Financial Times Europe July 26 2012

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Financial Times Europe July 26 2012, Financial Times

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EUROPE
Thursday July 26 2012
Wall St always wins
Conflicted banking regulators. John Gapper, Page 9
The update cycle
bites into Apple
Richard Waters, Page 14
World Business Newspaper
Break up
Jong love
North Korean leader poses with new wife
News Briefing
Asset managers to
be hit by Europe rule
Asset managers will have to
return profits made from
lending securities in Europe
to investors in their funds
under rules that threaten to
wipe out a lucrative source
of revenues.
Page 13
US key data due
The publication of annual
revisions to estimates of US
GDP, arguably the year’s
most important data on the
world’s largest economy, are
due for release tomorrow.
Page 2; John Gapper, Page 9
Athens to be urged
The European Commission’s
president, on his first Greece
trip in nearly three years, is
expected to push the new
government’s reforms,
especially its long-stalled
privatisation plans.
Page 4;
Martin Sandbu, Page 9
US­Russia trade step
The US Congress is to take a
big step towards approving
normal trade links with
Russia, ignoring geopolitical
tensions to deliver a victory
for big US exporters.
Page 2
Italy holds steady
Italy’s government, faced
with its most serious crisis
on financial markets since it
took office, says it will not
be panicked into emergency
Budget measures.
Page 4; The
Short View, Page 13; Short
selling under attack, Page 25
Call for ECB change
Belgium’s foreign minister
said that changing the ECB’s
mandate should be part of
the eurozone’s debate on
fiscal integration.
Page 4
Caterpillar cuts view
Caterpillar warned on the
state of the global industrial
economy by lowering its
sales outlook and its growth
projections, also saying it
could cut jobs.
Page 13
Troops Aleppo bound
Thousands of Syrian troops
were reported to be heading
towards Aleppo, the largest
city and commercial capital,
as Turkey shut its border to
traffic heading to Syria.
Page
6; Editorial Comment, Page 8;
www.ft.com/syria
IMF eases China view
The IMF has softened its
stance on China’s renminbi,
calling the currency
“moderately undervalued”
against a basket of other
currencies.
Page 6; Arvind
Subramanian, Page 8
Telefónica cuts back
Telefónica has axed its
dividend and cut directors’
pay in a drastic move to
protect itself against what it
called “heightened risk” that
Spain’s economy will further
deteriorate.
Page 13
US cannabis protest
Supporters of medical
marijuana protested over the
president’s fundraising visit
to California, vowing to pull
their votes for him because
of a federal crackdown on
cannabis dispensaries.
Page 2
big banks,
says ex­Citi
chief Weill
U­turn by champion of financial titans
By Tom Braithwaite in New York
and Shahien Nasiripour in
Washington
movement to go back to a sim-
pler delineation of roles, a
reform that would force the
break-up or radical restructur-
ing of JPMorgan Chase, Bank of
America and Citigroup.
In an interview with the
Financial Times, Tom Hoenig,
director of the Federal Deposit
Insurance Corporation, called
for a “richer, deeper Glass-
Steagall”.
Speaking before Mr Weill’s
remarks, he said rival proposals
had fallen short. These include
the US Volcker rule, which bans
banks from trading on their
own account rather than on
behalf of a customer, and
the UK’s Vickers commission,
which proposed forcing banks
to
Citigroup’s former chief execu-
tive Sandy Weill has called for a
break-up of large banks in a sig-
nificant about-face from one of
the architects of the modern
financial conglomerate.
Mr Weill’s intervention adds
to a growing chorus of regula-
tors, politicians and bankers
calling for a return to the sepa-
ration of investment banking
from commercial banking that
existed in the US before the
1990s.
“What we should probably do
is go and split up investment
banking from banking, have
banks be deposit takers, have
banks make commercial loans
and real estate loans, have
banks do something that’s not
going to risk the taxpayer dol-
lars, that’s not too big to fail,”
Mr Weill, 79, told CNBC.
His comments come 13 years
after the repeal of Glass-Stea-
gall, the law passed after the
Great Depression, which had
forced a separation of financial
activity.
Mr Weill championed that
repeal as he created Citigroup
through acquisitions.
Carolyn Maloney, a Democrat
on the House financial services
committee, said that Mr Weill’s
comments were “absolutely
huge”. She asked Tim Geithner,
US Treasury secretary, to detail
in writing how the 2008 finan-
cial crisis could have been dif-
ferent with the older rules in
place.
Amid worry about “too big to
fail” banks, there is a significant
North Korean leader Kim Jong­eun pictured at a theme park in Pyongyang with his wife, named as Ri Sol­ju, after weeks of
speculation about the nature of their relationship resulted in the announcement of their marriage
Report, Page 3
Reuters
ringfence
their
retail
UK rating in jeopardy as output falls
operations.
“I find that, over time, fences
are jumped, firewalls are drilled
through and you end up with
bad outcomes,” he said.
Senior bankers including John
Reed, former co-chief executive
of Citi, and Phil Purcell, former
chief executive of Morgan
Stanley, have called for banks to
be split up.
In 1998, after a series of acqui-
sitions, including Salomon
Brothers, the investment bank,
and Smith Barney, the retail
brokerage, Mr Weill combined
his Travelers Group with Citi-
corp to create a sprawling con-
glomerate that became Citi-
group.
Mr Weill, who had started to
spin off businesses, declined to
say that he had been wrong to
push for the ability to establish
a financial supermarket.
He said: “I think the earlier
model was right for that time.”
By Robin Wigglesworth,
Sarah O’Connor and
George Parker in London
this year. “The data is shocking
and no amount of excuses
about rainfall or the Queen’s
Jubilee can explain away such
weak growth,” said Alan Wilde
of Baring Asset Management.
“The credit rating agencies will
be deeply concerned by today’s
report . . . this may well hasten
a downgrade.”
George Osborne, UK chancel-
lor, admitted that the country
had “deep-rooted economic
problems”, but maintained that
the government was “dealing
with our debts at home and the
debt crisis abroad”.
Bond investors have grown
increasingly wary of the threat
to the UK’s triple A rating. The
dismal second-quarter data
have markedly increased the
chances of rating cuts in the
future, they said. “The UK
looks vulnerable,” Nick Gart-
side of JPMorgan Asset Man-
agement said. “In terms of its
rating and its safe haven sta-
tus, it is an anomaly.”
Moody’s and Standard &
Poor’s, which have both rated
the UK at triple A since 1978,
declined to comment.
In April, while affirming its
stable outlook on the UK,
Standard & Poor’s warned that
“materially weaker economic
growth than we currently
anticipate over the medium
term” could lead to “downward
pressure” on the rating.
The agency forecast UK
growth of 0.5 per cent this year
– a figure that will be hard to
hit. Investors said, however,
that any downgrades were
unlikely to have a major effect
on the UK’s borrowing costs
thanks largely to the Bank of
England’s bond-buying pro-
gramme. Standard & Poor’s
decision to strip the US of its
triple A rating last year did not
dent investor appetite for
Treasuries, whose yields have
declined.
The UK’s two-year borrowing
costs slumped to a record low
of just 0.05 per cent after the
economic data were released.
Mr Osborne said the govern-
ment would not deviate from
its “plan A” to eliminate Brit-
ain’s structural deficit by 2017.
The UK’s deepening recession
will cost the country its cher-
ished triple A credit rating,
leading bond investors warned,
after output fell 0.7 per cent in
the three months until the end
of June.
Big investors said the found-
ering economy, which econo-
mists had projected would
shrink 0.2 per cent in the sec-
ond quarter, is confounding the
government’s ambitious auster-
ity programme and will proba-
bly spur Moody’s to strip the
UK of its top rating.
The agency put the UK on
negative outlook in February
Editorial Comment, Page 8
US corn ‘disaster’ threatens to put
pork and chicken on the luxury list
The name game
By Gregory Meyer in New York
130 bushels, which Mr Pope said
would sharply reduce harvest
expectations at a time of scarce
global supplies. The US govern-
ment forecasts average yields of
146 bushels.
“I’ll use the word catastrophe
– that’s my definition,” Mr Pope
told the Financial Times in an
interview.
Meat producers feel pressure
when feed prices surge. Smith-
field shares fell 13 per cent in
the month to Tuesday.
Mr Pope said the company has
used futures to lock in feed
costs “well into” the spring of
2013. He had to defend the posi-
tion at a board meeting on June
18, before corn had jumped to a
record $8 a bushel.
“I thought that $6 corn was
the end of the world,” said Mr
Pope. “I never could have real-
ised that I would be thankful to
be buying it at $7.”
Most analysts expect the live-
stock industry will respond to
higher feed prices by culling pig
herds.
Mr Pope warned that US meat
prices would rise by “significant
double-digits”, or more than 10
per cent a year.
Like others in the livestock
and poultry industry, Mr Pope
called for the US Environmental
Protection Agency to suspend
the renewable fuel standard, a
congressional mandate requir-
ing more than 13bn gallons of
corn ethanol to be used in trans-
port this year.
The US Department of Agri-
culture estimates almost 40 per
cent of the US corn crop is con-
sumed by ethanol refineries.
Tom Vilsack, US agriculture
secretary, has said he opposes
waiving the mandate, which is
politically
Pork and chicken will join beef
on the menu of expensive meats
as drought and US ethanol pol-
icy combine in a corn “disas-
ter”, the head of the world’s
largest pork producer has said.
The cost of the main ingredi-
ents in animal feed, corn and
soyameal, have set records this
month as the worst drought in
half a century and extreme heat
damages crops in the US, the
world’s main surplus producer.
“Beef is simply going to be too
expensive to eat. Pork is not
going to be too far behind.
Chicken is catching up fast,”
said Larry Pope, chief executive
of Smithfield Foods. “Are we
going to really take protein
away from Americans?”
Smithfield estimates the US
corn crop will yield less than
140 bushels an acre and possibly
Athletes competing in the
Olympic Games are turning to
Twitter and Facebook in
growing numbers, giving the
companies that sponsor them
a new outlet for advertising.
However, the athletes must
ensure that they adhere to
strict guidelines and must
seek a waiver before
mentioning commercial
sponsors who are not official
Olympic advertisers.
Inside
Global Appointments
Top jobs in business and finance
Report, Page 3
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FINANCIAL TIMES
THURSDAY JULY 26 2012
WORLD NEWS
Fed braced for GDP revisions
Romney’s cold
war echoes are
music to the
ears of Putin
Past US updates
deepened the gloom
More monetary
easing possible
By Robin Harding
in Washington
What may be the year’s
most important set of data
on the world’s largest econ-
omy is due for release
tomorrow with the publica-
tion of annual revisions to
estimates of US gross
domestic product.
In 2010 and again in 2011,
huge revisions showed that
the recession of 2008-09 was
much deeper than previ-
ously thought, and the
recovery from it was
weaker. The changes con-
tributed to US Federal
Reserve decisions to ease
monetary policy with the
“QE2” measure in late 2010
and “Operation Twist” a
year later.
After a bout of weak data,
the Fed is again considering
whether it needs to ease
policy further, and if 2012
produces more big GDP
revisions, these could influ-
ence the central bank’s
actions when its officials
meet next week.
Paul Dales, a US econo-
mist at Capital Economics
in London, said the revi-
sions were a wild card.
“They can dramatically
change how both we and
policy makers feel about
how the economic recovery
is going,” said Mr Dales.
The revisions are made
because detailed statistical
information – such as num-
bers from corporate tax
returns – can take years to
finalise. The Bureau of Eco-
nomic Analysis also up-
dates its methodology and
its seasonal adjustments.
For example, early esti-
mates of the final quarter of
2008 – when the economy
slumped after the collapse
of Lehman Brothers –
showed a contraction of 5.4
per cent at an annualised
rate. But in July 2010, that
saying that the three
countries he is visiting
each “shares our love of
liberty”, which at least
strikes an upbeat theme.
But in a speech he gave
to a veterans’ group on
Tuesday, Mr Romney
sounded downright scary
about events beyond US
borders. The world, he
told the audience, is
“dangerous, destructive,
chaotic”.
The overseas trip adds
to the growing contrast
between the presidential
candidate that Mr
Romney could be and the
one he is presenting to
the country. On domestic
issues, he could sell
himself as the successful
businessman who
then managed to get
things done as a rare
Republican governor of
Massachusetts. Instead,
Mr Romney has run away
from healthcare reform,
his singular achievement
in office.
In foreign affairs, Mr
Romney could use his
GLOBAL INSIGHT
Geoff Dyer
in Washington
Joe Biden has already
sized up the likely foreign
policy of a Mitt Romney
administration. The
Republican challenger
would, according to the
vice-president, return the
country to the George W.
Bush policies that “got us
into the mess that
President Obama has dug
us out of”.
Right family, wrong
president. As the
Republican presidential
candidate packs his bags
for a six-day foreign tour
in which he aims to
demonstrate his ease on
the international stage
and flesh out his foreign
policy philosophy, Mr
Romney’s agenda tone
harks back more to the
era of President George
H.W. Bush.
Mr Romney’s weekend
visit to Israel is, at least,
good domestic politics.
Given Mr Obama’s
tortuous relationship with
Benjamin Netanyahu and
Israel’s resounding
popularity across the US
political spectrum, it
makes electoral sense for
a Republican candidate to
advertise his longstanding
friendship with the Israeli
prime minister.
However, his two other
stopovers have a different
air. In the UK Mr
Romney will not only
watch the opening of the
Olympics but will,
according to the words of
one adviser, aim to
re-establish the “Anglo-
Saxon heritage” that is at
the root of the special
relationship between the
two countries.
The last leg of his trip
will take him to Poland.
Mr Romney will be the
special guest of the
former president Lech
Walesa, one of the iconic
figures of the 1980s, and
he will make a pilgrimage
to Gdansk, the home of
the Solidarity movement.
Mr Romney has already
described Russia as
“without question, our
number one geopolitical
foe” and his two days in
Poland will give him a
chance to air his sceptical
views on Vladimir Putin,
the Russian president.
In Poland, Mr Romney
might also be able to
subtly make a pitch for
some Catholic votes in
the industrial Midwest.
But in its themes and
personalities, Mr
Romney’s itinerary is one
that would have seemed
current and forward-
looking 20 years ago.
Lanhee Chen, Mr
Romney’s policy director,
explained the agenda by
Sign of the times: a clothing store in Chicago goes under as retail sales struggle. The Fed is considering action after a bout of weak data
Bloomberg
was revised to a fall of 6.8
per cent, and in July 2011 it
was revised again to an 8.9
per cent slump. To the Fed,
that suggested there was
more slack in the economy
than previously thought.
This time round, it is
hard to predict how big the
revisions – which will cover
the first quarter of 2009
through to the first quarter
of 2012 – might be, or even
in which direction they
might go. “The only thing
you can go on are the differ-
ent measures of GDP,” says
Mr Dales.
One alternative measure,
gross domestic income, has
been a little stronger than
GDP over the period, which
might suggest an upwards
revision – but this is still
little more than a guess.
The revisions will come
alongside the first estimate
of GDP growth in the sec-
ond quarter of 2012.
Although early estimates of
output are unreliable, it
may indicate whether the
economy is losing further
momentum, and is sure to
have repercussions in a US
presidential election where
the Republican Mitt Rom-
ney is challenging President
Barack Obama over his eco-
nomic stewardship.
The market consensus is
for a feeble expansion of 1.8
per cent over the previous
quarter, at a seasonally
adjusted annualised rate,
but even that may prove
too high. Macroeconomic
Advisers, a forecasting firm,
estimates that growth was
only 1.3 per cent. The US
economy grew at a pace of
1.9 per cent during the first
quarter of this year.
The main factor driving
low forecasts is weak con-
sumption. Monthly figures
for personal outlays in
April and May are already
available. These show mini-
mal growth as consumers
retrenched – possibly in
response to bad economic
news, such as feeble
progress in the jobs market.
Retail sales data are also
available for April, May and
June, and show a decline.
Given that consumption
makes up by far the largest
share of output, then if it is
weak, total growth is also
likely to be slow.
Another potential drag on
second-quarter growth is
net trade, where a slow-
down in the world economy
has begun to weigh on US
exports.
His itinerary is
one that would
have seemed
forward­looking
20 years ago
US GDP growth
Annualised % change over
previous quarter
4
2
0
-2
business experience to tell
a powerful story about
how the US can reinvent
itself in a fast-changing
global economy. There is
a case he could make for
revived American
leadership, working in
tandem with some of the
emerging powers. But
neither Asia nor
economics get much space
in his campaign world
view, beyond criticising
China.
Instead, Mr Romney
appears to be untroubled
if he comes across as an
unreconstructed cold war
warrior.
The broader message is
probably about the nature
of this election. The polls
tend to show both that
the outlook remains very
tight and that there are
relatively small
numbers of undecided
independents. That puts
ever more importance on
mobilising the base.
The upshot is a foreign
policy rhetoric heavy on
strenuous denunciations
of the Obama
administration but light
on details of actual policy
difference.
It also makes Russia a
soft touch. In many parts
of the Republican party,
mistrust of Russia is
abiding. That is especially
the case since Mr Putin
returned to office in May,
and even more so after
last week’s third Russian
UN veto on Syria.
The irony is that the
one person quite happy
with the Romney cold
war echoes is, of course,
Mr Putin.
-4
-6
-8
-10
2007 08
09
10
11
12
Source: Thomson Reuters Datastream
John Gapper, Page 9
Mood sour as US set for normal trade links with Russia
By James Politi in
Washington and
Neil Buckley in London
porters are hoping for –
though it may not happen
until September or later in
the year.
“The prospects have
improved dramatically,”
said Ron Pollett, chief exec-
utive of GE Russia, who
was in Washington last
week to lobby for the bill.
“It’s a question of when, not
if.”
The bill would unwind
the Jackson-Vanik amend-
ment, a Cold War relic that
barred trade with the Soviet
Union for restricting Jewish
emigration. Its provisions
have routinely been waived,
but its presence has contin-
ued to sour US economic
relations with Russia.
However, both in the
House and the Senate, US
lawmakers were planning
to attach the Magnitsky
bill, designed to punish offi-
cials responsible for human
rights abuses round the
world by denying visas and
freezing their assets.
While this has raised ire
in Russia it was the only
way that Congress would
move forward with the Per-
manent Normal Trade Rela-
tions legislation.
Russia has reacted
angrily to the Magnitsky
bill – named after a crusad-
ing anti-corruption lawyer
who died in a Moscow jail.
It has pledged to respond in
kind by adopting its own
list of US officials alleged to
have been involved in
human rights abuses, bar-
ring them from Russia.
It also emerged on Tues-
day that Russia was keep-
ing secret the names of 12
prosecutors overseeing an
attempt to prosecute Mag-
nitsky posthumously for
alleged corporate tax eva-
sion to keep them off the
US Magnitsky list.
The White House – and
many in the business com-
munity – would have pre-
ferred a “clean” bill without
the Magnitsky attachment,
but were nonetheless happy
that progress was being
made. “We applaud their
action,” said Ron Kirk, after
the Ways and Means com-
mittee unveiled the legisla-
tion last week. “More
exports to Russia will mean
more American jobs here at
home,” he added.
The legislation comes at a
time of trouble between the
US and Russia, particularly
over policy towards Syria
and Iran.
But advocates for the
trade deal argued that the
security tensions should be
treated separately, and
granting Russia PNTR sta-
tus worked only to the
advantage of the US.
Mr Pollett said: “It’s not a
gift to Russia, it’s not a car-
rot to Russia, it’s about sup-
porting US jobs.” If PNTR
does not pass, Mr Pollett
said “it only hurts US com-
panies” since they won’t be
able to take advantage of
protections on standards
and intellectual property
under the WTO, and Euro-
pean and Asian competitors
will make the case to Rus-
sians that the US does not
want to “deal” with them.
The US has just a 5 per
cent market share of some
$300bn in annual Russian
imports, compared with 43
per cent for the EU and 26
per cent for Asia.
‘Anglo­Saxon’ comment attacked
Mitt Romney’s campaign
was back on the defensive
yesterday over anonymous
comments by one of his
advisers,
writes Stephanie
Kirchgaessner in
Washington
. The adviser
reportedly said the
presidential hopeful had a
better understanding than
Barack Obama of the UK­
US relationship because of
a “shared Anglo­Saxon
heritage”.
The Romney campaign
told the National Journal in
Washington the comments,
in Britain’s Daily Telegraph,
were “not true”. But the
report elicited an angry
response directly from Joe
Biden, vice­president.
“The comments reported
this morning are a
disturbing start to a trip
designed to demonstrate
Governor Romney’s
readiness to represent the
United States on the
world’s stage,” Mr Biden
said. “This assertion is
beneath a presidential
campaign.”
David Axelrod, the
president’s adviser, said on
Twitter that the comment
was “stunningly offensive”.
It came as the Romney
campaign turned up the
volume on political attacks
that have referred Mr
Obama as being un­
American and espousing
foreign ideologies. This
week Mr Romney criticised
comments by the president
apparently intended to
highlight society’s role in
enabling individual success.
“If you’ve got a business,
you didn’t build that.
Somebody else made that
happen,” Mr Obama said.
Mr Romney said on
CNBC that the comment
was “foreign to the
American experience” and
evidence that Mr Obama
saw government as an
answer to every problem.
The US Congress is set to
take a big step towards
approving normal trade
relations with Russia,
brushing off geopolitical
tensions to deliver a victory
for large US exporters such
as Caterpillar and General
Electric.
The Ways and Means
committee of the House of
Representatives is expected
to vote on a bill, probably
today, that would allow US
companies to reap the bene-
fits from Russia’s looming
accession to the World
Trade Organisation. The so-
called Magnitsky bill –
which seeks to punish Rus-
sian officials for human
rights abuses – will be
attached to the legislation.
With both Republican and
Democratic leaders on the
panel endorsing the pack-
age, it should pass comfort-
ably. This would bolster the
chances of it being enacted
before the August congres-
sional recess – as its sup-
In full: www.ft.com/us
US medical marijuana supporters protest at federal raids
President Obama to call off
this unauthorised war on
medical cannabis.”
Since Mr Obama came to
office, his administration
said it would de-prioritise
prosecutions of medical
marijuana users, instead
devoting federal resources
to serious, illegal drug traf-
fickers, while respecting
local and state laws.
Dispensary operators and
supporters view the raids as
a violation of that policy.
Hundreds of them gathered
outside Oakland’s city hall
on Monday and surrounded
the theatre where Mr
Obama spoke that evening.
Sixteen states have legal-
ised medical marijuana.
California’s tax authority
estimates annual statewide
sales revenue for medical
marijuana is as much as
$1.3bn, generating sales tax
of up to $105m.
Several cities that have
been struggling to make
ends meet in the economic
downturn have looked to
local dispensaries for addi-
tional tax revenues. In Oak-
land, city officials tripled
the business tax on dispen-
saries in 2010 to 5 per cent.
Last year, it received $1.4m
in taxes – 3 per cent of total
business taxes for the city.
“You can do a lot with
that money in a time when
we’re closing libraries and
youth programmes are
being cut,” said David
McPherson, the city’s tax
administrator. From a fiscal
standpoint, Mr McPherson
would rather not see Oak-
land’s dispensaries shut
down. But two of the city’s
four have been targeted by
federal authorities in recent
months, including Harbor-
side Health Center, the larg-
est dispensary in the US.
That organisation
received a letter from the
Northern California US
attorney’s office this month
threatening to seize the
property if the landlord did
not evict the dispensary.
In April, federal agents
raided Oaksterdam Univer-
sity, an organisation that
sells medical marijuana and
teaches entrepreneurs “can-
nabusiness”. About 100
agents stormed the centre's
seven locations early in the
morning, said Richard Lee,
the founder, taking all the
plants, cannabis products,
money, computers and files.
Though he does not know
which federal agency was
behind the raid because the
order is sealed, he said the
Internal Revenue Service
had targeted him for viola-
tion of an obscure tax law
that says businesses that
are considered illegal under
federal law are not allowed
to deduct standard business
expenses, such as rent and
supplies, from their income.
Other dispensaries have
been hampered or in effect
shut down by efforts of the
Treasury department,
which has advised banks to
close accounts associated
with medical marijuana
businesses and told credit
card companies to stop
processing transactions
from dispensaries.
“It makes it difficult to
pay payroll and tax if you
don’t have a bank account,”
said Mr Smith.
Some cities see the bal-
looning number of “pot
shops” as a nuisance. In
Los Angeles, which has 762
dispensaries, the city coun-
cil voted unanimously on
Tuesday to shut down all of
them. It then amended that
decision with a plan that
would grant immunity to
those that opened their
doors before the city put a
moratorium on new shops
in 2007. The decision treads
into a legal grey area, as
the rights of municipalities
to ban and regulate dispen-
saries under state law are
unclear.
Voters in three states will
consider the legalisation of
marijuana for recreational
use in November, including
Washington, Colorado, and
Oregon, with supporters
touting the hundreds of mil-
lions of tax revenues as a
benefit. A similar ballot in
California failed in 2010.
Still, the issue is unlikely
to feature prominently in
the presidential race. Mitt
Romney, the Republican
contender, has said he is
opposed to the legalisation
of marijuana, but that it
was an issue for the states.
Mr Obama did not mention
it at his Oakland fund-
raiser.
Dispensary anger
Selling the drug
is legal under
California law but
not under national
statutes, writes
April Dembosky
Number One Southwark Bridge, London SE1 9HL
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Supporters of medical mari-
juana protested over Presi-
dent Barack Obama’s fund-
raising visit to Oakland,
California, this week, vow-
ing to pull their votes for
the incumbent because of a
recent federal crackdown
on cannabis dispensaries.
Federal agents have
raided several dispensaries
– which are legal under
state, but not national, law
– and disrupted their opera-
tions by advising landlords,
banks and credit card com-
panies to stop working with
the businesses.
“They’re using these
backdoor channels to attack
dispensaries,” said Aaron
Smith, executive director of
the National Cannabis
Industry Association, a
trade group. “We’re asking
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A medical marijuana protester at a Los Angeles meeting
AP
   FINANCIAL TIMES
THURSDAY JULY 26 2012
★
3
WORLD NEWS
Social media make their mark at London games
photos and videos about the
brand with their social
media fans.
Several of those relation-
ships are taking centre
stage during the 2012 Lon-
don Olympics. Jamaican
sprinter Usain Bolt recently
posted a photo of a refriger-
ator filled with Gatorade
sports drink to his 615,000
Twitter followers.
American swimmer
Michael Phelps mentions
Visa, Head & Shoulders
shampoo, and Hilton Hotels
amid the training updates
he shares with his 5.4m
Facebook fans.
“It is an absolute phe-
nomenon,” said Lowell
Taub, the global head of
sports endorsements at Cre-
ative Artists Agency who is
representing several ath-
letes competing in this
year’s games.
“With almost every single
deal that my group puts
together, sponsors ask, ‘Can
you tell me about the ath-
lete’s social media footprint,
how many Twitter followers
do they have? How many
Facebook fans? Will they do
some tweets for the cam-
paign?’”
The online-sponsorship
battle is just one reason
some people are dubbing
the London Olympics the
social media games.
“We are at a dawn of a
new age of sharing and con-
necting and London 2012
will ignite the first conver-
sational Olympic Games
thanks to social media plat-
forms and technology,” says
Alex Huot, head of social
media for the International
Olympic Committee.
The four years since the
last Summer Olympics have
ushered in a new era of dig-
ital media. Facebook has
900m users, up from 100m
in 2008. Twitter has 140m
users, up from 6m in 2008.
Other popular social media
programmes, such as Pin-
terest, Instagram, and four-
square didn’t exist at the
time of the Beijing Olym-
pics.
As the Olympic torch
makes its way across Lon-
don, social media are light-
ing up with posts about the
games. There were more
tweets about the Olympics
on a single day during a
recent week than the total
number during the entire
Beijing Summer Olympics,
according to Twitter. Ath-
letes are taking to the
medium by storm.
Russian tennis player
Maria Sharapova on Mon-
day shared a picture with
her 7.7m Facebook fans of
her first trip to the Olympic
Park to pick up her creden-
tials. After basketball star
Kobe Bryant gave her a
pair of Nike shoes, Austral-
ian swimmer Stephanie
Rice posted a photo of them
to Instagram.
The trend has yielded
some unsavoury moments.
A Greek triple jumper was
expelled from her team
after she tweeted comments
that were deemed racist
about African athletes, and
forwarded tweets by a far-
right politician.
Strict guidelines from the
International Olympic Com-
mittee encourage Olympic
athletes to use social media
but bar them from mention-
ing commercial sponsors
without a special waiver.
Those rules could mute the
impact of endorsements
from marketers that are not
official Olympic sponsors.
A flurry of social media
activity about the games
also could make it difficult
for a sponsor’s message to
stand out – particularly if
the athlete is endorsed by
multiple brands.
Many Olympic athletes
view the games as their
shot to land sponsorship
deals and are careful to use
social networks to interact
with fans but not to annoy
followers with too many
commercial messages.
Hoping that an Olym-
pian’s halo would extend to
the brand, marketers for
years have struck sponsor-
ship deals with athletes
based on the star’s perform-
ance on the field, looks and
personality, among other
factors.
Until recently, marketers
had to spend sponsorship
budgets on both endorse-
ment contracts and adver-
tisements promoting rela-
tionships with athletes.
That dynamic has
changed now that athletes
can promote themselves via
social media followings that
rival the audiences of tradi-
tional media. “Brands are
smart enough to say, ‘You
are having a direct dialogue
with your fans. Please try
to include our message in
that communication’,” said
Kevin Adler, of Engage
Marketing in Chicago.
Olympics 2012
Facebook and
Twitter are key to
the marketing of
both athletes and
sponsors, writes
Emily Steel
Days after American gym-
nast Gabrielle Douglas
made Olympic Team USA,
the 16-year-old posted to
Twitter a picture of flowers,
cake and a giant plastic tub
filled with paper towels,
soap, deodorant and mouth-
wash.
The package was a gift
from her new sponsor
Procter & Gamble, the con-
sumer packaged goods com-
pany. “I love all of my good-
ies thank you so much for
everything!” she tweeted to
her 27,000 followers.
The message represents a
new wave of athletic
endorsements, where a
star’s presence on Twitter,
Facebook and the like fac-
tors into which athletes
marketers choose to spon-
sor. Those endorsement
contracts often require that
athletes share messages,
More games news at
www.ft.com/olympics
They’re off: the games began with Britain beating New Zealand 1­0 in women’s football
Reuters
Kim’s marriage
announcement
signals change
of N Korea tack
By Simon Mundy in Seoul
who attained the rank of
general only in 2010, at the
same time as Kim Jong-eun.
Baek Seung-joo, an ana-
lyst at the Korea Institute
for Defense Analyses, told
the Financial Times last
week that Mr Kim was try-
ing to re-establish the pre-
dominance of the ruling
Korean Workers party over
the military, whose leaders
have developed significant
interests in the North
Korean economy. “Kim is
practically different from
Kim Jong-il and his govern-
ance principles of ‘military
first’,” Mr Baek said.
Although North Korea
experienced a rare year of
growth in 2011 – the econ-
omy expanded 0.8 per cent,
according to South Korea’s
central bank – decades of
North Korea’s youthful
leader Kim Jong-eun’s
announcement of his mar-
riage is the latest sign of
his apparent desire to make
his mark on the authoritar-
ian state, seven months
after taking power.
North Korean state televi-
sion showed footage last
night of Mr Kim attending
the inauguration of a theme
park with his wife, named
as Ri Sol-ju. The couple had
been the object of foreign
media speculation for weeks
after Ms Ri was repeatedly
shown at Mr Kim’s side in
official media.
The news comes a week
after Mr Kim shook up the
senior ranks of North
Korea’s military, replacing
the army chief of staff and
promoting himself to the
pre-eminentrankofmarshal.
His openness about his
marriage contrasts with the
approach of his father, Kim
Jong-il, whom he succeeded
on his death in 2011, and
who was never shown with
his wife on state television.
Other signs of a changed
approach include the new
leader’s first public speech
in April – a contrast with
his father, who never
addressed a public audi-
ence. Earlier this month Mr
Kim attended a concert in
Pyongyang that featured
Disney characters and a
clip from the US film
Rocky
.
Most analysts warn that
these differences will prove
cosmetic unless accompa-
nied by significant changes
in domestic and foreign pol-
icy, for which there is still
no evidence.
North Korea’s rhetoric
towards the US and South
Korea has remained bellig-
erent, breaching a freshly
inked agreement with
Washington in April by
launching what defence
analysts believe to have
been a ballistic missile.
Nonetheless, many
experts perceive a drive by
Mr Kim to challenge the
power of the elderly gener-
als who rose to prominence
under his father. This the-
sis was supported last week
when Ri Yong-ho, the army
chief of staff, was removed
from all his official posi-
tions. Mr Ri, a childhood
friend of Kim Jong-il, had
regularly been seen at Kim
Jong-eun’s side since he
came to power. He was re-
placed by Hyon Yong-chol,
‘Kim is practically
different from Kim
Jong­il and his . . .
principles of
“military first”’
economic mismanagement
have left it one of the poor-
est countries in Asia with
gross domestic product per
capita of less than $2,000.
In the past week South
Korean newspapers have
carried unconfirmed reports
suggesting that Pyongyang
will soon announce sweep-
ing economic changes, with
rumoured reforms includ-
ing labour incentives for
food production.
Government officials in
Seoul say that reforms
remain possible, but that
they cannot infer a change
in strategy from last week’s
dismissal of Mr Ri, and
stress that it is too early to
rule out renewed aggression
from the North.
In a report published yes-
terday, the International
Crisis Group played down
the likelihood of a radical
change of direction under
the new leader. “The son
appears much more com-
municative [than Kim
Jong-il] and exudes confi-
dence despite his youth and
inexperience,” it said.
But, it concluded: “Kim
projects an image of confi-
dence and hope, but eco-
nomic recovery requires
policy change, and there is
no sign the regime intends
to vary its economic devel-
opment strategy.”
Kim Jong­eun waves at a Pyongyang rally in April
AP
  4
★
FINANCIAL TIMES
THURSDAY JULY 26 2012
WORLD NEWS
Barroso to push Athens on reforms
Minister
calls for
change
to ECB
mandate
Commission chief
plans top­level talks
Doubts on Greece
hitting targets
next two and half years to
meet its new bailout tar-
gets. Mr Barroso, who is
making his first trip to
Greece in nearly three
years, is expected to push
the new government to
speed up reforms, particu-
larly its long-stalled privati-
sation programme.
Greek officials insist they
are ready to show they can
get their bailout back on
track. “It’s a chance to
make clear we’ve turned a
page, that the coalition
[government] is committed
to implementing the agreed
reforms,”
considered Greek allies, pri-
vately question whether the
bailout programme is sal-
vageable, and senior Ger-
man politicians have in
recent days publicly sug-
gested they are ready to
push Greece out of the sin-
gle currency.
“If you add the number of
the declarations that have
come out from Germany on
Greece, it’s a scary sce-
nario,” said one senior euro-
zone diplomat. “They’re
playing with fire in a man-
ner that is, frankly speak-
ing, disturbing . . .”
If Greece cannot agree yet
another round of tax rises,
budget cuts and economic
reforms to fill the gap, euro-
zone officials will be faced
with a decision many are
dreading: either give Greece
more money and time, or go
through another painful
debt restructuring – this
time making cuts in loans
held by eurozone govern-
ments and the European
Central Bank, rather than
private bondholders.
Such questions will not
be fully answered until Sep-
tember, when EU and Inter-
national Monetary Fund
officials are expected to
decide on whether to pay
the next €31.3bn in aid that
is already past its due date.
Although Athens was
originally expected to use
the funds to meet a €3.1bn
bond payment due to the
ECB on August 20, EU offi-
cials are pushing Greece to
raise the funds through
short-term treasury bills, a
costly but politically intimi-
dating way of turning up
the pressure.
Senior eurozone officials
involved in Greek talks
insist there is enough good-
will within the EU to help
Greece, though such lar-
gesse will only come if the
new government quickly
changes tack and makes
tough decisions over its
budget and other reform
measures. Thus far, Greece
has completed only about
one-third of some 300
benchmarks for fiscal and
structural reforms detailed
in the second bailout.
Previous
pushed aside several
reforms considered top pri-
orities by EU and IMF offi-
cials out of fear of a public
backlash, including an over-
haul of the tax administra-
tion, disposals of lossmak-
ing state-controlled banks
and the closure of several
hundred outdated state
entities, as part of a plan to
cut the public sector payroll
by more than 150,000 work-
ers. “The government needs
to show that it is doing the
utmost, and then some, to
bring things back on track,”
said one senior eurozone
official involved in the
talks. “Then we’ll see what
may be still missing.”
The official said of the
options available to close
the gap, another debt
restructuring had proved
the least attractive, since it
would mean admitting to
taxpayers they were losing
money on Greece’s €174bn
bailout. “I have heard very
high-ranking politicians in
all countries saying that
they want to preserve
Greece in the euro area,”
the official said. For now,
the Greek finance ministry
is trying to find an extra
€3bn in revenues this year,
along with €11.5bn of
spending cuts in 2013 and
2014 to meet the second
bailout terms, without
imposing further wage cuts
across the board.
By Kerin Hope in Athens
and Peter Spiegel
in Brussels
By James Fontanella­Khan
in Brussels and
James Wilson in Frankfurt
When José Manuel Barroso,
European Commission pres-
ident, arrives in Athens
today, he will face a one-
month-old government that
has yet to agree a plan to
fill a €11.5bn budget hole
identified last year. Never
mind an additional shortfall
estimated at €20bn which
EU officials believe Greece
will have to fill during the
Changing the European
Central Bank’s mandate
should be part of the euro-
zone’s current debate on
deeper fiscal integration,
according to Belgium’s for-
eign minister.
Didier Reynders wants
the ECB to be allowed to
finance governments strug-
gling to raise money on the
financial markets.
Mr Reynders, who was
Europe’s longest-serving
finance minister when he
moved to the foreign minis-
try last year, says the ECB
could quickly help Greece,
Spain and Italy as part of a
package in which eurozone
members agreed to give up
larger portions of their
national sovereignty.
“If it is possible for the
ECB to finance the banks
with an interest rate of 1
per cent, why not for invest-
ment, and why not for some
states?” Mr Reynders said
in an interview with a
small group of reporters.
“Without the capacity to
ask the ECB to do more for
the debts [of troubled coun-
tries], it is quite impossible
to stay with such high lev-
els of interest rates.”
Mr Reynders’ interven-
tion suggests that some sen-
ior eurozone policy makers
see the need for more radi-
cal if long-term measures to
deal with the bloc’s deepen-
ing debt crisis.
Germany has long objec-
ted to allowing the ECB to
participate in such “mone-
tary financing”, and EU
treaties currently forbid the
practice, even though it is
regularly carried out by
other key central banks,
such as the Bank of Eng-
land and the US Federal
Reserve, through large-scale
sovereign bond purchases.
The ECB has also
objected to such changes,
saying its emergency bond-
buying programme is not
aimed at monetary financ-
ing but at ensuring that
monetary policy is trans-
mitted more effectively
across the eurozone by lev-
elling out borrowing costs.
Signs have appeared of a
shift at the ECB, however.
Ewald Nowotny, head of
Austria’s central bank and
a member of the ECB’s gov-
erning council, said yester-
day that he believed there
were “pro arguments” for
allowing the ECB to provide
financing for the eurozone’s
new €500bn rescue fund –
something that advocates
have argued is needed to
create the “big bazooka”
the EU has long sought.
Both Berlin and the ECB
have in the past rejected
such plans as monetary
financing. Under the pro-
posal, the rescue fund, the
European Stability Mecha-
nism, would be given a
banking licence so that it
could borrow at cheap rates
from the ECB.
Mr Nowotny’s comments
to Bloomberg television
helped to lift eurozone
shares and the single cur-
rency yesterday after days
of market nerves over
Spain’s financial problems.
Despite the likely German
objections to ECB action,
Mr Reynders said that if
strict conditions were
attached to the low-cost
loans, it would be hard for
Berlin to resist.
He said any change in the
ECB’s role should be part of
current discussions towards
building a federal Europe.
The European Commission
is due to present its out-
lines for such integration in
September.
“If we want to stay with
the euro – and I’m sure
that’s the case – we need to
deliver a federal approach,”
said Mr Reynders.
a
government
official said.
Elsewhere in Europe, offi-
cials are not as sanguine.
Senior EU officials who are
governments
Comment, Page 9
France
boosts
subsidies
for green
cars
Italian government bonds
10-year
yield
(%)
Spread over
German bunds
(% points)
7.5
6
Nov: Monti
became PM
7.0
5
6.5
4
6.0
3
5.5
2
5.0
By Hugh Carnegy in Paris
4.5
1
France’s Socialist govern-
ment boosted subsidies for
electric and hybrid cars yes-
terday as part of a package
of measures aimed at spark-
ing what it called a renais-
sance of the country’s ail-
ing car industry, based on
green technologies.
Announcing the plan on
the day that PSA Peugeot
Citroën, the biggest of
France’s two main carmak-
ers, reported a €819m loss
in the first half of the year,
the government demanded
the EU consider action
against Korean car imports.
Spurred into action by
the plight of PSA but lim-
ited by budgetary con-
straints, ministers focused
on support for new green
technologies in the smaller
car segments. This is per-
ceived as an area where
PSA and Renault have a
competitive advantage over
their big German and other
foreign rivals. Arnaud Mon-
tebourg, the industry minis-
ter, said the plan would her-
ald “the renaissance of the
French car industry. People
say it doesn’t have a future,
but it has the future that
we will give it”.
But the measures are rel-
atively modest, given the
scale of the challenge facing
the industry in France
where the number of cars
made has fallen to 2m a
year from 3.5m in 2005, and
overall employment has
fallen 30 per cent in 10
years to 800,000. The plan
also avoided the issue of
France’s high labour costs.
Mr Montebourg said that
was being treated sepa-
rately.
The main feature was a
€490m package of subsidies,
immediately increasing
state payments for buyers
of electric cars to €7,000
from €5,000 and for hybrids
to €4,000 from €2,000 – from
foreign as well as French
manufacturers. Subsidies
for regular vehicles with
low CO
2
emissions were
also increased.
Mr Montebourg said the
cost would be “largely” paid
for by increases in extra
charges on high-emission
vehicles, to be introduced
next year. These will hit
bigger luxury cars, a seg-
ment where PSA and
Renault are much weaker
than manufacturers such as
Mercedes and BMW.
The plan includes €175m
in new spending to support
small and medium-sized
suppliers and boost pur-
chases of electric and
hybrid cars by the state to
25 per cent of its fleet –
some 11,000 vehicles a year.
A total of €1.3bn in exist-
ing funds and credits will
be rolled over or redirected
to support modernisation of
the industry, including
increasing the number of
electric recharging stations.
In return, car manufac-
turers will have to agree to
maintaining production at
existing sites, base state-
supported R&D operations
in France and make their
electric and hybrid cars,
including components, in
France.
Mr Montebourg said
France also demanded that
the EU should insist on rec-
iprocity in its trade agree-
ments, singling out a rising
influx of South Korean cars
under the recent trade deal.
Jan
2011
2012
Jul
Italian GDP growth
Annual % change
2.5
2.0
1.5
1.0
0.5
0
-0.5
-1.0
-1.5
2010
2011
2012
Source: Thomson Reuters Datastream
Under pressure: premier Mario Monti at the government’s Villa Madama in Rome. He hopes for a united European response to Italy’s problems
Getty
Italy refuses to panic as speculators swarm
benefiting from the lowest
interest rates on record.
While European leaders
are setting off on their sum-
mer vacations, Mario Monti,
prime minister, is preparing
to visit Helsinki next Thurs-
day to press Italy’s case.
Finland and the Nether-
lands have voiced strong
opposition to using the
eurozone’s bailout funds to
buy Italian debt, which was
agreed in principle at the
last European summit in
late June although the
scope and conditions have
yet to be agreed.
A Finnish official reiter-
ated that eurozone pur-
chases of Italian debt on the
open market were like
“shooting in the dark”. But
he said Helsinki was willing
to consider “a surgical oper-
ation” of targeted interven-
tions on the primary mar-
ket when Italy auctions its
debt.
Mr Monti is sending a
message to his European
partners that Italy has
“done its homework” in
implementing tax increases,
spending cuts and struc-
tural reforms and would not
be panicked into passing
additional budget measures
that risk sending the econ-
omy deeper into recession.
Rome is being forced into
issuing almost daily denials
of an “emergency plan B”,
the latest yesterday being a
rejection of reports that the
government was preparing
to eliminate the December
“13-month” payment to civil
servants and pensioners.
Italian newspaper head-
lines have been dominated
by market developments
with the widening of the
yield gap between Italian
and German benchmark
bonds to 537 points on Tues-
day – above the level when
Mr Monti took over last
November following the res-
ignation of Silvio Berlus-
coni. Mr Monti held crisis
talks with leaders of the
two main political parties
supporting his appointed
technocrats in parliament
following a week of intense
speculation that Italy is
heading towards early elec-
tions in November, some
six months before the end
of the prime minister’s
mandate.
Part of that speculation
has been driven by what
many foreign analysts call a
mistaken belief that a man-
date for a new five-year
government – possibly a
coalition with Mr Monti
being asked to stay on as
leader – would remove the
political uncertainty that is
damaging Italy on the mar-
kets.
Pierluigi Bersani, leader
of the centre-left Democrats
who are leading in opinion
polls, emerged after his
meeting with Mr Monti to
dismiss reports of snap elec-
tions as “peculiar” and
“simply gossip”. However,
he did not entirely close the
door on the possibility if the
main parties reached agree-
ment on a new electoral
law. Talks between the
Democrats and Mr Berlus-
coni’s centre-right People of
Liberty on reforming Italy’s
widely hated electoral sys-
tem appear to be heading
nowhere however, with
each blaming the other for
the impasse.
In a display of the ten-
sions between the two main
parties backing Mr Monti,
the Democrats walked out
of the Senate on Tuesday as
Mr Berlusconi’s party and
his former Northern League
allies passed a vote to estab-
lish a “semi-presidential”
system with the head of
state elected by the people
rather than parliament.
The vote was denounced
by the Democrats as a time-
wasting electoral campaign
exercise, since there is vir-
tually no chance that par-
liament would have the
time or numbers to pass the
constitutional changes
needed before Giorgio
Napolitano steps down as
head of state at the end of
his mandate next May.
Last August the Euro-
pean Central Bank stepped
in to buy Italian bonds on
the open market, but offi-
cials in Rome are under no
illusions that they are fac-
ing a long difficult summer.
Monti’s woes
Rome expects an
August attack on
its sovereign bonds
and talk is growing
of an early election,
says
Guy Dinmore
Lending remains tight, says survey
Faced with its most serious
crisis on financial markets
since taking office last
November, Italy’s techno-
cratic government insists it
will not be panicked into
taking further emergency
budget measures but will
keep lobbying for a united
European response.
Italy is bracing itself for a
speculative August attack
on its sovereign bonds in
what it commonly calls
“dysfunctional” markets
where Germany is able to
borrow short-term money at
negative interest rates
while Italian yields are
tracking those of Spain
close to euro-era highs.
As one Italian official put
it, Rome will be paying
through the nose to borrow
money to help bail out
Spain’s banks – to the bene-
fit of their creditors in
northern Europe which are
Eurozone banks are
continuing to make
conditions more difficult for
borrowers even while
demand for loans remains
weak, according to a
European Central Bank
survey that suggests limited
scope for a quick upturn for
struggling economies,
writes James Wilson
.
The ECB’s latest quarterly
bank lending survey showed
more banks were expected
to tighten lending standards
further in coming months,
after steadily making credit
harder to come by for
companies and households
in the first half of this year.
Eurozone banks also
continued to report a
significant fall in corporate
demand for loans, amid a
lack of investment plans
from companies hit by the
economic downturn. The
gloom around bank lending
and demand for credit
comes despite the ECB’s
€1tn injection of liquidity
into the financial system
since December.
Germany’s Ifo index also
showed concerns over
growth spreading to the
stronger eurozone core,
with the Munich institute’s
business climate index
dropping to its lowest level
in more than two years.
And this week, purchasing
managers’ indices showed
German output dropping at
the fastest rate in three
years.
“Both surveys, Ifo and
PMI, increasingly point to a
weak economic outlook for
Germany in the second half
of 2012,” said Thomas
Harjes of Barclays.
The Short View, Page 13
Moscow central bank chief seeks to calm investors’ fears
Ignatiev says sector
stronger than 2008
severe stress for the better
part of a year.
A decrease since 2008 in
Russian banks’ foreign lia-
bilities – the amount the
banking sector as a whole
owes to foreigners – along
with a near doubling of for-
eign lending and asset buy-
ing, meant that Russian
banks were now owed more
from abroad than they
owed, Mr Ignatiev said.
As a result, they would
not be as badly hit by a
devaluation of the rouble or
a stoppage of foreign credit.
“In this respect, things
are in a much better state,”
Mr Ignatiev said, pointing
out that in August 2008, on
the eve of the last crisis, net
foreign assets of the entire
Russian banking system
stood at negative $100bn,
while today this figure –
total foreign assets minus
total foreign liabilities – is
positive $44bn. Total foreign
liabilities have shrunk from
$208bn in August 2008 to
$176bn today.
When banks owe more in
foreign currency than they
are owed, they are particu-
larly vulnerable to a devalu-
ation of their home cur-
rency. The risks that such a
structural imbalance
impose are greater when a
country allows its currency
to float freely, as Russia has
recently. For example, since
April the central bank has
allowed the rouble to fall 13
per cent on lower oil prices.
“I don’t see a problem in
the current level of volatil-
ity of the rouble”, Mr Igna-
tiev said.
What does worry the cen-
tral banker is the large out-
flow of capital from Russia
this year and last year. Mr
Ignatiev said that Russian
and foreign bank subsidiar-
ies in Russia were responsi-
ble for $23bn of the $80bn
outflow in 2011.
“It’s a lot, because Russia
is not yet a developed coun-
try, and there is such an
idea that we should attract
capital, because the returns
are higher than in devel-
oped countries,” said Mr
Ignatiev.
“I think it’s a bit of an
abnormal situation for
there to be such an outflow
of capital from a country
with such potential.”
He added that part of the
phenomenon was caused by
subsidiaries of foreign
banks using free funds to
prop up ailing corporate
centres in the eurozone:
$11bn of the $80bn was
transferred abroad by such
subsidiaries, according to
central bank data.
However the problem was
more to do with the percep-
tion of risk in Russia, he
suggested. “We don’t live in
a vacuum. We are located
right next to Europe. And
everything that happens in
Europe certainly affects us
here.”
Mr Ignatiev added that
Cyprus was the only crisis-
hit eurozone country to
which Russian banks had
exposure. Russia has been
in talks to lend Cyprus
€5bn since early June.
By Charles Clover
in Moscow
Structural changes in the
balance sheets of Russian
banks since the 2008 crisis
have strengthened the
financial sector against any
external shocks, according
to Russia’s central bank
chairman.
The remarks by Sergei
Ignatiev, made in an inter-
view with the Financial
Times, appeared aimed at
calming investor fears that
a serious crisis in the euro-
zone would have a cata-
strophic effect on Russia, as
it did in the autumn of 2008
and spring 2009.
Then the rouble devalued
by a third and the banking
system was placed under
More at
FT.com
●
Interactive graphic
Eurozone crisis: take a
closer look at the numbers
behind the Italian economy
www.ft.com/italynumbers
●
In depth
Franco­German plans for
a Tobin tax on European
financial institutions
www.ft.com/tobintax
●
Material World blog
Are the Olympics really a
shopping opportunity?
www.ft.com/mw
Peugeot loss, Page 16
Sergei Ignatiev: Russian banks’ foreign assets are up
Bloomberg
  FINANCIAL TIMES
THURSDAY JULY 26 2012
★
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