A broker looks on in front of the main screen at the Stock Exchange in Madrid Monday Aug. 8, 2011. The borrowing costs of both Spain and Italy dropped sharply in early trading Monday after the European Central Bank signaled it would intervene in the markets to keep the two countries' bond prices supported. (AP Photo/Paul White) *** Local Caption *** Spain Financial Crisis.JPEG-0abd8.jpg
A broker looks on in front of the main screen at the Stock Exchange in Madrid Monday Aug. 8, 2011. The borrowing costs of both Spain and Italy dropped sharply in early trading Monday after the EuropeaShow more

Now is time to think the unthinkable on the euro zone



It is deja-vu all over again. Bond vigilantes attack a euro-zone economy, an emergency meeting of policymakers is hastily convened, a grand statement about billions of euros of assistance is made, and the markets calm down. A few weeks later, the same eerie drama repeats itself.

And now we are there again, except, once again, the front lines of speculation have been pushed out a little further. The markets are yet again having to think the unthinkable - the breakdown of the euro zone.

The main problem in Europe has to do with the combination of stagnant growth, mounting costs of debt and inept politicians. The real worry is that, even though the union has not yet conclusively solved the problems of its three weakest peripheral economies - Greece, Portugal and Ireland - the prospects for two heavyweight countries have become rapidly worse.

I am speaking, of course, of Spain, which has a larger GDP than the three "problem children" put together, and Italy, which is the third-largest euro-zone economy.

Spain and Italy find themselves in a difficult situation. They experienced sharp slowdowns in their growth and the momentum of last year's "recovery" seems to be rapidly waning. If growth was supposed to help the two economies to bring their fiscal houses in order, its absence is having the opposite effect.

As a result, yields on Spanish and Italian government bonds have edged towards, indeed at times above, the 6 per cent pain threshold that likely marks the limit for fiscal sustainability.

Jose Manuel Barroso, the president of the European Commission stoked further nervousness with his call for expanding the €440 billion (Dh2.3 trillion) European Financial Stability Facility (EFSF) only weeks after the most recent summit decision to do just that. The overhaul of the EFSF requires approval by the parliaments of the member states, a process that would not ordinarily be completed before late next month.

But this cloud has its silver lining. The first bit of good news was the response by Italian politicians to accelerate political reforms. Spain, now in the midst of electioneering ahead of the November general election, has already taken a number of measures. Silvio Berlusconi, the Italian prime minister, has announced plans for an accelerated reform programme that would ensure a balanced budget by 2013, a year earlier than previously planned.

However, Italy's true saviour this time was not Mr Berlusconi but Jean-Claude Trichet, the president of the European Central Bank (ECB). The bank has restarted its securities market programme (SMP). By initially buying Portuguese and Irish bonds, the bank seemingly sought to reward countries that had undertaken serious fiscal reforms. This appears to have triggered the Italian response.

The ECB currently holds €74bn of euro-zone government bonds acquired under the SMP. The bond purchases are sterilised on a weekly basis as the bank withdraws a matching amount of liquidity from the system.

The move was controversial with the Germans and the Dutch claiming that it goes beyond the responsibilities of the ECB. But Mr Trichet has presented SMP interventions as ensuring the effective transmission of its regular monetary policy, claiming that an excessive divergence between the bank's policy rate and bond yields in certain member states is an anomaly the bank has the right to address even though its statutes rule out actual fiscal support (monetary financing).

Nonetheless, even Mr Trichet has indicated his preference for the EFSF to take over. The ECB, having raised rates twice this year to 1.5 per cent, has also signalled growing concern about the economic situation, something that has significantly reduced the probability of further action in the near term.

The EFSF, once its rules are approved, will be able to buy bonds of member states. The facility can in turn issue its own bonds backed up by national guarantees in proportion to the weight of individual countries in the paid-up capital of the ECB.

In other words, the EFSF offers a mechanism for "federalising" the debt of problem countries and potentially nudges the euro zone significantly in the direction of a fiscal union.

While the proposed scale of the facility would not be sufficient to allow it cope with a full-blown crisis involving Spain and Italy, the ECB actions and the potential for further modifying EFSF now mean that the contours of a potentially workable solution are coming into place, provided the political will to support it can be found. The political will is still in some doubt as many countries are both sceptical of bailouts and of attempts to undermine the ECB's orthodoxy.

But two points are worth making. First, although European politicians have not impressed with their decisiveness or unanimity, they have typically risen to the occasion when a crisis has reached a tipping point.

Second, while the ECB's orthodoxy may take a dent, its track record to date means that, compared to the US Federal Reserve, it has enormous unused firepower. A combination of euro-zone quantitative easing and a more flexible EFSF, if combined with credible steps towards fiscal sustainability, may yet restore the zone's credibility.

But there are many ifs in the equation and it is possible that "controlled defaults" may have to be part of the solution.

Dr Jarmo Kotilaine is the chief economist at The National Commercial Bank, Saudi Arabia

The biog

Name: Marie Byrne

Nationality: Irish

Favourite film: The Shawshank Redemption

Book: Seagull by Jonathan Livingston

Life lesson: A person is not old until regret takes the place of their dreams

Countdown to Zero exhibition will show how disease can be beaten

Countdown to Zero: Defeating Disease, an international multimedia exhibition created by the American Museum of National History in collaboration with The Carter Center, will open in Abu Dhabi a  month before Reaching the Last Mile.

Opening on October 15 and running until November 15, the free exhibition opens at The Galleria mall on Al Maryah Island, and has already been seen at the Jimmy Carter Presidential Library and Museum in Atlanta, the American Museum of Natural History in New York, and the London School of Hygiene and Tropical Medicine.

 

Our family matters legal consultant

Name: Hassan Mohsen Elhais

Position: legal consultant with Al Rowaad Advocates and Legal Consultants.

A Round of Applause

Director: Berkun Oya
Starring: Aslihan Gürbüz, Fatih Artman, Cihat Suvarioglu
Rating: 4/5

The Department of Culture and Tourism - Abu Dhabi’s Arabic Language Centre will mark International Women’s Day at the Bologna Children's Book Fair with the Abu Dhabi Translation Conference. Prolific Emirati author Noora Al Shammari, who has written eight books that feature in the Ministry of Education's curriculum, will appear in a session on Wednesday to discuss the challenges women face in getting their works translated.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Why it pays to compare

A comparison of sending Dh20,000 from the UAE using two different routes at the same time - the first direct from a UAE bank to a bank in Germany, and the second from the same UAE bank via an online platform to Germany - found key differences in cost and speed. The transfers were both initiated on January 30.

Route 1: bank transfer

The UAE bank charged Dh152.25 for the Dh20,000 transfer. On top of that, their exchange rate margin added a difference of around Dh415, compared with the mid-market rate.

Total cost: Dh567.25 - around 2.9 per cent of the total amount

Total received: €4,670.30 

Route 2: online platform

The UAE bank’s charge for sending Dh20,000 to a UK dirham-denominated account was Dh2.10. The exchange rate margin cost was Dh60, plus a Dh12 fee.

Total cost: Dh74.10, around 0.4 per cent of the transaction

Total received: €4,756

The UAE bank transfer was far quicker – around two to three working days, while the online platform took around four to five days, but was considerably cheaper. In the online platform transfer, the funds were also exposed to currency risk during the period it took for them to arrive.

In Full Flight: A Story of Africa and Atonement
John Heminway, Knopff

KEY DATES IN AMAZON'S HISTORY

July 5, 1994: Jeff Bezos founds Cadabra Inc, which would later be renamed to Amazon.com, because his lawyer misheard the name as 'cadaver'. In its earliest days, the bookstore operated out of a rented garage in Bellevue, Washington

July 16, 1995: Amazon formally opens as an online bookseller. Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought becomes the first item sold on Amazon

1997: Amazon goes public at $18 a share, which has grown about 1,000 per cent at present. Its highest closing price was $197.85 on June 27, 2024

1998: Amazon acquires IMDb, its first major acquisition. It also starts selling CDs and DVDs

2000: Amazon Marketplace opens, allowing people to sell items on the website

2002: Amazon forms what would become Amazon Web Services, opening the Amazon.com platform to all developers. The cloud unit would follow in 2006

2003: Amazon turns in an annual profit of $75 million, the first time it ended a year in the black

2005: Amazon Prime is introduced, its first-ever subscription service that offered US customers free two-day shipping for $79 a year

2006: Amazon Unbox is unveiled, the company's video service that would later morph into Amazon Instant Video and, ultimately, Amazon Video

2007: Amazon's first hardware product, the Kindle e-reader, is introduced; the Fire TV and Fire Phone would come in 2014. Grocery service Amazon Fresh is also started

2009: Amazon introduces Amazon Basics, its in-house label for a variety of products

2010: The foundations for Amazon Studios were laid. Its first original streaming content debuted in 2013

2011: The Amazon Appstore for Google's Android is launched. It is still unavailable on Apple's iOS

2014: The Amazon Echo is launched, a speaker that acts as a personal digital assistant powered by Alexa

2017: Amazon acquires Whole Foods for $13.7 billion, its biggest acquisition

2018: Amazon's market cap briefly crosses the $1 trillion mark, making it, at the time, only the third company to achieve that milestone

The Specs

Engine: 1.6-litre 4-cylinder petrol
Power: 118hp
Torque: 149Nm
Transmission: Six-speed automatic
Price: From Dh61,500
On sale: Now

The Greatest Royal Rumble card as it stands

50-man Royal Rumble - names entered so far include Braun Strowman, Daniel Bryan, Kurt Angle, Big Show, Kane, Chris Jericho, The New Day and Elias

Universal Championship Brock Lesnar (champion) v Roman Reigns in a steel cage match

WWE World Heavyweight Championship AJ Styles (champion) v Shinsuke Nakamura

Intercontinental Championship Seth Rollins (champion) v The Miz v Finn Balor v Samoa Joe

United States Championship Jeff Hardy (champion) v Jinder Mahal

SmackDown Tag Team Championship The Bludgeon Brothers (champions) v The Usos

Raw Tag Team Championship (currently vacant) Cesaro and Sheamus v Matt Hardy and Bray Wyatt

Casket match The Undertaker v Chris Jericho

Singles match John Cena v Triple H

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How will Gen Alpha invest?

Mark Chahwan, co-founder and chief executive of robo-advisory firm Sarwa, forecasts that Generation Alpha (born between 2010 and 2024) will start investing in their teenage years and therefore benefit from compound interest.

“Technology and education should be the main drivers to make this happen, whether it’s investing in a few clicks or their schools/parents stepping up their personal finance education skills,” he adds.

Mr Chahwan says younger generations have a higher capacity to take on risk, but for some their appetite can be more cautious because they are investing for the first time. “Schools still do not teach personal finance and stock market investing, so a lot of the learning journey can feel daunting and intimidating,” he says.

He advises millennials to not always start with an aggressive portfolio even if they can afford to take risks. “We always advise to work your way up to your risk capacity, that way you experience volatility and get used to it. Given the higher risk capacity for the younger generations, stocks are a favourite,” says Mr Chahwan.

Highlighting the role technology has played in encouraging millennials and Gen Z to invest, he says: “They were often excluded, but with lower account minimums ... a customer with $1,000 [Dh3,672] in their account has their money working for them just as hard as the portfolio of a high get-worth individual.”

Previous men's records
  • 2:01:39: Eliud Kipchoge (KEN) on 16/9/19 in Berlin
  • 2:02:57: Dennis Kimetto (KEN) on 28/09/2014 in Berlin
  • 2:03:23: Wilson Kipsang (KEN) on 29/09/2013 in Berlin
  • 2:03:38: Patrick Makau (KEN) on 25/09/2011 in Berlin
  • 2:03:59: Haile Gebreselassie (ETH) on 28/09/2008 in Berlin
  • 2:04:26: Haile Gebreselassie (ETH) on 30/09/2007 in Berlin
  • 2:04:55: Paul Tergat (KEN) on 28/09/2003 in Berlin
  • 2:05:38: Khalid Khannouchi (USA) 14/04/2002 in London
  • 2:05:42: Khalid Khannouchi (USA) 24/10/1999 in Chicago
  • 2:06:05: Ronaldo da Costa (BRA) 20/09/1998 in Berlin
Kill

Director: Nikhil Nagesh Bhat

Starring: Lakshya, Tanya Maniktala, Ashish Vidyarthi, Harsh Chhaya, Raghav Juyal

Rating: 4.5/5

Andor

Creator: Tony Gilroy
Stars: Diego Luna, Genevieve O'Reilly, Alex Ferns
Rating: 5/5

Match info

Wolves 0

Arsenal 2 (Saka 43', Lacazette 85')

Man of the match: Shkodran Mustafi (Arsenal)

As it stands in Pool A

1. Japan - Played 3, Won 3, Points 14

2. Ireland - Played 3, Won 2, Lost 1, Points 11

3. Scotland - Played 2, Won 1, Lost 1, Points 5

Remaining fixtures

Scotland v Russia – Wednesday, 11.15am

Ireland v Samoa – Saturday, 2.45pm

Japan v Scotland – Sunday, 2.45pm


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