Archive for the ‘International finance’ Category

EUROPE – WHAT IS TO BE DONE?

June 24, 2016

Living in Europe for 35 years, I greatly appreciated the people and their various ways of life. I was happy to return to live in England, since I imagined that within the European Union we could be one. So now that Britons have dropped a nuclear bomb on the relationship with Europe, I am devastated.

That we should have a constitutional crisis, utter confusion, no government and no plan for the future was eminently foreseeable. Yet a majority of voters, including friends of mine, embarked on this apparently reckless course. Why did the Remain camp fail to convince?

Voters knew David Cameron was no friend of Europe, so he had no credibility in declaring he would campaign “heart and soul” to stay in. No more persuasive were statesmen who urged Britain to stay inside the Union to play a leading role in reforming it. If Britain could not fix the defects before, why hang around? As for experts’ prophecies of economic disaster, voters clearly thought economic forecasting had too bad a track record.

A Leave friend wrote on Facebook “Now we will be back in the driving seat again!!!” Indeed so, and the responsibility rests primarily with Leavers to draw up strategies, act and take care of the people of Britain. Just now, they have no Prime Minister, no government and no plan. We Remainers however must realise that the European Union cannot continue as the framework for relating to the continent. Leavers and Remainers have a joint responsibility to end the chaos and devise new ways of functioning with our neighbours.

As for European leaders, they should take this bombshell as a warning. It is not enough to dwell on the Union’s success in ending post-war animosities and providing a democratic framework for liberated Eastern Europe. The people of Hungary and Poland have elected governments that patently care little for this.

It is not a time for European leaders to close ranks to hold the Union together at all costs. Britons are not the only people who are dissatisfied. Who today expresses enthusiasm for the Union? Jean-Claude Juncker, Head of the European Commission, has failed to rise to his task. Angela Merkel performs a useful role as a “nice German” at the heart of Europe but will not act decisively as a leader.

However Europe must have smart people able to solve issues such as the bias of the euro system in favour of Germany. Germans’ insistence that other countries should merely act economically as they do is unrealistic. If limited liability laws enable individuals to go bankrupt, renege on debts and eventually return to economic activity, why can this not be done also for Greece?

The European Union has to resolve the chaotic inflows of migrants, the number one issue in the British campaign. There is talk of “defending frontiers”, but the free passage provided by Schengen has been built into infrastructures of airport and road systems, and can scarcely be dismantled. Britain, for all the boasts of the Leavers about regaining sovereignty, has only a handful of coastal patrol craft, and Italy or Greece have even less chance of sealing off their huge coastlines. However Spain does. It pays money to Morocco and Mauritania in return for measures to head off migrants. Such measures do not choke off channels altogether, but manage the flows better.

Financial stability and migration are among the big issues of our time. They need imaginative ideas and cooperation, far more than exasperated reactions to bothersome bureaucrats.

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Working on my new book … The Fight For Freedom

May 9, 2014

Not much time for blogging, as I am writing, writing, writing. Here’s the book I am working on:

19.3.2014 cover FFF - iPad cover (3)

Financial Times “goes through Gutenberg moment”

March 5, 2014

FT logo

 

 

The Financial Times has just gone through its “Gutenberg moment,” with digital revenues for the first time outstripping print, according to managing editor James Lamont.

Setting up a paywall for its internet news site was its biggest decision of the past decade. “It was a good decision. It has guaranteed our survival. We are profitable and we can see our future,” he told journalists studying at the Reuters Institute in Oxford.

Highlights from his upbeat talk:

– Digital subscriptions have been rising at an annual rate of 31%.

– The move to digital meant profits grew 17% last year on a revenue increase of only 1%.

– Fastest growth is in mobile, which accounts for half of traffic to ft.com.

– Print circulation continues to decline (to around 240k), but is profitable because of cheaper print technology and rationalisation of distribution. “We want to keep print going.”

– The proportion of revenues earned from content grows – now 63% compared with 37% for ads. “There is a secular decline in advertising, but we can now survive on subscriptions.”

– Sales are predominantly in 1. Continental Europe 2. UK, 3. US. 4. Asia. “We are global.”

– Web analytics show a “long tail of stories nobody reads.” They are cutting down on those.

– Analytics show at what times readers in the main regions access its news. This led to changes in news schedules.

– The Financial Times increased its journalist staff from 450 to 611 between 2005 and 2011. Now there are 571. It hires five journalists a year from outside.

– It hires journalists on the expectation they will stay for 20 years and have five different jobs. One in four changed jobs last year.

– News stories on multiple platforms have become shorter. “Engagement,” “community” and “relevance” are the buzzwords.

SLOVENIA: FALLEN ANGEL OF EX-COMMUNIST EUROPE

December 21, 2013

Spik 2013

In the days of Communist Yugoslavia, Slovenes stood out for being in touch with the West and capable of generating a large proportion of the country’s GDP. Independent since 1991, Slovenia quickly qualified for the European Union, the euro and Schengen.

Yet now it counts with Greece, Cyprus and Spain among the eurozone’s worst financial miscreants. Its main state-owned banks are in dire need of bailouts. As auditors pick through the books, they discover loan after reckless loan for dud projects run by political cronies and personal business friends, secured by precious little.

Governance of the banks is revealed as irresponsible, slack and amateurish. Even the Catholic Church is saddled with large bankrupt businesses which are anything but spiritual. Pope Francis has removed the Archbishop of Ljubljana and the Bishop of Maribor. So much for Slovenes’ reputation for economic competence.

Now the government is starting to bail out the banks. Eager to cling to the independence gained only in 1991, it refused to apply for a bailout from the EU and the IMF, which would have meant foreign supervision. In order to preserve a minimum of international credibility, it reluctantly brought in foreign consultants to inspect the books.

As a result, it embarrassingly turns out that the government needs to put in 4.8 billion euro, four times the amount it originally calculated.

Moreover, EU rules on state aid oblige it to sell its number two and three banks, as well as 75% of the largest. The best hope that the Slovenian Central Bank governor could voice was that foreign buyers (there are no domestic candidates) will sort out the governance mess.

Slovenia has escaped bailout tutelage by the EU and the IMF, but the cost of going it alone will be huge for the Slovene people.

In hindsight, it is clear Slovenes were too complacent because of their success in Communist Yugoslavia. Their capabilities proved inadequate for an open modern economy. Whereas Poland privatised quickly in the earlier 1990s – and got through the recent financial crisis unscathed – in Slovenia, the state still owns half the economy.

So anxious were Slovenes to preserve their independence that they did their utmost to keep out foreign investors. This can now be seen as a damaging fantasy.

One exception is Lek, one of the country’s largest companies, which was bought by Novartis. Its procedures were radically overhauled at the insistence of the Swiss. Now it is solidly implanted in the group as a leading producer of generic pharmaceuticals. At a time when Slovenia’s GDP is falling precipitously, Lek is hiring not firing.

Moral number 1: ex-Communist states of Eastern Europe, even Slovenia, underestimated how much they need to change to adapt to the modern world.

Moral number 2: Slovenia now needs the national unity which won it independence in a 10-day war in 1991. In view of the vicious infighting which pervades its politics, this however seems unlikely.

Its outlook unfortunately is grim.

– Marcus Ferrar is co-author (with John Corsellis) of Slovenia 1945: Memories of Death And Survival After World War II.

Committed to journalism – the Reuters Institute’s 30th anniversary

September 11, 2013

by Monique Villa

Reproduced by kind permission of The Baron http://www.thebaron.info/

Spending a week-end in Oxford is always a treat, but spending it with the likes of Mark Thompson, CEO of The New York Times, Nathalie Nougayrede, Director of Le Monde, John Stackhouse, Editor-in-Chief of the Globe and Mail, and more than 100 fellows from the Reuters Institute for the Study of Journalism, was a real uplifting experience. Uplifting because a large degree of optimism in the future of journalism emerged from the two days’ celebrations and discussions.

The fellowship programme was the first launched by the then Reuters Foundation 30 years ago, and its anniversary was celebrated in style with almost 200 participants, mostly still journalists, coming from all around the world, with their suitcases full of memories and ideas. Seven years ago, the fellowship became the Reuters Institute, a partnership with the University of Oxford.

Mark Thompson kicked off the two-day event with the Reuters Memorial Lecture. And no, he didn’t talk about the BBC. Instead, he gave a fascinating insight into the complex dynamics of pay-per-read and digital advertising.

It is remarkable to see how the rise of social media is forcing long and well established publications such as The New York Times to re-think the entire business model, making video a key asset of their offering. “It’s one thing” – said Thompson – “when you compete with other newspapers in terms of digital impressions – it’s another when you compete with players such as Google and Facebook with their billions and billions of impressions”. He said the newspaper he manages leaves money on the table with advertisers because they don’t produce enough videos, the holy Grail of advertising online.

Mark Thompson stressed the importance of quality journalism, highlighting how time, accuracy and authority are even more precious at a time when everybody creates and circulates news via twitter. I agree with him, social media is not a substitute for journalism, and newspapers brands are surely not becoming obsolete.

What I found fascinating about this Oxford gathering was the palpable level of optimism shared by the executives of prestigious newspapers.

Both Nathalie Nougayrede and John Stackhouse depicted a future where newspapers will become more and more competitive, both commercially and editorially. It was refreshing to see an outspoken French woman outlining – in flawless English – the challenges and the opportunities ahead of the French media landscape. And it was captivating to find out how the Globe and Mail had shut down its print edition for a day – this past Labor Day – to drive users to a new, and enhanced online edition. The risk is part of a wider and bolder strategy at the Canadian newspaper that gives editors a financial premium if their audience online grows. The move, so far, has paid off, but it has also raised eyebrows among those who fear the red line between editorial and commercial could be blurred.

The role of women in journalism was also on the agenda. I was the moderator of an interesting panel which included: Suzanne Franks, Professor of Journalism at City University, Sue Lloyd Roberts, Special Correspondent at the BBC, and Laura Saarikoski, Sunday Editor at the Helsingin Sanomat, the biggest Finnish newspaper. Despite the recent boom in the number of female students enrolled in journalism courses around the world (in some cases up to 90 per cent of the students are in fact women), only a tiny percentage makes it to the very top. Why? The panelists were unanimous: childcare and family responsibilities. Even in Finland, where the government has a clearly progressive agenda when it comes to equal opportunities, maternity and paternity leave, a good number of women make it to middle management positions, but not to the role of Editor-in-Chief. According to Laura Saarikoski, this is due to the fact that women have an embedded guilt complex, which prevents them from putting career at the very top of their priorities. I don’t fully agree with such view, and the fact that two women are leading the editorial teams at The New York Times or at Le Monde is there to prove that things are changing fast.

I agree more with Suzanne Franks when she says that the career of most female TV presenters ends at 45. Sue Lloyd Roberts puts it in a very powerful way: successful female journalists are seen as a “third sex”. “They simply don’t know what to make of you”, says Sue – admitting that while reporting from tribal Afghanistan she was allowed to drink tea in the company of local men, while their wives remained segregated to the kitchen.

Seeing over 100 fellows from more than 40 countries in Oxford this weekend is direct evidence of the great success of the Reuters Institute that the Foundation partly funds. Great credit goes to David Levy, its Director, who has in four years succeeded to transform the Institute into a global player, with its trusted publications massively downloaded around the world. The Institute is today at the forefront of providing trusted information and data for media and policymakers adapting to the new challenges of the profession.

As Mark Thompson puts it: “Why did Jeff Bezos buy the Washington Post? Has he seen anything that the rest of us haven’t?” We don’t have the answer. And that’s why we need the Reuters Institute to pursue its mission of shedding light and provide analysis in the fast evolving media landscape.

The Thomson Reuters Foundation is fully committed to journalism and to supporting the RISJ. Our Chairman, David Binet, came all the way from Toronto just for the event, as a testimony of this lasting bond. ■

Monique Villa is a French journalist, business leader and women’s rights advocate who joined Reuters in 2001 as managing director of media after a career as an Agence France-Presse correspondent and manager. She became chief executive of the Thomson Reuters Foundation following the acquisition of Reuters by Thomson Corporation in 2008.

My new book – The Budapest House: a Life Re-Discovered

September 8, 2013

The Budapest House cover

 

My third book – The Budapest House: a Life Re-Discovered – has been published!

A Hungarian traumatised by the loss of half her family in Auschwitz returns to Budapest to retrace her roots. She discovers a dramatic personal history that enables her eventually to shed the burden of her past and move forward to a new life.

The Budapest House is Europe’s house…. a poignant but unsentimental journey … Marcus Ferrar masterfully recounts moving personal stories against their wider historical backdrop and vividly evokes Budapest’s haunted past.

Adam LeBor, correspondent of The Economist and author of The Budapest Protocol

Available online on

http://www.amazon.co.uk/The-Budapest-House-ebook/dp/B00ERDLXLQ/ref=sr_1_1?s=books&ie=UTF8&qid=1377803580&sr=1-1&keywords=the+budapest+house

and

http://www.amazon.com/The-Budapest-House-ebook/dp/B00ERDLXLQ/ref=sr_1_1?s=books&ie=UTF8&qid=1377803944&sr=1-1&keywords=the+budapest+house

Paperback version comes out in early October.

My other books are:
A Foot in Both Camps: a German Past For Better and For Worse (2012)

Slovenia 1945: Memories of Death and Survival After World War II (2005 – co-author John Corsellis)

Swiss people make handsome profit from bailing out their biggest bank

August 6, 2013

In 2008, the Swiss people had pay out massive sums to save the country’s largest bank from collapse due to the toxic assets it had foolishly amassed in the U.S.

The Government bought most of UBS, so that it was in effect nationalised. The Swiss National Bank granted it a large loan and created a “bad bank” into which the toxic assets were dumped. As a result, the Swiss people took on the sizeable risk that the bank would never recover and all their investment would go down the drain.

Yet in 2010, the Government was able to sell its share in the bank at a modest profit. Now UBS has almost repaid the loan from the National Bank, which moreover has agreed to the bank taking back all the assets dumped in the “bad bank.” These have regained considerable value as a result of the recovery of the U.S. housing market.

Neue Zuercher Zeitung worked out that what the people have earned through the substantial interest charged on the loan and the National Bank’s share of the profits on the resurrected toxic assets will by year-end reach 6.5 billion Swiss francs ($7 billion).

Since 2011, the Swiss National Bank also bought huge amounts of foreign currency to prevent the Swiss franc appreciating too much – it had firmed from 1.55 to the euro in 2008 to 1.05. It set a base of 1.20 and announced it would sell any amount of Swiss francs to prevent further appreciation. After nearly a year bumping along the floor, the currency has eased to 1.23, and so when the National Bank decides to mop up the Swiss francs, it will repurchase them at less than it sold them for.

Together with the profit on re-privatising the bank, this would take the earnings of the people in this affair to around 10 billion francs ($11 billion) or more.

So a bank bailout can be profitable, not just a drain on the people’s wealth for the benefit of reckless banks. Why has it worked out this way for Switzerland, while in other countries such as Spain, Portugal and Greece, bailouts caused investors to lose faith in the solvency of the governments themselves?

In Switzerland, public finances were solid, and so foreign investors never doubted the capability of the state to assume the bailout burden. Secondly, Swiss companies are geared to high-quality and precision goods, which are not particularly price-sensitive. A liberal policy on immigration enabled it to import highly-qualified labour to keep standards high.

Not rocket science, but a focus on prudence and quality which has paid off.

German economy fuelled by nearly one million immigrants in 2012

May 9, 2013

Figures reported in the German newspaper Die Zeit give an interesting insight into immigration in Europe’s most powerful economy. Massive immigration is compensating the demographic effects of a falling birth rate. Key points:

965,908 foreigners immigrated into Germany in 2012, mostly from Poland, Romania, Bulgaria and also southern European countries such as Italy, Spain, Portugal and Greece, which have been hard hit by their local banking crises. That’s the equivalent of the population of Cologne.

However 578,759 foreigners also left Germany, leaving net immigration of 387,149.

Turks used to flood into Germany, but last year more Turks left Germany than entered, since the thriving Turkish economy offers opportunities at home. Immigration from Islamic countries has become insignificant.

Among German nationals, more left the country than returned.

Because of the declining birth rate, Germany needs net immigration of between 250,000 and 400,000 yearly in order to prevent the population from declining, which would depress economic growth and lead to an ageing population. 200,000 more people die in Germany than are born.

The moral, say Die Zeit, is that this huge immigration is beneficial despite resulting social strains, and Germany should do more to make immigrants welcome.

Meanwhile, in Britain, new legislation is under preparation to make it harder for foreigners to immigrate. We shall see which policy is right …

Is a new bubble in risky investments on the way?

January 23, 2013

As I used to report on the Bank for International Settlements (BIS) as a financial journalist in Switzerland, I remain interested in certain clients it has (they’re all central banks).  Take Argentina for example. It holds nearly all its reserves at the BIS, which is unusual – most other central banks keep about 4%.

Argentina does this because at the BIS its money is protected from attachment by unpaid creditors. I’ll return to this in a later blog.  It’s the subject of arcane arguments in American courts at present. If you look at http://blogs.reuters.com/felix-salmon/tag/argentina/, you’ll see what I mean.

Paraguay is another case, and it’s more topical – see my two recent blogs. It holds all its reserves at the BIS, also to protect them from creditors it decided not to pay.

Last week that did not deter a good number of investors from subscribing to Paraguay’s first-ever public international bond issue.  The risk is theirs, you may say. However it does uncannily remind me of the years leading up to the crash of 2008, when banks sold little-explained investment vehicles to gullible investors who did not understand them and asked no questions because of their greed for high yields.

In Paraguay’s case, lead manager Citibank did not inform subscribers in the prospectus that the country keeps all its reserves at the BIS, let alone why. So if the next Paraguayan government repudiates the debt – this has happened several times in the past and the next election is in April – investors were not made aware that a key means of legal redress is blocked.

The ratings agencies were not much put out by this. S&P’s BB- rating and Moody’s Ba3 seem not too bad.

A week before the bond was launched, I myself asked the Paraguayan Finance Minister: “How will you convince potential bondholders that a future Paraguayan Government will not repudiate the bond issue transaction and protect itself from claims by accumulating further funds at the BIS?”

I received no answer, even though the Central Bank had been communicating with me before. Towards the end of last year, Paraguayan ministers were saying in the local media the bond would be launched in mid-February. Now it has popped out just after the New Year. Looks like a rushed job.

Are we at the start of a new cycle of peddling dubious assets which nobody can quite fathom? History shows repentance never lasts more than a few years. I sense the first puffs into a new bubble.

Paraguay rushes out first bond issue (it tops Transparency International’s corruption index)

January 18, 2013

Yesterday I wrote about Paraguay and its piano and why investors should beware this dubious country planning to make its first public international bond issue ($500 million). Today I see that the deal is almost done and dusted. I also see that Barclays are the only ones to issue a word of caution.

I wonder why this has been rushed out only three months before a new government is elected in Paraguay, all the more since the country has a long history of one government repudiating the debts of a previous one.

I was forwarded a list of questions raised by an investor I know who invests his own money (and not earning management fees from handling other people’s). Having seen the preliminary prospectus, he had these questions for the Paraguayan Minister of Finance and Citibank (lead manager of the bond issue):

1 – Why were investors not told that Paraguay has for years kept its funds safe at the Bank for International Settlements (BIS) in Basle because it is immune from legal attachment from creditors (not vulture funds in the case of Paraguay)?

2 – Why were investors not told that Paraguay will continue to keep its money protected at the BIS and therefore, in the event of the new government reneging on payments for the bond, a judgment against it will be worthless for enforcement purposes?

3 – Although the prospectus did mention a list of problem creditors, why did it not state clearly that they all refer to undertakings by one government repudiated by another?

4 – In view of allegations by the leading candidate for the Presidency in Paraguay about corruption in the current government http://www.abc.com.py/edicion-impresa/politica/federico-franco-y-la-primera-dama-con-una-fuerte-contestacion-a-cartes-528578.html, what guarantee is there for investors that a new administration will not declare the bond issue fraudulent and that Citibank should have known better?

5 – Why were investors not told what it costs Paraguay to keep its money protected at the BIS?

6 – What difference would it make to the economy of Paraguay if the bond issue was delayed until after the elections in April and proceeded with the backing of the new government which should be in power for five years? After all the current government is temporary, its mandate dubious and not widely recognized until the elections in April.


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