
nancingsforthemillionsof
USborrowerswhocollec-
tivelycarrysome$150bnof
privatestudentloans.
Thecallforactionfollows
warningsthatstudentdebt
levelsareholdingbackthe
US economy. Car pur-
chases,homebuyingand
credit cardbalances for
thoseunder35yearsofage
havealldecreasedasover-
allstudentdebthassurged
to$1.1tn,accordingtonew
datafromthePewResearch
CenterandCFPB.
TheUSOfficeofFinan-
cialResearchhasidentified
studentdebtasapotential
threattofinancialstability,
warningthatitcouldsignif-
icantlydepressdemandfor
home mortgages and
dampenconsumption.
“Toomanyprivatestu-
dent loanborrowersare
strugglingwithunwieldy
debt thatpreventsthem
climbingtheeconomiclad-
der,”saidRichardCordray,
CFPBdirector.Theagency
planstomakerecommenda-
tions “thatmight help
avoidarepeatofthemort-
gagemeltdownfortoday’s
studentloanborrowers”.
The Federal Reserve
BankofNewYork,US
Treasury andFinancial
Buyers
return to
US house
market
ByShannonBond
inNewYork
The inventoryofunsold
homesintheUSdroppedto
a13-yearlowinJanuaryas
buyersreturnedtothemar-
ket,pushingsalesofprevi-
ouslyownedhomesslightly
higher.
Meanwhile,thecostofliv-
ingwasunchangedfora
secondmonth,asflatfood
pricesandlowerenergy
costsoffsetothermildinfla-
tionarypressures, while
joblessclaimsrosemore
thanexpectedlastweek.
Thenumberofexisting
homesavailableforsale
dropped4.9percentfrom
Decemberto1.74minJanu-
ary–thelowestlevelsince
December1999,theNation-
alAssociationofRealtors
said.Thatrepresented4.2
monthsofinventoryatthe
currentsalesrate,thelow-
estsinceApril2005.Inven-
toryhadpreviouslyhitan
11-yearlowinDecember.
Evenwithfewerproper-
tiesavailable,salesrose0.4
percentlastmonthtoa
seasonallyadjustedannual
rateof4.92m,aboveafore-
cast4.9m.Saleswere9.1per
centhigherthanthe4.51m
pacehitinJanuary2012.
“Buyertrafficis40per
centaboveayearago,so
thereisplentyofdemand
but insufficient inventory
to improve salesmore
strongly.We’vetransitioned
intoaseller’smarket in
muchofthecountry,”said
LawrenceYun,therealtors’
associationchiefeconomist.
Gradualbutsteadygains
inthe jobsmarketand
recordlowmortgagerates
havehelpedlurebuyers
backintothemarketafter
yearsofstagnation.Hous-
ingaddedtoUSgrowthin
2012forthefirsttimesince
2005andisexpectedtobea
strongerdriverthisyear.
The labourdepartment
said its consumerprice
indexwasunchangedin
Januaryfromtheprevious
month,followingasimilar
flatreadinginDecember.
Economists polled by
Bloomberghadcalledfora
0.1percentrise.
Washington­bound:ShinzoAbeboardshisflightinTokyoyesterday.HeisexpectedtoaskPresidentBarackObamatoexportshalegastoJapantohelpreduceenergybills
AP
Abe talks to focus on economy and security
‘Manywonderwhy
theyarenotableto
refinanceloansand
takeadvantageof
today’slowrates’
Afghanistan, thehawkish
MrAbechampionedan
unpopular“anti-terror”law
thatallowedJapanesetank-
erstorefuelNatowarships
operating inthe Indian
Ocean.Avoterbacklash,
combinedwithhealthprob-
lemsandanupperhouse
electiondefeat,soonforced
himfromoffice.
Nowbackinpowerfive
yearslater,MrAberemains
keenonextendingthemili-
tarypartnership,whichin
spiteof thepresenceof
thousandsofUStroopson
Japanesesoil iscircum-
scribedbyJapan’santi-war
constitution.ForJapanese
conservatives,thegrowing
assertivenessofChina–
tusslingwithJapanover
theSenkakuIslandsinthe
EastChinaSea–and
advancesinNorthKorea’s
nuclearprogrammehave
onlymadetheneedfor
strongertiesmoreurgent.
Yetitisthatveryeager-
ness,analystsandgovern-
mentofficialssay,thathas
putsomeintheObama
administration on their
guardagainstMrAbe.
Washingtoniswaryabout
provokingthenewleader-
shipinChinaandisalso
concernedaboutnewten-
sionsbetweenJapanand
oneofitsotherkeyalliesin
theregion,SouthKorea.
“Japan’sgovernmentnow
isclearlyhawkishandfrom
theUSpointofviewthatis
reasonforcaution,”said
YoshikiMine,aformerJap-
anesediplomatwhoisa
research fellowat the
CanonInstituteforGlobal
Studies.Foryears,Washing-
tonhasencouragedTokyo
totakeamoreactiverolein
thealliance,buttheview
today,hebelieves,isthat“a
morehawkishJapanisnot
necessarilyagoodthing”.
USofficialsconfirmthey
wouldstill likeJapanto
embracetheprincipleof
“collectiveself-defence”–
meaningJapanesetroops
couldprovidelogisticalsup-
porttoUSforcesengagedin
battlesoutsideJapan,or
helpshootdownaNorth
Korean missile head-
ingfortheUS.Butthey
want tomoveslowlyto
avoidantagonisingChina,
SouthKoreaandother
Asiancountriesstillbitter
aboutJapan’searly20th-
centuryempire-building.
“Ideallywewouldliketo
seeaworldwhereJapan
coulddothesethingsand
itsneighbourswouldbeOK
withit,butwearen’tthere
yet,”oneofficialsaid.Mr
Abe’sviewsonwartimehis-
tory–hehasspokenof
retractingpastapologiesfor
abuses committed by
Japan’simperial forces–
havemadehimapoor
clearitsextremereluctance
tobedrawnintoaSino-Jap-
aneseconfrontation.Few
believeMrAbewillreceive
anymoreeagersupport
duringhisvisit.
Washingtonhas been
broadlysupportiveofthe
newprimeminister’sefforts
toreviveJapan’ssluggish
economybyincreasinggov-
ernmentspendingandloos-
eningmonetary policy,
evenasthoseeffortshave
ledtoasharpfallintheyen
thathasalarmedsomeof
Japan’stradepartners.
MrAbeisexpectedtoask
MrObamatohelphiscause
byapprovingtheexportof
newlyabundantshalegas
toJapan, somethingthat
couldhelpbringdownJapa-
neseenergybills,which
havesoaredsincetheFuku-
shimanucleardisasterin
2011 led to increased
importsoffossilfuels.
SomeUSindustrygroups
oppose exports on the
grounds that theycould
pushupdomesticgasprices.
Incontrasttothe1980s,
whenUS-Japansummits
were preoccupiedwith
Japan’shuge tradesur-
pluses,thepost-Fukushima
energycrisisandthedeclin-
ingcompetitivenessofJapa-
neseexportindustrieshave
turnedthecountryintoa
tradeunderdog–itstrade
deficit inJanuarywasa
recordY1.6tn.
MrAbeisfacingadiffi-
cultdecisionoverwhether
toenternegotiationstojoin
the trans-PacificPartner-
shipfree-tradebloc,aUS-
driveninitiativesupported
byJapanesebusinessbut
opposedbyfarmers–core
constituenciesforhisLib-
eralDemocraticparty.He
hassaidhewillseekassur-
ancesfromMrObamathat
Japancouldkeeptariffson
certainsensitivegoods.
ButUSofficialsareada-
manthewillnotgetany-
thingsoexplicit,giventhe
riskthatothercountries
wouldaskforsimilarguar-
antees.Butevenanon-com-
mittalstatementthatdidnot
ruleoutprotecting“sacred”
areasmightbespunbyMr
Abeasavictory,allowing
himtoenternegotiationsif
notactuallywinadealthat
willsatisfyhisruralJapa-
nesericegrowers.
US­Japan summit
White House will
not want any
negotiations to
provoke China’s
leadership, writes
Jonathan Soble
StabilityOversightCouncil
areexaminingthe links
betweenstudentdebt,the
economyandfinancialsta-
bility.
TheCFPBsaid:“Should
theserisksbesignificant,
policymakersmaywishto
consider partnerships
betweenthefederalgovern-
mentandtheprivatesector
toincreasetheavailability
of alternative repayment
optionsandreducelevelsof
delinquencyanddefault.”
RohitChopra,theCFPB
officialresponsibleforstu-
dentloans,said:“Manyof
ushaveraisedquestions
aboutthestudentdebtdom-
inoeffectontheeconomy.
Weneedtotakeaction.”
Theconsumerbureau’s
consultationisthefirststep
towardspotentiallyforming
amorerobustmarketfor
refinancingofhigh-interest-
rateprivatestudentloans
anddebtworkouts.
“Therehasnotbeena
consistentsetofoptionsfor
privatestudentborrowers
tomanagetougheconomic
times,”MrChoprasaid.
“Thosewhohavegraduated
andgottengoodjobswon-
derwhytheyarenotable
torefinancethoseloansand
takeadvantageoftoday’s
historicallylowrates.”
TheagencyhassaidUS
borrowerswithnon-govern-
mentbackedstudentloans
are“trapped”payinghigher
ratesthannecessary.The
averagerateonnewstu-
dentloansduringthepast
threeyearswas8to10per
cent,accordingtotheCFPB.
MrChoprasaiddebtrene-
gotiations that lower
monthlypaymentsprobably
woulddecreasedefaults.
Companiesthatcouldbe
affectedincludeSallieMae,
the largestUS student
lenderwith$181bninassets.
ThelasttimeShinzoAbe
wasJapan’sprimeminister,
from2006to2007,hestaked
hisjobonacampaignto
strengthentieswiththeUS.
ButasheheadstoWash-
ingtonforhisfirstsummit
sinceretakingpower,any
expectationsofAmerican
gratitudewillhavetobe
temperedbynewandcom-
plexpoliticalrealities.
MrAbe’smeetingwith
BarackObama,theUSpres-
ident,todayisexpectedto
focusoneconomicissues
and,asever,theUS-Japan
militaryalliance,acorner-
stoneofAsia’sregional-
securityedificesincethe
secondworldwar.
Duringhisfirststintas
Japan’sleader,atatime
whentheBush-eraUSwas
fightingwarsinIraqand
‘Thegovernmentis
clearlyhawkishand
fromtheUSpoint
ofviewthatis
reasonforcaution’
salesman forunfettering
Japan’smodernmilitary.
OntheSenkakuIslands,
the Japanese-controlled
groupthatisclaimedby
Chinaandhasbeenthesite
ofatensestand-off,theUS
hasassuredJapanthatthe
areafallsunderthedefen-
siveumbrellaofaUS-Japan
security treatybuthas
refusedtotakeaposition
ontheunderlyingowner-
shipissueandhasmade
Rallypauses,Page21
Business leaders’ optimism at highest for two years
conductedbetween
January15andFebruary
15,suggeststheinvestor
optimismthathaslifted
equitymarketsthisyear
hasbeensharedby
businessleaders.Global
equitiesclimbedtotheir
highestlevelinfouryears
thismonth,although
pricesfellyesterdayafter
newstheUSFederal
Reservewascoolingon
open-endedasset
purchases.Thesurveyalso
suggestsexecutivesremain
relativelycautious:50per
centsaidtheythoughtthe
globaleconomywould
remainthesame;29per
centthoughtitwould
improveand22percent
thoughtitwouldworsen.
Inaddition,aboutfourin
fiveexecutivessaidthe
eurozonecrisiswasnot
overyet,whileaslender
majoritysaidbanking
regulationhadnotyet
gonefarenough.The
bettersentimentwas
reflectedintheexecutives’
plansfortheyear.About
40percentofrespondents
saidtheircompanieswere
planningtoincrease
headcountandcapital
expenditureoverthenext
year,doubletheproportion
whowereplanningto
reducethem.Executivesin
Asia,LatinAmericaand
theMiddleEastandAfrica
weremorelikelytobe
planningexpansionthan
thoseintheUSandEurope.
Smallcompaniesseemto
havemoreambitiousplans
thanbigcompanies;
roughlyhalfofcompanies
withrevenuesoflessthan
£1bnwereplanningto
increaseexpenditure,
comparedwithathirdof
companieswithrevenues
ofmorethan£10bn.
Theautomotiveand
logisticsanddistribution
industrieswereplanning
thebiggesthiringspree,
thesurveysuggested,
whilethetelecoms
industryandthepublic
sectorappearedmostlikely
tocutjobs.
Askedabouttheworld’s
banks,alittlemorethan
halfsaidregulationhad
notgonefarenough,
comparedwiththe27per
centwhothoughtitwas
aboutrightandthe17per
centwhothoughtithad
alreadygonetoofar.
Evenamongexecutives
infinancialservices,35per
centsaidregulationhad
notgonefarenough,
whereas31percent
thoughtthatithadalready
gonetoofar.
Barometer
FT/Economist
survey reveals a
positive outlook
for the global
economy, writes
Sarah O’Conno
r
NumberOneSouthwarkBridge,LondonSE19HL
SUBSCRIPTIONSANDCUSTOMER
SERVICE:
Tel:+1442077756000
fte.subs@ft.com
www.ft.com/subscribetoday
Businessexecutivesare
moreoptimisticaboutthe
globaleconomythanthey
havebeeninalmosttwo
years,accordingtothe
FT/EconomistGlobal
BusinessBarometer
survey.
Forthefirsttimesince
May2011,moreexecutives
thinktheeconomywill
improveinthenextsix
monthsthanthinkitwill
deteriorate,accordingto
thequarterlysurveyof
about1,600executives.
Theyarealsomore
enthusiasticaboutthe
prospectsfortheir
industries,thoughtheir
expectationsfortheirown
companieshavenot
improvedasmuch.
Thesurvey,whichwas
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60
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50
40
30
●
Economists’Forum
Videodiscussingwhether
Africawillbecomeavirtual
provinceofChina
www.ft.com/
economistsforum
20
10
2011
2012
Cash­strapped:studentdebt
linkedtofinancialstability
Source: Economist Intelligence Unit
    FINANCIAL TIMES
FRIDAYFEBRUARY222013
★
3
WORLD NEWS
ECB unveils crisis bond profits
Fed minutes
raise queries
over faith in
more easing
Struggling nations
issued debt in 2010
National central
banks earn €14bn
Italy,Greece,Spain,Portu-
galandIreland.Thebonds
werepurchasedunderthe
nowdefunctSecuritiesMar-
ketsProgramme,whichran
frommid-2010andwas
designedtocalmfinancial
marketfearsofaeurozone
break-up.
TheECBforthefirsttime
alsopublishedapreviously
confidentialbreakdownof
theportfolio,revealingjust
daysaheadofItaly’sgen-
eralelectionthatRomewas
byfarthebiggestbenefici-
aryof thebond-buying,
with€99bnof itsbonds
beingheldbytheSMPat
theendof2012.
TheECB’sdeclaredprofit
representsjust8percentof
thetotalportfolio,withthe
restbeingretainedamong
theeurozone’s17national
centralbankswhohelped
conductSMPoperations.
Assumingtheyieldonthe
ECB’sshareisroughlythe
sameas the rest, that
implies total interest
incomeofabout€14bn.
Althoughthat figureis
relativelysmallcompared
withthehugefiscalconsoli-
dationtakingplaceacross
Europe, forsmallercoun-
triesitissignificant. Ire-
land,whichthismonthcon-
ductedacomplexswapof
debt instruments that it
incurredbailingout its
banks,wasseekingtolower
anannualinterestpayment
of€3.1bnthatwasroughly
equivalenttotheamountof
austeritymeasures it is
implementingeveryyear.
Withtheexceptionof
Greece,whereEuropean
leadersagreedtochannel
profitsfromtheSMPback
toAthens,thegainsfrom
thebondswillbetreated
likeanyothercentralbank
profitandcanbekeptor
sentbacktonationalgov-
ernmentsatthosebanks’
discretion.Thatalsomeans
theprofitscanberetained
bycentralbanksincoun-
triessuchasGermanythat
havefaredbetterthrough
thecrisis.
SonyKapoor,directorof
the think-tankRe-Define,
saidthatalthoughthere
wasamoralcaseforchan-
nellingSMPprofitsbackto
othercrisis-hitcountries,it
wasunlikelytohappenin
anenvironmentinwhich
mosteurozonecountriesare
strugglingtohitbudgetdef-
icittargets.
“Lookat theNether-
lands...Everybillioneuros
of forgoneprofit forthe
Dutchcentralbankandthe
Dutchtreasurywilltrans-
lateintoanadditionalcut
theywillhavetomake
somewhere else,” Mr
Kapoorsaid.“Thatispoliti-
callyverytricky.”
Nobreakdownofwhich
centralbanksweremost
activeinSMPoperationsis
publiclyavailable,butof
thedeclaredECBprofits
theGermanBundesbank
willretainthelargestshare
becauseitrepresentsthe
largestshareoftheECB’s
capitalkey,whichisused
todistributeECBprofits
amongthenationalcentral
banks.
In figures released to
increasethetransparency
ofitsoperationsalongwith
itsannualaccounts, the
ECBalsosaiditearned
€555mlastyearand€654m
in2011onitsGreekbond
holdings.
“It’simportantforthese
figurestobepublishedso
thatpeoplehererealisethe
extentofthesupportthe
ECBhasprovidedtoGreece
during the crisis,” one
Greekbanker,whodeclined
tobeidentified,said.
TheECBandtheeuro-
zone’s17nationalcentral
bankswillholdthebonds
tomaturity.
Additional reporting by
Kerin Hope in Nicosia
By Michael Steen
in Frankfurt
The eurozone’s central
banksmadeasmuchas
€14bnlastyearfromhold-
ingthesovereignbondsof
crisis-hitcountriesracingto
cutpublicspendingtocom-
plywithdeficit-reduction
targets,officialdatasug-
gestedyesterday.
TheEuropeanCentral
Banksaiditearned€1.1bn
ininterestincomefromits
shareofa€208bnportfolio
ofsovereigndebtissuedby
interesttobanksontheir
excessreserves.
Appearancesdomatter:
thebacklashagainstQE2in
autumn 2011 moved
marketsanddampedits
effect.
Noneoftheseconcernsis
new.
TheFednotedfromthe
startthatthesizeofQE3
woulddependonthe“likely
efficacyandcostsofsuch
purchases”.
Butasthebalancesheet
getsbiggertheyseemtobe
becomingmoreacute.
Thiskindofworrydoes
notmeantheFedhaslost
faithinQE3anditisnot
likelytoturnitoffover-
night.
Butitdoessuggestthat
theceiling,themaximum
amountofpurchasesthe
Fedwill do, isgetting
lower.
Thatcallsintodoubtthe
pledgetomakeopen-ended
purchasesuntilthereisa
substantialimprovementin
thelabourmarket.
Thepledgegavemarkets
some insurance against
weaknessintheeconomy:
therumblingaboutQE3
costssendsasignalthatthe
insurancemaynotpayout.
Whenhetestifies,MrBer-
nankewillhavetodecide
whether toamplifythat
signalorcancelit.
QE signals
Bernanke will have
chance to clarify
message when he
testifies on Capitol
Hill, writes
Robin Harding
TheUSFederalReservehas
struggled to send a
consistentmessageabout
monetarypolicyeversince
theendoftherecessionin
2009.
Onemonthitwilllaunch
adrasticnewaction–such
asthethird,open-ended,
$85bnamonthroundof
quantitative easing that
beganinSeptember–and
thenextitwillappearto
fretaboutthedangersof
thatpolicy.
Minutes of theFed’s
latestmeetingshowjust
suchconcerns.
SowhenBenBernanke
testifiesonCapitolHillon
Tuesday,ashedoestwicea
year,marketswillbeeager
togaugehiscommitmentto
QE3.
PartoftheFed’sproblem
isthatitalwayshastotalk
about something and
wheneveritisnotdebating
moreeasingofpolicy, its
messagenaturallyturnsto
talkofwhentotighten.
MrBernankewillproba-
blymakeclearthattheFed
is not worried about
inflation, thinksthatQE3
stillworksatsupporting
theeconomyanddoesnot
thinkthe labourmarket
hasimprovedmuch.
Thecrucialquestionwill
behowhesetsthatoff
againsttherisksofanever
biggerFedbalancesheet.
Accordingtotheminutes,
“many”ofthe19officials
whoattendtherate-setting
Federal Open Market
Committee“expressedsome
concernsabout potential
costsandrisksarisingfrom
furtherassetpurchases”.
Those concerns are
varied.
Oneisfinancialstability.
FedgovernorJeremyStein
noted inaspeechthe
dangerofbankstakingon
moreriskwhenlowinterest
ratessqueezetheirprofits.
“Aprolongedperiodof
lowinterestrates,ofthe
sortweareexperiencing
today,cancreateincentives
for agents to takeon
greaterdurationorcredit
risks, or to employ
additional financial lever-
age,inaneffortto‘reach
foryield’,”hesaid.
Otherconcerns include
difficultiesthatmayarise
whentheFedeventually
hastoselltheassetsitis
buying.
Themoreassetsthereare
onthebalancesheet,the
longeritwilltaketosell
them.
TheFed’sexistingexit
strategyistosellassets
afteritraisesinterestrates.
Butsellingassetsbought
whenrateswerelow,ata
timewhenratesarehigher,
meansthattheFedwillsuf-
ferlosses.
Thathasnoeffectonthe
mechanics ofmonetary
policybutmaybepainfulin
termsofpublicperception,
especiallyastheFedwill
alsohavetopaylotsof
Eurozone deficit
forecasts set to
highlight splits
over austerity
asecondyear-longwaiver
oftherequirement.
MrRehnhasbackingfor
hisshifttowardsstructural
assessmentsfromtheInter-
nationalMonetaryFund,
andlastyeargaveSpain,
GreeceandPortugalmore
timetohittheirtargets,
arguingtheyhadmadesuf-
ficienteconomicreformsto
warrantclemency.
Buthiseffortsareunder
increasingpressure from
theEuropeanCentralBank
andaGerman-ledgroupof
northerneurozone coun-
tries,whoargueanysignof
theEUmovingawayfrom
toughtargetingrisksunder-
miningperceptions it is
tacklingthedebtcrisis.
“Theremightbegood
macroeconomicarguments,
but I thinkitwouldbe
highlydamagingtoour
credibility,” saidHarald
Waiglein,headoftheeco-
nomicpolicydirectorateat
theAustrianfinanceminis-
try.“Weruntheriskof
beingseenaslaxagain.”
Thedebateislikelyto
becomeacute,withFrance
requiredtogetitsdeficit
below3percentbytheend
oftheyear,atargetFrench
primeministerJean-Marc
Ayrault,lastweekacknowl-
edgedwouldbemissed.
Berlin has held its
tongue,preferringtoletMr
Rehnpresenthisanalysis
first.ButJörgAsmussen,
theECBboardmember
responsibleforEUissues,
hasbeenvocal inrecent
days,sayingFranceshould
notbeletoffthehookand
that Paris andBerlin
neededtosetanexample.
Many officials believe
France and Germany’s
floutingofbudgetstrictures
in2004helpedleadtoprofli-
gatespendingbeforethe
currentcrisis.
MrRehnmustdecideif
Parishasdoneenoughto
deserveawaiver.Whenhe
reprievedSpaininNovem-
ber,Germanyanditsallies
backedhim–butMadrid
had spent three years
implementing wrenching
austeritymeasures.
“Wemaygrantanexten-
sionforsomecountrieson
theconditiontheyhave
Brussels report
Targets have taken
on a life of their
own in countries
large and small,
write
Peter Spiegel
and
Hugh Carnegy
From the blogs
Fed and BoE
take different
directions
Thedebateoverwhether
Europe’sausterity-ledcrisis
responseishinderingeco-
nomicgrowthshiftsback
intohighgeartodayas
Brusselspublishesforecasts
expectedtoshowseveral
countries runningbigger
thanexpectedbudgetdefi-
cits–includingFrance.
UnderEUrulesadopted
aspartofthe eurozone
overhaul, theEuropean
Commissionhaswide-rang-
ingpowerstoforcecoun-
triestoquicklybringtheir
deficitsbelow3percentof
economicoutput,apolicy
that frequently requires
steeptax increasesand
budgetcuts.
Butamidadeepening
recessioninpartsof the
currencybloc,OlliRehn,
theEU’seconomicchief,
hasbegunurgingeurozone
leaderstoputlessfocuson
deficittargets.Instead,he
urgedprioritiestoshiftto
whetherhigh-deficitcoun-
trieshavemovedtoliberal-
isetheireconomiessothat
deficitswillgodownonce
economicgrowthreturns.
“Fromthepointofview
ofrationaleconomicpolicy
making,thefocusonstruc-
turalsustainabilityoverthe
mediumtermistheright
approach,”MrRehnsaidin
aninterview.
Despitehisbestefforts,in
recentmonthsdeficittar-
getshavetakenonalifeof
theirownineurozonecoun-
trieslargeandsmall.
Italianofficialsbelieve
gettingbelowthe3percent
thresholdcouldgivePrime
MinisterMarioMonti a
boostinnationalelections.
InSlovakia,financeminis-
tryofficialsfretthatamiss
couldunderminetheyear-
oldgovernment.Portugal’s
financeministersaidhe
believedLisbonshouldget
Themarketswere
impactedthisweekbytwo
verydifferentsetsof
monetarypolicyminutes
fromtheFedandthe
BankofEngland,
writes
Gavyn Davies
.
InthecaseoftheFed,
theworryisthatthe
centralbankisback­
trackingonits
commitmenttomaintain
open­endedQEuntilthe
labourmarkethas
improved“substantially”.
Meanwhile,attheBoE,the
concernisthatmonetary
policymightbetooeasy
inthecontextofa
decliningexchangerate,
andaninflationoutlook
thatwillexceedthetarget
foratleasttwoyears.
Althoughcomingatthe
monetarypolicyproblem
fromdifferentangles,
theseconcernshaveone
thingincommon.Ithas
becomeincreasingly
difficultforboththeFed
andtheBoEto
communicatetheirpolicy
regimeclearlytothe
marketswhentheirpolicy
committeeshavebecome
openlysplitaboutthe
rightstancetopursue.
Thedayswhenalmost
allmembersoftheFOMC
andtheMPCwerebroadly
unitedintheirdesireto
conductfurtherQEare
effectivelyover.
Complicationshavearisen:
stubborninflationinthe
UK,andworriesaboutthe
costsofQEintheUS.
Angry brigade: a protester dressed as Che Guevara at an anti­austerity demonstration in Brussels yesterday
Reuters
Government fiscal deficit forecasts and targets
As % of GDP
Italy
Netherlands
Slovakia
Belgium
France
Spain
8.0
Key
Autumn 2012
forecasts
Targets
6.0
4.9
5.3
4.5
4.6
4.4
4.2
3.5
3.4
3.2
3.0
2.9
3.7
3.0
3.0
3.0
2.9
2.8
2.1
2.9
2.2
1.7
0.5
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
Source: European Commission
donetheannualfiscaleffort
andcommitthemselvesto
structuralmeasures that
willbothhelpfiscalsustain-
abilityandboostgrowth
andjobcreation,”MrRehn
said,decliningtorevealhis
handonFrance.Butmany
seniorEUofficialsbelieve
Parishasyettotakesuch
toughmeasures. “The
jury’sstillout,”saidone.
Frenchofficialsarepush-
ingMrRehntorelyon
improvementstoitsstruc-
turaldeficit–ameasureof
howreformeffortswillhelp
budgetdeficitsover the
medium-term,aftercyclical
downturns and one-off
measuresarestrippedout–
wheretheybelievethey
have made reductions
amountingto2percentage
pointsthisyear.Suchacut,
ifvalidated,wouldmeet
commitmentsmadetothe
EUthrough2013.
“Wedon’twanttodoan
adjustment [thisyear] to
tightenthescrews,sowe
wanttofocusonthestruc-
tural deficit,” saidone
Frenchofficial.
Parishopesitwillbeable
toconvinceMrRehnto
delayitsnominaltargetby
ayear.AsforMrAsmus-
sen’s criticisms: “You
wouldexpectaGermancen-
tralbankertosaythat,”
saidtheofficial.
Additional reporting by
Quentin Peel in Berlin and
Guy Dinmore in Rome
France data hit recovery hopes
Hopesofaeurozone
recoveryweredealtablow
yesterdaybyaveryweak
indicatorofbusinessactivity
intheFrencheconomy,
whichhititslowestin
nearlyfouryears,prompting
fearsthecountryisstuckin
adownwardspiral,
write
Michael Steen in
Frankfurt and Hugh
Carnegy in Paris
.
Thereportmadeanew
dentinPresidentFrançois
Hollande’ssocialist
government,adayafterit
cameunderblistering
attackfromMauriceTaylor,
headofthetyremakerTitan
International,whoattacked
shortworkinghoursin
Franceandthelackof
industrialcompetitiveness.
TheMarkit“flash”
purchasingmanagers’index
datawerereleasedalongside
amuchmorerobustsurvey
ofGermanbusinesses,
whichindicatedthat
Europe’slargesteconomy
waslikelytoreturnto
growthinthefirstquarter.
ForFrance,thecomposite
outputindex,which
measuresservicesand
manufacturing,fellto42.3
inFebruaryfrom42.7in
January,closetoafour­
yearlow.Anyreadingbelow
50indicatescontraction.
For Gideon Rachman’s blog,
Hollande and anti­austerity
rhetoric, go to
www.ft.com/theworld
For the full blog visit
www.ft.com/gavyndavies
In full: www.ft.com/europe
BoE relaxed inflation stance troubles investors
Pricey food off menu in China
By Claire Jones in London
ingtheUK’sswitchtoinfla-
tiontargeting,SirMervyn’s
apparent sanguinityover
higherinflationisremark-
able.Itis,attheveryleast,
matchedbygovernor-desig-
nateMarkCarney.
SimonHayes,UKecon-
omist atBarclays, said:
“WhenI’maskedtosay
whereIthinkinflationwill
beinfiveyears’time,now
I’dsaythatit’smorelikely
tobenearerto2.5percent
than2percent. Inthe
past,Iwould’vesaidthatit
wouldfalltotarget.”
Thisswitchtoafarmore
flexibleapproachtofight-
inginflation,whichallows
centralbankstoprioritise
boosting growth over
stampingoutpricepres-
sures, isnotconfinedto
British shores.Witha
strongrecoverycontinuing
toeludetheadvancedecon-
omies, boththeFederal
ReserveandtheBankof
Japanhaverecentlysig-
nalledtheywilldomore
tosupporttheireconomies.
ButneithertheUSand
Japan,northetopeurozone
economies, suchasGer-
many, have experienced
inflationashighastheUK
inrecentyears.TheBank’s
relaxedattitudetofighting
inflationisbeginningto
concerninvestors.
Therenewedprospectof
morequantitativeeasing
causedthepoundtodive.
Morefallsinsterlingare
expected,whichwillpush
inflationhigherasthecost
ofimportsrises.“TheBank
ofEnglandseemshappy
withthegrowthconse-
quencesofafallingpound
andnotunhappywiththe
inflationaryconsequences,”
saidDavidBloom,astrate-
gistatHSBC.
Themostcommonmeas-
ureof investors’ inflation
expectations, theso-called
“break-even”ratebetween
yields of conventional
bondsandinflation-linked
debts,hasrisensharply
sincetheturnoftheyear.
The10-yearbreak-evenrate
fortheUKis3.23percent,
against2.54percentforthe
USand1.83percentfor
Germany,thoughBritain’s
figureisskewedasinfla-
tion-linkedbondsreference
the traditionallyhigher
retailpriceindexandnot
theconsumerpriceindex.
SamHill, UK fixed
incomestrategistatRBC
CapitalMarkets,said:“Eve-
rythingwe’veseenfromthe
BoEinrecentweekssug-
geststhepriceofinflation
insuranceshouldrise...If
youlookattheMPC’sinfla-
tionforecasts,thenyoucan
seethereisscopeforarise
inbreak-evenrates.”
Butinvestors’worriesare
notmatchedbytheperson
inthestreet.Thosesur-
veyedfortheBoE’squar-
terlypollofhouseholds’
priceexpectationscontinue
tothinkthatinflationwill
bearound3percentinfive
years’time.Well-anchored
householdinflationexpecta-
tions,plushighunemploy-
mentandlowerratesof
unionmembership,makea
wage-pricespiralunlikely.
MichaelSaunders,econo-
mistatCiti,said:“Ifrail
faresaregoingtoincrease
because thegovernment
subsidyfortherailnetwork
isfalling,thenthat’snoth-
ingtodowiththesortof
supplyanddemandfactors
thatmonetarypolicycan
control.”
Additional reporting by
Alice Ross and Robin
Wigglesworth
By Patti Waldmeir
in Shanghai
newyearbanquetingsea-
son.
“Allthefive-starhotels
havebeenhit,”saidone
Shanghaihotelier,whonor-
mallydoesbrisknewyear
business.“Ourgovernment
businesswasalmostcan-
celledtotally.Theydidnot
reducethepriceoftheir
banquets, theyjustcan-
celledthemoutright,”she
said,notingthatgovern-
mentofficials“areafraidto
beseenatlocationslinked
withluxury”.
Theministrysaidsalesof
luxurydishesalsodeclined,
withproductssuchasbird’s
nestsoupandabalonefall-
ing40percent,andshark
findownmorethan70per
cent.Luxuryfoodgiftboxes
–apopularpurchaseduring
newyear,whenmanycom-
panieshandoutlargesseto
officialsandthemedia–fell
45percent,accordingtoa
ministrysurveyreleased
thisweek.Pricesofluxury
Chinesealcoholicdrinks
such as Maotai and
Wuliangyefellabout30per
cent,theministrysaid.
Westernbusinesspeople
saidtherehadbeenasteep
decline inrequests from
government departments
andstate-ownedenterprises
forthemto“donate”expen-
siveproductstoserveas
giveaways at year-end
events.Onewesternexecu-
tivebemoanedthefactthat
“wecan’tevenfindanyone
totaketolunchthisyear”.
Multinationals, likeother
companiesinChina,often
spendheavilyonwining
anddininggovernmentoffi-
cialsaroundtheholidays.
Ordinary dinersmore
thanmadeupfortheabste-
miousnessofgovernment
andstate-ownedenterprises
with overall restaurant
spendingupstrongly.The
ministrysaidsalesinres-
taurantssurveyedinbig
citiesrose5to18percent.
Additional reporting by
Yan Zhang in Shanghai
Among the traditionally
conservativecentralbank-
ersofLondon’sThreadnee-
dleStreet,arevolutionis
happening.
Forthefirsttimesince
gaining independence in
1997,theBankofEngland’s
policymakers admitted
thismonththat inflation
islikelytosticktoaboveits
2percenttargetforthe
nexttwoyears.Ifthenew
forecastsarecorrect,infla-
tionwill exceed the
targetforalmostthewhole
periodbetween2008and
2015.What’smore,theMon-
etaryPolicyCommitteesaid
ithadnointentionoftrying
totightenmonetarypolicy
tomeet the target.On
Wednesday,itemergedSir
MervynKing,outgoinggov-
ernor,hadjoinedtheranks
oftheBoE’stopbrasscall-
ingformoregovernment
bondbuying.Fromtheman
creditedwithmastermind-
China’sgovernment offi-
cialsandstate-ownedcom-
panyheadscutbackspend-
ingonlunarnewyear
meals,drinksandgiftsin
responsetoBeijing’sfrugal-
itycampaign,accordingto
theministryofcommerce.
Expensive restaurants
andluxurybrandsreported
asharpfallinsalesasoffi-
cials obeyed orders to
reduce conspicuous con-
sumption,whichBeijing
believes inflames resent-
mentagainstthegovern-
ment.
Xinhua, thestatenews
agency,reportedthatthe
revenueofupmarketres-
taurants–wheremealscan
costfromRmb300($48)to
thousandsofrenminbiper
person–dropped35per
centinBeijing,20percent
inShanghaiand30percent
intheeasternportcityof
Ningboduringthepeak
‘If you look at the
MPC’s inflation
forecasts . . . there
is scope for a rise
in break­even rates’
Martin Wolf, Page 9
   4
★
FINANCIAL TIMES
FRIDAYFEBRUARY222013
WORLD NEWS
Monti
outburst
hits hopes
for pact
Disaffected Italians risk voting for more instability
GLOBAL INSIGHT
initslongestpeacetime
recession,thelevelof
publicangerisarguably
nowgreaterthanever,
withthenextparliament
likelytobehighly
fragmented,makingfor
unstablegovernment.
Discontentdrivenbythe
perceptionofanelitethat
hasimmuniseditselffrom
theausterityborneacross
thenation,coupledwith
freshscandalsexposingthe
corruptnexusofpolitics
andbusiness,meansall
theold-guardparties–
acrossthepolitical
spectrum–arelikelyto
pollfewervotesthanat
thelastelectionsin2008.
MorganStanley,the
financialservicesgroup,
callstheelectionsa
“crucialriskevent”.In
broadertermsitcouldlead
tothemostimportanttest
oftheEuropeanCentral
Bank’sresolvesinceits
president,MarioDraghi,
saidlastJulyhewoulddo
“whateverittakes”tosave
theeurothroughanas-yet-
untestedbond-buying
programme.
Debtmarkets,which
havesustainedyieldson
Italy’s10-yearbondsat
closetotheirlowestlevels
intwoyears,arebetting
thatspecificcountryrisk
willcontinuetobe
suppressedbythepromise
ofECBinterventionif
needed.NicholasSpiro,a
London-basedsovereign
debtanalystscoutingout
officialsinRomethis
week,seestheelectionas
a“glaringexampleof
disconnectbetweenmarket
sentimentandcountry
fundamentals”.
Grossdomesticproduct
fellforasixthconsecutive
quarterinthelastmonths
of2012,postingaworse
thanexpectedcontraction
of0.9percentandtaking
outputbacktolevelslast
seenmorethanadecade
ago.Importshavesunk.
Industrialproductionis
some25percentbelow
whereitwasin2009.But
unlikeSpain,therewasno
internaldevaluation,with
Italy’sunitlabourcosts
actuallyrising.
In2011investors
misjudgedthepolitical
resolveofEuropeanleaders
tofixthesovereigndebt
crisis.Thistimetheymay
tocontinuethereform
processputinplacebyMr
Monti’stechnocrats,andto
argueinBrusselsformore
growth-orientedpolicies
andapossiblerelaxationof
fiscaldeficittargets.
However,theworst-case
scenarioemergingfrom
theseelectionsisacentre-
leftcoalitionledbyPier
LuigiBersani’sDemocrats
unabletoreachamajority
intheSenateevenif
supportedbyMrMonti’s
smallgroupofreform-
mindedcentrists.
Pollsindicatethecentre-
leftwilltakethelower
house,whereamajority
premiumisguaranteedfor
thelargestpartyor
coalition.Butitisa
differentstoryinthe
Senate,wherethepremium
isawardedonaregional
basis.Asurgebytheanti-
partyandeuroscepticFive
StarMovementanda
comebackbyMr
Berlusconi’scentre-right
coalitionpromisingtax
cutscouldleadtoahung
parliament–dependingon
theoutcomeinfourbig
regionswheretheresultis
tooclosetocall.
Theleftwardtiltofthe
DemocratsunderMr
Bersani,apragmatic
formercommunistwhois
jugglingopposingforces
withinhiscoalition,is
likelytoleadtofraught
negotiationsoverforming
agovernmentthatwould
includeMrMonti.
ButitisMrMonti’s
credibilityonthe
internationalscenethatMr
BersanineedsifItalyisto
endtheausterityeraand
movetowardsthebolder,
tax-cuttinggrowthagenda
thatbothmenespouseto
varyingdegrees.
Italyhasalongrecordof
weakandfragmented
coalitiongovernments,
withmorethan60
administrationssince1945.
Historyrisksrepeating
itself.InvestorsandEurope
areonnotice.
Guy Dinmore
in Rome
Stable government
will be needed to
continue the reform
process put in
place by Mr Monti
After15monthsinwhich
directdemocracywasin
effectsuspendedinItalyby
theappointmentofMario
Montiasanunelected
primeminister,the
countrygoestothepolls
onSundayandMondayto
choosehissuccessor.
Theoutcomeisthemost
unpredictablesinceSilvio
Berlusconiappearancein
1994afterthecollapseof
thepostwarorderamidthe
chaosofthe
tangentopoli
–
“bribesville”–scandals.
Snowstormsinpartsof
Italyareaddingtothe
senseofuncertainty.
Withthecountrystuck
Italy’s PM lashes
out at centre­left
Election results due
on Monday night
ityprogrammeagreedwith
Brussels–appearstobe
maintainingaslimlead
overformerprimeminister
SilvioBerlusconi’scentre-
rightalliance.
The anti-establishment
FiveStarMovementheaded
byBeppeGrillo, Italy’s
mostpopularblogger, is
seenrisingstronglyinthird
place.MrMonti’sCivic
Choiceistrailinginfourth.
Ifthepollsareaccurate–
andpollsterswarnthatsup-
portforMrBerlusconiand
MrGrillocouldbeunderes-
timated–thenunderItaly’s
complexelectoral system
thecentre-leftwouldhavea
majorityinthelowerhouse
butpossiblynotintheSen-
ate,unlessitcanreacha
power-sharingdealwithMr
Monti.
MrMontihastackedback
andforthduringanincreas-
inglyaggressivecampaign.
Thisweekhesaidhehad
“nothingincommon”with
thecentre-left, thoughhe
previouslyleftopenthe
doortotalksonadoptinga
beunderestimatingthe
risksposedbyItaly’s
fundamentals,whichcould
stillleadtoarestructuring
insomeformofthe
country’s€2tnofpublic
debt,at126percentof
GDPthehighestinthe
eurozoneafterGreece.
Strong,stable
governmentwillbeneeded
By Giulia Segreti and Guy
Dinmore in Rome
MarioMonti tookhis
increasinglyaggressivebut
falteringelectioncampaign
toanewlevellastnight,
branding his centre-left
opponentsas communist
“reincarnations”.
Hisattackcastsfurther
doubtonwhetherthetwo
sidescouldbridgetheirdif-
ferencesandformastable
coalitiongovernment.
Numerous banks and
marketanalystsyesterday
issuednotes expressing
theirviewthatafuturecoa-
litionbetweenMrMonti’s
centristsandthecentre-left
Democratswasthebestpos-
sibleresultforacontinua-
tionofreformsinitiatedby
thetechnocratprimeminis-
teroverthepastyear.
Butthatprospectseems
inseriousdoubtafterMr
Montiraisedthestakesin
hisattempttorevivehis
flaggingcampaign,tellinga
televisioninterviewerthat
boththeDemocratsandthe
alliedLeft,Ecologyand
Freedompartyheadedby
NichiVendola“seemrein-
carnationsofthecommu-
nistpartywhichdidnot
allowProditogovern.”
Italy’slastcentre-leftgov-
ernmentwasafractious,
coalitionledbyRomano
Prodiwhichcollapsedin
2008after lessthantwo
yearsinoffice–aparallel
manycommentators are
drawingwithapossible
Democrat-ledcoalition.
EarlierMrVendoladis-
missedthechancesofform-
ingacoalitionthatwould
includeMrMonti.
“Itisnotpossibletoput
theagendastogether,”he
toldforeignreporters.He
suggestedinsteadthata
centre-leftgovernment, if
elected,wouldtrytowin
parliamentarysupport for
itsprogrammepointby
point.“Wewillneverbe
withthosewhowant to
inflictblowstothedignity
oflabour,”hesaid,refer-
ringtoMrMonti.
Deeppolicyandideologi-
caldifferencesbetweenMr
MontiandMrVendolawill
make for verydifficult
negotiationsoncoalition
building,whichPierLuigi
Bersani,leaderoftheDem-
ocrats,haspromisedtoini-
tiatewhetherornothis
centre-leftcoalitionwinsan
outrightmajority.
Resultsareexpectedon
Mondaynightafter two
daysofvoting.Recentopin-
ionpolls leakedtothe
media,despiteapre-elec-
tionblackout,pointtoa
closefinish.
MrBersani’s coalition
withMrVendola–thegov-
ernor of the southern
Pugliaregionandafierce
criticofMrMonti’sauster-
Bank’s downfall opens
old Dutch wounds
Under fire
apart during thecrisis.
LossesfromABNAmro’s
tradingbook,whichstayed
with RBS after the
demerger,wereblamedby
theBritishfinancialwatch-
dog for theUKbank’s
failurein2009.Oneperson
involved in thebailout
jokedthattheDutchgov-
ernment should “give
[formerRBShead]Fred
Goodwinamedal”forsav-
ingDutchtaxpayersfurther
billionsinbailoutcosts.
Italianslastmonthmut-
tered theDutchbank’s
nameinconnectionwith
mountingtroublesatMonte
deiPaschidiSiena,which
overpaidin2008toacquire
an Italianbank,Anton
Veneta, thathadbeenin
ABNAmro’shandsfortwo
years.Whileechoesofthe
Dutchbankingcrisiscon-
tinuetobeheardabroad,
SNSReaalcrisisshowsnot
enoughhaschanged.
Thenationalisationwas
necessaryinpartbecause
thecentralbankhadfailed
toforceSNSReaal’shold-
ingcompanytoeliminate
afinancialtechniquecalled
“double leverage”,which
madeitimpossibletosolve
thebank’sdebtproblemby
sellinghealthyassetsfrom
thegroup’sinsurancearm.
“Thenewregimeatthe
centralbankhasnotbeen
sufficiently alert,” says
ProfvanWijnbergen.“They
havehadafullyear-and-a-
half toprepare for this
moment,butintheendit’s
clearthattheyleftlotsof
looseendsandactedtoo
late.”
Thecrisishasalsoput
aspotlightonthetight-
knitnetworksofcorporate
boards that characterise
Dutchbusinessculture.Mr
vanKeulen,whoaswellas
resigninghisjobattheHFC
steppeddownfromsimulta-
neous positions on the
boardofapensionfundand
asafrontmanforgovern-
mentpolicyforthefinan-
cialsector,isseenasper-
sonifyingsuchinsularity.
“It’sagovernanceprob-
lem,”saysMarcoGroot,
formerheadofequitiesat
Rabobank.
“There isasmall in-
crowdthatperhapshastoo
narrowavisionof the
world.Ifyouonlywantto
workwithDutchpeople,
youhaveasmallpoolof
peopletofishin.”
AsDutchbanksreduce
theirglobalambitions,the
problemofinsularitymay
onlybecomemoreacute.
“Weareseeingthedown-
siderisksofourfamous
poldermodel,”saysMrvan
Wijnbergen, referring to
thewidelyadmiredDutch
socialmodelofbringing
togetherbusiness,workers
andotherstakeholdersto
agreeoncommonpolicies.
“Itisamodelofconflict
resolutionwhereyoudon’t
wanttooffendanyonetoo
much.Butinbankingyou
havetooffendsomestake-
holdersagreatdealifyou
want toexerciseproper
supervision.”
Nationalisation
Financial system
insularity is being
blamed for the
crisis at SNS Reaal,
say
Matt Steinglass
and
Alex Barker
‘We will never be
with those who
want to inflict blows
on the dignity of
labour’
AttheNetherlands’highest
civilcourt, lawyersclam-
ouredtoblockthegovern-
ment’smovetowipeout
stakesofshareholdersand
bondholderswhenitnation-
alisedlenderSNSReaalthis
month.
Investorsatthehearing
denouncedJeroenDijssel-
bloem,financeminister,for
exceedinghisauthority;one
wentsofarastoaccuse
himoffraud.Thecollapse
ofSNSReaal,thecountry’s
fourth-largestbankwitha
balancesheetof€82bn,has
rekindledinvestorandpub-
licfuryatbankerswhose
failedbidtoturnthecoun-
tryintoaglobalfinancial
servicespowerhaslefttax-
payersfootingthebill.
Theformerdirectorofthe
propertyfinanceunitthat
broughtdownSNSReaal
hasbeenarrestedonsuspi-
cionoffraud.TheDutch
centralbankhasbeencriti-
cisedforapprovingSNS
Reaal’sacquisitionof a
propertybusinessin2006–
despiteworriesthatitsbal-
ancesheetwastoobigfor
thebanktohandle–and
forfailingtostepinsooner
toshutitdown.
SjoerdvanKeulen, the
formerSNSReaal chief
whomadethepurchase,
hasresignedasheadofthe
HollandFinanceCentre,a
bankinglobbygroup.Mr
Dijsselbloemaccusedhimof
personifyingthe“entwine-
mentofinterests”plaguing
theDutchfinancialsector.
Formanyoutside the
country,thenationalisation
isareminderofthe2008
collapseofABNAmro,
a former giant, which
requiredmorethan€17bn
fromthegovernmentwhen
itsshortlivedtakeoverby
Santander,FortisandRoyal
Bankof Scotlandcame
commonreformistplatform
whilestill attackingMr
Vendola and leftwing
unions.
Analystscautionedthat
bothpoliticianscouldbe
engagedinpre-votegrand-
standing.MrVendola is
fightingoff achallenge
fromanothersmall left-
winggroupledbyAntonio
Ingroia,aformeranti-Mafia
magistrate,whileMrMonti
needstoprovehisanti-left
credentials towinvotes
awayfromMrBerlusconi.
MrBersanimeanwhile
rulesoutditchinghisleftist
ally.Bothareformercom-
munistsandstrongCatho-
lics.
AlthoughMrVendola’s
partywas onlypolling
around3to4percenttwo
weeksago,hecommands
supportwithinthe frac-
turedDemocraticparty,as
wellasthemainleftwing
tradeunionfederation.
“Bersaniwill have to
demonstrateallhismagical
capabilitytobuildanagree-
ment anda coalition,”
EnricoLetta,deputyleader
oftheDemocrats,toldthe
FinancialTimes.
Anotherseniorpartyoffi-
cialsuggestedthatMrVen-
dolacouldbepersuadedto
drophisoppositiontoMr
Montiwithpromisesof
suchmeasures as civil
rightsforgaypeople,cuts
inspendingonF-35fighter
jets, andcitizenship for
children of immigrants
borninItaly.
‘There is a small in­
crowd that perhaps
has too narrow a
vision of the world’
Marco Groot, former head
of equities at Rabobank
thesectorhasyettoemerge
fromitsfirstpost-crisisbail-
out–thelargest,asaper-
centageofitsbankingsec-
tor,ofanysubstantialecon-
omyinEuropebesidesIre-
landandGreece.Twoofthe
country’sfourbigbanksare
nowinstatehandsandthe
largest,ING,isstillpaying
off€10bninstateaid.
“TheDutchbankingsec-
torwashighlyleveraged,
notwell supervised, and
dealtinallsortsofshady
dealsalloverEuropeand
intheUS,”saysEwald
Engelen, aprofessor of
financialgeographyatthe
UniversityofAmsterdam.
The2011accessionofrela-
tiveoutsiderKlaasKnotas
centralbankpresidentwas
advertisedasacultureshift
awayfromtheoldcosygov-
ernment-bankrelationship.
ButSwedervanWijnber-
gen,afinanceprofessorin
Amsterdamandaclose
advisertopreviousDutch
governments,believesthe
Sjoerd van Keulen, former SNS Reaal chief, above, Jeroen Dijsselbloem, finance minister,
below right, and central bank president Klaas Knot, below left, have been criticised
ANP,AFP
€95bn
Total Dutch aid to its
financial sector
4.3%
Dutch aid to its banks as
a proportion of the size
of the sector
€98bn
Spanish aid to its banks,
amounting to 2.9% of the
sector
Source: European Commission
Naples’ rubbish­clearing
mayor leans to the left:
www.ft.com/italy
Beijing sticks to tough line on ties with Vatican
French bosses admit Titan
attack reflects perceptions
By Leslie Hook in Beijing
persecuting thechurch,”
saysJosephKung,who
headsaUS-basedfounda-
tionthatprovidessupport
and training tounder-
groundCatholicpriestsin
China.“Thingsaregetting
verydifficult.”
Hepointstothefateof
BishopThaddeusMaDaqin,
whowasputunderhouse
arrestandstrippedofhis
titlebyChineseauthorities
afterhepubliclyresigned
fromtheChineseCatholic
PatrioticAssociationlast
year.“WhoistheChinese
governmenttotakeawaya
bishop’s title?Only the
Popecandothat,”saysMr
Kung.
ThesituationinChina–a
focusofCatholicevange-
lismforcenturies–willbe
akeychallengeforthenew
pope,afterBenedictXVI
stepsdown.Somemembers
oftheChurchhopehissuc-
cessorwillturnoverafresh
leafwithChinathrough
renewedengagement,high-
level invitations anda
resumptionoftheinformal
dialoguebetweenthetwo
sidesthatwascutoffby
Beijingin2010.
ButonMonday,China
signalleditwouldmaintain
itstoughapproachtoVati-
canrelations.Beijing is
willingtoengagewiththe
VaticanonlyiftheHolySee
“seversdiplomatictieswith
Taiwan”and“refrainsfrom
interferinginChina’sinter-
nalaffairs”,saidHongLei
oftheforeignministry.
China’sCommunistparty
isofficiallyatheist,butthe
governmenthasbeentight-
ening its control over
organisedreligions.
TheChinese Patriotic
CatholicAssociationinsists
thatit,nottheVatican,has
theauthority toordain
bishopsinChina.
ThreeChinesebishops
havealreadybeenexcom-
municated as part of
thewideningdisagreement.
PopeBenedictstartedhis
tenureeightyearsagowith
akeendesiretoturnthings
around.In2007,heissued
anunusualopenletterto
theCatholicChurch in
China,calledfordialogue
withtheChineseauthori-
ties,andsuggestedtheVati-
canwouldbewillingtonor-
malisediplomaticrelations
withBeijing.Boostedbyhis
support, informal talks
betweentheVaticanand
Beijingappearedtobemak-
ingstrongprogress.
Todaythesituationis
starkly different. Those
talksgroundtoahaltin
2010,andallinformalcom-
municationswithVatican
representativeshavebeen
shutdown.Policeandlocal
authoritieshavecracked
downhardontheunder-
ground“housechurches”
thatareoutsidethestate-
sanctionedchurchsystem,
andat least10Catholic
priestsareinjailbecauseof
theirbeliefs.
“FortheCatholichouse
churchesithasbeenvery
hard,becausetheauthori-
tiesviewthemasbeing
influenced by ‘outside
forces’,”saysaChineselaw-
yerwhoworksonreligious
freedomcases.
Oneresultisthatthesize
ofChina’sCatholicpopula-
tionisstagnantataround
12m,accordingtoestimates
from the Holy Spirit
StudyCentre,aCatholic
researchinstituteinHong
Kong,evenwhileCatholic
congregationsarebooming
intherestoftheworld.
Asthesunstreamsthrough
thestainedglasswindows
ofStJoseph’sCathedralin
centralBeijing,membersof
thekneelingcongregation
prayfortheircountry,each
otherandforthePope.
Butthesedailyprayers
maskadeepriftbetween
theVaticanandtheChi-
nesegovernment.Thetwo
sidesdonothaveformal
diplomaticrelationsandare
increasinglyatoddsover
bishopappointmentsinthe
official ChineseCatholic
Church,whichisrunbya
governmentbody.
Catholics inChinaare
alsocomingundergrowing
pressurefromstateauthori-
ties,whichhave raided
unlicensedchurchesand
imprisoned clergy. The
numberofpriestsinChina
hasbeenfalling,andlast
yeartwoseminarieshadto
shutdown.
“TheChinesegovernment
hasbecomemorebelliger-
entinselectingbishopsand
By James Boxell and
Scheherazade Daneshkhu
in Paris
hearloudandclearsomeof
thosealarmbellscoming
frominvestorsinFrance.
“Ratherthandismissing
themweshouldtryto
addresslegitimateremarks
aboutourperceivednon-
competitiveness.”
StéphaneRichard, chief
executiveofFranceTele-
com, told theFinancial
TimestheSocialistgovern-
mentofPresidentFrançois
Hollandehadtakensensible
firststepstoimprovecom-
petitiveness and labour
marketflexibility.Buthe
saidthiswasoftendrowned
outbyattacksonbusiness
byFrenchministers,which
includethreatsbyoutspo-
ken industry minister
ArnaudMontebourg to
nationaliseanArcelorMittal
steelplantaswellascriti-
cismofPeugeotovercut-
tingFrenchjobs.
“Unfortunatelythereality
isalittlebitupsetbysome
ofthepoliticalwords,”Mr
Richardsaid.“Maybeitwas
usefulinthepoliticalcli-
mateinFrancebutthefact
isthattheimpactabroad
canbenegative,clearly.”
TheFrenchgovernment
hadbeenseekingtoplay
downMrTaylor’s letter
whichrepliedtoarequest,
fromMrMontebourgthat
heinvest inaGoodyear
plantinnorthernFrance.
Butwhile the
grand
patrons
ridiculedMrTay-
lor’sclaimsaboutFrench
employees onlyworking
“three-hourdays”,Mrde
Castriessaidtheattack
showedFrancewas“paying
theprice”forgivingthe
impressionthatitwasnot
“businessfriendly”.
OneFrenchchiefexecu-
tive,whowantedtoremain
anonymous,said:“Wehave
torebuildoureconomiccul-
tureinthiscountry, I’m
sorrybutwe’vejustlostit.”
Thebossesofseveralof
France’sbiggestcompanies
haveweighedintothecon-
troversyovercommentsby
aUSbusinessmanthatit
wouldbe“stupid”toinvest
there, saying that the
attacksprangfrom“legiti-
mate”fearsaboutthecoun-
try’s lowcompetitiveness
andhostilitytobusiness.
HenrideCastries,chief
executiveofAxainsurance,
saidalettertotheindustry
ministerfromMauriceTay-
lor, headof tyremaker
TitanInternational,berat-
ingFrenchlabourpractices
was“unfortunatelyareflec-
tionoftheperceptionof
Franceabroad”.
AndJean-PascalTricoire,
chiefexecutiveofSchneider
Electric, theengineering
group, said: “Weshould
Mass is celebrated at a
Catholic church in Beijing
Interactive graphic
www.ft.com/catholic
   FINANCIAL TIMES
FRIDAYFEBRUARY222013
★
5
WORLD NEWS
Explosions rock Indian city
Israel grants
Golan Heights
licence to US
energy group
At least 12 killed in
Hyderabad blasts
New Delhi alerted
to possible attack
Nagar,acongestedcommer-
cialareainthecity.The
bombsexplodedabout7pm
yesterday–eveningshop-
pingrushhour–ensuring
maximumdamage.
India’sCongress-ledgov-
ernmentsaiditwasrushing
intelligenceteamstothe
scenetoinvestigate.How-
ever,policewerestruggling
toclear thearea, asa
paradeoflocalpoliticians
arrived,followedbycrowds
oftheirsupporters,protest-
ersandthemedia.
Hyderabadisahubof
India’sinformationtechnol-
ogyindustry,withhuge,
ultra-modernoffice com-
plexeshousingthe local
operationsofsuchmultina-
tionalcompaniesasMicro-
softandGoogle.
Theareatargetedbythe
bombersisacrowdedwork-
ing-classdistrictwherepeo-
plebuyvegetablesontheir
wayhomefromwork.
Inthewakeofthebomb,
PrimeMinisterManmohan
Singhcalledforrestraint.“I
appeal tothepublic to
remaincalmandmaintain
peace,”hesaid.“Thisisa
dastardlyattack,theguilty
willnotgounpunished.”
India’shomeminister,
SushilKumarShinde,said
NewDelhihadindications
ofapossibleterrorattack
twodaysago,butnocon-
creteinformation.Hesaid
thedeathtollcouldrise.
Theblastscomes two
weeksafterIndiasecretly
executedAfzalGuru, a
Kashmirimanconvictedof
providinglogisticalsupport
toaplanned2001attackon
theIndianparliament.
Theexecutionprovoked
anoutcryacrossKashmir,
wheremanybelievedthat
MrGuruhadbeendenieda
fairtrialanddeniedhis
legalrighttomakeafinal
appealagainsthishanging.
India’sNational Investi-
gationAgencyhadwarned
citiesacrossthecountryof
thepotentialforretaliatory
attacksinthewakeofthe
execution.
Hyderabad,capitalofthe
stateofAndhraPradesh,
hasahistoryoflargebomb
explosions. InMay2007,
bombsrockedtheMecca
Masjidmosqueintheold
city.InAugustthatyear,
twobombsexplodedalmost
simultaneously–oneinan
amusementpark,another
inapopularrestaurant.
Hyderabadhasalsoseen
violentunrest inrecent
yearslinkedtotheTelan-
ganamovement,aregional
campaigninsupportofa
breakawaystate.Asadudin
Owaisi,aparliamentmem-
berfromthecityrepresent-
ingamainlyMuslimpoliti-
cal party, appealed for
calm,andurgedcitizensnot
todrawconclusionsbefore
an investigationof the
explosions. “This is an
attackonourcountry,”he
toldIndianTV.
KiranKumarReddy,the
chiefministerofAndhra
Pradesh, saidthebombs
appearedintendedtostoke
communaltensionsinthe
city.Theareawherethe
bombsexplodedismainly
inhabitedbyruralmigrants
fromotherpartsofthestate.
By Amy Kazmin
in New Delhi
By John Reed in Jerusalem
India’smajorcitieswereon
highalertaftertwobombs
exploded inthehistoric
southerncityofHyderabad,
killingat least12people
andinjuring57others.
Thepowerfultwinblasts
tookplacewithinminutes
ofeachother,andafew
metresapart, inDilsukh
ofcentralIsrael,andajoint
venturewithTotaltopro-
duceshaleoilinColorado.
Apersonclosetothe
processwhoaskednottobe
namedsaidthatthecom-
panyhadsubmitted its
applicationinAugustlast
year.Thesecondcompany
appliedlater.Geniewonthe
bidbasedongeological,pro-
fessionalandothercriteria,
thepersonsaid.
Detailsofitsbidarenot
publiclyavailable.
MrObamaisduetovisit
Israel, theoccupiedWest
BankandJordaninlate
March,atatimewhenBen-
jaminNetanyahu’sgovern-
mentisundergrowingdip-
lomaticpressureover its
expansionofsettlementson
occupiedPalestinianland.
Recentnaturalgasfinds
offIsraelintheMediterra-
neanhavepromised to
transformtheJewishstate
intoasignificantenergy
powerinitsregion.
TheTamarnaturalgas-
field,whichisduetobegin
producinginthesecond
quarterofthisyear,isexp-
ectedtocontributeaper-
centagepoint toIsrael’s
projected 3.8 per cent
growthingrossdomestic
productthisyear.
Israel’s offshore gas
reserveisoneofthelargest
ofitskindintheworldand
itspotential outputwill
greatly exceeddomestic
needs,makingIsrael an
energyexporter.Thecom-
panies exploitingTamar
andthelargerLeviathan
field,NobleEnergyand
DelekEnergy,haverecently
contactedpotentialcustom-
ersinTurkeyandJordan.
Additional reporting by
Vita Bekker
IsraelhasgrantedaUS
company a licence to
exploreforoilandgasin
theoccupiedGolanHeights
inamovelikelytostirdip-
lomaticcontroversybefore
nextmonth’svisittothe
regionbyPresidentBarack
Obama.
Theenergyministrycon-
firmedyesterdaythatithad
given the exploration
licencetoalocalsubsidiary
ofGenieEnergy,aNew
York-listedcompanywhose
shareholdersincludeJacob
RothschildandRupertMur-
doch.DickCheney, the
formerUSvice-president,is
anadviser.
IsraelseizedtheGolan
HeightsfromSyriainthe
Sixdaywarin1967butits
occupationoftheterritory
isnot recognisedunder
internationallaw.
Although the territory
hasbeenlargelypeaceful
since1967,asSyria’scivil
warhasintensifiedIsraeli
officials have expressed
concernthatDamascusis
deliberatelyseekingtodraw
Israelintotheconflict.Late
lastyear Israeli soldiers
firedtankshellsacrossthe
borderafterstraymortars
landedintheGolan.
Some analysts have
linkedthetimingof the
licenceawardtothesitua-
tioninSyria.
YaronEzrahi,anIsraeli
politicalanalyst,said:“This
actionismostlypolitical.It
isanattempt todeepen
Israelicommitmenttothe
occupiedGolanHeights.
The timing is directly
relatedtothefactthatthe
Syriangovernmentisdeal-
ingwithviolenceandchaos
andisnotfreetodealwith
thisproblem.”
GenieEnergycompeted
for thedrilling licence
againstanunnamedsecond
companythatGlobes, the
Israelifinancialnewspaper,
identifiedasUltraEquity
Investments.
In accordance with
Israel’spetroleumlaw,the
explorationlicencecovers
justunder400squarekilo-
metres.
“Weappliedforanoiland
gas exploration licence
whichmayentaildrilling,”
theUScompanysaidyes-
terday.“Wereceivednotice
ofthelicenceyesterday.”
Geniealreadyhasanoil
explorationandproduction
licenceintheShfelaregion
Pistorius
detective
dropped
from case
By Andrew England
in Johannesburg
Thedetectiveleadinginves-
tigations intoallegations
OscarPistorius,theSouth
AfricanOlympian,mur-
deredhismodelgirlfriend,
hasbeendroppedfromthe
caseafteritwasrevealed
hefacessevencountsof
attemptedmurder.
RiahPhiyega, national
policecommissioner, said
HiltonBotha,whohas
alreadytestifiedattheath-
lete’sbailhearing,wouldbe
replacedbyLieutenant-Gen-
eralVineshkumarMoonoo.
ThechargesagainstMr
BothaemergedintheSouth
Africamediayesterdayand
relatetoanincidentin2011
whenheandtwoother
police officers allegedly
firedataminibus.
TheNationalProsecuting
Authoritysaidthecharges
hadbeenwithdrawnbut
werethenreinstatedon
February4,10daysbefore
Reeva Steenkamp was
founddeadwithmultiple
gunshotwoundsatMrPis-
torius’shouseinPretoria.
News of the charges
againstMrBothaadded
moredramatoabailhear-
ingatPretoriaMagistrate’s
Courtwhichwillnowgo
intoafourthday.
Theprosecution–backed
byMrBotha’stestimony–
hasargueditisacaseof
premeditatedmurdersay-
ingMr Pistorius shot
Steenkamp three times
earlylastThursdaythrough
alockedtoiletdoor.
Thedefence,whichtore
holesinMrBotha’stesti-
monyonWednesday,say
MrPistoriusaccidentally
shotherafterwakinginthe
nightbelievinganintruder
was inhishomeinan
upscalegatedcompound.
MrPistorius,whomade
historyatlastyear’sOlym-
picsas the firstdouble
amputeetocompeteina
trackeventagainstable-
bodiedathletes,saidinan
affidavithehadnointen-
tiontokillhisgirlfriend
BulewaMakeke,spokes-
womanfortheNPA,said
theallegationsagainstthe
detectivewouldnotaffect
theprosecution’scaseas“it
doesn’trelyonasingle
investigatingofficer”.
Whenaskedwhy the
chargesagainstMrBotha
surfaced yesterday, Ms
Makekesaid:“Weareask-
ingourselves the same
questions...wedon’tknow
howthemediagottoit.”
Moving on: families carry away belongings after Kalenjin set alight the mostly Kikuyu settlement at Mau Summit, near Nakuru, after the last election
Reuters
Philip Stephens, Page 9
Land claims fuel threat of Kenya poll strife
50 km
LEBANON
SYRIA
Gas fields
Tamar
Haifa
Leviathan
poll, landhasonceagain
becomeadivisiveelectoral
issue,exacerbatingethnic
divisions that sometimes
eruptinviolence.
Atstakearecompeting
landclaimsdatingback
morethan50years.Many
Kalenjinallegelandwas
takenfromthembywhite
settlersunderBritishrule
andgivenawayorsoldto
Kikuyunewcomers,under
schemesrunbythecolonial
rulersandthoseof the
newlyindependentcountry.
Landtitlecanbehardto
establish as competing
ancestralclaimssometimes
stretchbackforcenturies.
Deadlystrifeoverlandten-
ureandtitleoccursnotjust
intheRiftValley,–where
manywerepushedofftheir
landafterthelastpolls,but
acrossthecountry.
Landissosensitivethat
theheadsof boththe
NationalCohesionandInte-
gration Commission,
formedafterthepost-elec-
tionviolence,andthepolice
forcethismonthurgedpoli-
ticiansnot tocampaign
overland,buttonoavail.
“Peopleareusing[land]
just towinvotes,”says
MohammedSwazuri,head
ofaNationalLandCommis-
sion,setupunderthe2010
constitutiontorectifypast
abuses. Third-timepresi-
dential challengerRaila
Odingasuggestshisrival,
UhuruKenyatta,sonofthe
nation’sfoundingfather,a
Kikuyu,shoulddonatehis
family’slandtothepoor.
Thelandrunstohalfamil-
lionacres,accordingtothe
KenyaLandAlliance.
MrKenyatta,whohas
describedlandas“therun-
ningsorethathaspoisoned
relationsbetweencommuni-
ties”,sayshewillinstead
ensureslumdwellersand
squatters–atermforthose
whodonotpossessland–
obtaintheirownland.He
hasnotexplainedhowhe
woulddothis.
Detractorsquestionwhet-
heramemberofafamily
thatowesitspowerand
capital topost-independ-
encelandtitlescansolve
Kenya’s land problems.
“There-Africanisationof
the white highlands
increased focus on the
Kikuyu,ethnicisedtheland
questionandcultivatedcon-
ditionsformobilisingeth-
nicityasameansofaccess-
ing land rights,” says
KarutiKanyinga,ofNairobi
University’s institute for
developmentstudies.
Kenya’spresidents–two
KikuyuandaKalenjinina
nationof42ethnicgroups–
havealwaysreliedonland
asarewardforpoliticalloy-
alty,saycampaigners.
Thepersistenceofsuch
divisionsmaytrumpanew
Kikuyu-Kalenjin electoral
platformledbyMrKeny-
atta,who,alongwithhis
Kalenjinrunningmate,Wil-
liamRuto, isindictedfor
crimesagainsthumanity
forhisroleinpost-pollsvio-
lenceattheInternational
CriminalCourt.“Thebig
negativeforUhuruisland,”
saysanadviser toMr
Odinga.
MrKenyatta’smother
was incourt thisweek
defendingherself against
claimsthatherhusband,
thefirstpresident,Jomo
Kenyatta,wasinvolvedin
landgrabs.
AlthoughKenyahaspro-
duced several investiga-
tionsintounfairlandallo-
cation,littlehasbeendone.
“Thereisvirtualchaosin
land administration in
Kenyaatpresent,”says
MichaelAronson,aformer
memberof thecolonial
administrationand later
vice-chairmanoftwosuch
commissionsofinquiry.
Latesteffortshavebeen
delayed, as President
Kibakionlythisweekgazet-
tedMrSwazuriandhis
eightcommissionersdespite
parliamentaryapprovallast
August.“Itisimpunityon
mattersrelatingto land
thatgeneratedthehistori-
calinjusticesthathavecost
ourbelovedcountryso
muchanguishandblood-
shed,” said Charles
Nyachae,headofthecom-
missionfortheimplementa-
tionoftheconstitution.
Anyeffortstoreallocate
landare likely tobe
fraught.MrSwazuri’scom-
missionmayhavetoreas-
sesslandclaimsrelatingto
morethantwo-thirdsofthe
country. It isnot clear
whetherthosewhohaveto
giveuptheirlandwillbe
compensated.
“Idonotthinkthey’llbe
abletotakelandfroma
communityandhand it
overtoanothercommunity:
itwouldputclaimsonland
ineverycornerandvillage
ofthecountry,”saysMr
Kanyinga.
The landproblem, he
says, “maywell ignite
recurrenceofviolence”.
Ethnic divisions
With elections
looming, efforts
to settle ancestral
disputes are
moving slowly, says
Katrina Manson
GOLAN
HEIGHTS
WEST
BANK
Tel Aviv
Jerusalem
Mediterranean
Sea
Dead
Sea
GAZA
Shfela
JORDAN
ISRAEL
EGYPT
The first timeFrancis
Mwangi’sKikuyu family
triedtoburyhimbeneath
the green grasses of
Kenya’sRiftValley, they
wereambushedbyKalenjin
menwhoclaimedtheland
as their own. Fighting
brokeoutandthebodywas
keptinthepolicestation
overnight.Intheendittook
dozensofpolicemenanda
gravefilledwithcementto
secureMrMwangi’sfinal
restingplacelastyearnear
thevillageofBanita.
“Whenwelookbackinto
ourhistorywefindthatall
violence, allpoliticshas
beenbasedonlandand
indeedtheworstviolencein
2007,2008–stillwehave
landissues,”saysHillary
OginafromtheKenyaLand
Allianceofpost-electionvio-
lencefiveyearsagothat
killedmorethan1,100peo-
pleanddisplaced660,000.
AsPresidentMwaiKibaki
preparestostepdownand
Kenya’spoliticiansgearup
fortheMarch4presidential
Syrian car bomb
kills at least 40 as
security weakens
200 km
ETHIOPIA
By Abigail Fielding­Smith
in Beirut
theDemocraticFront for
theLiberationofPalestine
toldtheAssociatedPress
thatMrHawatmehwas
brieflyinhospitalafterthe
explosion.
The nearby Russian
embassywasalsodamaged
intheattack,accordingto
Russianmedia.Thecapital
hasseencarbombsbefore
inthecourseoftheconflict,
but yesterday’s attack
comesafterrebelslaunched
afreshefforttopushin
towardsthecitycentre.
Thoughtheregimehas
struckbackfiercely,pre-
venting a rebel break-
through, ithasnotsuc-
ceededinpacifyingDamas-
cusandthesurrounding
areas.
Thisweekalonehasseen
reportsofmortarslanding
nexttoafootballstadium
andnearapresidential
palace.
Twomoreexplosionstar-
getedtheBarzehneighbour-
hoodyesterday,theobserv-
atorysaid,whiletwomor-
tarsfellnearanarmyhead-
quarters.
Therehasalsobeena
surgeinfightinginthe
southernprovinceofDera
inrecentweeks.Anactivist
intheareatoldReuters
that fightershadseized
checkpointsinaneighbour-
hoodofDeraacity.
Syria’s escalatingcivil
war has alreadykilled
nearly70,000peopleaccord-
ingtotheUN,andfewhold
outhopesforadiplomatic
solutionanytimesoon.
Meanwhile, more than
750,000peoplehavefledto
neighbouringcountriesin
searchofsafety.
Ahugecarbombexploded
neartheDamascusofficeof
Syria’srulingBa’athparty
yesterday, killingmore
than40peopleandunder-
scoringtheerosionofsecu-
rity inside theheavily
guardedcapital.
FurthersouthinDeraa,
the citywhere Syria’s
nearlytwo-year-longupris-
ingstarted,18peoplewere
killedinagovernmentair
strike,accordingtoactiv-
ists.
TheDamascusexplosion
detonatedatacheckpoint
onamainroadintheMaz-
raaarea.Syria’sstatenews
agency showed graphic
images of bodies and
charredcars,someofwhich
werestill inflames,and
thickcolumnsofsmokeris-
ingabovetheroad.
Atleast53peoplewere
killedandmorethan200
peoplewerewounded,the
agencysaid.
The UK-based Syrian
Observatory forHuman
Rights, a pro-opposition
monitoringgroup,putthe
deathtollat42.Bothstate
mediaandtheobservatory
saidalargenumberofthe
casualtieswerecivilians.
Statemediadescribedthe
attackasa“terrorist”sui-
cidebombingandsaidthe
driverofanothercarfilled
withexplosivedeviceswas
apprehendednearthesite
oftheblast.
Oneoftheinjuredwas
Nayef Hawatmeh, the
leaderofaPalestinianfac-
tionbasedinDamascus.An
official fromtheofficeof
RIFT
VALLEY
KENYA
Banita
Nairobi
TANZANIA
INDIAN
OCEAN
Sanctions and financial troubles buffet Iranian airlines
By Najmeh Bozorgmehr
in Tehran
unprecedentedone-dayhalt
indomesticflights.
Aviationofficials com-
plainthatthecentralbank,
whichwashitbyUSsanc-
tionslastyearandfacesdif-
ficulties in transferring
hardcurrency into the
country,hasnotbeencon-
sistentlysupplyingairlines
withUSdollarsatasemi-
subsidisedrate(24,516rials)
–higherthantheofficial
rate,but lowerthanthe
openmarket rate.Asa
result,Iranianairlinesare
runningupdebtswithover-
seasairportsandcompa-
nies.
KambizBabaeiNemati,
themanagingdirectorof
thequasi state-runIran
AsemanAirlines–which
with31aircraftisthecoun-
try’ssecond-biggestairline
–acknowledgedthatair-
linesstruggledwithliquid-
ityproblemsduetoawid-
eninggapbetweentheir
costsandincome.“Oneof
themainreasonsbehind
therisein[airlines’]debtis
theincompatibilityofticket
faresforaone-hourflight
withthecosteverylitreof
fuel...leadingtodecrease
in[thecompanies’]liquidity
and inability to pay
[debts],”MrBabaeitoldthe
FinancialTimes.
However,hesaidhewas
optimisticthatairlinesand
theoilministrywouldbe
abletoworktogetherto
resolvetheproblem.
Inanefforttohelpair-
linesmeettheirincreasing
costs, thegovernmentof
Mahmoud Ahmadi-Nejad
lastNovemberallowedthe
country’s 17airlines to
increaseticketfaresby65
percentfordomesticflights
andalmostdoubleforover-
seasdestinations.
But theincreaseshave
notcoveredtherocketing
fuelandmaintenancecosts,
aviationofficialsinsist.Mr
Babaeisaidhighinflation,
whichisofficially28.7per
centbutbelievedbymany
economiststobefarhigher,
coupledwiththefallofrial
–whichhasdroppedby
about60percentoverthe
past year –havealso
adverselyaffectedpassen-
gernumbers.
“Itisnaturaltohavea
declineinnumberofpas-
sengersforashortperiodof
time,”hesaid,addingthat
“our experience in the
countryshowsitwillgradu-
allycatchup”.However,
aviationindustryanalysts
fearthatthecurrentfinan-
cialcrisis,coupledwiththe
existing sanctions, may
furthererodethealready
poorsafetyrecordofIran’s
airliners.
Iran’scivilaviationindus-
tryhasbeensubject to
sanctionssincethe1990s,
whenWashingtonblocked
Tehranfrombuyingcivil
aircraft, spareparts or
maintenance contracts,
allegedlytopreventitfrom
gainingaccesstotechnol-
ogythatcouldhaveamili-
taryuse.
Thesanctionshavelong
beenopposedbyIranians,
whetherornottheysupport
theregime.“Howcancoun-
tries,whichimposesanc-
tionsoncivilianaircraft,
stillclaimtheycareabout
humanrights?”askedMr
Babaei.
Togetaroundtheprohi-
bition, the country’s
airlinesbuyandrentspare
partsandsecond-handair-
craft throughmiddlemen,
mostlybasedinTurkey,but
alsotheUnitedArabEmir-
ates,Ukraineandcentral
Asianstates.
ButtheageofIran’scivil-
ianairlinersisbelievedto
bethemainreasonwhythe
countryhasoneof the
worstairlinesafetyrecords.
Theaverageageofthefleet
of200aircraftis22years–
whilesomepredatethe1979
Islamicrevolution,accord-
ingtotheStateAviation
Organisation.
Morethan700 Iranian
passengershavebeenkilled
in13aircraftcrashesand
otherincidentssince2005,
accordingtolocalmedia
reports.
MrBabaeisaidtheaver-
ageageofhisfleetof31
aircraftwasonly10years,
despite the sanctions
imposedonthecountry.
Iran’sageingairlinefleet
hasmanagedtostayinthe
airdespitealmost20years
ofUSsanctionsonnewair-
craftandspareparts,but
nowitisstrugglingtostay
airborneas international
sanctionsoverthecoun-
try’snuclearprogramme
crippleitsfinances.
Theoilministry–whose
revenueshavedwindledfol-
lowingEuropeanUnionoil
sanctionsimposedlastyear
–hasraisedthepriceofjet
fuelbythreeandahalf
timesfordomesticflights
andenforcedinternational
marketratesforoverseas
destinations.
Lastmonththeministry
refusedtoprovideairlines
withfueluntiltheypaidoff
outstandingdebtamount-
ingto7tnrials($285m).
Thedisputeledtoan
‘How can countries
which impose
sanctions . . . still
claim to care about
human rights?
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