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EUROPE
Tuesday February 26 2013
On the Windows ledge
Is Nokia’s Microsoft gamble paying off? Page 12
View from Iran: nuclear
talks are possible
HosseinMousavian,Page11
World Business Newspaper
Italian poll
cliffhanger
points to
instability
Voters in resounding rebuff to austerity
US seeks
maximum
fine in BP
spill trial
Top of the tree
South Korea’s first female
president pledges fairer wealth distribution
Report, Page 6
News Briefing
Royalty move for Elan
raises M&A hopes
Royalty Pharma’s $6.6bn bid
for Dublin-based drug
company Elan could lead a
wave of mergers and
acquisition in Ireland,
according to a report, as
state asset sales create
fertile ground for activity.
Lex, Page 14;
Reports, Pages 15 & 16;
www.ft.com/lexvideo
Obama in cuts alert
President Barack Obama
warned that automatic
spending cuts due to hit in
four days were already
having an adverse impact on
the US economy, as he urged
state governors to make a
last-ditch attempt to nudge
Congress into a deal.
Page 7;
www.ft.com/fiscalcliff
Lisbon rescue talks
Portugal’s international
lenders will hear complaints
from across the country this
week that the three-year
adjustment programme is not
working amid a recessionary
cycle, as talks take place in
Lisbon on the progress of
the €78bn financial rescue
agreement.
Page 3
Irish forestry fight
A dark cloud is looming over
Ireland’s forests after the
government, forced to sell
assets under its €67.5bn
bailout, has decided to offer
timber harvesting rights that
will lead to a restructuring
of the state forestry company
and possible restrictions
for walkers.
Page 3
Kerry in Syria hitch
John Kerry, the new US
secretary of state, scrambled
to prevent an embarrassing
boycott by the Syrian
opposition of a US-backed
conference aimed at
addressing the rapidly
deteriorating situation in
Syria.
Page 7;
Editorial Comment, Page 10;
Hossein Mousavian, Page 11
Pressure on Madrid
Spain is battling to head off
a legal challenge from the
EU against proposals by
Madrid to merge the
country’s competition
and markets watchdogs
into a “super-regulator”.
Page 4
Kenya poll doubts
The ICC’s charges against
Kenyan presidential
candidate Uhuru Kenyatta
have cast a shadow over the
country’s elections, with the
trial over his alleged role in
the violence after the 2007
elections due to start at The
Hague in April clashing with
the potential second-round
runoff vote.
Page 6
Cuba’s rising star
Raúl Castro accepted a new
five-year term as Cuban
president and promised it
would also be his last,
potentially bringing an end
to the Castro era, while also
appointing a rising party star
as vice-president.
Page 2
‘Connected cars’
Spotify has teamed up with
Ford to soon give European
drivers access to music
streaming via voice and in-
car controls, while AT&T
said it would bring superfast
mobile broadband to
General Motor’s vehicles
by mid-2014.
Page 15
By Ed Crooks in New Orleans
BP acted with “wilful miscon-
duct” in the lead-up to the 2010
Gulf of Mexico oil spill, the US
government has alleged at the
start of the trial over the
accident, as it pushes for the
highest possible penalties and
damages.
In his opening statement,
Mike Underhill, presenting the
case for the US Department of
Justice, said that even if any
individual action by BP staff
might not amount to wilful mis-
conduct, the “accumulation of
actions” that caused the disas-
ter reached that standard. He
added: “The evidence will show
BP put profits before people,
profits before safety, and profits
before the environment.”
The trial in New Orleans will
determine liability for civil dam-
ages and penalties over the
explosion on the Deepwater
Horizon rig, which killed 11 men
and led to up to 4.1m barrels of
oil being spilled into the Gulf of
Mexico.
A finding of wilful misconduct
– a higher standard than “gross
negligence” – would both expose
BP to penalties under the Clean
Water Act of up to $17.6bn, and
increase the likelihood that the
judge would impose a penalty
closer to that maximum. The
DoJ is alleging that BP knew or
should have known that its deci-
sions would lead to an accident.
Lawyers for the US govern-
ment, private sector plaintiffs
and the states of Alabama and
Louisiana also argued that BP
contractors Transocean, owner
of the rig, and Halliburton,
which supplied cement intended
to seal the well, acted with gross
negligence. BP and its contrac-
tors reject the accusation.
Transocean said its staff had
been working under the direc-
tion of BP, which was responsi-
ble for the disaster. BP and Hall-
iburton were scheduled to give
their opening statements later
in the day. The first phase of the
trial, intended to establish the
causes of the accident, is sched-
uled to last for three months.
By Tony Barber and
Guy Dinmore in Rome
was the performance of Mr
Monti and Civic Choice, his pro-
reform centrist alliance, which
finished a distant fourth. The
centrists were set to take 10.5
per cent of the lower house and
9.2 per cent in the Senate – not
even half that seized by comedi-
an-blogger Beppe Grillo and his
anti-politician Five Star Move-
ment. The strong support for Mr
Grillo pointed to deep public dis-
content with a wave of corrup-
tion scandals that has swept
over Italy’s political and busi-
ness worlds.
But the rejection of Mr Monti
also indicated disillusion with
the tax increases and other aus-
terity measures he introduced to
stabilise Italy’s public finances.
Financial markets took fright
at the likely result, with the
Milan stock exchange index fall-
ing sharply after an early surge
based on exit polls that sug-
gested the centre-left would win
a majority in both chambers.
Four hours after the polls
closed, Mr Bersani’s centre-left
Democratic party and its leftist
allies appeared set to come first
in the lower house and benefit
from bonus seats allocated
under Italy’s electoral system to
ensure the winner has an abso-
lute majority.
But in the Senate, where seats
are distributed on a regional
basis, pollsters predicted that
the largest number of seats
would go to the centre-right
People of Liberty party, led by
Mr Berlusconi, and his populist
Northern League allies.
Italy was last night staring at a
period of prolonged political
instability after a general elec-
tion in which voters delivered a
resounding rebuff to austerity
with little hope of any party
mustering a governing majority.
The nation was torn
three ways between Pier Luigi
Bersani’s centre-left, Silvio
Berlusconi’s centre-right and
an upstart anti-establishment
movement hostile to both.
Politicians in the centre-left
camp, hopeful of a majority of
seats in the legislature’s lower
house but likely to be denied
control of the Senate, raised the
prospect of a second election,
possibly within months.
The election’s outcome pro-
vided scant reassurance for
Italy’s European partners,
which want a stable govern-
ment in Rome to pursue the eco-
nomic reform course mapped
out by Mario Monti, the former
EU commissioner who took
power in 2011 at the helm of a
cabinet of technocrats.
Instead, the fragmented Ital-
ian result adds to the uncer-
tainty surrounding Europe’s
efforts to overcome its sovereign
debt and financial sector crisis
and to restore growth to a
region forecast to remain in
recession this year.
Stefano Fassina, the centre-
left’s economic affairs spokes-
man, said it was looking like
there would be “no stable gov-
ernment” and predicted a return
to the polls.
The biggest disappointment
for Italy’s eurozone partners
Clad in traditional dress, Park Geun­hye delivers an address in Seoul in front of a statue of
Sejong the Great yesterday. She spoke of the ‘blood, toil and sweat’ of the Korean people
AFP
Austerity warning, Page 4
Markets, Page 24
www.ft.com/italy
US oil imports from Middle East
increase despite shale revolution
Alitalia shake­up
By Ajay Makan in London
confirm later this week that oil
imports from the Gulf continued
to rise. By the end of November
the US had imported 450m bar-
rels of crude from Saudi Arabia,
more than it imported from Riy-
adh in 2009, 2010 or 2011, accord-
ing to figures from the US
Department of Energy.
For the first time since 2003,
Saudi imports accounted for
more than 15 per cent of total
US oil imports. The Gulf as a
whole accounted for more than
25 per cent, a nine-year high.
Other Gulf exporters are also
seeing unusually strong US
demand. By the end of Novem-
ber, Kuwait had shipped more
oil to the US than in any year
since 1998. Analysts are expect-
ing annual figures to be released
later this week to confirm the
trend seen up to November.
New extraction techniques
have unlocked huge hydrocar-
bon resources in the US previ-
ously thought unrecoverable,
raising expectations that over
time US dependence on Middle
East oil will drop.
These developments have
raised the prospect of US energy
independence and triggered
debate about the long-term com-
mitment of Washington to secu-
rity in the Gulf, where the US
Fifth Fleet has operated since
1995.
At an oil industry conference
in London last week, Christof
Rühl, chief economist at BP,
raised the prospect of a US pres-
ident, “15 years from now, see-
ing a problem in the Middle
East and saying: ‘That’s no skin
off my nose’.” But Carlos Pas-
qual, co-ordinator for interna-
tional energy affairs at the US
state department, said this year
that oil was a global fungible
commodity, and Washington
would remain involved in Mid-
dle Eastern oil security.
The US was more reliant on the
Middle East for its oil imports
last year, underscoring the
importance of the unstable
region for the country despite
the growing energy independ-
ence its shale revolution is
bringing.
That domestic production
boom has triggered intense
debate over whether the US
would still guard the world’s
critical sea lanes, such as the
Strait of Hormuz in two dec-
ades’ time, or whether China,
whose dependence on Middle
Eastern crude imports is rapidly
rising, would replace it.
Recent oil import trends from
the Gulf region suggest why the
US might continue to play a
critical security role in the
region. While domestic produc-
tion increased the most in 150
years last year, Washington will
Alitalia’s chief executive has
agreed to leave the carrier by
“mutual agreement” with the
board, handing over the reins
to its chairman and controlling
shareholder. The surprise exit
of Andrea Ragnetti, above,
comes as speculation grows on
whether the airline can remain
independent. Losses are
mounting and it continues to
lose share to low­cost carriers
and high­speed trains.
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FINANCIAL TIMES
TUESDAY FEBRUARY 26 2013
WORLD NEWS
Castrovows
‘last term’
as Cuba’s
president
Brother’s rise
to presidency
●
June 3 1931
Raúl
Modesto Castro Ruz born
in the eastern province of
Holguin.
●
July 26 1953
Took part
in an assault on Moncada
Barracks in Santiago de
Cuba led by brother Fidel.
The attack failed to oust
Fulgencio Batista.
●
1959
Batista
overthrown. Raúl married
Vilma Espin, a fellow
revolutionary fighter.
●
1959
Raúl became
defence minister.
Rising star is lined
up for succession
Fidel Castro makes
rare appearance
government’s highest eche-
lons,” said Christopher
Sabatini, senior policy
director at the Americas
Society/Council of the
Americas. “While overdue,
it is clear they’re trying to
lay the groundwork for the
continuation of the govern-
ment [after the] Castro[s].”
Mr Diaz-Canel, who with
his salt-and-pepper hair
presents a stern but well-
groomed figure on state tel-
evision, trained as an elec-
trical engineer and earned
his spurs in communist
youth groups. He won party
posts in the provinces
before becoming minister of
higher education in 2009
and, last year, vice-presi-
dent for the council of min-
isters.
This slow and steady
ascent, which analysts said
was in keeping with the
deliberate military tastes of
Mr Castro, former head of
Cuba’s armed forces, is in
contrast to other potential
younger leaders in the past
– such as former economics
tsar Carlos Lage or former
foreign minister Roberto
Robaina – who were held
out as reformers and pro-
moted quickly, only to fall
from grace suddenly.
“The government has
chosen its dauphin,”
tweeted Cuban pro-democ-
racy blogger Yoani
Sánchez. “He is absolutely
faithful to Raúl Castro, has
little charisma of his own
but is indubitably younger
than the ‘historic’ genera-
tion.”
Mr Diaz-Canel’s rise cul-
minated when he attended
this year’s summit of the
Community of Latin Ameri-
●
1972
Appointed first
deputy prime minister.
●
July 31 2006
Fidel was
forced to hand over the
reins of power to Raúl
after undergoing
emergency surgery for an
undisclosed illness.
By Marc Frank in Havana
and John Paul Rathbone
in Mexico City
Raúl Castro accepted a new
five-year term as Cuban
president promising that it
would also be his last.
His pledge on Sunday
potentially dates the end of
the Castro era for the first
time since bearded rebels
swept down from the Sierra
Maestra mountains in 1959
and launched the country’s
revolution.
But analysts and human
rights activists cautioned
not to expect change in the
island’s five-decade-old com-
munist regime after Mr Cas-
tro appointed a rising party
star as vice-president and
first in line for succession.
Raúl Castro, 81, made the
announcement in a speech
broadcast shortly after the
National Assembly elected
him to a second term as
president. “This will be my
last term,” he said.
Mr Castro starts his sec-
ond term immediately,
which would theoretically
leave him free to retire in
2018, aged 86. Miguel Diaz-
Canel, 52, a politburo mem-
ber who has risen through
the party ranks in the prov-
inces, will automatically
step into Mr Castro’s shoes
if he is unable to serve out
his term.
“For the first time the
party is clearly trying to
put a younger face on the
●
February 19 2008
Almost 19 months after he
last appeared in public,
Fidel said he would not
return as head of state
and government.
●
February 24 2008
The
National Assembly chose
Raúl to be president.
Brothers in arms: Fidel Castro, left, with Raúl Castro at the National Assembly meeting in Havana at the weekend
AP
●
April 28 2008
Raúl
announced the first
Communist party congress
since 1997.
can states in Chile with Mr
Castro. He also represented
Cuba at a ceremony in
Caracas last month, which
marked the beginning of
the new term of Venezuelan
president Hugo Chávez.
Mr Diaz-Canel replaces
former first vice-president,
José Machado Ventura, 82,
who will continue as one of
Cuba’s five vice-presidents.
The move comes as Mr
Castro has made tentative
market reforms of Cuba’s
centrally-controlled econ-
omy, kept afloat in recent
years thanks to subsidised
oil from Venezuela. But
Caracas is undergoing its
own uncertain transition,
as Mr Chávez, a close ally,
struggles to recover from
cancer surgery.
“Regardless of what hap-
pens in Venezuela, the
Cuban regime needs to
‘update’ the revolution,”
said Mr Sabatini. “Even
with the 100,000 or so bar-
rels of oil the regime
receives every year it is still
struggling fiscally, is still
strapped for hard currency
and is still failing to meet
people’s basic needs.”
Mr Castro’s announce-
ment coincides with specu-
lation in Washington that
John Kerry, the US secre-
tary of state, who formerly
criticised the US embargo,
may want to push for an
easing of relations with
Havana. However, one of
many sticking points in
US-Cuban relations is Alan
Gross, imprisoned in Cuba
since 2009 on charges of
illegally bringing communi-
cations equipment to the
island as part of a pro-
gramme that was attempt-
ing
Life and times of Diaz­Canel
A trained electrical engineer,
Miguel Diaz­Canel, below,
rose quickly within Cuba’s
Union of Young Communists
to reach the national level.
at the Union of Young
Communists
●
March 2 2009
Raúl
reorganised the cabinet,
replacing some of Fidel’s
long­term aides.
●
1993
Elected first
secretary of the provincial
committee in Villa Clara
●
March 22 2011
Fidel
Castro said he resigned all
his state and political
positions.
to
encourage
dem-
●
April 20, 1960
Born in
central Villa Clara province
ocracy.
Former president Fidel
Castro made a rare public
appearance on Sunday with
his younger brother. Since
falling ill in 2006 and ceding
the presidency, the elder
Castro, 86, has given up all
official positions except as
deputy, although his views
are still widely broadcast by
official media.
This month, Mr Castro
commented in an interview
about Cuba’s halting
reforms that “it is indispen-
sable to proceed with lots of
caution. We should not
make mistakes.”
●
2003
Elected first
secretary of the provincial
committee in Holguín
province and joined the
Communist party
politburo. Raúl Castro
praised his ‘ideological
firmness’
●
1982
Graduated as an
electrical engineer
●
April 16 2011
Cuba’s
communist party held its
first congress in 14 years
– the party agreed to
allow private property.
●
1985
Joined
Cuba’s revolutionary
armed forces and
began teaching at
the Central
University
of Las
Villas
‘Diaz­Canel has
little charisma but
is indubitably
younger than the
historic generation’
●
2009
Appointed
minister of higher
education
●
April 19 2011
The
Communist party elected
Raúl to succeed Fidel as
its leader.
●
2012
Became
vice­president of
the council of
ministers
●
1987
Began
working
●
Feb 2013
Elected by the
National Assembly to a
second five­year term.
Depardieu renews ties with Chechen ruler
By Charles Clover
in Moscow
has been given a relatively
free hand by Moscow in
exchange for his loyalty.
The broadcaster NTV
showed footage yesterday of
Mr Depardieu having a din-
ner the previous night with
the Chechen leader, who
according to Human Rights
Watch is “linked to a grim
record of abuse” and to
crimes such as torturing
opponents and extrajudicial
killings. Mr Depardieu
spoke of a movie project he
plans in Chechnya with Mr
Kadyrov’s help.
“I would really like to
shoot a film here and show
that it’s possible to do that
here in Grozny, shoot a
great film,” Mr Depardieu
told NTV on Sunday. “I
can’t reveal all the details
now, but we’ll come back
here and this is only the
beginning.”
Encouraged by a few bear
hugs with Mr Kadyrov, Mr
Depardieu was filmed danc-
ing the
lezginka
, Chech-
nya’s national dance, a
skipping, pirouetting ode to
a falcon hunt accompanied
by frenzied clapping and
driving synthesiser music.
Mr Kadyrov has always
been keen to enhance his
image with appearances
alongside western celebri-
ties, such as Seal and Jean
Claude Van Damme.
Mr Depardieu first visited
Chechnya to celebrate Mr
Kadyrov’s
year. “We got to know each
other well during his first
trip. We discussed several
projects. I believe that the
current trip will also be pro-
ductive,” Mr Kadyrov said,
according to Interfax news
agency.
For some, accepting Mr
Kadyrov’s reportedly six-fig-
ure fees has turned out to
be a PR disaster. The US
actress Hilary Swank said
she fired her manager and
donated her fee to charity
after an appearance at Mr
Kadyrov’s birthday party in
October 2011.
Mr Depardieu apparently
has no such qualms about
accepting patronage from
authoritarian politicians
such as Mr Kadyrov. Last
year he recorded a duet
with Gulnara Karimova,
daughter of Uzbekistan’s
dictator Islam Karimov.
Mr Depardieu’s love affair
with Russia seems to have
grown out of a spat with
French President François
Hollande over a supertax on
France’s wealthiest.
Fists pumping, arms out-
stretched in a winged
pas
de deux
with a demurely
headscarved folk dance
partner, French actor
Gérard Depardieu heaved
his tremendous girth across
Russian television screens
yesterday, swooping and
gliding like a preening bird
of prey at a gala dinner
hosted by Chechnya’s ruler
Ramzan Kadyrov.
It was the latest in a
string of ever more curious
appearances in Russia by
Mr Depardieu, who was pre-
sented with a Russian pass-
port in January by Presi-
dent Vladimir Putin. Mr
Depardieu has pledged to
buy a flat and open a res-
taurant in the country, as
well as learn Russian.
On his latest trip east he
travelled to the autonomous
region of Chechnya, which
fought a civil war against
Russian federal forces from
1994 to 2001. Mr Kadyrov
birthday
last
The actor does the ‘lezginka’,
the Chechen national dance
US troops told to
leave Afghan region
By Richard Leiby In Kabul
tions of the arrest, torture
and extrajudicial killing of
civilians.
Nato officials would not
comment on whether Mr
Karzai’s other demand – an
immediate halt to special
forces’ activity in Wardak –
had been implemented.
John Kerry, US secretary
of state, speaking in Lon-
don yesterday, said any
concerns the Afghans had
would be “appropriately
evaluated” by the coalition.
Mr Karzai’s action came
after a report by Abdul
Majid Khogyani, Wardak’s
provincial governor. Mr
Khogyani said he had
received complaints “in
droves” about the behav-
iour of US special forces,
including allegations that
nine people had disap-
peared after being arrested.
He also said 60 tribal lead-
ers had been rounded up by
US special forces, taken to a
base and beaten.
This article appears by
arrangement
Afghan officials said yester-
day they had demanded
that US special forces leave
an insurgency-wracked
province because their Nato
commanders ignored resi-
dents’ allegations of severe
abuses committed by the
elite troops.
Meanwhile, Nato said its
past inquiries found no evi-
dence to support allegations
of misconduct by US special
forces in Wardak province,
southwest of Kabul.
Hamid Karzai, Afghani-
stan’s president, on Sunday
stunned the International
Security Assistance Force,
as the coalition of foreign
forces is known, by order-
ing all US special forces to
leave Wardak within two
weeks, after allegations
they had been involved in
the torture and murder of
“innocent people”.
An Afghan-Nato commis-
sion is expected to be set up
within days to explore
claims – including allega-
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The
Washington Post
   FINANCIAL TIMES
TUESDAY FEBRUARY 26 2013
★
3
WORLD NEWS
Lumberjacking sale sparks fight over Irish forests
ing the area’s natural
beauty. “This would restrict
access to forests and higher
uplands,” he says.
Mr Boyle is part of a dis-
parate coalition of sports
enthusiasts, trade unionists
and timber mill owners
opposing Dublin’s decision
to raise €400m-€600m by
selling harvesting rights to
forests for up to 80 years.
The sale is likely to be
aimed at institutional inves-
tors such as pension funds,
which seek a stable invest-
ment over the longer term.
The Save Our Forests
campaign is the most vocal
opposition to a wider €3bn
planned state assets sale,
which includes a lottery
licence, gas and electricity
assets and a quarter stake
in Aer Lingus.
Dublin has agreed the
sales with the troika of
international lenders – the
European Commission,
International Monetary
Fund and European Central
Bank – which insists half
the money will be used to
reduce debts. But progress
is slow and opposition to
state sell-offs is growing as
Ireland prepares to exit its
bailout
programme
this
ers and parliamentarians is
scheduled for today.
“Forestry can be a very
emotional issue,” says
Charlie Daniel from RMK
Timberland, one of the
international investors con-
tacted by Dublin about the
sale. “But public access has
not been a problem in our
experience as terms can be
included in leases.”
Many companies in Ire-
if the purchasers decide to
withhold supply or export
our logs to other European
countries or to China,” says
Patrick Murray of Murray
Timber Group, a big saw-
mill operator.
A report commissioned by
Coillte trade unions claims
that restructuring and
transforming the state-
owned company into a
national parks service could
cost the state €1.3bn.
Unpredictable timber
prices, it says, mean that
selling harvesting rights
“cannot be justified”.
The architects of the gov-
ernment strategy, however,
point to the success of har-
vesting projects in New Zea-
land and Australia.
“Half of Europe’s forests
are in private hands yet
access is not a problem.
Irish sawmills would also
be able to bid for timber
harvested in Ireland,” says
Alan Matthews, an econo-
mist who recommended
selling harvesting rights
in
Asset sales
Sawmills and
hikers are united in
fight over decision
to raise cash from
logging, writes
Jamie Smyth
year.
The government has
reneged on a pledge to sell
a 15 per cent stake in state
electricity company ESB
following trade union pres-
sure. It now faces a “Don’t
Loot The Lottery” cam-
paign to block the sale of a
lottery licence worth up to
€400m.
Coillte, the state forestry
company, owns 445,000
acres of forest, equivalent
to 7 per cent of Ireland’s
land cover. Under Dublin’s
plan, the company would be
restructured and the rights
to harvest timber would be
sold. Ownership of the land
would be retained by the
state
The hikers set off under a
canopy of Sitka spruce, Jap-
anese larch and Scots pine
trees on a cold winter’s
morning. Mountain bikers
are already traversing the
muddy paths at Ticknock –
a forest near Dublin.
But away from the out-
door fun, a dark cloud is
looming over Ireland’s for-
ests. Under the terms of its
€67.5bn international bail-
out, the government is
being forced to sell off
assets and has decided to
sell harvesting rights to
timber as a way of raising
cash.
Karl Boyle, chief execu-
tive of Mountaineering Ire-
land, the organisation for
walkers and climbers, wor-
ries that the sale could pre-
vent Dubliners from enjoy-
‘The Irish
sawmilling industry
could be wiped
out within a matter
of months’
to
ensure
public
access to the forests.
But campaigners warn
that forcing investors to
provide access to forests
would be costly for compa-
nies and could be ineffec-
tive. Companies have little
incentive to maintain rights
of way, particularly given
Ireland’s property laws,
which, unlike the UK, do
not give the public a “right
to roam” on private land. A
meeting between campaign-
land’s forestry sector,
which employs 12,000 peo-
ple and is worth €2.2bn a
year, oppose the sale.
Sawmill owners fear that
a break-up of Coillte, which
supplies 80 per cent of the
logs to their mills, would
leave them at the mercy of
foreign investors.
“The Irish sawmilling
industry could be wiped out
within a matter of months
a
state-commissioned
report.
Union leaders agree pay
cuts, Page 4
Walkers and climbers are worried about access to forests if the sale takes place
alamy
Portugal faces
tougher resistance
as critics doubt
austerity measures
extending a relaxation of
terms that took place just
six months ago.
Greece and Spain have
been granted similar waiv-
ers and France requested
one last week. But Portugal
would be the first eurozone
country to be allowed a sec-
ond extra year to bring its
budget deficit below target.
Pedro Passos Coelho, the
prime minister, said last
week that it “would not be
surprising” if the commis-
sion granted Lisbon another
extension.
His coalition government
projected that the economy
would shrink 2 per cent this
year, double its forecast.
Unemployment is expected
to rise to a record 17.3 per
cent in 2013, according to
the commission as Portugal
suffers its third consecutive
year of recession.
Mr Passos Coelho
attributes the worsening
outlook to the deepening
EU recession, which will hit
the export boom Portugal
has enjoyed over the past
three years. This, together
with tourism, has been the
Economic crisis
Debate rages over
whether policies are
working as more
time is needed to
hit bailout targets,
says
Peter Wise
Rogério Coutinho Ferreira,
a 71-year-old retired army
officer, experienced the full
force of Portugal’s increas-
ingly tough austerity pro-
gramme this month when
he received notice of what
he calculates as a €500 cut
in his monthly pension to
€2,300.
“We need austerity,” he
says, “but it doesn’t need to
be so aggressive and it
should be applied fairly to
everyone.” After making
pension contributions dur-
ing a 40-year military
career, he condemns a new
“solidarity tax” that applies
only to relatively affluent
pensioners as an inequita-
ble way of sharing the pain.
Portugal’s international
lenders – the “troika” of the
European Commission,
International Monetary
Fund and European Central
Bank – will hear similarly
impassioned complaints
from across society this
week as they hold talks in
Lisbon on the progress of
the country’s €78bn finan-
cial rescue agreement.
In a hard-hitting editorial
yesterday, Público, a lead-
ing daily newspaper, encap-
sulated the view of opposi-
tion parties, trade unions
and the many ordinary citi-
zens who have swelled
recent protests, stating that
the three-year adjustment
programme begun in mid-
2011 is simply not working.
“Portugal has entered a
recessionary cycle that has
no end in sight,” Público
said. “The fiscal targets are
unachievable. Social condi-
tions are worsening and
democracy is suffering.
Worst of all, people have no
reason to believe the future
will be any better. The pro-
gramme has failed and it
has to be changed.”
In the eyes of opponents,
the centre-right government
has already acknowledged
the programme’s failure by
indicating that it will seek
an extra year to meet the
budget deficit targets
agreed with the EU –
€78bn
Cost of Portugal’s financial
rescue agreement
only sign of tentative
growth for an economy
mired in its worst crisis for
half a century.
The prime minister
acknowledges that the fore-
cast slowdown in export
growth will make it impos-
sible, in nominal terms, to
meet even the new deficit
target for 2013, which was
relaxed in September from 3
to 4.5 per cent of national
output – hence the need for
a further year’s dispensa-
tion. But he insists the
structural deficit, which
excludes short-term factors,
will show a surplus this
year.
“We are moving in the
right direction and there is
no need to change course,”
he said last week, implying
there would be no let-up in
austerity.
In the government’s
favour, Mr Passos Coelho
can point to a successful
return to the bond market
in January that augurs well
for Portugal’s ability to
regain full market access by
September, when the last
tranche of bailout lending is
due.
But Mr Coutinho Ferreira
says austerity has achieved
little else. “The economy
isn’t growing. Companies
are going bankrupt. Unem-
ployment is rising. Welfare
payments are being cut.”
In a letter sent to the
commission, the IMF and
the ECB before this week’s
troika mission, António
José Seguro, the leader of
the opposition Socialists,
the party that negotiated
Portugal’s bailout in 2011,
said the agreement needed
to renegotiate.
Rocky road
Portugal GDP
(annual %
change)
Government
budget balance
(as a % of G
DP)
2
-2
Forecasts
-4
1
0
-6
-1
-8
-10
-2
-3
-12
2009
10
11
12
13
14
In­depth reports:
www.ft.com/portugal
Sources: IMF; European Commission
 4
★
FINANCIAL TIMES
TUESDAY FEBRUARY 26 2013
WORLD NEWS
Italians
send
austerity
warning
Germany’s
president
gives Europe
wake­up call
Yet the main thrust of
his message was directed
at his fellow citizens, who
seem to take Europe for
granted yet resent paying
so much for it.
Mr Gauck said
Germany’s young people
had already experienced
“more Europe” than any
previous generation. Most
of them had learnt two
foreign languages, gone
on school trips to London,
Paris, Madrid or Warsaw,
and could study anywhere
in the EU with an
Erasmus scholarship.
But there was still no
“shared narrative” for
Europe, no single
European identity, to
unite the 27 nations in
the midst of an economic
crisis.
Germany’s president
believes that Europe does
have “a timeless canon of
values which unites us”.
It includes “peace and
freedom, democracy and
the rule of law, equality,
human rights and
solidarity”. Those values
GLOBAL INSIGHT
confirmed then in the next
days there will be an earth-
quake, not just in Italy but
in all Europe,” Mr Letta
said, warning of a “totally
unstable government”.
While the make-up of the
next parliament could
depend on the last votes
counted, projections based
on partial results released
by the interior ministry
suggested the centre-left
could emerge with a major-
ity in the lower house, but
without one in the senate.
The result, dubbed the
“catastrophic scenario” by
Roberto D’Alimonte, profes-
sor of politics at Luiss uni-
versity, confounded opinion
polls and the general con-
sensus among investors
that the Democrats would
have the numbers to govern
in the senate in a coalition
with the centrist alliance
led by Mr Monti.
But the populist tax-cut-
ting promises by Mr Berlus-
coni, the former centre-
right prime minister, com-
bined with a surge in sup-
port for Mr Grillo’s anti-
establishment Five Star
Movement, demonstrated
that Italians were ready to
risk rejecting harsh auster-
ity measures that they see
as imposed by a hostile Ger-
many and Brussels.
Mr Monti’s decision to
shed his neutrality as an
appointed technocrat and
enter the political fray may
have had the effect of deny-
ing a fourth election victory
for the veteran Mr Berlu-
soni by prising away some
centre-right voters. But his
likely result of less than 10
per cent will be a rebuff to
his pro-Europe policies.
“This looks like a recipe
for total gridlock,” com-
mented Nicholas Spiro, a
sovereign debt analyst. “On
current projections, finan-
cial markets are facing the
worst of both worlds in
Italy: a full-blown political
crisis in the eurozone’s
third-largest economy and a
Italy poll
Results of election
are inconclusive but
voters have had
enough of tough
measures, writes
Guy Dinmore
Quentin Peel
In Berlin
Pier Luigi Bersani: has ruled out grand coalition
Reuters
Silvio Berlusconi: staged a remarkable comeback
EPA
Germany’s president
began his career as a
turbulent priest: a
Protestant pastor in
communist East
Germany. As head of
state, Joachim Gauck is
now supposed to be above
the cut and thrust of
politics, a conscience of
the reunified nation. But
it still helps to preach a
good sermon.
Last week he did just
that on the subject of
Europe. It was intended
as a
Ruckrede
– a sort of
wake-up call – both to
Germans and their
European partners.
And in the event, it was
a good sermon, even
though the current
economic travails of the
EU scarcely lend
themselves to ringing
rhetoric.
Mr Gauck made an
honest admission of the
rising tide of criticism of
the EU, frustration with
excessive bureaucracy,
loss of sovereignty, and
the lack of transparency
in the way it works.
He recognised the fears
of those who think they
always have to foot the
bill – namely the
Germans – and those who
face ever-harsher
austerity and soaring
unemployment, including
no doubt the Greeks and
Spaniards, who blame the
Germans for their plight.
Mr Gauck did not set
out any precise new
vision. But he was clear
about one thing: if there
is to be “more Europe” to
resolve the crisis in the
eurozone, as favoured by
most of the political
establishment in
Germany, then it must be
built from the bottom up
– on citizens’ consent –
and not as a continuing
elite project from the top
down.
What attracted most
attention outside
Germany was the
president’s direct appeal
to the British not to walk
away from the EU, if they
hold the in-out
referendum promised by
David Cameron, UK prime
minister, at some stage in
the future.
“We would like you to
stay with us,” he said.
“More Europe cannot
mean Europe without
you.”
He also insisted his
country was not trying to
dictate the rules to the
rest. “We do not want to
intimidate others, nor
force our ideas on them,”
he said. “More Europe
does not mean a German
Europe.”
Amid the see-sawing results
coming out of Rome yester-
day one thing was quickly
clear: against a backdrop of
declining wages and pen-
sions and a rise in unem-
ployment, a majority of Ital-
ians angry at an establish-
ment plagued by corruption
scandals issued a clear
Basta
(enough) to austerity.
In the final weeks of his
campaign Mario Monti,
prime minister, tried to sof-
ten his austerity message,
promising “reasonable” tax
cuts and admitting that his
policies, although necessary
to restore market confi-
dence in Italy, had exacer-
bated the recession.
But that was too little too
late in the face of the popu-
list anti-austerity promises
delivered by Silvio Berlus-
coni and Beppe Grillo.
“The result is the abso-
lute majority of Italians
have voted against auster-
ity measures, the euro and
Europe,” Enrico Letta, dep-
uty leader of the Democrats
told the Financial Times.
“This sends a very clear sig-
nal to Brussels and Frank-
furt,” he said.
“We will try our best to
avoid chaos in Italy,” he
added, expressing the hope
that the Democrats would
emerge after a long night of
waiting with a majority in
the lower house.
What Italians may also
have voted for is a return to
the polls soon, but only
after what is likely to be a
difficult task of agreeing to
change the country’s deeply
unpopular electoral law.
“If these numbers are
If Britain is too
eurosceptic to
listen, in Germany
Mr Gauck has the
opposite problem
Beppe Grillo: populist tax­cutting promises
Reuters
Mario Monti: tried to soften his austerity message
Reuters
severe setback for the
liberal economic agenda
championed by Mr Monti.”
With the country strug-
gling through its longest
postwar recession, doubts
will be raised over Italy’s
ability to deliver the tight
budget measures agreed in
its fiscal compact with the
European Commission and
reforms seen as needed to
generate growth.
A late surge in the yield
on Italy’s benchmark bonds
yesterday was seen as a
foretaste of how markets
may also test the resolve of
the European Central Bank
to defend Italy’s ability to
repay its €2tn public debt.
“There is clearly a risk of
a hung parliament, which
would be unequivocally a
negative result,” said
Riccardo Barbieri, econo-
mist with Mizuho Interna-
tional. He said the best out-
come would be a “grand
coalition” of the kind that
had supported Mr Monti’s
technocrat government in
the past 15 months.
But in Italy talk among
politicians was on the likeli-
hood of a minority govern-
ment that would have to
return to the polls, perhaps
later this year. Mr Berlu-
soni has spoken in the past
of the possibility of forming
a grand coalition with the
Democrats, although this
has been ruled out by Pier
Luigi Bersani, leader of the
centre-left. “If new elections
are called, Grillo risks
doing even better, anyway
it means uncertainty for
months,” commented Nic-
ola Marinelli, portfolio man-
ager for Glendevon King
Asset Management.
are enshrined in treaties
and enforceable in law.
But he wants more: to
create a European “
res
publica
”, not a united
states of Europe, but a
commonwealth of nations,
and a European public
space for debate, like the
agora
in ancient Greece.
A pan-European television
channel would help, but
the internet provides a
platform. It will require a
lingua franca, a common
working language. Mr
Gauck has no doubt it
would be English.
Is eurosceptic Britain
likely to pay much
attention to the German
president? One suspects
not. Talk of common
values is much too high-
flown for a British
audience, most of whom
have never even heard of
an Erasmus scholarship.
Yet if Britain is too
eurosceptic to listen, in
Germany Mr Gauck has
the opposite problem.
In the ongoing election
campaign, the eurozone
crisis and the long-term
reforms of the EU are not
subjects high on the
agenda for debate.
All the main parties
agree on the need for
“more Europe”, but
without saying quite what
it means.
“Do not be indifferent!”
Mr Gauck appealed. “Do
not be lazy!”
But the truth is that
Germany needs a few
more British-style
eurosceptics to galvanise
a vigorous debate,
and the UK needs a
few less.
The turnround in Italy’s finances has come at a huge cost
Underlying government deficit
(% of GDP)
Unemployment
(% of labour force)
Real GDP
(rebased to Q1 2008)
1
12
100
11
0
98
10
-1
9
96
-2
8
94
-3
7
-4
6
92
2007
09
11
13
2008
09
10
11
12
2008 09
10
11
12
Forecast
Sources: IMF; Thomson Reuters Datastream
EU challenges Madrid on regulator plan
By Tobias Buck in Madrid
and James Fontanella­Khan
in Brussels
Commission is poised to
launch a legal challenge
against Madrid for infring-
ing EU law.
The proposal to create a
sprawling National Com-
mission for Markets and
Competition was tabled by
the government last year.
The body would absorb not
only the telecoms and
energy regulators but also
the competition authority
and a number of smaller
watchdogs. At the same
time, some of the regula-
tory powers enjoyed by
independent
would be shifted to Spain’s
industry ministry.
“I have written to the
Spanish government to
express my major con-
cerns,” Neelie Kroes, com-
mission vice-president, told
the Financial Times yester-
day.
“The draft laws I have
seen would breach the let-
ter and the spirit of the EU
telecoms law. The commis-
sion would have no choice
but to open infringement
proceedings if the legisla-
tion is adopted without nec-
essary
independence and the func-
tions of the regulator.”
The commission letter,
addressed to Spain’s indus-
try minister José Manuel
Soria, highlights in particu-
lar the transfer of regula-
tory powers to the ministry.
Ms Kroes is due to meet Mr
Soria in Barcelona tomor-
row.
The Spanish government
said the draft law was being
reworked and would try to
answer “the majority of
concerns raised by the com-
mission”. It declined to give
details of the changes, but
stressed they would ensure
an independent regulator
and a clear division of
responsibilities between the
CNMC and the ministry.
Ms Kroes’ intervention
adds to the domestic contro-
versy sparked by the law,
with critics pointing out
that consumers are already
paying the price for weak
competition in sectors such
as energy and telecoms.
“We know there is a lack
of competition in many
industries – so what we
should have done is give
more powers to regulators
rather than remove powers
from them,” said Gerard
Llobet, an expert on regula-
tion at Cemfi, a Madrid-
based research institute.
Mr Llobet argued that the
challenges faced by market
regulators in Spain went
beyond the points raised in
the commission’s letter.
“The other problem is
that regulators are political
appointments. That means
they are not always experts,
and it is easier [for indus-
try] to capture a regulator
when you don’t have the
expertise.”
Spain is battling to head off
a legal challenge from the
EU against proposals by
Madrid to merge the coun-
try’s competition and mar-
kets watchdogs into a sin-
gle “super-regulator”.
Brussels has warned
Madrid repeatedly that the
plan risks weakening inde-
pendent regulators and
could undermine competi-
tion in the economy.
Now,
the
European
authorities
changes
on
the
Irish trade unions agree to pay cuts
and longer hours for civil servants
Bundesbank president urges France
to meet its EU budget deficit target
By Jamie Smyth in Dublin
ures are absolutely required
to achieve a sustainable
payroll cost,” he said.
Dublin has implemented
cuts and tax rises worth
€28.5bn a year since its
financial crisis struck in
2008 but is still running a
budget deficit of close to
8 per cent – the highest in
the eurozone. Under its bail-
out
must reduce its deficit to
less than 3 per cent by 2015,
a fact that prompted it to
enter talks with unions on
reducing public sector pay.
The agreement reached
yesterday would introduce
changes to working prac-
tices including cuts in over-
time pay, more flexible
working patterns, a freeze
on certain types of incre-
mental pay rises, and an
extension in working hours.
Those public servants
currently working a 35-hour
week or less would in
future work a minimum of
37 hours. Those working
between 35 and under 39
hours would in future work
39 hours under the agree-
ment.
Dublin said the longer
working week would help
achieve a planned reduction
in the number of people
working in the public serv-
ice.
Ireland’s public sector
pay bill fell from a peak of
€17.5bn in 2009 to €15.7bn
in 2010 after mandatory
cuts to pay in the wake of
the country’s economic cri-
sis. Since then, Dublin has
relied on cutting public sec-
tor job numbers to achieve
savings, rather than cutting
pay through the Croke Park
agreement struck with the
trade unions in 2010.
Dublin’s public sector
reform programme is
designed to cut public sec-
tor numbers by 37,500 to
282,500 by 2015.
Four trade unions walked
out of the talks late on Sun-
day before an agreement
was finalised, saying they
could not sign up to the
government’s proposals.
But industrial relations
experts predicted there
would be enough support
for the package within the
Irish Congress of Trade
Unions, an umbrella group,
to finalise the agreement.
“It looks like the numbers
are there within the public
sector unions to get this
through,” said Gerry Flynn,
of Align Management Solu-
tions, a consultancy.
By Michael Steen
in Frankfurt
sis of confidence,” Mr Wei-
dmann told an audience at
the École des Hautes
Études Commerciales, the
business school where
François Hollande, French
president, studied.
“There has been a partial
loss of confidence in our fis-
cal rules as well as in the
will of European countries
to consolidate their public
finances.” It was therefore
“particularly important for
the heavyweights in [the
eurozone] to give clear sig-
nals, which boost the credi-
bility of the fiscal rules and
agreements,” he said.
The Bundesbank is
fiercely independent of the
German government, which
has been more equivocal in
its response to the likely
French miss, although it
shares the diagnosis that
the sovereign debt crisis
was borne of a crisis of con-
fidence in the bloc’s eco-
nomic governance.
Wolfgang Schäuble,
finance minister, said in a
newspaper interview at the
weekend that “sticking to
rules is important” but
added it was up to the EU
Commission to judge the
matter.
Jörg Asmussen, a Ger-
man on the European Cen-
tral Bank’s executive board,
has also questioned
whether France deserves
leeway on the target.
Apparently in response, Mr
Schäuble said: “I don’t
know why some people
think they always need to
call upon others to do
things. I don’t exhort the
central bank to stick to its
legal duties.”
The French economy has
come under the spotlight
lately amid concern that it
is doing too little to liberal-
ise its economy. While
domestic demand has held
up well during the crisis
and the country’s demo-
graphic profile is better
than that of Germany, the
dominance of the state and
relative lack of competitive-
ness is seen as problematic.
The
lighted last week when a
US executive wrote to the
government saying it would
be “stupid” for him to in-
vest in a French tyre plant.
Greece, Portugal and
Spain have all been granted
more time to hit EU budget
targets under rules that are
meant to prevent countries
hit by unexpected shocks
being forced to pile on addi-
tional austerity measures.
In his speech at the HEC,
Mr Weidmann also took
aim at Christine Lagarde,
head of the International
Monetary Fund and a
former French finance min-
ister, for suggesting that
countries with a trade sur-
plus, such as Germany,
should do more to help the
deficit countries to rebal-
ance. Ms Lagarde, in her
former post, had said: “It
takes two to tango.”
“The attempt to shield
one European country from
competition by lowering the
competitiveness of another
makes us all weaker,” Mr
Weidmann said.
Irish trade union leaders
have agreed to a govern-
ment programme of pay
cuts and changes to work-
ing practices aimed at cut-
ting a further €1bn from
the public sector pay bill
over the next three years.
The agreement, which
requires the backing of pub-
lic sector union members,
would cut the pay of civil
servants earning more than
€65,000 a year by 5.5 per
cent. The level of pay cuts
would rise to 10 per cent for
those earning more than
€185,000 a year.
Brendan Howlin, Ireland’s
minister for public expendi-
ture, said yesterday the
agreement was “a fair pack-
age”, that delivered the sav-
ings necessary to help the
country on the road to eco-
nomic recovery.
“All public sector workers
have already made a signifi-
cant contribution to our
economic recovery, how-
ever, these further meas-
Germany’s central bank has
called on France to stick to
its EU-mandated budget
deficit target, saying that
any slippage by such a
eurozone heavyweight
would further undermine
confidence in the bloc’s fis-
cal discipline.
Last week France asked
Brussels to give it an extra
year to bring the deficit
down to 3 per cent of gross
domestic product, as EU
projections showed the
country’s deepening reces-
sion would put the measure
at 3.7 per cent of GDP this
year.
After hints from Olli
Rehn, the EU’s economic
chief, that he was willing to
give France more time, Jens
Weidmann, president of
Germany’s Bundesbank,
entered the debate yester-
day in a speech in Paris,
urging France to stick to its
commitments.
“We are faced with a cri-
programme,
Dublin
Public sector workers
protest in Dublin in 2009
latter
was
high-
    FINANCIAL TIMES
TUESDAY FEBRUARY 26 2013
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