FINANCIAL TIMESWORLDBUSINESSNEWSPAPERMONDAY25MAY2015UKE2.50Channel.kslands2.80;Republicof IrelandC3.0cHappyfeetWeareGoogledYes toa revolutionequalRathera shoe-shinerthanaWhy lreland's vote for gay marriageOur Faustian bargain withbankerleavesitsChurchdiminishedtechnology-EDWARD LUCE,PAGE9YKELLAWAY,PAGE12DA66Hanergy in bigloandealaheadofsharecrashGreece warns IMF of repaymentdefault unless bailout deal is doneENInterior minister says moneyisn't there to begiven'Pension and wages bill takes priority'Tt'sclearwriting to Christine Lagarde, the IMInake the IMF pavireeces2.9m1marealtraatmanxternancinMEstancaSFGreck officialdatasttOsbornelookstoTreasurystudyofreformed EU as wayto scotch'Brexitof his papers on SBoards behindtargetonwomen directorsAnETSBUSINESSASUNUSUALnlineVarldMIT0EWe Makethne Diference.PEARSON
World Markets STOCK MARKETS May 22 May 15 %Week S&P 500 2126.06 2122.73 0.16 Nasdaq Composite 5089.36 5048.29 0.81 Dow Jones Ind 18232.02 18272.56 -0.22 FTSEurofirst 300 1617.91 1573.09 2.85 Euro Stoxx 50 3679.14 3573.07 2.97 FTSE 100 7031.72 6960.49 1.02 FTSE All-Share 3818.84 3779.96 1.03 CAC 40 5142.89 4993.82 2.99 Xetra Dax 11815.01 11447.03 3.21 Nikkei 20264.41 19570.24 3.55 Hang Seng 27992.83 27286.55 2.59 FTSE All World $ 291.17 291.83 -0.23 CURRENCIES May 22 May 15 $ per € 1.102 1.144 $ per £ 1.550 1.579 £ per € 0.711 0.725 ¥ per $ 121.450 119.300 ¥ per £ 188.277 188.399 € index 85.220 86.206 SFr per € 1.039 1.048 May 22 May 15 € per $ 0.907 0.874 £ per $ 0.645 0.633 € per £ 1.406 1.380 ¥ per € 133.881 136.491 £ index 92.748 91.935 $ index 101.469 99.681 SFr per £ 1.461 1.446 COMMODITIES May 22 May 15 %Week Oil WTI $ 59.94 59.89 0.08 Oil Brent $ 65.54 66.94 -2.09 Gold $ 1204.10 1220.50 -1.34 INTEREST RATES price yield chg US Gov 10 yr 99.26 2.21 0.02 UK Gov 10 yr 99.72 2.03 -0.05 Ger Gov 10 yr 99.03 0.61 -0.03 Jpn Gov 10 yr 99.93 0.41 0.00 US Gov 30 yr 100.38 2.98 -0.01 Ger Gov 2 yr 100.52 -0.24 0.00 price prev chg Fed Funds Eff 0.12 0.11 0.01 US 3m Bills 0.02 0.02 0.00 Euro Libor 3m -0.01 -0.02 0.00 UK 3m 0.57 0.57 0.00 Prices are latest for edition Data provided by Morningstar GEORGE PARKER — POLITICAL EDITOR George Osborne is gearing up for a Treasury study on the economics of British membership of a reformed EU in a re-run of his papers on Scottish independence. Mr Osborne used the Treasury papers on Scotland last year as a base from which to attack the campaign for independence, highlighting risks related to the currencyand higher taxes. The chancellor,who believes the Scottish papers helped secure a No vote, is said by Treasury colleagues to be considering a similar exercise looking at Britain’s relationship with the EU, including the economics of a potential “Brexit”. The move would be contentious. The Scottish National party claimed the Treasury rolein theindependence campaignwas biasedand “completely abandoned long-held principles and rules of civil serviceimpartiality”. It comes as the Bank of England is under fire after inadvertently revealing it was secretly assessing the risks of Brexit, prompting calls for it to explain itsactions to parliament. Downing Street has meanwhile announced that 4m EU citizenslivingin Britain will not be allowed to vote in the referendum, a demand of Nigel Farage, UK Independence party leader. However, Commonwealth and Irish citizens residentin theUKwill be able to participate. David Cameron, prime minister, and Mr Osborne are hoping to secure reforms of the EU and then make the case for Britain to remain a member of the28-nation bloc. Mr Cameron’s allies say themost powerful argument for stayinginwill be economic: that jobs and investment in the UK benefit greatly from being part of a single market of 500m consumers. A Treasury analysis of that relationship, including alternative models if Britain votes to leave, could be an important contribution to the national debate. Supporters of a UK exit will be sceptical of any Treasury assessment that concludes the UK would be better off stayingin theEU. The Treasury said no decisions had been made on what it might do in the course of a referendum campaign. Butit added: “The government is focused on getting the right deal for the UK as part ofa reformedEU. “There should then be an informed debate as that deal is put to the British people.” Downing St spells out rules page 3 Osborne looks to Treasury study of reformed EU as way to scotch ‘Brexit’ © THE FINANCIAL TIMES LTD 2015 No: 38,862 ★ Printed in London, Liverpool, Dublin, Frankfurt, Brussels, Milan, Madrid, New York, Chicago, San Francisco, Washington DC, Tokyo, Hong Kong, Singapore, Seoul, Dubai 9 7 7 0 3 0 7 1 7 6 5 1 7 2 2 Most FTSE 100 boards have fewer than one in four directors who are women, the Professional Boards Forum has found. A governmentcommissioned report in 2011 set a target for FTSE 100 boards to be at least a quarter female by the end of this year. Alison Brittain, above, who becomes head of Whitbread in January, will be only the sixth current female FTSE 100 chief executive. Report i PAGE 15 Boards behind target on women directors Briefing i Battle for Time Warner Cable heats up John Malone, US cable tycoon, is locked in a $48bn battle for Time Warner Cable, the second-largest US cable company, against Franco-Israeli billionaire Patrick Drahi of Altice.— WWW.FT.COM/COMPANIES i Tories opt against easier job dismissals The Conservatives have decided against reviving plans to allow businesses to sack employees at will, with a view to wooing blue-collar workers.— PAGE 2 i Migrants face Libya detention ordeal Thousands of African and Arab migrants who are caught by Libyan boat patrols as they attempt to cross the Mediterranean are ending up crammed into one of 22 detention centres. Corruption and abuse are rife in these Libyan prisons for those who await deportation.— PAGE 5 iOil price fall damages small producers The slide in Brent crude prices as triggered a string of bankruptcies, debt defaults and rescue measures to save companies nearing collapse, with almost two dozen oil and gas groups under stress.— PAGE 15 i Pensions role of forex banks questioned US legislators led by Elizabeth Warren are calling for public hearings on whether banks accused of rigging foreign exchange markets should be allowed to manage retirement accounts.— PAGE 15 i European groups in cash pile conundrum European companies find themselves on the horns of a dilemma: they hold high levels of cash on their balance sheets but remain puzzled about how to put it to better use.— PAGE 17 i EM policy makers set for defensive test The prospect of the first rate rise in nearly a decade by the US Federal Reserve is set to test the defensive strategies policy makers in emerging markets have built throughout the era of ultra-low rates.— PAGE 4 Would you be willing to travel to another EU country to receive medical treatment? Source: Eurobarometer published May 2015 Share of respondents who answered ‘yes’ (%) 0 10 20 30 40 50 60 70 Netherlands Denmark Spain Italy EU UK France Finland Germany Datawatch MONDAY 25 MAY 2015 WORLD BUSINESS NEWSPAPER UK £2.50 Channel Islands £2.80; Republic of Ireland €3.00 Subscribe In print and online www.ft.com/subscribenow Tel: 0800 298 4708 Germans and Finns are the least willing of all EU residents to travel abroad for medical treatment, with just 11% and 17% respectively prepared to leave their own country. Conversely, the Dutch and Danes are the most willing to do so KERIN HOPE — ATHENS Greece has again threatened to default on €1.6bninloan repayments due to the International Monetary Fund in June withouta bailout dealwithits creditors. Athens saidit could not afford tomeet its pension and wages bill that month whilealso reimbursing the IMF. “Themoneywon’t be given . . . Itisn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega. He claimed the EU and IMF were pressing Greece to make unacceptable concessions in the bailout talks in return for unlocking €7.2bn of aid frozen sincelastyear. The warning by Mr Voutsis, one of Prime Minister Alexis Tsipras’s oldest political allies, comes just two weeks afterMrTsiprasmadea similar threatin writing to Christine Lagarde, the IMF managing director. Mr Tsipras said Greece would miss a €750m payment in May. That payment was ultimately met, though only through tapping an emergency account held by the IMF. Athens in effect borrowed IMFassets to repay the fund. Predicting when Athens will run out of cash has proved a fraught affair for eurozone officials, who have been bracing themselves for default sinceMarch. Given the repeated warnings from Greek officials that bankruptcyisimminent, some officials have begun to disregard such threats, believing Athens is using themasa negotiating tactic. Buta seniorGreekofficialwith knowledge of the government’s funding position confirmed that Athens would be unable to make the IMF payments, which fall due in four separate instalments of more than €300m each between June5and June 19. “It’s clear the June payments to the fund can’t be covered without external financing,” the official said. Athens is under pressure to agree to more cuts and reforms to secure the financing. “We won’t accept blackmail that says it’s eitherliquiditywith amemorandum [a bailout programme] or bankruptcy,” MrVoutsis said. The talks have picked up pace in recent days but Chancellor Angela Merkel of Germany warned at last week’s EU summit in Riga that “there is very, veryintensivework to be done”. The government has ruled out a domestic default on payments to Greece’s 2.9m pensioners and 600,000 public sector workers, saying they have first claimonits shrinking resources. Peoplewho have spoken toMrTsipras say he is in a dour mood and willing to acknowledge the serious risk of an accidentin the comingweeks. Oneofficialin contactwithMrTsipras said: “The negotiations are going badly. Germany is playing hard. Even Merkel isn’tasopen to helpingas before.” Athens is particularly worried by the IMF stance and Mr Tsipras has been attempting to convince the US to use its influence on the IMF board to soften the institution’s demands. Additional reporting by Alex Barker inBrussels Wolfgang Münchau page 9 Greece warnsIMF of repayment default unless bailout deal is done 3Interior minister says money ‘isn’t there to be given’ 3Pension and wages bill takes priority Hanergy in big loan deal ahead of share crash Li Hejun, the solar tycoon and controlling shareholder in Hanergy Thin Film Power Group, pictured centre, pledged millions of shares in the Hong Konglisted company as collateral for a US$200mloanjust beforeits share price crashedlastweek. Theloanis thelatesttoinvolve British Virgin Island entities owned by HTF’s parent Hanergy Group, a Financial Timesinvestigation has found. The Hanergy companies have come under intense scrutiny as HTF has grown at breakneck speed in recent months, propelling its market value to atleast five timesits nearest competitor. FT investigation page 16 Imaginechina/Corbis ‘It’s clear the June payments to the fund can’t be covered without external financing’ Greek official Happy feet Rather a shoe-shiner than a banker — LUCY KELLAWAY, PAGE 12 We are Googled Our Faustian bargain with technology — EDWARD LUCE, PAGE 9 Yes to a revolution Why Ireland’s vote for gay marriage leaves its Church diminished — PAGE 6 MAY 25 2015 Section:FrontBack Time: 24/5/2015 - 20:50 User: summersj Page Name: 1FRONT, Part,Page,Edition: LON, 1, 1
FINANGIALTIMESay 25 May 2015NATIONALATrefunRevenuetakesConservatives rule out plan to ease sackingsLittlewoods'elbnpayouttoPartvdecidesreformstehelpcompaniesfirestaffhighestcourtriskalienatingworkersHEPUBLICObesitAlternativefinance.SportFoodgroupsseekto headoffregulatorypush on healthSCHABETHTAIDFood anddrisurestotacklendi福KThe going is good to tap the fan baseowdfundingandretaieanincreasingAprivatebankunlikeWest Midlands councils set to join forces on regional policiesany other.EFGGPrivatebankersINANCIALNIS
2 ★ † FINANCIAL TIMES Monday 25 May 2015 NATIONAL FINANCIAL TIMES Number One Southwark Bridge, London SE1 9HL Published by: The Financial Times Limited, Number One Southwark Bridge, London SE1 9 HL, United Kingdom. Tel: 020 7873 3000; Fax: 020 7407 5700 Editor: Lionel Barber Subscriptions and Customer service: Tel 0800 028 1407; subscriptions@ft.com; www.ft.com/subscribenow Advertising: Tel: 020 7873 4000; ukads@ft.com Letters to the editor: Fax: 020 7873 5938; letters.editor@ft.com Executive appointments: Tel: 020 7873 4909; www.exec-appointments.com Printed by: St Clements Press (1988) Ltd, London, Newsprinters (Knowsley) Limited, Merseyside and Smurfit Kappa News Press Ld, Kells, Ireland ©Copyright The Financial Times Limited 2015. All rights reserved. Reproduction of the contents of this newspaper in any manner is not permitted without the publisher’s prior consent. ‘Financial Times’ and ‘FT’ are registered trade marks of The Financial Times Limited. The Financial Times adheres to a self-regulation regime under the FT Editorial Code of Practice: www.ft.com/editorialcode Reprints Are available of any FT article with your company logo or contact details inserted if required (minimum order 100 copies). One-off copyright licences for reproduction of FT articles are also available. For both services phone 020 7873 4816, or alternatively, email syndication@ft.com FT Cityline For real time share prices call 0905 817 1690 or go to http://www.ft.com/servicetools/ftmobile/cityline. Calls cost 75p/min. Newspapers support recycling The recycled paper content of UK newspapers in 2013 was 83.5% JOHN MURRAY BROWN Birmingham and its six neighbouring councils will formally bury old rivalries this week, joining forces in the hope of capitalising on the government’s promise to transfer responsibility for key policiesandbudgets. The leaders of the seven councils, representing a population of 4m people, will meet tomorrow when they are expected to announce agreement on a new “combined authority” to enable region-wide decision-making on transport, infrastructureandeconomicregeneration. The next day, the government is expectedtopublishitsCitiesDevolution bill as part of the Queen’s Speech outlining the legislative programme for the newparliament. The last government had already committed to a modest amount of decentralisation, prodded by Lord Heseltine, the Conservative grandee who in 2012 published a report recommending that £50bn of central government spending should be decided locally. Then the Scottish independence referendum gave the cause of English regional devolution a big push. Greater Manchester has shown the way, setting up a combined authority in 2011 and committing — as a precondition of receiving new powers — to elections for a regional mayor. Other northern cities arefollowingsuit. In the case of the Midlands, however, the dysfunctional state of regional cooperation has been a big obstacle. This includes deep suspicions of Birmingham, a city that dwarfs its neighbours in population,sizeandeconomicclout. Compounding this, some had feared that a directly elected regional mayor would further entrench Birmingham’s influence. “The incentives to get their act together [were] considerable, but there was a real fear that Birmingham would dominate any new arrangement,” said Wyn Grant, of Warwick university. Chris Game, lecturer in local government at Birmingham university, says the electoral map explains why regional co-operationhasbeendifficult. Even after Conservative advances in the general and local elections, the West Midlands remains dominated by Labour. The party controls Birmingham, Wolverhampton, Dudley, Sandwell and Coventry councils, and no party has overall control of Walsall. Solihull is the only council in the group run by the Tories. It is also a crucial part of any new regional grouping: Birmingham airport, the national exhibition centre and much of the greenbelt land that the region might need to develop for housing or industrial use are all in Solihull. Mr Game believes that transport is key to the success of the project. He says the borough is vital for the region’s transport links. As for Coventry, he says it has outperformed Birmingham economically in recent years. “It feels it is doing pretty OK outside of a bigger body.” But the council recently said it wouldbacktheplan—ashasSolihull. Announcing the decision last week, Ann Lucas, leader of Coventry council, said: “If we don’t all grow up as politicians, and look to the greater good of the Midlands region, then we are going to be squeezed out, isolated and forgotten. Shameonusallifthathappens.” Forming a combined authority would give the opportunity to transfer power and resources “from Whitehall to the West Midlands — not from Coventry to Birmingham”,sheadded. Bob Sleigh, leader of Solihull, said the move would allow the borough to be part of a high-performing region “that attractssignificantinwardinvestment”. Officials say one of the early tests will be agreeing a name — with smaller councils adamant that “Birmingham” should not be part of it. “People in the Black Country certainly don’t consider themselves to be from Birmingham. Depending on which councils join, I’d like to see it called the West Midlands Combined Authority. I think everyone in the region would be able to relate to that,” said Darren Cooper, leader of Sandwellcouncil. English devolution West Midlands councils set to joinforces on regional policies Fear of Birmingham’s dominance has helped drive regional co-operation HELEN WARRELL — PUBLIC POLICY CORRESPONDENT The Conservative party has decided against reviving plans to allow businesses to sack employees at will, as it embarks on a second term in government with an eye on how to win over blue-collarworkers. During its first term when it was ruling as part of a coalition, Adrian Beecroft, a Conservative donor and venture capitalist, proposed a range of controversial employment law reforms — including the sacking mechanism of “no fault dismissal”. But these were blocked by the party’s Liberal Democrat governingpartners. Then came the Conservatives shock electionvictoryearlierthismonth.Sajid Javid was appointed to the post of business secretary and officials suggested his pro-market, anti-regulatory zeal might prompt him to revisit Mr Beecroft’sproposals. But Mr Javid told the BBC on Sunday thatthiswasnotthecase. Asked if he was planning to use the forthcoming enterprise bill to return to these plans, he said: “No I won’t be lookingatthatagain. “What we will be doing though, is lookingat . . . deregulationandtakingit evenfurther,”headded. “During the last parliament, we saved businesses from about £10bn of costs collectively in regulation and I think we candoatleastthatagain.” He added that he wanted to help more small businesses with some of the problems they faced with late payments. UK small businesses were owed about £30bn, a record high in late payments he said. The government would set up a small business conciliation service to help tackle the problem, he added. Early in the coalition government, the publication of the Beecroft report caused bitter disagreements between theConservativesandtheLibDems. One of the flashpoints was proposals to allow businesses to dismiss staff without stating a reason, provided they paid compensation. The report suggested that an employer could simply state they were not happy with a worker’s performance and then follow a set process, such as giving notice and paying a defined level of compensation, without the action beingconsideredunfairdismissal. But while the Tories initially campaigned to bring these changes into law, making it easier for businesses to fire staff could now be seen as at odds with the party’s post-election “one nation” message. Over the weekend, David Cameron wrote an article promoting the Conservatives as “the real party of working people”. “Our task five years ago was rescue and recovery; this time it’s renewal — renewing the idea that we are one nation, in which all working people can succeed; people of all backgrounds have social justice; and the ties that bind all partsofournationarestrong.” Employment law Conservatives rule out plan to ease sackings Party decides reforms to help companies fire staff risk alienating workers VANESSA HOULDER AND JANE CROFT HM Revenue & Customs is seeking to appeal to the UK’s highest court after failing in its latest attempt to block a £1bn payout to Littlewoods, the home shoppingcompany. The Court of Appeal last week sided with Littlewoods, owned by the billionaire Barclay brothers, in its long-running legal battle with the Revenue over a demand for compound interest on tax refundsdatingback30years. Giles Salmond, a partner at law firm Eversheds, said the ruling was “a resoundingvictory”forthecompany. Thousands of other companies are pursuing similar claims, pushing up the potential cost of a victory to several billion pounds. The case has aroused controversy because it raises the prospect of a big payout from the public purse at a time of significant spending cuts. The shareholders of Littlewoods are Sir Frederick and Sir David Barclay, the owners of the Ritz hotel and Telegraph Media Group, who have homes in MonacoandtheChannelIslands. The company said that if the claim were successful, the payment would be made to companies that are subject to UK corporate tax, not directly to its shareholders. It said: “In these circumstances the net proceeds will be used for further investment for the benefit of all stakeholders.” The Revenue said it believed the Court of Appeal decision was “at odds with how parliament intended value added tax law to work, and will now seek leave to appeal to the Supreme Court”. Littlewoods said the court ruling was the “logical consequence” of a historical overpayment after the incorrect collection of VAT for more than 30 years. Its directors were “duty-bound to ensure that the company and its tens of thousands of current and former employees are not disadvantaged as a result of the overpayment of VAT”, Littlewoods said inastatement The appeal court judges said they were not persuaded that the high court judge who made the original decision “fell into any error on any of the issues whichwehavebeenaskedtodecide”. Littlewoods has already received a refund for £204m of VAT that was wrongly levied between 1973 and 2004 on commissions paid to its agents who distributedmailordercatalogues. It has also received more than £250m of simple interest on the VAT refund, but the company contends it should have received compound interest — charged on interest already earned — insteadofsimpleinterest. The Revenue is also fighting multibillion-pound battles on other business tax issues and last year doubled its own estimate of the possible cost of tax litigationlossesto£29bn. The National Audit Office reported that the increase in the estimate — from £14.5bn to £29.2bn in the year to March 2014 — was “due to a revision of the estimates for cases currently in litigation and taking into account court decisions duringtheyear”. The Revenue has already made provision for £5.4bn of claims over the next five years relating to legal cases that it expectstolose. VAT refund Revenue takes Littlewoods’ £1bnpayout to highest court SCHEHERAZADE DANESHKHU AND ELIZABETH RIGBY Food and drink companies are fighting back against the threat of government measurestotackleunhealthydiets. Public Health England, the government body, said last week it would announce plans to tackle obesity fairly soon but the industry is keen to head off increased regulation and stick to voluntarymeasures. Britvic, the company that makes Fruit Shoot and Robinsons soft drinks, said recently that by 2020 it would cut the number of calories in its soft drinks by 20 per cent. It has already axed fullsugar Robinsons squash in favour of a versionwithnoaddedsugar. And Action on Sugar, a campaign group, applauded Tesco for its plans to reduce the sugar in its own-label soft drinks by 5 per cent a year. This follows similar moves by other retailers includingSainsbury’s,theCo-OpandAsda. One in three 10-year-olds are obese or overweight, according to government figures; and in some deprived areas, childhood obesity rates are double that of wealthier parts of the UK. Children also drink more sugary fizzy drinks than other age groups. In countries such as France and Mexico fizzy drinks have beentaxedtodiscourageconsumption. Last year Public Health England commissioned the University of Teesside to review the efficacy of a sugar tax, but Downing Street slapped down the new life sciences minister, George Freeman, last week for backing a tax on companiesthatsellunhealthyfood. Downing Street said the prime minister had no intention of going down this route. “We will continue . . . working with the industry, working with public health bodies.” But some public health groups say the current voluntary arrangementshavefailed. Tam Fry of the National Obesity Forum, a charity, said: “We have such a problem now with childhood obesity that it’s clear the [voluntary arrangements]arenotworking.” Gavin Partington, directorgeneral of the British Soft Drinks Association, said voluntary arrangements had led to 7 per cent fewer calories in drinkssince2012. MALCOLM MOORE Portsmouth Football Club needed a new place for young players to train. Lancashire Cricket Club wanted to build a hotel at its ground. Surfers in Bristol hoped to dig a huge artificial lake in a fieldoutsidethecity. Theyallturnedtofansforthemoney. As UK banks have withdrawn from lending, sports have had to be more creative about financing developments, and research from the University of Cambridge suggests that there is a large pool of untapped money from supportersfortherightdeal. Robert Wardrop, who runs a unit studying alternative finance at Cambridge’s Judge Business School, says it can be challenging for sports franchises to raise traditional bank loans. “I have had bankers say to me that there is a level of reputational risk. If they lend to a sports club and then it all goes wrong, you have a problem with a large fan base.” Instead, crowdfunding via the internet and “mini-bonds” — retail bonds that cannot be resold and are offered in small amounts direct to consumers — arebecomingmorepopular. Mr Wardrop researched the £25m mini-bond launched by the Jockey Club in 2013 to help finance a new stand at Cheltenham racecourse, the first such bondinBritishsport. He found almost all the bondholders were fans of horseracing, their average age was over 60, and they were largely diverting “idle cash from building societyaccounts”. They were attracted to the 4.75 per cent interest rate and a further 3 per cent that was returned via loyalty points giving discounts on tickets, food and drinkattheclub’sracecourses. “AnimportantoutcomefortheJockey Club is that it has changed the psychological relationship with the fans. They have had new experiences and they now wantmore,”hesaid. Paul Fisher, managing director of Jockey Club Racecourses, said the loyalty scheme was a particular success, and although bank borrowing costs had fallen, the club could sell mini-bonds in futuretodevelopothercourses. Lancashire County Cricket Club used the same tactic last November to raise £3m from a mini-bond with a 5 per cent interest rate and 2 per cent for loyalty points. This month, Wasps rugby club soldouta£35mretailbondindays. MrWardropnotesthatmostinvestors in sports bonds make an “emotional decision” and do not read “the fine print orthefinancials”. In Germany, Hertha Berlin, the footballclub,wasindeepfinancialproblems in the 1990s but launched a mini-bond in 2004 to raise £6m from fans. “They refinanced it in 2010 and, as long as they can keep kicking it down the road, it is fine, but the capability to repay the bond is unclear. But if it is a small investmentandyouareafan,thenwhynot?” Online crowdfunding for sports projects is also on the rise. The football crowdfunding site Tifosy raised £270,000 last August for a new training academyforPortsmouthFootballClub. When Durham County Cricket Club wanted a new nursery ground, it raised £52,150 through crowdfunding, and Manchester United raised a similar amountforafunctionroom.Thesurfers inBristolraised£219,473fortheirlake. But not all attempts have been successful. When the Co-operative Bank withdrew £380,000 of financing from Lincoln City, the club tried to raise money from fans by offering to turn the seats in one of its stands into a giant muralofasecondworldwarbomber. That failed, but the club has now issued 500,000 shares at 50p each and launched a bond that pays interest of 3 percent.Sofarithasraised£160,000. . Obesity Food groups seek to head off regulatory push on health Alternative finance. Sport The going is good to tap thefan base Crowdfunding and retail bonds are an increasingly popular way to raise funds £25m Value of mini-bond launched by Jockey Club in 2013 to help finance a new stand at Cheltenham racecourse, pictured 4.75% Interest rate paid by the Jockey Club, which helped attract those with idle cash in building societies Picture: Alan Crowhurst/Getty Images 30 global locations • www.efginternational.com EFGslogan - 112x50mm - Generic ad - Q - Publication : Financial Times advert 2014 (20.08.2014) A private bank unlike any other. MAY 25 2015 Section:World Time: 24/5/2015 - 18:59 User: holdsworthi Page Name: UKNEWS1, Part,Page,Edition: LON, 2, 1
FINANCIAL TIMESnhdNATIONALDowning Street spells out rules on who can voteMost non-British EUtemhardcitizenslivinginUKwillnIanot beeligible to take partwifHEPLUNLIWCAPRLEICwnmv"Well voteforthebillandthengetintothequestionsorandagainstEuropeWLTodow ofhands: Malteseand Cypriotslivingin UK willinaEU membershiBoE faces Commons grillingoversecretBrexitanalysisWHATEVERprovidviehowthANDHELNDWARRELLron its ability to fulfil its mandatMAKEStheEofEngland'ssemicrisks of BritainsessthieaeinsheMDSfterdetailsweresentYOU HAPPYothepressirWe've changed our packs andaddedeasy-to-read,colour0coded nutritionlabels,Sonowo1anit's easier to choose the bestCoca Cela for you and your family.Aechoosehappiness"n time,thebatrevieTDaOeRaiUnionstoconsiderpayofferaftercalling off national strikewGoaaColaoolSILLeet on Thursday tyearsoverthebankhozerocalonocaloresince1886E8G8R8GEEeME8CT8393050中足日足村民时行月品
Monday 25 May 2015 ★ FINANCIAL TIMES 3 NATIONAL FERDINANDO GIUGLIANO AND HELEN WARRELL The Bankof England’s secretive project to assess the economic risks of Britain leaving the EU is likely to come under scrutiny byMPs, after detailswere sent to the pressinerror. As the Labour party called on George Osborne, chancellor, to reveal what he had known of the plans, members of a committee of MPs suggested they would want to probe the BoE’s contingency arrangements for the UK’s in-out vote onEUmembership. Mark Garnier, a former investment banker who sat on the Treasury committee during the last parliament and is considering a bid to chair it, said the committee would certainly want to call on bank officials to discuss the project. “I think what will definitely happen is that the committee will look into the implications of the EU referendum on thebankingsystem,”hesaid. He added that bank officials would be asked to set out their thinking and explain how details of the plan, Project Bookend, had been emailed to an editor attheGuardiannewspaper. “It would be extraordinary if no one asked, how could the Bank of England get it quite so wrong with a fat finger on anemail,”MrGarniersaid. Andrew Tyrie, the Conservative MP who chaired the committee in the last parliament and is hoping to continue for second term, also indicated the BoE’s EU exit planning would be a key questionforthecommittee. “In time, the bank will be required to provide a view on how the major. issues of [EU] renegotiation bear on its ability to fulfil its mandate,” hesaid. Chris Leslie, Labour’s shadow chancellor, called on Mr Osborne to reveal whatheknewaboutProjectBookend. “Were the chancellor and the Treasury in on the secret?” he said to the BBC. “If so, when did they know and did they advise the Bank of England to publish it and, if not, are they undertaking their own assessment and will that be publishedtoo?” The Treasury declined to give any details of communications between the chancellor and the BoE regarding “Brexit”planning. The BoE made contingency plans ahead of Scotland’s independence referendum last year. These were made public only in October, a month after the vote, in the minutes from the September meeting of the bank’s Financial PolicyCommittee. The BoE revealed it had planned to pump money into the financial system and to arrange for extra banknotes if there had been a financial panic in responsetoaYesvotetoindependence. Mark Carney, BoE governor, said ahead of the Scottish vote that the bank had emergency plans in place for a Yes vote,butdidnotgiveanydetails. The BoE routinely takes part in war games that simulate the effects of financial crises or cyber attacks on the UK banking system. However, these are typically one-time exercises, rather than the lengthy analyses that would be involved in a study such as the one aheadoftheScottishreferendum. On Friday, the BoE defended its decision to undertake work on a possible “Brexit” in secret. The bank said it would be looking into its processes in light of the incident, but declined to say whethertherewouldbeafullinquiry. Book review page 8 EU membership BoEfaces Commons grilling over secret Brexit analysis HELEN WARRELL — PUBLIC POLICY CORRESPONDENT Downing Street has announced that most non-British EU citizens living in the country will be barred from voting in the UK referendum on European membership that has been promised by theendof2017. As the Labour party performed an unexpected U-turn, dropping its opposition to the vote, government officials confirmed that voting protocols will be based on the general election franchise — which excludes EU citizens — rather than the local elections franchise, which wouldallowEuropeannationalstovote. However, members of the House of Lords and Commonwealth citizens who are resident in the UK and Gibraltar will be permitted to vote. As a result, Maltese and Cypriots living in Britain will participate, as will residents from Ireland, a former Commonwealth member,butotherEUcitizenswillnot. Nigel Farage, leader of the eurosceptic UK Independence party, has consistently said he does not think the 4m EU citizens living in Britain should be allowed to vote — including his wife, whoholdsaGermanpassport. Downing Street pointed out that no Briton under the age of 58 had been able tohavetheirsayonEUmembership—it waslastputtothevotein1975. “It is time to put this right and to give people the choice — in or out,” one official said. “This is a big decision for our country. that’s why we think it’s important that it is British, Irish and Commonwealth citizens that are the oneswhogettodecide.” The prime minister’s drive to speed the legislation needed for a vote through the House of Commons received an unexpected boost over the weekend, after Harriet Harman, Labour’s acting leader,saidherpartywouldsupportit. Under Ed Miliband, Labour had strongly rejected calls for a referendum, but Ms Harman said yesterday: “There does not seem to be the public appetite for us to man the barricades against a referendumthatappears[inevitable]. “We will vote for the bill and then get into the big questions for and against Europe,” she told the BBC’s Andrew Marr. “If you carry on arguing too long about the process, you end up obscuring the very important discussion about the substance.” She made it clear the party had strong viewsaboutthetimingofthevote.“Irrespective of which year it is, it’s really importantthatit’snotheldatthetimeof Scottish elections or other elections. It’s a big constitutional issue on its own . . . andneedsthatseparateconsideration,”shesaid. Sajid Javid, the newly-appointed business secretary, said yesterday he was confidentMrCameronwouldsecurethe EU reforms he was seeking on issues suchaswelfareandimmigration. “The fact we’re having this referendum . . . Ithinkhelpstoconcentratethe minds of our European partners, so they will take us seriously on these issues,” he said. “We’re not pretending it’s going to be easy, we’re going to need some patience,butIthinkwe’llgetthere.” He added that cutting tax credits and reforming welfare rules to deter EU migrants from coming to the UK would beakeypartofthenegotiationstrategy. The prime minister will now embark on a frenzied week of EU diplomacy, which starts today with a dinner for European Commission president JeanClaude Juncker at Mr Cameron’s Chequers country residence. He will then fly to Copenhagen to see the Danish prime minister on Thursday before travelling to the Netherlands to meet the Dutch prime minister and ending the day with President Hollande in Paris. On Friday, he will meet Polish prime minister Ewa Kopacz in Warsaw before arriving in BerlintoseeChancellorAngelaMerkel. GILL PLIMMER Rail unions will meet on Thursday to decide whether to accept the pay offer that averted the first national train strike for 20 years over the bank holidayweekend. Although leaders of the RMT, TSSA and Unite unions agreed to call off the strike during talks with the conciliation service Acas, local union representatives stillneedtoratifytheagreement. The walkout was suspended after Network Rail, which operates UK train infrastructure, made significant concessions, including a 1 per cent increase in paybackdatedtoJanuary1. Some employees will also receive a 1.4 per cent increase from January 1 next year, and another 0.7 per cent rise will be implemented if the unions agree todifferentwaysofworking. The deal averted a strike that would have seen 90 per cent of passenger trainscancelledaswellasallfreighttraffic and some London Underground services that rely on Network Rail signalling. Originally, workers were offered a £500 bonus but no pay rise this year. Salaries would then have risen only in line with inflation for three years until 2019. The talks come at a time of renewed speculation that the government is considering overhauling Network Rail, which was, in effect, renationalised last yearwhenits£34bnnetdebtwasshifted backontothepublicbalancesheet. The taxpayer-funded organisation, which controls 20,000 miles of track and 2,500 stations, is investing £25bn to improve the network over the next five years, but has been criticised repeatedly for running behind on projects — such as the electrification of the Great Western and East Midlands railway lines — andmissingtrainpunctualitytargets. Changes could include a break-up of the company along regional lines as well as a reform of the group’s bonus scheme forexecutives. Mark Carne, chief executive of Network Rail, who earns £675,000 a year, forfeited a £30,000 bonus after an outcryoverraildisruptionatChristmas. Europe referendum Downing Street spells out rules on who can vote Most non-British EU citizens living in UK will not be eligible to take part Rail Unions to consider pay offer after calling off national strike Old Lady: the BoE routinely takes part in war games that simulate financial crises ‘We’ll votefor the bill and then get into the questions for and against Europe’ Harriet Harman Show of hands: Maltese and Cypriots living in UK will participate — Lynne Cameron/PA
FINANCIAL TIMESMonday 25 Mey 2015INTERNATIONALGLOBALINSIGHIaAChina's tighter security plans attackedClaireJonesHuman rights groups say-Policeproposed law changes willwould beHysteresis'returns tofurthercurbfreespeechallowedtochargeEuropeascentralbankfretsoverrecoverycon2oninthnneMonetarypolicy.DefensivestrategiesEmerging markets braced for Fed rate riseFirst increase in nearly adecade will cause large capitaloutflows,economistswarn-m.as1nesnhaarahrentePeoplecan remainWorFundsouts全outofworkfordsucha long periodAIoftime that theyESloseskillsaaYOFBANTCurronc"saGLOBALBUSINESSNEWSJapanese experts defend fiscal strategy ofgoing forgrowthINSIGHTANDANALYSIS.Providina the foresighttostayaheadoftomorrowdingJOINNOWffcom/subscriotion2%FINANCIALTIMES
4 ★ FINANCIAL TIMES Monday 25 May 2015 INTERNATIONAL JAMIL ANDERLINI — BEIJING International human rights groups have slammed China’s draft national security law for criminalising free speech and religious practices while granting the ruling Communist party sweeping powerstopunishcriticsanddissenters. The vaguely worded draft law “includes a broad and ill-defined definition of ‘national security’, and provisions that would allow prosecution of dissenting views, religious beliefs, information online, and challenges to China’s ‘cyber sovereignty’,” said Hong Kongbased group China Human Rights Defenders. Under the new law, crimes that violate national security would include “negative cultural penetration”, threats to “sustainable economic and social development” and violations of “nationalinternetsovereignty”. It also stipulates “obligations to maintain national security” for citizens and organisations, both of which could be held legally accountable if they failed to provide “relevant data, information or technical support” to state security, publicsecurityandthemilitary. “Under this law, police would be allowed to charge anybody who refuses to become a police informant or who are seen as associated with those targeted by police, as posing threats to national security,”CHRDsaid. China’s secret police and domestic security services already target peaceful critics of the regime with spurious charges and commit human rights abuses. International rights groups say President Xi Jinping’s administration has orchestrated the most intense crackdown on civil society since the early 1990s and have logged nearly 1,000 people arbitrarily detained for their political views in 2014, nearly the same number as in the previous two yearscombined. In one example, human rights lawyer Pu Zhiqiang was detained a year ago and will soon be charged for making critical remarks on social media about China’s policies towards ethnic minorities and for speaking sarcastically about two senior party officials, according to an indictment circulated this week and confirmedbyMrPu’slawyer. He faces charges of “inciting ethnic hatred” and “picking quarrels and provoking trouble” for posting messages on his microblog account that “openly insulted others”. His actions “damaged social order” and he “should be held criminally responsible”, according to the indictment. If convicted, Mr Pu facesamaximumof10yearsinprison. The charges facing Mr Pu and the draft law make it clear that anyone who offends senior party officials can be persecutedandhandedlongsentences. “The vague list of restrictions in the name of national security in this draft will make it impossible for people to know what behaviour is actually prohibited and will allow the authorities to prosecute anyone who essentially crosses their ever moving line of ‘illegal activities’,” said William Nee, for Amnesty International. “It is as much to do with protecting the party and punishing those that criticise the leadership asaddressingnationalsecurity.” The draft law is open for public comments until June 5 but is likely to be adopted by China’s rubber stamp parliament,accordingtorightsgroups. Earlier this month, the government also released a draft law on “management of foreign non-governmental organisations”. FERDINANDO GIUGLIANO AND JONATHAN WHEATLEY — LONDON Just like footballers before the World Cup final, central bankers in emerging marketsarereadyingthemselvesforthe biggest test of their careers: the first rate increase in nearly a decade by the US FederalReserve. The timing of this momentous event remains uncertain, and disappointing data since the start of the year has made US monetary policy makers more cautious than they were just a few months ago. However, Janet Yellen, Fed chairwoman, remains confident the economy will strengthen and rates are likely togoupthisyear. When the Fed eventually moves, economists believe a rate rise is bound to provoke large capital outflows away from Latin America and Asia. This will test the defensive strategies local policy makers have built throughout the long era of ultra-low rates. “I don’t think emerging market central bankers can ever be properly prepared,” said Simon Quijano-Evans, emerging markets analyst at Commerzbank. “They have accepted that if it does happen, they will justhavetodealwithit.” Their first line of defence includes interest rates, which central bankers can increase to persuade investors to stay put rather than moving their moneytotheUS. The scope for monetary tightening differs across emerging markets: most oil consumers, such as India, have cut interest rates in the past few months, as lower energy prices have pushed down inflation. Meanwhile, other countries such as Brazil have had to increase borrowing costs in a response to soaring inflation. Pressure to raise rates will vary from country to country and will depend on whether the Fed moves in a moderate, clearly-signalled manner or more suddenlyandsurprisingly. “But one thing that stands out,” says Mr Quijano-Evans, “is that some emerging market central banks will continue to cut rates in spite of the expectation that the Fed will hike in the next six to ninemonths.” While rate increases form the basis of monetary policy makers’ stock response during capital flight, officials have increasingly experimented with lessorthodoxmeasures. These include the accumulation of large foreign exchange reserves, as well as macroprudential tools such as regulating banks’ foreign currency dealings, which some economists believe also act asdefactocapitalcontrols. Since the Asian financial crisis in the late 1990s, emerging markets have cumulated large war chests of reserves, whichnowamountto$7.74tn,according to the International Monetary Fund. Central banks stand ready to deploy them, as they did at the height of the globalfinancialcrisis. Economists are sceptical that using foreign reserves to buy domestic currency during a sharp sell-off can do muchtostoparout.Investorsknowthat the central bank only has so much foreign currency it can use, and can test this limit by continuing to sell and thus putpolicymakersunderpressure. But many central bankers in the emerging world still believe that foreign exchange intervention can help reduce volatility. Policy makers also hope that by signalling a strong determination to act,theycanscareoffspeculators. A more dramatic step would be to introduce capital controls, which limit the ability of foreign investors to pull out their money during a crisis. These measures have been frowned upon by international organisations, but have acquired greater legitimacy since the International Monetary Fund became moreopentotheirusein2012. Countries such as Mexico and Chile have been robust in rejecting such instruments. “I don’t see any major shift to the use of intrusive capital controls,” said Charles Collyns, chief economist at theInstituteofInternationalFinance. However, were the Fed to surprise with a big or sudden movement, economists believe the cost-benefit analysis could change. “We could see substantial amounts of stress,” said Mr Collyns, “[and] it wouldn’t surprise me if a country like Turkey, which has already come under a lot of political pressure to cut rates when other central banks are being more cautious, were to resort to macroprudentialmeasures.” International bodies, including the IMF and the Organisation for Economic Cooperation and Development, have been busily discussing their approaches to these measures, as they feel there is insufficient international agreement over what is acceptable. The risk is that individual countries are able to exploit the differences between the positions of thevariousorganisations. Editorial Comment page 9 Beijing clampdown China’s tighter security plans attacked Human rights groups say proposed law changes will further curb free speech Monetary policy. Defensive strategies Emerging markets bracedfor Fed rate rise First increase in nearly a decade will cause large capital outflows, economists warn Monetary measures: oil consumer India has cut interest rates as falling crude prices have pushed down inflation — Divyakant Solanki/EPA A n unlikely buzzword is back in fashion in the top tiers of global financial officialdom: hysteresis. If it catches on, it could have spectacular implications for the eurozone’s monetarypolicymakers. Hysteresis is a concept borrowed from physics. Place a small weight on a metal spring and it will stretch, but then return to its original shape when you remove the weight. If theweightistooheavy,however,themetalwillforeverlose itsspring. When an economy is saddled with recession and a lack of investment the same thing can happen. People can remain out of work for such a long period of time that they lose skills and companies fail to invest in training their staff. That destroys an economy’s ability to grow permanently,evenwhendemandrecovers. At the European Central Bank’s flagship annual conference in Sintra, Portugal, hysteresis was bothering the minds of assembled central bank governors and prominent academics, reflecting the depth of the impact of the global financial crisis. Especially in its most important currencyarea. According to their latest projections, the ECB’s economists think that even when the region’s cyclical recovery is completeanddemandhasreturnedtofullstrength,unemployment will still be at 10 per cent. Taking into account what Tito Boeri, an Italian labour economist, described in Sintra as the eurozone’s “unbearably divergent” unemployment rates, those projections imply that unemployment will remain well into double digits in economies such asSpainandItaly. The International Monetary Fund’s outgoing chief economist Olivier Blanchard suggested unemployment would remain high even after demand had recovered because the region’s economy had been scarredbyhysteresis. Hysteresis’s first brush with economic fame was in 1986, when it was used by Mr Blanchard and Lawrence SummerstoexplainEurope’slastbrushwithhighjoblessness. But as the Great Moderation took effect in the 1990s and early 2000s, the memories of the devastation caused from bigeconomicshocksdimmed. Thereturnofhysteresisispartofabroaderdebateabout whether we are now in an era of secular stagnation, condemned to suffer years of low growth and high unemployment. The roots of the term — hysteresis comes from the Greekwordsfor“late”and“shortcomings”—hintathowit might change the way monetary policy makers act in future. IfMrBlanchardandothersattheconferencearecorrect, there are two implications. The first is that monetary policy makers in the eurozone should have acted much faster to counter the weight weighing down the single currency area’s economy. Rather than waiting until January this year to launch its €1.1tn quantitative easing package, the ECB should have launched an aggressive package of governmentbondbuyingyearsearlier. Secondly, the presence of hysteresis also creates a more fundamental problem: whether central banks’ mandates are fit for purpose. The ECB’s inflation target of just below 2 per cent is symmetric — in other words central bankers are supposed to pay equal attention to the upside and downside risks to price pressures. But if hysteresis exists, there is an argument for buying insurance against years of highunemployment,evenifthatmeanshigherinflation. That is tough to work into the existing framework. The difficultiesinvolvedindoingsoledMrBlanchardtocallfor the eurozone to move to a dual mandate, like the US FederalReservetargetinginflationandunemployment. More evidence is needed to know if he is right. One thing was clear: hysteresis is a cancer on economies. The longer you leave it unchecked, the more vicious it becomes. And centralbankersdonotalwayshavetherightmedicine. claire.jones@ft.com GLOBAL INSIGHT PORTUGAL Claire Jones ‘Hysteresis’ returns to Europeas central bank frets over recovery People can remain out of work for such a long period of time that they lose skills Currencies against the dollar Source: Thomson Reuters Datastream Rebased 2010 11 12 13 14 15 40 60 80 100 Brazilian real Russian rouble Turkish lira Indian rupee 120 ‘Police would be allowed to charge anyone who refuses to become an informant’ CHRD ROBIN HARDING — TOKYO Two authors of Japan’s new fiscal strategy have defended the decision to “go for growth” as a way out of the world’s biggest public debt problem. In interviews with the Financial Times, Motoshige Ito and Susumu Takahashi argued it makes sense to assume Abenomics will succeed, rather than doom the stimulus to failure by tightening fiscalpolicynow. Their comments highlight hopes that escaping deflation will deliver a massive jolt to Japan’s growth prospects, helping to cure chronic budget deficits, and tackling a gross public debt amounting to246percentofannualoutput. “It’s impossible to tackle the fiscal situation if it doesn’t fit with reviving the economy and ending deflation,” said Mr Takahashi, chairman of the Japan Research Institute, and a member of the government panel that will deliver the newstrategybytheendofJune. The panel includes prime minister Shinzo Abe and five of his cabinet, Bank of Japan governor Haruhiko Kuroda; and four private sector members including Mr Takahashi and Mr Ito, a professor at the University of Tokyo. According to people close to the deliberations, there is tension between the finance ministry, which wants to lock in spending cuts early, and the cabinet office — representing Mr Abe — which is determinednottochokeoffgrowth. The fiscal panel has come under fire for its rosy economic projections: they assume growth of more than 2 per cent a year after 2018, implying that Japan will expand faster than the US, despite its shrinkingpopulation. “Using overly optimistic macroeconomic assumptions as in the ‘revitalisation’ scenario . . . risks harming confidence in the authorities’ ability to restore fiscal sustainability,” pointed outtheInternationalMonetaryFund. Mr Ito acknowledged the forecasts are “very ambitious” but said it was reasonable to expect a rise in growth and tax revenuesifJapanescapesdeflation. The basic argument is that years of low demand in Japan have meant little reason to economise on labour. Once wages rise and domestic companies have to compete for workers, it could unleash two decades of pent-up potentialforproductivitygains. “That is actually the chance we have as a country suffering from lack of demandfor20years,”MrItosaid. Japan’s solid growth in output per workerdoesnotimplyalackofroomfor productivity to rise. Low participation intheworkforcemayflattertheproductivityofthosewhoareinjobs,hesaid. With consumption tax due to rise from 8 per cent to 10 per cent in 2017, and cheery growth forecasts, the fiscal panel needs to save only another 1.6 per cent of gross domestic product to reach a primary balance by 2020. Primary balance means taxes cover spending, beforeinterestpayments. The fiscal panel intends to lay out a schedule of reforms to healthcare spending. Possibilities include strong incentives to use generic drugs and targeting overcapacity in hospital beds — whichencouragesdoctorstofillthem. “So far, when Japan’s tried to restrain healthcare spending, we’ve used a cap. But the effect . . . never lasts,” Mr Takahashi said. “The Abe administration is tryingforstructuralreform.” BothMrTakahashiandMrItosayjust getting to a primary balance is not enough. Instead, Japan needs to get its debt-to-GDPratioonadownwardpath. Public spending will increase sharply after 2025 as the baby boom generation reaches old age. Mr Takahashi said tax rises will then be necessary “but in order to minimise their size we need to controlspendingnow”. Mr Ito said it would take decades of large surpluses to erode existing debt. “Itisnottheissuewearediscussingnow, but in order to decrease the debt-toGDP ratio in the long-run . . . there must be more serious discussion of mild inflation—2percentor3percent.” Abenomics Japanese experts defendfiscal strategy of goingfor growth 246% Japan’s gross public debt as a percentage of annual output 2% Annual economic growth after 2018, estimated by fiscal panel MAY 25 2015 Section:World Time: 24/5/2015 - 18:20 User: jamesa Page Name: WORLD1, Part,Page,Edition: LON, 4, 1
FINANCIAL TIMESINTERNATIONALRefugeeshare-ouMigrants'journeys end in filthyEU to allotupto40,000crowded Libyan detention centresasylumseekersinThousands awaitdeportation after hopes ofcrossingtheMediterranean dashedby securityforcesreformplanlotoMIGRANTSaudiArabia.AirstrikePolitician Jayalalithaa returnsYemenoffensivesparksjingoisticfervourafteracquittalovercorruptionHouthicampaignembodiesRARTREwhatmanyinKingdomseeasisive leadershipeweraoffor
Monday 25 May 2015 ★ FINANCIAL TIMES 5 INTERNATIONAL BORZOU DARAGAHI — GASR GARABULI Angesom Taeame’s journey stretched more than 4,000km along treacherous roads manned by unscrupulous bandits and across long desert paths that were little more than scratches in the sand. He then boarded a rickety fishing boat and headed out with dozens of others intoanunpredictableseaforfivehours. Just one hour before he reached European territorial waters, he was caught by the Libyan coastal patrol and brought to Garabuli, a filthy detention centre where he has been locked up for morethanaweek. “[There’s] a lot of itching, there’s a lot of lice on the blankets. So there is a lot of diseasehere.Sowesuffer.Therearealot of sick people sleeping here. We just eat only one spoon and even that is by fighting over it,” said the 24-year-old hospital worker from Eritrea, where he received a salary equivalent to $40 a month and faced the prospect of being draftedintothearmy. Hundreds of thousands of African and Arab migrants are making their way to Libya in hopes of crossing the Mediterranean and pursuing their lives in Europe or beyond. Some make it. Others perish at sea. If they are caught by Libyan boat patrols or by security forces they are crammed into one of the country’s 22 detention centres, prisons forthosewhoawaitdeportation. At Garabuli, men, women and children are stuffed into crammed rooms swirling with flies and gnats. Perhaps 100 people share a single toilet. Men brandishing assault rifles and wearing surgicalmasksguardthem. Originally designed to hold people guilty of passport violations, the detention centres form part of the Libyan prisonsystem. “There is not yet one real centre that has been built to standard,” admits Col Mohamed Abubreida, of the Libyan interior ministry’s counter-illegal migration division. “All the centres are old and are not meant to be used to housemigrants.” Garabuli, for example, houses nearly 500 migrants and probably should not have more than 200. Feraj Abdullah Abdul-Salaam, deputy director of the facility,hasaskedtheembassiesofthose detained to attend to their citizens. But the diplomatic missions of the countries that produce the bulk of the migrants, Ethiopia, Somalia and Eritrea, “don’t evercomehere”,hesays. International monitors and human rights organisations have for years condemned Libya’s detention centres. Corruption and abuse are widespread and oversight is close to nil, though Libyan officials have tried in recent months to open the facilities to organisations such as the Red Cross and the International Organisation for Migration, and welcomedanydonatedreliefsupplies. Last September UN secretary-general Ban Ki-moon described “the lack of an adequate asylum system and a proper protection framework in Libya, coupled with the widespread use of detention in deplorable conditions” as factors driving migrants to take the dangerous boatridetowardItaly. Italy promised five years ago to build model detention centres that Libyans could then replicate, officials in Tripoli say. But the plan came to naught after the armed Nato-backed uprising that overthrew Muammer Gaddafi’s dictatorship and subsequent infighting plungedthecountryintochaos. The civil war that has made Libya such a dangerous place has also made it a haven for people smuggling. Libya’s desert borders are wide open, officials concede, and smugglers easily get peopleacross. Life for those who make it as far as Libya — but have yet to get on a boat — is full of potential perils as well. Migrants form a palpable presence in Libyan citiesalongthecoast.Theystandalongside roadways in search of day labour, living with 10 or more others in rented rooms as they hope to earn enough money to payforaspotonaboatacrossthesea. Abduraouf, a day labourer in Tripoli from Togo, said the migrants face constant abuse from their employers. “They promise you $20 for a day and only give you $10,” he says. “There are criminals who rob you. If you are sick or injuredthehospitalswon’ttreatyou.” Those who manage to come up with the$500ormoretoearnaspotonaboat remain inside safe houses waiting for smugglers to gather enough passengers to fill a vessel and tell them when and where and with how much to show up for a ride to the other side of the Mediterranean. Many of the migrants say their lives had become so desperate back home that even death in the desert or at sea wasanimprovement. One 25-year-old Eritrean woman said her mother wept for days after she told her she would leave behind her children inAsmaraandmakethevoyage. “Life is very hard in Eritrea,” she says. “Everything is expensive. I can’t afford anything. Food is expensive. Eritrea is a lostcause.” Mariam Mohamed, a 19-year-old from Somalia, said she decided to head for Libya and then Europe to pursue her ambitions after her father passed away andhermotherbecame“lost”. She had been a good student, and learnt English in secondary school, but had no means to pursue her education. “I didn’t have any opportunities,” she says. “I want to finish my education. My dream is to go to Europe and have a beautifullife.” Migrants’ journeys end infilthy, crowded Libyan detention centres Thousands await deportation after hopes of crossing the Mediterranean dashed by security forces DUNCAN ROBINSON — BRUSSELS HENRY FOY — WARSAW The EU will share out up to 40,000 asylum seekers from countries such as Eritrea and Syria as part of its plans to reform Europe’s asylum system in the face of opposition from eastern and central Europeanmember states. Under the proposals, asylum seekers from countries with a 75 per cent success rate for applications — such as Syria and Eritrea — will be automatically relocated across the EU whenever the bloc faces an influx of refugees, according to onepersonbriefedonthematter. Asylum seekers from countries with much lower acceptance rates, such as Nigeria — whose citizens are only granted asylum in 30 per cent of cases — will still be dealt with by the member stateinwhichtheyarrive. A diplomatic dust-up erupted this month when the European Commission set out proposalsto force member states to acceptrefugee quotas based on their size and gross domestic product when Europefacedasuddeninflux. Countries such as Italy are braced for a wave of arrivals this summer. Last year, more than 170,000 people made the dangerous Mediterranean crossing with more than 3,000dying in the process. Refugee groups expect an even higherfigurethisyear. The asylum reforms are being considered alongside military proposals aimed at destroying the boats used by people traffickers and stemming the number of peoplemakingthetrip. Some countriesfelt the idea was halfbaked and drawn up without the input ofnationalgovernments.“Thishasbeen done in a way that is completely unprepared,” said one senior eastern European diplomat. “It’s a crazy system that showsthewrongattitudetomigrants.” Poland, Hungary, Slovakia and the Czech Republic, along with the Baltic states, have led the rising chorus of opposition to the proposals, with supportfromRomaniaandBulgaria. “You are not going to resolve this very serious issue in three weeks with procedures that are rushed through in panic mode,” said the diplomat. “[Commission president Jean-Claude] Juncker is saying he does not really care what the leadersthink.” Germany, France and Italy are understood to be in favour of the asylum proposals, meaning that smaller countries are likely to face intense diplomatic pressure once the proposals are officially tabled on Wednesday. Britain, Ireland and Denmark are all able to opt out ofthescheme,shouldtheywish. Critics argue that hiving off clear-cut asylum cases will leave countries such as Italy — the main arrival country for those crossing the Mediterranean from Libya — having to deal with trickier applicationsandpotentialdeportations. Germany has complained that Italy, in particular, does not process arrivals properly, allowing migrants to make asylumapplicationsinothercountries. ‘There is a lot of disease here. So we suffer. There are a lot of sick people sleeping here’ SIMEON KERR — RIYADH Lines of green Saudi flags hang proudly along Riyadh’s wide highways while screens around the capital broadcast footage on a loop of F-16s flying into combatandmassiveexplosions. Local companies have taken out giant billboards pledging allegiance to the “decisive and determined”King Salman bin Abdulaziz al-Saud, while ordinary Saudis have taken to social media to show their support for the king and the country’smilitarycampaigninYemen. An unprecedented jingoism — hidden for decades — has swept through Saudi Arabia since King Salman ascended to the throne in January and the launch in March of the aerial campaign against ShiaHouthirebels. Although the air strikes have raised international concern and heightened tensions with Iran, its rival for regional dominance, they have been cheered in Saudi by an increasingly nationalist and sectariansentiment. “We are strong again under them,” says Ahmed, a middle-aged Saudi national, pointing approvingly at one of manypostersofKingSalmanflankedby Mohammed bin Nayef, his recently promoted crown prince, and Mohammed bin Salman, his 30-year-old son, deputy heiranddefenceminister. Spearheaded by Mohammed bin Salman, the Yemen campaign embodies what Saudis believe is a new era of decisiveness — even if it has so far failed to deliver thepolitical objectives of returningtheoustedpresidenttopower. “The Yemen war seems to be creating a newfound nationalist fervour,” says Jane Kinninmont, deputy head of the Middle East programme at the Chatham House think-tank, who contrasts the mood with the former “period where many Saudis felt militarily impotent and frustrated at the lack of either Saudi or Arab capacity to act militarily — particularly in Syria. “Thewaris creating a sense that the new leadership is confident,activeandstrong.” After two decades of cautious reform under the late King Abdullah, who ruled largely by consensus, King Salman’s reignhasbrokenwiththepast. As well as the cabinet shake-up and the Yemen campaign, the king has also overseen the wresting of control of the state-owned oil company from the oil ministry to a council chaired by his son and the introduction of a real estate tax aimingateasingahousingshortage. At the same time, King Salman has also moved quickly to placate the conservative strain in Saudi society by promoting hardline clerics and empoweringthereligiouspolice. Abdullah Shammari, an analyst and former diplomat, says the new monarch is tapping into the complex societal trends, from tribalism to the Wahhabi strain of Islam, that bind the kingdom together. “King Salman is taking Saudi Arabiabacktothenorm,”MrShammari says. “Reactivating the identity of Wahhabism controls the country and undermines support for al-Qaeda,” he says, disagreeing with those who claim the Saudi purist strain of Islam is the root of growingjihadiextremism. For younger Saudis, however, the most profound shift of the new reign has been to new group leadership closer in agetotheirowngeneration. Mohammed bin Nayef, who is in his 50s, and the 30-year-old Mohammed bin Salman deputised for the king at talks with US President Barack Obama at Camp David this month. As well as the defence brief, Mohammed bin Salman also controls a powerful economic co-ordination body that is seeking to boostefficiencyandintroduce reforms. Western officials and intellectuals worry the range of powers given to the inexperienced prince could signal the endofconsensusleadershipinSaudi. Such concerns, while muted, are also echoed among some Saudi middle classes. “When has such . . . power surrounding one individual worked out well,” says a young Riyadh businessman who declined to give his name. “I don’t seewhyweshouldbeanydifferent.” The royal family’s allegiance council has given majority backing to the appointments of Mohammed bin Nayed and Mohammed bin Salman, meaning there is little other royals can do. Prince Mutaib bin Abdullah, son of the late king who lost out in the royal reshuffles, still controls the powerful national guard. Analysts are now watching for rumoured moves to consolidate the tribal based fighting force within the defence ministry controlled by MohammedbinSalman. For now, however, most Saudis seem willing to give the new leadership the benefit of the doubt, given the scale of potentialdomesticchallenges. DAVID KEOHANE AND JAMES CRABTREE — MUMBAI Larger-than-life Indian politician Jayalalithaa has been sworn in as chief minister for the fifth time, after being acquitted of corruption charges by an Indian courtthismonth. The former film star — known as “Amma” (or mother) in her home state of Tamil Nadu — sits at the centre of one of India’s highest profile personality cults, becoming one of her country’s most divisive political leaders since first being elected as the state’s chief ministerin1991. Jayalalithaa’s reappointment makes herthelatestinaseriesofstate-levelpoliticians on India to resurrect their careers in spite of being accused of serious crimes. Last week, a court in Bangalore overturned a conviction from last Septemberinanear20-year-oldcorruption case, which had seen Jayalalithaa facingapossiblefour-yearjailtermanda decade-longbanfrompolitics. The case symbolises the influence of a coterie of chief ministers from large industrialisedstatessuchasTamilNadu — a power base that grew this year as Narendra Modi, India’s prime minister, moved to increase financial devolution tothestatesfromthecentre. Many of Mr Modi’s most important economic priorities, such as labour market deregulation and the introduction of nationwide tax reforms, require the co-operation of state political leaderssuchasJayalalithaa. The cheers fromher supporters as she travelled to her latest swearing in ceremony was a contrast to the tears shed when she was convicted by a court in neighbouring Karnataka, to where her trial was moved for fear a fair judgment could not be brought in Tamil Nadu. Thatruling was brought under a clause of the prevention of corruption act, penalising public servants with assets “disproportionate”totheirlegalincome. And although Jayalalithaa argued she was being framed by her political enemies, she was unable to explain how — after taking a salary of Rs1 a month as chief minister from 1991 to 1996 — she had acquired assets of more than Rs53m, including 750 pairs of shoes, 10,000 saris, gold, silver and various propertiesandcompanies. The judgment shone a light not only on Jayalalithaa’s power in one of India’s most important manufacturing and export hubs, but also on the cult of personalitythatsupportedher. September’s ruling was reversed by a judgment that cast doubt on some of the evidence, and said the standard for a convictionhadnotbeenmet. Saudi Arabia. Air strikes Yemen offensive sparks jingoisticfervour Houthi campaign embodies what many in Kingdom see as new era of decisive leadership Refugee share-out EU to allot up to 40,000 asylum seekers in reform plan India PoliticianJayalalithaa returns after acquittal over corruption Fanning flames: smoke billows after Saudi strike on a Houthi arms depot Migrants rest in a detention centre close to Benghazi, above. Abuse, corruption and disease are widespread at such facilities. Below, migrants await to disembark from a rescue ship in Messina, Sicily Esam Omran al-Fetori/Reuters/ Giovanni Isolino MAY 25 2015 Section:World Time: 24/5/2015 - 18:14 User: jamesa Page Name: WORLD2, Part,Page,Edition: LON, 5, 1