Financial Times Europe - 06.09.2019

2 ★ FINANCIAL TIMES Friday6 September 2019

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H E BA SA L E H —CAIRO

Days before campaigning began for

Tunisia’s presidential election, Nabil

Karoui, a television tycoon and the

populist frontrunner in the poll, was

arrested and thrown in jail.

His supporters blame Youssef Chahed,

the prime minister and a competitor in

the presidential race, for the decision to

resurrect the 2016 allegations of tax

evasion and money laundering. Mr

Karoui as denied all the charges and,h

unless convicted, will be able to stand in

the September 15 poll, even if he is still

in jail.

His arrest and the presence of more

than 20 other candidates on the ballot

paper have added to the uncertainty

about who will secure the top job in the

Arab world’s only democracy. In a

line-up that also includes Tunisia’s

defence minister and a senior Islamist

leader backed by the largest party in

parliament, few would predict who the

next president will be — a rarity in a

region where political change through

the ballot box remains unusual.

Of the Arab countries that rose up

against dictatorship in 2011, Tunisia is

considered the only successful example

of a democratic transition.

Unlike in the other elections held

since 2011, thebitter polarisation

between Islamists and their secular

opponents that almost scuppered the

transition in its early years has largely

faded, a development commentators

see as positive.

Nahda, the party rooted in the coun-

try’s Islamist movement and the biggest

force in parliament, hasemphasised its

moderate credentials and willingness to

compromise with its political rivals.

Years of austerity and tough economic

conditions havemeant that voters are

less focused on ideology and more on

declining living standards.

“We have been saying that ideology is

not the issue,” said Said Ferjani, a senior

Nahda leader. “You have to deliver to

citizens their needs and to deliver pros-

perity. Even among our base, ideology

has faded and people want jobs, better

healthcare and better education and

infrastructure. The rest has become

increasingly irrelevant.”

The secular camp has also fractured

into several groups, according to Hamza

Meddeb, non-resident scholar at the

Carnegie Middle East Center think-

tank. “Many of them have been allies of

the Islamists in government, so they

cannot mobilise a narrative of protect-

ing society from the Islamists.”

This has all contributed to the rise of

Mr Karoui, founder of the Nessma TV

channel. Dubbed Tunisia’s equivalentto

Italian media magnate Silvio Berlus-

coni,he previously backed Nidaa

Tounes, the party that brought together

remnants of the old regime, secular and

rightwing figures to fight Nahda in the

last elections. The 56-year-old has since

formed his own party, QalbTounes.

Even though the accusations against

him have long been common knowl-

edge, his frequent TV appearances and

philanthropy on camera — such as fund-

ing medical treatment for the poor —

have secured him a large following.

This largesse has resonated with

Tunisia’s voters who are struggling to

get by in an economy battered by politi-

cal uncertainty and terrorism attacks.

Under a loan agreement with the IMF,

the government has had to cut spending

and contain the civil service wage bill.

This led to periodic outbursts of wide-

spread rioting by people angry at job-

lessness and austerity measures.

Unless Mr Karoui is convicted before

the election —unlikely because of the

short timeframe, analysts said — his

name will be on the ballot.

Thelatest opinion poll, published in

July before his arrest, forecast his party

would secure 30 per cent of the vote,

compared with 17 per cent for Nahda.

“Karoui has been clearly focusing on

poor people and clearly arguing that

they have been abandoned,” said Mr

Meddeb. “He is playing the part of anti-

establishment even if he is establish-

ment in every way.”

Presidential poll

Tunisian ‘Berlusconi’ leads election race from prison cell

Nabil Karoui’s philanthropy has

secured him a large following

H E N RY F OY —VLADIVOSTOK
R O M A N O L E A R C H Y K— KIEV

A pro-Russian separatist linked to the
downing of aMalaysia Airlinesflight
over eastern Ukraine has been released
by a Kiev court, raising speculation he is
part of a prisoner exchange signalled
yesterday by Vladimir Putin.
Volodymyr Tsemakh, identified by
Dutch investigators as a “person of

interest” inthe 2014 missile attack that

killed all 298 people aboard the Boeing

777, was released on bail. Among the

dead were 196 Dutch nationals.

The Russian president told a confer-

ence in Vladivostok yesterday that a

“large-scale” prisoner exchange

between Kiev and Moscowwould take

place “in the near future”.

The step could help ease relations

between Moscow and Kiev, broken off

over Russia’s 2014 annexation of Crimea

and involvement in the conflict in east-

ern Ukrainethat began the same year.

But the move has raised fears in the

west that any deal could undermine the

international investigation into the

attack on flight MH17 from Amsterdam

to Kuala Lumpur. Moscow and Kiev

have for years been involved intalks to

exchangeprisoners from a conflict that

has claimed more than 13,000 lives.

Negotiations have gained momentum

since Volodymyr Zelensky was elected

Ukraine’s president in April and moved

swiftly to initiatetalks with Russia.

“Returning Ukraine’s occupied Cri-

mea, cessation of hostilities in Donbas

and releasing over 100 political prison-

ers and Ukrainian sailors that the Krem-

lin currently holds would signal [to] the

world that Russia can be allowed back to

its place at the top table of global diplo-

macy,” Mr Zelensky said last month.

Pro-west Mr Zelensky, who adopted a

hardline stance towards Moscow in his

election campaign, is seeking the release

of 24sailors detained off Crimea last

year and, among others, Oleg Sentsov,

theCrimean film-maker, and Roman

Sushchenko, the journalist.

Along with Mr Tsemakh, Russia is

said to want Kirill Vyshinsky, a Russian

journalist suspected of separatist activ-

ity in Ukraine, included in theswap.

Moscow and Kiev have neither con-

firmed nor denied reportsMr Tsemakh

would be part of any exchange.

Dutch prosecutors hadurged Kiev not

to hand Mr Tsemakh over to Russia or

allow his escape to Ukraine’s breakaway

eastern region. erd Grapperhaus, theF

Netherlands justice minister, yesterday

urged Ukrainian authorities to reverse

the decision.

While presenting evidencethe missile

system was brought intoUkraine from

Russia,investigators have stopped short

of directly implicating Moscow. Investi-

gators have so far charged three Rus-

sians and a Ukrainian for their involve-

ment. Mr Tsemakh is not among them.

Russia has denied involvement.

Additional reporting by Mehreen Khan

Missile attack

Ukraine frees separatist in MH17 case

‘Person of interest’ given

bail as Russian leader

flags prisoner swap

A I M E W I L L I A M S —WASHINGTON

M E H U L S R I VA STAVA —TEL AVIV

Donald Trump’s Middle East peace

envoy is to step down, raising fresh

doubts about the release of a US plan to

ease the Israeli-Palestinian conflict.

Jason Greenblatt, who has been accused

by the Palestinians of supporting a

rightwing Israeli agenda, has worked for

years with Jared Kushner, Mr Trump’s

son-in-law and senior White House

adviser, on the proposal the president

has billed as the “deal of the century”.

While details of the plan have

remained secret, Mr Greenblatt has

pushed consistently for punitive meas-

ures against the Palestinian Authority,

accusing it of supporting terrorism, and

cutting nearly all US aid to Palestinian

refugees and their descendants.

His unexpected departure, weeks

before an election in which Benjamin

Netanyahu, Israel’s prime minister, has

campaigned on plans to annex large

portions of the occupied West Bank,

throws doubt on whether the deal will

be released, and when.

Mr Trump tweeted yesterday that Mr

Greenblatt was leaving to “pursue work

in the private sector”.

A senior administration official said

“the vision is complete and will be

released when appropriate”. The official

added that the White House had been

preparing for Mr Greenblatt’s departure

since the end of 2018, and that Avi

Berkowitz, an adviser to Mr Kushner,

had become “more involved” as a result.

Brian Hook, the state department’s Iran

envoy and his team, had also been

brought closer into the process.

The White House unveiled part of the

plan in June when it was outlining an

economic revival plan for the Palestini-

ans that it hoped to persuade the inter-

national community and private busi-

nesses to fund.

The White House said the plan would

“facilitate” $50bn of spending in Pales-

tinian territories over the next decade.

But it has so far produced zero pledges

and was dismissed by the Palestinians,

who boycotted the event, as a failed

publicity stunt.

Mr Kushner’splan has had little input

from the Palestinians, who officially cut

ties with the administration in Decem-

ber 2017, when Mr Trump announced

his decision to move the US embassy

from Tel Aviv to Jerusalem.

Palestinians, alongside the vast

majority of the international commu-

nity, have advocated for a Palestinian

nation to be created largely within the

borders delineated after the 1967 war,

with East Jerusalem as a capital.

The US in March also recognised

Israeli sovereignty over the Golan

Heights, reversing half a century of US

policy. Israel seized the territory from

Syria in 1967 and applied Israeli law

there in 1981 in an annexation rejected

by the international community.

Since his election, Mr Trump has cut

aid to Palestinian refugees and

denounced their leaders for refusing to

co-operate with the peace plan.

Palestinians regarded Mr Greenblatt

as part of a quartet one official described

as the “four horsemen of the apoca-

lypse” who embraced the Israeli govern-

ment’s narrative that the Palestinian

Authority sponsored terrorism and that

the creation of a viable Palestinian state

would be a security risk for Israel.

Middle East

Trump peace

plan in doubt

after envoy

stands down

An aerial view shows the devastation

wreaked by Hurricance Dorian on

Marsh Harbour, Great Abaco Island

in the Bahamas. The hurricane has

led to the deaths of least 20 people,

and more fatalities are expected to be

declared.

The UN reported about 70,

people in the Bahamas needed

humanitarian relief.The

International Federation of Red Cross

and Red Crescent Societies said

13,000 homes were destroyed or

severely damaged.

As Dorian makes its way up the

east coastof the US, 830,000 people

were under mandatory evacuation

orders inSouth Carolina. Dorian was

briefly assigned a category 3

hurricane, then dropped back to

category 2, with winds of 110mph.

Bahamas

Islands count

cost of Dorian

M A RT I N A R N O L D— FRANKFURT

When policymakers at the European
Central Bank meet next week todebate
the prospect f a fresh economic stimu-o
lus package, one of the key issues on the
table will be whether their own meas-
ures are doingmore harm than good.
The era of unprecedented monetary
policy loosening that Mario Draghi
launched in 2012, when he declared that
he would do “whatever it takes” to sup-
port the single currency, heralded a shift
towards negative interest rates. The
ECB’s main deposit rate hit zero that
year and successive cuts have left it at
minus 0.4 per cent since 2016.
But as the ECB prepares to debate fur-
ther cuts, questions are growingabout
whether the downsides outweigh the
positives. Critics say that negative rates
weaken the eurozone’s already strug-
gling banking system, discouraging

lending and motivating insurers, banks

and savers to hoard physical cash.

Volker Hofmann at the Association of

German Banks said eurozone lenders

pay €7.5bn a year in negative rates on

the excess deposits they hold at the ECB,

adding: “It is a remarkable burden for

banks who find it more or less impossi-

ble to convey this cost to retail savers.”

Banks are the main source of finance

for European companies and house-

holds, making them an important trans-

mission mechanism for monetary pol-

icy. But many banks’ shares are trading

below their book value and their return

on equity remains below their cost of

capital in most cases, underlining how

the sector has struggled to recover from

the financial crisis.

The debate about negative rates

hinges on the idea of apoint below

which further cuts in a central bank’s

deposit rate subdue lending activity by

banks. Research published last month

by economists from the US Treasury

department, andBath,Sharjah and

Bangor universities found “robust” evi-

dence that bank lending growth was

weaker in countries with negative rates.

The impact was greatest on banks

funded mainly by retail deposits.

It has become more common for Euro-

pean banks to charge fees for current

accounts, but they only mitigate a frac-

tion of the extra cost of negative rates.

Jean Pierre Mustier, chief executive of

Italy’sUniCredit andpresident of the

European Banking Federation, said: “In

such an environment it is important

that European banks are not put at a

competitive disadvantage in terms of

ability to attract capital because their

profitability might be structurally lower

than others, namely the US.”

Olaf Scholz, German inance minister,f

said recentlyhe would examine whether

it was possible to protect savers byban-

ning banks rom passing on the cost off

what he called the ECB’s “penalty rates”.

Mr Draghi has always insisted that

while some policies may have negative

side-effects, the overall impact ofthe

bank’sloosening has been beneficial.

Bank lending to households in the

eurozone has increased more than 10

per cent since the ECB first cut into neg-

ative territory in June 2014, while cor-

porate lending has grown by almost 4

per cent. Philip Lane, the ECB’s new

chief economist, said ina recent speech

that without the central bank’s efforts

both growth and inflation would have

been significantly lower.

Christine Lagarde, who is set to suc-

ceed Mr Draghi at the helm of the ECB,

last week said that “while I do not

believe that the ECB has hit the effective

lower bound on policy rates, it is clear

that low rates have implications for the

banking sector and financial stability

more generally”. The ECB should

“closely monitor whether adverse side

effects may emerge in the future, the

longer low interest rates are in place”.

As well as discussing whether to cut

rates again, the ECB’s governing board

will next week also consider whether to

mitigate the impact on banks.

One option is a tiering system in

which a portion of banks’ excess depos-

its are exempt from negative rates.

Other countries with negative deposit

rates, including Switzerland, Denmark

and Japan, have similar systems.

And the ECB has another option: sub-

sidised lending.A third programmeof

subsidised loansis set to launchthis

month. The targeted longer-term refi-

nancing operation ill lend at a slightlyw

more expensive rate than the previous

two, but the ECB could choose next

week to sweetenterms.

Even if it launches these mitigation

measures, some analysts believe the

ECB is rapidly approaching the point at

which the economics shift in favour of

hoarding cash.

Eurozone. timulusS

ECB to consider damage done by negative rates

Economists debate effect of

such measures on banks as

policymakers prepare to meet

Eurozone banks’ lending

Year-on-year change by borrower

type ()

Source: ECB

-

   

Households

Companies

ECB cuts policy rate

to - per cent

ECB cuts rates

into negative

territory

I N T E R N AT I O N A L

Brendan Smialowski/AFP/Getty Images

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SEPTEMBER 6 2019 Section:World Time: 9/20195/ - 18:48 User:john.conlon Page Name:WORLD1 USA, Part,Page,Edition:EUR, 2, 1