April 1, 2023

Europeans Planted Seeds of Crisis in Cyprus

But the path that led to Cyprus’s current crisis — big banks bereft of money, a government in disarray and citizens filled with angry despair — leads back, at least in part, to a fateful decision made 17 months ago by the same guardians of financial discipline that now demand that Cyprus shape up.

That decision, like the onerous bailout package for Cyprus announced early Monday, was sealed in Brussels in secretive emergency sessions in the dead of night in late October 2011. That was when the European Union, then struggling to contain a debt crisis in Greece, effectively planted a time bomb that would blow a big hole in Cyprus’s banking system — and set off a chain reaction of unintended and ever escalating ugly consequences

“It was 3 o’clock in the morning,” recalled Kikis Kazamias, Cyprus’s finance minister at the time. “I was not happy. Nobody was happy, but what could we do?”

He was in Brussels as European leaders and the International Monetary Fund engineered a 50 percent write-down of Greek government bonds. This meant that those holding the bonds — notably the then-cash-rich banks of the Greek-speaking Republic of Cyprus — would lose at least half the money they thought they had. Eventual losses came close to 75 percent of the bonds’ face value.

The action had an anodyne name — private-sector involvement, or P.S.I. — and, it seemed at the time, a worthy goal: forcing private investors to share some of the burden of shoring up Greece’s crumbling finances. “We Europeans showed tonight that we reached the right conclusions,” Chancellor Angela Merkel of Germany announced at the time.

For Cypriot banks, particularly Laiki Bank, at the center of the current storm, however, these conclusions foretold a disaster: Altogether, they lost more than four billion euros, a huge amount in a country with a gross domestic product of just 18 billion euros. Laiki, also known as Cyprus Popular Bank, alone took a hit of 2.3 billion euros, according to its 2011 annual report.

What happened between the overnight session in 2011 and the one that ended early Monday morning is a study of how decisions made in closed conference rooms in Brussels — often in the middle of the night and invariably couched in impenetrable jargon — help explain why the so-called European project keeps getting blindsided by a cascade of crises.

“I cannot remember that European policy makers have seen anything coming throughout the euro crisis,” said Paul de Grauwe, a professor at the London School of Economics and a former adviser at the European Commission. “The general rule is that they do not see problems coming.”

Simon O’Connor, the spokesman for the union’s economic and monetary affairs commissioner, Olli Rehn, declined to comment on whether Mr. Rehn had taken a position on the possible impact of the Greek debt write-down on Cypriot banks.

As well as hitting Cyprus over its banks’ holdings of Greek bonds, the European Union also abruptly raised the amount of capital all European banks needed to hold in order to be considered solvent. This move, too, had good intentions — making sure that banks had a cushion to fall back on. But it helped drain confidence, the most important asset in banking.

“The bar suddenly got higher,” said Fiona Mullen, director of Sapienta Economics, a Nicosia-based consulting firm. “It was a sign of how the E.U. keeps moving the goal posts.”

Cyprus, she added, “created plenty of its own problems” and was not aided by the fact that the country’s last president, a communist who left office in February, and his central bank chief were barely on speaking terms. But decisions and perceptions formed more than 1,500 miles away in Brussels and Berlin “didn’t help and often hurt,” Ms. Mullen said.

Cyprus banks, bloated by billions of dollars from overseas, particularly from Russia, had many troubles other than Greek bonds, notably a host of unwise loans in Cyprus at the peak of a property bubble, now burst, and, critics say, to Greek companies with ties to Laiki’s former chairman, the Greek tycoon Andreas Vgenopoulos.

James Kanter contributed reporting from Brussels, and Dimitrias Bounias from Nicosia.

Article source: http://www.nytimes.com/2013/03/27/world/europe/europeans-planted-seeds-of-crisis-in-cyprus.html?partner=rss&emc=rss

Your Money: For Student Borrowers, a Tax Time Bomb

This potential tax bill is a byproduct of federal efforts, including the newly expanded income-based repayment program, that allow you to limit the monthly payments on most federal loans to what you can afford to pay. There’s a formula that uses your income to determine your payment. Then, the federal government forgives any remaining balance, usually after 10 to 25 years.

The catch comes with the forgiveness, since you generally have to pay income taxes on any forgiven debt (unless you were in a program for teachers or worked in a public service job, in which case the taxes go away). For many people, especially those who finished graduate or professional school with six figures of debt, the tax bill could be well into the five figures. And when it comes, you are supposed to pay in full, immediately.

Figuring out just how many people will be in this situation — and just how high the tax bill could be — is a tough task, and not many experts have tried it.

Sorting it all out begins with the repayment programs themselves. Some people signed up for income-contingent payments back in the 1990s. The income-based program came along more recently, and the Obama administration then tweaked it to make it more generous by shortening repayment periods and adjusting the formula used in figuring out the monthly bill.

As of Oct. 31, about two million people had applied for income-based repayment, according to Education Department figures. About 1.3 million had low enough income and high enough debt payments under standard repayment plans to qualify for reduced payment under the terms of the program. Another 440,000 applications were still pending.

In the 2011-12 school year alone, more than 10 million people took out the popular federal Stafford student loans, according to the College Board’s Trends in Student Aid report. Cooper Howes, a Barclays analyst, estimated in a report earlier this month that more than half of all borrowers would be eligible for payment reductions because of their incomes.

If you or your children are borrowers and the income-based repayment program is new to you, you should consult the Project on Student Debt’s ibrinfo.org site, which is about as clear as this complicated topic can get. The Education Department’s site is worth a thorough look, too, as is the New America Foundation’s income-based repayment calculator. I’ve stuffed the Web version of this column with links to these and other pertinent information sources.

Trying to pinpoint the scope of the looming tax issue starts to get more complicated pretty quickly. Not all eligible students will sign up for income-based repayment, since some will not hear about it, will ignore it when they do, will assume or be told (incorrectly) that they can’t qualify or will worry that there is some kind of catch. For those who sign up, it’s awfully hard to predict how many will eventually have some debt forgiven a couple of decades from now.

But Jason Delisle, who has written extensively about the income-linked repayment programs as director of the federal education budget project at the New America Foundation, points to an Office of Management and Budget effort that took a stab at it. The O.M.B. assumed that 400,000 borrowers from 2012 through 2021, each with a beginning average loan balance of about $39,500, would each eventually receive loan forgiveness of about $41,000. Yes, you read that right. The forgiven debt will be more than the original balance, albeit many years later.

At $41,000 of loan forgiveness, the federal tax bill could easily be over $10,000 depending on your tax bracket. There are also state income taxes to contend with, depending on where you live.

But the numbers can go much higher. Stephanie Day earned her bachelor’s degree in her 40s after a divorce, intending to enter the field of social work. She finished in the depths of the recession and could not find work, so she returned to school to get a master’s in psychology to bolster her credentials.

Even then, the jobs available near her home in Seattle were slim, so she moved to a town on the border of New Mexico and Texas for a position there. One home invasion and 12 months of misery at being apart from her children later, she’s now back in Seattle and paying just $30 each month on her $80,000 or so in debt via the income-based repayment plan.

Ms. Day has run the numbers and can foresee a situation where the government will forgive more than $100,000 of her debt, given that her unpaid balance keeps growing thanks to the low payments. And while she expressed dismay that so few people were aware of the tax bill in their future, she does not necessarily mind paying it. “I think it’s perfectly fair,” she said. “I guess I’m old school.”

Article source: http://www.nytimes.com/2012/12/15/your-money/for-student-borrowers-a-tax-time-bomb.html?partner=rss&emc=rss

Ex-Envoy Says U.S. Stirs China-Japan Tensions

The retired diplomat, Chen Jian, who served as an under secretary general of the United Nations and as China’s ambassador to Japan, said the United States should restrain Tokyo and should focus its diplomatic efforts on bringing about negotiations between China and Japan over the disputed islands in the East China Sea known as the Diaoyu by China and the Senkaku by Japan.

In an unusually biting assessment of the United States, Mr. Chen said: “It is in the U.S. interest to quarrel with China, but not to fight with China.”

While Mr. Chen has retired from China’s diplomatic service, his remarks were particularly significant because they represent the most detailed public exposition of China’s views at a time when Chinese officials have been wary of making comments because of the approaching Communist Party Congress, which is scheduled to begin in Beijing on Nov. 8.

In the speech, which was organized by the Chinese Ministry of Foreign Affairs and was attended by half a dozen Chinese diplomats, Mr. Chen held out an olive branch by urging that discussions between Japan and China should start on ways to reduce the risk of clashes between Chinese and Japanese patrol vessels that have gotten perilously close off the islands in the last month.

But the thrust of his speech was more hard-hitting, particularly regarding the United States. Some in China and Japan see the issue of the islands “as a time bomb planted by the U.S. between China and Japan,” he said. “That time bomb is now exploding or about to explode.”

Mr. Chen accused the United States of encouraging the right wing in Japan, and fanning a rise of militarism.

“The U.S. is urging Japan to play a greater role in the region in security terms, not just in economic terms,” he said during his speech at the Foreign Correspondents’ Club in Hong Kong. That “suits the purpose of the right wing in Japan more than perfectly — their long-held dream is now possible to be realized.”

The United States has said that, in the event of conflict, the disputed islands are covered by its mutual defense treaty with Japan, a position that China has severely criticized since the latest dispute flared last month.

Mr. Chen described what he called the intervention of the United States in territorial disputes in the South China Sea — where China has been at odds with another American ally, the Philippines — as a way for the United States to expand its influence and restrain the influence of China.

“Will these countries misjudge and draw China and the United States into a confrontation?” Mr. Chen asked. “The danger is apparent, and China needs to be aware of that.”

Mr. Chen, who is now dean of the School of International Studies at Renmin University in Beijing, offered a lengthy list of suggestions and assurances for how China hopes to resolve tensions with its neighbors.

“China does not seek to provoke incidents, and will not be the one to do so first,” he said. He said that China had only sent administrative vessels to the disputed islands, not warships from its navy.

Mr. Chen said major changes in Chinese foreign policy were unlikely to follow the selection of a new leadership team at the Party Congress. “I think it’s going to be a smooth change, and the main tenets of our foreign policy will remain very much the same,” he said.

By far the biggest threat to stability in the region are the islands where Japan and China are at odds. Little more than rocky outcrops in shark-infested waters, Japan won the islands as the spoils of war in the Sino-Japanese War in 1895. The United States took over administration of the islands at the end of World War II.

China expected that Japan as a defeated nation would have to give up the islands, and that they would be returned to China. But the islands were not returned, rankling China and Taiwan ever since — a rare issue on which those two agree.

The San Francisco Peace Treaty between Japan and the Allies in 1951 did not clearly establish sovereignty of the islands.

In 1972, the United States returned the disputed islands to Japan, and Japan has administered them since. When China and Japan restored diplomatic relations in 1972, the leaders of the two countries decided to shelve the question of sovereignty of the islands until a future date.

The Obama administration has stated that even though it would come to Japan’s side in the event of conflict over the islands, it takes no position on the sovereignty of the islands.

The issue burst into the open last month when the Japanese government announced it was purchasing several of the islands from a private family that has owned them for some years. China denounced the purchase as “nationalization” of the islands.

The government of Prime Minister Yoshihiko Noda argued that it bought the islands to prevent them from falling into the hands of Shintaro Ishihara, a right-wing politician who last week announced he was leaving office as the governor of Tokyo.

Because the islands were transferred from one Japanese entity to another, Mr. Noda’s government says that the status quo has not changed, and that there is no need to open negotiations with China over the issue at this time.

Japan and China have both had patrol vessels near the islands and each other in recent days. The Japanese Coast Guard and the Chinese State Oceanic Administration each said in separate statements on Tuesday that their vessels had demanded that the other side’s ships should leave the area.

Prime Minister Wen Jiabao of China and Mr. Noda are scheduled to attend a meeting in Laos next week. The Japanese news media reported Tuesday that there were no plans for the two men to hold a formal talks to resolve differences, although they might have an informal meeting on the sidelines.

Article source: http://www.nytimes.com/2012/10/31/world/asia/in-speech-organized-by-beijing-ex-diplomat-calls-islands-dispute-with-japan-a-time-bomb.html?partner=rss&emc=rss

Common Sense: In H.P.’s Ouster of Hurd, a Question of Truth or Titillation

An excerpt from the latest Danielle Steel or Jackie Collins novel? Hardly. This is a passage from the letter that set off one of the most remarkable tales in modern boardroom history and cost Mark V. Hurd his job as chief executive of Hewlett-Packard, the world’s largest computer company. A year and a half after the letter dropped like a time bomb on to the desk of H.P.’s general counsel, the question persists: How much of it is fiction?

Written in a breathless narrative style and signed by Gloria Allred, the prominent feminist lawyer who represents Jodie Fisher, a former H.P. consultant, the letter was unsealed a week and a half ago by the Delaware Supreme Court after Mr. Hurd intervened in pending shareholder litigation to try to keep it secret.

The letter is, to the best of my knowledge, unprecedented in the annals of boardroom history. It purports to convey explicit dialogue: “So you’ll stay the night, right? You’ll stay?” It explores the characters’ inner thoughts and states of mind, even Mr. Hurd’s: “You were outraged and felt insulted by her;” “She felt tired, irritated and depressed, sad and mad.” It contains brand name detail like the Ritz Hotel and glamorous foreign locations: “You went in a Town Car from the hotel to the Combarro Restaurant in Madrid.” And it employs rarely used second-person narration, consistently referring to Mr. Hurd as “you.” In this regard it joins best sellers like Jay McInerney’s “Bright Lights Big City” and Terry McMillan’s “Waiting to Exhale,” as well as classic works by Nathaniel Hawthorne and John Updike.

I have to congratulate Ms. Allred — it’s one of the few legal documents I can describe as a page-turner. Stripped of its literary flourishes, it boils down to a supposedly two-year campaign by Mr. Hurd to have sex with Ms. Fisher, a former soft-core movie actress whom H.P. hired as a consultant to help host so-called executive summit events for the company.

In the course of those years, Mr. Fisher contends that Mr. Hurd let his hand brush against her breast, asked her to spend the night with him, asked her to hug him and hugged her while she was dressed in a robe, once put his arms around her and “quickly” kissed her on the lips, asked her to “go away” with him and said he could spend the rest of his life with her. She mentions several occasions when they were alone together in his or her hotel room and sometimes chatted about movies and sports. She insists that she rebuffed all these approaches, that there was no sexual activity and that, as a result, her consulting contract wasn’t extended. Abruptly dropping the role of omniscient narrator, Ms. Allred concludes that Mr. Hurd’s behavior amounts to “the most egregious type of sexual harassment.”

Taken as true, Ms. Fisher’s allegations seem to meet the threshold for sexual harassment in California, which is “verbal, visual, or physical conduct of a sexual nature or of a hostile nature based on gender, that were unwelcome and pervasive or severe.” But Mr. Hurd wasn’t forced to resign for sexual harassment, and it’s not clear that the central elements of Ms. Fisher’s allegations are true. She settled the matter and promptly shattered her credibility by conceding that the letter contained “many inaccuracies,” without specifying what they were. She has since declined to comment, as both she and her lawyer did when I contacted Ms. Allred this week.

Putting the details aside, to believe Ms. Fisher, you have to accept her claim that Mr. Hurd, a married chief executive of a Fortune 500 company who, by her account, had plenty of other women at his disposal, pursued her for two years while being constantly rebuffed. And e-mails from her to Mr. Hurd suggest that whatever transpired between the two of them, Mr. Hurd’s attentions were hardly unwelcome, which is a critical element of any sexual harassment claim.

Among her communiqués during the time of the supposed harassment, which spanned from 2007 to 2009: “You’re fun. You just are.” (January 2008); “I AM SO EXCITED. Can I just say that a few hundred times!” (March 2008); “Hope you have a great 4th and get to enjoy your family.” (July 2008); “I’m rooting for you. Thanks for keeping me in mind for any C.E.O. events!” (June 2009). As for her claim of retaliation, H.P. has said Ms. Fisher’s services were no longer necessary after the company sharply scaled back executive events in the wake of the financial crisis.

Article source: http://feeds.nytimes.com/click.phdo?i=1cb4196b402add36a27da71bbbcb4ca7