FinanacialTimesEur_20120620
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EUROPE Wednesday June 20 2012 World Business Newspaper Jun 19 prev %chg S&P 500 1358.39 1344.78 +1.01 Nasdaq Comp 2927.72 2895.33 +1.12 Dow Jones Ind 12850.95 12741.82 +0.86 FTSEurofirst 300 1009.55 993.67 +1.60 Euro Stoxx 50 2198.01 2155.64 +1.97 FTSE 100 5586.31 5491.09 +1.73 FTSE All-Share UK 2895.44 2847.84 +1.67 CAC 40 3117.92 3066.19 +1.69 Xetra Dax 6363.36 6248.2 +1.84 Nikkei 8655.87 8721.02 -0.75 Hang Seng 19416.67 19427.81 -0.06 FTSE All World $ (u) 201.51 - COMMODITIES Jun 19 prev chg Oil WTI $ Jul 84.03 83.27 0.76 Oil Brent $ Aug 95.76 96.05 -0.29 Gold $ 1,628.55 1,628.40 0.15 price yield chg US Gov 10 yr 101.20 1.62 0.03 UK Gov 10 yr 120.31 1.72 0.05 Ger Gov 10 yr 102.01 1.53 0.10 Jpn Gov 10 yr 100.74 0.82 -0.02 US Gov 30 yr 105.58 2.73 0.04 Ger Gov 2 yr 99.82 0.09 0.07 Jun 19 prev chg Fed Funds Eff 0.17 0.18 -0.01 US 3m Bills 0.10 0.09 0.01 Euro Libor 3m 0.57 0.57 0.00 UK 3m 0.94 0.94 - Prices are latest for edition Jun 19 prev $ per € 1.268 1.258 $ per £ 1.571 1.567 £ per € 0.807 0.803 ¥ per $ 79.0 78.9 ¥ per £ 124.2 123.6 $ index 81.3 81.7 SFr per € 1.201 1.201 Jun 19 prev € per $ 0.789 0.795 £ per $ 0.636 0.638 € per £ 1.239 1.246 ¥ per € 100.2 99.26 £ index 83.2 83.4 € index 88.76 88.35 SFr per £ 1.489 1.496 STOCK MARKETS CURRENCIES INTEREST RATES World Markets Beijing seeks extradition of French Bo associate arrested in Cambodia By Kathrin Hille in Beijing, Sally Gainsbury in London and Hugh Carnegy in Paris A French architect linked to the family of the purged Chinese politician Bo Xilai has been arrested in Cambodia, in a development that may be linked to the Chinese Communist party’s probe into Mr Bo. News agencies quoted Cambo- dian officials and French diplo- mats as saying that Patrick Dev- illers had been arrested in Phnom Penh in relation to an unspecified alleged crime in China – and that Beijing had requested his extradition. The Chinese foreign ministry could not be reached for comment. The French foreign ministry said Mr Devillers had been arrested on June 13 and placed in detention. Paris has demanded that the Cambodian authorities provide an explanation for his arrest. Mr Bo – a populist politician who had been expected to rise into China’s top leadership ranks this year – was in March stripped of his post as party sec- retary of Chongqing, in south- west China. He was suspended from the 25-member politburo a month later. His downfall revealed a fierce power struggle at the top of the party ahead of a once-in-a- decade leadership succession this year. The Chinese Communist party’s Discipline Inspection Commission, which investigates party members before turning them over to the judiciary, is investigating Mr Bo for unspeci- fied “discipline violations”. Chinese authorities have also said Mr Bo’s wife, Gu Kailai, is a suspect in the alleged murder of Neil Heywood, a British busi- nessman and longstanding fixer for the Chinese couple. Mr Devillers was another long-time associate of the Bo family. Mr Bo met Mr Devillers while mayor of the north-east- ern city of Dalian and commis- sioned him for architectural work. In 2000, Mr Devillers set up a UK company – Adad Limited – with Ms Gu, who used the name Horus Kai. The company, with a registered address in the town of Poole, in south-west England, was disbanded in 2003. The resi- dential address for both Ms Gu and Mr Devillers was a flat above an office block in the nearby coastal resort town of Bournemouth. A person familiar with Mr Heywood’s business relationship with the Bos told the Financial Times that Mr Devillers had been “very significant” to the Bos in the past, assisting them with international dealings. Austria €3.50 Malta €3.30 Bahrain Din1.5 Mauritius MRu90 Belgium €3.50 Morocco Dh40 Bulgaria Lev7.50 Netherlands €3.50 Croatia Kn29 Nigeria Naira715 Cyprus €3.30 Norway NKr30 Czech Rep Kc120 Oman OR1.50 Denmark DKr30 Pakistan Rupee 130 Egypt E£19 Poland Zl 16 Estonia €4.00 Portugal €3.50 Finland €3.80 Qatar QR15 France €3.50 Romania Ron17 Germany €3.50 Russia €5.00 Gibraltar £2.30 Saudi Arabia Rls15 Greece €3.50 Serbia NewD370 Hungary Ft880 Slovak Rep €3.50 India Rup85 Slovenia €3.50 Italy €3.50 South Africa R28 Jordan JD3.25 Spain €3.50 Kazakhstan US$5.20 Sweden SKr34 Kenya Kshs300 Switzerland SFr5.70 Kuwait KWD1.50 Syria US$4.74 Latvia Lats3.90 Tunisia Din6.50 Lebanon LBP7000 Turkey TL7.25 Lithuania Litas15 UAE Dh15.00 Luxembourg €3.50 Ukraine €5.00 Macedonia Den220 Cover Price 9 7 7 0 1 7 4 7 3 6 1 3 5 2 5 In print and online Tel: +44 20 7775 6000 Fax: +44 20 7873 3428 email: [email protected] www.ft.com/subscribetoday Subscribe now © THE FINANCIAL TIMES LIMITED 2012 No: 37,958 ★ Printed in London, Liverpool, Dublin, Frankfurt, Brussels, Stockholm, Milan, Madrid, New York, Chicago, San Francisco, Dallas, Orlando, Washington DC, Johannesburg, Tokyo, Hong Kong, Singapore, Seoul, Abu Dhabi, Sydney US watchdog hits at London financial risk US lawmakers and regulators have attacked London as a source of financial crises and promised tougher cross- border regulation in the wake of $2bn of trading losses from the UK unit of JPMorgan Chase. Page 15 Bund sell-off forecast Hedge fund managers are betting on a significant sell- off in German Bunds in coming months after a sharp fall in yields sparked by a flight to safety from other eurozone economies. Page 15 Egypt aid in jeopardy Billions of dollars in badly needed development aid and budget support from international institutions has been jeopardised by the decision of Egypt’s military and judiciary to dissolve parliament. Page 2 Iran talks falter Efforts by world powers to convince Iran to freeze parts of its uranium enrichment programme appeared to be failing yesterday as another round of talks over Tehran’s nuclear ambitions moved towards deadlock. Page 2 Athens bailout split EU officials are split on how much to revise Greece’s €174bn bailout once Athens’ new government is in place – with a German-led group insisting on no delays in targets while others urge flexibility. Page 4 Airbnb rentals surge Airbnb, the peer-to-peer home rental website, doubled the number of nights booked through it to 10m in the past five months. Page 15 Romney Latino poser Republican candidate Mitt Romney struggles to find a fresh pitch to Hispanic voters ahead of a community leaders’ meeting after President Barack Obama ruled out deportation for young illegal immigrants. Page 8 Myanmar growth vow Myanmar president Thein Sein vowed to triple the size of the economy within three years as well as introduce privatisation and a minimum wage. Page 5 Mongolia buyback row The Mongolian government’s estimated $1bn buyback of shares in Tavan Tolgoi, the world’s third-biggest coking coal mine, that were previously handed out to its citizens has been attacked by domestic critics. Page 5 Syria arms ship U-turn A Russian-owned ship suspected of carrying arms destined for Syria has turned back after a UK-based insurer withdrew its cover. Page 2 n. News Briefing Obiang riches The son of Equatorial Guinea’s president spent $315m between 2004 and 2011 on mansions, cars, luxury goods and memorabilia, including Michael Jackson’s white crystal-covered “Bad Tour” glove, according to the US justice department. The US lawyers for Teodoro Obiang said a legitimate timber business had made him a ‘very wealthy man’. Report, Page 3 Separate sections Africa & the Green Economy Awareness grows of the need to be sustainable Sustainable Business Development Being green is starting to be seen as sound business Prison brew: bringing whiskey back to Belfast Business Life, Page 12 A marriage made in hell The eurozone’s flawed union. Comment, Page 11 By Chris Giles and George Parker in Los Cabos and Peter Spiegel in Brussels Eurozone members of the Group of 20 leading economies will commit to driving down borrow- ing costs across the single cur- rency area, according to a leaked draft of the communiqué at the Mexico summit yesterday. On the day that Spain was forced to pay more than 5 per cent to borrow money for one year, the need for action to stem the spiral of rising government bond yields was accepted by Germany, France and Italy, the G20’s three eurozone members. According to officials briefed on the talks, Mario Monti, Italy’s prime minister, raised the possibility of using the euro- zone’s €440bn rescue fund to buy peripheral bonds on the open market. But Angela Mer- kel, Germany’s chancellor, was non-committal about the idea during a formal session on Mon- day night. However, officials said Ms Merkel had subsequent conver- sations on the sidelines of the summit which led her interlocu- tors to believe “she may be will- ing to do more”. A German official told Reuters there had not been any discus- sion at the summit about “con- crete initiatives”. According to another senior European official, the idea of using the rescue fund to pur- chase sovereign bonds had been pushed hard by the US adminis- tration. The US has for months been urging Ms Merkel to act more decisively to tackle the spreading crisis. Speaking to journalists before he started the second day of negotiations, François Hollande, France’s president, said the bor- rowing costs of Spain and Italy were unacceptable. “We must show a much faster ability to intervene,” he added. George Osborne, UK chancel- lor of the exchequer, said: “I think there are signs that the eurozone are moving towards richer countries standing behind their banks and standing behind the weaker countries.” The draft communiqué does not mention specific action to be taken by eurozone countries, but aims to cut borrowing costs for countries such as Spain and Italy. It says recent eurozone policies, such as the fiscal com- pact and growth-enhancing measures, are “important steps towards greater fiscal and eco- nomic integration that lead to sustainable borrowing costs”. Mr Hollande said: “It’s not acceptable that Spain, which just got a promise for support, has interest rates around 7 per cent.” The European Financial Sta- bility Facility, the eurozone’s rescue fund, was last year given the power to purchase sovereign bonds of struggling countries on the open market, a power previ- ously reserved for the European Central Bank. Together with the European Stability Mechanism, expected to be established next month, the two funds command about €500bn of firepower. Hopes rise, Page 4 Joseph Joffe and Martin Wolf, Page 11 G20 bid to cut cost of borrowing in eurozone Big nations accept need for action Rule of law Supreme court ousts Pakistan’s premier Lawyers celebrate after Pakistan’s supreme court forced prime minister Yusuf Raza Gilani out of office yesterday for refusing to reopen corruption cases against the president. The move plunges the country into a new political crisis Report, Page 2 epa By Barney Jopson, Alan Rappeport and David Gelles in New York and Andrea Felsted in London Walgreens, the US’s biggest drugstore by sales, has set out its ambition to create a global pharmacy chain by buying a 45 per cent stake in Alliance Boots for about $6.5bn. In a two-stage deal, Wal- greens, which had sales of $72bn last year, could eventu- ally own all of the UK pharma- cist – marking a sharp change of course for a US chain with hitherto domestic horizons. Walgreens will gain interna- tional exposure through Boots’ store network and its wholesale distribution business, while the enhanced buying power of a combined company could push down drug prices for consum- ers, analysts said. According to Stefano Pessina, executive chairman of Alliance Boots, the deal will pave the way for further acquisitions. Alluding to Walgreens’ strong cash flow, he said: “We will have so much money that we’ll have to buy something and expand rapidly.” Mr Pessina took Alliance Boots private with Kohlberg Kravis Roberts five years ago in a £12bn deal – Europe’s biggest buyout at the time – and he has long sought a US tie-up. David Magee, managing director at SunTrust Robinson Humphrey, said the deal would help Walgreens tap global growth in prescription sales, but he acknowledged investor concerns: “Buying a company in Europe is not the headline a lot of shareholders wanted to see. They take on more debt and increase the operational risk going forward.” Walgreens’ shares fell 5.7 per cent to $30.15 in afternoon trad- ing. Investor confidence in Wal- greens has been eroded by a dispute that ended its partner- ship with Express Scripts, which manages prescription plans. “We were expecting them to do something to offset the $10bn-$11bn in lost reve- nues from Express Scripts,” said David Larsen, healthcare analyst at Leerink Swann. Under the terms of the deal, Walgreens will initially acquire 45 per cent of Alliance Boots for $4bn in cash and $2.5bn in shares. Walgreens has an option to acquire the remaining 55 per cent of Boots for $4.9bn in cash and shares that were worth about $4.3bn yesterday. It would also assume Boots’ outstanding debt, which was £7bn net at the end of March. Goldman Sachs and Lazard advised Walgreens on the deal, with Centerview Partners act- ing for Boots. Lex, Page 14 Global expansion, Page 17 Walgreens pays $6.5bn for Boots stake ‘We will have so much money that we’ll have to buy something and expand rapidly’ Stefano Pessina chairman of Alliance Boots
Transcript of FinanacialTimesEur_20120620
EUROPE Wednesday June202012WorldBusinessNewspaperJun 19 prev%chgS&P 500 1358.39 1344.78 +1.01Nasdaq Comp2927.72 2895.33 +1.12Dow Jones Ind12850.95 12741.82 +0.86FTSEurofrst 300 1009.55 993.67 +1.60Euro Stoxx 50 2198.01 2155.64 +1.97FTSE 100 5586.31 5491.09 +1.73FTSE All-Share UK 2895.44 2847.84 +1.67CAC 40 3117.92 3066.19 +1.69Xetra Dax 6363.36 6248.2 +1.84Nikkei8655.87 8721.02 -0.75Hang Seng 19416.67 19427.81 -0.06FTSE All World $ (u)201.51 -COMMODITIESJun 19 prevchgOil WTI $Jul84.03 83.27 0.76Oil Brent $Aug 95.76 96.05 -0.29Gold $ 1,628.55 1,628.40 0.15price yieldchgUS Gov 10 yr 101.20 1.62 0.03UK Gov 10 yr 120.31 1.72 0.05Ger Gov 10 yr 102.01 1.53 0.10Jpn Gov 10 yr 100.74 0.82 -0.02US Gov 30 yr 105.58 2.73 0.04Ger Gov 2 yr 99.82 0.09 0.07Jun 19 prevchgFed Funds Ef 0.17 0.18 -0.01US 3mBills0.10 0.09 0.01Euro Libor 3m 0.57 0.57 0.00UK 3m 0.94 0.94 -Prices are latest for editionJun 19 prev$ per 1.268 1.258$ per 1.571 1.567 per 0.807 0.803 per $ 79.0 78.9 per 124.2 123.6$ index 81.3 81.7SFr per 1.201 1.201Jun 19 prev per $ 0.789 0.795 per $ 0.636 0.638 per 1.239 1.246 per 100.2 99.26 index 83.2 83.4 index 88.76 88.35SFr per 1.489 1.496STOCK MARKETS CURRENCIES INTEREST RATESWorld MarketsBeijing seeks extradition of FrenchBo associate arrested in CambodiaByKathrinHilleinBeijing,SallyGainsburyinLondonandHughCarnegyinParisA French architect linked to thefamily of the purged Chinesepolitician Bo Xilai has beenarrested in Cambodia, in adevelopmentthatmaybelinkedto the Chinese CommunistpartysprobeintoMrBo.NewsagenciesquotedCambo-dianofficialsandFrenchdiplo-mats as saying that Patrick Dev-illers had been arrested inPhnomPenhinrelationto anunspecified alleged crime inChina and that Beijing hadrequested his extradition. TheChinese foreignministry couldnotbereachedforcomment.The French foreign ministrysaid Mr Devillers had beenarrestedonJune13andplacedindetention.Paris has demandedthat theCambodian authorities providean explanation for his arrest.Mr Bo apopulist politicianwho hadbeenexpectedto riseinto Chinas top leadershipranksthisyearwasinMarchstripped of his post as party sec-retary of Chongqing, in south-west China. He was suspendedfromthe25-memberpolitburoamonthlater.Hisdownfall revealedafiercepowerstruggleatthetopoftheparty ahead of a once-in-a-decade leadership successionthisyear.The Chinese Communistpartys Discipline InspectionCommission, whichinvestigatesparty members before turningthemover to the judiciary, isinvestigatingMrBoforunspeci-fieddisciplineviolations.Chineseauthoritieshavealsosaid Mr Bos wife, Gu Kailai, is asuspect in the alleged murder ofNeil Heywood, a British busi-nessman and longstandingfixer for the Chinese couple.Mr Devillers was anotherlong-time associate of the Bofamily. MrBometMrDevillerswhile mayor of the north-east-erncityof Dalianandcommis-sioned him for architecturalwork.In2000, MrDevillerssetupaUKcompany AdadLimitedwith Ms Gu, who used the nameHorus Kai. The company, with aregistered address inthe townofPoole,insouth-westEngland,wasdisbandedin2003.Theresi-dential addressforbothMsGuand Mr Devillers was a flatabove an office block in thenearby coastal resort town ofBournemouth.A person familiar with MrHeywoods business relationshipwiththeBostoldtheFinancialTimes that Mr Devillers hadbeen very significant to theBosinthepast, assistingthemwithinternationaldealings.Austria 3.50 Malta 3.30Bahrain Din1.5 Mauritius MRu90Belgium 3.50 Morocco Dh40Bulgaria Lev7.50 Netherlands 3.50Croatia Kn29 Nigeria Naira715Cyprus 3.30 Norway NKr30Czech Rep Kc120 Oman OR1.50Denmark DKr30 Pakistan Rupee 130Egypt E19 Poland Zl 16Estonia 4.00 Portugal 3.50Finland 3.80 Qatar QR15France 3.50 Romania Ron17Germany 3.50 Russia 5.00Gibraltar 2.30 Saudi Arabia Rls15Greece 3.50 Serbia NewD370Hungary Ft880 Slovak Rep 3.50India Rup85 Slovenia 3.50Italy 3.50 South Africa R28Jordan JD3.25 Spain 3.50Kazakhstan US$5.20 Sweden SKr34Kenya Kshs300 Switzerland SFr5.70Kuwait KWD1.50 Syria US$4.74Latvia Lats3.90 Tunisia Din6.50Lebanon LBP7000 Turkey TL7.25Lithuania Litas15 UAE Dh15.00Luxembourg 3.50 Ukraine 5.00Macedonia Den220Cover Price9 770174 7361352 5In print and onlineTel: +44 20 7775 6000Fax: +44 20 7873 3428email: [email protected]/subscribetodaySubscribe now THE FINANCIAL TIMESLIMITED 2012No: 37,958PrintedinLondon, Liverpool, Dublin,Frankfurt, Brussels, Stockholm, Milan,Madrid, NewYork, Chicago, SanFrancisco,Dallas, Orlando, WashingtonDC,Johannesburg, Tokyo, HongKong,Singapore, Seoul, AbuDhabi, SydneyUSwatchdoghitsatLondonfinancial riskUSlawmakersandregulatorshaveattackedLondonasasourceoffinancialcrisesandpromisedtoughercross-borderregulationinthewakeof$2bnoftradinglossesfromtheUKunitofJPMorganChase. Page15Bund selloff forecastHedgefundmanagersarebettingonasignificantsell-offinGermanBundsincomingmonthsafterasharpfallinyieldssparkedbyaflighttosafetyfromothereurozoneeconomies. Page15EgyptaidinjeopardyBillionsofdollarsinbadlyneededdevelopmentaidandbudgetsupportfrominternationalinstitutionshasbeenjeopardisedbythedecisionofEgyptsmilitaryandjudiciarytodissolveparliament. Page2IrantalksfalterEffortsbyworldpowerstoconvinceIrantofreezepartsofitsuraniumenrichmentprogrammeappearedtobefailingyesterdayasanotherroundoftalksoverTehransnuclearambitionsmovedtowardsdeadlock. Page2AthensbailoutsplitEUofficialsaresplitonhowmuchtoreviseGreeces174bnbailoutonceAthensnewgovernmentisinplacewithaGerman-ledgroupinsistingonnodelaysintargetswhileothersurgeflexibility. Page4AirbnbrentalssurgeAirbnb, thepeer-to-peerhomerentalwebsite, doubledthenumberofnightsbookedthroughitto10minthepastfivemonths. Page15RomneyLatinoposerRepublicancandidateMittRomneystrugglestofindafreshpitchtoHispanicvotersaheadofacommunityleaders meetingafterPresidentBarackObamaruledoutdeportationforyoungillegalimmigrants.Page8MyanmargrowthvowMyanmarpresidentTheinSeinvowedtotriplethesizeoftheeconomywithinthreeyearsaswellasintroduceprivatisationandaminimumwage. Page5Mongolia buyback rowTheMongoliangovernmentsestimated$1bnbuybackofsharesinTavanTolgoi, theworldsthird-biggestcokingcoalmine, thatwerepreviouslyhandedouttoitscitizenshasbeenattackedbydomesticcritics. Page5Syria arms ship UturnARussian-ownedshipsuspectedofcarryingarmsdestinedforSyriahasturnedbackafteraUK-basedinsurerwithdrewitscover.Page2n.News BriefingObiang richesThesonofEquatorial Guineaspresidentspent$315mbetween2004and2011onmansions, cars, luxurygoodsandmemorabilia, includingMichael JacksonswhitecrystalcoveredBadTourglove, accordingtotheUSjusticedepartment. TheUSlawyersforTeodoroObiangsaidalegitimatetimberbusinesshadmadehimaverywealthyman.Report, Page3Separate sectionsAfrica & the Green EconomyAwareness grows of the needto be sustainableSustainable BusinessDevelopmentBeing green is starting to beseen as sound businessPrison brew: bringingwhiskey back to BelfastBusiness Life, Page 12A marriage made in hellThe eurozones flawed union. Comment, Page 11ByChrisGilesandGeorgeParkerinLosCabosandPeterSpiegel inBrusselsEurozone members of the Groupof 20 leading economies willcommit to driving down borrow-ingcosts across thesinglecur-rency area, according to aleakeddraftofthecommuniquat the Mexico summit yesterday.On the day that Spain wasforcedto paymore than5 percent to borrowmoney for oneyear, the need for action to stemthespiral of risinggovernmentbond yields was accepted byGermany, FranceandItaly, theG20sthreeeurozonemembers.According to officials briefedon the talks, Mario Monti,Italys prime minister, raisedthe possibility of using the euro-zones 440bn rescue fund tobuy peripheral bonds on theopenmarket. But Angela Mer-kel, Germanys chancellor, wasnon-committal about the ideaduring a formal session on Mon-daynight.However, officials said MsMerkel hadsubsequent conver-sations onthe sidelines of thesummitwhichledherinterlocu-tors to believe she may be will-ingtodomore.A German official told Reuterstherehadnot beenanydiscus-sionat thesummit about con-creteinitiatives.According to another seniorEuropean official, the idea ofusing the rescue fund to pur-chasesovereignbondshadbeenpushedhardbytheUSadminis-tration. TheUShasformonthsbeen urging Ms Merkel to actmore decisively to tackle thespreadingcrisis.Speakingtojournalistsbeforehe started the second day ofnegotiations, FranoisHollande,Francespresident,saidthebor-rowingcostsof SpainandItalywere unacceptable. We mustshowa much faster ability tointervene,headded.George Osborne, UKchancel-lor of the exchequer, said: Ithink there are signs that theeurozone are moving towardsricher countries standingbehind their banks and standingbehindtheweakercountries.The draft communiqu doesnot mention specific action to betaken by eurozone countries,butaimstocutborrowingcostsforcountriessuchasSpainandItaly. It says recent eurozonepolicies, suchasthefiscal com-pact and growth-enhancingmeasures, are important stepstowards greater fiscal andeco-nomic integration that lead tosustainableborrowingcosts.Mr Hollande said: Its notacceptable that Spain, whichjust got apromise for support,hasinterest ratesaround7percent.The European Financial Sta-bility Facility, the eurozonesrescuefund,waslastyeargiventhe power to purchase sovereignbonds of struggling countries ontheopenmarket,apowerprevi-ouslyreservedfortheEuropeanCentralBank.Together with the EuropeanStability Mechanism, expectedto be established next month,the two funds command about500bnoffirepower.Hopesrise, Page4JosephJoffeandMartinWolf, Page11G20 bid tocut cost ofborrowingin eurozoneBig nations accept need for actionRule of lawSupreme court ousts Pakistans premierLawyerscelebrateafterPakistanssupremecourtforcedprimeministerYusufRazaGilani outofofficeyesterdayforrefusingtoreopencorruptioncasesagainstthepresident. Themoveplungesthecountryintoanewpolitical crisisReport, Page2 epaByBarneyJopson,AlanRappeportandDavidGellesinNewYorkandAndreaFelstedinLondonWalgreens, the USs biggestdrugstorebysales, hasset outits ambitiontocreateaglobalpharmacy chain by buying a45per cent stake in AllianceBootsforabout$6.5bn.In a two-stage deal, Wal-greens, which had sales of$72bn last year, could eventu-allyownalloftheUKpharma-cist markingasharpchangeof course for aUSchainwithhithertodomestichorizons.Walgreens will gaininterna-tional exposurethroughBootsstore network and its wholesaledistributionbusiness, whiletheenhanced buying power of acombinedcompanycouldpushdowndrug prices for consum-ers, analystssaid.AccordingtoStefanoPessina,executivechairmanof AllianceBoots, the deal will pave theway for further acquisitions.Alluding to Walgreens strongcash flow, he said: We willhavesomuchmoneythatwellhave to buy something andexpandrapidly.Mr Pessina took AllianceBoots private with KohlbergKravis Roberts five years ago ina12bndealEuropesbiggestbuyout at the time and he haslongsoughtaUStie-up.David Magee, managingdirector at SunTrust RobinsonHumphrey, saidthedealwouldhelp Walgreens tap globalgrowth in prescription sales,but he acknowledged investorconcerns: Buying a companyinEuropeisnottheheadlinealot of shareholders wanted tosee. They take on more debtand increase the operationalriskgoingforward.Walgreens sharesfell 5.7percentto$30.15inafternoontrad-ing. Investor confidence in Wal-greens has been eroded by adisputethat endedits partner-ship with Express Scripts,which manages prescriptionplans. We were expectingthemtodosomethingtooffsetthe $10bn-$11bn in lost reve-nues from Express Scripts,said David Larsen, healthcareanalystatLeerinkSwann.Under thetermsof thedeal,Walgreenswillinitiallyacquire45 per cent of Alliance Boots for$4bn in cash and $2.5bn inshares. Walgreens has anoption to acquire the remaining55percent of Bootsfor$4.9bnin cash and shares that wereworth about $4.3bn yesterday.It would also assume Bootsoutstanding debt, which was7bnnetattheendofMarch.Goldman Sachs and LazardadvisedWalgreensonthedeal,with CenterviewPartners act-ingforBoots.Lex, Page14Global expansion, Page17Walgreens pays $6.5bn for Boots stakeWe will have so muchmoney that well haveto buy something andexpand rapidlyStefano Pessinachairman of Alliance BootsJUNE 20 2012 Section:FrontBack Time: 19/6/2012 - 20:36 User: robertss Page Name: 1FRONT EUR, Part,Page,Edition: EUR, 1, 12 FINANCIAL TIMES WEDNESDAY JUNE 20 2012FINANCIAL TIMESNumber One Southwark Bridge, London SE1 9HLSUBSCRIPTIONS AND CUSTOMERSERVICE:Tel: +1 44 207 775 [email protected]/subscribetodayLETTERS TO THE EDITOR:Fax: +44 20 7873 [email protected]:Tel: +44 20 7873 [email protected] APPOINTMENTS:Tel: +971 4299 754www.execappointments.comPublished by: The Financial Times Limited, Number One Southwark Bridge, London SE1 9HL, UnitedKingdom. Tel: +44 20 7873 3000; Fax: +44 20 7407 5700. Editor: Lionel Barber.Printed by: (Belgium) BEA Printing sprl, 16 Rue de Bosquet, Nivelles 1400; (Germany) Dogan MediaGroup, Hurriyet AS Branch Germany, An der Brucke 2022, 64546 Morfelden Walldorf; (Italy) PoligraficaEuropa, S.r.l, Villasanta (MB), Via Enrico Mattei 2, Ecocity Building No.8. Milan; (South Africa) CaxtonPrinters a division of CTP Limited, 16 Wright Street, Industria, Johannesburg; (Spain) Fabripress, C/ Zeus12, Polgono Industrial MecoR2, 28880 Meco, Madrid. (Sweden) Bold Printing Group/ Boras TidningTryckeri AB, Odegardsgatan 2, S504 94, Boras. (Abu Dhabi) United Printing & Publishing Company LLC,Muroor Road, PO Box 39955, Abu DhabiFrance: Publishing Director, Adrian Clarke, 40 Rue La Boetie, 75008 Paris, Tel. +33 (0)1 5376 8250; Fax:+33 (01) 5376 8253; Commission Paritaire N 0909 C 85347; ISSN 11482753. Germany: ResponsibleEditor, Lionel Barber. Responsible for advertising content, Adrian Clarke. Italy: Owner, The Financial TimesLimited; Rappresentante e Direttore Responsabile in Italia: I.M.D.SrlMarco Provasi Via Guido da Velate 1120162 Milano Aut.Trib. Milano n. 296 del 08/05/08 Poste Italiane SpASped. in Abb.Post.DL. 353/2003(conv. L. 27/02/2004n.46) art. 1 comma 1, DCB Milano. Spain: Legal Deposit Number (Deposito Legal)M325961995; Publishing Director, Lionel Barber; Publishing Company, The Financial Times Limited,registered office as above. Local Representative office; Castellana, 66, 28046, Madrid. ISSN 11358262.Sweden: Responsible Publisher, Bradley Johnson; Telephone +46 414 20320. UAE: Publisher, AdrianClarke, Tel: +33 (0)1 5376 8250; origin of publication, twofour54, Free Zone, Abu Dhabi.Copyright The Financial Times 2012. Reproduction of the contents of this newspaper in any manner isnot permitted without the publishers prior consent. Financial Times and FT are registered trade marksof The Financial Times Limited.The Financial Times adheres to the selfregulation regime overseen by the UKs Press ComplaintsCommission. The PCC takes complaints about the editorial content of publications under the Editors Codeof Practice (www.pcc.org.uk). The FTs own code of practice is on www.ft.com/codeofpractice.Reprints are available of any FT article with your company logo or contact details inserted if required(minimum order 100 copies). Phone +44 20 7873 4871. For oneoff copyright licences for reproductionof FT articles phone +44 20 7873 4816. For both services, email [email protected],TunisiasmoderateIslamistgovernmenthasforthemostpartbeenamodelofrelativesuccessforaregionundergoingdrasticpoliticalchange.LedbyHamadiJabali,theprimeminister, oftheIslamistNahdaparty, itincludessecularliberalgroupingsledbyhumanrightsactivistMoncefMarzouki, whoservesaspresident, andsocialdemocratMustaphabinJaafar, theparliamentarySpeaker. Ithaseschewedanideologicalprogrammeinfavourofapragmaticagendafocusedonrebuildingtheeconomy.ButinreactingtoextremistIslamistsriotingacrossthecountryoveraprovocativeartexhibit,thegovernmentfacesitsgreatestpoliticaltestyet,onewiththepotentialforgravefailure. ManyTunisiansandinternationalobserversworrythatitshalf-heartedresponseisamisguidedpursuitofshort-termintereststhatmightendangertherevolutionandthehopethatanewcropofmoderateIslamistleaderswillbeabletoupholdthetenets of liberal democracywhilemaintainingaMuslimidentity.AprimaryargumentforacceptingandevenadvocatingtheriseofmoderateIslamistsinLibya, EgyptandSyriaisthatonlytheywillbeabletoconfronttheradicalsintheirranksandguidethemintothemainstream.InTunisiascase,NahdaspoliticalinexperiencehascausedittolurchbetweenmollifyingandconfrontingtheSalafists.TheultraconservativeIslamistssmashedandlootedthegallery,smashedupacourthouse,attackedpolicestationsandtriedtoburndownthefineartsacademy.Nahdaareinaverydifficultposition,saidOmayyaSiddik, anindependentpoliticalanalystinTunis. They[thepartysleaders]donotknowhowtocreateabalancebetweentheattacksfromtheSalafistsandthepossibilityoflosingthereligiouselectorate. Theproblemisthattheprotestsagainsttheartexhibitareverypopularamongahugepartofthepublic.SomeoftheworksintheexhibitondisplayataprivategalleryintheupmarketMarsasuburbofthecapitalmerelypokedfunattheSalafists.Othersweremoreprovocative: oneuseddeadinsectstospelloutthewordAllah.Politiciansofallstripescondemnedtheviolence,policearresteddozensofpeopleandauthoritiesbarredaSalafistclericfrompreachingafterhecalledforthedeathofoneoftheartistsbutthegovernmenthasshiedawayfromovertcondemnation, failingeventocriticisetheSalafistsbyname.Instead, NahdaleadersandthepartysofficialsingovernmentcriticisedtheartistsforlaunchingattacksonnationalsacredsymbolsinthewordsofapresscommuniquissuedbyRachidGhannouchi, thefounderofNahdaandadvocatedlawstobanartthatoffendedreligioussensibilities. InsodoingtheyaresupportingtheSalafists worldview: donotbotherfirebombinggalleries, justwaitforthegovernmenttoshutthemdown.Timeandtimeagain,Nahdaanditsleadershaveshowntheyaremoderateswhogenerallyrespectthegroundrulesofliberaldemocracy. ButbyseemingtoappeasetheSalafists, theyruntheriskofappearingweakoropportunistic: devoutMuslimsarepartofitspoliticalbaseandgeneralelectionsarescheduledforMarchnextyear.NorthAfricangovernmentsfaceseriouschallengesfrommilitantIslamists. Attheweekend,al-QaedaleaderAymanZawahirideclaredjihadagainsttheTunisiangovernment. ManyofthecountrysmosqueshavebeentakenoverbySalafistpreacherswhohavebeenknowntorailagainstthesamedemocraticprinciplesthatallow them to speak freely.AnalystssaythegovernmentwouldbetterserveitsowninterestsaswellasthoseofthecountrybycrackingdownonanySalafistwhobreaksthelaw, openinginvestigationsintoSalafistfinancesandsidingfirmlywithliberalswhenbasicissuesofstateandsocietyareatstake.ThismaybetheTunisianpost-revolutionarypoliticalclasssmomenttoassertitsauthority.Tunisia mustget tough withextremists afterart show riotsBy seeming toappease radicalSalafists, Nahdasleaders run the riskof appearing weakGLOBAL INSIGHTBorzou Daragahiin CairoByRahul JacobinNewDelhi andFarhanBokhari inIslamabadPakistans supreme courtforced Yusuf Raza Gilani,prime minister, out of officeyesterday for refusing toreopen corruption casesagainst the president,plunging the south Asiancountryintoafreshpoliti-calcrisis.Syed Yusuf Raza Gilanistands disqualified as amember of [parliament],said Iftikhar Chaudhry,chiefjusticeofthesupremecourt. He has also ceasedtobetheprimeministerofPakistan.The ruling PakistansPeople party said it wouldnotcontestthejudgment.In April, Mr Gilani wasfoundguiltyofcontemptofcourt because, the courtsaid, hehadrefusedtocon-tact Swiss authorities inaninvestigationthatwouldhavereopenedcasesof cor-ruption against PresidentAsifAliZardari.Though Mr Gilanireceived a symbolic jailtermoflessthanaminute,the conviction meant hecouldnotcontinuetoserveas a member of Pakistanslower house of parliament,known as the nationalassembly.The PPP leadership wasmeeting yesterday eveningtodiscuss candidates for anewprimeminister, whichwouldhavetobeapprovedby its coalition partners.ThistimeZardari andthecoalitionpartnerswill seekto compromise with thesupremecourt andappointanewprimeminister,saidAhmed Rashid, author ofPakistanontheBrink.In response to the Aprilruling, thePPPhadarguedthat Mr Gilani had not beenexplicitly disqualified bythe court sohe couldcon-tinue as prime minister.Oneof thedefencesof thePPPwasthatthecourthadnot disqualified him, saidAyazAmir, aleader of theopposition. Mr Gilani hadbeen expected to appealagainst the judgment butthe court said yesterdaythat no appeal had beenmade.The ruling was inresponse to a petition byPakistanstwomainopposi-tionparties, led by NawazSharif, the former primeminister, andImranKhan,the cricketer turned politi-cian, that challenged aruling by the speaker ofPakistans parliament amember of the PPP thatallowed Mr Gilani to con-tinue to be a member ofparliament.While some Gilani loyal-ists continued to defendhim, a senior official whoworkswithMrZardarisaidthe president was alreadyconsideringpotential candi-datesforprimeminister.Western diplomatswarned that Mr Gilanisdeparture could exposePakistantoanewroundofinstability at a time whenthe country is locked inadispute with the US overthefutureof alandsupplyroute to Afghanistan. In thepast week, angry publicprotests have alsowidenedacross the country overchronic electricity short-agesofseveralhoursaday.Pakistanmust stageelec-tions next spring, but ana-lysts saidthe precedent ofthe court forcing out MrGilani had weakened theevolution of the countrysparliamentary democracy.The country has been undermilitary rule for almost halfits historysince it becameindependentin1947.Inthe past, we hadthemilitary replace our primeministers. Today, that hasbeendone by the [court],saidHasanAskari Rizvi, apolitical commentator. Themannerinwhichtheprimeminister has beenchangedonce again suggests thatparliamentary democracyhas not evolved to the stagewhere political change cantake place within demo-craticinstitutions.Scores of protesters scuffledwithpoliceintheSudanesecapital for athirddayyes-terday, a witness said,extending demonstrationsagainst government auster-ityplans.Sudanhasfacedabudgetgap, a depreciating cur-rency and high inflationsince South Sudan splitaway a year ago, takingwith it three-quarters of thecountrys oil production previouslythemainsourceofexportsandrevenues.While the Arab-Africancountry has avoided theuprisingsthattoppledlead-ers in neighbouring Egyptand Libya, small demon-strations have broken outover foodprices andotherissuesinrecentmonths.Morethan100demonstra-tors blocked a street inKhartoum and scuffled withpolice while chanting no,no to inflation and thepeople want to overthrowthe regime, the witnesssaid. As on the previoustwo days of demonstrations,police used batons and tear-gas to disperse the crowd,thewitnessadded, request-ing anonymity. Activistssaidsmallprotestshadalsobroken out yesterday at twouniversity campuses, buttheclaimwas not immedi-atelypossibletoverify.The protests have comepartlyinresponsetoPresi-dent Omar Hassan al-Bashirsunveilingof toughausteritymeasuresonMon-daytoplugabudgetdeficitwhichthefinanceministerput at $2.4bn. One of themost contentious issues is aplanto gradually end fuelsubsidies.Reuters, KhartoumProtesters clash with policeover Sudans austerity planEconomic strifeThe latest efforts byworldpowerstopersuadeIrantofreezeparts of its uraniumenrichment programmeappeared to be failing asanother round of diplomaticnegotiations over Tehransnuclear ambitions movedtowardsdeadlock.At the end of a secondday of diplomacy in Moscowyesterday, Iran and sixworldpowerswerereportedto have stoppeddiscussingsubstantive issues relatingtothefutureof theIraniannuclear programme, witheachsideblamingtheotherforrefusingtogiveground.Instead, diplomats said,thefinal hoursof thetalksfocusedonwhethertocon-venealow-level meetingoftechnical experts infuturetoexaminewhetherfurtherprogresscouldbemade.Yesterday, Russiandiplo-mats heldthe secondinaseries of bilateral meetingswith Saeed Jalili, Iranschief nuclear negotiator,to try to persuade himtoaccept a proposal to ceasetheenrichment of uraniumataconcentrationof20percent, alevel closetoweap-onsgrade.But,lateintheday,west-erndiplomatssaidIranwasa long way fromagreeingconfidence-building meas-ures that the sixpowers the US, China, Germany,Russia, France andBritain believe are essential toallayingfearsIranisbuild-ingabomb.The talks follow tworounds of negotiations sincediplomacyresumedinAprilafter a 15-monthhiatus inwhichthewest crankedupsanctions pressure andIsrael repeateditsthreattobombIraniannuclear sitesif diplomacy failed. Thetalks are seen as a lastchance to resolve theimpasseoverIransnuclearprogramme using diplo-macy.Iftalkscollapse,anx-iety could grow on financialmarketsoverthedangerofhigher oil prices and con-flictintheMiddleEast.Charles Clover, Moscow,andJamesBlitz, LondonDeadlock looms at Irannuclear talks in MoscowTehran enrichmentARussian-ownedshipsus-pected of carrying refur-bished helicopters andother arms towards SyriahasturnedbackafteraUK-based insurer terminated itscover.William Hague, the UKforeignsecretary, saidyes-terdaythat the MVAlaed,owned by Russias Femco,had turned back, appar-ently to Russia, after theStandard Protection andIndemnity Club withdrewitsinsurance.The vessel had been offnorthern Scotland when thecoverwaswithdrawn.British government offi-cials confirmed that theAlaedappearedtobecarry-ingthreeSyrianMi-25heli-copters destined for the Syr-ian port of Tartus. SyriasentthehelicoptersbacktoRussia for refurbishmentearlier this year and theywere now returning afterbeing re-equipped, accord-ingtotheofficials.The incident illustratesthe effect European Unionsanctions onmarine insur-ers are having on tradewithSyriaandIran. About95 per cent of the worldsocean-going ships insure forthird-party risks such aspollutionthroughmutuallyowned protection andindemnity insurers, all ofwhichreinsurethroughtheLondon-based InternationalGroupofP&IClubs.The sanctions on SyriaandIranmake it abreachof therules topayout foranylosses incurredduringvoyages involving prohib-itedcargoestravellingtoorfromthetwocountries.P&IClubs worldwide have con-sequentlybeenat pains totell members their coverwill bevoidif theyengageinanyprohibitedtrades.The Standard Club, whichis basedinLondon, saidithadbeenmade aware ofthe allegations that theAlaed was carrying muni-tions destined for Syria,which would be a clearbreachof theclubsrules.RobertWrightandJamesBlitz, LondonInsurer forces Russian shipto abandon voyage to SyriaAlleged arms cargoPresident Bashir: trying toplug a $2.4bn budget deficitCourt forces out Pakistans PMWORLD NEWSGilani had refusedto reopen graft casesRuling party willnot contest verdictBillions of dollars inbadlyneeded development aidand budget support frominternational institutionshasbeenjeopardisedbythedecision by Egypts militaryand judiciary to dissolveparliament, diplomats andeconomistssay.Following a ruling byEgypts supreme constitu-tional court last week, theSupreme Council of theArmed Forces, which hasruled the country sinceHosni Mubarak was over-thrown as president lastyear, has surrounded theparliament building withbarbed wire and troops. Ithas declared itself the coun-trys legislative authorityuntil fresh elections,plannedforlaterthisyear.The move has endangered$300m in job-creationprojects funded by theEuropean Union and theWorld Bank. It has alsoscuttled months of intenseeffort bythebanktoworkwithlawmakerstocreateadevelopment plan toimproveEgypts infrastruc-ture, establishgoodgovern-ance, producejobsandbol-sterthesocialsafetynet.International MonetaryFund support for Egyptsailing budget also looksunlikely until electionshavebeenheldandthereisa government in power tomarshal political supportforeconomicreformandtoguarantee that it is imple-mented.The events of the lastweekwill troubleinterna-tional donorsbecausethereis no clarity over who isleading, says Said Hirsh,Middle East economist atCapital Economics, aLondon-based consultancy.Diplomats and bankerssay the IMFs pending3.2bn loan is crucial inrestoringconfidence intheeconomy and unlockingfunds fromboth investorsandinternationaldonors. Adeal is also neededto pre-vent a disorderly devalua-tion: the central bank hasspent almost two-thirds ofits foreignreserves defend-ing the Egyptian pound,leaving it with $15.5bn attheendof May, whichcov-ersalittlemorethanthreemonthsofimports.The IMF had made itsloan conditional on broadsupport in Egypts parlia-ment, the adoption of areformprogrammeandthelining-up of more financefrominternational sourcesto plug a $12bn funding gap.TheIMFloancouldunlock500minsupport fromtheEUanda$500m-$1bnWorldBankloan.I am very concernedabout the turmoil andprettycertainitwillhaveavery negative impact on theavailabilityof internationalfunding, including, particu-larly the IMF loan, saysonewesterndiplomat.TheIMFloanonitsownwill not solve Egypts finan-cial problemsbutitactsasthe trigger for additionalinternational funding. With-out that, Egypts financeswillonlygetworse.Also in peril are fundsfrom the European Bank forReconstruction and Devel-opment, which plans toinvestupto$1bnannually.The EBRD has to certifyEgypt is committed tomultiparty democracy andpluralism,adifficultassess-menttomake.The World Banks 18-month development planwas hammered out overmonths withEgypts legis-lators, including representa-tives of the Muslim Brother-hoodsFreedomandJusticepartyandultraconservativeSalafist Islamists, whohadto be convincedthe WorldBank was not a front for USinterests.It was scheduled to bepresented to the banksboard at the end of thismonth but may now bescrapped because itrequirestheapprovalofthenow-dissolvedparliament, aWorld Bank official says, onconditionofanonymity.All thispolitical turmoilis preventing the moneyfrom arriving to its benefici-ary,theofficialadds.Already at least $3.6bn for19 infrastructure projects,including sewerage, rail-ways and power generation,isbeingheldup.The portfolio of projectshas beenapprovedbut thebankofficial adds that themoney has not distributedbecauseEgyptianministershave not signedthe neces-sarypaperwork.Egypts military puts funds lifeline in jeopardyRing of steel: police with helmets and riot shields guard the gates to the parliament building in Cairo to prevent members of the assembly from gaining access ReutersInternational aidThe decision todissolve parliamentimperils money fordevelopment, writeBorzou Daragahiand Heba SalehVoterigging fears spark protestsFearsofvoteriggingthatwouldhandtheEgyptianpresidencytoaformerleaderofthedeposedregimepromptedtheMuslimBrotherhoodandothergroupstotaketothestreetsyesterday, writesBorzouDaragahi andHebaSalehinCairo.Challengestomilitaryandjudicial authoritiesweresteppedupasthecountryappearedtoenteranewperiodofuncertainty. BoththeBrotherhoodsMohamedMorsi andtheformerregimesAhmedShafiqhavepubliclyclaimednarrowvictoriesinthepresidential election.TheBrotherhood,members ofparliamentandothergroupshaverefusedtorecognisedecisionsbythejudiciaryandarmedforcestodissolveparliament.www.ft.com/mideastJUNE 20 2012 Section:World Time: 19/6/2012 - 19:19 User: whiteg Page Name: WORLD1 USA, Part,Page,Edition: EUR, 2, 1FINANCIAL TIMES WEDNESDAY JUNE 20 20123Thesonof Equatorial Guineaspresi-dent spent $315mbetween 2004 and2011onmansions, cars, luxurygoodsand memorabilia, including MichaelJacksonswhitecrystal-coveredBadTour glove, accordingtotheUSjus-ticedepartment.The allegation was made this monthinacivilforfeiturecomplaintinCali-fornia that seeks to recover more than$32mofassetsfromTeodorinObiang,appointed second vice-president of theimpoverishedwestAfricancountryinMay.Prosecutors say he amassed hiswealththroughembezzlementofpub-lic funds and extortion during histimeasministerof forests, whereheisallegedtohavechargedapersonaltaxof$27foreverylogexported, andlater as minister of infrastructure too.Teodorin, whose father TeodoroObiang has ruled with an iron fistsince seizing power in 1979, denieswrongdoing and earlier this yeardescribed the case against him ascharacterassassination.Though his salary as ministeramounted to about $82,000 a year, Teo-dorins USlawyers sayhe made hismoney through a legitimate timberbusinessthat hadmadehimaverywealthyman.Thereisthusnobasistoestablish,muchless byaheightenedshowing,that Minister Nguemas [Teodorinsofficial name] assetscanbetracedtoillegallygottengainssufficienttojus-tify civil forfeiture, his lawyers wroteinaJanuarycourtfiling.UnderUSlaw, assetsaresubjecttoforfeitureiftheyarederivedfromtheproceeds of specified unlawful activ-ity. Thatincludesoffencescommittedlocallyandabroad.Despiteproducing320,000barrelsofoil a day, more than a quarter ofwhich goes to the US, EquatorialGuinea remains poor. About three-quarters of its 700,000 people live inpoverty, according to the World Bank.Afteroil, timberisthecountrysbig-gestexport.In addition to the case in California,US prosecutors are also seeking forfei-tureof a$38mGulfstreamjetboughtbyTeodorin.He alsofaces separate legal actionover alleged money laundering inFrance, where authorities seized 11luxurycarsfromhisParishomelastyear. In a subsequent interview with aFrench television channel, PresidentObiang denied that his son had misap-propriated state funds. He didnt takeanymoney,MrObiangsaid.TheUSjusticedepartment fileditsoriginal complaint against Teodorinin October last year. US officialsaskedthecourttoseizea$30mhousein Malibu, $2m worth of Michael Jack-sonmemorabilia anda 2011 Ferrari,which they said were acquiredthrough the abuse of public officeandillegallylaunderedthroughfinan-cialinstitutionsandbusinessesintheUnitedStates.InAprilthejudgesaidheneededtosee more evidence of allegedcorrup-tion.Theamendedcomplaint,filedonJune11, providesfreshdetailsofhowTeodorin allegedly acquired hismoneyandwhathebought.He first went to the US in 1991, aged23, to study Englishat a college inMalibu but dropped out after fivemonths, the justice department said.Two years later, his father awardedhima 20-year concessionto harvesttimber from25,000 hectares of rain-forest. Teodorin was then appointedministerofforestry.The complaint says Teodorindemandedthat local andforeigntim-bercompaniespayhimpersonal feesfor licences to operate and export tim-ber. Onelocalcompanywasallegedlyrequiredtopayhim10percentofthevalue of the wood harvested, whichamountedto$700,000ayearfrom1998to2003. The$27-a-logtaxrepresentedpersonal fees . . . calculated by tech-niciansonthestaffofNguemas[Teo-dorins]forestryministry.Teodorin also allegedly introduced aretroactive tax requiring that allcompaniesmakeaone-offpaymenttohimrepresenting$10for everycubicmetre of timber they had ever har-vested in the country. Those thatrefusedwereexpelled, itisalleged.USofficialsclaimthatthetwotim-ber companies Teodorin established inEquatorial Guinea were not genuineoperations, as he claims, but papercompanies that served as vehiclesthrough which he could executefraudulent contracts and receivepayments.The complaint alleges that Teodorinspent $88m on assets in 2004 andagainin2006, $65min2008and$38min2010.Apart fromhouses and cars, hispurchases included a 17th-centuryFrench cabinet worth $3.4m, itemsfromthe estate of Yves St Laurentthat cost $23m, several diamond-encrusted watches and more than$30mworthofart.Initially, Teodorinfounditeasytotake his moneyto the US, withthehelpof banksandlawyersthere, butmore recentlyconcealedhis identitywhenmakingpurchases, USofficialssay.TutuAlicante, the executive direc-tor of EGJustice, a US-basedgrouppromoting human rights in EquatorialGuinea, welcomed the case againstTeodorin. Itsgoodthat theinterna-tional community is finally doingsomethingaboutit.Juan Morillo, a lawyer acting forTeodorininthe US, saidhe hadnocomment on the new allegations madebythejusticedepartment.Qorvis,theWashington public relations agencyhired by Equatorial Guinea toimprove its image, also offered nocomment.African leaders son in f ight for $32m in assetsEquatorial GuineaUS prosecutors seekingto recover funds claimTeodorin Obiang amassedhis vast wealth throughembezzlement andextortion, writes Xan Rice(EquatorialGuinea)200 kmCAMEROONNIGERIAGABONATLANTICOCEANGulf ofGuineaEQUATORIALGUINEABiokoMalaboLibrevilleYaoundAs minister of forests, thepresidents son chargeda personal tax of $27on every log exported,the complaint allegesONLINEPicture slideshowwww.ft.com/obiang$275,000Michael JacksonBad Tour gloveWORLD NEWS$38mGulfstreamGV jetWhere the money allegedly went$2.5mFive RollsRoyce cars$4mFour diamondstuddedPiaget watches$34mPaintings by Degas,Renoir, Gauguinand Matisse$5.7mWineSource:SecondamendedcomplaintUSjusticedepartmentTeodorin Obiang(above) facesseparate legalaction overalleged moneylaundering inFrance GettyJUNE 20 2012 Section:World Time: 19/6/2012 - 16:47 User: jamesa Page Name: WORLD2 USA, Part,Page,Edition: ASI, 3, 14FINANCIAL TIMES WEDNESDAY JUNE 20 2012WORLD NEWSThe destinations changebut the story stays thesame. From Toronto toSeoul to Cannes to LosCabos, world leaders gatherfor G20 summits apparentlypowerless to grip the euro-zone crisis. Yesterday onthe MexicanPacific coast,there was a glimmer ofhope that this might beabout to change.The chatter at the pool-sidebarsinitiallyfatalis-tic was galvanised bywhat the White Housecalled an encouraging 45-minute meeting betweenBarackObamaandAngelaMerkel, Germanchancelloron Monday, where the debtcrisis in Spain and Italydominated discussion.Mr Obama appeared satis-fied that something wasabout to be done, and post-poned at short notice aplanned meeting on Mon-day with other Europeanmembers of the G20. MsMerkel, according to oneEuropeanofficial, hadtoldhim what he needed toknowabouttheeurozonesplanned response.But what? GeorgeOsborne, Britains chancel-lor of the exchequer, hasengaged in wishful thinkingin the past but he claimedthat the eurozone wasinching towards a planwhich would see the 500bnof new money in the singlecurrency bailout fund usedto buygovernment bonds,particularly in Spain.The chatter among thesummitsherpasonMon-day night was that Ms Mer-kel hadconcededtheneedtohelpSpainrideout themarket storm, setting theeurozone on a path towardsthe mutualisation of debt inthe single currency area.G20 officials speculatedthat Ms Merkel would movedecisively within days:either at a meeting in Romeof the eurozones biggesteconomiesonFridayoratan EU summit next week.European officials pouredcold water on the idea. ButFranois Hollande, Francespresident, fuelled the specu-lation yesterday when hebemoaned the fact thatSpain was being targeted bymarkets in spite of theplanned 100bn bailout ofits banks and its tough aus-terity programme.Mr Hollande said theinterest rates being paid bySpain and Italy on theirdebts were not acceptablebecause Italys publicfinances were improvingSpain has received a prom-ise of aid from other Euro-pean countries.Its not acceptable thatSpain, which just got apromise for support, hasinterest rates around 7 percent, Mr Hollande said.Its not acceptable thatcountries that are makingefforts, like Italy, toimprove their publicfinances were paying highinterest rates on theirbonds. We must showamuch faster ability to inter-vene, Mr Hollande saidbefore the summits secondday of talks began.He said he and Ms Merkelagreed that Europe musthave its own response.The market pressure onSpain may force the hand ofeurozone leaders, especiallygiven the fact that theGreek elections whichremoved immediate specu-lation about the countryremaining in the euro have done nothing to stabi-lise the situation. One Ger-manofficial remarkedlastweek: Ifwehaveanacci-dent, we will have tousethe tools at our disposal.The guidelines on theEFSF bailout funds second-ary market purchasessound as if they were writ-ten for Spain,especially inthelight of thecommentsby Mr Hollande.In the course of theongoing sovereign debt cri-sis on several occasions andfor different countries, pricedynamics have emergedthat are difficult to explainby economic fundamen-tals, it says. One objectiveof EFSFsecondarymarketinterventions is to pre-emptand counteract such pricingdynamics.British officials believethatanewinterventioninthe bond markets is com-ing. One said it was abazooka, but not necessar-ily the big bazookademanded by David Cam-eron, prime minister.Additional reporting byQuentin Peel and PeterSpiegelBlog: www.ft.com/theworldByKerinHopeinAthensandPeterSpiegelinBrusselsEuropean officials areweighing how much torevise Greeces 174bn bail-out programme once a newgovernment is inplace inAthens, withaGerman-ledgroup of countries insistingon no delays in toughbudget targets, while othersare signalling that they areprepared to extend Greekdeadlines.Angela Merkel, the Ger-man chancellor, said on thesidelines of the Group of 20summit in Mexico yesterdaythat thenewgovernmentmust stick to its commit-ments.But other officials, includ-ing Jean-Claude Juncker,headof thegroupof euro-zone finance ministers,urged more flexibility.With the recession inGreece much deeper thanoriginally foreseen, wecouldtalkaboutextendingthe timeframe, MrJuncker, who is also theLuxembourg prime minis-ter, said on Austrian radio.This depends, however, onGreece . . . not wishing torevisit the entire pro-gramme.One senior EU officialinvolvedinthe talks saidthe programme had alreadyslipped behind its targetsduring the months of politi-cal brinkmanship in Ath-ens, requiring internationallenders to open negotiationswith the incoming Greekgovernment toget it backon track.Greek political leadersdrew closer to a three-partycoalition government led byAntonis Samaras, head ofthe centre-right NewDemocracy party that fin-ished first in Sundaysnational elections. Officialssaid that the so-calledtroika of internationallenders could return to Ath-enstoreopentalksonceacoalition had been formed.The economic situationhas changed, thesituationof tax receipts has changed,the rhythm of implementa-tionof themilestones haschanged, the rhythm of pri-vatisation has changed,saidtheseniorEUofficial,addingthat if theycontin-ued with the current memo-randum, we would be sign-ing off on an illusion.The hold-up in govern-ment talks centred on ademandbyFotisKouvelis,leader of the small Demo-cratic Left party, for assur-ances that rightwing partieswould not be able to dictateimmigration and labour pol-icies.Evangelos Venizelos,leader of the third probablecoalitionmember, thecen-tre-left Pasok party that hasheldofficeformost of thetwoyearsof Greecesbail-out, wasinsistingonnam-ing at least two ministers toa streamlined 15-membercabinet that would besworn in tomorrow, oneofficial said.NewDemocracywon129seats at the election andwould have a narrow major-ityafteraddingPasoks33lawmakers.The participation of Dem-ocraticLeft, with17seats,is seen as important tofending off opposition bySyriza, the hard-left coali-tion that finished secondwith71 seats onananti-bailout platform.Differences over howtoproceed ona newbailoutmemorandum centred onwhether Greece would begivenmoretimetoimple-ment austerity measuresworth 11.7bn,which mustbecompletedby2013. Offi-cials in the German-ledcamphave insistedonnodelays, since that wouldrequire more EU bailoutfunding.But other officials havesignalled a willingness toshowflexibility, withsomearguing the programmecould be adjusted by about20bn in newfunding tomake the governmentsgoals more realistic.One New Democracyadviser saidthe newgov-ernmentwouldbecommit-tedto the current bailoutbut wouldseekatwo-yearextension in the pro-gramme, from 2014 to 2016.Last week,Medical ServiceLimited, a small Athenssupplier of medical equip-ment that can no longerafford to pay its employees,receivedwhat shouldhavebeen a blessing: an orderfrom one of the citys hospi-talsforaheart-monitoringmachine.But after thinking it over,Yannis Stamos, the com-panys co-founder, turnedthecustomeraway. Fillingthe order would have meantreaching into Medical Serv-ices pockets to cover the35,000 cost of such amachine, since Greek bankshave stopped lending andthe companys German sup-pliersdemandpre-paymentin cash.Evenif it couldfoot thebill, Medical Servicewouldhave to hand over thou-sands of euros in sales taxto the government within amonth long before anyhospital is likely to pay.Its a terrible situation,Mr Stamos says. Every-thing is frozen. The econ-omy is dead, and no one ispaying anyone.Medical Serviceis but asnapshot of what is happen-ing to businesses acrossGreece as the economysgears grind to a halt. Aftersputtering through fouryears of recession, mostcommercial activity has allbut ceased over the past sixweeks as the nationendured two elections withits future inthe eurozonehanging in the balance.The political paralysishas quickenedtheoutflowof deposits fromGreecesteetering banks and put onhold an EU-funded effort torecapitalisethem. Businessleaders say they can nolonger obtain the most basiccredit even when theyboast solid order books.Making matters worse,the government, which con-trols much of the economy,has stopped paying its bills.As of last month, it owednearly7bntotheprivatesector.A 174bn EU bailout wassupposed to help, but it hashad negligible effect on thereal economy, since most ofthe funds leave the countryas soonas theyarrive torepay foreign creditors.Wehavegot toapointwherewereat acompletestandstill, said Constan-tine Michalos, the presidentof theAthens Chamber ofCommerce. The first thinga coalition government hasto do is recapitalise theGreek banking system.The chambers studyreveals that 68,000 Greekbusinesses closedover thepast 17 months, and itexpectsafurther 36,000toshut in the next 12 months.It foresees the economy willshrink a further 7.8 per centthis year worse than the 6to 6.5 per cent decline fore-cast by most economists.Even tourism, a typicalredoubt of the Greek econ-omy, is suffering as thepolitical uncertainty has ledholidaymakers to cancelbookings.The liquidity problem ofthe banks coupled with thestates difficultyinpayingitsobligationsforthepastyear has created rippleeffects in the economy andeveryone is feeling theeffects, said Thimios Boul-outas, the chief executive ofMarfin Investment Group, aGreek holding companythat owns hotels, an airline,private hospitals and a res-taurant chain.Some of those effects areobvious. WithGreekphar-macists owed 370m by gov-ernment insurance plans,for example, somemedica-tions have become scarceand patients have to paythe full cost of prescriptiondrugs.Others are less so. OneAthens executive said hiscompanyhadbegunshop-pingforadatacentreout-side Greece, because offearsthatthecountrywillsuffer rolling blackouts thissummer because of debtsowed to the main utility.The executive declined tobe identified because thecompany does not want for-eign customers or potentialinvestors to know that it isbased in Greece. Its quitesadthat weredoingthat,but its reality, he said.The cash crunch alsoappears to be forcing Greekcompanies to drop Euro-peansuppliersandturntoChinese competitorsbecause they are willing tooffer credit.Dimitris Papanikolaou,vice-president of NeonEnergy, which installs solarpanels, said this factor notcost was the main reasonhe increasingly boughtmaterials from Chinainstead of Germany. AtMedical Service, Mr Stamoshas done likewise, switch-ing to Chinese ultrasoundmachines.In many ways, Mr Stamosembodies the progressGreecehasmadeinjustafew generations as well asthecalamityit nowfaces.His father deliveredgoodsby donkey on the island ofAndros. After settling inAthens, the son launchedhis company with a partnerand a bank loan in 1991. Hisdaughter studies economicsat Athens University.Late payments byGreeces public hospitalshave beenachronic chal-lenge requiring a sympa-thetic banker. Two yearsago, the government paid1minarrears toMedicalService in the form ofbonds. That seemedlikeareasonabledeal until thecountryslatestEUbailoutledtoa50percenthair-cut for those securities.In March, Mr Stamosstopped paying regular sala-ries to his eight employeesand cut their hours. LikeotherGreekexecutives, hehopes that a newgovern-ment will emerge this week,and begin settling its bills.Im an optimist, he said.Hopes ofeurozoneaction riseat G20EU off icials weigh shift on Athens bailout termsGreekbusiness looks for life in dead economyEconomic outlookMost commercialactivity has all butceased as fundsleave Greece to paycreditors, writesJoshua ChaffinOn other pages and at FT.comEditorial Comment, Page10MartinWolf, Page11AuthersNoteVideo: whythedeterioratingmacroeconomicpictureintheUSandtheBricscouldbealongertermdangertoEuropethanGreecewww.ft.com/authersnoteTheWorldblogThetactlessDavidCameronandtheeurozoneblamegamewww.ft.com/theworldMoneySupplyblogTheECBfindsthatfiveisnofunwww.ft.com/moneysupplyPainful path to recoveryThe IMF is optimistic Source: IMF; Thomson Reuters DatastreamGreek real GDP (rebased)(2007=100)7080901002000 05 10 17 Greek business less soBusiness sentiment, index(2007=100)2006 08 10 1260708090100IMFforecast,Apr 2012ByBrookeMastersinLondonFormal cross-border crisismanagement groups havebeenset upfor 24 of theworlds 29 most importantbanks, but much moreneeds to be done before reg-ulators can be confidentthey could safely be steeredthroughacrisis, accordingtoareport byagroupofglobal regulators.While much has beenaccomplished, what isstillto come is just as impor-tant,MarkCarney, chair-man of the Financial Stabil-ityBoardandgovernor ofthe Bank of Canada, toldthe Group of 20 leaders in aletter highlighting the workthatstill needstobedoneonover-the-counter deriva-tives and crisis resolution.Mr Carney also warnedcountries against going italoneonimportant regula-tory issues.A return to anationally segmented globalfinancial system wouldreduce both financial capac-ity and systemic resilience,with major consequencesforjobsandgrowthacrossour economies. We mustwork to avoid this, hewrote.Made up of regulators andcentral bankers fromaroundtheworld, theFSBis charged with carryingout thereformsagreedbythe Group of 20 leadingeconomies.With the Basel III bankreforms nearly complete,the FSBs focus has shiftedto shadow banking non-banks that also extendcredit and making globalsystemically importantfinancial institutions, orG-Sifis, saferandeasiertoshut down. It also hasbegun to look at implemen-tation of the reforms, toinsure that all countrieslive up to their promisesand to watch for unin-tended consequences.Insurance regulators havealreadystartedworkonaregime for supervising G-Si-fis in the insurance sector,andtheFSBhopestoputout guidance this summeron how to regulate the nextlevel of banks those thatare systemicallyimportantwithin their own country.In one concrete sign ofprogress, the FSB said thatUS, European and Japanesebanks had on averageraised the ratio of theircommon equity to totalassets the measure ofbank safety that is hardesttoget aroundby25percent since the crisis.TheFSBalsoreleasedastudyonthelikelyimpactof the Basel III reforms ondeveloping economies thatechoes warnings fromthebanking community lastweek that the reforms coulddamage emerging markets.The FSB surveyednational regulators in 35emerging markets andfoundthatwhiletheysup-portedthebroadthrust ofraising capital and liquidityrequirements, they fearedparticular parts of the newBasel III rules would harmtheir economies.Inparticular, theemerg-ing markets authoritieswere concerned about thewidespread use of creditratings to determine risk-weights because theyleadto higher riskcharges onborrowers in countries withlow sovereign debt ratings.They also worried thattougher regulations forG-Sifi banksandtheeuro-zone crisis would lead someglobal banks to pull out ofnon-core markets in thedeveloping world, raisingthe cost of credit.ByQuentinPeel inBerlinTen EU foreign ministershavespeltoutradical sug-gestions to use the euro-zone debt crisis as a spring-board towards closer inte-gration, including creationof a European monetaryfund and army, as well as aEuropean finance minister.TheGerman-inspiredini-tiativeisintendedtostartdebate on steps to politicalunion to be launched by EUleadersat theirsummit atthe end of the month.It is also hoped it will gal-vanise thinking in othermemberstatesabout stepstowards political union.On the economic front,ministers suggested creat-ingaEuropeanframeworkfor restructuring or wind-ing up ailing banks, as wellas tougher rules to rein-force economic co-operationandastrongerEUroleinfixing national budgets.We should take advan-tage of the crisis to take ahistoricsteptowardsmoreintegration, said GuidoWesterwelle, Germanys for-eign minister. The groupinvolves France, Italy,Spain, Poland, theNether-lands, Austria, Belgium,Portugal andLuxembourg.Most of the ideas are likelyto be anathema to the UK,whose foreign secretary,William Hague, was themost significant absentee.Mr Westerwelle said heinvited the nine to join thegroup in order to contributetoamoreprofounddebateoutside Berlin on swiftmoves towards closer polit-ical union as the essentialunderpinning of economicand monetary union.The forces of renationali-sation have to be counteredby pro-European argu-ments, the German foreignminister said yesterday.Only a long-term per-spective for Europe willrestoretheconfidencethatwe also need to come out ofthe debt crisis now.The ministers backed athree pillar approach toresolving the crisis, combin-ing budget consolidation,boosting economic growthand competitiveness, andsolidarity, a significantrebalancing of the tradi-tional German emphasis onbudget disciplineasapre-condition for the other two.While closer integrationand stronger EU surveil-lance of economic andbudgetpoliciesareneeded,such moves require greaterdemocraticlegitimacyat aEuropean level, they said.Theyall agreedthat theEuropean Stability Mecha-nism, the 500bn perma-nent eurozone rescue fund,couldbedevelopedintoaEuropeanMonetaryFund,but there were differingviews expressed on thequestion of mutualisation ofsovereign risk, shorthandfor opposition from Ger-many and the Netherlands,in particular, to jointlyguaranteed eurozone bonds.Laurent Fabius, thenewFrench foreign minister,will join the groups discus-sions for thefirst timeinJuly, officials said.French support for theGerman initiative is seen ascritical to the success ofany ideas that emerge. Brit-ish opposition, on the otherhand, is taken for grantedCrisis management aid for big banksAngela Merkel: rumours ofdecisive move within daysEU ministers discuss political unionWhile much hasbeen accomplished,what is to come isjust as importantMark Carney, head ofFinancial Stability Board French soldiers could oneday serve in a European armyShutting up shop: a studyhas revealed more than68,000 Greek businessesclosed over the past 17months BloombergIts not acceptablethat Spain . . . hasinterest ratesaround 7 per centFranois HollandeFrench presidentLos Cabos summitEncouraging talksbetween Obamaand Merkel haveraised expectations,say George Parkerand Chris GilesJUNE 20 2012 Section:World Time: 19/6/2012 - 19:29 User: jamesa Page Name: WORLD3 USA, Part,Page,Edition: USA, 4, 1FINANCIAL TIMES WEDNESDAY JUNE 20 20125JUNE 20 2012 Section:Ad Page Time: 19/6/2012 - 15:18 User: leej Page Name: AD RBC, Part,Page,Edition: EUR, 5, 16FINANCIAL TIMES WEDNESDAY JUNE 20 2012ByHughCarnegyandScheherazadeDaneshkhuinParisFrench business has at-tackedtheSocialistgovern-ments plans toraisetaxesandimposeotherlimitsonemployers, warning that itriskedisolatingthecountryand stalling investmentwhile the economy was insurvivalmode.The outburst came asPresident Franois Hol-landesteamrebuffedadec-larationbyDavidCameron,the Britishprime minister,thathewouldroll outthered carpet to welcomeFrench businesses fleeingthenewregime.Claude Bartolone, a sen-ior Socialist parliamentar-ian, said: I hope that it wasanafter-dinnerremarkandthat he was not fullycon-sciousbecausehespokeina manner he should nothave.The emergence of plans toimpose an extra tax on com-pany dividends added toconcern among businessleaders alreadyangeredbyproposals toraisethemar-ginaltaxrateto75percentonincomesabove1mandto toughen legislation inhib-iting the ability of compa-nies to fire workers andclosefactories.LaurenceParisot, headofMedef, the Frenchemploy-ers federation, said: Wesay: be careful. We mustnotturnourcountryintoakindof hyper-rigidenclave,disconnectedfromthefunc-tioningoftheeconomyandmarketwhichyoufindeve-rywhereelse.Shesaidaplannedtaxondividendswouldhitmany,many mid-sized enter-prises, defying the govern-ments statedintentionofemulating Germanys Mit-telstandcompanies.It is totally contradic-tory, she said. We have tobe very firmon all theseissues because today we areinsurvivalmode.The worries are thataction by the governmentwill compound an alreadybleak outlook because ofthe eurozone crisis. Ms Pari-sots warning coincidedwith data fromInsee, thestate statistics institute,showing business confi-dence falling to its lowestlevelsincelate2009.Everywhere we see col-lapsing margins, plungingorder books, newextremepressures on treasuries,uncertainties that put bigprojects on standby,employment plans frozenandinvestment projects atbest suspended but oftenscrapped,shesaid.Heads of big companiesare reluctant to go ontherecordabout MrHollandespolicies but, privately,manyarefurious.A catastrophe! said one.It will bemuchharder toattract good people and ifyou do find them, theywont want to be basedinFrance. Wearenotlookingto move our headquartersbutwewillprobablysetupsomeaffiliatesabroad.Theproposal toimposeataxondividendshasyettobespeltoutindetailbythegovernment, but the news-paper Les Echos reportedthat it would be levied atsource on companies at arateof 3percent. Thegov-ernmentaimstopushcom-panies to reinvest profitsratherthandistributethemto shareholders. Last year,CAC 40 companies paid45bn in dividends andsharebuybacks.But the head of one ofFrances biggest companiessaid he was angry about themoveondividends, arguingthat theywereissuedfrommoney that had alreadybeen taxed. A lot ofwealthy people will leaveandI amsure the govern-mentwill endupcollectinglessthanbefore,hesaid.Another business leadersaid. Iamhappytopay50per cent in income tax but75percent?Whenyouaddthe wealth tax to that,youre talking about ratesof more than 80 per cent.What does that mean? Itmeans the governmentthinksImofnovalue.Stphane Treppoz, chair-man of Sarenza.com, aninternet shoe retailer, toldthe Financial Times: Eve-ryone knows they have topay more tax because of theeconomic situation. This isfineaslongasthegovern-ment puts in place struc-tural reform measures toreduce spending, which istheonlywaytobalancethebudget after 30 years of irre-sponsible management . . .byallpoliticalsides.I dont see any sign ofthissofar andI hopethatthe government will makebalancedannouncementsinthatdirectionsoon.It remains to be seenwhetherseriousnumbersofFrench businesses will heedMr Camerons call or headforSwitzerlandorBelgium.Mr Bartolone said of MrCamerons call: If he hadbeen fully conscious hewould have been moreaware of all those Europe-answhoworkinBritaintobenefit from lower taxesbut whoput their childrenin schools in France becausepublic services in Britaindontexistanymore.Editorial Comment, Page10French business in revolt on tax plansMarginal rateof75percenttaxonannual incomeabove1mExtrataxondividendsTaxesoncapital returnsalignedwithincometaxIncreasesinwealthandinheritancetaxesSurchargeonbanksandenergycompaniesAboveinflationincreaseinminimumwageLegal restrictionsonplantclosuresNewlawagainstabusiveredundanciesImpositionofmaximum450,000salaryforheadsofstatecontrolledcompaniesScrappingofmovetoshiftcostofsomesocial chargesonemployersontovalueaddedtaxBusiness investmentgrowthSource: OECDForecast for 2012(annual % change)0 2 4 6 8CanadaUSGermanyUKJapanFranceWORLD NEWSBusiness trip: FranoisHollande visits a steelplant during the electioncampaign in January AFPHangupyourcape,Superman. HerecomestheAnnihilatorallthewayfromChina, writesKathrinHilleinBeijing.Perhapsseekingtopromotethecountryasoneofthegoodguys,ChinaisfinancingaHollywoodmoviefeaturingaChinesesuperherowhosavestheworld. ThecharacterhasbeeninventedbyStanLee, thecreatoroffiguressuchasHulk.TheAnnihilator, theprotagonistofthe3Dmoviescheduledtoopenin2014, trainsin[themartialartof]QigonginChinaandthencomestoAmerica, wherehebecomesasupermanbycoincidence, WangGuowei, presidentofNationalFilmCapital,thestate-backedfilmfund, toldtheFT.ThenhereturnstorescuetheworldincludingChinafromacrisis. ByincludingtheideaofChinarescuingtheworld, itcompeteswiththeChinathreattheory.ChinahaslonglamentedthatitssoftpowerfallsfarshortofthatoftheUS. Effortstoimprovematters,however, havebeenhamperedbyanovereagerpropagandaagenda. MrWangsaidthiswouldchange. Ourcountryputstoomuchemphasisongoingoutprojecting itselfabroad.AdditionalreportingbyZhaoTianqiwww.ft.com/asiapacificThe AnnihilatorFilm heroto boostBeijingA Qigong expert is on hisway to the US to projecta friendly face, ratherthan a rising threatEmployers attackHollandes policiesCameron rebuffedover remarksBusiness unfriendly? The new proposalsJUNE 20 2012 Section:World Time: 19/6/2012 - 19:38 User: dawkinsj Page Name: WORLD4 USA, Part,Page,Edition: ASI, 6, 1FINANCIAL TIMES WEDNESDAY JUNE 20 20127When Greenpeace accusedBrazils JBS, the worldslargest beef exporter, ofsourcing cattle from illegallydeforested parts of the Ama-zon this month, the com-panys response was swift.An angry JBS immedi-ately filed a lawsuit againstthe environmental activistgroup and won a courtinjunction last weekrestricting dissemination ofGreenpeaces report.Round one may havegone to JBS but Green-peaces timing could hardlyhave been more strategic.Its attack on the meat-packer was made as a long-running debate in Brazil ona newlawgoverning thefuture of the Amazon junglereaches its endgame as thecountry hosts world leadersthis week for the Rio+20global earthsummit. Envi-ronmentalists see the con-ference as a last chance toput pressure on DilmaRousseff, the president, andpoliticians in Braslia tostrengthenthelaw, knownas the forest code, whichthey say grants an amnestyto illegal deforesters.Ranchers see the meetingas anopportunity to bur-nish Brazils environmentalcredentials, arguing thatthe law is the worlds moststringent regardingconser-vation on private land.We will show at Rio+20that, independent of any-thing, we have built one ofthe biggest, low-cost andhigh-quality agriculturalindustries on the planetand still managed to pre-serve 61 per cent of our for-est, athingthat noothercountry in the world canclaim, said Katia Abreu, asenator and president ofthe Confederationof Agri-culture and Livestock ofBrazil.The key to the forest codedebate is that in Brazilresponsibilityforconserva-tion falls largely on privatelandownersratherthanonthe state.According to figures fromGerdSparovek, aprofessorat the University of SoPaulo, of Brazils total landarea of 850m hectares,about 62.5percent iscov-ered by natural vegetation.Of that total, only 150m hec-tares, or 17.6 per cent ofBrazils landmass, is in offi-cially protected areas.Afurther 135mhectarescomprise areas of perma-nent protection, largely onprivateland, suchas landaround rivers and streams,as well as 267m hectares ofso-called legal reserves,which require farmers tomaintain minimum areas ofvegetation cover.Prof Sparovek estimatesthat about 41 per cent of theareasof permanentprotec-tionandabout20percentof the legal reserve havebeen deforested ordegraded.If wecouldresolvethenon-compliance of the cattleindustry, which is by farthe biggest [sector] in termsof the amount of land usedfor its pastures, wewouldsolve the major part of theproblem, he has said.Environmentalists wan-tedfarmerstopaybillionsinpenalties andbeforcedto revegetate those lostareas. But under a lawpushed through Congressby the so-called ruralistafaction, representing farm-ers and ranchers, fines andmandatory reforestation forriverbanksandotherpro-tected areas would bewaived for those who defor-ested before July 2008.Reforestation require-ments for smallholderswere vague, while pastoffenders would haveregained access to ruralcredit without reforestation.Ms Rousseff vetoed 12articles of the law, restoringfines and cutting off creditto past offenders who didnot reforest. Smallholdersmust also reforest part oftheir land.But environmentalists,who had wanted a full veto,were disappointed. In spiteof thepopularsupport thepresident had to exercise asubstantial veto on the cen-tral part of the law, she didnot use this power, saidJoo Paulo Capobianco, aformer deputy environmentminister and president oftheInstituteof Democracyand Sustainability, an activ-ist group.Scientists saidsome ele-ments of the vetoes were ofdubious environmentalvalue but, overall, theywouldbringthecodebackinto line with a more envi-ronmentally friendly earlierSenate version of the bill.Environmentalists, how-ever, suspecttheruralistasmay try to weaken the lawagainwhenthepresidentsvetoes andtheir accompa-nyinglegal changesreturnto Congress for debate afterRio+20 is over and the trou-blesome foreigners havegone home.After Rio+20, its possi-blethesituationcouldgetworse still, said MarinaSilva, a former senator andenvironment ministerlead-ing opposition to the bill.Rio+20:www.ft.com/theworldRio talks seen as path into saving rainforestEnvironmentActivists use earthsummit to pressBrazils politiciansto tighten the lawon deforestation,writes Joe LeahyAfter Rio+20,its possible thesituation couldget worse stillMarina SilvaExenvironment ministerGrounds for concern: cattle graze in a cleared section of the Amazon rainforest GettyWORLD NEWSMitt Romneyis strugglingto find a fresh pitch toHispanicvotersaheadofabig meeting of the commu-nitysleadersthisweekinthe wake of US presidentBarack Obamas decision toendthe threat of deporta-tion for young illegalimmigrants.Mr Romney,the Republi-can candidate for the presi-dential election, and MrObama are due to speak ontomorrow and Fridayrespectively at the meetingin Florida.Thepresidentsinitiativehastakenthewindout ofMr Romneys campaign,which had been readying totack back to the centre onimmigration after his toughlineintheRepublicanpri-mariesinfavourof urgingillegals to leave the US.Mr Obamas announce-ment was also a setback forMarco Rubio, the risingRepublican senator fromFloridaof Cubanheritage,whohadbeenpreparingasimilar initiative but whohas now dropped it.Mr Rubio is the favouritechoice for the Republicanpartys energetic grassrootsto be Mr Romneys vice-presidential pick, but ABCNews reported yesterdaythat he was not under con-sideration.Mr Obamas initiativeremoved the spectre ofdeportation from youngpeople who had come to theUS before the age of 16 butareyoungerthan30, havecompleted high school orreceived an equivalentdegree, do not have a crimi-nal record and have lived inthe US for at least fiveyears.Anyonewhomeetsthesecriteriawill receiveprotec-tion fromdeportation fortwo years and be able toapply for work permits.After two years, the grantsmay be renewed.A Bloomberg poll con-ducted over the weekendfound64percentoflikelyvoters agreed with the pol-icy while 30 per centopposed it. Voters classifiedas independents were infavour of it by a margin oftwo to one.MrObamawonHispanicvoters by 67 to 31 per centin the 2008 election,according to exit polls,and Gallup said inrecent surveys that themargin had increasedslightly since then.Although Hispanics arenot single issue voters andhave been hit hard by thedownturn, theycouldhelpMr Obama win the electionif they turn out to the pollsand maintain their over-whelming support for him.The election remainstight, according to nationalpolls, but Hispanics are piv-otal in states such as Colo-rado and Nevada, wheretheir population has beengrowingthefastest inthepast decade.If Mr Obama holds thosetwo states, Mr Romney willhave to win a brace ofindustrial states as well asVirginia and Florida to getacross the line, a tall order.Mr Obamas Fridayannouncement had thedesired effect of enragingRepublicansandenthusingHispanics, whohavetradi-tionallynot votedinlargenumbers.JulianCastro, theDemo-craticmayor of SanAnto-nio and anup-and-comingHispanicleader, calledthedecisiona milestone thatwill make our country eco-nomically stronger.He added: Its a reasona-ble immigration policychange for almost a millionmorally blameless youngpeople who cannowlive,work and go to school andbe productive without theconstant fear of beingdeported.The downside is that thedecision could further alien-ateblue-collar voters, whoalready support the Repub-licansbyamarginsimilarto that enjoyed by MrObama with Hispanics.Mr Rubio told CNBC thathe would no longer proceedwith his bill containing sim-ilar provisions. The biggestproblem[withMrObamasdecision] is that it bypassesCongressandtheconstitu-tion, he said.Scott Randolph, the Dem-ocratic party chairman inOrange County, Orlando,Florida, inthe heart of akey swing zone in a pivotalstate, said Republicanswould struggle to win backHispanics regardless ofwhether they switched poli-cies on immigration.They dont really careabout immigration butthey do careabout racialprofiling, hesaid.Romney battlesto match Obamaon immigrationMarcoRubio: hasdroppedsimilar billUS electionThe president takesthe wind out ofRepublican sailsin the fight to winHispanic votes, saysRichard McGregor64%In agreement with Obamasdecision, says Bloomberg67%Percentage of Hispanic voterswho chose Obama in 2008JUNE 20 2012 Section:World Time: 19/6/2012 - 19:44 User: dawkinsj Page Name: WORLD5 EUR, Part,Page,Edition: EUR, 7, 18FINANCIAL TIMES WEDNESDAY JUNE 20 2012JUNE 20 2012 Section:Ad Page Time: 19/6/2012 - 15:31 User: leej Page Name: AD BREITLING, Part,Page,Edition: EUR, 8, 1FINANCIAL TIMES WEDNESDAY JUNE 20 20129FinanceAmericas $8tncorporate debtmarket faces aliquidity droughtas banks retreatfrom the trade,threateningcompanies tryingto raise funds.By MichaelMacKenzie, NicoleBullock and TracyAllowayGrinding to a haltOn an overcast Wednesdaymorning last month, Bos-tonsleadingassetmanagerscalled nine of Wall Streetstop banks to an emergency meeting ina skyscraper overlooking the citysharbour.Over back-to-back discussions with a hurried lunch of sandwichesandbiscuitstheytriedtotackleoneof thetoughest problemsconfrontingfinanciers and, potentially, thebroadereconomy: Americas$8tncor-poratedebt market isrunningout ofitslifebloodliquidity.Tooutsiders,thismayseemaprob-lemconfined to the rarefied atmos-phere of a swanky conference roomon the 36th floor of Bostons StateStreetFinancialCenter.But if thisliquiditycrunchintensi-fies, somecompaniesalreadybattlinga global downturn could find they willalso face increasing costs in raisingfunds. This could then dampengrowthinaUSeconomythatappearsonceagaintobestrainingtorecover.Corporatesfacetheriskof higherborrowingcostsif liquiditycontinuesdeclining,saysAndrewLo, aprofes-sor at Massachusetts Institute ofTechnology.Sofar, theproblemhasnot spilledinto the real economy. In fact, some ofthe biggest names inUS business IBM, Procter&GambleandWaltDis-neyhavesuccessfullyborrowedbil-lions of dollars at record lowcoststhisyearbysellingbonds.However, this robust picture couldchangeifprominentWallStreetinsti-tutions cannot resolve an impassethat has stalled the corporate debtmarket.The problem centres on largeinvestment and asset managementcompanies, knownas thebuy-side.These are flushwithcashandhavesought to expand their massive portfo-lios with corporate debt. However,theyarefindingithardertopurchaseor sell bonds fromdealer banksthat act as the middlemen, the so-calledsell-side.If investment funds have tospendmore totrade, theycouldultimatelypass on their increased costs to compa-nieswhosedebttheybuy.The banks cannot satisfythe buy-sides needs because theyare reduc-ing their own holdings of corporatebonds,partlybecauseofaraftofnewregulations proposed inthe wake ofthefinancialcrisis.Theserulesarealreadyalteringtheway banks behave. While tougher cap-italstandardsunderBaselIIIandthepending Volcker rule seek to avoidanothermeltdowninthebankingsys-tem, they have had the unintendedconsequence of suckingliquidityoutofthecorporatedebtmarket.Ifbankswant toholdriskierassetssuchascorporate rather than sovereign debt they have to go to the greater expenseofholdingmorecapitaltooffsetthoseinvestments.Aslast monthsmeetinginBostongroundon, fuelledbyastreamofcof-fees, the delegates realised it would beimpossible to forge a silver bullet thatcould solve their problems at a stroke.The heavyweight Boston-basedinvestment firms at the meetingincludedStateStreetGlobalAdvisors,Columbia Management, Fidelity,Loomis Sayles and Wellington Man-agement. One of the bankers inattendancesaysthebiginvestorshada repeated, if impractical, refrain: Wewantyou, thedealers, tofindasolu-tiontomakeitallbetter.The asset managers certainly hadgrounds to grumble. The top bankshavereducedtheirholdingsof bondsto the lowest level since 2002. Atabout $45bn, this figurehadsteadilydeclined from $235bn in 2007, butwent intofreefall inthesecondhalfof2011.Whiletopcompaniescanstill issuebonds easily, the banks increasedreluctancetoholdinventoryisdryingout bond trading in the secondarymarket, wheretheyaretradedlater.Secondaryliquidityisveryimpor-tant for lowering the cost of capitalfor issuers, says RickMcVey, chiefexecutive at MarketAxess, an elec-tronicplatformfortradingbonds.If liquidity dries up further there isthe risk that investors demand ahigherpremiumanditbecomesmoreexpensive for companies to issuedebt.Although the US corporate bondmarket isestimatedat $8tn, itsdailytrading volume has averaged $18bn sofarthisyear,alowratio.Bycompari-son, the $10tn US Treasury markethasexperiencedaveragedailytradingvolumeof$532bnin2012.ItisthisilliquiditythatpushedtheBostonassetmanagerstoseekasolu-tionfromthebanks, butthemeetingsimplyrepresentedaninitial distressflare. We are probably only at thebeginningofwhatlookslikelytobeaprotracted encounter between thebuy-sideandsell-side.Chris Rice, global head of trading atState Street Global Advisors, whoattended the meeting, admits anytransformationwilltaketime.It is a conversation that willevolve,hesays.One banker concedes the initialmeeting yielded nothing. It wasreallyabitdisappointing,hesays.The asset managers need to holdthe meeting reflected intenseexasperation. Simultaneously, somepartieshavebeenconsideringspecialcomputer-based trading platforms,which mayor maynot involve thebanks. But so far there is littlesense of what format a solutionmighttake.Beyondthehurdleofmorereg-ulation, thebondmarket haslost other key players whocreatedliquidity. The demiseof in-houseproprietarytradingdesksatthebanks, thatformerlyembracedbetsoncredit,hashurtliquidity,par-ticularlyforlargeblocksof bondsorthosethattradeinfrequently.This gap in the market worriesasset managers as, historically, onlybanks could find large amounts ofbonds.Itdoesnothelpthat,sincethefinancial crisis, individual investorshave sought to plough recordamounts of cashinto bondfunds atthe expense of equities. Sofor assetmanagers, thedeclineinWall Streetsupportisveryserious.Thebuy-sidelargelyacceptsitmaynot always get the best deal in a bondtransaction, butbalancesthatagainstthe needs of dealers, who risktheircapital in order to support liquidity ofprices. Highlyliquidtradingpreventsbonds splashingintoashallowmar-ket and roiling prices to the disadvan-tageofthepartiesinvolved.Whatthesell-sidehasprovidedformanyyears, whichisveryimportant,andsellers of bonds couldfindeachother directly, skipping over the tradi-tional middlemanrole of the banks.However, this appears unlikely tosolvealltheindustryswoes.Whilesuchplatformsdominatethetrading of equities, currencies andgovernment bonds, corporate bondshavelongbeenanoutlier, withalowpercentage of trades transacted onsuch platforms as MarketAxess,BloombergandTradeweb.Thisreflectsthestaggeringnumberof individual bonds, as the marketconsistsof morethan80,000separateissues, market participants estimate.Somelargecompanieswithbigfund-ing needs may have many differentbondsoutstanding, makingtradinginthis market far more complex than aninvestor wantingtobuyor sell IBMstock. About 5,000 bond issues areestimatedtotradeactively.Within this fragmented universe,large investors are sceptical anelec-tronicmarketcanfunctionwithoutamiddlemantoprovidecapital.UBShasalreadyrolledoutanelec-tronic trading networkbut so far ithandles only about 30 trades a day.GoldmanSachs,theinvestmentbank,and BlackRock, the worlds biggestmoneymanager, arealsoworkingontheirownplatforms.Greater electronic trading forcorporatebondsisnot, how-ever, seenas a panacea forthecurrent problems, partlybecause the business is so opaque,oftenconductedperson-to-personoverthephone. Thebuy-sideisalsoresist-anttoelectronictrading.Youdontwanttobetootranspar-ent if youaredoingalargestrategictrade,saysGavinJames, directorofportfoliooperationsforWesternAssetManagement.Ifyouretradingelectronicallyyouareoutthere, peopleknow.Thisisparticularlyacuteforamar-ket that is increasingly a one-waystreet, where asset managers areeither all buying at one time or allsellingatonetime.There is less diversity in theaccount base, says a head trader at aWall Street bank that attended theBoston meeting. Now, everyonewants to buyat the same time andsell at the same time. Anelectronicplatformdoesnotfixthis.Still, amongmajordealers, thereisanacceptancethattheirstrangleholdis ending, leaving a very uncertainfutureforthecorporatebondmarket.Infact,themeetinginBostoncouldevenrepresent anindustryconsider-ing howbest to contend with totaltransformationordecline.Yourelivingthelast fewdaysoftheRomanEmpire,saysFredPonzo,founderofGreySparkPartners,whichprovides consulting to banks.Itsactuallyended, but theresstill abitofmoneytobemade.Bigdealerswilltrytomilkituntilitdies.FT Graphic: Lloyd ThatcherANALYSISBanks holdings of corporate bondsDealers net positions* ($bn) 2001 04 06 08 10 12050100150200250US corporate bond marketDiverging interestsSources: SIFMA, Thomson Reuters Datastream;Federal Reserve Bank of NewYork2012 = Q1Corporate bondsoutstanding ($tn)0246810203040501980 90 2000 12As a %of GDP* Corporate securities due in more than one yearLiquidity is akin tolubricant in an engineand if you take thataway you are goingto have problemsCorporate fundingFrom cars to casinos: businesses built on bondsBondsarecentral tothefinancingofcorporateAmerica. BusinessesfromMicrosoft, thesoftwarecompany, andAmgen, thebiotechnologygroup, toFordMotorandCaesarsEntertainment, thecasinomanager,usecorporatebondstoraisethemoneytheyneedtofundacquisitions,internal development, leveragedbuyouts, pensionplansandevenbuybacktheirownstock, writesNicoleBullock.Oneoftheattractionsofbondsforsuchcompaniesisthattheyofferameanstoraisemoneywithoutdilutingtheirequitybase. Theyalsogettaxbreaksontheinterestexpense. Overtheyears, thecorporatebondmarketalsohasbecomeincreasinglyaccessibletoabroaderrangeofcompanies, particularlysmallerandmorespeculativegroups. Recentlycompanieshavealsotakenadvantageofhistoricallylowratestorefinancetheirshorttermdebtandlockincheaplongtermfinancingwithbonds.Annual issuanceofbothhighlyratedcorporatedebtandjunkbondsintheUShasdoubledoverthepastdecadefromlessthan$500bnin2000tomorethan$1tnlastyear, accordingtoDealogic, adataprovider.Sincethefinancial crisis, corporateshavealsobeenanincreasinglypopulardestinationforinvestors. Hitbybigstockmarketlosses, pensionfunds,moneymanagersandprivateinvestorshaveall flockedtocorporatebondsinthehopeofalessvolatilealternativetoequitiesbutamorehighyieldingonetogovernmentbonds.Netassetsinfundsthatbuycorporateandjunkbondshasrisenfromabout$400bnin2006tomorethan$700bnnow, accordingtotheInvestmentCompanyInstitute, anindustrybody.Forinvestors, corporatebondsarehigherinacompanyscapital structurethancommonstock. Thatputsthemaheadofequityholdersinthepeckingorderofpaymentsinaworstcasescenarioofacompanygoingbankrupt.However, variousthingscanerodethevalueofcorporatebonds. Aslowingeconomycancauseinvestorstoworryaboutthehealthofcompaniesandtheirabilitytomeetbondpayments. Interestratesareanotherfactor. Thepriceofbondsmovesinverselytotheiryields, soariseininterestratescansendthepricesofbondslower.Arobustmarketforcorporatebondswill bekeyinupcomingyears.Standard&Poorsestimatesthatnearly$3tnofUSdebtwill beduebytheendof2016andneedtoberefinanced. Theratingagencyrecentlywarnedthatglobal volatilitycouldthreatendemand, particularlyforthedebtoflowratedcompaniesandfinancial institutionsseenasthemostvulnerabletoriskaversionandglobaleconomicproblems.isliquidity, andthatliquidityisakintolubricant inanengineandif youtakethatawayyouaregoingtohaveproblems, says James Hirschmann,chief executive of Western Asset Man-agement.It is getting progressively harder forthe buyside to find someone willing toundertake the risk of warehousingenoughbondstofacilitateordersthatareaccumulatedover days or weekstoavoidupsettingthemarket.TheStreet hasnot beenamarketmaker for some time, trading is byappointment, says Jim Sarni, manag-ingprincipalatPayden&Rygel.Although the bond trade is nowbecoming alarmingly thin, tradingvolumeshaveneverbeenparticularlyrobust. Most debt is bought at issu-ance and then does not regularlytradeinthesecondarymarket.Opportunisticfundmanagers wres-tlewiththenatureof thebondtradeastheywanttoshuffletheirholdingsin line with changing markets andinterestrates.Suchchangesrequireacertainamountofliquidityinthesec-ondary bond market, which is nowshrinking further and pushing thebuyside to contemplate a futurewhere dealers mayplayamore lim-itedroleintrading.Withtheindustrysearchingforanalternative market that can boostbondtrading, onedifficultyis reach-ing consensus among a highly com-petitive group of dealers and investorswithdifferentagendas.Onesolutionthat hasbeenconsid-ered would be to create an openexchange-like platformwhere buyersOnthewebMarketsFormorenews, commentandanalysisonmarkets, includingUSdebt,gotowww.ft.com/marketsSpeedreadDebtdroughtBigassetmanagersarefindingithardertobuyorsellcorporatebondsthroughthebanksthatactastheirmiddlemenLowtradeUScorporatebondshaveaveargedatradingvolumeofonly$18bnperdaythisyear, comparedwith$532bnforTreasuries.GoingelectronicOnepotentialsolutiontotheimpasseismoreelectronictradeforcorporatedebtbuttherangeofbondsmakesthishardJUNE 20 2012 Section:Features Time: 19/6/2012 - 18:47 User: mcadamd Page Name: BIG PAGE, Part,Page,Edition: USA, 9, 110FINANCIAL TIMES WEDNESDAY JUNE 20 2012Without fear and without favourWednesday June202012Tocontributepleaseemail: [email protected]: +44(0)2078735938Includedaytimetelephonenumberandfull address Forcorrectionsemail: [email protected] I: importedCase for GlassSteagall only bolsteredFromMrDominicFreud.Sir, PeterWallisonoftheAmericanEnterpriseInstitute, aconservativethink-tank, arguesthatthemosttellingargumentagainstthereturnofGlass-Steagallisthat, evenifithadbeenfullyinforcein2008,nothingwouldhavebeendifferent(Letters, June14).Evenifyouacceptthistobetrue, itisnotanargumentagainstthereturnoftheGlass-SteagallAct; itsmorealogicalargumentforthestrengtheningofsuchregulation, apositionthatIdoubtthelearnedgentlemanwastryingtoforward.DominicFreud,ManagingPartner,FreudPizenbergIndependentAdvisors,NewYork, NY, USClarificationDalianMachineToolGroupCorporationofChinasoldF.Zimmermann, aGermanmachinetoolcompany, toRudolfGnzle, itschiefexecutive, in2010. AnarticleonJune14saidthatDalianstillownedtheGermancompany.Wideawake India has achieved creditable growthFromProfAbhijitSenandProfEmeritusAjitSingh.Sir, InyoureditorialIndiantortoiseslipsintoreverse(May28)yousuggestedthatprimeministerManmohanSinghsgovernmentiswhollyresponsibleforIndiangrowthsaggingbacktowards6percent, adepreciatingcurrencyandlowerexportsdespitecurrencydevaluation.Itdescribeshimasheadofado-nothinggovernment. ThiswasanunbalancedassessmentunworthyoftheFT. Agrowthof5or6percentisstillcreditablebyinternationalstandards. Further, thereducedgrowthofexportsdespitecurrencydepreciationismostlikelyduetoboththeshortrunJ-curveeffectofdepreciationandreducedEuropeaneconomicgrowth, oneofIndiasmainexportdestinations.TheriseininternationaloilpricesisasignificanthandicapfortheIndianeconomy. ThisisnothelpedbyUSpressureonIndiatoreduceIranianoilimports. InthefaceoftherecentsharppetrolpricehikeinIndia, strongpoliticalpressuresfromthegovernmentcoalitionpartnershavemanagedtoachieveapartialreversalacommonoccurrenceindemocraticcountries, includingtherichestones.DuringMrSinghsroleasfinanceministerandsubsequentlyprimeminister, fundamentalchangeshavebeenintroduced, arguablychangingthecourseofIndiashistory. Theseincludereorientationofthecountryseconomicstrategy, amajorpoliticalrealignmentwiththeUS, anationwideruralemploymentguaranteeschemeandtheintroductionofafreedomofinformationact.TheFTwouldliketheprimeministertohastenneoliberalinstitutionalreforms, especiallytheopeningoftheretailandfinancesectorstoforeigncapital. However,thereisasyetnonationaldebate, letaloneconsensus, onsuchmeasuresandhowtheywouldaffectthemassivenumbersofthepoor.Moreover, contrarytoyoureditorial,thegovernmentisnotasleep. Thegovernment, theprimeminister(anextremelyableandexperiencedeconomist)andhisteamofnationalandinternationalexpertsconsiderthatnowisthetimeforsocialandeconomicconsolidationnotleasttoimprovemicroandmacroeconomicefficiency. Aboveall, thegovernmentisrightlyfocusedonavertinganeconomiccrisisnowandinthefutureiftheglobalsituationdeteriorates.AbhijitSen,Member, IndianPlanningCommission, Delhi, IndiaAjitSingh,UniversityofCambridge, UKThesearethewriters personalviewsQueen could notbe more BritishFromMrE. B. Logan.Sir, TomBrown(Letters, June18)makesanerrorcommonnowadays,ofcharacterisingtheBritishroyalfamilyasGerman. IsthistheresultofthedeclineofbasiceducationintheUK?Asanyschoolchildusedtoknow,thegapinsuccessioncausedbytheprematuredeathsofallQueenAnneStuartschildrenwaspluggedin1714byimportingherclosestProtestantrelative, theagedGeorgeofHanover,subsequentlyGeorgeI, whowasthegrandsonofPrincessElizabethStuart, herselfgranddaughterofMaryQueenofScots, whowasinturnnotonlyagranddaughterofKingHenryVIIofEnglandbutalsoadirectdescendant, throughsevengenerations, ofKingRobertIIofScotland, founderoftheStewart,laterStuart, dynasty, which, ineffectstillreignsoverus. Ahealthyreinfusionof100percentproofScotsbloodviathelateQueenMothersurelyputstheBritishnessoftheroyalfamilybeyonddoubt.OfcourseadashofGermanicsteelorGreekpassionneverdidanyoneanyharm, butletsgetthingsinproportion, especiallythisJubileeyear.E. B. Logan,Stockholm, SwedenIs beef productionthe wisest use forprecious water?FromDrNarayanS. Rau.Sir, IfoundyourarticleBrazillookstobeefupitsbusiness(June11)interestingandamusing. Despitethefactthatitaddressesthefinancialandeconomicaspectsofsuchexportsthereisnoallusiontothesociologicalimpactofsuchtrades. Theestimatesofwaterrequiredtoproduceapoundofbeefvaryfrom441gallonsto2,500gallons. Similarly, thegrainrequirementisputbetween6lband20lb. Ittakes54caloriesofinputtoobtainonecaloriefrombeef. Thecarbonfootprintis14.8lbofCO2,equivalentto20.5milesofdrivingacar, perpoundofbeef. Thesefiguresaresomewhatlessforotherredmeatproduction.Iamnottryingtopreachveganism. However, itiswellacceptedthatIndiaandChinawillexperienceaseriousshortageoffreshwaterinthenearfuture, whichcouldleadtoconflictsbetweenthetwocountries. Isitwisetoallocatewatertoproducebeefratherthantootherusessuchasagriculture?Inasimilarvein, someyearsago, therewasadebateabouttheprudenceofburningsugarcanebagasseinBraziltoproduceenergyinsteadofusingitinthefeedstocktoproduceprotein.Thereisaplethoraofsuchquestionsincludingtheuseofcorntoproducebio-ethanolratherthanasfood.Thereistherelatedissueofcarbonemissionsandopentrade. IsitprudenttoflyvegetablesfromNigeriatotheUK, ortorestricttradesthatresultincarbonemissions?Whatisthebeststrategyforourinternationalcommunity?NarayanS. Rau,Woodland, CA, USTemptation to pull the trade lever increases as crisis goes onFromProfDouglasA. Irwin.Sir, AlanBeattiesworrisomereportEconomicgloomputsfreetradeatrisk(June14), aboutthesharpuptickinprotectionisttrademeasures, deserveselaboration. Theprincipalreasontheworldhasmanagedtoavoidanastyboutofprotectionismsofaristhat, unliketheGreatDepression, countriestodayusedaggressivemonetaryandfiscalmeasurestoaddressthecrisis.Now, withmajorcentralbanksunwillingtoengageinmorequantitativeeasing(despitetheabsenceofinflationarypressures)andwithmostcountriesunableorunwillingtousefiscalpolicy,officialshavefewpolicyoptionsleft.Thisisadangeroussituationbecausethetradepolicyleverisstillavailabletobepulled. Thelongertheeconomicdistresscontinues, thegreaterwillbethetemptationtoemploytraderestrictions. Thiswouldbedisastrousfortworeasons. First, closingmarketswoulddonothingtoaddressthefundamentaleconomicproblemsfacingtheworldandinfactwouldhindertherecovery. Second,experiencehasshownthat, onceimposed, tradebarriersareverydifficulttoremovebecausevestedintereststhenhaveastakeinseeingthemmaintained. Theworldstandsonthebrinkofanepicfailureofeconomicpolicy.DouglasA. Irwin,DeptofEconomics,DartmouthCollege,Hanover, NH, USTransparency would close ratings gapFromMrMarcJoffe.Sir, RobinWigglesworthsreportDebateheatsupoverEMratinggapwithwest(June8), onthecuriousgapbetweenthesovereignratingsofemergingmarketandadvancedeconomies, providesfurtherevidencethatgovernmentdebtmarketsarepoorlyservedbyincumbentratingagencies. Currentpracticesthatrelyonqualitativeassessmentsbyunderstaffedsovereignratingteamsproduceratingsthatarebothvulnerabletoaccusationsofbiasandlackingintimeliness.Simpletransformationsofcreditdefaultswapspreadsandbondmarketpricingdata, asshowninthearticle, arenotanacceptablesubstituteforthoroughsovereigncreditanalysisrequiredbymarketsandthegeneralpublic. CDSspreadsaretheoutcomeofgenerallyilliquidmarkets, whilebondpricesreflectmanyfactorsasidefromcreditrisk(take, forexample, recentdeclinesinUSTreasuryratesdespitedisappointingeconomicperformanceandcontinuedpoliticalparalysis).Asuperioralternativewouldbeafamilyofmultivariategovernmentratingmodelscrunchingfrequentlyupdatedeconomicandfiscalnumbers. Whiletheparametersofthesemodelsmayreasonablybesubjecttoanalystdiscretion, outputsshouldbereportedtomarketparticipantswithoutdeliberation(andpotentialmanipulation)byratingcommittees. Tocombatthecapacityforpoliticalagendasinfluencingtheratingsprocess, allinputs, outputsandmechanismsoftheratingmodelsshouldbemadefullytransparent, sothatinvestorscanidentifypotentialerrorsandmaketheirownadjustmentsifdesired.MarcJoffe,SanFrancisco, CA, USMORE ON FT.COMLex videoThe bailout for Spains banks is up to100bn. Is this enough or too generous?www.ft.com/lexvideoBeyondbricsInvestors are already reacting with theircash to Egypts presidential runoffwww.ft.com/beyondbricsNotebookAslamdunkcaseforDidie
