Tag Archives: battle

Rothschild loses battle over Bumi

21 February 2013 Last updated at 18:43 GMT Nathaniel Rothschild Nathaniel Rothschild was hopeful of regaining control of Bumi, a company he helped found Financier Nathaniel Rothschild has lost his bid to oust the current board of coal mining giant Bumi, the company he helped to found.

Chairman Samin Tan survived a vote to remove him but informed the board he was stepping down.

Mr Rothschild had wanted to rejoin the company and expel 12 of the 14 board members, including the chief executive and chairman.

Shareholders rejected his attempts and voted to remove just two members.

Chief executive Nick von Schirnding also managed to keep his post, with more than 60% of votes cast in his favour at the London meeting.

Mr Tan, who received 57% of votes in favour of his retention, said he would resign once a new independent chairman was found.

The company said it would look for a new chairman “who has experience in, and is familiar to, the London market”, according to a statement.

The two members who were ousted were Jean-Marc Mizrahi and Nalinkant Rathod.

Mr Rothschild set up Bumi with the influential Bakrie family, part of Indonesia’s political and business elite, in 2011.

The deal was intended to offer international investors the chance to buy into natural resources assets in emerging markets while ensuring they were protected by UK market rules.

Fraud allegations

But the partnership, and relations with the Bakrie family, soured after Mr Rothschild called for a radical clean-up at the firm.

To make matters worse, he made allegations of potential misuse of development funds and other assets at the firm in September 2012.

Allegations of financial irregularities at Bumi’s key Indonesian operating subsidiary, PT Bumi Resources – in which it owns 29% alongside the Bakrie family – first emerged that month, after Mr Rothschild received information from a whistleblower.

However, an investigation by legal firm Macfarlanes, commissioned by the London-listed parent company, said the evidence provided to Mr Rothschild comprised emails that had been obtained illegally, something Mr Rothschild denies.

Macfarlane said the claims that money intended to finance development of coal mines had been misappropriated could not be substantiated, in large part due to “the unwillingness of key parties to be interviewed and provide information”.

Bumi’s management said that it had referred the matter to the relevant authorities, including the Indonesian financial services authority, and the UK Serious Fraud Office.

Mr Rothschild quit the board in October.

Bumi’s new chief executive, Mr Schirnding, has negotiated an amicable divorce with the Bakrie family, including the sale of the family’s stake in PT Bumi Resources for $580m (£370m), and the family’s divestment of its 24% in the London-listed company.

But the board warned that the deal would be scuppered if Mr Rothschild succeeded in retaking control of the company.

The company’s share price has slumped 60% since it listed in 2011.

Bumi’s bitter boardroom battle

21 February 2013 Last updated at 19:40 GMT By Karishma Vaswani BBC News, Jakarta A boardroom battle for the control of an Indonesia coal firm is heating up ahead of a crucial shareholders’ meeting.

It was a financial battle that pitted one of Asia’s most powerful families against one of Europe’s oldest financial dynasties.

But it came to a close on Thursday when shareholders in Bumi decided in favour of the Bakrie family, part of Jakarta’s political and business elite, to control the London-listed coal mining firm.

Their main rival, Nat Rothschild, whose family have been in banking for centuries, was defeated in his attempt to oust Bumi’s board of directors, including the chairman and chief executive, and rejoin a company he had helped found.

The battle for Bumi, which controls coal mining assets in Indonesia, was played out across two continents, seen allegations of fraud and internet espionage, and cost shareholders and investors millions of dollars in lost returns.

For those of you who do not know the Bakries, their name is synonymous with power in Indonesia.

Aburizal Bakrie Aburizal Bakrie is running for president of Indonesia next year

The family-run company has some 200 holdings in businesses ranging from mining to media.

The current patriarch of the Bakrie clan, Aburzial Bakrie, is running for president in 2014 and has served in previous government cabinets. He is also the head of one of the biggest political parties in the country, Golkar, which former President Suharto also belonged to.

But while they wield significant influence, the Bakries have also had their fair share of controversy to deal with.

In recent weeks, the company has been criticised for the time it has taken to pay compensation to victims of a mud-flow disaster in Lapindo, East Java.

The group has also had to fight off allegations of tax evasion, and during the Asian Financial Crisis in 1997, there was even speculation that the group could collapse.

But each time, the Bakries have managed to emerge from their difficult times.

The beginning

The Bumi saga started in 2010 when Mr Rothschild saw an opportunity to create a company which would offer international investors the chance to buy into natural resources assets in emerging markets, but also ensure they were protected by UK market rules.

The terms of the deal were simple – the Bakries would hand over a stake in their coal assets in Indonesia, Mr Rothschild would roll them into a cash shell called Vallar, now known as Bumi Plc, and list the firm on the London Stock Exchange.

However, some were sceptical about the move right from the beginning.

Continue reading the main story
If we had done something wrong we would have been afraid of it coming out. We’re not afraid”

End Quote Chris Fong Bakrie Group “A lot of analysts and politicians actually saw it as an attempt by the Bakries to sell their assets to foreigners,” says Rendi Witular, the managing editor of the Jakarta Post who has covered the various twists and turns of story.

“And there was suspicion that a foreign entity might be able to take over Indonesia’s valuable resources.”

The turning points

When the deal was struck, Mr Rothschild or the Bakries congratulated each other on pulling together such a sophisticated, and what they thought, would be an immensely lucrative arrangement.

But then three things happened that changed everything.

First, coal prices slumped dramatically as a result of the global slowdown.

Second, it became increasingly apparent that the two sides had very different ways of conducting business.

And third, arguably the most damaging of the factors, Mr Rothschild issued a public letter late in 2011 in which he made damning allegations about “financial irregularities” in PT Bumi Resources, the Indonesian coal asset of the Bakries in which Bumi Plc owns a stake.

He called for a radical clean-up of the firm, something his Indonesian partners said was not necessary.

Bumi's Nathaniel Rothschild and Bakrie Brothers Chief Executive Officer Bobby Gafur Umar Relations between Mr Rothschild and the Bakrie group have soured since the deal was signed in 2010

“We didn’t do anything wrong,” Chris Fong, spokesman for the Bakrie group, tells the BBC.

“We knew London had a certain standard before we went into business with him [Mr Rothschild]. If we had done something wrong we would have been afraid of it coming out. We’re not afraid.”

Mr Fong also said that Nat Rothschild was playing games and trying to get publicity so as to oust the Bakries.

“He was making accusations about us and he knows who we are in Indonesia,” said Mr Fong. “He knows that this was going to get a lot of publicity, and that is what he wanted.”

The allegations Mr Rothschild made were that around a billion dollars worth of funds had gone unaccounted for at the Indonesian coal miner.

The Bakries have denied that there were any such financial irregularities.

Bumi was also keen to point out that “the unwillingness of key parties to be interviewed and provide information” meant it could not prove the allegations.

The way Mr Rothschild claimed to have learnt about the alleged irregularities was also significant.

Mr Rothschild said he had received the information from a whistleblower, but did not disclose the name of his source.

However, Bumi said that an investigation carried out on its behalf by London law firm Macfarlanes revealed that the information had been “obtained illegally by email hacking”.

Mr Rothschild, who stepped down from the Bumi board late last year, has denied any suggestions he acted illegally or unethically.

The final episode? Protestors hold banners against the Bakrie group outside their office The Bakrie group has seen its fair share of controversies over the past years

The saga has cast a shadow over Indonesia’s corporate image.

“It has made Indonesia look like a hostile place to do business in,” says Mr Witular of the Jakarta Post.

Mr Witular says that over the past few years, Indonesia has done a lot to eradicate the practice of cronyism that was rife during the reign of former Indonesian President Suharto, who ruled the country with an iron fist for more than three decades.

However, critics say that although Indonesia is now a vibrant and flourishing democracy, some big business tycoons still operate with a remarkable lack of transparency.

The fear is that the Bakrie saga may make some foreign investors nervous about doing business in Indonesia.

And that is something that does not bode well for any of the parties involved.

UK braced for EU benefits ‘battle’

Mr Duncan Smith said “a number of countries” supported the UK’s position

The UK is facing a “big battle” in the EU institutions over rules governing access to benefits, Work and Pensions Secretary Iain Duncan Smith has said.


On the BBC’s Andrew Marr Show, Mr Duncan Smith accused EU officials of trying to “take control” of polices previously left to member states.


“Social security and welfare has never been in the province of the European Union,” he said.


But Labour accused ministers of “windy rhetoric” on access to benefits.


The government is trying to tighten the requirements on who is able to claim benefits in the UK, Mr Duncan Smith said.

‘Fight’

One way to do this would be to change the rules so that fewer migrants are deemed to be “habitual residents”.


Controls on Bulgarian and Romanian nationals coming to live and work in the UK will be removed in 2014, but the secretary of state denied that these two countries were being “singled out”, since the government wants the new rules to “apply to everybody”.


The work and pensions secretary accused the European Commission of trying to “reach in… so they can take control” of welfare policy: “We should say: ‘No, this is set by national governments.’”

Continue reading the main story
I think what we need is action from the government, rather than windy rhetoric about what they’re going to do”

End Quote Ed Miliband Labour leader “That’s a big battle that I’m having with the Europeans,” he said. “They’re already trying to infract me over the strength of our position, on habitual residency tests.


“They’re trying to say that we don’t have the right to do any kind of tests.”


But the UK had found some allies in Europe, he said: “People like the Dutch and the Scandinavians are all on our side. So there’s a big fight.


“We think, all of us, those northern European countries, we need to tighten up. We’ve got a number of countries on our side, and I think we will be able to tighten up and make those regulations much tougher for people coming in just to take advantage of our benefits system.”


The work and pensions secretary said the European Commission had “got to understand” that “people shouldn’t use the free movement rules just to travel around, looking for the best benefits they can get”.

‘Pointless’

But, in response to a question on whether he would like the UK to abandon the policy of freedom of movement within the EU entirely, he said: “No, because… we are beneficiaries as much as anybody else is, about many British people going to work abroad.


“So it’s getting the balance right: we want people to be able to travel to work, but we don’t want them to be able to travel to claim benefits.”


He also described attempts to predict the number of Romanians and Bulgarians that would come to live in the UK as “pretty pointless”.


Last month Communities Secretary Eric Pickles told the BBC’s Sunday Politics he had seen such an estimate but did not have confidence in it.


Mr Duncan Smith said it was possible to get a “better picture” of where they would be likely to settle if you “look at where the Romanians have gone already”.


“The majority of Romanians have settled at the moment in Germany, and ironically in Spain, where I thought there was a real problem with jobs.


“We are ready though to make sure that they can’t come here and claim benefits.”

‘Rogue employers’

In an interview for BBC 5Live’s Pienaar’s Politics, Mr Miliband warned the government: “Don’t start floating things unless you know that they’re actually possible to be done.”


He said Labour would closely examine any proposals to limit access to benefits for Bulgarian and Romanian immigrants.


But he added: “I think it’s very, very important that you don’t raise people’s expectations and then find that you can’t actually make a difference.”


The opposition leader urged the government to “clamp down on rogue employers, who bring people in and then pay less than the minimum wage, who have 10 to 15 people in a house.


“All of those things undercut workers already here, and exploit workers coming here. I think what we need is action from the government, rather than windy rhetoric about what they’re going to do.”


Immigration had been “good for our country, socially, economically, culturally”, he added.

Google beats regulator in legal battle over advertising


Google has won its High Court battle against the ACCC over claims of misleading advertising.


The case arose after some Google customers set up their sponsored links using the names of competitors.


The alleged offences occurred between 2005 and 2008, with the companies using a self-service tool called AdWords to set up the links.


If clicked on, the sponsored links took customers who were searching for one company to the website of a rival firm.


The Australian Competition and Consumer Commission (ACCC) said Google was liable for the misleading information under the Trade Practices Act, but Google argued it only displayed the ads and could not be held responsible.


Google successfully defended the action at first instance, before the ACCC won an appeal to the Full Court of the Federal Court.


However, the High Court has unanimously overturned that Full Court decision.


It found that Google did not itself create the sponsored links that it displayed, and ordinary users of the search engine would have understood they were ads and it was the advertisers making the representations not Google.


The court found that reasonable users would not have concluded that Google adopted or endorsed the representations.


The global internet search giant released a one-sentence statement welcoming the decision.


“We welcome the High Court’s unanimous decision that Google cannot be held responsible for the ads that advertisers create for Google’s search engine,” a spokesperson said.


The ACCC has also released a statement saying it will be assessing the ramifications of the decision for consumers in the internet age.


ACCC chairman Rod Sims says the regulator believed that providers of online content should be responsible for misleading or deceptive conduct when they have significant control over what is presented.


“The High Court’s decision focused only on Google’s conduct. In the facts and circumstances of this case the High Court has determined that Google did not itself engage in misleading or deceptive conduct,” he noted in the statement.


“It was not disputed in the High Court that the representations made in sponsored links by advertisers were misleading or deceptive.”


With internet search providers seemingly off the hook after this verdict, Mr Sims has warned companies placing ads online that they are still liable if they are found to be misleading consumers.


“It remains the case that all businesses involved in placing advertisements on search engines must take care not to mislead or deceive consumers,” he added.

Topics: business-economics-and-finance, company-news, fraud-and-corporate-crime, information-and-communication, australia

First posted February 06, 2013 10:26:13

Legal battle looms over Gunns plantations


Administrators for the collapsed timber company Gunns have raised the prospect of legal battles over the ownership of thousands of hectares of timber plantations.


Hundreds of land owners in several states received regular rental payments for managed investment schemes marketed by Gunns, until the company went into administration in September.


Now administrators PPB Advisory have told most landholders they have no prospect of receiving rent for land used in the schemes.


But the administrators say the trees themselves remain the property of investors.


PPB’s Daniel Bryant expects some land owners to dispute that.


“No doubt there will be land owners who feel that they have an interest in the trees,” he said.


“We are simply writing to the land owners saying that from one February we won’t be liable for the rent.


“Now that gives rights to landowners to make applications to court for possession of the land, but in that regard, it’s complex and it’s a legal process.”


PPB last year won a court order to suspend rent payments.


That period ended yesterday and the administrators say they had no choice but to abandon the leases.

Topics: timber, forestry, courts-and-trials, tas, hobart-7000, launceston-7250

First posted February 01, 2013 11:47:55

Portsmouth set for court battle

Portsmouth’s administrator Trevor Birch heads to the Royal Courts of Justice on Thursday warning that the club could be liquidated if Fratton Park is not sold to Pompey Supporters’ Trust.

Administrators PKF are hoping a judge will rule in their favour and force Balram Chainrai to release his charge.

Chainrai is owed £12m by the club and holds Fratton Park as security.

“Liquidation is a real possibility if the PST is unable to complete its bid,” Birch told BBC Sport.

PST - The Supporters’ Trust hoping to buy Portsmouth Football Club. PKF - The administrators dealing with the sale of Pompey. Portpin - Former owners of the club led by Balram Chainrai who are also vying for control of Pompey. Walker Morris - Law firm representing Portpin/Chainrai. Sacha Gaydamak - Proprietor of land around Fratton Park owned through Miland Developments. David Rubin & Partners LLP - Administrators of Miland Developments. Portsmouth have been in administration since February and are said to be £61m in debt.

The case will be heard at the Rolls Buildings of the Royal Courts of Justice on Thursday and Friday, with the verdict expected later that day.

The hearing begins at 10:30 GMT and will be heard by Mr Justice Sales in court 17.

PKF have agreed the conditional sale of the club to the PST – but it is based on the Trust being able to purchase Fratton Park.

Former owner Chainrai controls the stadium – through his company Portpin – and the Hong Kong-based businessman has also tabled a bid to take the club over for a third time.

Chainrai will not attend Thursday’s hearing, with Portpin being represented by law firm Walker Morris.

“The purpose of the hearing is to ask the Court to give the administrators permission to sell Fratton Park, which is currently subject to a mortgage in favour of Portpin,” added Birch.

“The Court will also, at the same hearing, determine the ‘market value’ of the property after listening to expert witnesses.

“If the Court agrees with the value that the PST has placed on the property, then a sale of the club to the PST can proceed very quickly.

“It is impossible at this stage to predict what will happen if we lose because there are so many variables.”

The PST has had Fratton Park independently valued and offered Chainrai £2.75m for the stadium, but he has refused to sell.

Chainrai has previously described the PST’s bid for the club as having “no substance” believing his firm, Portpin, was the only bidder with the “experience and money to return Portsmouth to its glories”.

However, Chainrai has since suspended his bid for the club.

On Monday the Football League said they will approve the PST as owners if two areas can be resolved.

Those two areas are “the outcome of the current High Court proceedings relating to the ownership of Fratton Park” and “the PST raising the remaining funding from supporters that is anticipated in its business plan”.

Insolvency expert and member of the Portsmouth Creditors’ Committee, Carl Faulds, says there are three likely outcomes on Friday when the judge gives his verdict.

“One, he [the Judge] says ‘yes, sell the freehold to the Trust’, so end of story, deal done,” Faulds told BBC Sport.

“Two, he says ‘sell the freehold to the Trust but satisfy Portpin of some other points’.

“When expensive lawyers go head-to-head they can throw all sorts of things into the argument. I think it will be a bit of a dust-up and do think they will be throwing mud at each other”

Insolvency expert Carl Faulds “Or three, ‘no you can’t sell the freehold to the Trust’, in which case the Trust deal probably collapses.”

Faulds has predicted “a bit of a dust-up” over the two days with both parties (PKF/PST and Portpin) “throwing mud at each other” as the nine-month battle for control of the club looks set to finally come to a conclusion.

“We don’t know what everyone is going to argue on the day but Portpin, no doubt, will be employing some expensive lawyers, as will the administrators,” added Faulds.

“So when expensive lawyers go head-to-head they can throw all sorts of things into the argument. I think it will be a bit of a dust-up and do think they will be throwing mud at each other.

“I believe Portpin are looking at not just the freehold, they will be looking to what else has happened in the administration, and whether they (Portpin) think they have been treated fairly throughout the administration.

“They will possibly try and tarnish the administrators’ conduct and will throw whatever kind of argument they can into the pot to get the judge to effectively not support the Trust’s bid.

“It could be a complicated argument on the day but I think the judge will boil it down to a few core points and then make an announcement on Friday when the arguing is finished.”

BlackBerry maker loses patent battle with Nokia

AYESHA SIDDIQUI


KARACHI: BlackBerry maker, Research in Motion (RIM), has lost its battle over contract dispute over the use of Nokia patents.


Nokia had signed a cross-license agreement with RIM which covered standards-essential cellular patents in 2003, which was amended in 2008. However, RIM sought arbitration with the Stockholm Chamber of Commerce in 2011 debating that the license should be extended to cover WLAN patents.


According to sources Nokia said the Swedish judge ruled that RIM had breached its contract and was not entitled to manufacture or sell WLAN without first agreeing royalties with Nokia.


Nokia is amongst the leading patent holders in the wireless industry and plans to boost royalties in patents as their phone business slides. They have also gone to the US, Britain and Canada to enforce the ruling.


RIM faces ban on all their phones and BlackBerry 10’s launch in the first quarter of 2013, which can be a major blow to the company if they do not settle royalties with Nokia.


This means that even if it spells financial loses for RIM they are expected to resolve the issue as their latest phone has already faced quite a delay.


Copyright Business Recorder, 2012

Goal-line technology battle goes to shoot-out

28 November 2012 Last updated at 00:07 GMT By Will Smale Business reporter, BBC News, Soccerex, Rio Germany goalkeeper dives as Frank Lampard shot bounces behind the line. A shot by England’s Frank Lampard against Germany at the 2010 World Cup reignited the goal-line debate A multi-million pound competition to provide world football with game-changing new technology is about to go to a penalty shoot-out.

The change in question is the introduction of goal-line technology (GLT), which was approved by world governing body Fifa and the International Football Association Board – the body that determines the laws of the game – back in the summer.

The aim of GLT is to tell whether the ball has crossed the goal-line in incidents where the referee and his assistants are unable to see for sure.

From a shortlist of 11 different companies and technologies, Fifa has given licences to two separate firms, the UK-based but Sony-owned Hawk-Eye, and Germany’s GoalRef.

With Fifa yet to decide which system it will use for the 2014 World Cup, and national football leagues across the world also yet to choose between the two, the stakes are very high.

Especially when you consider the level of money involved. While the two companies are reluctant to provide exact figures, the cost of installing their systems in a football stadium have been estimated at about £250,000 for Hawk-Eye and £150,000 for GoalRef.

Japan tournament

When you multiply those figures by the number of professional football teams around the world, you are reaching rather large amounts of money. And that is before you add the follow-on annual servicing costs.

Marko Devic of Ukraine appeals to the officials after his shot appeared to cross the line against England There was controversy as Ukraine were refused what appeared to be a goal against England at Euro 2012

This week GLT has been discussed at Soccerex, the global convention of football business and finance, which is being held in Rio de Janeiro, Brazil.

With the panel including senior figures from both Hawk-Eye and GoalRef, and senior Fifa official Christoph Schmidt, it was confirmed that Fifa would be testing both systems at the 2012 World Club Cup tournament, which starts next week in Japan.

Mr Schmidt said that after evaluating their performance in Japan, Fifa would then make its choice. Many national football authorities are then expected to follow its lead.

With the two firms said to be neck-and-neck, Japan will be their equivalent of a nerve-wracking penalty shoot-out.

Rapid response

But before exploring what was said at Soccerex, it is worth pausing to take a closer look at the two rival systems.

Hawk-Eye uses seven cameras focused on each goal. With the cameras fixed to the stadium roof, they give a 3D picture of the ball’s exact location.

Goalref wristwatch demo The GoalRef system works by using magnetic sensors

It is a system that has been used by both the sports of tennis and cricket for a number of years.

GoalRef by contrast, uses a system of electro-magnetism, with sensors both inside the goal posts and the match-day balls.

Each system connects to wrist bands worn by the match officials, and can alert them in under a second whether the ball crossed the goal-line.

It is important to stress that Fifa will not require any league around the world to install GLT – it will remain voluntary.

However, the top professional leagues in each country are all expected to bring in the technology, such has been the desire to eradicate incorrect goal decisions, both from fans, and clubs concerned by the potential financial implication of losing vital games – such as relegation deciders – because of refereeing mistakes.

‘Fair fight’

Speaking at Soccerex, Hawk-Eye inventor Paul Hawkins said he relished the battle with GoalRef.

“Football is a great game because of the competition, and all businesses face competition,” he said.

Hawk-Eye goal-line system The Hawk-Eye system uses a number of cameras

“We have different technological approaches, and both of us have been working slowly and steadily.

“If both of us keep our heels clean, it should be a fair fight.”

Thomas Pellkofer, operational manager at GoalRef, also said that his company welcomed the healthy competition, and he highlighted the effective simplicity of its system.

“There is a sensor in the balls, but no electricity, it is completely passive,” he said.

“The ball is exactly the same for the players, it is seamless integration.”

Other entrants

Yet while GoalRef and Hawk-Eye have been chosen by Fifa from an initial short-list of 11, the remaining nine companies, and other competitors, could still have their systems approved by Fifa in the future, Mr Schmidt confirmed.

He said: “The market is open to any technical companies if others come to the market.”

England are convinced the ball has crossed the goal-line in the World Cup final of 1966 There have been arguments about balls crossing the line for a number of decades

Mr Schmidt added that this would only be a good thing, because further competition would bring down prices.

So even with Fifa set to shortly choose either GoalRef or Hawk-Eye, it could end up then switching to a different provider of GLT in the future.

With each company only getting an initial licence for two years, this level of uncertainty is said to be putting off some football leagues from making their choice.

One official at the English Premier League told the BBC on condition of anonymity that it didn’t want to be in a position where its clubs install one system at significant expense, only to then have to change it a number of years down the line.

The question of which company triumphs in the GLT marketplace could ultimately prove as controversial as the simple issue of whether the ball crossed the line has been until now.

Q&A: EU budget battle

Much of Europe is in recession and belt-tightening is the order of the day across the 27-nation EU.

So a request by the European Commission for a budget rise of 4.8% has provoked fierce opposition by some. In fact, at a two-day EU budget summit opening on Thursday, leaders will demand all sorts of cuts.

Attempts to reach a deal on the multi-year budget for 2014-2020 still have major obstacles to overcome.

So is the proposed EU budget too big?

Yes, according to the UK, France, Germany, the Netherlands and Sweden. They are net contributors to the budget. No, according to the European Commission, the European Parliament and many of the new member states in Central and Eastern Europe, who want to catch up with the old EU core states and are net beneficiaries from the budget.

How much money is at stake?

The Commission, which drafts EU laws, originally proposed 1.025tn euros (£824bn; $1.3tn) for the next multi-year budget, officially called the Multi-Annual Financial Framework (MFF), and covering the years 2014-2020. That is a 4.8% increase on the current 2007-2013 MFF, which totals 976bn euros. It has the support of the European Parliament, whose approval is required for the MFF to become law.

But there is a lower proposal from European Council President Herman Van Rompuy, chairing the summit in Brussels. His plan for the 2014-2020 MFF is 973bn euros. That is the actual starting point for negotiation at the summit.

These figures are ceilings for spending, and usually the EU spends less than the agreed ceilings.

The MFF is equivalent to about 1% of total output (GDP) across the EU countries, and the combined national budgets are far greater.

What is the argument for increasing EU spending?

The Commission says the draft MFF would boost funding for research and innovation – projects that could help revive growth in a Europe hit by recession and record unemployment. The governments are also asking the EU to do more, the Commission says, so those tasks need to be resourced. For example, the EU now has a new diplomatic corps – the European External Action Service – and new regulatory bodies will have to oversee Europe’s banks and fund managers.

Unlike the current MFF (2007-2013), the next one also provides more money for three new member states – Bulgaria and Romania, which joined in 2007, and Croatia, joining next year.

What is the UK position?

Prime Minister David Cameron insists on a real-terms freeze in the MFF. It would be a bigger cut – an estimated 200bn euros – than Mr Van Rompuy is proposing. Meanwhile Cyprus, which is steering the budget talks, suggests a cut of at least 50bn euros, and Germany suggests a 130bn-euro cut.

Mr Cameron has threatened to veto a deal if other EU leaders support a budget rise. He says the austerity demanded at home to deal with the debt crisis makes an above-inflation increase in the EU budget unacceptable. Sweden and the Netherlands are reported to be close to his position.

It would be politically risky for Mr Cameron to soften his line. At Westminster, on 31 October, 53 Eurosceptic Conservatives in a rare alliance with Labour MPs defeated him on this issue by voting for a real-terms cut – not a freeze – to the EU budget. The baseline would be actual EU spending, not the higher ceilings for spending in the MFF.

Unanimity is required for the MFF to be adopted, so the UK alone – or any other member state – can block it.

What happens if there is no agreement?

The 2013 EU budget would be rolled over into 2014, with a 2% rise to take account of inflation. That would leave much uncertainty about the EU’s long-term spending programmes. It would also mean the UK paying more than under Mr Cameron’s plan, as his calculation is based on 2011 spending.

The roll-over method, with the EU funded month-by-month, has been done before, but it is messy and seen as an admission of failure. It makes budgeting for things like research projects tricky.

What are the most contentious areas of spending?

Agriculture, cohesion – that is, funding for the EU’s poorest regions – and EU administrative costs, are all very contentious. The Van Rompuy plan envisages 309.5bn euros for cohesion (32% of total spending) and 364.5bn euros for agriculture (37.5%). The agriculture figure includes 270bn in direct aid for farmers, the rest being rural development funding including conservation schemes. And 62.6bn euros (6.4%) would go on EU administration, including staff salaries.

Why is so much spent on agriculture?

While national governments manage most other policy areas, such as health, education and transport, it is the EU that provides the bulk of support for farmers, through the Common Agricultural Policy (CAP).

In 1985 about 70% of the budget went into the CAP – those were the days of butter mountains and wine lakes. There have been far-reaching reforms to the subsidy system since then and the budget has been cut. Farmers risk losing part of their subsidy if they ignore the EU’s rules on the environment and animal welfare.

The EU’s auditors this year complained that the pattern of farm aid still “takes little account of the specific circumstances of the recipient”, as the calculation is mainly based on the area of land farmed. Their report said much of the aid “still goes to large farms, as was the case under the previous system”.

Does the UK still get a rebate?

Yes. This is a thorny issue in the negotiations and a red line for the UK government – it insists on keeping it. In 2011 the UK’s rebate was 3.56bn euros. It used to be bigger, but was reduced as the reforms to the CAP budget took effect.

It was Margaret Thatcher who persuaded the UK’s EU partners in the 1980s that the British contribution was excessive, at a time when farm subsidies were bigger than now and France was a major beneficiary.

There is pressure in the EU to scrap the rebate. The Commission and some of the ex-communist countries, which rely heavily on EU funding, consider the UK rebate to be unfair and say more should be spent in the EU’s poorest regions.

The issue is complicated by the fact that Germany, the Netherlands and Sweden negotiated a “rebate on the rebate” and want to keep the billions of euros they get from that arrangement. Meanwhile, Denmark is now arguing that it should have a rebate.

The current system of national contributions is complex and plagued by rivalry. The Commission wants the EU to be funded from “own resources” – that is, direct taxation – but that idea is anathema to Eurosceptics, who suspect a Brussels power grab and efforts to build an EU superstate.

Graph of EU contributions by member states

Exiting embattled EU is UK’s battle cry

 Image Credit: AFPDavid Cameron does not want to be the prime minister who calls a referendum on the UK’s membership of the EU and then leads Britons out.

London: As British euroscepticism deepens, can the prime minister avoid a national referendum on EU membership? Twenty years ago, almost to the month, John Major was forced to spell out in the House of Commons the benefits of Britain’s continued membership of the European project. As arguments raged over the Maastricht Treaty that would set out the EU’s route map towards the euro, the then prime minister accepted there were concerns over the centralisation of powers in Brussels, the spiralling EU budget and the ability of bloated European institutions to deal with financial instability in the light of Britain’s withdrawal from the ERM (exchange rate mechanism) weeks earlier. But Major insisted, to the chagrin of many of his backbenchers, that “a confident and successful community is a vital interest of this country”.


Today many of the same issues clamour around the current prime minister as he prepares for this week’s budget negotiations in Brussels. For Major, his reluctance to comply with the wishes of the euro-sceptics in his cabinet, and in his wider party, came to define his premiership. Europe split his party and ultimately wrecked his period at Number 10, as he struggled to keep the UK “at the heart of Europe” while at the same time negotiating opt-outs from its core projects, including the yet-to-be-born single currency itself. Then, as now, the prime minister tried to strike the difficult balance of being in Europe but not run by Europe.


Cameron is by instinct more eurosceptic than the country’s previous Tory prime minister. But these days that brings him little protection from his own, ever more anti-EU, party. Last month 53 hardline eurosceptic backbenchers, backed by Labour, defied Cameron and publicly voted in favour of an effective cut in EU spending for the next seven-year budget round. Cameron had wanted to negotiate this week for a freeze in real terms, which would have been hard enough to achieve. But by ordering him to go much further a large section of his party is sending him to Brussels to perform a mission impossible.


Two decades on from Maastricht, the passion that Europe excites inside the Tory party is of a similar intensity. Last week, the former EU commissioner Peter Mandelson recalled how Cameron, during a meeting between the two men in Brussels a few years ago, had had two striking observations to make on Europe. One was that it should stop constitutional navel-gazing and the other was that, if you put two Conservatives in a room, it is not long before they will fall out over Europe.

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But the argument has moved on. In Major’s day the eurosceptics were passionate about stopping the EU eroding British sovereignty while pro-European cabinet ministers such as Ken Clarke insisted they had little to worry about. There was rarely any serious talk of the UK getting out of the union altogether. Today after the euro crisis it is different. Tory eurosceptics, and much of the country, are not just expressing discontent with the direction in which the EU is moving. More and more actually want to leave. Our Opinium/Observer poll today gives an extraordinary snapshot of hardening views against membership. Some 56 per cent of people now say they would vote to leave the EU if they were given the chance in a referendum; 68 per cent of Tory supporters would vote to leave but more remarkably perhaps, 44 per cent of Labour voters and 39 per cent of Lib Dems would choose to leave.


Cameron does not want to be the prime minister who calls a referendum on the UK’s membership of the EU and then leads us out. If he agreed to a national vote, he would have to campaign to remain inside. But a large section of his party and the public is rapidly heading in the other direction. Mark Reckless, the Tory MP who led the EU rebels in the recent parliamentary vote, made clear to the Observer that the row over the EU budget was not simply a matter of pounds and euros but would prove to be a precursor to a debate over whether the UK should be part of the European project at all.


Reckless said he did not believe Cameron could return to the Commons and win approval for anything less than a real terms cut in the budget. “Parliament voted in clear majority against that inflationary increase or so-called real terms freeze,” he said. “It sent a clear message that, if the prime minister went and achieved his very modest objectives on that, it wouldn’t be acceptable to parliament. He would need legislation to do that, and it would be defeated on the floor of the house.”


He added that the parliamentary vote was about a rejection of the EU as a whole. “I think there is now a clear majority, in almost every opinion poll, who want to come out. And for a very long time that view hasn’t been represented in parliament, but for the first time two weeks ago we had a eurosceptic majority in the lobbies to cut the EU budget. People understand that much more when it is about money rather than about an institutional point.”


So, if Cameron fails to veto an inflation-linked budget rise, Reckless believes that parliament will do it for him. He believes the rebellion in that event will be greater than last time round. “I’m pretty confident that the number of people that we will add to our tally of 53 will be greater than those we lose the other way.


“So, if Labour stick with their position, I don’t think the prime minister can get that real terms freeze which is his objective through parliament, so he is between a rock and a hard place.


“Ultimately, if there is no EU agreement here, there will be no EU budget.


“It will develop, I guess, into a situation where there is a parting of the ways, and we really have to decide whether we stay part of it and they really have to think, are they going to operate without a budget because of their failure to come to terms with the UK?”


Even the likes of the veteran euro-sceptic Bill Cash — the scourge of John Major over Maastricht — would have steered clear of talking publicly about a British exit from the European Union 20 years ago. What was once beyond the pale has become the battle cry of the Tory backbenches.

Jobs cull as Europes banks step up costs battle

LONDON: European banks have admitted they have a cost problem, and must now show skeptical investors they are doing all they can to lead a profitable life without the crutch of bloated jobs, bonuses and business lines.

Critics say many have been too slow to acknowledge the scale of the problem and need to step up the pace of change.

In recent weeks, new bosses at Deutsche Bank and Barclays have responded, pledging to attack high pay and signalling a new intensity in the cost-cutting drive.

“Banks are throwing in the towel and saying now we need to resize for the new environment,” said Andrew Lim, analyst at Espirito Santo in London.

“They didn’t want to get caught out by seeing revenues rebounding, but they’ve now seen the debt crisis continuing quarter after quarter.”

The scale of the challenge is daunting. Investment banks may need to cut 30-40 percent of staff to correct industry overcapacity brought about by efficient new technology and clients demanding fast trading execution at the best price more than advice on deals, said Simon Maughan, analyst at Olivetree Securities.

Consultancy Roland Berger predicts a more modest cut of up to 15 percent over the next five years, but that would still see the axe fall on 75,000 staff from a global 500,000 workforce.

“We feel that real capacity reduction is the only way to restore economics in the mid-term,” Roland Berger said, adding that banks need to exit product lines and consider joint ventures on top of job cuts to be able to deliver sustainable return on equity (RoE) of over 12 percent.

Based on cuts taken to date, RoE – a key measure of profitability – is likely to average just 9 percent, and could be as low as 5 percent, it said. That compares with a cost of equity of 10-12 percent.