NEWS,17.07.2013

'Low rates build risk for fragile banks'

A determination by Europe's most powerful central bankers to keep interest rates low might save the continent's fragile banking system from short-term pain but undermines long-term profitability and encourages excessive risk-taking.
The Bank of England's new governor Mark Carney raised eyebrows on July 4 when he said market expectations of higher interest rates were "not warranted", a policy departure for a central bank that traditionally plays its cards close to its chest until monthly rate decisions are taken.
Hours later, the European Central Bank's president Mario Draghi echoed the same guidance for eurozone rates, saying monetary policy should remain "accommodative".
The commitment to lower interest rates means Europe's banks, still fragile after the 2007-2009 crisis and facing stress tests in mid 2014 that could trigger fresh capital demands, have less cause to fear an interest rate shock that would dramatically change their funding and lending costs after four years of record low rates.
That has been identified as a major risk by authorities including the Bank of England, the Dutch National Bank and Switzerland's Finma, since it could trigger higher loan defaults, a hit to margins over a transition period and lower equity values for banks.
But once rates have stabilised at higher levels, banks earnings should improve, and they are less tempted to pursue riskier lending and investment.
"We are trapped between a rock and a hard place," said Gert Wehinger, a senior economist with the OECD's financial directorate. "The more we have extremely low interest rates, the more we have risks accumulating ... If you lift them now, you can trigger something even worse, which means recessions and banks defaulting."
A painful adjustment
Most major banks provide some disclosure on what would happen to their 'net interest income', or lending margin, if rates rose. In eight of Europe's biggest 10 banks, those disclosures show margins rise as rates rise. At HSBC, annual net interest income would rise by $1.4bn if rates rose by 0.25% a quarter for four quarters.
But that rosy picture belies a more complex truth. The banks' figures show what would happen if all short-term and long-term interest rates moved by the same amount, typically a 1% increase, but that rarely happens.
Central bank action affects short-term rates more than long-term rates, which are buffeted by a wider range of influences, such as supply and demand and long-term rate expectations.
Banks typically earn money at long-term rates, on lending such as mortgages, but borrow for shorter terms, so they prefer a rising yield curve over time. If short term-rates rise and long-term rates don't, the bank is squeezed.
Even if long-term rates rise, they can't necessarily be applied to all the bank's long-term loans - 20-year fixed-rate mortgages are popular in many European markets - while customers will quickly expect higher interest on their deposits.
"The question there is, will banks be able to refinance on the long run these very low long-term mortgage rates," said Professor Martin Hellmich, of the Frankfurt School of Finance & Management. "That is one thing where you have substantial risk."
Loans take hit as rates rise
The more down-to-earth risk banks face from higher interest rates is higher defaults, once borrowing costs eventually rise.
"Low interest rates are tempting many people to buy their own house or private apartment despite the sharp rise in prices," said Patrick Raaflaub, the head of Switzerland's regulator Finma said at an event on March 26.
"But will these new buyers be able to cope with a higher interest burden if interest rates rise?"
Such fears were behind the BoE's June decision to ask banks for more information on their interest rate risk by September. Holland's DNB asked for something similar earlier in the year, "with special emphasis on mortgages".
Even if borrowers don't default, fixed rate loans are still worth less to a bank in a rising interest rate environment.
The income stream of loan repayments, taking into account the bank's own borrowing costs, is known as net present value, and is a key input into the 'real' value of a bank.
In its 2012 annual report, Dutch bancassurer ING said a 1% rise in interest rates would reduce its net present value by €2.14bn. Even a hit that large is not immediately recognised by banks.
"Changes in the book value of a loan only have to be recognised if the borrower's creditworthiness has deteriorated," said Christoph Memmel, an economist with Germany's Bundesbank.
"Present value losses caused by increases in the risk-free (central bank) interest rate have no immediate consequences for a bank's profit and loss."
Regulators aren't blind to the risk, and banks do have to hold some capital for it under part of the capital framework known as Pillar 2, which stresses their 'banking books' against a 2% rise or fall in rates. But the picture is incomplete, and investors have little sight of the real risks.
Capital consequences
The capital hit is more apparent on banks' trading books - the 'available for sale' (AFS) securities they hold which have to be regularly revalued, or 'marked to market'. These take an immediate hit if interest rates rise, as a bond paying 4 percent is immediately less valuable if new issues pay more.
In a June 19 note, KBW analysed how the equity of 36 European banks would be hit by a 1% fall in the value of their AFS debt securities, an analysis that depends on the relative size of AFS holdings, not the portfolios' attributes.
It found that Portuguese bank BPI would be worst hit, with shareholders' equity falling by almost 6% for every 1% fall in the value of its AFS debt.
"Unsurprisingly, the banks in the periphery, with lower equity base and higher ALM/carry trade portfolios, are most leveraged, with negative marks," the analysts said.
The ALM/carry trade portfolios hold higher-yielding bonds that banks bought with cheap money from the ECB.
Among the bigger banks, France's Credit Agricole and Belgium's KBC would suffer falls of about 2.5% in equity for a 1% fall in the value of their AFS instruments. Falls would be lowest at Credit Suisse, at just over 0.1%, and Lloyds, less than 1%, KBW said.
KBW said investment banks were less exposed to AFS losses than many investors perceive because they have slimmed down their portfolios so much. The 'Value at Risk'(VaR) linked to interest rates has fallen by two thirds across Europe's four biggest investment banks, KBW said.
Some investment banks would benefit from higher interest rates for some business areas, it added. Banks' pension deficits would also look better in a higher interest rate environment.
Pulling an overall picture from the many moving parts can be difficult, but history suggests the transition to higher rates is a painful one. "Banks (shares) have underperformed in the four tightening periods over the last two decades, and by 9 percent on average," KBW said.
Once higher rates are bedded in, most bankers acknowledge it is better for profitability; several have told their investors about the drag of low interest rates on margins.
Policymakers also believe higher interest rates lead to more sustainable lending and investment. At a London conference on June 26, ECB executive board member Benoit Coeure detailed how low interest rates could promote bank risk-taking.
The crisis-tackling policies introduced by the ECB were designed to enable banks to continue lending into the real economy "by taking new risks", he noted.
"The concern is, however, that persistent liquidity sows the seeds for market turmoil."

European car sales sink to 20-yr low

European car sales slumped to their lowest six-months total in 20 years in the first half of 2013, with a 6.3% drop in June suggesting no let up for an industry battered by overcapacity and weak demand.
European automakers have been suffering for months from the effects of record unemployment and government austerity measures in the euro zone, with some such as Peugeot seeking to close factories and lay off workers to counter heavy losses.
Italy's Fiat saw the biggest drop in sales among major manufacturers last month, suffering a 13.6% slide, followed by a 10.9% fall at France's Peugeot, while Ford bucked the trend with a 6.9% rise.
"Even if there is a recovery in the second half of the year, it's hard to see how it could be strong enough to offset the bad results we've registered so far this year," said Quynh-Nhu Huynh, economics and statistics director at the Association of European Carmakers (ACEA), which compiled the figures.
Norbert Reithofer, chief executive of Germany's BMW, said in a newspaper interview on Tuesday he did not expect a rebound in western European markets until at least the middle of next year.
ACEA said car registrations in European Union countries plus those in the European Free Trade Association (EFTA) fell 6.7% in the first half of the year to 6 436 743, the lowest six monthly total since 1993.
Sales in June were the lowest for that month since 1996.
Nonetheless, some analysts were encouraged that sales fell at a slower pace than in many previous months.
"The market has bottomed out, for sure," said Pierluigi Bellini, head of sales forecasts for EMEA (Europe, Middle East and Africa) at IHS Automotive. "We can't talk about a recovery this year, but we see smaller monthly declines going forward."
The German market, which had resisted much of last year's slump, shrank 4.7% in June, while sales in France and Italy fell 8.4% and 5.5% respectively as unemployment and austerity measures curb consumer spending.
Ferdinando Uliano, national secretary of the Italian metalworkers' union FIM-CISL, said high taxes and insurance costs were stifling demand and called on the government to act.
"What is the government waiting for to enact measures to support investment in this key sector?" Uliano said in a statement.
Sales in Britain, in contrast, remained robust, notching up a 16th straight month of gains with a 13.4% increase.
Among luxury carmakers, Mercedes posted a 2% gain, powered by new models, while the BMW brand fell 7.7% and Volkswagen's Audi dropped 8.9%.

Bangladesh tightens labour law

Bangladesh approved a labour law earlier this week to boost worker rights, including the freedom to form trade unions, after a factory building collapse in April killed 1 132 garment workers and sparked debate over labour safety and rights.
The legislation puts in place provisions including a central fund to improve living standards of workers, a requirement for 5% of annual profits to be deposited in employee welfare funds and an assurance that union members will not be transferred to another factory of the same owner after labour unrest.
"The aim was to ensure workers' rights are strengthened and we have done that," Khandaker Mosharraf Hossain, chairperson of the parliamentary sub-committee on labour reforms told.
"I am hoping this will assuage global fears around this issue as well," Hossain said.
The legislation is seen as a crucial step towards curbing rising cases of exploitation in a country with 4 million garment factory workers. But activists said it failed to address several concerns and blamed the government for enacting the law in a hurry to please foreigners.
Bangladesh was under pressure to adopt a better labour law after the European Union, which gives preferential access to the country's garment industry, threatened punitive measures if it did not improve worker safety standards.
Tax concessions offered by Western countries and low wages have helped turn Bangladesh's garment sector into the country's largest employment generator with annual exports worth $21bn. 60% of exports go to Europe.
In late June, US President Barack Obama cut off US trade benefits for Bangladesh in a mostly symbolic response to conditions in its garment sector, given that clothing is not eligible for US duty cuts.
"They have made progress but the government rushed with it," said Rashed Khan Menon, president of the Workers Party of Bangladesh and a member of Parliament.
"They should have spent more time to deliberate on the issue of compensation for the injured and dead, maternity benefits and rights of domestic workers," he said.
The government is in talks with labour groups and factory owners on a new minimum wage for the garment sector. Its current $38-per-month minimum pay is half what Cambodian garment workers earn.
Bangladesh last increased its minimum garment-worker pay in late 2010, almost doubling the lowest pay. This time, wages are unlikely to go much higher as factory owners, who oppose the raise, say they cannot afford higher salaries as Western retailers are used to buying cheap clothing.
The April 24 collapse of the Rana Plaza complex, built on swampy ground outside Dhaka with several illegal floors, ranked among the world's worst industrial accidents. A fire at another garment factory last year killed 112 people.

NEWS,20.06.2013

Japan's female labour goals hit backlash

Days after Kaoru Shimada and other Japanese mothers rallied in Tokyo this year to press for more public daycare, she was shocked to read a local politician's blog blasting their "shameless" demands and asserting kids should be raised at home.
Prime Minister Shinzo Abe has vowed to take steps, including expanding daycare, to help mobilise women power as part of his "Abenomics" plan to end economic stagnation and engineer growth in a country beset by an ageing, shrinking population.
But that economic imperative is colliding with a conservative worldview, shared by many ruling party politicians as well as top business executives, that sees women's proper place as in the home, not in offices, factories or boardrooms.
"My first impression was that he was mocking us," said Shimada, a 29-year-old system engineer with a toddler son, referring to the comments by blogster Yutaro Tanaka, a local assembly member from Abe's Liberal Democratic Party (LDP).
"He has no idea of the reality," Shimada - who found a daycare spot about a week before she had to resume work in April - told Reuters at a gathering of young parents exchanging information on daycare options and related headaches.
Opposition lawmakers, experts and even some from Abe's own party say such conservative views are common inside the LDP.
"Their view of women is basically as tools to boost the birth rate, reduce social security spending and increase growth. Women have a role because they are key to solving these three problems," said Mari Miura, a political science professor at Sophia University in Tokyo.
"But they have a strong idea of the traditional family as a core ideology of conservatives. That ideology and reasonable solutions do not match, so the policy is always schizophrenic at best."
Hidden message?
Experts and working women laud Abe's goal of mobilising women power even as they note the moves are long overdue in a country where female board members account for only about 1% of the total and women's employment rate of 60% is among the lowest in developed nations.
Abe has pledged to eliminate daycare wait lists - which official data put at 25 000 nationwide and private experts much higher - in five years. The plan is to provide fiscal support for non-government facilities and ease regulations to give private operators more scope.
He has set a target of having women in 30% of leadership posts in all sectors of society by 2020 and also urged Japan Inc to put more women on corporate boards. His initial goal: one woman director per firm.
"At the end of the day, it's the first administration that I can think of that even mentioned women's participation. So that's a step forward," said Kathy Matsui, chief Japan strategist at Goldman Sachs.
She estimates that raising female labour participation rates to the same 80% seen for males could boost Japan's gross domestic product by as much as 14%.
"Obviously, this is going up against a tidal wave of potential opposition, but at the end of the day, what other choice do they have?"
Critics, however, say parts of Abe's agenda send a different message and would have the opposite effect to his stated goal.
Among the moves critics question is Abe's request for firms to increase childcare leave from a maximum of one-and -a-half years to three and an LDP proposal to make private nursery schools, which hold only morning sessions, free for pre-schoolers.
"They are saying: 'Stay home until the child is three, then put the child in nursery school and take care of him or her yourself in the afternoon,'" said opposition Democratic Party lawmaker Renho, a former TV announcer and mother of teenage twins, who goes by one name.
"The message is: 'Don't think about working full-time'."
While some women might welcome the prospect of three years' childcare leave, many say the notion is unrealistic given the need for double incomes and the likely damage to careers from a three-year gap. Currently, those taking childcare leave get a government allowance equal to half their salary.
"Practically speaking, three years would be tough," system engineer Shimada said. "I took off 18 months and there was a gap that made me feel like a rookie employee when I returned."
Silver democracy
Japanese firm Benesse Corp, where one-third of managerial staff are women, found that a three-year childcare leave programme introduced in 1990 had the opposite effect to that intended: fewer female employees returned to their jobs.
"Some did return and what they said was that it was really difficult to catch up," said a company spokesperson, Yuko Onizawa. Five years later, Benesse shortened the leave system to one year and has since found that more women return to work.
Corporate attitudes also need to change for Abe's pitch to work. Although some major firms are taking diversity policies seriously as one key to boosting profits, business lobby Keidanren is blocking a proposal to require listed firms to disclose their gender statistics.
"Keidanren is greatly opposed  I think because it would be obvious how few women they have," Yuriko Koike, a former defence minister who heads the LDP's PR department and advocates bolder steps than those favoured by many in her party, told Reuters.
With public debt already twice Japan's $5trn economy, finding government funds to subsidise programmes to promote daycare and advance women in the workforce could also be tough.
The metropolis of Yokohama near Tokyo last month announced it had eliminated its daycare wait list three years ago the worst in the country through deregulation and bigger spending.
Abe has touted Yokohama as a model case others should follow, but the national government and other municipalities may be reluctant to follow through with similar spending rises.
"It's a kind of 'Silver Democracy' dilemma," said Hiroki Komazaki, founder of non-profit daycare provider Florence who sits on one of Abe's advisory panels.
"They have to cut spending on the elderly and invest in the future. But young people only vote at half the rate of the elderly."
A basic lack of understanding of the issues among many politicians remains, the LDP's Koike says, a big barrier to change.
Recalling a session of an LDP panel on policies concerning women, she said ruefully: "I explained the notion of 'diversity' and one of the men asked me 'Where is that?' He thought we were talking about a place called 'Diver City'."

Brazil backs down on transport hikes

Bowing to mass protests, authorities of Brazil's two biggest cities Sao Paulo and Rio de Janeiro on Wednesday decided to roll back transport fare hikes that had triggered widespread unrest.
Sao Paulo state governor Geraldo Alckmin told reporters that metro, train and bus fares would revert to $1.35 from $1.44 from next Monday, according to the current exchange rate, while Rio mayor Eduardo Paes said bus fares would go back to $1.24 from $1.33.
The decisions marked a major victory for the tens of thousands of citizens who have taken to the streets of both cities to vent their anger at the fare increases.
Several other Brazilian cities, including Porto Alegre and Recife, had already cancelled the fare hikes.
The current wave of unrest began nearly two weeks ago in Sao Paulo and rapidly spread to other cities just as the country on Saturday kicked off the Confederations Cup, a dry run for next year's World Cup.
The nationwide anger also focused on the $15bn the government has earmarked for the Confederations Cup and the World Cup, which many Brazilians feel would have been better spent on health and education.
The fare increases may appear modest but they were seen by many as a major burden in a country where the minimum monthly wage is currently only $306.

Bernanke: Fed likely to ease bond buying

Federal Reserve chairperson Ben Bernanke said on Wednesday the US economy is expanding strongly enough for the central bank to begin slowing the pace of its bond-buying stimulus later this year.

Bernanke's confirmation that the Fed is getting closer to pulling back on its $85bn in monthly asset purchases confirmed investor fears, sending stocks and bonds sharply lower and pushing benchmark Treasury yields to a 15-month high.

Moderate growth should lead to a further healing in the job market as headwinds facing the economy ease, Bernanke said. He also said policymakers expect inflation to move back up toward their long-term 2% goal.

The Fed's willingness to dial back on the amount of stimulus it is pumping into the economy reflects growing confidence in the sustainability and strength of the recovery. Since cutting interest rates to near zero in late 2008, the central bank has more than tripled its balance sheet to about $3.3trn to drive borrowing costs down and spur hiring.

"The committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year, and if the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year," Bernanke said.

He added that the jobless rate should have declined to near 7% from its current rate of 7.6% by the time bond purchases are halted. If its forecasts proved too optimistic, the Fed could stop reducing its bond purchases or even raise them again, Bernanke said.

In a change of policy, Bernanke also said a majority of Fed policymakers believe the central bank should hang onto the mortgage assets it acquired through its unconventional monetary stimulus when it decides to tighten monetary policy.

He made the statements at a news conference on the Fed's decision to continue buying $40bn in mortgage-backed securities and $45bn in longer-term US government securities each month.

After a two-day meeting, the Fed's policy-setting panel offered a more upbeat assessment of the risks facing the economy than it have given after the last meeting in May. "The committee sees the downside risks to the outlook for the economy and the labour market as having diminished since the fall," it said.

A Reuters poll of 17 top Wall Street bond dealers found that 16 expect a reduction in the Fed's asset purchases by year-end, with a plurality pegging the central bank's September meeting as the starting point. These dealers saw the Fed slowing its bond purchases by $10bn to $28bn on that first pass, with a median response of $20bn.

Rate rise not seen until 2015

Bernanke stressed that a slower pace of bond buying would still be adding support to the economy, and that any decision to begin removing stimulus remained a long ways off. Any eventual increases in interest rates would also be gradual, he added.

"They do indeed plan to taper purchases later this year and hope to be done by next summer. Bernanke wants to communicate that this is not necessarily tightening, but the market may not see it that way," said Axel Merk, president and chief investment officer of Merk Investments in Palo Alto, California.

Esther George, the president of the Kansas City Fed, again dissented against the Fed's expansion of its support for the economy, expressing concern it could fuel financial imbalances and hurt the central bank's goal of keeping inflation contained. She has dissented at every policy meeting since January.

But in a surprise, the St. Louis Fed chief, James Bullard, also dissented, though in the opposite direction, arguing the Fed should have signalled more strongly its willingness to keep its stimulus in place to defend its 2% goal for inflation.

In its statement, the Fed repeated that it would not raise rates until unemployment hits 6.5% or lower, provided that the outlook for inflation stays under 2.5%.

Bernanke made clear that threshold was merely for considering a rate hike, not a trigger for necessarily making one. In fresh quarterly projections, 14 of the 19 members of the Fed's policy panel said they did not think it would be appropriate to raise rates until some time in 2015.

In a sharp downgrade, the Fed forecast the PCE price index, its preferred gauge of the price pressures facing consumers, would rise just 0.8% to 1.2% this year. However, it saw inflation heading back to 1.4% to 2.0% in 2014 and 1.6% to 2.0% in 2015.

A low inflation rate could allow the Fed to keep interest rates lower for longer and could even force additional monetary easing if low inflation persists or inflation falls further.

In a slight upgrade to their economic projections, officials forecast unemployment to average 6.5% to 6.8% in the fourth quarter of next year, and 5.8% to 6.2% in the final three months of 2015.

They forecast US economic growth of between 3.0% and 3.5% next year and 2.9% to 3.6% in 2015.

Analysts think US growth slowed a bit in the second quarter of this year in the face of fiscal drag from government spending cuts and higher taxes; recent readings from the economy have been mixed.

The labour market, a central focus of Fed efforts to boost growth, has notched steady improvement with 175 000 new jobs added in May. But US manufacturers have been hurt by softer overseas demand, and inflation has fallen even further beneath the Fed's goal.

The consumer price index was up 1.4% in May from a year ago. But the PCE price index rose just 0.7% in the 12 months through April, the most recent reading.

Outgoing BoE chief calls for bank reform

Britain's economic recovery is not yet secure and more needs to be done to ensure the country's banks no longer pose a threat to taxpayers, Bank of England (BoE) governor Mervyn King said in his final speech on Wednesday.
King steps down at the end of this month after more than 20 years at the bank, to be replaced by former Canadian central bank chief Mark Carney, and the 65-year-old stuck to familiar themes in an annual address to London's financial elite.
"There is a powerful case for more stimulus in the short run," said King, who has spent the last five months at the helm of the BoE's monetary policy committee as part of a dissenting minority calling for a new round of asset purchases.
"A recovery in the UK, albeit modest, is under way ... (but) growth is not yet strong enough to reduce the considerable margin of spare capacity in the economy. Nor is recovery at an adequate rate fully assured."
While Carney has been hired by Finance Minister George Osborne with a brief to find new ways for the BoE to boost Britain's economy, his appetite for asset purchases is less clear, and economists think there may be no more this year.
But King said unnecessarily high unemployment was now a bigger threat to Britons' well-being than inflation  which has exceeded the BoE's 2% target for most of the past five years and that eurozone weakness and a troubled banking system remained the main obstacles to growth.
While global market interest rates had risen in recent weeks due to uncertainty about the US Federal Reserve's future bond purchases, the world economy was too unhealthy to talk of rates returning to normal pre-crisis levels anytime soon, King added.
"Bond yields have risen. But such market moves should not be confused with a return to normality," he said.
Banking on reform
King was speaking just after Osborne told the same audience at Mansion House, the Lord Mayor of London's ornate official residence, about his plans to shake up Britain's two state-controlled banks.
King said he welcomed Osborne's plans to sell the government's 39% stake in Lloyds Banking Group and consider restructuring Royal Bank of Scotland - a step he has previously said should have been taken years ago.
But more needed to be done. On Thursday the central bank's regulatory arm will publish details of how much new capital Britain's banks need to raise, with media reports suggesting that Lloyds, RBS and Barclays will bear the brunt.
"There is clearly some way to go before we can claim to have a really well-capitalised banking system," King said, rejecting some banks' view that higher capital requirements are acting as a brake on their ability to support the economy.
A longer-term problem was the size of some British banks, which are still too large and complex to be able to collapse without causing financial chaos, King said.
"We must restore trust in our banking system," he said. "It is not in our national interest to have banks that are too big to fail, too big to jail, or simply too big. Solving these problems is the work of a generation."
Earlier on Wednesday, British legislators called for laws to imprison "reckless" bankers in a report welcomed by King, who has often criticised the culture in banking.
King's speech focused on future challenges, and not the main criticism laid against him: that he paid insufficient attention to bank stability before the financial crisis.
He also wished his successor well. "The Bank of England is in safe hands, and the country will be the better for it."

NEWS,18. AND 19.05.2013

UK’s Labour moots new company tax plan

Britain's opposition Labour party, tapping into widening public anger over corporate tax avoidance, wants the government to push for new international rules to force companies to report profit and tax payments country-by-country.
Campaigners say the move, which is receiving increased support internationally despite strong opposition from business, will deter companies from shifting profit into tax havens where they have no staff or sales.
Prime Minister David Cameron has said corporate tax avoidance would be discussed at the annual summit of the Group of Eight leading industrial economies, which Britain is hosting in Northern Ireland next month.
He has urged companies to be more transparent but has only proposed voluntary measures.
Companies say country-by-country reporting will impose unreasonable administrative burdens.
But campaigners say firms fear being embarrassed by highlighting how they frequently pay low or no taxes in countries where they have big sales and how they report big profits in tax havens.
The standard could also lead to companies revealing that they earned no money in countries where they told investors they operated profitably.
Tax reform
Coffee chain Starbucks received broad political, media and public criticism in Britain last year after an investigation showed it assured investors the United Kingdom was a profitable market after telling tax authorities its operations lost money.
The European Union agreed earlier this year to force European banks to report profit on a country-by-country basis as part of measures to ensure they hold enough capital.
The US and EU have also agreed measures to force companies in the extractive industries to publish tax and other payments to resource-rich nations, to reduce corruption.
Labour on Sunday issued a new policy document on corporate tax reform which backed forcing companies to publish figures on revenues, profit and taxes in each country that they operate.
Ernst & Young, one of the 'big four' accounting firms which audit most of the big multinational companies, has warned clients that country-by-country reporting may become a global standard unless they come up with an alternative.
Britain's CBI business lobby group has urged businesses to publish "narrative" reports explaining their tax affairs to the public.
A committee of UK lawmakers has accused Google of "unethical behaviour" for avoiding tax by shifting profit from UK sales to an untaxed unit in Bermuda.
Google says it complies with tax rules in every country where it operates.

Cyber experts fear escalation of attacks

Cyber security professionals know a myriad of ways hackers can try to wreak havoc on critical infrastructure or infiltrate corporations to steal or spy, but it is the fear of the unknown that some say keeps them up at night.
US security officials and private sector experts wonder what kinds of time-bombs can be - or have been - embedded by malware into computer networks, just waiting to explode.
Cyber espionage is already "the greatest transfer of wealth in history", National Security Agency Director Keith Alexander, the top US general in charge of cybersecurity, told the Reuters Cybersecurity Summit in Washington this week.
"Disruptive and destructive attacks on our country will get worse," he said. "Mark my words, it will get worse."
Stealing software or money like the $45m lifted from two Middle Eastern banks in a daring global plot revealed this month might pale next to an attack that could, for example, switch off the lights in a major US city.
That was the fear in New Orleans in February when a power outage struck the Super Bowl, the National Football League's championship game, witnessed by tens of millions of viewers. The outage was blamed on an electrical relay device and not a cyber attack.
"The known unknown is what I worry about," US Secretary of Homeland Security Janet Napolitano told the Summit.
"For example, we don't have the identity of all the adversaries who are trying to either commit crimes or acts over the cyber networks. The things we know about, we can deal with. It's the known unknown," she added.
The military is a big target, something that Rear Admiral William Leigher, who is in charge of "information dominance" with the US Navy, takes on board.
"Our networks see thousands of intrusion attempts every day...staying up with the threat, making sure that our defensive systems are up to par is probably one of the things that gets most of my attention," Leigher said.
To be sure, the United States has not suffered the kind of destructive cyber attack that damaged some 30 000 computers at Saudi Arabia's oil company, Saudi Aramco, last year. But experts said they were worried about the increasingly sophisticated cyber capabilities of countries such as China, Russia and Iran.
"This new growing trend of nation states engaged in cyber attacks that are designed to be destructive to parts of the US economy is very, very concerning," said Mike Rogers, chairperson of the US House Intelligence Committee.
"The ferociousness of these attacks is increasing and it's something that we better get a handle on," Rogers added.
Dmitri Alperovitch, co-founder of Crowdstrike, a security technology specialist firm that works with governments and private companies, said he is most concerned about Iran, particularly if there is a spike in tensions in the Middle East.
He is watching the attacks that have taken down the websites of more than a dozen US banks in the past nine months. There are no signs that hackers have managed to destroy or modify crucial financial data, but that is the fear.
"Attacks that focus on modifying data in the stealth way, sabotage, integrity attacks - those are the ones that are most insidious and those are the ones we really should worry about," Alperovitch said.
The migration of ever more elements of the economy to the digital world opens the door to malfeasance.
"We keep hooking more and more stuff up to the internet, so the attack surface keeps growing," said Michael Daniel, cyber security policy coordinator at the White House.
"Pretty soon your coffee maker and your refrigerator is going to be an attack vector because it's going to be hooked up to the internet."

More Than 1,000 Unaccompanied Diplomats Face Threats, PTSD As Obama Calls For Increased Embassy Security

When the Yemen-based branch of al Qaeda placed a bounty on her husband's head, Mary Feierstein learned of it from a friend who called and said, "You must be a mess!"

U.S. Ambassador Gerald Feierstein was thousands of miles (km) away at the U.S. Embassy in Sanaa, without his wife and family on what is called an "unaccompanied" posting.

He is one of more than a thousand U.S. diplomats on such tours of duty in danger spots around the world, part of a trend that is changing the definition of being a diplomat.

Over time, his wife has learned to stay calm when the phone rings unexpectedly at her home outside Washington. For nearly five years, she has not lived in the same country as her husband, a career diplomat who specializes in the Middle East and South Asia.

After militants stormed the U.S. Embassy in Yemen last September, breaking through to the inner building and ripping plaques and lettering from the walls, Feierstein called his wife to tell her he was OK.

He had also called her a few years earlier when he was based in Islamabad, Pakistan, and a bomb went off near his residence. He was unhurt in that attack.

But when Al Qaeda in the Arabian Peninsula considered by U.S. officials to be al Qaeda's most dangerous affiliate offered 3 kg of gold last December for the killing of Feierstein, it was Mary's turn to call her husband. He played down the danger.

"He said it was old news. They are constantly under threat, you know," Mary Feierstein said in her first media interview since the threat.

After a police officer came to her home to give her his card and tell her to call him if she needed any help, "that's when I got scared," Feierstein said.

The new perils for foreign service officers were spotlighted last Sept. 11, when militants overran the temporary U.S. mission in Benghazi, Libya, killing four Americans, including Ambassador to Libya Chris Stevens. Two other U.S. diplomats were killed in Afghanistan in the past year.

President Barack Obama, still grappling with controversy over the Benghazi attack, called on Congress on Friday to fully fund his $4 billion embassy security budget request.

In a memorial ceremony earlier this month at the State Department, Vice President Joe Biden said that diplomats "take risks that sometimes exceed those of the women and men in uniform."

Honored along with Stevens were Sean Patrick Smith, Tyrone Woods and Glen Doherty, who died in Benghazi; and foreign service officers Anne Smedinghoff and Ragaei Said Abdelfattah, killed in Afghanistan in 2013 and 2012.


FIVE-FOLD INCREASE IN UNACCOMPANIED DIPLOMATS

The State Department says there are about 1,100 U.S. foreign service officers now at posts abroad where they are unaccompanied or there are limits on who can accompany them - usually meaning no children.

That is a five-fold increase in unaccompanied American diplomats over the past decade, and represents about 14 percent of U.S. foreign service officers serving overseas.

The change began with "civilian surges" into the war zones of Iraq and Afghanistan to help with stabilization and reconstruction. Over 400 unaccompanied diplomats are in those countries.

Then, the Arab Spring uprisings starting in 2011 added many unstable countries to the list where the State Department did not want to send families.

The fluctuating list now includes Afghanistan, Iraq, Pakistan, Yemen, Libya and Tunisia, as well as the new African state of South Sudan, the State Department said.

The U.S. embassies in Algeria, Sudan and Lebanon are in the "limited accompanied" category as is the U.S. Consulate in Mexico's third-largest city, Monterrey, a focal point for drug-related violence.

The risks to diplomats are not all external. A 2007 State Department survey said 17 percent of employees who had served in dangerous posts indicated some symptoms similar to those of post-traumatic stress disorder. The department, following the military's lead, has set up a program to help diagnose and treat PTSD in its employees.

Mary Feierstein realized she was one of an expanding group of left-behind relatives when she started attending the year-end holiday parties the State Department throws for them, and noticed the crowd getting bigger every year.

She also noticed a lot of small children at those parties, and admitted to thinking, "At least my kids are grown." Her children, two daughters and a son, are all in their 20s. Her son has served two tours of duty with the Marines in Iraq.

Then-Secretary of State Hillary Clinton attended the holiday parties, at which some of the unaccompanied diplomats were Skyped in from abroad. Feierstein said she thought Obama should attend too.

The president did call Gerald Feierstein to thank him for his service after the Yemen embassy was attacked last Sept. 13, two days after the Benghazi assaults.


'NEW NORM'

The United States used to be quicker to evacuate its embassies and consulates when dangers arose, said Susan Johnson, president of the American Foreign Service Association, the official union representing the Foreign Service.

These days, Washington tries to manage risks by building up the physical security of posts and increasing diplomatic security personnel, she said.

"In the process, we seem to have built a new level of tolerance for the amount of risk our diplomats face," Johnson said, adding that unaccompanied tours were increasingly becoming "a new norm."

There is pressure on diplomats to do the dangerous tours in order to advance. It is perceived to be "almost mandatory" to serve at an unaccompanied post and "punch that ticket" during a Foreign Service career, she said.

The State Department said 20 percent of its current employees had served in Iraq, Afghanistan or Pakistan.

The department offers incentives such as danger pay and shorter tours. Unaccompanied posts can be just 12 months, with several breaks, and families can often be left behind at a previous post to minimize disruption.

The State Department has made considerable progress in supporting employees in unaccompanied posts, its inspector general said in a 2010 report. Still, it said, "many returnees experience problems adjusting to their follow-on assignments," and more counseling services may be needed.

Mary Feierstein was born in Pakistan and met her husband on his first tour there in the 1970s. She said he was one of some "really tough people" that the State Department keeps cycling through stressful, dangerous posts.

Gerald Feierstein served in Lebanon unaccompanied in 2003 and 2004, then returned to Washington for a few years and was a senior official in the State Department's counterterrorism office.

He was sent to Pakistan for the third time in his career in 2008, as deputy chief of mission in Islamabad. His family stayed in the United States. In September 2010, Feierstein went to Yemen, again without his family.

"We were planning to go later. ... After the Arab Spring, we haven't been able to go there at all," Mary Feierstein said.

At home, she volunteers for the local Democratic Party and supports causes like gun control. She last saw her husband in March.

While tired of the separation, she said she felt sorrier for her children, even though they are grown. "They miss him so much. They are so happy when he comes home."

New Energy Policies in the Middle East Must Go Hand in Hand With Subsidy Reform

The Middle East has amongst the highest average per capita energy consumption of any region in the world, at twice the global average. Consequently, it also has amongst the highest per capita carbon emissions as well. Furthermore, not only is overall energy use high but the energy mix itself is unusually weighted towards oil compared as compared with other regions, with oil accounting for 50 percent of primary energy demand compared with a global average of 33 percent and an OECD average of 38 percent.
There are three major consequences of the Middle East's high energy intensity and reliance on oil: first, it carries a large implicit economic cost as a result of the value of oil and gas exports foregone and additional gas imports required in some cases; second, such a high degree of energy dependence increases the economy's volatility through its greater exposure to energy supply disruptions or price shifts; and third, it has increased the region's greenhouse gas emissions.
Given the intentions of the region to boost economic growth, reduce economic dependence on volatile energy markets and curtail greenhouse gas emissions growth, the region's high energy intensity is a natural target for reform.
Fortunately, the very fact that the region's energy use is anomalously high and possibly inefficient is a sign that relatively easy gains are possible to bring it under control. There are clear signs that there is significant scope for efficiency improvements. Energy use per unit of GDP is even more dramatically out of step with other regions than per capita statistics, with energy use per unit GDP double the G7 average for example, suggesting that with the right reforms energy demand growth can be slowed or even cut without harming economic growth. Indeed cutting energy demand by increasing energy efficiency would actually boost economic output as for the region's oil producers more crude would be available for export, while for the region's net gas consumers less gas would be need to be imported, improving the balance of trade in both cases.
So the theoretical potential for improvements is clear, but what are the practical steps to achieve it? Governments are currently focused on developing alternative energy options as their primary solution, nuclear and solar power especially. These energy sources will deliver two of the key energy policy aims of the regions' authorities: reducing their economic dependence on oil and cutting greenhouse gas emissions growth. However, to focus solely on these fuels would not fix the Middle East's energy problems.
First of all, the high cost and slow delivery of these new energy sources mean that they cannot deliver all of the energy supply changes needed in a timely manner. That is why policymakers must also put the promotion of natural gas front and center alongside nuclear and solar. Natural gas is the clear choice to complement these alternative energy supplies because the region has reserves in abundance which can be developed quickly, while gas-fired power plants are fast to build, reliable, responsive to demand and emit the least greenhouse gases of any hydrocarbon, at least 50 percent less than coal and 30 percent less than oil in power generation.
Second, and more fundamentally, promoting nuclear and solar, or even natural gas, do not address the problem of energy consumption as previously mentioned. Without addressing this, economic growth will still be affected by demand constantly surpassing supply.
The underlying source of the region's high energy intensity must be addressed and reformed if the region is to deliver a sustainable energy policy with maximum economic benefits: subsidies. Subsidies to oil, gas, water, electricity mean that consumers pay far less than the market rate for these products while producers cannot achieve full value for their output. The United Arab Emirates, for example, has amongst the highest subsidy rates per person in the world, with energy subsidies worth nearly $4,200 per capita per annum in 2011 according to the IEA. While such costs may be internalized by the state and judged to provide worthwhile social benefits, subsidies also always distort market incentives and result in a less efficient energy and economic outcome in the long-term.
Middle East energy use is so high because consumers have little incentive to reduce their energy consumption or make their energy use more efficient since the financial savings from doing so are negligible. Conversely, producers have less incentive to develop new supplies if they cannot sell for above the cost of production. Moreover, as the economy and energy market fundamentals shift, the lack of any market-based price signals means that supply and demand does not respond quickly enough to changing circumstance, slowing the economy down further.
A classic example of the effects of subsidies to constrain the region's economic potential is the role of oil in Saudi Arabia's power sector. In the summer months over a million barrels per day of oil is burnt in power plants to meet peak power demand because there is insufficient non-associated gas production to meet demand. Subsidies exacerbate the problem at every turn: subsidized power prices boost demand; subsidized oil prices make it feasible to burn for power even though it comes at a huge opportunity cost compared to the revenues it would have achieved if exported; at current prices Saudi Arabia there is an opportunity cost of USD 85-95 on every barrel burnt in its power generation sector, and so with oil demand in the power sector in excess of 230 million barrels a year that is $20 billion of lost export revenues. Finally subsidized gas prices create the supply shortfall in the first place because they make it uneconomic to explore for and develop the non-associated gas resources that Saudi Arabia is believed to have in abundance in recent years LUKoil, Eni, Repsol, Shell and Sinopec have all committed to look for natural gas in the country and subsequently exited without success while leading to unconstrained industry demand growth. Moving towards a market based system would address all of these imbalances and make the Saudi or any other Middle East economy healthier and more robust.
The eventual removal of subsidies will create both winners and losers, so a transfer from the current system to a new one must be carefully designed to smooth any disruption and compensate the vulnerable but if a plan is prepared and carried out over a number of years this should not be an insurmountable problem. Ultimately, supply side reforms, to boost alternative energy sources can only ever be half a solution. Demand side reform, via a path to ending energy subsidies in the region, is equally essential to deliver the best economic future for the Middle East and its wider effect on the global economy.