7/28/2019 Financial Times Europe - Aug 6 2012

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EUROPE Monday August 6 2012

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Wks

Aug 3 Jul 27 chg%

S&P500 1390.99 1385.97 0.36

Nasdaq Comp 2967.9 2958.09 0.33

Dow Jones Ind 13096.17 13075.66 0.16

FTSEurorst 300 1081.37 1056.51 2.35

Euro Stoxx 50 2372.58 2301.23 3.10

FTSE 100 5787.28 5627.21 2.84

FTSE All-Share UK 3000.51 2924.7 2.59

CAC 40 3374.19 3280.19 2.87

Xetra Dax 6865.66 6689.4 2.63

Nikkei 8555.11 8566.64 -0.13

Hang Seng 19666.18 19274.96 2.03

FTSE All World $ 209.07 207.32 0.84

COMMODITIES

Wks

Aug 3 Jul 27 chg

Oil WTI $ Sep 91.40 90.13 1.27

Oil Brent $ Sep 108.94 106.47 2.47

Gold $ 1,590.30 1,616.00 -25.70

Wks

price yield chg

US Gov 10 yr 101.61 1.57 0.02

UKGov 10 yr 121.55 1.57 0.03

Ger Gov 10 yr 102.99 1.42 -0.01

Jpn Gov 10 yr 100.55 0.74 -0.01

US Gov 30 yr 107.02 2.66 0.01

Ger Gov 2 yr 100.05 -0.03 0.08

Wks

Aug 3 Jul 27 chg

Fed Funds Ef 0.14 0.14 -US 3m Bills 0.08 0.11 -0.03

Euro Libor 3m 0.25 0.29 -0.04

UK3m 0.68 0.74 -0.06

Aug 3 Jul 27

$ per 1.234 1.237

$ per 1.560 1.571

per 0.791 0.787

per $ 78.60 78.63

per 122.6 123.6

$ index 81.50 81.50

SFr per 1.201 1.201

Aug 3 Jul 27

per $ 0.810 0.808

per $ 0.641 0.636

per 1.264 1.270

per 96.99 97.27

index 83.60 84.20

index 86.65 86.81

SFr per 1.519 1.526

STOCK MARKETS CURRENCIES INTERESTRATES

World Markets

Austria 3.50 Malta 3.30B ah ra in D in 1. 5 M au ri ti us M Ru 90Belgium 3.50 Morocco Dh40B ul ga ri a L ev 7. 50 N et he rl an ds 3. 50C roa ti a K n29 Ni ger ia Nai ra 71 5Cyprus 3.30 Norway NKr30C ze ch Re p K c1 20 Oma n OR1 .50D en ma rk D Kr 30 P ak is ta n R up ee 1 30Egypt E19 Poland Zl 16E st on ia 4. 00 P ort uga l 3. 50Finland 3.80 Qatar QR15France 3.50 Romania Ron17Germany 3.50 Russia 5.00G ib ra lt ar 2. 30 Sa ud i A ra bi a R ls 15Gre ece 3 .50 S er bi a NewD42 0H un ga ry F t8 80 S lo va k R ep 3. 50India Rup85 Slovenia 3.50Italy 3.50 South Africa R28Jordan JD3.25 Spain 3.50K az ak hs ta n U S$ 5. 20 S we de n S Kr 34

K en ya K sh s3 00 S wi tz er la nd S Fr 5. 70Kuwait K WD 1. 50 S yr ia U S$ 4. 74L at vi a L at s3 .9 0 T un is ia D in 6. 50L eb an on L BP 70 00 T ur ke y T L7 .2 5L ith ua ni a L it as 15 UA E Dh1 5. 00L ux em bo ur g 3. 50 U kr ai ne 5. 00Macedonia Den220

Cover Price

THE FINANCIAL TIMESLIMITED 2012 No: 37,998

Printed in London, Liverpool, Dublin,Frankfurt, Brussels, Stockholm, Milan,Madrid, New York, Chicago, San Francisco,Dallas, Orlando, Washington DC,Johannesburg, Tokyo, Hong Kong,Singapore, Seoul, Abu Dhabi, Sydney

Ex-Barclays tradersRabobank link probedA trader at the centre ofrate-manipulation allegationslevelled at UK lenderBarclays communicated withcounterparts at Rabobank,the Dutch bank, abouttrading positions related toEuribor. Page 11

New exchange eyedA new pan-European stockexchange for entrepreneursis being planned by NYSEEuronext to plug the gap infunding for small companies.Page 11; Aiming small, Page 14

Repo market fallsThe market for Europeanrepurchase repo transactions shrunk inEurope, highlighting howreliant financial institutionsin the region have becomeon European Central Banksupport. Page 11

Olympic winsSaturday night was a greatnight for British sport. Threegold medals in 45 minutes.Then yesterday AndyMurray beat Roger Federerto earn gold on the tenniscourt. Matthew Engel, Page 2;Editorial Comment, Page 6;

www.ft.com/olympicsdaily

Italy reassuresItalian policy makers havesought to assure financialmarkets that Italy is in goodshape and has no intentionof making an early request

for intervention by eurozonebailout funds, at least notunless Spain goes first.Page 4; David Gardner, Page 7;

www.ft.com/eurozone

US ballot worriesMillions of US voters couldbe turned away at the ballotbox in Novemberspresidential election becauseof new, t ough identificationrequirements. Page 4

Seven die in shootingA shooting at a Sikh templeoutside Milwaukee left atleast seven people deadyesterday, police said, addingthe gunman was killed bypolice. www.ft.com/us

Colombia peso woesThe countrys energy sectorgains precedence whilemanufacturers and flowergrowers see a less rosyfuture. Page 4

Krafts sporting wayIrene Rosenfeld, the chief ofUS food group Kraft, learntabout perseverance inbusiness on the sports field.The Monday Interview, Page 8;

Kraft calls for revamp, Page 12

Mount Fuji monitoringFears of an eruption onMount Fuji have increased,but Japan can take comfortfrom GPS devices checkingfor signals of magmamovement. Page 3; Japanstraders benefit, Page 12

Yemen bomb kills 45A suicide bomber struck inthe Yemen city of Jaar,killing at least 45 people, thedefence ministry said.www.ft.com/mideast

News Briefing

Separate sectionFTfmFund management update

Powerless to act Indiadimmed by blackoutsAnalysis, Page 5

The workers blessingLucy Kellaway learns to love the Olympics. Page 8

By Jack Farchy in London andGregory Meyer in New York

A four-year investigation intothe possible manipulation of thesilver market is likely to bedropped after US regulatorsfailed to find enough evidence tosupport a legal case, accordingto three people familiar with thesituation.

The Commodity Futures Trad-ing Commission announced inSeptember 2008 tha t it wasinvestigating complaints ofmisconduct in the silver mar-ket, following a barrage of alle-gations of manipulation fromsome precious metals investors.

In 2010, Bart Chilton, a CFTCc ommissio ner, said tha t h ebelieved there had been fraud-ulent efforts to deviously con-

trol the silver price.But after taking advice from

two external consultancies, thefirst of which found irregulari-ties on certain trading datesthat it believed deserved moreanalysis, CFTC staff do not havesufficient evidence to bring acase, according to the peoplefamiliar with the situation.

The agencys five commission-ers have not yet formally deter-mined the outcome of the inves-tigation, leaving open the possi-b il it y t ha t s ta ff c ou ld b einstructed to dig deeper.

The CFTC said: The investi-gation has not reached its con-clusion. It declined to commentfurther.

Ending the probe would infu-riate some US silver investors,who claim that a group of largeinvestment banks in particu-lar, JPMorgan has conspiredto drive the price of silver lower.

Im sure it will be met withsome concern from a certaingroup of aggressive silver specu-lators, said one person familiarwith the investigation.

In a rec en t blo g post, TedButler, a newsletter publisherand unofficial champion for thesilver investors, accused theCFTC of being negligent in fail-ing to terminate the obviousmanipulation ongoing in silver.

The CFTC has analysed morethan 100,000 documents andinterviewed dozens of witnessessince it began its investigations,it said last year.

The people familiar with thesituation said the evidencei nc lu de d r ec or ds f ro mJPMorgan.

Although no company or indi-vidual was named in the CFTC

investigation, JPMorgan wassubjected to a torrent of allega-tions in the blogosphere.

One campaign exhorted sym-pathetic readers to crashJPMorgan by buying silver based on the assumption, whichthe Wall Street bank has repeat-edly denied, that it has a largebet on lower silver prices.

In an interview in April withCNBC, Blythe Masters, head ofcommodities at JPMorgan, con-ceded that there had been atremendous amount of specula-tion, particularly in the blogo-sphere, about this topic, butmaintained that the bank hadno large bets on silver prices.

We have no stake in whetherprices rise or decline, she said.JPMorgan declined to commenton the CFTC investigation.

Previous CFTC silver inquir-ies in 2004 and 2008 found noevidence of wrongdoing.

US set todrop 4-yearprobe intosilver priceInsufficient evidence found for legal case

Syria crisis Heavy fighting as civil war escalates

A Free Syrian Army fighter runs for cover after a Syrian army tank shell explodes in central Aleppo yesterday. Heavy fighting shookthe city as the escalating civil war showed fresh signs of entangling regional powers Report, Page 3 Reuters

By Kerin Hope in Athens

A political row has erupted inAthens after the former head ofa big Greek state bank admit-ted to transferring 8m of per-sonal savings abroad to buy aLondon property months beforehis Agricultural Bank headedtowards insolvency.

Theodoros Pantalakis, formerchief executive of GreecesAgricultural Bank (ATEbank),strongly denied any wrong-doin g, telling Realn ews, aGreek website, that he haddeclared the transaction toauthorities in 2011 and had paidtax on the amount transferred.

Im on holiday and I dontplan to say anything more untilI c om e b ac k t o A th en s,

Mr Pantalakis told the Finan-cial Times from his villa on theAegean island of Paros. He isexpected to testify on his threeyears at the helm of ATEbankbefore a parliamentary commit-tee at the end of the month,said a person with knowledgeof the dispute.

Dozens of wealthy Greekshave bought high-end proper-ties in London in the past threeyears seeking shelter from thecountrys crisis, which has leftmillions of ordinary Greekssqueezed by tough austeritymeasures. George Provopoulos,governor of the Bank of Greece,said the central bank had givendetails of such transactions tothe tax authorities.

No bo dy h as s ug ge st ed

Mr Pantalakis sent the fundsabroad illegally . . . But there isclearly an ethical issue since hewas serving as the head of a bigstate bank at time of financialand economic crisis, said aGreek banker who declined tobe identified.

Mr Pantalakis quit ATEbanklast month when its healthyassets were acquired for 95mby Piraeus Bank, the countrysfourth-largest lender, in a moveto consolidate Greeces strug-gling bank sector.

He strongly opposed the gov-ernments decision to privatisethe bank, arguing that it couldbe turned round with a 4.6bncapital injection.

A government official saidGreece came under pressure

from the European Commissionand European Central Bank tosplit ATEbank into a goodand a bad bank and sell itshealthy assets. The alternativethey ga ve u s wa s to sh ut itdown with the loss o f 5,500

jobs, the official said.The decision was criticised by

Syriza, the radical left mainopposition party as a greatrobbery. Alexis Tsipras, partyleader, said he would reversethe privatisation if he came topower, adding it had only bene-fited bankrupt private bank-ers. ATEban k employeesstaged rolling strikes last weekin protest against the takeover.

Rome moves to reassure, Page 4David Gardner, Page 7

Greek bank head sent savings abroad

Chinas regime chiefs meet at thebeach to finalise succession plans

By Kathrin Hille in Beidaihe

The Chinese Communist partystop officials have convened asecretive conclave in the seasidetown of Beidaihe to finaliseplans to hand power to a newgeneration of leaders after themost serious crisis to hit theparty in years.

President Hu Jintao and othertop leaders arrived in the resorton Friday, according to threepeople familiar with the meet-ing. At the 18th party congresslater this year, the party willunveil the slate of leaders who

will run China for the n extdecade.

One person familiar with theleadership succession said theparty would probably cut thesize of the politburo standingcommittee the top decision-making body from nine toseven seats.

The line-up will see mostly

members who h ave a mpleexperience, and for fresh facesyou will have to wait until the19th party c on gress, sa idanother person.

Mr Hu has revived the Beid-aihe tradition which he sus-pended in 2003 after coming topower as the party seeks tocontain the political turmoilcaused by the downfall of BoXilai. The charismatic formerChongqing party secretary waspurged in April following themost severe power struggle tohit the party since the CulturalRevolution.

On Thursday, Mr Bos wife GuKailai fac es tria l o ver th ealleged murder of a British busi-nessman, in a case that was cen-tral to her husbands politicaldemise. In a rare move, Chinahas agreed to allow UK officialsto attend the trial in spite of itspolitically sensitive nature.

The Beidaihe meeting has a

long tradition. In the past, theparty would move large parts ofthe bureaucracy to the resortt ow n d ur in g t he s um me rmonths.

Since the 17th party congressin 2007, Xi Jinping, the currentv ic e- pr es id en t, h as b ee nexpected to succeed Mr Hu,w hi le L i K eq ia ng , a v ic e-premier, would replace Wen Jia-bao as premier.

The four leading candidatesfor the o th er five sea ts a rethought to be Li Yuanchao,head of the powerful organisa-tion department which oversees

personnel moves; Wang Qishan,a vice-premier recognised for hisec on omic expertise; Zha ngDejiang, a vice-premier whoreplaced Mr Bo as party secre-ta ry o f Cho ngqing; a nd YuZhengsheng, the Shanghai partysecretary.

Unlikely to rock boat, Page 3

Wall St warning

Wall Street banks are tellingcounterparties and borrowersto restructure contracts asthey prepare for the potentialexit of a country from theeurozone. Using hedges, suchas credit default swaps, US

banks have cut their netexposure to troubled eurozonecountries. But they want toensure that if one leaves theywill not be forced to be paid indevalued national currency.

Report, Page 11Haunted by spectre, Page 13

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The crowd went wild,wilder perhaps than hasever been seen at anathletics meeting; hardenedhacks forgot theirdeadlines, stood up androared; the noise echoedand re-echoed through thepacked Olympic stadium.

It felt not just aural butphysical. Mo Farah, the10,000m runner, said hecould feel the crowdpushing him up the finalstraight. And if there wereany tiny grains of matureperspective left in the BBCstore cupboard, none ofthem were used.

Saturday night was agreat night for Britishsport. Three gold medalsin 45 minutes is anoutstanding achievementfor a country that 16 yearsago won just one in twoweeks. And (though thecrude medals table doesnot reflect this), there aregolds and golds.

Farah, Jessica Ennis andGreg Rutherford wonevents that are thefundamental benchmarksof athletic prowess: Farah,the distance runner, is theheir of Paavo Nurmi andEmil Zatopek; Rutherfordthe long jumper leapt on tothe page of historyoccupied by Bob Beamonand Carl Lewis; Ennisproved herself superior toher rivals over sevenseparate disciplines. This isnot laser radial sailing ortrampolining.

Then, less than 24 hourslater, Andy Murray beatRoger Federer to winWimbledon. Or at least towin at Wimbledon. Eitherway it is the fulfilment of

an ambition that has beenperpetually thwarted. It isa weekend when the lawsthat govern British sportand even British nature

are being suspended.London is full of happy,smiling people, said onecartoon. I feel like astranger in my own city.

It might be comforting tobelieve that this markssome grand new era ofathletic triumph in whichgold will be piled on gold,the deserted tracks ofBritain will be filled withyoungsters dreaming of2016 and 2020, and thedisunited kingdom willcome together at last

under a name thateveryone will revere:Team GB-land. Theevidence for this, however,is not compelling.

The normal referencepoint for British sportingsuccess is Englands WorldCup football win of 1966.The calm BBCcommentator was KennethWolstenholme DFC andbar, who had been abomber pilot in the warand did not needreminding aboutperspective. And thenewspapers also had whatnow seem odd priorities:the Daily Mirror, thenBritains biggest seller, was

so calm about the footballthat its splash story on theMonday concerned thebirth of one Marina Ogilvy,second cousin to the Queen

and now 45th in line tothe throne.

Yet the 1966 final was atale that grew with thetelling, as England triedever more desperately torepeat the success, andkept failing. It caused ashortlived surge indomestic footballattendance but nothingthat could be described aslegacy.

An ever-decreasingnumber of Britons nowremember the war. These

are (happily) more trivialtimes but more febrile.The nation now has theattention span of a mayfly.It can get equally gripped

by the death of a princess,the wedding of a prince, anepisode of a reality TVshow or a night of Olympicsuccess. Then it restlesslymoves on.

The modern sportingcomparisons are EnglandsRugby World Cup win of2003 and the long-awaitedvictory over Australia atcricket in 2005. Both werehailed as turning points atthe time. Yet in rugby,subsequent progress hasbeen patchy. The England

cricket team, self-exiledfrom mainstreamtelevision, has become amere content provider forsatellite TV, playing on

ignored while everyonesfocus is elsewhere.

So even if any naturallaws have beendecommissioned, it istemporary. It is a magicaltime for the British, aslightly mad time, but notthe end of time.

One statistic might alsobe sobering: ignoring theworlds Big Two, the USand China, the three lastcountries to host theOlympics Spain,Australia and Greece

won 35 gold medalsbetween them at theirown games. In London, asof yesterday, they sharedthe grand total of one.

mad time in Team GB-Land

Golden moment: Andy Murray celebrates after beating Switzerlands Roger Federer in the mens singles tennis final at Wimbledon Reuters

His means of transport may not bethe most glamorous but Peter Dearyplays a vital role in Olympic trackcycling.

The Manchester native rides thederny a motorised bicycle used forpacesetting the womens and menskeirin events.

Clad head-to-toe in black, he rides awhite steel-framed moped, for want ofa better word, and for five-and-a-halflaps he sets the pace for some of thebest track cyclists in the world,including Britains Victoria Pendleton,who won gold in the womens keirinlast Friday.

The challenge is being consistent,says Deary. He starts the race aheadof up to seven cyclists and for thewomens event (the first time it hasfeatured at the Olympics), he graduallyincreases the pace from 25km perhour to 45km per hour.

Youve got to do it very steadilyand very consistently, he says. Afterlap five-and-half he ducks out of therace and the riders fight it out for two-and-a-half more laps to the finish line.

Deary says the event whichemerged in Japan as a popular bettingsport requires different tactics fromthe other track events, as riders jostlefor space behind him before the finalsprint.

He earned his derny licence 16 years

ago while coaching at the Manchestervelodrome where many of thecurrent crop of medal-winning Britishcyclists were nurtured and hasserved as the dernyman at a handfulof track cycling world cups and now atthe Olympics.

Tomorrow, he will hop backon his moped for the menskeirin event, where he will start

the pace at 30km per hour,increasing to 50km per hour.

Deary says part of the jobis blocking out the crowd andthe fact that British cyclists

behind him are vying forOlympic glory.

If you start thinking this isa special event thats when

youre likely to make a mess ofit . . . If you start trying to over-

adjust [your speed], you couldmake a mess of it.

Angelo Taylor of the US won golds inboth the 400m hurdles and the4x400m relay at Sydney 2000, butinjuries prevented him adding to histally at Athens 2004, writes CharlesMorris. In 2006 a court case ended inhim admitting two counts ofcontributing to the delinquency of aminor, and he served three yearsprobation. The scandal forced him outof the sport and he worked as anelectrician only to return and repeathis double gold in Beijing. Taylor, 33,will today bid to become the first manto win three 400m hurdling golds.

Athlete to watch

Hurdler Angelo Taylor

Angelo Taylorcould becomethe first man to

win three 400mhurdling golds

Medal monitorPerformance versus expectation

Day in the lifeBlack-clad leader of the pack

Number of medals greater/less than projected

China

Japan

Great Britain

US

South Korea

Russia

TurkeyCuba

Ukraine

Spain

Sources: IOC; Goldman Sachs; PwC; Daniel Johnson; Emily Williams As at 16.56 BST

58

25

34

56

19

31

0

5

6

3

0-10 -5 +5 +15+10 +20

Medals

Top five

Bottom five

This daily snapshot ranks countries in terms of how many medals theyhave won compared with economists predictions. The forecasts arebased on four economic models that account for population size, GDPper capita, past performance and host-nation advantage. Full table and

details of how the benchmark was developed: www.ft.com/medals

Todays highlights

Athletics Russias YelenaIsinbayeva seeks to win herthird consecutive gold medalin the womens pole vault,and the mens 400m finalhas become more open sinceinjury ended the hopes ofdefending champion LaShawnMerritt of the US in the

heats.

Cycling The mensindividual sprint medals aredecided in the velodrome,with GBs Jason Kenny, silvermedallist in Beijing, trying togo one better in the mensevent and follow in the wheel

tracks of compatriot SirChris Hoy.

Wrestling Greco-Romanwrestling is one of the oldestsports in the world, firstappearing in the Olympics in708BC. Today, its biggestexponents grapple for the

heavier weight medals.

Olympics on FT.comBlog: WPP chief MartinSorrell on why the Olympicsboosts Britain; GideonRachman finds the gamescant strike gold with kids

www.ft.com/olympics

By Ben Fenton

It took an Olympics playedout at the All-England Clubfor Andy Murray to becomedefinitively British.

After years of being thenearly man of Wimbledon,Murray finally triumphedon Centre Court. He mar-malised Roger Federer 6-26-1 6-4 four weeks after theSwiss genius had thumpedhim on the same bit of turf.

With gold round his neck,a union flag draped over hisshoulders and singing GodSave the Queen, the 25-year-old Scot presented a night-mare image for Scottishnationalists who were hop-i ng h is a mb iv al en cetowards the English mightserve their cause in an inde-pendence vote in 2014.

But that ambivalence hasworked both ways, with thewell-heeled English of Wim-bledon finding it hard totake Murray to their hearts.Until yesterday.

The o ld joke ran tha tMurray was British while

still competing in the Wim-bledon mens singles, butwhen he lost he becameScottish again. The goldmedal has surely, finally,made him a perma-Brit.

Murra y said a fter thematch that the less refined,un-Wimbledonny chantingand shouting had been un-believable . . . not just herebut at all the events. He

Murray winsEnglish hearts

Wimbledon drama

Matthew Engel

OLYMPICS

said he had been inspiredby Mo Farahs victory inthe 10,000m on Saturday.

After winning the first set6-2, a tighter contest than itsounds, Murray took thegame by the scruff of theneck in the third game ofthe second when, after Fed-erer had run him ragged toforce six deuces, he held hisnerve and serve to go 3-0up. The rest of the matchhad an air of inevitability.

As it finished, with thecrowd erupting in a way theAll-England rarely hears,Federer rather slunk away.Murray leapt over seatsinto th e bo x where h isfriends and family stoodcheering. He hugged hisgirlfriend Kim Sears, hismother Judy, his coachesand friends. For a momenthe looked like he was goingto work his way around the18,000-strong crowd.

B ut th en , c la mberin gback to court, he stoppedafter hearing the call of oneHen ry Caplan , a ged 11,from Blackmore, Essex, anda stranger to him. Henryasked for a hug. Murraygave him one, live on TV.

Henry later told the Finan-cial Times: It seemed likethe right thing to do. Hesaid Murray had told him:Anything for my fan.

The sentiment resonatedwith the Olympic spirit thathas infected the UK fasterthan the pigs are flyingo ver SW19. Everyon e isBritish now and everyonehas a right to hug Murray.

Dernyman PeterDeary tries notto make a messof it on hismoped

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FINANCIALTIMES U U

WORLD NEWS

As Chinas top officials arrived inBeidaihe on Friday, torrential rainuprooted many of the pines andwillows that line the manicuredstreets of the seaside town that hasserved as a summer retreat forgenerations of Communist partyleaders.

To some of the leaders gatheringat the resort, t he typhoon may haveseemed a metaphor for the storm theparty itself has weathered over thescandal of Bo Xilai.

Mr Bo, the charismatic formerChongqing party secretary and sonof a revolutionary leader, had madea bid to join the politburo standingcommittee before the 18th partycongress when the next generation ofpolitical leaders will be unveiled. Themove threatened to throw theleaderships plans for an orderlytransition into disarray.

Mr Bo was removed from hisChongqing post and ousted from thepolitburo after Wang Lijun, hisformer police chief, fled to a USconsulate where he suggested thatGu Kailai, Mr Bos wife, hadpoisoned a British businessman.

Although the scandal was thepartys gravest crisis since the 1989Tiananmen Square massacre, theleadership since appears to haveregained its balance.

Normal preparatory work for the18th party congress is now underway, said an official helping planfor the congress, which will be heldlater this year. In preparation,members of the politburo standingcommittee and dozens of otherofficials are meeting in a walledcompound stretching for more than3km along Beidaihes shoreline.

On Friday, security officialsimposed strict controls, checking theidentity of everyone entering thearea, blocking off parts of the townand keeping cyclists and cars fromstopping at the roadside.

Tourists strolling along the beachwere stopped by a fence and a redsign behind it reading Private

beach, tourists keep out when theyreached the compound. Local hotelowners complained the high-rankingguests were bad for business.

There are lots of extra restrictions you cant even run a karaoke barthese days, said a manager atAndrei, a restaurant popular withRussian tourists.

Its the 18th party congress thats our national situation, itsdifferent from the west, explained ayoung holiday maker wearing a T-shirt with the words DestroyDestroy Destroy, who gave hername only as Qin.

Like Ms Qin, many Chinesecitizens put up with having no sayin choosing their political leaders,and no knowledge of how the partyreaches its decisions.

In theory, all members [of theparty leadership] are elected by themembers of the Central Committee,Cheng Li, an expert on Chinese elitepolitics at the Brookings Institution,

wrote recently. In practice, however,the process is top-down rather thanbottom-up.

When the revolutionaries who hadoverseen the founding of the PeoplesRepublic of China Deng Xiaopingwas the last of this generation

were in power, the party secretaryhad the authority to determine mostof these personnel decisions.

But Hu Jintao, the current partysecretary, wields less power. The oldsystem has been replaced with amuch more complex mechanismwhere incumbent standing committeemembers negotiate the newleadership behind the scenes.

Mr Bo, who viewed many toppoliticians as being too soft and waseager to gain power by joining thepolitburo standing committee, wasan exception. His populist methodsin Chongqing, which circumventedparty procedure, are also believed tohave contributed to his downfall.

The members of the currentleadership as well as the candidatesare extremely similar, and theirmain common interest is to keep theparty in power, said one relative ofa former senior party leader.

While the party has made almostno progress over the past decade in

moving to elect officials and makingitself more accountable, it istweaking the way it picks leaders.

For example, the number ofprovincial police chiefs thatconcurrently hold the post of politicsand law secretary has been reduced,

because the party realised thepractice had given the securityservices too much power over thecourts. Such considerations arebehind the expected decision to no

longer give the holder of the politicsand law portfolio a seat on thestanding committee. But beyondsuch minor tweaks, the leadership istrying to agree on the leastcontroversial line-up.

People familiar with preparations

for the party congress say candidateswho stand out in terms of theirpolicy profile or have a moreunconventional biography have allbut lost the chance of gaining a seatin the next standing committee.

After leaders have come to aconsensus, the preliminary list ofnames will be put to other politburomembers. Delegates of the 18th partycongress may also get the chance tovote in a test run to make sure theformal confirmation goes smoothly.

One party official said the Beidaiheconference would wrap up later thismonth. Staff at local hotels saidthey had been told it would lastuntil mid-August. But the resortsresidents have little hope thatbusiness will pick up after that.

This is a major party congress, sothings are going to be tight all theway through October, lamented themanager at Andrei.

Reform by stealth, see Comment

Beijing elite eye leaders unlikelyo rock boat after Bo storm

Candidates who stand out risk failing to make the cut, writes Kathrin Hille

By Abigail Fielding-Smithin Beirut andMonavar Khalaj in Tehran

Heavy fighting shook thenorthern Syrian city ofAleppo yesterday as theconflict showed more signso f en ta nglin g regio na lpowers.

The Syrian Observatoryfor Human Rights, a UK-based pro-opposition moni-to rin g grou p, repo rtedheavy bombardment andfighting in Aleppo, whileMohammed, an activist inthe city, said violence wasrising.

Rebel fighters surged intothe regime stronghold ofAleppo two weeks a go ,b uo ye d b y n ew s o f t hea ssa ssina tio n o f seniorsecurity officials in the cap-ital, Damascus.

G ov er nm en t f or ce s ,backed by helicopter gun-ships, have so far failed todislodge them.

The regime of PresidentBashar al-Assad is reportedto h ave massed troo psaround the city, and HerveLadsous, the UN peacekeep-ing chief, warned late lastweek that the main battlewas about to start.

Emile Hokayem, an ana-lyst at the InternationalInstitute for Strategic Stud-ies, said forces in Aleppowere likely to engage in awar of attrition lasting sev-eral rounds, rather than asingle decisive confronta-tion. I dont see a grandfinale right now, he said.

This appears to have beenthe pattern in the capital,where rebels a lso madeadvances last month, onlyto be checked by an inten-

sive bombardment by gov-ernment forces.

At the weekend, heavyclashes were again reportedin a reas in the sou th o fDamascus.

The surge in fighting inAleppo c ame a s Teh ra nsought the release of nearly50 Iranians allegedly kid-napped in Damascus at theweekend.

I ra ni an s ta te n ew sreported yesterday that theg ov er nm en t, w hi ch i sclosely allied to the Syrianregime, had reached out toTurkey and Qatar, whichsupport the Syrian opposi-tion, to help negotiate therelease of what it says are4 8 I ra ni an p il gr im sabducted the previous day.

Ali-Akbar Salehi, Iransforeign minister, in a phonecall late on Saturday, urgedhis Qatari counterpart,Sheikh Hamad Bin Jassim,to exert all efforts to helprelease the Iranian pilgrimsk id na pp ed i n S yr ia ,a cc ordin g to th e semi-official Fars news agency.

Mr Salehi also called onAhmet Da vu toglu, th eTurkish foreign minister, tohelp free the Iranians.

A video broadcast yester-day by the Saudi-ownedsatellite station Al Arabiyapurported to show a rebelgroup holding the Iranianscaptive, and declaring themto be shabbiha [pro-regimefighters] on a reconnais-sance mission.

The authenticity of thevideo or its claims couldnot be confirmed.

Ah ma d Vah idi, Ira nsdefence minister, rejectedallegations that Iran had a

military presence in Syria.Iran neither has militaryforce in Syria nor has thegovernment of Syria madesuch request, the brigadiergeneral said at the week-end.

Syria h as a powerfu larmy, which has the sup-port of its people, and Syriacould tackle such adventuremade by foreign [countries]in their country, the Ira-nian defence minister said.

Irans media reported onSaturday the Iranians werekidnapped by armed groupson a bus from Damascusinternational airport to theshrine of Sayeda Zainab,the daughter of first ShiaImam and Prophet Moham-meds granddaughter.

Hun dreds o f Iran ia nstravel to Syria annually aspilgrims of Sayeda Zainabbut the figure has fallensharply as a result of the17-month uprising.

Alth ou gh Iran ia n pil-grims have stopped travel-ling to Syria by road sinceearly this year, they havecontinued to arrive by air.

Amid concerns about theSyrian conflicts potentialto destabilise the region,the US announced yester-day that Hillary Clinton,

secretary of state, wouldtravel to Turkey on Satur-day for talks on Syria and

other timely issues.Tu rkey h as expressed

alarm over reports that theDemocratic Union party(PYD), a Syrian Kurdisho rga nisation linked toa rmed Kurds who h avebeen fighting Ankara formore than two decades, hasta ken o ver a reas in thenorth of the country wherethe regimes grip has beenweakened.

The PYD responded byin sistin g tha t a reas o fnorthern Syria now admin-istrated by Kurdish groupsshould not be consideredas a threat to the regionaland global stability.

A statement emailed tothe media by the party yes-terday denied any separa-tist ambitions, saying itsgoal was to democraticallys e l f - g o v er n . . . r e g i o n swithin the geopolitical bor-ders of the Syrian republic.

In-depth: www.ft.com/syria

Battle rages inAleppo amidfears violencewill spread

Shanghai

Beidaihe

200 km

Yangtze

YellowSea

N.KOREA

S.KOREA

Beijing

CHINA

By Kathrin Hille in Beijing

Chinese authorities haveagreed to allow two Britishofficials into the courtroomto observe the murder trialof Gu Kailai, wife of the dis-graced politician Bo Xilai.

Two officials are goingin a consular capacitywhen the trial starts onThursday, said the Britishembassy in Beijing.

Acc ording to Chin esestate media , Ms Gu a ndZhang Xiaojun, a familyaide, have been indicted oncharges of murdering NeilHeywood, a British busi-

nessman who had acted asan adviser to the family.

Giving foreign diplomatssuch access is highly unu-sual, especially for a politi-cally sensitive trial.

By announcing the daterelatively early by Chinesestandards, Beijing indicatedit was trying to demon -strate some degree of open-ness in a case linked to con-flict in the inner sanctum ofthe opaque ruling Commu-nist party.

But the court in Hefei, inthe c en tra l pro vinc e o fAnhui where the trial willbe held, said all places in

the courtroom had alreadybeen taken when a skedabout access for reporters.Such an explanation is com-mon ly u sed to keep thepress and public away fromsensitive trials.

Mr Heywo od died lastNovember in a hotel roomin Chongqing, the south-western city where Mr Bowas Communist party sec-retary until he was purgedin April.

Initially, Mr Heywoodsfamily was told he had diedof a heart attack, while theBritish government wasoffered the explanation that

his death followed a drink-ing binge. Nobody ques-tioned his death at the time.

B ut in April, Chin eseauthorities said Ms Gu hadbeen detained under suspi-cion of being involved inthe alleged murder of MrHeywood, while her hus-band had been suspendedfrom all posts and detained,accused of severe violationsof party discipline.

Those moves came afterWang Lijun, the formerCho ngqin g police c hiefunder Mr Bo, fled to the USc on su la te i n n ea rb yChengdu, in February offer-

ing to provide details aboutthe alleged murder.

The drama is unfolding asthe ruling party preparesfor the once-a-decade lead-ership succession, whichinvolves intense behind-the-scen es n egotiation s fo rposts and factional balanc-ing. Mr Bo had threatenedto throw this process intod is ar ra y a s h e m ad e ah ighly public push forpower.

S om e p ar ty o ff ic ia lsbelieve that a guilty verdictf or h is w if e w ou ld b eenough to justify Mr Bosremoval from the political

stage, while others thinkthe party would prosecutehim for corruption after MsGus trial.

State media said Ms Guhad been charged with poi-soning Mr Heywood andthat an investigation hadsaid it was because she wasworried about a threat fromMr Heywood to her sonspersonal security followingconflict with the Britishconsultant over economicinterests.

Some legal experts seethis as an indication thatthe court may show leni-ency towards Ms Gu.

British off icials to attend Gus trial for murder

L ik e m an y J ap an es e,Tomoko Tokiwa has a deepaffection for Mount Fuji,the beautiful conical vol-c an o th a t is o ne o f th enations most celebratedsymbols.

But the nursery workersays the five decades shehas lived on Fujis lowerslopes have been accompa-nied by fear of a fiery erup-tion.

I was born and broughtup on the base of MountFuji. I love it, but its also abit frightening, she says.

Ms Tokiwa is not the onlyone who worries.

The earthquake and tsu-nami that ravaged Japansnorth-east coast last yearacted as a harsh reminderof the potential for naturald is as te rs i n o ne o f t heworlds most seismicallyactive archipelagos.

Sinc e previo us earth-quakes have been linked toincreased volcanic activity,some residents near Fuji,which lies 100km west ofTokyo , won dered if th eMarch 2011 tremor mightact as a trigger.

Speculation increasedfour days later when a mag-n it ud e 6 .4 e ar th qu ak erocked the area.

A lot of people were anx-ious that the earthquakesmight have an influence onMount Fuji, says YutakaSuzuki, a manager at a landministry office that moni-tors the mountain from itslower slope.

Visitors to the officeswebsite, which includes liveimages of the mountain,

doubled in the days afterthe earthquakes, Mr Suzukisays.

A Fuji eru ption c ou ldhave far-reaching conse-quences. When the moun-tain last spewed fire in 1707,it buried nearby areas inash and covered what isnow Tokyo in a blanketabout 4cm deep.

The go vern men t esti-mates that an eruption of asimilar scale today couldcause Y2.5tn ($32bn) of eco-nomic damage.

It is also impossible torule out larger eruptionsthat could bring economicactivity in the capital to ahalt for an extended periodand threaten its transportlinks with central and west-ern Japan, crippling manu-facturing supply chains.

Air links might also bedisrupted. In 2010, an ashcloud from Icelands Eyjaf-

jallajkull volcano closedmore than 75 per cent ofEuropean airspace for a

week, affecting more than100,000 flights and 10m pas-sengers.

The goo d n ews is tha tfears of immediate dangerappear unwarranted as seis-mic activity in the Fuji areahas subsided. A 20m-longcrack that appeared half-

way up the volcano lastyear was deemed to be anormal side effect of thetremors.

Japan can take comfort inthe fact that Fuji is beingclosely monitored with seis-mologists wa tc hin g fo rtremors that might signal

m ag ma m ov em en t. Anetwork of stations withglobal po sitio n systemdevices is also watching itswaistline with a precisionu nmatch ed by even th emost fan a tic al h uma nweight-watcher.

By measuring the dis-

tance between points oneither side of the mountain,the GPS monitors should beable to detect any bulgingof the volcano that mightindicate rising magma e ve n i f t he m ov em en tamounts to only a few cen-timetres over tens of kilo-metres.

T et su ro I ma ki ir e,research co-ordinator at theGeospatial InformationAuthority, which compilesdata from the GPS stations,says the system offered auseful reminder that Fuji isstill live when it recorded a2 cm in fl at io n o f t hemountain in the year beforelast March though themovement since appears tohave stopped.

The range of technologiesbeing used to monitor Fujimean there should be atleast some warning beforeany eruption, Mr Imakiiresays. In June, the govern-ments of three prefecturesin the Fuji area created a

panel to study evacuationplans.

Experts say there wouldprobably be at least a fewweeks o f warning sign sbefore a major Fuji erup-tion. But Motoo Ukawa, pro-fessor at the department ofg eo sy st em s ci en ce s a tNihon University, warnsthere is still so much scien-tific uncertainty surround-ing volcanoes that nothingshould be taken for granted.

There is also no way ofknowing whether the mainthreat from an eruptionw ou ld c om e f ro m a shclouds, lava or pyroclastictorrents, which are fast,dangerous torrents of super-heated gas and rock.

Local authorities [need]to think properly about howto carry out evacuations,says Mr Ukawa. It wontbe possible to come up withfull preparations, but weshould do what we can andthen gradually improvethings year by year.

Mount Fuji residents fear volcano eruption after quake and tsunami crisesNatural disasters

It is impossible torule out ash clouds,

lava or torrents thatcould halt activityin the capital,

writes Mure Dickie

Keep out: touristsfind much ofBeidaihes beachis now closed off

Reuters

There arelots of extrarestrictions you canteven run akaraoke barthese days

When Mount Fuji last spewed fire in 1707, it covered what isnow Tokyo in a blanket of ash about 4cm deep AFP

Rebel fighters in action inAleppo last week

The surge infighting came asTehran sought therelease of nearly50 Iranians

Key figures

1707Year of Mount Fujislast eruption

75%of European airspace closedafter Eyjafjallajkull erupted

$32bnEstimate of economicdamage from a similareruption today

7/28/2019 Financial Times Europe - Aug 6 2012

4/30

FINANCIALTIMES U U

WORLD NEWS

By Guy Dinmore in Rome

Italian policy makers havesought to assure financialmarkets that Italy is ing ood shape and has nointention of making anearly request for interven-tion by eurozone bailoutfunds, at least not unlessSpain goes first.

Backing prime minister

Mario Montis assertionsthat the government doesnot need market interven-tion now, Antonio Catric-al, cabinet under-secre-tary, said Italy would bemad to act before Spain.

If we were to move first,

the others would considerus mad. The state of ourpublic finances is much bet-ter than that of many othercountries, he told Corrieredella Sera newspaper.

Although the governmentargues that its fiscal consol-idation efforts and struc-tural reforms have largelymet the strict conditional-

ity demanded by the Euro-p ea n C en tr al B an k i nexchange for its potentialrole in supporting Italiandebt, officials recognise thata formal request for helpcould be politically danger-ous at home by feeding

anti-Europe sentiment inparliament.We are not and we do

not want to become sub-jects of the Europea nUnion, Mr Catrical said,arguing that if Italy didsign a memorandum ofunderstanding in asking formarket intervention itwould only confirm commit-

ments already taken on.Ignazio Visco, governor ofthe Bank of Italy, told LaRepubblica: If the marketsconvince themselves a turn-ing point was passed, if Italy does not abandon fis-cal discipline and steps up

its e ff or ts to promotegrowth, then there will beno need for a rescue fundintervention. Much dependson ourselves.

A go-it-alone theme isgathering pace. FrancescoGiavazzi, economist andgovernment adviser, isamong those who are sug-gesting schemes involving

asset sales and tax breakson bond purchases thatwould allow Italy to reduceits 2tn of public debt andreduce the already decreas-ing proportion held by for-eign investors.

Mario Monti, prime minis-

ter, has again raised thespectre of an anti-Germanand anti-European backlashdeveloping in Italy duringthe remaining months ofhis technocrat governmentif Berlin is seen to be profit-ing from Italys high bor-rowing costs by paying thelowest rates on record forGermanys own debt.

If t he e ur o s ho ul dbecome a factor in the drift-ing apart of Europe, thenthe basis of the Europeanproject is destroyed.

Thats why the mostimportant job of govern-ment leaders is to explain

the real situation of Europeto their people and not toindulge in old prejudices,Mr Monti told Der Spiegel, aGerman weekly.

Mr Monti played downmarket fears of early elec-tions. Ill stay in office ifall goes according to planuntil April 2013, and I hopethat I can help rescue Italy

from financial ruin withmoral support from someEuropean friends, especiallyGermany, he told DerSpiegel.

The Spanish governmentsaid it had time to assessthe scope of the ECBs pro-

posed intervention. We will f ind out thedetails and then we willdraw up a precise calen-dar, Luis de Guindos,finance minister, said in aninterview with ABC news-paper.

See Commentwww.ft.com/gavyndavies

Rome has no plans for cash requestItaly says mad toact before Spain

Go-it-alone themegains momentum

In the lush green hills ofcentral Colombia, DanielOtero, a flower producer, isgloomy.

This is such a beautifulbusiness; I wouldnt want itto get rotten. We need adevaluation, soon, he says,smelling a bunch of hisroses about to be shipped tothe US. The economy ingeneral is strong. Maybe toostrong.

A lthoug h M r O te rosindustry represents a mea-gre $1.2bn for the Andeancountrys economy, it high-

lights the woes of Colom-bias manufacturers andnon-commodity exporters,whose margins are shrink-ing because of an apprecia-tion of the peso.

J uan M anue l Santos,Colombias president, sayshe understands their con-cerns but says the agricul-tural and industrial sectorscombined represent only 20per cent of the countrysgross domestic product.

Energy is far more impor-tant. Thanks to the com-modities boom, Colombiahas been taking advantageof investor interest in theresource-rich parts of thecountry that were off-limitsduring the peak of its drug-fuelled, guerrilla and para-military violence.

Today, Colombia is theregions fourth-largest oilproducer by volume and theworlds fourth-largestexporter of coal by volume.

There are still somethings to work on. But thefundamentals are strong,Mr Santos told the Finan-cial Times.

Since taking office twoyears ago, the president hass et a bo ut e xp an di ng exports. Recent trade agree-ments with the US, EU,Switzerland and SouthKorea will be in place bythe end of this year.

And, after relations withHugo Chvezs Venezuelasoured during the tenure ofhis predecessor lvaroUribe (Mr Chvez was oncereported to have sent tanksto the border), Mr Santoshas succeeded in restoringamicable ties.

As a result, he believesexports to Venezuela couldreach $3bn in 2012.

However, like Brazil,Colombia has been on thereceiving end of funds pour-ing in f rom the crisis-

stricken northern hemi-sphere as investors findLatin America a temptingprospect.

Foreign direct investmentto Colombia rose 26 per centin the first half of the year,reaching $9.3bn in the six

months to June as compa-nies piled into oil and min-ing, according to centralbank figures.

This has raised the prob-lem of sustained dollarinflows.

The Colombian peso isamong the worlds best-performing currencies todate this year, rising morethan 9 per cent against thedollar.

The appreciation is areal problem. Look at Bra-zil, says Jos AntonioOcampo, Colombias formerfinance minister. Colombiawill have to do somethingto regulate capital inflows.

Colombias large neigh-bour has seen spectaculareconomic growth in recentyears, but is expected toexpand only 2 per cent thisyear as a soaring currency,high costs and competitionfrom cheaper imports sendits industrial sector into

recession. Colombias cen-tral bank last month cut itsbenchmark lending rate forthe first time in two years,by 25 basis points to 5 percent.

We are prudent. We arenot Brazil. We have beenmuch more disciplined,said C ar los C aballer oArgez, a former centralbanker now at the Univer-sity of Los Andes in Bogot.We are not going to hitourselves against a walllike them.

The central bank alsotrimmed its GDP projectionfor 2012 to 3-5 per cent, com-pared with growth of nearly6 per cent last year.

The economy expandedonly 4.7 per cent in the firstquarter from a year earlier.

Growth is likely to slowin the second quarter tobetween 4.3 per cent and 4.5per cent, as the g lobaldownturn cuts demand.

Our growth average inrecent years has been 4.5per cent. So, if we end theyear there, Ill be happy,Juan Carlos Echeverry,Colombias finance minis-ter, says.

There are indeed reasonsto be cheerful.

Colombias fiscal policyhas been extremely prudentand the impressive growthhas helped lift 1.2m out ofpoverty, according to gov-ernment data.

But, although June datashow more than 1m jobswere created year-on-year,Mr Santos has done poorlyin recent opinion polls.

His weake st f ront isunemployment, with onlyone in four Colombians say-ing he is doing a good jobon the issue.

We have to be carefulabout perceptions, Mr San-tos says. We are workingon what needs to be done.

Peso appreciation causes Colombias non-commodity exporters to wiltMargin squeeze

Energy sector gainsprecedence whilemanufacturers and

flower growers seeless rosy future, saysAndres Schipani

By Guy Dinmore in Rome

A summer heatwave and aboom in Italys solar powersector have led to a show-down between producers ofrenewable energy and loss-making utilities reliant onincreasingly redundant gasand oil-fired power stations.

G esturing towards aRome basking in the after-noon sun, a senior energysector official noted thatmuch of central and south-e rn I ta ly w as a t t ha tmoment deriving nearly allits electricity needs fromrenewables. Already, Italyis on track to meet its Euro-pean-mandated quota ofsourcing 26 per cent of totalelectricity output fromrenewable sources by 2020.

Such deve lopme nts,unforeseen by big industry,have been driven by a col-lapse in demand because ofItalys double-dip recessionand a fourfold increase insolar energy capacity overthe past year. As a result,utilities have lobbied to winsubsidies known as capac-ity payments for their con-ventional and semi-idlethermal power stationsafter investing too much innew plants.

A first battle was won onFriday with parliamentsapproval of two amend-ments in government legis-lation to boost economicgrowth, leading to furiousreaction from the renewa-

bles sector, which arguesthat separate cuts in itsincentives are in effectbeing used to support anindustry in decline.

These capacity paymentsare the latest mockery ofItalian renewables, theumpteenth gift to [state-controlled utility] Enel andto other monopolists andpolluters, commentedAngelo Consoli, head of theThird Industrial RevolutionEuropean Society.

Under the amendments,oil-fired power stations thatmay run for only a few daysnext winter can tender forsubsidies for year-long run-ning costs and have pollu-tion controls removed. Theenergy authority will drawup a separate scheme ofsubsidies for mostly gas-runpower stations.

Simone Mori, head ofEnels regulatory depart-ment, defends the meas-ures. Noting Italys relianceon gas, he recalled that oil-powered stations had to befired up briefly last winterto cope with reduced gassupply from Russia, whileg as is sti ll nee de d as aback-up for when sun andwind are in short supply.

Without this decree, [oil-fired] plants would closedown, he said.

Officials note that despitecurrent capacity being dou-ble levels of demand, con-sumers are still footing thehighest energy bills inEurope, in part because ofannual subsidies to renewa-bles of 14bn a year.

Moreover, Italy is the big-gest importer of electricity,

because utilities find itcheaper to buy from outsidethe country rather than runpower stations on gas fromRussia.

So-called capacity pay-ments already cost 145m ayear and it is not clear whatthe final bill will be underthe new legislation. Indus-try sources said the big pro-ducers were asking for1.5bn. Mr Mori said thiswas exaggerated.

The government insistedon a clause that preventsthe cost of flexibility pay-ments being passed to con-sumers and it is not clearwhere the money will comefrom. It is also possible thatBrussels will block the sub-sidies as unfair.

Massimo Orlandi, presi-dent of Energia Concor-rente representing a groupof energy producers includ-ing Sorgenia and GDF Suezbut not Enel, said capacitypayments should not beabout giving gifts wherethey are not needed.

Additional reporting byGiulia Segreti

Climate risks, See Comment

Italyssolarsectorfumes atsubsidies

Millions of US voters couldbe turned away at the ballotbox in this Novemberspresidential election as newrules impose tough require-ments for identificationthat observers say couldlead to m inor itie s andyoung people traditionallymore likely to vote Demo-crat being excluded.

Almost all the new ruleshave been enacted in stateswith Republican governorsand GOP-led legislatures.From Wisconsin to Texas,they have passed strict leg-islation requiring voters topresent certain forms ofgovernment-issued identifi-cation instead of the usualvoter registration cards.

In hotly contested swingstates such as Pennsylva-nia, Vir ginia and N ewHampshire, the changescould affect the outcome.Pennsylvanias authorities

say more than 750,000 regis-tered voters in the state 9.2 per cent of voters donot have the required ID,such as a driving licence orother government-issuedphoto ID, to vote in Novem-ber . Pre sident Bar ackObama won the state by600,000 votes in 2008 andpolls show the vote hangsin the balance this year.

There is the potential forvery serious outcomes,said Keesha Gaskins of NewYork Universitys BrennanCenter for Justice, whichestimates that 5m votersacross the country might beaffected by the rules.

Pennsylvanias new rulesare being challenged bythr ee e lder ly wom en including one who voted forFranklin D Roosevelt in the1940s who say they will beunable to vote in Novemberunder the changes.

Since 2010, 10 states havepassed voter ID laws, butnot all have yet been putinto effect. Several, includ-ing Texas, South Carolina,Alabama and Mississippi,had to apply for approvalfrom the justice departmentbefore they could imple-ment the changes becausethe y are subje ct to theVoter Rights Act, a 1965 law

covering states with a his-tory of discriminatingagainst minorities.

The de partme nt hasblocked the changes pro-posed by those state s,which require special formsof photo ID, partly becauseHispanic voters would bedisproportionately affected.Eric Holder, the attorney-general, has likened the lawin Texas to a poll tax.

The changes in manystates effectively mean leg-islator s are trying tocherry pick voters, MsGaskins said. In Tennessee,faculty members at thestate university can usetheir college-issued ID cardsto vote but students cannot.

Students in Texas wouldnot be able to use theirstate university ID cardseither, but the state would

accept voters with permitsto carry concealed weapons.

The battleground of Flor-ida has brought in lessstrict laws than its neigh-bours, but the Republican-led state sued for access toa federal law enforcementdatabase so it could chal-lenge those suspected of notbeing US citizens.

The changes across thecountry are ostensiblyaimed at preventing voterfraud. Although some Dem-ocratic-led states, such asRhode Island, have intro-duced restrictions, someobservers say most of thechanges are politicallymotivated to help Republi-can presidential hopefulMi tt R om ne y w in i nNovember.

Mike Turzai, the Republi-can leader in Pennsylva-nias house of representa-tives, admitted as muchrecently. Voter ID, whichis going to allow GovernorRomney to win the state ofPennsylvania, done, hesaid in a speech to fellowRepublicans, according tolocal reports.

The partisanship duringthe legislative processcant be denied, saidNancy Abudu of the Ameri-can Civil Liberties Unions

Voting Rights project. Thepre te xt is to suppr essminorities, students, poorpeople, she said, listinggroups that generally voteDemocrat.

Many of the changes havebeen influenced by theredistricting that has takenplace following the 2010census, which has seen thecongressional map in manystates redrawn to reflectpopulation growth. Fore xample , Texas is nowmajority Latino.

Republicans are cryingpolitical foul too. After the

justice departments deci-sion last month to block theproposed laws in Texas andSouth Carolina, some haveaccused the Obama admin-istration of being more wor-ried about electoral victorythan voter fraud.

The department of jus-tice has embarrassed itself.The partisan bias is obvi-ous, said Trent Franks, aRepublican lawmaker fromArizona.

In fact, voter fraud isextremely rare, Ms Abudusaid. In the Pennsylvaniacourt challenge, the stateslawyers did not even arguethat the rules were neededto prevent people misrepre-senting themselves.

Both sides cry political foul over ID rules changeElection

Restrictions couldlead to minoritiesbeing excluded, asaccusations ofgerrymandering fly,says Anna Fifield

A registered voter in Texas is checked in at the last presidential election in 2008. Since 2010, 10 states, including Texas, have passed voter ID laws Getty

Juan Manuel Santos saysfundamentals are strong

US presidential election

By Anna Fifieldin Washington

Two senior Republicanshave accused Harry Reid,Democratic leader of theSenate, of lying, as the warof words over Mitt Rom-neys tax returns took asharp turn for the worse.

Lindsay Graham, theRepublican senator fromSouth Carolina, yesterdaya cc us ed Mr Rei d o f mak[ing] accusations thatare absolutely unfounded,while Reince Priebus, chair-man of the RepublicanNational Committee, calledhim a dirty liar.

Mr Reid last week saidthat Mr Romney, a multi-millionaire former privateequity executive and thepresumptive Republicanpresidential nominee, hadnot paid taxes for the past10 years. The Nevada sena-tor said he got the informa-tion from a Bain investorwho called his office.

Democrats have been try-ing to make Mr Romneystax history a campaignissue, partly to further theirattempts to portray him asout of touch with the strug-gling middle class.

Unlike recent presidentialcandidates including hisfather George, who ran forpre sident in 1968 andreleased 12 years of taxreturns Mr Romney hasrefused to disclose his fulltax history. He has releasedonly one year of his taxreturns 2010 and an esti-mate for 2011.

Campaigning in Mr Reidshome state over the week-end, Mr Romney said thoseclaims were patently, sim-ply false and reiteratedthat he had paid all of thetaxes due.

Republicans upped theante yesterday. What[Reid] did on the floor wasso out of bounds, I thinkhes lying about his state-ment, Mr Graham said onCNN. Mr Priebus also tookaim at Mr Reid. Im notgoing to respond to a dirtyliar who hasnt filed a sin-gle page of tax returns him-self, he said on ABC.

But the Obama campaign,even while saying it did notknow where Mr Reid got hisinformation, continued topress Mr Romney to releasemore of his tax returns.

ar ofords on

Romney

taxesescalates

Military vote move under fire

Barack Obamas re-electioncampaign has deniedRepublican claims that it istrying to curb militaryvoting, writes Anna Fifield.

The presidents team fileda lawsuit last week to blocka new Ohio law that wouldgive military personnel threedays more than the publicto cast early votes. It said itwanted everyone to havelonger to vote.

But Republicans haveattacked the move as anassault on the military.President Obamas lawsuit. . . is an outrage, MittRomney, the Republicanpresidential hopeful, said ina Facebook post.

David Axelrod, a senior

strategist with the Obamacampaign, said it wasshameful that GovernorRomney would hide behindour servicemen and womento try and win a lawsuit anddeprive other Ohioans ofthe right to vote.

Ohios law would allowservice personnel to voteup until the Monday beforean election, while the restof the public must submitvotes three days earlier.

According to theDemocrats, 1.7m votes or30 per cent were cast inOhio during early voting in2008. About 93,000 ofthose were cast during thethree days before theelection, it said.

These capacitypayments are theumpteenth gift toEnel and to othermonopolists

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India

Blackouts in thecountry of 1.2bnexpose a profoundsystemic crisisinvolving banksand energyproviders that has

become NewDelhis mosturgent priority.

By Henny Senderand James Crabtree

Powerless to act

Sitting in his garden in NewDelhi last Wednesday, SushilKumar Shinde, Indias outgoingpower minister, looked relaxed

in a n o pen-n ec ked white sh irt,

serenely detached from the chaos thathad over-run his country in the previ-ous 48 hours.

In the aftermath of a series of roll-ing blackouts that left more than600m people without electricity andheaped further doubt on his nationsfaltering image as an aspirant eco-nomic superpower, Mr Shinde calmlydeflected criticism. India is an expertin this sector, he told a televisioninterviewer, adding: This is techno-logical failure, it has nothing to dowith the political system. Whenasked how he rated his own six-yeartenure, he replied with just one word:Excellent.

It is an assessment few in India arelikely to accept.

In fact, the rickety power grid repre-sents only part of a deeper crisisbrewing in this country of 1.2bn.Indian business leaders fear the trou-bles of the moribund energy sectorcould fatally undermine some of thenations banks, unless the govern-ment takes decisive action.

Anil Ambani, the billionaire head ofReliance Power, has even warned thatIndia could face our version of theU S s ub pr im e c ri si s u nl es s i taddresses the complex problems thathave locked the power and bankingsectors to gether in a dan gero usembrace.

Energy networks need hundreds ofbillions of dollars in fresh investmentto meet fast-rising demand and fuelIndias economic rise. But the banksare hardly in a position to provide thefunding. They are already heavilyoverexposed to energy companies infrail health, raising the spectre ofgrowing loan defaults.

The investment required ranges farbeyond patching up the grid. Thewider power sector offers a toxic com-bination of inadequate fuel supplies,debt-laden power generators andbankrupt state electricity boards. Iftheir weakness does spill over intoIn dias fina nc ial system, it willimperil investment and further dentthe countrys weakening growth.

The scale of this malaise was laid

out in March, at an acrimonious meet-ing hosted by Indias Association ofPower Producers in New Delhi andpresided over by Pranab Mukherjee,the former finance minister.

The gathering was the second of theyear. At a previous get-together inJanuary with Manmohan Singh,prime min ister, members o f th egroup, which included many of Indiasmost powerful businessmen, com-plained bitterly about the parlousstate of their industry.

At the March meeting, Mr Ambanidelivered his ominous warning to MrMukherjee that India could face afinancial meltdown similar to Amer-icas subprime mortgage collapse,unless the government took action.There will be a banking crisis, hesaid starkly.

Any such crisis would severelydamage not only Indias ability to res-cue its power sector, but also to investmore widely.

India needs [to invest] $400bn to$500bn in the next five years, saysRajiv Lall, head of InfrastructureDevelopment Finance Company inMumbai. Where will that moneycome from? The problems threatenthe debt service capacity of the powerproducers. If the problems arentsolved, the banks will not be willingto finance future growth. How will wefund future capacity?

The practical problems are grave. Arising cost of capital and the heavyburden of Indias high interest ratesare aggravating the already criticalhealth of many power producers.

The stakes are particularly high forman y o f th e rich in du strialistspresent at the meeting in March. MrAmbani, alongside Ratan Tatas TataPower, had won contracts to buildmassive 4,000 megawatt ultra megapower plants in the past few years,costing as much as $4bn. Privatepower companies headed by otherprominent tycoons, including billion-aire Gautam Adanis Adani Power,have also spent heavily and piled uplarge debts.

This investment is bearing fruit.More than 26,000mw of new powercapacity will be added in 2012, nearlytwice the level added the year before,according to Kotak, a Mumbai-basedbrokerage. Yet these new operationsface major shortages of domestic coal,raising the risk of plants lying idle forlack of fuel. Even if they begin gener-ation, Indias dilapidated grid systemis often unable to transmit theirpower as last weeks blackoutsshowed only too clearly.

These problems stem partly fromthe fact that Coal India, an entity 90per cent owned by the government, isfailing to deliver promised fuel sup-plies, in part because of its own ineffi-ciency and partly because other partsof Indias government have failed toprovide regulatory and environmentalclearances. Meanwhile, many of the 28state-level electricity boards to whomthe producers are obliged to sell areeffectively bankrupt, raising doubtsover whether power generators willbe paid and can pay back their loansin turn.

In desperation, Mr Singh, in Aprilordered the state-backed miner to sup-ply fuel to private producers or facepenalties, effectively forcing CoalIndia to crank up imports. India isnow set to increase substantially the$5bn it spent bringing in more expen-sive foreign coal last year, despite sit-ting on about 7 per cent of the worldsrecoverable coal reserves.

The structural threat of fuel availa-bility and pricing can potentially

ket, in the belief that price for creditprotection will rise essentially a betthat the banks credit quality willworsen, largely because of exposure topower debts.

Trying to find a way round thesemultiple, intertwined problems willprove difficult. The governments firsttask is to prevent a repeat of lastweeks catastrophe, a promise Indiasnew power minister, appointed as partof wider government reshuffle thatpreceded the start of the blackout bybarely a few hours, was quick tomake.

Delivering o n tha t pledge willrequire a range of measures, includ-ing stronger enforcement and stifferpenalties for states who take toomuch electricity from the NationalGrid, one of the causes of last weekscollapse. State electricity utilitiesmust also accelerate plans to upgradetheir transmission facilities, whichIndias government says need invest-ments of about Rs3.1tn ($55bn) in thenext five years.

Yet these steps alone will hardly besufficient to head off the sectorswider problems. Many of the stateelectricity boards lack the cash to payproducers or to invest in distributiona nd tran smissio n: o nly two, inGujarat and West Bengal, are not loss-making. Raising tariffs for heavilysubsidised industrial and domesticconsumers, the most obvious long-term solution, is also hugely politi-cally sensitive.

Rec en tly, a bo ut a dozen o f theboards have managed to increaseprices, while the government is alsotrying to produce a solution by takingo ver some o f th e lo a ns to theseboards, prompted by fears over non-payment of loans to banks as Reli-ances Mr Ambani predicted earlierthis year.

With any solution someway off, and with fewsigns that increases indomestic coal supplies

will materialise, many power provid-ers are taking matters into theirown hands. Mr Ambani, for instance,has suspended construction of oneultra-mega power plant in the centralstate of Andhra Pradesh, citing prob-lems over fuel. Mr Tatas group also

says its $3bn plant at Mundra in thestate of Gujarat is currently not finan-cially viable because of soaring fuelimport costs.

To be sure, not all of the presentmess is the governments fault. Inmany cases the power companies mis-calculated. They thought they couldeliminate the competition and thenrenegotiate the contracts with thegovernment, says the head of oneinternational bank in Mumbai. Theywanted to bait and switch. But theygot caught out.

Fixing Indias broken power systemwill take a mixture of time, skilfulpolicy and extensive investment.Indias economic growth is going todepend on reliable power, says DavidSloan, director for Asia at the EurasiaGroup, a risk consultancy. If Indiadoesnt take broader action to correctthe wider problems in its power sectorit will end up settling for a . . . rate ofgrowth in the 4-5 per cent range.

For Mr Singhs struggling govern-ment, facing a national election in2014, fin ding a way to prevent arepeat of last weeks fiasco and headoff the more profound crisis brewingbeneath it is now its most urgentpolitical priority. If it fails, the head-line on one of Indias main newspa-pers the day after the first blackout Powerless & Clueless c ou ldquickly become its epitaph.

Off the rails: stranded passengers waitfor trains to resume after Indian gridscollapsed last week in a power outagethat hit 600m people AP

ANALYSIS

India needs [to invest]up to $500bn over five

years. Where will thatcome from? How will

we fund capacity?

impair the viability of one-third of thegeneration capacity under implemen-tation today, Crisil, the Indian creditrating agency, noted in a report lastyear. And all of this is before consid-

ering problems with the electricitygrid itself, where losses in distributionduring 2011 may have been someRs400bn ($7.2bn), increasing the debtof state power utilities to Rs3tn, Crisilestimates.

All the private power producersa re c au gh t in the middle, saysJaideep Khanna, managing director ofBarclays in India. The coal supplyisnt being delivered and they are notbeing paid by the state distributioncompanies. Sovereign related entitieson both sides are not meeting theirobligations. Only the governmenthas the wherewithal to resolve theproblems. The business model isbroken.

This is where the banks begin to getworried. Between 2008 and 2011, halfof all new credit in India went toinfrastructure and power, accordingto Mahrukh Adajania, a director atStandard Chartered bank in Mumbai.Now $500bn in loans to the powersector is at risk. If a solution is notfound, as much as 90 per cent of theloans to the sector could default, anamount that would have a signifi-cant impact on the banks, saysPawan Agrawal, a senior director atCrisil.

These problems could hardlycome at a worse time. As newcapacity comes online, thebanking systems exposure to

power debts will almost double overthe next three years, to about $162bn,according to Kotak. At the same time,ongoing fuel shortages mean morepower stations will probably operatebelow capacity, bringing in insuffi-cient revenues and increasing non-performing loans to the banks them-selves.

The situation is worse now . . .than in 2008 when they [Indias banks]were perceived as more defensive,notes an analyst for one major HongKong hedge fund, which has recentlybeen buying protection on Indianbanks in the credit default swap mar-

Electricity shortages

How business works round weekly power cutsFor Micro Supreme, a manufacturersupplying high-tech parts tocompanies such as Tata Motors andMercedes-Benz in Punes growingautomotive sector, writes JamesCrabtree, Thursday is a normal workday with one important exception.

Because once a week their two-building factory, in common withothers in this fast-growing west Indianmanufacturing hub, is entirely cut offfrom the state electricity grid.

Pune escaped last weeks rollingblackout but trying to build abusiness in the face of scheduledweekly power outages, alongside otherunexpected cuts, remains a seriouschallenge, explains Satish Joshi, thegroups co-founder.

Generally there is a huge powershortage in the Pune area, he says.

As well as Thursdays we sometimeshave no power for three hours,sometimes four, on other days. It isone of the major obstacles to ourbusiness.

To keep its 170-strong workforceoccupied, Micro Supremes dieselgenerator roars into life seconds after

the lights go dark, producing energy atthree times the cost of regular mainssupplies.

Businesses across India do the same.Captive power plants that companieshave set up for their own use sitalongside large facilities in industriessuch as aluminium and cement, andgenerators hum next to smallerfactories, hotels and residential

buildings.Some are seeking more inventive

solutions. Standard Chartered bank,for example, turned to the sun,installing a 100kw solar plant on theroof a subsidiary in Chennai this year.

Others, including the Pune-basedfacility of Italian automaker Piaggio,sign special deals with privateproducers to obtain power directly.

Yet while India Inc manages to makedo, the blackouts impose a hefty coston the wider economy and also pose asignificant barrier to developing thetype of large-scale manufacturingfacility the country needs.

There are some industries whichsimply cant make it here becausetheir scale and format require reliable,inexpensive power, says Amit Sinha, aDelhi-based partner at Bain &

Company, a management consultancy.You are talking about huge steelplants, huge manufacturing facilitiesfor autos, of the sort you find inChina. What they find is that if theyhave to rely on back-up generators [inIndia], the economics often dontwork.

Speed read

Banking crunch Indias powerinfrastructure, vital for growth, needshuge investment but banks already fearexposure to fragile energy suppliers

Big names The energy sector iscrucial to some of Indias mostprominent businessmen such as AnilAmbani, Ratan Tata and Gautam Adani

Coal fiasco India is failing to deliverpromised fuel supplies and is poised toincrease the money spent on coalimports, despite its own huge reserves

On the web

Indias power woes Power failures area regular part of life in India, though

perhaps not on such a huge scale asthose seen in July. As businesses andmillions of people make do withintermittent electricity supply, the FTlooks at infrastructure and financialissues facing the countrys creakingpower sector.

www.ft.com/indiapowerSome businesses are seeking inventivesolutions such as installing solar panels

Source: Planning Commission,Government of India

000 MW

Indias power sector plansTargets versus achievements

4.0

3.0

2.0

1.0

0 20

40

60

80

100

1st 2nd3rd 4th 5th 6th 7th 8th 9th10th

Target Achievement

% achievement

Five year plans

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Without fear and without favour

Monday August 6 2012

To contribute please email: letters.editor@ft.com or fax: +44 (0) 20 7873 5938 Include daytime telephone number and full address For corrections email: corrections@ft.com

LETTERS

What Berlusconihas not forgottenFrom Miss Rosemary Andrew.

Sir, In their news analysis Bondinvestors look for action beyondECB hints (Markets & Investing,July 27), Robin Wigglesworth andGuy Dinmore quote Tristan Cooper,a sovereign debt analyst at Fidelity:The major risk in Italy is political.There is concern at what comes afterMonti.

Those who advocate the restorationof Silvio Berlusconi to resume thepremiership after Mario Monti areoften met with the cries of derision:You cant be serious!

Yet serious they are, sinceMr Berlusconi, a businessman, seemsto be the only politician left in theeurozone who understands theimportance of the consumer. If youparalyse the consumer you paralysethe economy.

This forgotten tenet of economicsapplies to all countries in theEuropean Union, but to Italy mostof all.Rosemary Andrew,London SW19, UK

Australian PM tackled gun controlFrom Dr David Camroux.

Sir, Matthew Garrahan (USshootings test freedom to bear arms,July 23) suggested that Americanfascination with weapons and thepower of the gun lobby in the US issuch that any hope of gun control isan illusion. Perhaps some insightsfrom outside the US can provide auseful corrective to this view.

On April 28 1996, a deranged lonegunman went on a shooting spree inthe Tasmanian tourist site of PortArthur (a former penitentiary)resulting in 35 deaths and 23 injured.The newly elected Australian primeminister of the time, buoyed bypublic outrage and supported by themedia including the Murdoch press,successfully overrode objections fromsome of the leaders of the stategovernments to have them introducevery strict gun control legislation onautomatic weapons and even

shotguns. He went even further launching, at a cost of some $350m, abuyback campaign for weapons incirculation, which resulted in morethan 600,000 guns being taken out ofcirculation and destroyed. In hisforceful action he successfullycharacterised the American NationalRifle Association, which sought toundermine these efforts for fear thatthey could be emulated in the US, asloony extremists. He surely musthave been a loony leftist himself?

Actually, the prime minister inquestion, John Howard, wasundoubtedly the most conservativeof Australias postwar primeministers, being awarded, by noneother than George W. Bush, theMedal of Freedom in 2009.David Camroux,Senior Researcher-Senior Lecturer,Sciences Po,Paris, France

Correction The picture accompanying theAugust 2 article on Greek workersmigrating to Germany was ofMunich, not Hamburg as incorrectlycaptioned.

No more dollars and euros for emerging market reservesFrom Mr Jerome Booth.

Sir, Alice Ross reports thatSwitzerland is the new China incurrencies (Switzerland faces up tothe cost of franc intervention,Markets & Investing, August 1),grappling as it is with ever-risingreserves; but so are so many otheremerging market central banks,which also now have hundreds ofbillions in reserves. They need tostart buying each others currenciesnot more dollars or euros.

This has never been about Chinaso much as about what I call theHIDCs (heavily indebted developedcountries) with public and privatesector debt to gross domesticproduct of about 250 per centcompared with the emerging world

with about 25 per cent. There issubstantial risk of devaluation inthese HIDC currencies over thenext few years. Indeed, thequestion is: why have they held upso well so far?

The answer: largely becausecentral banks in emerging marketsand Switzerland and a few othershave been buying huge reservestockpiles. When Lehman Brotherscollapsed in September 2008, forexample, Brazils reserves had justpassed the $200bn mark and theyproved sufficient. Yet Brazil has nowgot more than $350bn. Countries paya high price for such large reserves investment risk amounting to severalpercentage points of GDP, liquidityrisk (amazingly but frighteningly

true) should they all want to selltheir Treasuries at once and theopportunity cost of not channellingthe money into domesticconsumption and investment.

Those with high sterilisation costsare also making massive transfersfrom their taxpayers to bondholders.This may be very good-neighbourlyof emerging markets, helping the USand EU have time to adjust timenot wonderfully well spent to date but these reserves are unsustainablyhigh. When they go down, as theysurely must, so probably will theeuro, dollar and sterling.Jerome Booth,Head of Research,Ashmore Investment Management,London WC2, UK

Which central banks do you mean, Mr Weidmann?

From Mr Peter Sutherland.Sir, It seems that the righteous

zeal of Jens Weidmann, theBundesbank president, knows nobounds (Bundesbank warns ECB onremit, August 2). While oneunderstands and respects theconstitutional mandate of theBundesbank, there seems to be littlerespect given by him in his publicpronouncements on the eve of the

recent important European CentralBank meeting, either to the political

mandate and opinion of his owngovernment or to the collectiveresponsibility of the governingcouncil of the ECB itself. Off course,it is often easier to say nein than toact constructively in difficultcircumstances even to avert acalamity.

It is particularly disturbing tonote his reference to theBundesbank, having entitlements

and demands that go further thansome other central banks. So do

these entitlements create atwo-tier board? It would beinteresting to know which banksthe some other central banksmight be, or perhaps they are allothers except the Bundesbank. Iimagine that these others mighthave a different view of theirentitlements.Peter Sutherland,London SW7, UK

Former EU Commissioner forCompetition

Tedious paean toa lowbrow visionof urban Britain

From Mr Reginald Dale.Sir, Max Hastings hopes that the

purported triumph of the Olympicopening ceremony will boost Britishself-confidence and help define avision for national economic successin the 21st century (The revival ofBritain remains an Olympian [sic]

task, July 31). He admits, however,that he did not actually see theevent.

If he had, he might have been lessoptimistic, provided he did not allowthe spectacle to distract him fromthe content the trap into which somany others fell. Far fromhighlighting the best of todaysBritain, the modern segment of theceremony offered a tedious paean toproletarian culture, largely in theform of popular music and the telly,which were presented as embodyingthe countrys main, perhaps only,achievement over the past halfcentury. This narrow, dumbed-downversion of Britain was preceded by alaughably over-the-top tribute to aNational Health Service thatprovides a level of care inferior tothat of most of Britains neighbours.

Nowhere was there any seriousallusion to the real areas ofexcellence in contemporary Britain in science, art, higher education,literature, theatre, opera, ballet,design, architecture, engineering,finance (mostly), diplomacy(sometimes), sport (occasionally),gastronomy (surprisingly) andtechnological innovation to thedurability of the countrysdemocratic institutions and the ruleof law, its huge global experience, itsfamous sense of fair play, or to thequality of life outside Londons EastEnd. Rural values, essentialcomponents of the nations moralbackbone, were depicted as extinct as indeed was the countryside itself swept away forever by theindustrial revolution.

The ceremonys vision of anutterly lowbrow, urban Britain, inwhich a young mans foremostaspiration is to score a date with apretty girl via social media, is muchmore likely to drag the countrydown than inspire it to renewedgreatness. If the UK is to earn itsliving in the 21st century, inMr Hastingss words, it cannot relyon rap music, glitz and a few tawdryTV programmes not even if they

are spiffed up with James Bond,Mary Poppins, Harry Potterand a comical amateur squad ofdancing nurses.Reginald Dale,Etlan, VA, US

Arming Syria is a short-sightedstrategyFrom Mr Josh Martin.

Sir, Anne-Marie Slaughter thinkswe can flip Syria (We will pay ahigh price if we do not arm Syriasrebels, August 1). We cannot atleast not by sending AK-47s to therabble of truck drivers andshopkeepers that calls itself the FreeSyrian Army. The last thing an over-militarised region needs is moreweapons, especially when the US hasmuch, much bigger reputationalproblems to deal with than its tepidsupport for the Syrian uprising.

The debate over flipping Syria isreally a larger discussion about theway that the US can improve itsimage throughout the Middle East.Arming the Syrian rebels would bethe third quick fix strategyemployed in three years: the firstwas Barack Obama speaking inCairo, the second the withdrawal of

support from Hosni Mubarak. Bothhave been forgotten, which is alsothe most likely fate of ProfSlaughters plan to arm Syrianrebels.

The USs reputational problemin the Middle East is, simply put,Israel. As long as there is nocredible peace process and as long asIsrael continues to threatenneighbouring countries Lebanon,Syria, Iran, even Egypt with

American-made bombs, no Arab islikely to see the USs support forpopulist anti-government forces inany country as a major change ofdirection.

That brings us back to Syria. Evenif the US arms the Syrian rebelsopenly and if, several months