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EUROPE
Wednesday June 20 2012
A marriage made in hell
The eurozone’s flawed union. Comment, Page 11
Prison brew: bringing
whiskey back to Belfast
Business Life, Page 12
World Business Newspaper
G20 bid to
cut cost of
borrowing
in eurozone
Rule of law
Supreme court ousts Pakistan’s premier
News Briefing
US watchdog hits at
London financial risk
US lawmakers and regulators
have attacked London as a
source of financial crises and
promised tougher cross-
border regulation in the
wake of $2bn of trading
losses from the UK unit of
JPMorgan Chase.
Page 15
Bund sell­off forecast
Hedge fund managers are
betting on a significant sell-
off in German Bunds in
coming months after a sharp
fall in yields sparked by a
flight to safety from other
eurozone economies.
Page 15
Egypt aid in jeopardy
Billions of dollars in badly
needed development aid and
budget support from
international institutions has
been jeopardised by the
decision of Egypt’s military
and judiciary to dissolve
parliament.
Page 2
Iran talks falter
Efforts by world powers to
convince Iran to freeze parts
of its uranium enrichment
programme appeared to be
failing yesterday as another
round of talks over Tehran’s
nuclear ambitions moved
towards deadlock.
Page 2
Athens bailout split
EU officials are split on how
much to revise Greece’s
€174bn bailout once Athens’
new government is in place
– with a German-led group
insisting on no delays in
targets while others urge
flexibility.
Page 4
Airbnb rentals surge
Airbnb, the peer-to-peer
home rental website, doubled
the number of nights booked
through it to 10m in the past
five months.
Page 15
Romney Latino poser
Republican candidate Mitt
Romney struggles to find a
fresh pitch to Hispanic
voters ahead of a community
leaders’ meeting after
President Barack Obama
ruled out deportation for
young illegal immigrants.
Page 8
Myanmar growth vow
Myanmar president Thein
Sein vowed to triple the size
of the economy within three
years as well as introduce
privatisation and a minimum
wage.
Page 5
Mongolia buyback row
The Mongolian government’s
estimated $1bn buyback of
shares in Tavan Tolgoi, the
world’s third-biggest coking
coal mine, that were
previously handed out to its
citizens has been attacked by
domestic critics.
Page 5
Syria arms ship U­turn
A Russian-owned ship
suspected of carrying arms
destined for Syria has turned
back after a UK-based
insurer withdrew its cover.
Page 2
Big nations accept need for action
By Chris Giles and
George Parker in Los Cabos
and Peter Spiegel in Brussels
Speaking to journalists before
he started the second day of
negotiations, François Hollande,
France’s president, said the bor-
rowing costs of Spain and Italy
were unacceptable. “We must
show a much faster ability to
intervene,” he added.
George Osborne, UK chancel-
lor of the exchequer, said: “I
think there are signs that the
eurozone are moving towards
richer countries standing
behind their banks and standing
behind the weaker countries.”
The draft communiqué does
not mention specific action to be
taken by eurozone countries,
but aims to cut borrowing costs
for countries such as Spain and
Italy. It says recent eurozone
policies, such as the fiscal com-
pact and growth-enhancing
measures, are “important steps
towards greater fiscal and eco-
nomic integration that lead to
sustainable borrowing costs”.
Mr Hollande said: “It’s not
acceptable that Spain, which
just got a promise for support,
has interest rates around 7 per
cent.”
The European Financial Sta-
bility Facility, the eurozone’s
rescue fund, was last year given
the power to purchase sovereign
bonds of struggling countries on
the open market, a power previ-
ously reserved for the European
Central Bank.
Together with the European
Stability Mechanism, expected
to be established next month,
the two funds command about
€500bn of firepower.
Eurozone members of the Group
of 20 leading economies will
commit to driving down borrow-
ing costs across the single cur-
rency area, according to a
leaked draft of the communiqué
at the Mexico summit yesterday.
On the day that Spain was
forced to pay more than 5 per
cent to borrow money for one
year, the need for action to stem
the spiral of rising government
bond yields was accepted by
Germany, France and Italy, the
G20’s three eurozone members.
According to officials briefed
on the talks, Mario Monti,
Italy’s prime minister, raised
the possibility of using the euro-
zone’s €440bn rescue fund to
buy peripheral bonds on the
open market. But Angela Mer-
kel, Germany’s chancellor, was
non-committal about the idea
during a formal session on Mon-
day night.
However, officials said Ms
Merkel had subsequent conver-
sations on the sidelines of the
summit which led her interlocu-
tors to believe “she may be will-
ing to do more”.
A German official told Reuters
there had not been any discus-
sion at the summit about “con-
crete initiatives”.
According to another senior
European official, the idea of
using the rescue fund to pur-
chase sovereign bonds had been
pushed hard by the US adminis-
tration. The US has for months
been urging Ms Merkel to act
more decisively to tackle the
spreading crisis.
Lawyers celebrate after Pakistan’s supreme court forced prime minister Yusuf Raza Gilani out of office yesterday for refusing to
reopen corruption cases against the president. The move plunges the country into a new political crisis
Report, Page 2
epa
Walgreens pays $6.5bn for Boots stake
By Barney Jopson,
Alan Rappeport and
David Gelles in New York
and Andrea Felsted in London
down drug prices for consum-
ers, analysts said.
According to Stefano Pessina,
executive chairman of Alliance
Boots, the deal will pave the
way for further acquisitions.
Alluding to Walgreens’ strong
cash flow, he said: “We will
have so much money that we’ll
have to buy something and
expand rapidly.”
Mr Pessina took Alliance
Boots private with Kohlberg
Kravis Roberts five years ago in
a £12bn deal – Europe’s biggest
buyout at the time – and he has
long sought a US tie-up.
David Magee, managing
director at SunTrust Robinson
Humphrey, said the deal would
help Walgreens tap global
growth in prescription sales,
but he acknowledged investor
concerns: “Buying a company
in Europe is not the headline a
lot of shareholders wanted to
see. They take on more debt
and increase the operational
risk going forward.”
Walgreens’ shares fell 5.7 per
cent to $30.15 in afternoon trad-
ing. Investor confidence in Wal-
greens has been eroded by a
dispute that ended its partner-
ship with Express Scripts,
which manages prescription
plans. “We were expecting
them to do something to offset
the $10bn-$11bn in lost reve-
nues from Express Scripts,”
said David Larsen, healthcare
analyst at Leerink Swann.
Under the terms of the deal,
Walgreens will initially acquire
45 per cent of Alliance Boots for
$4bn in cash and $2.5bn in
shares. Walgreens has an
option to acquire the remaining
55 per cent of Boots for $4.9bn
in cash and shares that were
worth about $4.3bn yesterday.
It would also assume Boots’
outstanding debt, which was
£7bn net at the end of March.
Goldman Sachs and Lazard
advised Walgreens on the deal,
with Centerview Partners act-
ing for Boots.
Walgreens, the US’s biggest
drugstore by sales, has set out
its ambition to create a global
pharmacy chain by buying a
45 per cent stake in Alliance
Boots for about $6.5bn.
In a two-stage deal, Wal-
greens, which had sales of
$72bn last year, could eventu-
ally own all of the UK pharma-
cist – marking a sharp change
of course for a US chain with
hitherto domestic horizons.
Walgreens will gain interna-
tional exposure through Boots’
store network and its wholesale
distribution business, while the
enhanced buying power of a
combined company could push
‘We will have so much
money that we’ll have
to buy something and
expand rapidly’
Stefano Pessina
chairman of Alliance Boots
Hopes rise, Page 4
Joseph Joffe and
Martin Wolf, Page 11
Lex, Page 14
Global expansion, Page 17
Beijing seeks extradition of French
Bo associate arrested in Cambodia
Obiang riches
By Kathrin Hille in Beijing,
Sally Gainsbury in London
and Hugh Carnegy in Paris
an explanation for his arrest.
Mr Bo – a populist politician
who had been expected to rise
into China’s top leadership
ranks this year – was in March
stripped of his post as party sec-
retary of Chongqing, in south-
west China. He was suspended
from the 25-member politburo a
month later.
His downfall revealed a fierce
power struggle at the top of the
party ahead of a once-in-a-
decade leadership succession
this year.
The Chinese Communist
party’s Discipline Inspection
Commission, which investigates
party members before turning
them over to the judiciary, is
investigating Mr Bo for unspeci-
fied “discipline violations”.
Chinese authorities have also
said Mr Bo’s wife, Gu Kailai, is a
suspect in the alleged murder of
Neil Heywood, a British busi-
nessman
fixer for the Chinese couple.
Mr Devillers was another
long-time associate of the Bo
family. Mr Bo met Mr Devillers
while mayor of the north-east-
ern city of Dalian and commis-
sioned him for architectural
work.
In 2000, Mr Devillers set up a
UK company – Adad Limited –
with Ms Gu, who used the name
Horus Kai. The company, with a
registered address in the town
of Poole, in south-west England,
was disbanded in 2003. The resi-
dential address for both Ms Gu
and Mr Devillers was a flat
above an office block in the
nearby coastal resort town of
Bournemouth.
A person familiar with Mr
Heywood’s business relationship
with the Bos told the Financial
Times that Mr Devillers had
been “very significant” to the
Bos in the past, assisting them
with international dealings.
A French architect linked to the
family of the purged Chinese
politician Bo Xilai has been
arrested in Cambodia, in a
development that may be linked
to the Chinese Communist
party’s probe into Mr Bo.
News agencies quoted Cambo-
dian officials and French diplo-
mats as saying that Patrick Dev-
illers had been arrested in
Phnom Penh in relation to an
unspecified alleged crime in
China – and that Beijing had
requested his extradition. The
Chinese foreign ministry could
not be reached for comment.
The French foreign ministry
said Mr Devillers had been
arrested on June 13 and placed
in detention.
Paris has demanded that the
Cambodian authorities provide
The son of Equatorial Guinea’s
president spent $315m
between 2004 and 2011 on
mansions, cars, luxury goods
and memorabilia, including
Michael Jackson’s white
crystal­covered “Bad Tour”
glove, according to the US
justice department. The US
lawyers for Teodoro Obiang
said a legitimate timber
business had made him a ‘very
wealthy man’.
Separate sections
Africa & the Green Economy
Awareness grows of the need
to be sustainable
Sustainable Business
Development
Being green is starting to be
seen as sound business
n.
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WEDNESDAY JUNE 20 2012
WORLD NEWS
Court forces out Pakistan’s PM
Tunisia must
get tough with
extremists after
art show riots
Gilani had refused
to reopen graft cases
Ruling party will
not contest verdict
said Iftikhar Chaudhry,
chief justice of the supreme
court. “He has also ceased
to be the prime minister of
Pakistan.”
The ruling Pakistan’s
People party said it would
not contest the judgment.
In April, Mr Gilani was
found guilty of contempt of
court because, the court
said, he had refused to con-
tact Swiss authorities in
an investigation that would
have reopened cases of cor-
ruption against President
Asif Ali Zardari.
Though Mr Gilani
received a symbolic jail
term of less than a minute,
the conviction meant he
could not continue to serve
as a member of Pakistan’s
lower house of parliament,
known
PPP was that the court had
not disqualified him,” said
Ayaz Amir, a leader of the
opposition. Mr Gilani had
been expected to appeal
against the judgment but
the court said yesterday
that no appeal had been
made.
The ruling was in
response to a petition by
Pakistan’s two main opposi-
tion parties, led by Nawaz
Sharif, the former prime
minister, and Imran Khan,
the cricketer turned politi-
cian, that challenged a
ruling by the speaker of
Pakistan’s parliament – a
member of the PPP – that
allowed Mr Gilani to con-
tinue to be a member of
parliament.
While some Gilani loyal-
ists continued to defend
him, a senior official who
works with Mr Zardari said
the president was already
considering potential candi-
dates for prime minister.
Western diplomats
warned that Mr Gilani’s
departure could expose
Pakistan to a new round of
instability at a time when
the country is locked in a
dispute with the US over
the future of a land supply
route to Afghanistan. In the
past week, angry public
protests have also widened
across the country over
chronic electricity short-
ages of several hours a day.
Pakistan must stage elec-
tions next spring, but ana-
lysts said the precedent of
the court forcing out Mr
Gilani had weakened the
evolution of the country’s
parliamentary democracy.
The country has been under
military rule for almost half
its history since it became
independent in 1947.
“In the past, we had the
military replace our prime
ministers. Today, that has
been done by the [court],”
said Hasan Askari Rizvi, a
political commentator. “The
manner in which the prime
minister has been changed
once again suggests that
parliamentary democracy
has not evolved to the stage
where political change can
take place within demo-
cratic institutions.”
as
the
national
assembly.
The PPP leadership was
meeting yesterday evening
to discuss candidates for a
new prime minister, which
would have to be approved
by its coalition partners.
“This time Zardari and the
coalition partners will seek
to compromise with the
supreme court and appoint
a new prime minister,” said
Ahmed Rashid, author of
Pakistan on the Brink
.
In response to the April
ruling, the PPP had argued
that Mr Gilani had not been
explicitly disqualified by
the court so he could con-
tinue as prime minister.
“One of the defences of the
By Rahul Jacob
in New Delhi and
Farhan Bokhari in Islamabad
Pakistan’s supreme court
forced Yusuf Raza Gilani,
prime minister, out of office
yesterday for refusing to
reopen corruption cases
against the president,
plunging the south Asian
country into a fresh politi-
cal crisis.
“Syed Yusuf Raza Gilani
stands disqualified as a
member of [parliament],”
the exhibit – on display at
a private gallery in the
upmarket Marsa suburb
of the capital – merely
poked fun at the Salafists.
Others were more
provocative: one used
dead insects to spell out
the word “Allah”.
Politicians of all stripes
condemned the violence,
police arrested dozens of
people and authorities
barred a Salafist cleric
from preaching after he
called for the death of
one of the artists – but
the government has shied
away from overt
condemnation, failing
even to criticise the
Salafists by name.
Instead, Nahda leaders
and the party’s officials in
government criticised the
artists for launching
“attacks on national
sacred symbols” – in the
words of a press
communiqué issued by
Rachid Ghannouchi, the
founder of Nahda – and
advocated laws to ban art
that offended religious
sensibilities. In so doing
they are supporting the
Salafists’ world view: do
GLOBAL INSIGHT
Borzou Daragahi
in Cairo
In the six months since it
was elected last year,
Tunisia’s moderate
Islamist government has
for the most part been a
model of relative success
for a region undergoing
drastic political change.
Led by Hamadi Jabali,
the prime minister, of the
Islamist Nahda party, it
includes secular liberal
groupings led by human
rights activist Moncef
Marzouki, who serves as
president, and social
democrat Mustapha bin
Jaafar, the parliamentary
Speaker. It has eschewed
an ideological programme
in favour of a pragmatic
agenda focused on
rebuilding the economy.
But in reacting to
extremist Islamists rioting
across the country over a
provocative art exhibit,
the government faces its
greatest political test yet,
one with the potential for
grave failure. Many
Tunisians and
international observers
worry that its half-
hearted response is a
misguided pursuit of
short-term interests that
might endanger the
revolution and the hope
that a new crop of
moderate Islamist leaders
will be able to uphold the
tenets of liberal democracy
while maintaining a
Muslim identity.
A primary argument for
accepting and even
advocating the rise of
moderate Islamists in
Libya, Egypt and Syria is
that only they will be
able to confront the
radicals in their ranks
and guide them into the
mainstream.
In Tunisia’s case,
Nahda’s political
inexperience has caused it
to lurch between
mollifying and
confronting the Salafists.
The ultraconservative
Islamists smashed and
looted the gallery,
smashed up a courthouse,
attacked police stations
and tried to burn down
the fine arts academy.
“Nahda are in a very
difficult position,” said
Omayya Siddik, an
independent political
analyst in Tunis. “They
[the party’s leaders] do
not know how to create a
balance between the
attacks from the Salafists
and the possibility of
losing the religious
electorate. The problem is
that the protests against
the art exhibit are very
popular among a huge
part of the public.”
Some of the works in
By seeming to
appease radical
Salafists, Nahda’s
leaders run the risk
of appearing weak
not bother firebombing
galleries, just wait for the
government to shut them
down.
Time and time again,
Nahda and its leaders
have shown they are
moderates who generally
respect the ground rules
of liberal democracy. But
by seeming to appease
the Salafists, they run the
risk of appearing weak or
opportunistic: devout
Muslims are part of its
political base and general
elections are scheduled
for March next year.
North African
governments face serious
challenges from militant
Islamists. At the weekend,
al-Qaeda leader Ayman
Zawahiri declared jihad
against the Tunisian
government. Many of the
country’s mosques have
been taken over by
Salafist preachers who
have been known to rail
against the same
democratic principles that
allow them to speak freely.
Analysts say the
government would better
serve its own interests –
as well as those of the
country – by cracking
down on any Salafist who
breaks the law, opening
investigations into
Salafist finances and
siding firmly with liberals
when basic issues of state
and society are at stake.
This may be the Tunisian
post-revolutionary
political class’s moment
to assert its authority.
Ring of steel: police with helmets and riot shields guard the gates to the parliament building in Cairo to prevent members of the assembly from gaining access
Reuters
Egypt’s military puts funds lifeline in jeopardy
try’s legislative authority
until fresh elections,
planned for later this year.
The move has endangered
$300m in job-creation
projects funded by the
European Union and the
World Bank. It has also
scuttled months of intense
effort by the bank to work
with lawmakers to create a
development plan to
improve Egypt’s infrastruc-
ture, establish good govern-
ance, produce jobs and bol-
ster the social safety net.
International Monetary
Fund support for Egypt’s
ailing budget also looks
unlikely until elections
have been held and there is
a government in power to
marshal political support
for economic reform and to
guarantee that it is imple-
mented.
The events of the last
week “will trouble interna-
tional donors because there
is no clarity over who is
leading”, says Said Hirsh,
Middle East economist at
Capital
London-based consultancy.
Diplomats and bankers
say the IMF’s pending
£3.2bn loan is crucial in
restoring confidence in the
economy and unlocking
funds from both investors
and international donors. A
deal is also needed to pre-
vent a disorderly devalua-
tion: the central bank has
spent almost two-thirds of
its foreign reserves defend-
ing the Egyptian pound,
leaving it with $15.5bn at
the end of May, which cov-
ers a little more than three
months of imports.
The IMF had made its
loan conditional on broad
support in Egypt’s parlia-
ment, the adoption of a
reform programme and the
lining-up of more finance
from international sources
to plug a $12bn funding gap.
The IMF loan could unlock
€500m in support from the
EU and a $500m-$1bn World
Bank loan.
“I am very concerned
about the turmoil and
pretty certain it will have a
very negative impact on the
availability of international
funding, including, particu-
larly the IMF loan,” says
one western diplomat.
“The IMF loan on its own
will not solve Egypt’s finan-
cial problems but it acts as
the trigger for additional
international funding. With-
out that, Egypt’s finances
will only get worse.”
Also in peril are funds
from the European Bank for
Reconstruction and Devel-
opment, which plans to
invest up to $1bn annually.
The EBRD has to certify
Egypt is committed to
multiparty democracy and
pluralism, a difficult assess-
ment to make.
The World Bank’s 18-
month development plan
was hammered out over
months with Egypt’s legis-
lators, including representa-
tives of the Muslim Brother-
hood’s Freedom and Justice
party and ultraconservative
Salafist Islamists, who had
to be convinced the World
Bank was not a front for US
interests.
It was scheduled to be
presented to the bank’s
board at the end of this
month but may now be
scrapped because it
requires the approval of the
now-dissolved parliament, a
World Bank official says, on
condition of anonymity.
“All this political turmoil
is preventing the money
from arriving to its benefici-
ary,” the official adds.
Already at least $3.6bn for
19 infrastructure projects,
including sewerage, rail-
ways and power generation,
is being held up.
The portfolio of projects
has been approved but the
bank official adds that the
money has not distributed
because Egyptian ministers
have not signed the neces-
sary paperwork.
International aid
The decision to
dissolve parliament
imperils money for
development, write
Borzou Daragahi
and
Heba Saleh
Billions of dollars in badly
needed development aid
and budget support from
international institutions
has been jeopardised by the
decision by Egypt’s military
and judiciary to dissolve
parliament, diplomats and
economists say.
Following a ruling by
Egypt’s supreme constitu-
tional court last week, the
Supreme Council of the
Armed Forces, which has
ruled the country since
Hosni Mubarak was over-
thrown as president last
year, has surrounded the
parliament building with
barbed wire and troops. It
has declared itself the coun-
Vote­rigging fears spark protests
Fears of vote rigging that
would hand the Egyptian
presidency to a former
leader of the deposed
regime prompted the
Muslim Brotherhood and
other groups to take to the
streets yesterday,
writes
Borzou Daragahi and
Heba Saleh in Cairo.
Challenges to military and
judicial authorities were
stepped up as the country
appeared to enter a new
period of uncertainty. Both
the Brotherhood’s Mohamed
Morsi and the former
regime’s Ahmed Shafiq
have publicly claimed
narrow victories in the
presidential election.
The Brotherhood,
members of parliament and
other groups have refused
to recognise decisions by
the judiciary and armed
forces to dissolve
parliament.
www.ft.com/mideast
Economics,
a
Deadlock looms at Iran
nuclear talks in Moscow
Protesters clash with police
over Sudan’s austerity plan
Insurer forces Russian ship
to abandon voyage to Syria
accept a proposal to cease
the enrichment of uranium
at a concentration of 20 per
cent, a level close to weap-
ons grade.
But, late in the day, west-
ern diplomats said Iran was
a long way from agreeing
confidence-building meas-
ures that the six powers –
the US, China, Germany,
Russia, France and Britain
– believe are essential to
allaying fears Iran is build-
ing a bomb.
The talks follow two
rounds of negotiations since
diplomacy resumed in April
after a 15-month hiatus in
which the west cranked up
sanctions pressure and
Israel repeated its threat to
bomb Iranian nuclear sites
if diplomacy failed. The
talks are seen as a last
chance to resolve the
impasse over Iran’s nuclear
programme using diplo-
macy. If talks collapse, anx-
iety could grow on financial
markets over the danger of
higher oil prices and con-
flict in the Middle East.
Charles Clover, Moscow,
and James Blitz, London
ers in neighbouring Egypt
and Libya, small demon-
strations have broken out
over food prices and other
issues in recent months.
More than 100 demonstra-
tors blocked a street in
Khartoum and scuffled with
police while chanting “no,
no to inflation” and “the
people want to overthrow
the regime”, the witness
said. As on the previous
two days of demonstrations,
police used batons and tear-
gas to disperse the crowd,
the witness added, request-
ing anonymity. Activists
said small protests had also
broken out yesterday at two
university campuses, but
the claim was not immedi-
ately possible to verify.
The protests have come
partly in response to Presi-
dent Omar Hassan al-
Bashir’s unveiling of tough
austerity measures on Mon-
day to plug a budget deficit
which the finance minister
put at $2.4bn. One of the
most contentious issues is a
plan to gradually end fuel
subsidies.
Reuters, Khartoum
the effect European Union
sanctions on marine insur-
ers are having on trade
with Syria and Iran. About
95 per cent of the world’s
ocean-going ships insure for
third-party risks such as
pollution through mutually
owned protection and
indemnity insurers, all of
which reinsure through the
London-based International
Group of P&I Clubs.
The sanctions on Syria
and Iran make it a breach
of the rules to pay out for
any losses incurred during
voyages involving prohib-
ited cargoes travelling to or
from the two countries. P&I
Clubs worldwide have con-
sequently been at pains to
tell members their cover
will be void if they engage
in any prohibited trades.
The Standard Club, which
is based in London, said it
had been “made aware” of
the allegations that the
Alaed was carrying muni-
tions destined for Syria,
which would be a “clear
breach” of the club’s rules.
Robert Wright and
James Blitz, London
Tehran enrichment
Economic strife
Alleged arms cargo
The latest efforts by world
powers to persuade Iran to
freeze parts of its uranium
enrichment programme
appeared to be failing as
another round of diplomatic
negotiations over Tehran’s
nuclear ambitions moved
towards deadlock.
At the end of a second
day of diplomacy in Moscow
yesterday, Iran and six
world powers were reported
to have stopped discussing
substantive issues relating
to the future of the Iranian
nuclear programme, with
each side blaming the other
for refusing to give ground.
Instead, diplomats said,
the final hours of the talks
focused on whether to con-
vene a low-level meeting of
technical experts in future
to examine whether further
progress could be made.
Yesterday, Russian diplo-
mats held the second in a
series of bilateral meetings
with Saeed Jalili, Iran’s
chief nuclear negotiator,
to try to persuade him to
Scores of protesters scuffled
with police in the Sudanese
capital for a third day yes-
terday, a witness said,
extending demonstrations
against government auster-
ity plans.
Sudan has faced a budget
gap, a depreciating cur-
rency and high inflation
since South Sudan split
away a year ago, taking
with it three-quarters of the
country’s oil production –
previously the main source
of exports and revenues.
While the Arab-African
country has avoided the
uprisings that toppled lead-
A Russian-owned ship sus-
pected of carrying refur-
bished helicopters and
other arms towards Syria
has turned back after a UK-
based insurer terminated its
cover.
William Hague, the UK
foreign secretary, said yes-
terday that the MV Alaed,
owned by Russia’s Femco,
had turned back, appar-
ently to Russia, after the
Standard Protection and
Indemnity Club withdrew
its insurance.
The vessel had been off
northern Scotland when the
cover was withdrawn.
British government offi-
cials confirmed that the
Alaed appeared to be carry-
ing three Syrian Mi-25 heli-
copters destined for the Syr-
ian port of Tartus. Syria
sent the helicopters back to
Russia for refurbishment
earlier this year and they
were now returning after
being re-equipped, accord-
ing to the officials.
The incident illustrates
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President Bashir: trying to
plug a $2.4bn budget deficit
  FINANCIAL TIMES
WEDNESDAY JUNE 20 2012
★
3
WORLD NEWS
African leader’s son in fight for $32m in assets
for licences to operate and export tim-
ber. One local company was allegedly
required to pay him 10 per cent of the
value of the wood harvested, which
amounted to $700,000 a year from 1998
to 2003. The $27-a-log tax represented
“personal fees . . . calculated by tech-
nicians on the staff of Nguema’s [Teo-
dorin’s] forestry ministry”.
Teodorin also allegedly introduced a
retroactive “tax” requiring that all
companies make a one-off payment to
him representing $10 for every cubic
metre of timber they had ever har-
vested in the country. Those that
refused were expelled, it is alleged.
US officials claim that the two tim-
ber companies Teodorin established in
Equatorial Guinea were not genuine
operations, as he claims, but “paper
companies” that served as “vehicles
through which he could execute
fraudulent contracts and receive
payments”.
The complaint alleges that Teodorin
Where the money allegedly went
Equatorial Guinea
US prosecutors seeking
to recover funds claim
Teodorin Obiang amassed
his vast wealth through
embezzlement and
extortion, writes
Xan Rice
Source:
Second
amended
complaint –
US justice
department
$38m
Gulfstream
G­V jet
$34m
Paintings by Degas,
Renoir, Gauguin
and Matisse
The son of Equatorial Guinea’s presi-
dent spent $315m between 2004 and
2011 on mansions, cars, luxury goods
and memorabilia, including Michael
Jackson’s “white crystal-covered ‘Bad
Tour’ glove”, according to the US jus-
tice department.
The allegation was made this month
in a civil forfeiture complaint in Cali-
fornia that seeks to recover more than
$32m of assets from Teodorin Obiang,
appointed second vice-president of the
impoverished west African country in
May.
Prosecutors say he amassed his
wealth through embezzlement of pub-
lic funds and extortion during his
time as minister of forests, where he
is alleged to have charged a personal
tax of $27 for every log exported, and
later as minister of infrastructure too.
Teodorin, whose father Teodoro
Obiang has ruled with an iron fist
since seizing power in 1979, denies
wrongdoing and earlier this year
described the case against him as
“character assassination”.
Though his salary as minister
amounted to about $82,000 a year, Teo-
dorin’s US lawyers say he made his
money through a legitimate timber
business that had made him a “very
wealthy man”.
“There is thus no basis to establish,
much less by a heightened showing,
that Minister Nguema’s [Teodorin’s
official name] assets can be traced to
illegally gotten gains sufficient to jus-
tify civil forfeiture,” his lawyers wrote
in a January court filing.
Under US law, assets are subject to
forfeiture if they are derived from the
proceeds of specified unlawful activ-
ity. That includes offences committed
locally and abroad.
Despite producing 320,000 barrels of
oil a day, more than a quarter of
which goes to the US, Equatorial
Guinea remains poor. About three-
quarters of its 700,000 people live in
poverty, according to the World Bank.
After oil, timber is the country’s big-
gest export.
In addition to the case in California,
US prosecutors are also seeking forfei-
$4m
Four diamond­studded
Piaget watches
As minister of forests, the
president’s son charged
a personal tax of $27
on every log exported,
the complaint alleges
$2.5m
Five Rolls­Royce cars
spent $88m on assets in 2004 and
again in 2006, $65m in 2008 and $38m
in 2010.
Apart from houses and cars, his
purchases included a 17th-century
French cabinet worth $3.4m, items
from the estate of Yves St Laurent
that cost $23m, several diamond-
encrusted watches and more than
$30m worth of art.
Initially, Teodorin found it easy to
take his money to the US, with the
help of banks and lawyers there, but
more recently concealed his identity
when making purchases, US officials
say.
Tutu Alicante, the executive direc-
tor of EG Justice, a US-based group
promoting human rights in Equatorial
Guinea, welcomed the case against
Teodorin. “It’s good that the interna-
tional community is finally doing
something about it.”
Juan Morillo, a lawyer acting for
Teodorin in the US, said he had no
comment on the new allegations made
by the justice department. Qorvis, the
Washington public relations agency
hired by Equatorial Guinea to
improve its image, also offered no
comment.
$5.7m
Wine
$275,000
Michael Jackson
‘Bad Tour’ glove
Teodorin Obiang
(above) faces
separate legal
action over
alleged money
laundering in
France
ture of a $38m Gulfstream jet bought
by Teodorin.
He also faces separate legal action
over alleged money laundering in
France, where authorities seized 11
luxury cars from his Paris home last
year. In a subsequent interview with a
French television channel, President
Obiang denied that his son had misap-
propriated state funds. “He didn’t take
any money,” Mr Obiang said.
The US justice department filed its
original complaint against Teodorin
in October last year. US officials
asked the court to seize a $30m house
in Malibu, $2m worth of Michael Jack-
son memorabilia and a 2011 Ferrari,
which they said were acquired
“through the abuse of public office
and illegally laundered through finan-
cial institutions and businesses in the
United States”.
In April the judge said he needed to
see more evidence of alleged corrup-
tion. The amended complaint, filed on
June 11, provides fresh details of how
Teodorin allegedly acquired his
money and what he bought.
He first went to the US in 1991, aged
23, to study English at a college in
Malibu but dropped out after five
months, the justice department said.
Two years later, his father awarded
him a 20-year concession to harvest
timber from 25,000 hectares of rain-
forest. Teodorin was then appointed
minister of forestry.
The complaint says Teodorin
demanded that local and foreign tim-
ber companies pay him personal fees
NIGERIA
CAMEROON
Yao
u
ndé
Malabo
Gulf of
Guinea
Getty
Bioko
EQUATORIAL
GUINEA
Libreville
ATLANTIC
OCEAN
ONLINE
Picture slideshow
www.ft.com/
obiang
GABON
200 km
    4
★
FINANCIAL TIMES
WEDNESDAY JUNE 20 2012
WORLD NEWS
Hopes of
eurozone
action rise
at G20
EU officials weigh shift on Athens bailout terms
By Kerin Hope in Athens
and Peter Spiegel
in Brussels
But other officials, includ-
ing Jean-Claude Juncker,
head of the group of euro-
zone finance ministers,
urged more flexibility.
“With the recession in
Greece much deeper than
originally foreseen, we
could talk about extending
the timeframe,” Mr
Juncker, who is also the
Luxembourg prime minis-
ter, said on Austrian radio.
“This depends, however, on
Greece . . . not
ens, requiring international
lenders to open negotiations
with the incoming Greek
government to get it back
on track.
Greek political leaders
drew closer to a three-party
coalition government led by
Antonis Samaras, head of
the centre-right New
Democracy party that fin-
ished first in Sunday’s
national elections. Officials
said that the so-called
“troika” of international
lenders could return to Ath-
ens to reopen talks once a
coalition had been formed.
“The economic situation
has changed, the situation
of tax receipts has changed,
the rhythm of implementa-
tion of the milestones has
changed, the rhythm of pri-
vatisation has changed,”
said the senior EU official,
adding that if they contin-
ued with the current memo-
randum, “we would be sign-
ing off on an illusion”.
The hold-up in govern-
ment talks centred on a
demand by Fotis Kouvelis,
leader of the small Demo-
cratic Left party, for assur-
ances that rightwing parties
would not be able to dictate
immigration and labour pol-
icies.
Evangelos Venizelos,
leader of the third probable
coalition member, the cen-
tre-left Pasok party that has
held office for most of the
two years of Greece’s bail-
out, was insisting on nam-
ing at least two ministers to
a
ment austerity measures
worth €11.7bn, which must
be completed by 2013. Offi-
cials in the German-led
camp have insisted on no
delays,
streamlined
15-member
cabinet
that
would
be
sworn
in
tomorrow,
one
European officials are
weighing how much to
revise Greece’s €174bn bail-
out programme once a new
government is in place in
Athens, with a German-led
group of countries insisting
on no delays in tough
budget targets, while others
are signalling that they are
prepared to extend Greek
deadlines.
Angela Merkel, the Ger-
man chancellor, said on the
sidelines of the Group of 20
summit in Mexico yesterday
that “the new government
must stick to its commit-
ments”.
official said.
New Democracy won 129
seats at the election and
would have a narrow major-
ity after adding Pasok’s 33
lawmakers.
The participation of Dem-
ocratic Left, with 17 seats,
is seen as important to
fending off opposition by
Syriza, the hard-left coali-
tion that finished second
with 71 seats on an anti-
bailout platform.
Differences over how to
proceed on a new bailout
memorandum centred on
whether Greece would be
given more time to imple-
since
that
would
require
more
EU
bailout
funding.
But other officials have
signalled a willingness to
show flexibility, with some
arguing the programme
could be adjusted by about
€20bn in new funding to
make the government’s
goals more realistic.
One New Democracy
adviser said the new gov-
ernment would be commit-
ted to the current bailout
but would seek a two-year
extension in the pro-
gramme, from 2014 to 2016.
wishing
to
revisit
the
entire
pro-
gramme.”
One senior EU official
involved in the talks said
the programme had already
slipped behind its targets
during the months of politi-
cal
European officials poured
cold water on the idea. But
François Hollande, France’s
president, fuelled the specu-
lation yesterday when he
bemoaned the fact that
Spain was being targeted by
markets in spite of the
planned €100bn bailout of
its banks and its tough aus-
terity programme.
Mr Hollande said the
interest rates being paid by
Spain and Italy on their
debts were “not acceptable”
because Italy’s public
finances were improving
Spain has received a prom-
ise of aid from other Euro-
pean countries.
“It’s not acceptable that
Spain, which just got a
promise for support, has
interest rates around 7 per
cent,” Mr Hollande said.
“It’s not acceptable that
countries that are making
efforts, like Italy, to
improve their public
finances” were paying high
interest rates on their
bonds. “We must show a
much faster ability to inter-
Los Cabos summit
‘Encouraging’ talks
between Obama
and Merkel have
raised expectations,
say
George Parker
and
Chris Giles
brinkmanship
in
Ath-
Painful path to recovery
The IMF is optimistic …
Greek real GDP (rebased)
(2007=100)
The destinations change
but the story stays the
same. From Toronto to
Seoul to Cannes to Los
Cabos, world leaders gather
for G20 summits apparently
powerless to grip the euro-
zone crisis. Yesterday on
the Mexican Pacific coast,
there
100
IMF
forecast,
Apr 2012
90
was
a
glimmer
of
80
hope
that
this
might
be
about to change.
The chatter at the pool-
side bars – initially fatalis-
tic – was galvanised by
what the White House
called an “encouraging” 45-
minute meeting between
Barack Obama and Angela
Merkel, German chancellor
on Monday, where the debt
crisis
70
2000 05 10 17
… Greek business less so
Business sentiment, index
(2007=100)
100
in
Spain
and
Italy
dominated discussion.
Mr Obama appeared satis-
fied that something was
about to be done, and post-
poned at short notice a
planned meeting on Mon-
day with other European
members of the G20. Ms
Merkel, according to one
European official, had told
him what he needed to
know about the eurozone’s
planned response.
But what? George
Osborne, Britain’s chancel-
lor of the exchequer, has
engaged in wishful thinking
in the past but he claimed
that the eurozone was
“inching towards” a plan
which would see the €500bn
of new money in the single
currency bailout fund used
to buy government bonds,
particularly in Spain.
The chatter among the
summit “sherpas” on Mon-
day night was that Ms Mer-
kel had conceded the need
to help Spain ride out the
market storm, setting the
eurozone on a path towards
the mutualisation of debt in
the single currency area.
G20 officials speculated
that Ms Merkel would move
decisively within days:
either at a meeting in Rome
of the eurozone’s biggest
economies on Friday or at
an EU summit next week.
‘It’s not acceptable
that Spain . . . has
interest rates
around 7 per cent’
François Hollande
French president
90
80
70
Shutting up shop: a study
has revealed more than
68,000 Greek businesses
closed over the past 17
months
60
vene,” Mr Hollande said
before the summit’s second
day of talks began.
He said he and Ms Merkel
agreed that “Europe must
have its own response”.
The market pressure on
Spain may force the hand of
eurozone leaders, especially
given the fact that the
Greek elections – which
removed immediate specu-
lation about the country
remaining in the euro –
have done nothing to stabi-
lise the situation. One Ger-
man official remarked last
week: “If we have an acci-
dent, we will have to use
the tools at our disposal.”
The guidelines on the
EFSF bailout fund’s second-
ary market purchases
sound as if they were writ-
ten for Spain, especially in
the light of the comments
by Mr Hollande.
“In the course of the
ongoing sovereign debt cri-
sis on several occasions and
for different countries, price
dynamics have emerged
that are difficult to explain
by economic fundamen-
tals,” it says. “One objective
of EFSF secondary market
interventions is to pre-empt
and counteract such pricing
dynamics.”
British officials believe
that a new intervention in
the bond markets is com-
ing. One said it was “a
bazooka, but not necessar-
ily the big bazooka”
demanded by David Cam-
eron, prime minister.
Additional reporting by
Quentin Peel and Peter
Spiegel
2006
08
10
12
Bloomberg
Source: IMF; Thomson Reuters Datastream
Greekbusiness looks for life in ‘dead economy’
to the government within a
month – long before any
hospital is likely to pay.
“It’s a terrible situation,”
Mr Stamos says. “Every-
thing is frozen. The econ-
omy is dead, and no one is
paying anyone.”
Medical Service is but a
snapshot of what is happen-
ing to businesses across
Greece as the economy’s
gears grind to a halt. After
sputtering through four
years of recession, most
commercial activity has all
but ceased over the past six
weeks as the nation
endured two elections with
its future in the eurozone
hanging in the balance.
The political paralysis
has quickened the outflow
of deposits from Greece’s
teetering banks and put on
hold an EU-funded effort to
recapitalise them. Business
leaders say they can no
longer obtain the most basic
credit – even when they
boast solid order books.
Making matters worse,
the government, which con-
trols much of the economy,
has stopped paying its bills.
As of last month, it owed
nearly €7bn to the private
sector.
A €174bn EU bailout was
supposed to help, but it has
had negligible effect on the
real economy, since most of
the funds leave the country
as soon as they arrive to
repay foreign creditors.
“We have got to a point
where we’re at a complete
standstill,” said Constan-
tine Michalos, the president
of the Athens Chamber of
Commerce. “The first thing
a coalition government has
to
to 6.5 per cent decline fore-
cast by most economists.
Even tourism, a typical
redoubt of the Greek econ-
omy, is suffering as the
political uncertainty has led
holidaymakers
macists owed €370m by gov-
ernment insurance plans,
for example, some medica-
tions have become scarce
and patients have to pay
the full cost of prescription
drugs.
Others are less so. One
Athens executive said his
company had begun shop-
ping for a data centre out-
side Greece, because of
fears that the country will
suffer rolling blackouts this
summer because of debts
owed to the main utility.
The executive declined to
be identified because the
company does not want for-
eign customers or potential
investors to know that it is
based in Greece. “It’s quite
sad that we’re doing that,
but it’s reality,” he said.
The cash crunch also
appears to be forcing Greek
companies to drop Euro-
pean suppliers and turn to
Chinese competitors
because they are willing to
offer credit.
Dimitris Papanikolaou,
vice-president of Neon
Energy, which installs solar
panels, said this factor – not
cost – was the main reason
he
Medical Service, Mr Stamos
has done likewise, switch-
ing to Chinese ultrasound
machines.
In many ways, Mr Stamos
embodies the progress
Greece has made in just a
few generations – as well as
the calamity it now faces.
His father delivered goods
by donkey on the island of
Andros. After settling in
Athens, the son launched
his company with a partner
and a bank loan in 1991. His
daughter studies economics
at Athens University.
Late payments by
Greece’s public hospitals
have been a chronic chal-
lenge requiring a sympa-
thetic banker. Two years
ago, the government paid
€1m in arrears to Medical
Service in the form of
bonds. That seemed like a
reasonable deal – until the
country’s latest EU bailout
led to a 50 per cent “hair-
cut” for those securities.
In March, Mr Stamos
stopped paying regular sala-
ries to his eight employees
and cut their hours. Like
other Greek executives, he
hopes that a new govern-
ment will emerge this week,
and begin settling its bills.
“I’m an optimist,” he said.
Economic outlook
Most commercial
activity has all but
ceased as funds
leave Greece to pay
creditors, writes
Joshua Chaffin
to
cancel
bookings.
“The liquidity problem of
the banks coupled with the
state’s difficulty in paying
its obligations for the past
year has created ripple
effects in the economy and
everyone is feeling the
effects,” said Thimios Boul-
outas, the chief executive of
Marfin Investment Group, a
Greek holding company
that owns hotels, an airline,
private hospitals and a res-
taurant chain.
Some of those effects are
obvious. With Greek phar-
Last week, Medical Service
Limited, a small Athens’
supplier of medical equip-
ment that can no longer
afford to pay its employees,
received what should have
been a blessing: an order
from one of the city’s hospi-
tals for a heart-monitoring
machine.
But after thinking it over,
Yannis Stamos, the com-
pany’s co-founder, turned
the customer away. Filling
the order would have meant
reaching into Medical Serv-
ice’s pockets to cover the
€35,000 cost of such a
machine, since Greek banks
have stopped lending and
the company’s German sup-
pliers demand pre-payment
in cash.
Even if it could foot the
bill, Medical Service would
have to hand over thou-
sands of euros in sales tax
do
is
recapitalise
the
Greek banking system.”
The chamber’s study
reveals that 68,000 Greek
businesses closed over the
past 17 months, and it
expects a further 36,000 to
shut in the next 12 months.
It foresees the economy will
shrink a further 7.8 per cent
this year – worse than the 6
On other pages and at
FT.com
Editorial Comment, Page 10
Martin Wolf, Page 11
●
The World blog
The tactless David
Cameron and the
eurozone blame game
www.ft.com/theworld
●
Authers Note
Video: why the deteriorating
macroeconomic picture in
the US and the Brics could
be a longer­term danger to
Europe than Greece
www.ft.com/authersnote
●
Money Supply blog
The ECB finds that
five is no fun
www.ft.com/moneysupply
increasingly
bought
Angela Merkel: rumours of
decisive move within days
materials
from
China
Blog: www.ft.com/theworld
instead
of
Germany.
At
Crisis management aid for big banks
EU ministers discuss political union
By Brooke Masters
in London
By Quentin Peel in Berlin
reduce both financial capac-
ity and systemic resilience,
with major consequences
for jobs and growth across
our
regime for supervising G-Si-
fis in the insurance sector,
and the FSB hopes to put
out guidance this summer
on how to regulate the next
level of banks – those that
are systemically important
within their own country.
In one concrete sign of
progress, the FSB said that
US, European and Japanese
banks had on average
raised the ratio of their
common equity to total
assets – the measure of
bank safety that is hardest
to get around – by 25 per
cent since the crisis.
The FSB also released a
study on the likely impact
of the Basel III reforms on
developing economies that
echoes warnings from the
banking community last
week that the reforms could
damage emerging markets.
The FSB surveyed
national regulators in 35
emerging markets and
found that while they sup-
ported the broad thrust of
raising capital and liquidity
requirements, they feared
particular parts of the new
Basel III rules would harm
their economies.
In particular, the emerg-
ing markets authorities
were concerned about the
widespread use of credit
ratings to determine risk-
weights because they lead
to higher risk charges on
borrowers in countries with
low sovereign debt ratings.
They also worried that
tougher regulations for
G-Sifi banks and the euro-
zone crisis would lead some
global banks to pull out of
non-core
historic step towards more
integration,” said Guido
Westerwelle, Germany’s for-
eign minister. The group
involves France, Italy,
Spain, Poland, the Nether-
lands, Austria, Belgium,
Portugal and Luxembourg.
Most of the ideas are likely
to be anathema to the UK,
whose foreign secretary,
William Hague, was the
most significant absentee.
Mr Westerwelle said he
invited the nine to join the
group in order to contribute
to a more profound debate
outside Berlin on swift
moves towards closer “polit-
ical union” as the essential
underpinning of economic
and monetary union.
“The forces of renationali-
sation have to be countered
by pro-European argu-
ments,” the German foreign
minister said yesterday.
“Only a long-term per-
spective for Europe will
restore the confidence that
we also need to come out of
the debt crisis now.”
The ministers backed a
“three pillar” approach to
resolving the crisis, combin-
ing budget consolidation,
boosting economic growth
and competitiveness, and
solidarity, a significant
rebalancing of the tradi-
tional German emphasis on
budget discipline as a pre-
condition for the other two.
While closer integration
and stronger EU surveil-
lance of economic and
budget policies are needed,
such moves require greater
democratic legitimacy at a
European level, they said.
They all agreed that the
European Stability Mecha-
nism, the €500bn perma-
nent eurozone rescue fund,
“could be developed into a
European Monetary Fund”,
but “there were differing
views expressed on the
question of mutualisation of
sovereign risk”, shorthand
for opposition from Ger-
many and the Netherlands,
in particular, to jointly
guaranteed eurozone bonds.
Laurent Fabius, the new
French foreign minister,
will join the group’s discus-
sions for the first time in
July, officials said.
French support for the
German initiative is seen as
critical to the success of
any ideas that emerge. Brit-
ish opposition, on the other
hand, is taken for granted
Ten EU foreign ministers
have spelt out radical sug-
gestions to use the euro-
zone debt crisis as a spring-
board towards closer inte-
gration, including creation
of a European monetary
fund and army, as well as a
European finance minister.
The German-inspired ini-
tiative is intended to start
debate on steps to political
union to be launched by EU
leaders at their summit at
the end of the month.
It is also hoped it will gal-
vanise thinking in other
member states about steps
towards “political union”.
On the economic front,
ministers suggested creat-
ing a European framework
for restructuring or wind-
ing up ailing banks, as well
as tougher rules to rein-
force economic co-operation
and a stronger EU role in
fixing national budgets.
“We should take advan-
tage of the crisis to take a
Formal cross-border crisis
management groups have
been set up for 24 of the
world’s 29 most important
banks, but much more
needs to be done before reg-
ulators can be confident
they could safely be steered
through a crisis, according
to a report by a group of
global regulators.
“While much has been
accomplished, what is still
to come is just as impor-
tant,” Mark Carney, chair-
man of the Financial Stabil-
ity Board and governor of
the Bank of Canada, told
the Group of 20 leaders in a
letter highlighting the work
that still needs to be done
on over-the-counter deriva-
tives and crisis resolution.
Mr Carney also warned
countries against going it
alone on important regula-
tory issues. “A return to a
nationally segmented global
financial
economies.
We
must
work
to
avoid
this,”
he
wrote.
Made up of regulators and
central bankers from
around the world, the FSB
is charged with carrying
out the reforms agreed by
the
Group
of
20
leading
economies.
With the “Basel III” bank
reforms nearly complete,
the FSB’s focus has shifted
to “shadow banking” – non-
banks that also extend
credit – and making “global
systemically important
financial institutions”, or
G-Sifis, safer and easier to
shut down. It also has
begun to look at implemen-
tation of the reforms, to
insure that all countries
live up to their promises
and
‘While much has
been accomplished,
what is to come is
just as important’
Mark Carney, head of
Financial Stability Board
to
watch
for
unin-
tended consequences.
Insurance regulators have
already started work on a
markets
in
the
developing
world,
raising
French soldiers could one
day serve in a European army
system
would
the cost of credit.
  FINANCIAL TIMES
WEDNESDAY JUNE 20 2012
★
5
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