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EUROPE
Thursday September 27 2012
Google’s street view
Group’s shares are back on the right road. Page 19
Calling London: don’t
engage in NY listing war
John Gapper, Page 13
World Business Newspaper
AngloGold
mines shut
as unrest in
SA spreads
●
European shares tumble
●
Markets fret as political resolve seems to wane
News Briefing
Rajoy fights Spanish turmoil
Santander raises
$4bn in Mexican IPO
The dual US and Mexico
offer of Santander’s Mexican
unit raised $4.13bn in the
world’s third-largest IPO this
year, underlining investor
interest in the nation’s
financials sector.
Page 17
Damascus on alert
Syrian security forces were
on high alert in Damascus
after twin bomb blasts killed
at least four soldiers at an
army headquarters, showing
the rebels’ capacity to strike
at the regime’s core.
Page 3;
www.ft.com/syria
Abe leads opposition
Japan’s key opposition party
has elected ex-premier Shinzo
Abe as its leader, marking a
shift to the right that could
heighten tensions with China
and South Korea.
Page 5
Large goodwill cuts
European groups were much
more bearish about the value
of their past acquisitions last
year, reporting their biggest
goodwill impairments since
the financial crisis.
Page 17
Malema granted bail
Julius Malema, the populist
ex-youth leader of South
Africa’s ruling ANC party,
was charged with money
laundering amid a defiant
court appearance. He was
granted bail of R10,000
($1,214).
Page 2
Confidence dips
Confidence among US chief
executives has hits its lowest
for three years, the Business
Roundtable says, as a result
of fears of steep tax rises
and government spending
cuts set to take effect next
year.
Page 2; The boss’s top
lieutenant, Page 14
Intervention opposed
Egypt’s Islamist president
said he opposes foreign
military intervention to stop
Syria’s civil war and prefers
an inclusive, negotiated
settlement.
Page 3
Focus on M23 rebels
Hillary Clinton, US secretary
of state, has told Congo and
Rwanda they must resolve
border conflicts that involve
the M23 rebels controlling
parts of east Congo.
Page 6
Clegg rallies troops
Nick Clegg, head of the UK’s
Liberal Democrats, ended his
party’s conference by telling
his members to hold their
nerve and complete the task
of fixing Britain’s economy.
www.ft.com/uk; Editorial
Comment, Page 12
Temasek scales back
Temasek, the Singapore
government investment fund,
has raised S$1.28bn ($1bn)
from the sale of a stake in
SingTel as it cuts back on its
largest single holding and
diversifies abroad.
Page 21
LSE fails to impress
A disappointing update from
the London Stock Exchange
was worsened by technical
woes on some trading floors.
www.ft.com/financialservices
By Miles Johnson in Madrid and
Ralph Atkins in London
By Andrew England
in Johannesburg
Mariano Rajoy will today
attempt to stave off a backlash
from financial markets by
announcing budget plans for
next year, as the Spanish prime
minister faces the most testing
48 hours of his nine-month-old
tenure.
As protesters descended on
Spain’s parliament for a second
night, Mr Rajoy called on Span-
iards to ignore “short-term
interests”. His government is
also preparing to unveil a new
reform programme and the
results of a banking stress test
tomorrow.
The political turmoil in Spain
triggered a sell-off of European
shares, as investor concerns
mounted about the eurozone’s
fourth-largest economy. Spain’s
Ibex share index, which had ral-
lied over the summer, ended
down 3.9 per cent and the FTSE
Eurofirst 300 index dropped 1.7
per cent. The euro gave up its
gains over the past two weeks,
falling to $1.28.
The financial pressures on Mr
Rajoy’s government have been
intensified by a constitutional
crisis brewing over the Catalo-
nia region, which called snap
elections this week that could
hasten a move toward inde-
pendence.
“Spain is increasingly slip-
ping from his hands,” said
Alfredo Pérez Rubalcaba, the
leader of the country’s opposi-
tion socialist party. “There are
very clear fractures in Spain,
and the one I am most worried
about is social fracture.”
Catalonia, Spain’s largest
region by output but also its
most indebted, has already
been forced to request a €5bn
bailout from the central govern-
ment. Artur Mas, the regional
president of Catalonia, who this
week discarded his Convergèn-
cia i Unió party’s longstanding
moderate nationalism in favour
of separation from Spain, said
he could call a referendum on a
split.
While a referendum must be
approved by Madrid to be
legally binding, Mr Mas said:
“Firstly there is the intention
to do it in accordance with the
Unrest in South Africa’s mining
sector dramatically escalated as
AngloGold Ashanti, the world’s
third-largest gold producer by
sales, said it had halted opera-
tions after tens of thousands of
workers went on strike.
The protest will exacerbate
investor concerns that indus-
trial strife that began last
month in the country’s plati-
num belt is spreading, and that
a recent strike at Lonmin, the
London-listed company, and its
subsequent wage agreement will
fuel worker militancy.
The strikes have so far been
in the labour-intensive gold and
platinum sectors, but market
analysts fear they will spread to
other mining sectors and indus-
tries as South Africa’s mining
companies confront their worst
crisis since the end of white rule
in 1994.
AngloGold said most of its
35,000 employees in South
Africa had gone on strike, as
workers ignored traditional
labour resolution mechanisms
and downed their tools.
South Africa accounted for
about a third of AngloGold’s
production in the first half of
this year.
“The real concern is the
apparent breakdown of the col-
lective bargaining system that
has operated effectively since
the mid-1980s,” said Alan Fine, a
spokesman for AngloGold. “Our
challenge is to ensure the sys-
tem survives.”
Lonmin resolved a bloody six
week strike, in which 45 people
died, most shot by police, after
agreeing to increases in wages
and benefits of up to 22 per cent.
But since then militancy has
spread. Gold Fields, the world’s
fourth largest gold producer,
has had to halt operations at
two mines costing it 32,000 troy
ounces in lost production.
David Davis, an analyst at
SBG Securities, said the gold
mining industry was “fast
reaching an impasse”. He said
the contagion of illegal strikes
“will likely engulf the industry”.
Spanish MP Sabino Cuadra in an altercation with a Basque police officer in Pamplona yesterday
EFE
Spanish equities
Ibex 35 index
law, and if that can’t be done
we will do it all the same.”
This month Mario Draghi,
European Central Bank presi-
dent, unveiled a bond-
buying programme that would
allow it to intervene massively
in Spain’s debt market. But Mr
Rajoy has yet to give any firm
signal that he is prepared to
accept the main condition of
ECB aid – an economic reform
programme drawn up by EU
authorities.
Stephane Deo, head of asset
allocation at UBS, said the
ECB’s announcement had ini-
tially “triggered a rally which
removed the pressure on the
Spanish government”. But he
added that markets were
“unlikely to give the benefit of
doubt for long”.
Investors were also concerned
by a statement this week from
the finance ministers of Ger-
many, Holland and Finland,
who said plans to move bad
bank assets off government
books would not apply to “leg-
acy assets” – apparently dash-
ing Spain and Ireland’s hopes of
being freed of billions of euros
of debt incurred in bailing out
their banks.
With data this week showing
Madrid’s budget deficit reduc-
tion targets slipping further
away, the government has said
it will create an independent
fiscal authority and reduce red
tape in highly regulated indus-
tries.
Tomorrow Luis de Guindos,
finance minister, will reveal the
outcome of an independent
audit of the Spanish banking
sector, which he has said is
likely to show the country’s
lenders face a €60bn shortfall.
8200
8100
8000
7900
7800
Eurozone woes, Page 4
The Short View, Page 17
Markets, Pages 28­30
24
Sep 2012
26
Source: Thomson Reuters
Romney losing options as Obama
stretches lead in key swing states
About face
By Stephanie Kirchgaessner
in Columbus, Ohio
tion’s trajectory. The Quinnip-
iac poll did not only spell bad
news in Ohio, which he must
win, it also showed Mr Romney
trailing by nine points in the
other critical state of Florida.
Some 8 per cent of voters in
both states told pollsters Mr
Obama’s policies would favour
the rich, while about
57 per cent said Mr Romney’s
policies would do the same.
Mr Obama’s team insisted it
was taking nothing for granted.
“We’re running the race in
every swing state as if we’re five
points down,” said a campaign
spokeswoman.
Next week’s first presidential
debate is one of the last poten-
tial game-changers, when Mr
Romney will have the opportu-
nity to confront Mr Obama on
his stewardship of the economy.
Anecdotal evidence suggests
Mr Romney has his work cut
out to regain the advantage in
Ohio. Mr Obama also arrived in
the state yesterday.
One top Republican party offi-
cial in the state, who spoke to
the FT on condition of anonym-
ity, blamed the candidate’s
organisation on the ground,
lamenting that Mr Romney
needed a mastermind like Karl
Rove, the strategist credited
with eking out George W.
Bush’s narrow victory over
John Kerry in the state in 2004.
“We have midwest values
here . . . but you have these kids
[Romney campaign staff] show-
ing up at these events in loafers
and salmon-coloured shorts and
these dress shirts, that you
know, [have] their chest hairs
popping out of. A lot of Ivy
League kids . . . and they don’t
know what they are doing.”
The paths that lead Mitt Rom-
ney to the White House are nar-
rowing, with polls in critical
swing states showing it would
take a significant change in
course for the Republican nomi-
nee to unseat Barack Obama.
In rallies with voters across
the state of Ohio, where a new
poll yesterday showed Mr
Obama with a 10-point lead, Mr
Romney made a forceful case
that he had the experience to
turn around the sluggish econ-
omy for middle class Americans
who were “tired of being tired”.
“The choice we make is going
to determine what kind of take-
home pay people in America
have,” he said.
The question facing the Rom-
ney campaign now is how the
former Massachusetts governor
can force a change in the elec-
France will find it ‘almost
impossible’ to hire top talent if
the government imposes a 75
per cent income tax rate, Jean­
Paul Agon, head of L’Oréal, has
said. Mr Agon was one of 16
wealthy individuals calling last
year for a tax on the rich in a
gesture of national solidarity.
Asked about his change of
tack, Mr Agon said that 75 per
cent had ‘clearly not’ been the
level he had had in mind.
Inside
Global Appointments
Top jobs in business and finance
Medicare fears, Page 2
Rust belt race, Page 11
Editorial Comment, Page 12
Subscribe now
Reports, Pages 17 & 20
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FINANCIAL TIMES
THURSDAY SEPTEMBER 27 2012
WORLD NEWS
Fiscal cliff dims business mood
Former ANC
youth leader
charged with
laundering
that in the third quarter its
main index of chief execu-
tives’ confidence had suf-
fered one of the steepest
falls in its history, which
began in 2002.
Jim McNerney, the chief
executive of Boeing who is
also chairman of the BRT,
said: “CEOs foresee slower
overall economic growth for
2012 and have lower expec-
tations for sales, capital
expenditures and hiring
compared to last quarter.”
He blamed the downturn
on “continuing concern
about the strength of the
recovery, including uncer-
tainty over the approaching
fiscal cliff and accompany-
ing debates about the tax
code, sequestration and the
debt ceiling.”
The BRT warning comes
after members of Congress
have left Washington to
campaign in their districts
for the November election.
That leaves no prospect of a
breakthrough on fiscal pol-
icy over the next weeks.
Both Democrats and Repub-
licans are banking on vot-
ers giving them a mandate
to shape the fiscal cliff
negotiations to their advan-
tage, with neither side mak-
ing any concession before
then.
But there has been some
behind-the-scenes manoeu-
vring on Capitol Hill. Mem-
bers of the Senate finance
committee held a closed-
door meeting this month
with Ben Bernanke, chair-
man of the Federal Reserve,
to discuss the potentially
market-moving fiscal fight
ahead. Tim Geithner, US
Treasury secretary, has also
met leaders on Capitol Hill.
“I am laying the ground-
work now so that when eve-
ryone’s ready to sit down at
the table and work together
we can get this done,” said
Max Baucus, Democratic
chairman of the Senate
finance committee. “Some
tough decisions are going to
need to be made and the
only way we can overcome
this challenge is if we work
together.”
Many of the discussions
revolve around two possibil-
ities. The first is re-election
for Barack Obama, which
would give him the upper
hand in his push, opposed
by Republicans, to raise
taxes on the wealthy by
allowing the expiry of Bush-
era tax rates for those earn-
ing above $250,000 a year.
The second is a victory
for Mitt Romney, which
would put Republicans in
a better position to demand
the extension of all Bush-
era tax rates to give more
time for the new adminis-
tration to craft a long-term
deficit-reduction and tax
reform plan. A big shift in
the congressional races –
Republicans now control
the House of Representa-
tives but Democrats control
the Senate – could some-
what alter the balance of
power, but these are the
basic battle lines.
“People are identifying
the different scenarios, the
different variables,” said
Chris Van Hollen, the top
Democrat on the budget
committee in the House of
Representatives. “There are
discussions but not negotia-
tions, I think that’s the best
way to characterise it.”
If Mr Obama wins, the big
question is whether Repub-
licans in the House – if they
retain power in the lower
chamber – might relent in
their insistence on prevent-
ing the expiration of the
higher-income tax cuts.
While some believe they
will be forced to, especially
if they want to avoid big
cuts to defence spending,
that is by no means guaran-
teed, making it more likely
that the US will plunge off
the cliff, at least temporar-
ily, under a second Obama
administration.
“We believe that is terri-
ble policy at any time,” said
Tom Price, who chairs the
Republican policy commit-
tee in the House.
“One can make a fairly
good argument that the
House reflects the will of
the American people and
consequently we would
make the argument that the
people have ratified [our]
policies,” he added.
But if Mr Romney wins,
the pressure will be on Mr
Obama as the “lame duck”
to punt the Bush tax cut
question in to next yea, and
avoid leaving a huge tax
rise on all Americans as his
legacy.
“When governor Romney
becomes president-elect, my
suspicion is there will be
a consensus to essentially
hold things at the status
quo for a finite period of
time – like three months or
six months,” said Mr Price.
US optimism
Fears over tax rises
and spending cuts
are impeding
decision­making,
write
James Politi
and
Ed Crooks
By Andrew England
in Johannesburg
The ANC said it rejected
accusations of abuse of
state agencies “with con-
tempt, as it is misleading
and seeking to undermine
the rule of law and jurispru-
dence of the country”.
Mr Malema was expelled
from the faction-ridden
ANC for disciplinary rea-
sons this year but he has
refused to fade into the
background. Most recently
he has used the Marikana
mining crisis to lash out at
the government, unions and
mining companies.
As the unrest spread, he
urged workers to make
mines ungovernable, while
attempting to fill what has
been described as a leader-
ship vacuum after police
shot and killed 34 miners on
August 16.
He told supporters at the
court he was “unshaken”
by the money laundering
charges and promised to
continue his “struggle for
economic freedom.” He said
he would visit a mine oper-
ated by Impala Platinum,
the world’s second-biggest
producer of the precious
metal, today.
South Africa’s vital min-
ing sector is facing its big-
Confidence among US chief
executives has plunged to
its lowest for three years,
according to the Business
Roundtable, as a result of
fears of steep tax rises and
government spending cuts
scheduled to take effect
next year.
The survey is the strong-
est sign yet that the loom-
ing “fiscal cliff”, created
by the failure of Congress
to agree new tax rates or
a long-term budget deal, is
hurting companies’ ability
to plan and make invest-
ment decisions.
The BRT, a lobby group
that includes many of the
largest US companies, said
Julius Malema, the militant
former youth leader of
South Africa’s ruling Afri-
can National Congress, was
charged with money laun-
dering yesterday.
The charges relate to mul-
timillion rand deals involv-
ing the awarding of govern-
ment contracts in Limpopo,
Mr Malema’s home prov-
ince, with prosecutors alleg-
ing that he received around
R4m from the proceeds of
unlawful activities.
After a brief hearing at
court in Polokwane, the
populist, who smiled and
joked with colleagues, was
granted bail of R10,000. He
then addressed hundreds of
supporters outside the
building, protesting his
innocence and using the
occasion as a platform to
launch fresh attacks on
President Jacob Zuma.
“I’m here because some
people have taken a deci-
sion to conspire against
me,” said Mr Malema. “I’ve
not been part of any illegal
activities . . . I’m not corrupt
. . . what you see is what
you get.”
He and his supporters
insist the charges are politi-
cally motivated, a similar
tactic used by allies of Mr
Zuma when he faced cor-
ruption charges related to a
multibillion dollar arms
deal. Those charges were
dropped shortly before Mr
Zuma became head of state
in 2009, during which time
Mr Malema was a staunch
supporter of the president.
However, the two have
been at loggerheads for
months, with Mr Malema
among Mr Zuma’s most bel-
ligerent critics as the ANC
prepares for a conference in
December at which its lead-
ers will be elected.
Speculation has been rife
that Mr Zuma could face a
leadership challenge. A
process during which ANC
branches make nominations
for candidates ahead of the
conference
‘CEOs foresee
slower overall
economic growth
for 2012 and have
lower expectations’
Analysis, Page 11
Heading over the cliff?
Three scenarios for US economy
A sign displaying
the size of the US
national debt at a
rally for Mitt
Romney in Ohio
yesterday
AP
‘We must make
sure Jacob Zuma
does not become
president of the
ANC’
gest crisis since the end of
apartheid in 1994. Unrest
has escalated at AngloGold
Ashanti, the world’s third
largest gold producer by
sales, which yesterday said
that most of its 35,000 work-
ers in South Africa had
joined an illegal strike in an
attempt to halt its opera-
tions in the country.
Notorious for leading a
lavish lifestyle while cham-
pioning the interests of the
poor, Mr Malema has led
calls for the nationalisation
of South Africa’s mines.
Regarded as a smart polit-
ical operator and charis-
matic speaker, he has
tapped into mounting dis-
gruntlement over wide-
spread poverty and high
unemployment in one of the
world’s most unequal socie-
ties. His aggressive and at
times crude manner offends
many South Africans but
his willingness to talk
bluntly about the social
problems blighting the
country resonates with
those frustrated by the slow
pace of economic transfor-
mation since 1994.
Mr Malema is next sched-
uled to appear in court on
November 30.
“The problem is to try the
charges right now,” said
William Gumede, associate
professor at Wits univer-
sity. “From his supporters
point of view it’s easy to
say this is political and the
risk is it could tear the
ANC apart even further
because he is in a corner
now and he’s going to take
the fight on.”
begins
next
Over the edge
Delaying the inevitable
The grand bargain
week.
Outside the court, Mr
Malema described Mr Zuma
as “illiterate” and referred
to the corruption allega-
tions that have dogged the
president.
“We must make sure
Jacob Zuma does not
become president of the
ANC,” he said. “Remove
him as a president.”
If Barack Obama (pictured) wins the election and
Congress remains as is, the White House has no incentive
to yield to Republican demands to cut spending with no
revenue rises and the US plunges over the fiscal cliff. But
Mr Obama could attach a parachute by unilaterally
“freezing” the federal taxes that are withheld on
earnings of less than $200,000 a year, meaning the
middle class would not see a drop in take­home
income. This is contingent, however, on
Congress reaching a deal in the first few months
of 2013 to retroactively keep middle­class
George W. Bush­era tax rates steady
If Mitt Romney wins, expect a one­year extension of the
expiring revenue provisions, with the exception of the
payroll tax cuts, as Congress moves the cliff back a year.
Republicans have pledged to rapidly push through
spending cuts and tax reform plans but if those efforts
fail, it could trigger a negative reaction from credit
rating agencies. If Congress extends the tax cuts for
a year but does not offset the cost, unwinds
the automatic spending cuts and puts in place
no deficit reduction plan, further downgrades
could follow
The Simpson­Bowles Grand Bargain, in which all parties
give ground, is still a distant possibility. But it would not
happen overnight in the lame duck period of Congress
between the election and the new session. Much like in
the August debt deal that created the Super Committee,
which failed to forge a deal, the principles would have to
be agreed in the lame duck session and another special
committee created to thrash out the details of a long­term
debt deal that all parties agree on in 2013
Source: Chris Krueger of Guggenheim Partners
Fears over Medicare drive older
Pennsylvania voters towards Obama
By Anna Fifield
in Washington
and they have a real fear of
the voucherisation of Medi-
care.”
Mr Romney’s running
mate, Paul Ryan, has pro-
posed an overhaul that
would see the costly health-
care programme for the eld-
erly phased out and
replaced with a voucher
system. Although the sys-
tem would remain
unchanged for those over 55
years of age, including cur-
rent beneficiaries, the pro-
posal has spooked many
older voters and forced a
sharp swing to Mr Obama.
“Obama’s people have put
some real muscle into Penn-
sylvania and it’s paid off,”
Mr Baker said. “There has
been a general effort to
frame Mitt Romney as the
reincarnation of Louis XVI.”
The latest Real Clear Poli-
tics average of polls puts
the president eight points
ahead of his rival, with 49
per cent support, while
Nate Silver, the election
forecaster, gives Mr Obama
a 92.8 per cent chance of
winning the state.
Stuart Rothenberg, editor
of the non-partisan Rothen-
berg Report, last week
moved Pennsylvania from
“lean Obama” to “solid
Obama,” along with Michi-
gan and New Mexico. He
also moved Ohio, Virginia
and Wisconsin from
“toss-up” to “lean Obama”,
saying the president
“clearly now has the upper
hand”.
Based on Mr Rothen-
berg’s calculus, Mr Obama
would win 278 electoral col-
lege votes – eight more than
he needs to clinch the presi-
dency – while Mr Romney
would take 206.
But Peter Brown, a poll-
ster at Quinnipiac Univer-
sity, said that the state was
not a must-win for the
Republican.
“Romney doesn’t need
Pennsylvania to win the
election, but he does need
Ohio and Florida,” he said.
“Pennsylvania was always
going to be the most diffi-
cult of the three. It is more
Democratic than the other
swing states.”
But William Heydt, a
former Republican mayor of
Allentown who runs an
insurance agency, warned
that Mr Obama’s campaign
team should not be
too cocky about Pennsylva-
nia. “I see a lot of people
through my business and I
don’t see the groundswell
for Obama this time. And
this election is all about
turnout.”
Any map of the swing
states that will decide the
outcome of the November 6
presidential election had
included Pennsylvania.
But over the past few
weeks, many analysts have
moved the Keystone State
and its 20 electoral college
votes squarely into Presi-
dent Barack Obama’s col-
umn.
Mr Obama won the state
in 2008 with an 11-point
margin, but it was consid-
ered to be in play this elec-
tion, not least because of
disaffection with the presi-
dent among the blue-collar
parts of the state that bor-
der Ohio and West Virginia.
Pennsylvania elected a
Republican governor and a
new Republican senator in
2010.
But now the state is con-
sidered such a lost cause
that Mitt Romney, the
Republican presidential
contender, has not visited
since July, instead focusing
on swing states such as
Ohio and Florida. His cam-
paign and the outside
groups that support him
have even stopped running
adverts on local television.
Ross Baker, a Pennsylva-
nia native who teaches
political science at Rutgers
University, can explain the
change in one, or rather
two, words.
“It’s called Medicare, or
‘Mediscare’,” he says
bluntly. “Pennsylvania has
an unusually large number
of people over the age of 65
Julius Malema: called
President Zuma ‘illiterate’
Sales of new homes stay buoyant
US new home sales held
near a two­year high in
August while prices jumped
to the highest level in more
than five years,
writes Anjli
Raval in New York
.
Sales of new single­family
homes edged 0.3 per cent
lower in August from July
to a seasonally adjusted
annual rate of 373,000,
according to commerce
foreclosed properties is also
pushing up home prices,
which has lifted consumer
sentiment as households
feel wealthier.
July’s new home sales
pace was upwardly revised
to 374,000, the highest
level since April 2010, when
a homebuyer tax credit was
set to expire. In August,
sales were 27.7 per cent
higher than a year ago.
“New home sales are
benefiting from the ultra­low
level of mortgage
rates . . . and from the
recent plunge in the new­
build price premium. The
latter reflects stiff
competition for existing
homes between investment
buyers,” said Paul Diggle,
property economist at
Capital Economics.
The median price of a
new home in August
increased a record 11.2 per
cent to $256,000, the
highest level since March
2007.
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$256,000
Median price of a new
home in August
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department data. Analysts
had expected a figure of
380,000 for August.
Record­low borrowing
costs continue to attract
homebuyers, spurring
existing home sales as well
as demand for
homebuilders to construct
new homes. The depleting
glut of distressed and
 FINANCIAL TIMES
THURSDAY SEPTEMBER 27 2012
★
3
WORLD NEWS
Damascus
bombings
leave four
troops dead
Morsi
opposes
foreign
forces
in Syria
Cairo opposes foreign mili-
tary intervention to stop
Syria’s civil war and prefers
an inclusive, negotiated set-
tlement, Mohamed Morsi,
Egypt’s new Islamist presi-
dent, said yesterday,
writes
Reuters from the UN
.
“Egypt is committed to
pursue the sincere efforts it
has been exerting to put an
end to the catastrophe in
Syria, within an Arab,
regional and international
framework,” Mr Morsi said
in his first speech at the UN
General Assembly. “One
that preserves the unity of
this brotherly state,
involves all factions of the
Syrian people without
racial, religious or sectarian
discrimination and spares
Syria the dangers of foreign
military intervention that
we oppose.”
Earlier yesterday, he can-
celled a meeting of four
regional powers on the Syr-
ian crisis because of the
absence of Turkey’s prime
minister from the General
Assembly, according to an
Egyptian official.
The grouping of Egypt,
Iran, Turkey and Saudi Ara-
bia arose from an initiative
by Egypt.
Saudi Arabia stayed away
from the quartet’s last
meeting, which Cairo
hosted on September 17.
The Saudi decision was
seen by diplomats as a reac-
tion to the presence of Iran,
the only state in the quartet
that is an ally to President
Bashar al-Assad of Syria.
Yasser Ali, Egyptian pres-
idential spokesman, told
reporters: “We believe that
through negotiations and
not military intervention
the situation in Syria can
be resolved. [Mr Morsi]
believes that progress can
be made through the quar-
tet committee.”
High security after
rebels hit army HQ
Attack a return to
hit­and­run tactics
pluming over one of the
capital’s most heavily
secured areas. The second
occurred 10 minutes later.
Soldiers and armed loyalists
in plain clothes increased
security on roads around
the scene, blocking off traf-
fic from other parts of the
city. Short bursts of gunfire
could be heard several
hours after the explosions.
Lebanon’s al-Manar tele-
vision station, which
belongs to Hizbollah, a Syr-
ian regime ally, said the
blasts were followed by a
gun attack on the head-
quarters in which guards
were killed. The station
said a reporter for an Ira-
nian state-owned English-
language TV channel was
killed by sniper fire.
Syria’s information minis-
ter said the attack caused
only material damage, but
the state news agency later
reported “terrorists” had
killed four guards and
wounded 14 civilians and
military members. State TV
blamed the attack on sui-
cide bombers.
The assault is the latest
grim marker of the increas-
ingly bloody stalemate in
Syria’s 18-month crisis, in
which a brutal government
crackdown on a popular
uprising triggered an armed
revolt and then civil war.
The Syrian Observatory
for Human Rights, a pro-
opposition monitoring
group, said the number of
deaths in the conflict had
now passed 30,000, more
than half of which had
occurred in the past five
months. Other opposition
activists said regime loyal-
ists had massacred 40 peo-
By Michael Peel in
Damascus, Abigail Fielding­
Smith in Beirut and Najmeh
Bozorgmehr in Tehran
Syrian security forces were
on high alert in Damascus
last night, after twin bomb
blasts aimed at an army
headquarters killed at least
four soldiers and under-
scored the capacity of
rebels to strike at the heart
of the regime’s power.
Loyalists of President
Bashar al-Assad mounted
extra checkpoints across
the city, after the explo-
sions, gunfire and a secu-
rity lockdown led to chaos
on the roads and forced
businesses to shut as staff
stayed at home.
The rebel Free Syrian
Army claimed it had killed
dozens in the assault, the
biggest attack on a govern-
ment target since the assas-
sination of four top security
officials in July.
“The official media con-
tinues to refer to the ‘rem-
nants’ of ‘terrorists’, but
here we see the opposition
striking again in the centre
of Damascus,” said Peter
Harling, Syria analyst for
the International Crisis
Group, a think-tank. “It
reinforces this notion that
the regime is making no
progress and offering no
way forward.”
The first blast boomed
across Damascus at about
7am, sending black smoke
Smoke rises above Damascus yesterday following the twin bombings, the latest grim marker of the increasingly bloody stalemate in the conflict
AFP
ple yesterday in al-Dhiyabia
outside Damascus.
For the rebels, the attack
on the army headquarters
marks a return to their
established hit-and-run tac-
tics, after regime bombard-
ments over the summer
drove them from central
Damascus districts where
they were operating. The
FSA strategy had angered
some civilians, who felt the
rebel presence had pro-
voked the regime to destroy
their neighbourhoods.
“A lot of people say the
FSA has to find a new tech-
nique for the revolution,”
said Samih, an opposition
activist in Damascus. “This
technique [targeting secu-
rity agencies] is very good.”
Nine months of bombings
of official buildings and
other targets in the capital
have spread anxiety and
increasing gridlock from
checkpoints across the city,
giving the attacks a potency
far beyond the deaths and
damage they cause.
Many parts of central
Damascus were much qui-
eter than usual after yester-
day’s explosions, with busi-
nesses reporting takings
well down. An executive
from one company said it
had been forced to shut
seven premises around the
capital because staff could
not get to work.
“Of course everyone is
afraid,” said one shop-
keeper, leaning back on a
chair outside his boutique,
after saying he had had
only half the usual daily
number of customers. “We
don’t go out any more: we
just go from home to work
and from work to home.”
Down the street, a strik-
ing show of defiance by a
young woman illustrated
the depth of worry in the
capital – and people’s fray-
ing patience with regime
assurances that Syria’s cri-
sis is about to be resolved.
As the woman spoke, she
was interrupted by the
manager of a nearby shop,
who introduced himself as a
government security agent,
before saying the situation
in Damascus was “very
good” because “the people
trust Bashar al-Assad”.
In a sign that the all-per-
vasive fear of the security
agents is being eroded, the
woman retorted: “The situa-
tion is very bad – and any-
one who says it is not is
lying. If an explosion
doesn’t get you, a bullet
will. If a bullet doesn’t get
you, a heart attack will.
And if a heart attack
doesn’t get you, then hun-
ger will.”
SYRIA
Presidential
palace
Parliament
‘The situation is
very bad – and
anyone who says
it is not is lying’
Woman’s retort to a man
allegedly a state agent
Umayyad Square
DAMASCUS
5 km
In­depth, www.ft.com/syria
 4
★ †
FINANCIAL TIMES
THURSDAY SEPTEMBER 27 2012
EUROZONE WOES
Madrid
faces test
over bank
review
Financial crisis stokes fires of Spanish identity
As a Spain trapped in
the eurozone crisis tries to
battle its way through a
wrenching recession, it
must now contemplate the
real possibility that its
plurinational state, which
replaced the suffocatingly
centralist Franco
dictatorship with highly
devolved regional
government, may break up.
The eurozone crisis that
has brought down
governments across
Europe’s periphery now
threatens the survival of a
nation-state. The north-
south fractures inside the
EU are starting to open up
within member states.
When the Soviet Union
and some of its buffer
states broke up at the end
of the cold war, EU leaders
on the whole regarded this
exercise of the democratic
right to self-determination
as a good thing. But the
idea that separatism could
seep into the settled
structures of western
Europe is wholly alien to
them, notwithstanding
frequent inter-regional
tensions.
Such tensions are a
regular feature of the tug-
of-war in, for example,
Italy and Belgium, between
a more prosperous north
and a relatively less
wealthy south. In Spain,
where for a combination of
economic, historic and
cultural reasons the
industrial revolution first
took root among Basques
and Catalans – peoples
with a deep sense of
nationhood and linguistic
identity – the “national
question” is always alive.
The post-Franco
transition to democracy
resolved this by restoring
ancient rights to what a
constitutional neologism
terms the “historic
nationalities” – essentially
the Basques and Catalans –
but by disguising this with
grants of self-rule to
regions that had never
sought autonomy.
The economic crisis has
mercilessly exposed the
financial incontinence of
some of these baronial
fiefs, such as Valencia,
controlled by the ruling
Partido Popular of Mariano
Rajoy, Spain’s prime
minister. Catalonia,
amounting to one-fifth of
Spain’s economic output, is
also heavily in debt.
The mainstream
nationalist Catalan
government led by Artur
Mas was elected to secure
the same rights as the
Basques, who collect their
own taxes.
Mr Rajoy, whose centre-
right PP seems to want to
use the crisis to
recentralise Spain, rejected
this last week.
A majority of Catalans
feels Madrid takes too
much of local income to
redistribute elsewhere. The
clamour for independence
has become mainstream.
Sentiment turned when the
constitutional court in
Madrid – acting on a
petition from Mr Rajoy’s
PP – struck down
democratically approved
enhancements to Catalan
home rule. This is not just
about money. But austerity
is politically toxic and
intrinsically centrifugal.
Nor is this, as some
observers argue, a textbook
example of how EU
integration dissolves
national cohesion in less
than homogeneous states.
The most proximate cause
of Spain’s identity politics
is Franco’s ruthless
attempt to expunge Basque
and Catalan identity. EU
membership, by contrast,
spread wealth throughout
all of Spain, albeit
unevenly, for the first time
in history – and devolution
was part of the reason.
But that model appears
to have run its course, and
Mr Rajoy and Mr Mas have
backed themselves into
irreconcilable corners. Is
there a way out?
Felipe González, former
Socialist prime minister
and emblematic (if
tarnished) figure of the
democratic transition, last
week said the constitution
needed to be recast into a
more federalist mould.
King Juan Carlos, whose
image has also been
diminished by controversy,
last week recalled the
spirit of that transition,
tacitly invoking the
national pacts that made
democracy possible.
A feasible way forward
would be to combine these
ideas: a new all-party pact,
including Basques and
Catalans, to confront the
economic emergency and
reform the constitution
along more federal lines.
But federalism is about
trying to spread prosperity
and iron out regional
inequity. It is not clear all
actors in the present
drama understand this.
GLOBAL INSIGHT
David Gardner
in London
Spain has entered a
constitutional crisis. The
decision of Catalonia’s
nationalist government to
call a snap election in
November – which in
practice will amount to a
referendum on
independence – has opened
the way to Catalan
secession. That decision, in
turn, may give a lift to
Basque separatists, now
running neck and neck
with mainstream
nationalists in regional
government elections due
next month, after winning
the largest number of
Basque Country seats last
year in local and general
elections.
valuation”, Santiago López,
an analyst at Exane BNP
Paribas, has said it is not
credible that the Ministry of
Finance has already indi-
cated no listed bank, aside
from Bankia, will need new
capital under the tests,
even
News analysis
Doubts remain as
Spain pins hopes on
audit to show crisis
is under control, say
Miles Johnson
and
Patrick Jenkins
The north­south
fractures inside the
EU are starting to
open up within
member states
though
they
use
aggressive
economic
assumptions.
While Santander and
BBVA, Spain’s two largest
lenders, have international
operations that have helped
them diversify away from a
weak Spanish economy,
others such as La Caixa and
Banco Popular are almost
completey exposed to a
recession-hit domestic mar-
ket.
“Spanish banks are not
giants but windmills,” Mr
López says. “The assump-
tions of the tests seem rea-
sonable but the conclusion
is not credible.”
Away from Spain, ana-
lysts and bankers, mean-
while, are concerned that
following the tests, and the
then likely disbursement of
the European rescue funds,
the “investability” of both
Spanish banks and the
broader European banking
sector could be hurt by the
terms of Spain’s aid pack-
age.
As a quid pro quo for the
flow of European money
into the Spanish banking
system, there is set to be a
steep writedown of the
value of much of the banks’
debt, such as preference
shares and other hybrid
securities.
Charles Dallara, manag-
ing director of the Institute
of International Finance,
says this “bailing-in” proc-
ess – a pre-emptive version
of global regulators’ idea for
how banks in trouble
should be wound up in
future – could upset the
European recovery.
“This would accelerate
the bail-in concept well
ahead of the global timeta-
ble,” Mr Dallara says.
“I’m not sure it’s the
right example to set. It
could create a precedent in
Europe that undermines
investors’ gradually rebuild-
ing confidence in the
broader European banking
system.”
Given that a large chunk
of the banks’ hybrid debt is
held by their own retail
depositors, there are con-
cerns that the measure
could be more directly
counterproductive, too.
“This was a policy maker
idea to share the burden,”
says one credit analyst.
“But they assumed the pain
would be felt by big institu-
tional investors. It was not
supposed to be a private
investor problem. If deposi-
tors are hurt and withdraw
their money en masse that
could compound the banks’
problems.”
After four banking
reforms in the past three
years, the current Spanish
government must now real-
ise that unless the outside
world is convinced this
time around, the credibility
they have lost may not
return until long after they
have left office.
This time, it has to work.
This is the view of senior
bankers in Madrid as Spain
prepares to unveil tomor-
row the results of an audit
of its financial sector. Many
now consider it the Spanish
government’s last chance to
convince the world that it
has
Trouble in the regions
Spanish regional GDP
Debt of selected regions
€bn
Basque
Country
2011 (€bn)
the
banking
crisis
under control.
Luis de Guindos, Spain’s
finance minister, pro-
claimed in February that
“not one euro” of public
money would be put into
the country’s banks. But
the new government’s cred-
ibility was dealt a hammer
blow just two months later
when Bankia, Spain’s
fourth-largest lender,
requested €19bn in emer-
gency capital.
Although foreign inves-
tors Spain already had their
doubts about whether the
150
Less than 100
100–150
Other 10 regions
Castile-La Mancha
Elections: Oct 21
More than 150
Basque Country
Galicia
Could see radical
nationalist
breakthrough
Andalucia
100
Madrid
Galicia
Valencia
Catalonia
Elections: Oct 21
FRANCE
Key test of Popular
party support in
prime minister
Mariano Rajoy’s
home region
50
ANDORRA
€57.7bn
€66.6bn
Catalonia
€200.3bn
0
Elections: Nov 25
SPAIN
‘The assumptions
of the tests seem
reasonable but
the conclusion
is not credible’
2002
04
06
08
10
12
Could lead to
referendum on
independence
Mediterranean
Sea
ATLANTIC
OCEAN
GDP per capita, selected regions
In relation to national average,
2011 (€’000)
Madrid
€102.2bn
PORTUGAL
Basque Country
Navarre
Madrid
Catalonia
La Rioja
country’s banks had fully
owned up to their losses on
bad real estate bets, the
shock Bankia revelation
made any number issued by
a Spanish lender automati-
cally questionable.
In response, Mr Guindos
ordered an external “bot-
tom up” review of the books
of every sizeable Spanish
bank, hiring the consul-
tancy Oliver Wyman to run
the process in an attempt to
lend it credibility.
Tomorrow, after three
months of work Oliver
Wyman, assisted by the Big
Four auditors, will reveal
what Madrid hopes will be
the definitive assessment of
damage inflicted by a dec-
ade-long property bubble on
bank balance sheets.
The results will be used
to determine how €100bn in
eurozone rescue funds
requested in June will be
distributed. Banks that pro-
vide credible plans for rais-
ing funds on their own will
be given until next year to
find the capital.
The investors and ana-
lysts that Madrid is anxious
to convince, however,
are already questioning
the integrity of the
latest review, with some
arguing it is likely to resem-
ble
Andalucia
€145.5bn
Valencia
Spain
Most populous region
Run by Popular party
Valencia
Has just requested
€5bn bailout from
central government
Murcia
Castile-La Mancha
ALGERIA
One of the most
heavily indebted
regions
MOROCCO
Andalucia
Extremadura
0
10
20
30
FT graphic
Sources: Bank of Spain; National Statistic Institute of Spain
Q&A
Catalonian independence would not be plain sailing
Is Spain going to break up
as a state?
At present this appears
unlikely. But pro­
independence pressures are
developing rapidly in
Catalonia, the most powerful
of Spain’s 17 autonomous
regions. It is the most
serious test of the
decentralised Spanish
system of government since
the nation returned to
democracy in the late 1970s
after Franco’s dictatorship.
Catalonia has appealed for
€5bn in liquidity assistance
from a government fund for
debt­stricken regions.
Predictably, Madrid wants, in
return, to see the Catalans
exercise self­restraint on the
independence question.
begun to harden their
stance. A resolution to be
debated by Catalonia’s
parliament suggests that
“fitting Spain and Catalonia
together” is “a path without
direction”.
Czechoslovakia’s break­up in
1993 but accepted it
nonetheless.
When did the idea of
Catalan independence
take off?
Catalonia has a proud
tradition of self­rule dating
from the Middle Ages. The
Catalan revolt against
Spanish overlordship in
1640 and the
subsequent war,
resulting in
Catalonia’s
defeat,
reverberate to
this day. A
decisive
moment came
in 2010 when
Spain’s
constitutional court
largely rejected a new
statute of autonomy for
Catalonia approved by the
national parliament in 2006.
The statute was favoured by
Spain’s former Socialist
government but opposed by
the centre­right Partido
Popular, which now holds
power in Madrid.
broadly, the regional crisis is
one of fragile public finances
and economic recession,
caused primarily by the
collapse of Spain’s
construction and property
bubble and by banks with
unhealthily close ties to
regional political interests.
How far does Spain’s crisis
of regionalism extend
beyond Catalonia?
In modern times violent
Basque nationalism has
plagued Spain ever since the
restoration of democracy. A
regional election in the
Basque Country on October
21 may strengthen the
nationalist forces, but there
is not widespread public
support for secession in the
way that is emerging in
Catalonia. The Basques
already enjoy extensive
autonomy in tax matters.
How does the rest of the
EU view the prospect of
Catalan independence?
Without enthusiasm.
There are other
countries –
Belgium, Cyprus,
Italy, Romania,
Slovakia and the
UK – where
separatist
movements and
national minorities
might draw inspiration
from Catalan secession.
In extremis, though, the
EU would have little choice
but to respect an
independence process that
scrupulously observed
international law. The EU
was unhappy about
What exactly do
Catalonia’s political and
business leaders, as well
as public opinion, want?
Artur Mas, Catalonia’s
president, and his governing
centre­right Convergència i
Unió party are not an
explicitly pro­independence
movement. Their primary
short­term goal is more
control over taxes collected
in Catalonia, an objective
with which Catalan business
sympathises.
But Mr Mas and his party
have not kept up in recent
months with the
radicalisation of broad
sectors of public opinion
and, consequently, have
Could Catalonia make it as
an independent state?
Yes, but it would not be
plain sailing. Catalans have a
highly developed sense of
national identity. Even many
second­generation Catalans
– children of Spanish
speakers who moved to
Catalonia from other parts of
Spain from the 1960s
onwards – are drawn to the
prospect of independence.
But Catalonia’s economy has
struggled in recent years: its
per capita disposable income
and labour productivity have
grown more slowly than the
Spanish average.
Tony Barber
How will Spain’s economic
crisis affect the outcome?
In one sense it fuels the
secessionist mood in
Catalonia. It causes Catalans
to blame their economic
troubles on a national tax
system which, in their view,
obliges them to make a
disproportionate contribution
to the rest of Spain. In
another sense it strengthens
the hand of the central
government in Madrid.
a
stage
managed
announcement
with
few
surprises.
Mr Guindos has said that
the final amount of total
capital required is likely to
come in at about €60bn,
which is close to a provi-
sional estimate of between
€51bn and €62bn made by
Oliver Wyman and fellow
consultant Roland Berger in
June.
In what he labels “the
Don Quixote approach to
And elsewhere?
Also on October 21 there will
be an election in the north­
western region of Galicia,
but focus will be on how
well the PP fares. Mariano
Rajoy, Spain’s prime
minister, is a Galician. More
The Short View, Page 17
Latest news and analysis
on the eurozone debt crisis
www.ft.com/eurozone
Police battle anti­austerity protesters in Athens
German party targets banks
By Kerin Hope in Athens
By Quentin Peel in Berlin
and Michael Steen
in Frankfurt
ice and other public sector
unions. It was part of a 24-
hour general strike called
to protest against fresh
wage and pension cuts,
higher fuel taxes and
planned job cuts for public
sector workers as the gov-
ernment seeks to tackle its
debt crisis.
“We shut down today and
came out to protest for the
first time ever,” said Spyros
Kalantzis, manager of a
family-owned catering busi-
ness. “Trading conditions
have never been this bad.”
Angelos Papadakis, a util-
ity worker attending a pre-
march gathering, com-
plained about plans to raise
the retirement age from to
65 to 67, saying: “This meas-
ure will make many more
public sector workers vol-
unteer for early redundancy
– and that’s what the gov-
ernment wants.”
Air traffic controllers
staged a three-hour stop-
page, delaying dozens of
flights, while train and
island ferry services were
suspended. Government
offices were closed.
Riot police also blocked
off Omonia Square in the
city’s commercial centre
where the communist-led
union PAME was holding
an anti-austerity protest.
The strike came hours
after Antonis Samaras, the
centre-right prime minister,
approved details of a fresh
€11.5bn package of spend-
ing cuts over two years and
a further €2bn of tax
increases agreed under the
latest international bailout.
Mr Samaras was due to
seek a consensus today
from the leaders of the
socialist and leftwing par-
ties, junior partners in the
coalition, before the
“troika” of senior officials
from the EU and Interna-
tional Monetary Fund
returns at the weekend to
hammer out a final agree-
ment that would allow the
release of a €31.2bn loan
tranche delayed since June.
Unions plan to stage fur-
ther action next month
when the new austerity
package is presented to par-
liament for approval.
minister and one of three
leading SPD contenders to
challenge Angela Merkel for
the chancellorship, causing
an instant storm of protest
from the financial sector.
Paul Achleitner, supervi-
sory board chairman at
Deutsche Bank, Germany’s
only real global bank, said
the proposals would “des-
troy” universal banking
in Germany – of which his
bank is the prime example.
The federation of public
banks (VÖB) warned the
SPD, the principal centre-
left challenger to the gov-
ernment, against launching
a “bank-bashing election”
campaign.
“We want to learn the
lesson of the mistakes made
in the financial crisis,” said
Christian Brand, president
of the federation. “We sup-
port tough but fair regula-
tion, in line with interna-
tional standards.”
Mr Steinbrück, who was
finance minister in the
“grand coalition” headed by
Ms Merkel when the finan-
cial crisis broke in 2008,
drew up the programme on
the instruction of the SPD
parliamentary party.
He said his plans were
intended to reassert the
power of democratic institu-
tions over a financial sector
that had caused the global
economic crisis and been
bailed out by taxpayers.
Riot police clashed with
protesters in front of the
Greek parliament as unions
laid down their first chal-
lenge to the conservative-
led coalition government.
Teargas hung in the air
over Syntagma Square yes-
terday and a charge by
officers wielding batons
cleared the immediate area
of hundreds of protesters.
About 120 people were
arrested, news agencies
reported, but the violence
petered out after an hour.
The march on parliament,
which included workers in
small businesses hit hard
by five years of recession,
was organised by civil serv-
Germany’s opposition
Social Democratic party
has served notice that it
will fight next year’s gen-
eral election with tougher
banking regulation as a
main plank of its platform,
including splitting invest-
ment from retail banking.
The plans would also
require public and private
banks to finance their own
rescue fund, with resources
of up to €200bn, so that
taxpayers are not required
to bail them out.
The proposals were pre-
sented yesterday by Peer
Steinbrück, former finance
A fire bomb burns behind
a riot policeman yesterday
www.ft.com/europe
 FINANCIAL TIMES
THURSDAY SEPTEMBER 27 2012
★
5
WORLD NEWS
Ex­Japan
PM to head
opposition
Top woman politician hopes to smash glass ceiling
faction, a term that refers
to politicians who are the
children of top officials.
“Liu Yandong is one of
the very few leaders who
has connection with
both camps,” says Cheng
Li, a China expert at the
Brookings
Liu Yandong timeline
China politburo
Known for toeing
the party line, Liu
Yandong could be
poised to join the
standing committee,
writes
Leslie Hook
1945
Born into a
established Communist
party family
1964
Joins the Communist
party; in the same year
begins chemistry studies
at the prestigious Tsinghua
University
Institute
in
Washington.
Her ability to move
between both worlds is one
of her strong points as she
vies for a place on the
standing committee. But
analysts say her chances
are mixed.
Ms Liu has never been a
provincial governor, a key
item on the résumé for
most of China’s top leaders.
Her age could also count
against her, because the
party prefers to install
younger people. The nine-
member standing commit-
tee could be shrunk to
seven, reducing her chances
further.
“She would definitely not
be on the seven,” says Scott
Kennedy, a professor of Chi-
nese politics at Indiana Uni-
versity. “She essentially
was chosen [for the polit-
buro] because of her gender
and not previous perform-
ance.”
Ms Liu has had some
small hiccups in her career,
once attracting national
wrath by suggesting that
school buses were too
expensive for China. Also,
her daughter chose to
give birth in Hong Kong
rather than on the main-
land, a decision that was
attacked on the internet as
unpatriotic.
However, analysts point
out that Ms Liu’s years as
head of the United Front
Work Department, which
deals with Hong Kong,
Macau, and other entities
outside the Communist
party, could compensate
for her lack of governing
experience.
“In the United Front
Work Department you need
to be more flexible because
you are working with peo-
ple from all over,” says Mr
Li.
“She is more open-minded
than many others, she has
that reputation. But it’s all
relatively speaking.”
Victory marks LDP
shift to the right
Pledge made to
unite party factions
its neighbours including
China and South Korea.
Mr Abe has called for a
rethink of a 1993 apology
issued by Japan’s govern-
ment to foreign “comfort
women” forced to work as
prostitutes by the Japanese
military in the 1930s and
1940s, a move that would be
sure
Most of the 25 members of
China’s politburo are
uncannily similar with
their black-dyed hair, dark
suits and science degrees,
but one in particular stands
out.
With her trademark blue
skirt-suit and pearls, Liu
Yandong, 66, the top official
in charge of health, educa-
tion, culture and sports, is
the only woman.
As China prepares for its
leadership transition next
month, Ms Liu is an outside
contender to become the
first woman to join the
politburo standing commit-
tee, the group of nine offi-
cials who rule China.
Although her chances of
promotion are slimmer than
that of other contenders, if
successful, she is expected
to bring more charm to the
secretive body.
In the same way that Wen
Jiabao, premier, known as
“Grandpa Wen”, is the com-
forting public face of the
Communist party when nat-
ural disasters strike, her
carefully managed public
appearances reveal a knack
for appealing to the masses.
Earlier this year, Ms Liu
donned sweatpants and
jogged round Beijing’s
Bird’s Nest stadium to
mark the beginning of a
running competition.
“Exercise for an hour a
day . . . and you will be
healthy your whole life,”
she told crowds at the start-
ing line, according to Chi-
nese state media.
In another touch, when
visiting a school for
the deaf in Sichuan prov-
ince, she said “thank you”
and “good job” in sign lan-
guage.
But away from the cam-
eras, her greatest strength
lies in her political connec-
tions and consummate abil-
1970
After graduating from
college, spends the first
decade of her career
working at a chemicals
plant outside Beijing
By Mure Dickie in Tokyo
1982
Becomes a leader of
the Communist Youth League
Japan’s biggest opposition
party has elected former
prime minister Shinzo Abe
as its leader, hoping the
nationalist-minded blue-
blood will be more success-
ful in engineering a return
to power than he was dur-
ing his first stint leading
the nation.
The election of Mr Abe,
who resigned as prime min-
ister in 2007 after a tumul-
tuous year in office, marks
a shift to the right for the
Liberal Democratic party
that could heighten ten-
sions with China and South
Korea.
The LDP is seen as being
on course to become the
largest party in the Diet’s
lower house at a general
election that must be held
by next summer, making
Mr Abe, 58, the leading con-
tender to be Japan’s next
prime minister.
The new party leader –
his maternal grandfather
was also a prime minister
of Japan and whose father
served as foreign minister –
promised to bring together
the LDP’s fractious factions
in a “no-side” leadership.
“We will recover Japan
and make a strong Japan,”
Mr Abe said.
However, regional neigh-
bours are likely to be con-
cerned by his desire to
revise Japan’s pacifist con-
stitution to remove a clause
in which the nation
renounces the right to wage
war, as well as his views on
disputes over territory and
Japan’s past occupation of
to
outrage
South
2002 to 2007
Leads the United Front
Work Department, in charge
of relations with non­
communist organisations,
and also handles
Hong Kong and Macau
Korea.
Seoul and Beijing will
also be offended if Mr Abe
follows through on sugges-
tions he would resume
prime ministerial visits to
Yasukuni shrine, which
honours Japan’s war dead
including a handful of con-
victed war criminals.
Sino-Japanese ties have
already been badly strained
by a dispute over ownership
of the Senkaku islands, a
remote and uninhabited
archipelago in the East
China Sea that is controlled
by Tokyo but claimed by
China.
But Jun Iio, a political
scientist at the National
Graduate Institute for Pol-
icy Studies, said that during
his previous stint in power
Mr Abe did not visit Yasu-
kuni and presided over a
marked improvement in
ties with China, something
Beijing and Seoul would
remember.
“They will probably wait
and see how he acts,” Mr
Iio said.
Mr Abe yesterday
stressed his intention to
“defend” the Senkaku
island’s territorial waters.
●Separately yesterday,
Japan’s dispute with China
over the contested group of
islands in the East China
Sea took another turn when
Beijing vowed to protect
fishing boats from Taiwan –
which also claims the
islands – from the Japanese
coast guard.
2007
Joins the politburo and leads
policy on health, education
and culture. Possible
candidate for elevation to the
politburo standing committee
ON FT.COM
More on
China’s
leadership
transition
www.ft.com/chinaleadership
Well connected: Liu
Yandong with Hillary
Clinton, US secretary
of state, in Beijing in 2010
Getty Images
CHINA IN TRANSITION
ity to toe the party line.
Analysts say she epitomises
the keep-your-head-down,
consensus-building style
that defines the politburo.
“She seldom . . . expresses
her political opinions. Her
role is not at the head
of the table,” says Pu
Xingzu, a politics professor
at Fudan University in
Shanghai. The Communist
party rewards officials who
keep a low profile and take
few risks, an art that Ms
Liu has mastered. So, it is
almost impossible to deduce
what policies she, or any of
the other potential new
standing committee mem-
bers, advocate.
“Chinese politics is ‘band-
wagoning’ politics. You
don’t want to stand out,”
says Bo Zhiyue, a scholar of
elite Chinese politics at the
National
ister of agriculture in Bei-
jing. He was close to the
family of Jiang Zemin, the
former Chinese president.
Growing up as the daugh-
ter of a cadre, Ms Liu went
to a kindergarten run by
the mother of another soon-
to-be-prominent politician,
Zeng Qinghong.
Ms Liu studied chemistry
at Tsinghua University,
China’s leading engineering
school, whose alumni
include Hu Jintao, the pres-
ident, and his anointed suc-
cessor Xi Jinping.
After graduation, she
joined a chemical factory
outside Beijing where she
worked her way up through
the ranks, before moving
into politics in 1980 with a
job at the influential Com-
munist party organisation
department.
Two years later, she made
one of the most significant
political moves of her
career, with her appoint-
ment to the leadership com-
mittee of the Communist
Youth League.
A young Mr Hu, who
became leader of China in
2002, was appointed to the
committee at the same
time.
Mr Hu made many of his
political allies from his time
at the league, creating a
political power base that
analysts see as loosely
opposed to the “princeling”
‘Liu Yandong is
one of the very few
leaders who has
connection with
both camps’
University
of
Singapore.
Ms Liu comes from the
Chinese equivalent of roy-
alty. Her father worked as a
top party official in Shang-
hai and later as a vice-min-
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