the wall street journal

VOL. XXXI NO. 76

MONDAY, MAY 20, 2013

Manchester United followers found it hard to smile Sunday as Alex Ferguson bade farewell at theend of his final match as manager. His side drew 5-5 with West Bromwich Albion. Sport, page 30

All the Fives in Ferguson’s Final Farewell

Reuters

North Korea FiresMissiles Into the Sea

SEOUL—North Korea onSunday fired a short-rangemissile into the sea off theeastern coast of the Koreanpeninsula following three sim-ilar launches Saturday, onceagain stirring tensions thathad appeared to ease in thewake of a recent series ofthreats directed at South Ko-rea and the U.S.

The latest missile firingcame after the South Koreangovernment on Sunday con-demned Pyongyang’s earlierlaunches and urged it to cometo the negotiating table overthe jointly run Kaesong Indus-trial Complex to allow SouthKorean companies to with-draw their raw materials andfinished goods.

On Sunday, U.N. chief BanKi-moon also asked the Northto refrain from further missiletests.

The missiles posed no dan-ger to neighboring countries.Analysts said the launches,which aren’t uncommon, werelikely intended as a protestagainst joint South Korean-U.S. naval drills last week.North Korea, a financially be-leaguered state hit by freshU.N. sanctions following itsnuclear test in February, mayexpect the launches willprompt the offer of dialoguefrom the U.S., they said.

“North Korea will achievenothing by threats or provo-cations, which only further

Please turn to page 10

Swedish Firms SqueezedAs Krona Rises on Euro

VADERSTAD, Sweden—This cozy village got a visit inMarch from Sweden’s primeminister, who praised farm-machinery company Vader-stad-Verken AB as one of thecountry’s “successful exportcompanies.”

But Fredrik Reinfeldt got astern complaint from Chris-tina Stark, an executive at thefamily-run company, whichhas been in business for half acentury. She told the primeminister that the strongSwedish krona is batteringthe bottom line, while rivalsespecially in Germany benefitfrom the comparativelyweaker euro.

Because Sweden isn’t a

member of the euro zone, ithas avoided much of the eco-nomic mess that spreadacross Europe. The Nordiccountry is a popular destina-tion for investors throughoutthe world, pushing the kronahigher.

That is bad for profits atSwedish companies becausethe money they make fromproducts sold elsewhere isworth less when convertedback into Swedish kronor. Asof Friday, one euro was worth8.59 Swedish kronor, downabout 6% from around 9.15kronor a year earlier.

The squeeze is hurtingfirms ranging from baby-car-rier maker BabyBjorn AB topotato-chip maker SvenskaLantchips to Sandvik AB,

which makes equipment forminers and construction com-panies.

In March, Sweden ex-ported goods worth 14% lessthan a year earlier. A purchas-ing managers’ index fell below50 in April, indicating con-traction in business activity.

Other European countriesthat aren’t in the euro zoneface the same challenge inmanaging the appreciation oftheir currencies against theeuro.

In Switzerland, though,the central bank enforces a


BY CHARLES DUXBURY

BY KYONG-AE CHOIAND ALASTAIR GALE

YahootoPay$1.1BillionToBuyTumblr

Yahoo Inc.’s board has ap-proved a deal to acquire blog-ging startup Tumblr, peoplefamiliar with the matter saidSunday.

Yahoo has agreed to pay$1.1 billion for the company,one of the people said. Tum-blr would continue to operatelargely as an independentbusiness, the people said.

It wasn’t immediately clearwhether Tumblr’s board hadapproved the deal. Spokesmenfor Yahoo and Tumblr didn’timmediately respond to re-quests for comment.

Yahoo’s board approvedthe deal in a meeting by tele-phone on Friday, one of thepeople said. A deal could beannounced as soon as Mon-

day, the person said.Tumblr, founded in 2007,

fast built a following by mak-ing it easy for people to postblogs and photos, follow otherpeople on Tumblr and receiveupdates via a feed. The web-site’s simple design has low-ered the bar for online pub-lishing and effectively mergedblogging with social media.

By acquiring Tumblr, Ya-hoo would gain a social-mediasite that has become a hub ofcommunication and blogging

for millions of people, but onethat generates little revenue.

Talks between Yahoo andTumblr were reported earlierby technology news and opin-ion website All Things D, aunit of Wall Street Journalparent News Corp.

Tumblr Chief Executive Da-vid Karp has focused on build-ing the company’s user basefor its minimalist bloggingplatform while leaving forlater the question of earningmoney. It is a pattern typicalfor young Internet companies.

Tumblr began placing adson its service last year. Mr.Karp, who once told the LosAngeles Times that he was“pretty opposed to advertis-ing,” said in recent media re-ports that Tumblr generated$13 million in revenue last year.

People familiar with thematter said Yahoo believes it


By Joann S. Lublin,Amir Efrati

and Spencer E. Ante

U.K. Treasury cites dangersin Scottish independence..... 4

Outlook: Euro zone risking anArgentina moment?................. 6

David Cameron’s EUwaiting game is over,says Simon NixonAgenda ................... 4

French restaurantsfacing cost crisispreparing mealsEurope News .......... 5

U.S. government nowinvestigating the pressOpinion ................. 14

Inside

Oil-Price Rally Out of SyncBUSINESS & FINANCE 17

DJIA 15354.40 À 0.80% Nasdaq 3498.97 À 0.97% Stoxx Eur 600 308.72 À 0.24% FTSE 100 6723.06 À 0.53% DAX 8398.00 À 0.34% CAC 40 4001.27 À 0.56% Euro 1.2819 g 0.62% Pound 1.5172 g 0.85%

BHR BD 1.50 EGY $1.75(C/V) JOR JD2 KWT KD 1 OMNOR 1.5 POL ZL 12 QATQR 14 SAU SR 14 UAE 15 AED £1.70 /€3.20EUROPE EDITION

WSJ.com

Business & Finance Big U.S. companies aresizing up Europe..........19

Bloomberg ramps upcompliance efforts......19

Battle for Web adratings heats up..........20

Heard: Yahoo’s Tumblrof opportunity...............32

Seoul concerned as Japaneseofficial visits Pyongyang..... 10

32 | Monday, May 20, 2013 THEWALL STREET JOURNAL.

HEARDON THE STREETEmail: [email protected] FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard

Risks RiseAs TurkeyMoves UpA Grade

It has been a long roadback for Turkey.

Cut to “junk” by Moody’sin 1994, the country won acredit-rating upgrade back toBaa3 Thursday. Turkey nowhas two investment-grade rat-ings, a development thatshould expand the pool of po-tential buyers of its sovereigndebt.

This is welcome news for acountry that has to finance acurrent-account deficit thatwas 6% of gross domesticproduct last year. But it couldput further pressure on thecentral bank, which is tryingto balance capital inflows, in-flation, growth and the ex-change rate.

On some indicators, Tur-key has long punched aboveits rating. Debt stands at 36%of GDP and has fallen by 10percentage points since thebeginning of 2009. The bud-get deficit in 2012 was just1.4% of GDP. Turkey has beenextending the maturity of itsdebt, reducing its exposure tointerest-rate increases. It isalso less reliant on foreign-currency debt: just 27% of thetotal last year, down from46% in 2003.

Turkey’s Achilles’ heel hasbeen its dependence on po-tentially fickle investmentflows.

Moody’s upgrade is a dou-ble-edged sword. It should ex-pand Turkey’s investor baseand potentially make it morestable. In an environment inwhich investors are huntingfor yield, Turkish paper couldbe attractive. Moody’s notes,too, that the government isencouraging savings throughpension overhauls.

That is all good news. Butthere is also a risk that a rushof foreign investment putsupward pressure on Turkey’scurrency, particularly as manycentral banks continue print-ing money.

The Central Bank of Tur-key is already watching this.It cut rates Thursday to 4.5%from 5%, specifically notingstrong capital inflows. Fur-ther cuts may be needed, rais-ing the risk that the centralbank will miss its inflationtarget of 5%. Inflation stoodat 6.1% in April.

Lower rates will also re-quire management of domes-tic-lending growth, one of amultitude of factors the cen-tral bank targets.

Moody’s upgrade gener-ated immediate results. Tur-key’s main stock index hit arecord, and bond yieldsdropped. More upgrades mayfollow. But Turkey will haveto savor its success carefully.

—Richard Barley

A Tumblr of OpportunitySeven years ago, Yahoo

tried to buy a social networkfor $1 billion. But Mark Zuck-erberg wasn’t interested inselling Facebook.

Still seeking credibilitywith the kids, Yahoo nowplans to buy social bloggingcompany Tumblr for a similarprice tag: $1.1 billion. As con-solation prizes go, it wouldn’tbe a bad one, provided Yahoocan monetize its potential.

The sites and mobile appsTumblr, Instagram, Snapchatand Facebook are similar inthat they enable teens,twenty-somethings and othersto create and share photos,links or blogs. Such navel gaz-ing can be big business, asFacebook has shown. Twitterhas also been successful. It isexpected to generate world-wide advertising revenue of$580 million this year, ac-cording to eMarketer.

Tumblr is actually farlarger in terms of users thanFacebook was in 2006, host-ing more than 100 millionblogs. Facebook had just 10million or so users when Ya-hoo came waving its check-book.

Though Tumblr began as adesktop destination, it alsohas a solid presence on mo-bile devices. At No. 63 amongiPhone apps in the U.S., as

ranked by App Annie, Tumblris ahead of all Yahoo apps. OnAndroid smartphones, AppAnnie ranks Tumblr 85th; theonly Yahoo app rankinghigher is Yahoo Mail.

Indeed, the shift to mobilepresents an existential chal-lenge for more mature webcompanies like Yahoo. Evennine-year-old Facebook findsits business at risk. But Face-book’s mobile app has been abig hit, and Facebook gobbledup top photo-sharing app In-stagram in a deal worth justover half a billion dollars.

So Tumblr boasts a hugebase of users and would be auseful weapon in mobile wars.

But could Yahoo wring profitsfrom it?

Tumblr has only juststarted generating revenue,but it has lots of potential.Here again, Facebook andTwitter are good models. Bothare structured so that userssee their friends’ posts streamby as a news feed. And bothhave found success by passingads intermittently throughthese feeds. Similarly, Tumblrusers see a stream of postsfrom those they follow, so thesite is a logical candidate torun the same kinds of ads.

With its advertising chopsand huge computing infra-structure, Yahoo can help

Tumblr exploit these opportu-nities. Yahoo can also pro-mote the service to its hun-dreds of millions of users.

Google bought do-it-your-self blogging tool Blogger in2003 when the latter had just250,000 users. Today, Bloggerhas more than 400 million.Google has also enjoyed suc-cess with another user-gener-ated content site: YouTube.

Yahoo’s relatively newchief executive officer, Ma-rissa Mayer, needs to showprogress turning around thecompany. Granted, shareshave soared 70% since Ms.Mayer took over last July. Butlittle of that can be crediteddirectly to her.

The stock’s rise began inOctober, when Yahoo boostedstock buybacks. Since then ithas repurchased about 10% ofits shares outstanding for$2.3 billion. A bigger bumpmay have come from excite-ment over Chinese e-com-merce giant Alibaba Group, inwhich Yahoo has a 24% stake.

The Tumblr deal would beMs. Mayer’s first big move torevitalize Yahoo. The $1.1 bil-lion price tag seems expensiveon conventional metrics.

But Tumblr’s price willprove cheap if Yahoo gets itscool back with the kids.

—Rolfe Winkler

Finding Exit Ramp for TomTomOne of the most compel-

ling reasons to own a smart-phone is simply to tell youwhere you are—and whereyou’re going.

That’s why mapping-soft-ware companies are potentialtakeover targets. Facebookmay be willing to pay up to $1billion for Waze, according torecent reports, including inThe Wall Street Journal.Closely held Waze doesn’tgenerate much revenue, butits primary asset consists ofreal-time maps and traffic in-formation.

That should pique interestin one of Waze’s publiclytraded rivals: TomTom.

If Waze is sold, Nether-lands-based TomTom wouldbe the last independent pro-vider of digital maps thatcover much of the globe.These have become a valuableasset. As smartphones be-come ever more similar, dis-tinguishing the app ecosys-tems on them becomescritical to companies rangingfrom Apple to Samsung Elec-tronics to Microsoft. EvenAmazon.com is developing itsown smartphones.

The importance of mapswas underlined by Apple’sbungled replacement last yearof Google Maps on the iPhonewith its inferior alternative.Meanwhile, Google announcedupdates for its maps lastweek, putting them further

ahead of rivals.But there are only four

sources of high-quality maps.Google has its own, and Face-book may grab Waze. Navteqis owned by Nokia, withwhom Microsoft worksclosely. That leaves TomTom,whose maps are licensed byApple, Samsung and Black-Berry, among others.

Building maps fromscratch is capital intensive.Yet this scarcity value seemsonly partly reflected in Tom-Tom’s shares, down morethan 90% from their 2007peak. The company now hasan enterprise value, includingnet debt, of about €850 mil-lion ($1.1 billion), or aboutsix times this year’s consen-sus estimate for earnings be-fore interest, taxes, deprecia-

tion and amortization, orEbitda.

The low valuation reflectsthe impact smartphones havehad on sales of personal navi-gation devices. These repre-sent about half of TomTom’srevenue, are down by two-thirds over the past fiveyears, and continue to fallrapidly. TomTom also pro-vides navigation systems forcar companies, but these, too,are vulnerable to smartphonesubstitution over time.

Cutthroat competitionamong TomTom’s customersmight be the best thing goingfor it. Able to play TomTomand Navteq against eachother, Apple and others don’tpay a lot to license maps. Butthe risk of them falling intorival hands could spark a bid-ding war. A potential suitorlike Apple could finance adeal with trapped offshorecash.

The big obstacle is thatTomTom’s four founders con-trol 47% of the company andaren’t eager to sell. For othershareholders, though, Tom-Tom’s lackluster stand-aloneprospects make a compellingcase to at least explore anexit. It would be a braveshareholder activist whowould take on such a chal-lenge. But it may offer thebest route to realizing thecompany’s full value.

—Rolfe Winkler

Road RageTomTom’s market capitalization

Source: FactSet

The Wall Street Journal

$12 billion

0

3

6

9

’08 ’09 ’10 ’11 ’12 ’132007

The pirates are beingkept at bay.

BitTorrent is a file-shar-ing site that has oftenplayed host to unauthorizedcopyrighted material. In thepast six months, it ac-counted for 9.2% of peak-pe-riod traffic on North Ameri-can fixed-access broadbandnetworks, according to net-working-equipment companySandvine. That is down from17.2% in 2011.

Meanwhile, the tideseems to be turning in favorof authorized video sources.Netflix has retained aroughly 29% share of peak-period traffic. Google’s You-Tube climbed to 15.4% from13.8% over the past year.

This doesn’t mean BitTor-rent is going away. Its vol-ume in North America con-tinues to expand, Sandvinesays.

What is happening isthat overall North Americanbroadband usage is also in-creasing rapidly, with meanusage up 39% over the pastyear. BitTorrent clearly isn’tkeeping pace.

The pirates may not yetbe walking the plank. But asInternet video expands, con-tent owners are claimingmore of the spoils.

—[email protected]

OVERHEARD

Hidden CostsOf Ocado’s Deal

Online U.K. grocer OcadoGroup always wants morecustomers to take advantageof its high-tech delivery ser-vice. Friday, it landed its big-gest catch to date: rival Wm.Morrison Supermarkets.

Ocado’s shares surged 36%after it announced a deal withMorrison to give the chain aquick entry into the fast-ex-panding online-grocery mar-ket. Essentially, Ocado willhandle the magic behind thescenes, including order pro-cessing and distribution logis-tics. But Morrison customersmay never know. They willuse a Morrison website andhave groceries delivered inMorrison-marked trucks.

What’s in it for Ocado?The company, which hasn’tearned an annual profit sincelisting its shares in 2011, getsa cash payment of about £165million ($250 million), threetimes its £55 million net debt.

Ocado also expects aroughly £15 million annualboost to its bottom line, awelcome cushion, as it strug-gles to generate revenue tooffset infrastructure invest-ment. While sales surged 28%in 2010, they rose at abouthalf that rate in 2012.

Yet the deal also involves

sacrifices. First, Morrisonmay disrupt Ocado’s relation-ship with Waitrose, whoseproducts are available on Oc-ado.com alongside its own-la-bel groceries. That contractexpires in 2017, after whichOcado may have to rely on itsown brand strength.

Also, a big chunk of Oc-ado’s work will be done anon-ymously. Morrison plans toprocess about £500 million ofannual sales through Ocado’ssecond facility, which justopened.

Ocado’s entire sales lastyear were £674 million. Untilnow, many customers have as-sociated their shopping expe-riences with Ocado. Suchbrand strength can help a re-tailer expand faster and in-crease margins.

There is no doubt Ocado’sdeal helps its near-term prof-itability, but its long-termprospects may have dimmed.Adjusting for the benefits ofthe new arrangement, Ocado’sshare price indicates an enter-prise value of about 25 timesconsensus earnings before in-terest, taxes, depreciation,and amortization.

At that price, Ocado lookslikely to go on sale soon.

—John Jannarone

Out of SiteYahoo’s share price

The Wall Street JournalSource: WSJ Market Data Group

$30

10

15

20

25

2012 ’13 MarissaMayer,CEO

of Yahoo

Bloomberg

New

s

2 | Monday, May 20, 2013 AM IM UK SW FR IT SP TK BR PL IS AE GR THEWALL STREET JOURNAL.

PAGE TWO

i i iBusiness & Finance

n Japan pledged $2 billion forenergy and mineral projects in Af-rica, as it seeks to catch up withyears of Chinese investment. 11

n China is showing rapid in-creases in wages despite slowinggrowth, a reassuring sign for lead-ers, but a trend that could provedifficult to sustain. 11

n Starbucks has penetratedscores of markets, but might facea challenge in Vietnam’s deep-rooted coffee culture. 17

n Prices of many commodities aredown this year, but U.S. oil futureshave rallied. Skeptics say the mis-match is a sign of trouble. 17

n Surging credit has kept China’sreal-estate sector humming duringa renewed attempt by the govern-ment to bring prices under con-trol, risking a destabilizing correc-tion in prices down the line. 17

n Roger Carr, the chairman ofU.K. gas utility Centrica, is thefront-runner to replace Dick Olveras chairman of Britain’s defensecontractor BAE Systems. 19

n As U.S. lawmakers fret aboutprivacy implications of GoogleGlass, one thing is clear: The tech-nology that can redefine what is“public” and link the digital andphysical worlds is here. 20

n As Facebook reached the anni-versary of its IPO, how the social-networking giant tackles revenuewill be one of the largest chal-lenges in its short life as a publiccompany. 21

n E.ON has made its first signifi-cant move in Germany’s decentral-ized power market by agreeing tobuild four combined heat andpower units for retailer Metro. 22

n A North American natural-gastrade group is planning a cam-paign to show compressed naturalgas can be an effective fuel for

passenger cars to encourage wideruse of the fuel. 22

n J.P. Morgan Chase Chairmanand CEO James Dimon is makingthe case for continuity in the finaldays before a potentially definingvote on his future. 23

n SAC Capital Advisors told cli-ents it will no longer cooperate“unconditionally” with the U.S.government on an insider-tradingprobe of the hedge-fund firm. 24

n Turkish stocks and bondssurged to record levels after An-kara secured its second invest-ment-grade credit rating, offeringa boost to a government that haslong coveted an upgrade to in-crease institutional investment. 24

i i iWorld-Wide

n The U.S. is seeing a rise inal Qaeda-related terror plots andthreats against its embassies inLibya, Yemen and Egypt, currentand former U.S. officials say. 3

n Eurovision fans got Greek mendancing in skirts, a Romanian re-sembling a vampire singing shock-ingly high notes and other over-the-top shows as a Danishsongstress won in the 58th editionof the song contest. 6

n Political violence has shakenthe most affluent area of Karachi,as the killing of a prominent localpolitical organizer appears to havefrightened many Pakistani votersaway from a rerun election. 8

n Syrian government forcesbacked by members of Lebanesemilitant group Hezbollah began apush to capture a rebel strongholdnear the Lebanese border, Syrianstate media and activists said. 8

n The chief adviser to Canada’sprime minister stepped down, af-ter the government said he gavean embattled Conservative law-maker around $87,540 to repay in-appropriately claimed housing ex-penses. 10

What’s News—

Readers’ Choices

1. Opinion: Strassel—The IRSScandal Started at the Top2. Opinion: No Ordinary Scandal3. Swearing In the Enemy4. France’s Plat du Jour: FrozenMeals5. Higher Ups Knew of IRS Case6. Opinion: Annise Parker—TheModern American Boomtown7. U.S. Approves Expanded GasProducts8. Opinion: Merely a TaxMisunderstanding9. Denmark Wins Eurovision SongContest10. Apps Raise the iPad’s Aptitudefor Real Work

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‘It’s good forcountries that havea bad economy too;they can still feelpart of Europe.’Eurovision fan Johann Soerensen.

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STAND ON MY SHOULDERS: Members of the Castellers de la Vila de Gràcia form a human tower Sunday in theBarcelona neighborhood of Gracia. A castell is a human tower usually built during festivals in Spain’s Catalonia region.

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THEWALL STREET JOURNAL. Monday, May 20, 2013 | 31

OFF THE WALL

In Berlin, Activists Target BarbieGroup Protests Life-Size DreamhouseAnd ‘Pinkified’ Icon; Stiletto Chairs

About 15 leftist radicalsgathered over stale coffeeon a recent Friday night in

the German capital to plan theirnext communist plot. “We musttake care not to sound elitist, as ifwe’re outside the mainstream, be-cause the mainstream is the prole-tariat,” said a young man dressedin black clothes, a tattered greencopy of Friedrich Engels’s 1884book, “The Origin of the Family,Private Property and the State,” athis side.

The object of the group’s irewasn’t the European Central Bankor Angela Merkel. Instead, thethree-hour discussion focused ona perky blonde from Wisconsin—Barbara Millicent Roberts, betterknown as Barbie.

“It would be a huge danger forcapitalism if working men andwomen were united, so one of thebest ways to divide and conquerthe workers is by enabling men toover-sexualize women and by pre-occupying women with sexualizingthemselves,” said group leaderMichael Koschitzki, 27 years old.“This is why we need to opposeBarbie.”

The group, a faction of theJunge Linke—heirs to East Ger-many’s main communist organ—organized a march through Berlinon Thursday to the Barbie Dream-house, one of two interactive, life-size dollhouses launched recentlyas Barbie maker Mattel Inc.’s lat-est effort to expand the doll’sfranchise.

The smell of pot waftedthrough the air at Berlin’s famousAlexanderplatz, as Junge Linkeleaders gave speeches to a clap-ping crowd of about 200. Threeteenagers with raccoon-like eye-liner watched, holding bags read-ing “Shopping is better than apsychiatrist.”

The anti-Barbie crowd thentraversed to the Barbie Dream-house, guarded by police.

With punk music playing, oneprotester brandished a sign read-ing “I’ll pull you out of the houseof horror!” as a little girl in heavyturquoise eye shadow told hermother that she wanted to goback inside the Dreamhouse.

The demonstra-tion—dubbed “Oc-cupy BarbieDreamhouse”—was a culminationof weeks of plan-ning, visitingschools and dis-tributing over7,000 hot pink fli-ers with aclenched fistpunching throughthe phrase “TheBarbie Dream-house Experience.”

Many Berliners have been be-fuddled by the brouhaha. “Barbiehas been around for over 50years. Can you show me that’s re-ally held back society with all thepositive changes for women?”asked Jörg Niepraschk, a father oftwo girls he brought to theDreamhouse for a preview onTuesday.

The Junge Linke adamantly say

“yes,” arguing that Barbie is asymbol of proletariat repressionand a consumerist society set inplace by power-hungry capitalists.

Their outcry against the50,000-square-foot Dreamhouseand outdoor cafe comes as in-creasing tourism to Berlin is soft-ening the edges of a once grittycity. Four years ago, Berlin’s tour-ist population was buoyed byhard-partying youth who flew infor a few days of clubbing. Morerecently, Berlin’s affordable priceshave drawn more families.

Mattel hopes the Dreamhousewill attract summer visitors inBerlin before it moves on to Han-nover and Munich. “Barbie hasand always will be a lightning rodfor cultural conversation,” saidStephanie Cota, 42, senior vicepresident of Girls Global BrandMarketing at Mattel.

Barbie is a familiar face in Ger-many, where she was first avail-able in 1959. Germany is one ofthe largest European markets forher, according to Mattel.

“I like Barbie because she’spretty and wears pretty clothes. Iplay with my Barbie a lot,” said 3-year-old Charlotte, Mr. Niepra-schk’s daughter.

Inside the Dreamhouse, girlsdance around a 3-meter-tall dia-mond ring and look into cases fea-turing 15-centimeter, red-se-quined, platform heels. Each roomis bathed in neon pink light, andpictures of Barbie and her boy-friend, Ken, hang on the walls.Parents have the option to remainstanding or sit on plush chairsshaped like stilettos.

Kids under 4 get in free, whileolder children are charged €22 (or$28); adults pay €15. The childrencan choose between two careertracks to act out on their visit:model or pop star. Models learn toprance down a mini-catwalk, whilepop stars belt out tunes on a Lil-liputian stage.

The Junge Linke argue thatBarbie’s “pinkified” personalitycultivates a desire in girls to focuson looks instead of careers andspend their cash on expensivebeauty products.

Christoph Rahofer, 47, worksfor EMS Entertainment, whichcreated the Dreamhouse with Mat-tel. Mr. Rahofer, who has three

daughters rangingin age from 8 to20, said it is ab-surd to argue thatBarbie can ruin agirl’s career ambi-tions.

“Baking a digi-tal cupcake on atouch screen in theDreamhousekitchen won’t con-fine you to standby an oven for therest of your life,”he said.

In an open letter to Mr. Ra-hofer titled “Peddling Porn in Ger-many” that was published in Spie-gel, Germany’s leading politicalmagazine, columnist Silke Burm-ester asked “How do I bake tastycupcakes? How do I strut sexilyon a catwalk? And how do I drawattention to my anorexic body?”

“I feel sorry about how somepeople interpret our giant pink

playground,” Mr. Rahofer said inresponse to Ms. Burmester’s col-umn. “I have looked into so manykids’ eyes cheering and having awonderful time.”

At the final “Occupy Barbie”meeting Tuesday, Franziska Sed-lak, 25, wondered why the Dream-house lets girls act out careerslike model and pop star, instead ofjobs like engineer and mathemati-cian. Mattel’s Ms. Cota said thedecision was one of logistics and

entertainment. “Pretending to bean engineer is a hard concept fora 4- or 6-year-old to play out,”she said. She notes that theDreamhouse has a space wherechildren can impose their faces onoutfits for Barbie’s 135 careers, in-cluding astronaut, engineer, doc-tor and chancellor.

Yet even Mattel’s attempts toportray Barbie as a quantumchemist who leads the euro zonehave been mocked in Germany.

Mattel introduced a specialedition Angela Merkel Barbie in2009, complete with one of Ms.Merkel’s practical pantsuits, whichwas promptly mocked by PhilippRösler, her current economy min-ister. “So, now there’s a MerkelBarbie,” said Mr. Rösler in a tele-vised speech at the time. “Theonly downside is it costs €300.The actual doll is only €20, butthose 40 pantsuits sure are expen-sive.”

BY MARY M. LANEBerlin

A protester yells slogans outside the Barbie Dreamhouse in Berlin. Many Berliners have been befuddled by the brouhaha.

Getty

Images

Merkel Barbie

DiscoverEurope’sBestAnalystsWhich analysts outsmartedtheir rivals in 2012? In the firstEurope-wide survey of its kind,The Wall Street Journal hasteamed up with FactSetResearch Systems to revealthe master stock pickers of theyear—and their current topstock choices.

Credit: Illustration by WILLIAM RIESER©2013 Dow Jones & Company, Inc. All rights reserved. 3DJ2038

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NEWS

Terror Threats to U.S. Embassies RisingWASHINGTON—The U.S. is see-

ing a spike in al Qaeda-related terrorplots and threats against its embas-sies in Libya, Yemen and Egypt, saycurrent and former U.S. officials cit-ing domestic and foreign intelli-gence reports.

The threats against U.S. missionsin Tripoli and Yemen’s capital, Sana’a,are believed to involve bomb plots bySunni extremists and perhaps alQaeda-linked individuals, and have setoff alarms among U.S. officials stillshaken by September’s attack on adiplomatic outpost in Benghazi, Libya.

A planned attack against U.S. andFrench diplomatic targets in Egyptwas wider and more precise thanhad been reported when Cairo au-thorities said earlier in May thatthey detained three men in connec-tion with it, according to intelli-gence cited by the U.S. officials.

Earlier reports had indicatedthat embassies had been targeted.But the plots focused primarily onthe U.S. and French ambassadorsthere, the current and former U.S.officials said Friday.

One of the three detainees wasthe intended suicide bomber, thesepeople said.

“There appear to be serious ter-rorist threats against U.S. embassiesin North Africa and the broaderMiddle East,” said Seth Jones, an alQaeda specialist at Rand Corp. anda former adviser to the U.S. military.“It shows that terrorist groups, in-cluding al Qaeda, remain very ac-tive. They have flourished in a polit-ical vacuum in several of thesecountries.”

The apparent uptick in threatscomes eight months after the alQaeda-linked terrorist attack killedfour Americans in Benghazi and asU.S. counterterrorism officials watchfor threats in the wake of the ArabSpring.

They also emerge as the Obamaadministration faces heightenedpressure over security issues—in-cluding accusations that it couldhave better anticipated the Beng-hazi attacks, and that it had over-stepped by seizing the phone re-cords of Associated Press reportersin connection with another counter-terrorism operation.

Counterterrorism specialistsdraw a distinction between threatsin Egypt and Libya and those in Ye-men. Daniel Benjamin, who until re-cently was the top State Departmentcounterterrorism official, said thereare frequent threats to the U.S. em-bassy in Sana’a but that the coun-try’s counterterrorism efforts aremaking inroads.

By contrast, he said, the weakergovernments in Libya and Egyptface a growing threat from extrem-ist groups that previous regimeskept under wraps.

These groups are “under consider-ably less pressure than they used tobe,” said Mr. Benjamin, now directorof the Dickey Center for InternationalUnderstanding at Dartmouth College.“That has certainly changed the secu-rity scene.”

U.S. officials are scrutinizing the

alleged plots in Tripoli, Sana’a andCairo, although they say there haveso far been no signs of ties betweenthem.

In the thwarted Cairo plot, onemilitant group implicated by the in-telligence reports is led by an Egyp-tian who has training camps in Libyaand has received support from alQaeda’s Yemen branch.

That group, known as the JamalNetwork, is among those implicatedin the Benghazi attacks, where atleast one of its operatives wasamong the attackers, U.S. officialssay. The group’s leader, MuhammadJamal Abu Ahmad, and his top dep-uty were detained by Egyptian au-thorities prior to the most recentCairo arrests, according to U.S. offi-cials.

State Department spokeswomanJen Psaki declined to speak specifi-cally about the embassy plots. But

she said the department works “ev-ery day with foreign governmentsand interagency partners to mitigatethe risks to our diplomatic and con-sular operations overseas.”

The alleged Tripoli and Sana’aplots appeared less developed thanthe one in Cairo, and it wasn’t clearhow likely they were to be carriedout. Still, their inclusion in recentintelligence reporting suggests theseriousness with which the U.S. gov-ernment is taking them.

A car-bombing plot against theU.S. embassy in Tripoli was corrobo-rated by multiple intelligence agen-cies, and the U.S. has identified indi-viduals associated with the plot whoare part of Sunni extremist groupsthat may have al Qaeda links, said aformer U.S. official familiar with theintelligence. It isn’t clear whetherthe plot remains active.

Tripoli has been restive in the

months following the Benghazi at-tacks. On April 23, a car bomb ex-ploded outside the French embassythere, injuring two guards.

On May 8, the State Departmentevacuated a handful of “nonemer-gency” personnel from Tripoli. Thenext day it issued a travel warningfor U.S. citizens but didn’t cite a ter-rorist threat.

The department warned of civilunrest and urged U.S. citizens toavoid demonstrations, which couldturn violent. “The security situationin Libya remains unpredictable,” thewarning said, citing an early Mayincident when armed groups seizedLibyan government buildings.

In Yemen, intelligence agencieshave warned recently of a car-bombplot against the U.S. embassy inSana’a.

That plot, according to the intel-ligence reports, is connected to indi-

viduals who are part of al Qaeda inthe Arabian Peninsula, the group’sYemen branch.

There have been periodic threatsagainst the U.S. embassy there in re-cent years, officials said. The StateDepartment travel warning for Ye-men was last updated in November2012, warning of a high securitythreat level.

The Egypt plot, however, appearsto have been fairly advanced, saidthe former U.S. official, especiallygiven that U.S. intelligence con-cluded that one of the three men ar-rested was the suicide bomber re-cruited to attack either the U.S. orFrench ambassador to Egypt.

U.S. officials believe that at leastone of the men the Egyptians ar-rested has direct links to the JamalNetwork’s second-in-command andalso has ties to al Qaeda facilitators,the former official said.

BY SIOBHAN GORMAN

Threats against U.S.missions in Tripoli andSana’a are believed toinvolve bomb plots bySunni extremists.


HEARD ONTHE FIELD

SPORT

Pellegrini Eyes Senior CitizenshipChilean Manager Has the Experience and Sophistication to Suit Manchester City

Roberto Mancini andManchesterCity parted ways last week, whichmeans that one of the best re-sourced, most desirable jobs in thegame is now up for grabs. The Pre-mier League club, after years ofplaying second banana to Manches-ter United, is now a legitimate force,having finished third, first and sec-ond in the past three seasons andwinning an FA Cup along the way.What’s more, club owner SheikhMansour bin Zayed Al Nahyan hasshown a willingness to spend heavilywhen needed.

Speculation abounds over whowill succeed Mancini as City man-ager, but the smart money seems tobe on Malaga’s Chilean manager,Manuel Pellegrini.

On paper, he’s an excellent fit. Hehasn’t won much in the way of Euro-pean silverware—though he did wintwo league titles in Argentina andone in Ecuador—but his sophisti-cated, creative style of play has wonhim many plaudits.

Pellegrini spent five years at Vil-larreal, an ambitious, yet still provin-cial and relatively underfunded clubin Spain’s Liga, guiding it to four top-five finishes, as well as the Champi-ons League semifinal in 2005-06.

Since November 2010, Pellegrinihas been at Málaga, a team on theverge of financial oblivion. (UEFA,the governing body of European soc-cer, has banned it from the next con-tinental competition it qualifies forbecause of violations of its financialregulations.)

He took over a team in the rele-gation zone and guided it to ninthplace, following up with a fourth-place finish. This season, despite los-

ing a number of top players in thesummer, Málaga is sixth and camewithin seconds of reaching theChampions League semifinals.

In between, in 2009-10, Pellegrinihad a crack at Real Madrid, the oneEuropean club where silverware wasexpected. He came up short, but stillfinished second to Barcelona, despiteracking up 96 points, the second-highest total ever in the history of LaLiga at the time.

But beyond the results, Pellegrinicomes across as intelligent, educated(he has a degree in civil engineering)and charismatic, in a statesmanlikesort of way. After Mancini, who wasprone to the occasional postgameoutburst, he seems a logical choice.

And yet there is one little wrinklethat doesn’t bode well. Or, rather,one statistical precedent that sug-gests that if he does well in the me-dium-term at City, he will truly be atrailblazer capable of rewriting his-tory.

Pellegrini turns 60 in September.In the past 20 years, in Europe’s topfour leagues, only five managers thatage or older were appointed to clubsin nations where they had neverplayed or coached before. Nonelasted more than a season.

Only two of the five won silver-ware: Bobby Robson, who guidedBarcelona to a Spanish Cup and Eu-ropean Cup Winners Cup in 1996-97and Guus Hiddink, who spent four

months at Chelsea in 2008-09 andwon the FA Cup. (Even then, Hiddinkis something of a special case. Hewas a short-term appointment witha clear mandate and, in any case, heis a natural born globe-trotter whowas on his 10th job in three differentcontinents by that point.)

Even more telling is if you use thesame criteria—foreigner, no previoussoccer experience in the country—and widen the net to include every-one over the age of 50 at the time oftheir appointment, then the searchyields 20 managers.

Just three lasted more than 12months: Louis Van Gaal at BayernMunich, Reynald Denoueix at RealSociedad and Bert Van Marwijk atBorussia Dortmund. Only Denoueixcompleted his second season. Onlysix of the 20 improved the team’sleague position in their first full sea-son—or part-season—and just fourleft the team higher up the tablethan when they took over (and twoof them are Hiddink and AvramGrant, who were never meant to bepermanent managers).

Note that the list includes someof the finest managers of the pastfew decades. In addition to the afore-mentioned Van Gaal, Robson andHiddink, you also have the likes ofGiovanni Trapattoni (Bayern), DickAdvocaat (Borussia Moenchenglad-bach), Cesar Menotti (Sampdoria),Luiz Felipe Scolari (Chelsea) andCarlos Bianchi (Atletico Madrid). Yet,as a group, they all fell short of ex-pectations.

Understanding why is tricky. It’snot merely a question of age: Themen who won the league titles inGermany and England this year, JuppHeynckes and Alex Ferguson, are 68and 71 respectively. Rather it’s the

mixture of age and having to adaptto a soccer culture which is differentand unfamiliar.

In some ways, these men are vic-tims of their own success. Foreignclubs turn to them because whatthey do has worked very well over along time. Yet it also means theytend to be more set in their ways.

Experience, of course, is a valu-able commodity. But when you’rethrown into an entirely new environ-ment, it can take time to adapt andto grasp the subtle, though impor-tant nuances that still differentiateEurope’s soccer cultures.

None of this, of course, meansthat Pellegrini won’t be a success ifhe is appointed at City. In fact, hehas a number of things going forhim, beyond his ability as a manager.He speaks excellent English, for astart—though, again, many of thoseon the list didn’t have to deal withlanguage barriers either. He will havebeen handpicked by City’s high com-mand and recent history shows theycan be a patient bunch. Most of all,the fact that he has only evercoached two top clubs before (Argen-tina’s River Plate and Spain’s RealMadrid, each for just a year) sug-gests he may bring a certain humilityand pragmatism; he’ll be less proneto thinking he can simply replicatewhat worked elsewhere.

Still, the past two decades sug-gest City would be taking quite aleap of faith in picking a man of Pel-legrini’s age. And if he does lastmore than two seasons, he will—interms of longevity alone—have madehistory.

—Gabriele Marcotti is the worldsoccer columnist for the Times ofLondon and a regular broadcaster

for the BBC.

BY GABRIELE MARCOTTI

Manuel Pellegrini offers a hand during Malaga’s La Liga match against Real Madrid at Santiago Bernabeu stadium in Madrid on May 8.

Getty

Images

His sophisticated, creativestyle of play has won himmany plaudits.

Arsenal Beats TottenhamIn Champions League Race

Arsenal edged out Tottenhamby a point to claim the fourth andfinal spot in next season’s Champi-ons League as both sides held onto 1-0 victories Sunday afternoon.Arsenal, which won a tense gameat Newcastle with a goal by Lau-rent Koscielny, will have to play atwo-legged qualifying match in Au-gust to guarantee its place in thecompetition’s group stage.

The Gunners’ result renderedTottenham’s home victory over adogged Sunderland side academic.Spurs will now appear in next sea-son’s Europa League, but the club’sbig question this summer iswhether Gareth Bale will stickaround. Bale, who scored the 89th-minute winner on Sunday, is widelyconsidered one of the mostsought-after players in Europe.

Arsenal trailed its North Londonrival by as many as seven points inlate January, but an unbeaten runof 10 games to finish the seasonerased the gap. It also preservedmanager Arsène Wenger’s streakof qualifying for the ChampionsLeague in each of his 16 full sea-sons in London.

“We needed to be resilient be-cause we played against a verystrong Tottenham team, a verystrong Everton team and weneeded to be really special to comeback and get in front of them,”Wenger told Sky Sports.

Chelsea’s 2-1 victory over Ever-ton sealed third place. And mean-while, the curtain came down onAlex Ferguson’s career with a crazy5-5 draw at West Bromwich Al-bion. —Joshua Robinson

England Tops New ZealandIn First Test at Lord’s

A dominant bowling perform-ance by Stuart Broad at Lord’s onthe fourth day of England’s Testmatch against New Zealand gavethe home side a victory by 170runs Sunday afternoon. Broad tooka stunning seven wickets in 11overs as the Kiwis were held tojust 68 runs in their second in-nings.

Broad’s bowling was just the re-sponse England needed after itsown second innings ended with awhimper. The last four wickets fellin quick succession Sunday morn-ing to complete a collapse thatsaw the final eight wickets go for54 runs. Broad finished the gamewith a total of eight wickets for anaverage of 13.50. The second Testas England gears up for this sum-mer’s Ashes will begin Friday atHeadingley. —J.R.

HEARD ONTHE PITCH

Agence France-Presse/Getty Images

Stuart Broad salutes the crowdafter one of his seven wickets.


EUROPE NEWS

Are you a majormanufacturertrying to decidewhere to locateyour new factoryto serve the

European market? Maybe you’re acar-maker that already hassubstantial operations in the U.K.Or a large U.S. or Asian bank thathas established a Europeanheadquarters in the City ofLondon? Or perhaps you’re aninvestment manager hoping totake advantage of new EuropeanUnion rules allowing you tomarket your funds across thecontinent from London withoutthe need for separateauthorization in each of its 27member states? Or perhaps you’resimply a British business anxiousto know whether your exports willcontinue to enjoy favorabletreatment available under EU free-trade agreements with countrieslike South Korea—and possiblysoon, the U.S.

All sorts of businesses all overthe world have good reason to bealarmed at the latest twists in theU.K. debate over the country’smembership of EU. Many willalready have doubts aboutinvesting in the U.K. because of itsdraconian new immigration lawswhich make it hard to bring inhighly-qualified staff to make upfor the U.K.’s chronic skillshortages. Now they mustconfront a new reality: an in/outreferendum on U.K. membershipof the EU has turned from apossibility into a near-certainty.

Even Deputy Prime MinisterNick Clegg—the most pro-EUparty leader in the U.K.—acknow-ledges that it is now a question ofwhen rather than if the countryhas an in/out referendum. That inturn means there is a real risk ofa U.K exit or “Brexit”.

How big a risk of Brexitdepends largely on Prime MinisterDavid Cameron. Referendums arealways risky because they areoften decided on extraneousfactors such as the popularity ofthe government rather than themerits of the question. As things

stand, 46% of voters say theywould vote out, versus 36% whowould vote to stay in, according tothe latest poll by MORI. To theextent Mr. Cameron has astrategy, it is to delay the voteuntil 2017, buying him time tonegotiate sufficient changes to theterms of Britain’s membership toreconcile his party and thecountry to support staying in.

The first plank in this approachof persuasion is a government-ledreview of the workings of the EUwhich is due to start reportingafter the summer. This issupposed to provide authoritativeproof of the benefits of EUmembership while highlightingpotential reforms that could feedinto Mr. Cameron’s promisedrenegotiation.

But this step-by-step strategyis being blown away by events. Alarge section of Mr. Cameron’sConservative party does not wantto be persuaded. For them, the EU

debate doesn’t turn on economicsand cost/benefit analyses butquestions of sovereignty wrappedin notions of British exception-alism. Their antipathy to the EU isas much emotional as rational.

For this group, Mr. Cameron’spromise of a referendum wasnever sufficient. They don’t wanthim to reform the EU to make itpalatable; they want him to leadthe campaign to take Britain out.Their two-part strategy is first tobully Mr. Cameron into publiclydeclaring he would vote to leavean unchanged EU, as twoambitious senior cabinet ministersdid last week. Then they want toset the bar for Mr. Cameron’srenegotiation so high that he isdoomed to fail.

Whether Mr. Cameron falls intothis trap is the central question inBritish politics. For supporters ofU.K. membership, which includesthe overwhelming majority ofBritish-based businesses as

represented by the Confederationof British Industry, the Instituteof Directors and TheCityUK, theomens do not look good. After all,Mr. Cameron has consistentlybuckled under pressure to thedemands of the anti-EU wing ofhis party that one of hiscolleagues last week allegedlydubbed “mad, swivel-eyedloonies.” To win the leadership, hecourted their support with an ill-judged promise to quit theEuropean People’s Party groupingin the European Parliament thathis rival refused to match.

In December 2011, he opted fordiplomatic isolation by vetoingthe euro zone’s plan to embed itsfiscal pact in the EU treatiesrather than risk confrontationwith his party’s Europhobes inparliament. The referendumpromise he made in January wasanother concession extractedunder extreme pressure.

But to govern is to choose—

and Mr. Cameron may not muchlonger be able to avoid stakingout the ground on which heintends to fight the referendum.The politics is now running farahead of his policy. The electoralsuccess of the anti-EU UKIndependence Party is having agalvanizing effect on all partiesbut particularly his own; positionsare hardening, reducing the scopefor compromise, even before theproper debate that Mr. Cameronsays he wants to lead has started.

Meanwhile, uncertainty overBritish membership is having realworld consequences, undermininghis efforts to win battles inBrussels. The U.K. is alreadypaying a price for Mr. Cameron’sisolation in Europe; the recentdefeat over new EU bank-bonuscurbs was the first time the U.K.had been defeated on asubstantial issue relating tofinancial services.

U.K allies such as Poland,Sweden and the Netherlands arewary of being identified with whatis perceived to be Britishobstructionism. Far too late, Mr.Cameron has understood thenecessity of strengthening hisgovernment’s relationship withGermany—the number of bilateralmeetings at all levels has risenfour-fold since 2010—but there isstill a long way to go, a seniorgovernment figure concedes.

The stakes could not be higher.Mr. Cameron likes to say thatBritain is engaged in a global race.While he sits on the fence, hidingbehind promised renegotiation,other EU countries such as Irelandare taking full advantage of theuncertainty to try to lure awayvaluable foreign investment. Mr.Cameron is fast approaching asimple choice: Either he mustallow himself to be draggedfurther down the path towardsBrexit, shoring up his short-termpolitical position but riskingmajor damage to the U.K. nationalinterest. Or he must make a full-throated defense of Britishmembership that categoricallyrules out an exit.

Of course, the latter comeswith significant risk that he splitshis party and swiftly finds himselfout of a job. But that’s the thingabout leadership: Sometimes youhave no option but to lead.

The EUWaiting Game Is Over for Cameron[ Agenda ]

BY SIMON NIXON

U.K. Prime mInister David Cameron attends a press conference at the United Nations headquarters in New York last week.

European

Presspho

toAgency

An Independent Scotland Risks Financial ShocksLONDON—An independent Scot-

land would have an exceptionallylarge banking sector, compared withthe size of the rest of its economy,making it vulnerable to financialshocks and putting Scottish taxpay-ers at significant risk in the event ofthe country being hit by anotherbanking crisis, the U.K. Treasurysaid Sunday.

In an analysis paper, the third ina series the U.K. government is re-leasing ahead of the independencereferendum next year, the treasuryestimated that an independent Scot-land would have banking assetsworth more than 1,250% of Scottishgross domestic product.

The scale of Scotland’s bankingassets dwarfs those of Iceland andCyprus, which had banking assetsaround 880% of GDP and 800% ofGDP before their respective col-

lapses in 2008 and 2013. Both coun-tries suffered severe financial prob-lems due in part to thedisproportionate size of their bank-ing sectors.

“The experience of financial cri-ses shows that countries with alarge banking sector compared tothe size of their GDP are signifi-cantly more vulnerable,” the reportsays.

The treasury analysis foundbanking sector assets for the wholeU.K. at present are around 492% ofGDP.

“The size of the U.K. economyrelative to its financial sector meansthat the U.K. authorities are in a po-sition to effectively coordinate theresolution of failing firms, and tostand behind any resolution ar-rangements,” the paper said. “Re-solving large banking failures withconfidence is likely to be impossibleunless there is a strong and large

fiscal base underpinning actions tomitigate financial risk.”

Scots go to the polls Sept. 18,2014, to vote on whether to stay inthe U.K. or go it alone as an inde-pendent nation.

As the date draws nearer, theLondon-based U.K. government,which is staunchly in favor of main-taining the 300-year-old union be-tween Scotland and the rest of theU.K., is pointing out the economicrisks and uncertainty that it be-

lieves an independent Scotlandwould create.

By contrast, the semiautonomousScottish government, which is pro-independence, is campaigning toconvince Scots that their small na-tion, which is rich in natural re-sources such as oil and gas in theU.K. sectors of the North Sea, wouldbe better off if it cut its ties to therest of the U.K.

Alex Salmond, Scotland’s firstminister and the leader of the Scot-tish National Party, last month toldThe Wall Street Journal that the in-dependence referendum isn’t deter-ring foreign companies from invest-ing in the country, despite‘scaremongering’ from the U.K. gov-ernment.

“In the last 18 months we haveseen record levels of investment inScotland,” Mr. Salmond said.

The first minister said the Scot-tish government would use its natu-

ral resources as a bargaining chip innegotiations with the U.K. govern-ment about forming a sterling mon-etary union.

The treasury paper also said thatif Scotland became independent, itcould cause difficulties for financialservices firms, particular aroundtheir cost of borrowing.

“There is a substantial area ofuncertainty around the reaction oflarge firms to these risks,” accord-ing to the paper. “These would bedifficult decisions for industry, par-ticularly those firms that havestrong historic and cultural links toScotland.”

It is not clear whether an inde-pendent Scotland would be pre-sented with a bill from London forbailing out Royal Bank of ScotlandGroup PLC and Bank of Scotland,now part of Lloyds Banking GroupPLC, at the height of the global fi-nancial crisis in 2008.

BY AINSLEY THOMSON

“There is a substantialarea of uncertaintyaround the reaction oflarge firms to theserisks.”


BOOKS

The Reluctant American

Two-thirds of the way into Chi-mamanda Ngozi Adichie’s “America-nah,” an African-American womannamed Shan, while slightly in hercups, delivers a diatribe against thepublishing world’s timid dealingswith black writers who candidlyconfront the topic of racism. “Youcan’t write an honest novel aboutrace in this country,” she says. “Ifyou write about how people arereally affected by race, it’ll be tooobvious. Black writers who do liter-ary fiction in this country . . . havetwo choices: they can do precious orthey can do pretentious.”

It’s an astute bit of meta-com-mentary on the stumbling blocksthat Ms. Adichie, who divides hertime between Nigeria and the U.S.,needed to navigate while writing herbook: calls for blurry sentimentalityon one side, doctrinaire preaching

on the other. Yet the unhappy ironyis that, for all its prodding intelli-gence, Shan’s rant appears after“Americanah” has already crashedagainst one of the obstacles itnames. You won’t find a trace ofpreciousness in this novel, but, dearLord, is it pretentious.

Born and raised in Nigeria, Ms.Adichie came to the U.S. in 1996, atage 19. Ifemelu, the main characterof “Americanah,” is in much thesame circumstance. We read of herupbringing among Nigeria’s middleclass and of her early courtship witha gentle young scholar namedObinze. The two seem destined for

marriage and promising careers, butwhen the country’s universities goon strike in protest against the cor-rupt military regime, Ifemelu joins acrowded exodus of students hopingto complete their degrees in Amer-ica.

She moves in with her Aunt Ujuin Philadelphia, and the novel com-prehensively charts her strugglesover the next 13 years. She cuts offcontact with Obinze and has a seriesof intense but unsatisfying relation-ships with American men. She findswork as a nanny for obnoxious lim-ousine liberals. And even after sheestablishes herself, attending Yaleand then receiving a fellowship toPrinceton, she remains ambivalentabout America, attracted to its op-portunities and repelled by its atti-tudes about race, which strike her asstrange. “I came from a countrywhere race was not an issue,” shecomments. “I did not think of myselfas black and I only became blackwhen I came to America.”

Such observations inform a blogthat Ifemelu begins while in schoolcalled “Raceteenth or Various Obser-

vations About American Blacks(Those Formerly Known as Negroes)by a Non-American Black.” Herpointed and contentious posts areexcerpted throughout the novel andare broadsides against unconsciousAmerican “tribalism”: “Diversitymeans different things to differentfolks. If a white person is saying aneighborhood is diverse, they meannine percent black people. (The min-ute it gets to ten percent black peo-ple, the white folks move out.) If ablack person says diverse neighbor-hood, they are thinking forty per-cent black.”

Ifemelu is a natural blogger—confrontational, inflexible in heropinions and relentlessly judgmental(the blog is both a hit and finan-cially rewarding). But what makesfor a successful blog—reinforcingthe beliefs of readers who, in Ife-melu’s words, “get it” and browbeat-ing everyone else—has nothing to dowith good fiction. The lethalproblem in “Americanah” is that itestablishes little authorial separa-tion from Ifemelu. Her snap verdictsgo unchallenged; while devoting somuch time to calling out prejudicesin others, the novel unquestioninglyendorses those of its protagonist.

Throughout “Americanah” thereis a sense that Ms. Adichie believesthe world requires a good lecturingand that she is the person to deliverit. The story balloons with unearnedsmugness. Virtually every secondarycharacter seems to have been intro-duced for no other reason than to bescolded or belittled. Aunt Uju, weare told, possessed a “strange na-ïvete” with which she “covered her-self like a blanket.” Ifemelu’s em-ployer in Philadelphia shows thehypocritical “nationalism of liberalAmericans who copiously criticizedAmerica but did not like you to do

so.” The mother of one of her boy-friends is “the kind of wealthy per-son who did not tip well.” The onlything we learn about one of her col-leagues during a short-lived job at amagazine is that she has ashy skin,“and Ifemelu’s first urge, when theymet, was to suggest a good moistur-izer.” The novel is race-blind in itscondescension—even MichelleObama is rebuked for appearing“clamped, flattened, made to soundtepidly wholesome in interviews”—but it is especially disparaging ofwomen.

Ifemelu is somewhat shallowlypreoccupied with forms and appear-ance, and in black women’s hair-styles she finds what she believes is“the perfect metaphor for race inAmerica.” She herself favors braidsor, even better, letting her hair growout naturally in an Afro. She remem-bers her mother chopping her ownhair short in Nigeria, and this is por-trayed as evidence of religious zeal-otry. When Aunt Uju gets a weaveand extensions, it is a symbol offrivolousness. Worst of all are blackwomen who relax their hair, whichbrands them as sellouts sucking upto straight-haired white America.There’s something strangely old-fashioned about the strain of intol-erance that runs through this book—artistically, it’s no different thantendentious Victorian novels inwhich women of loose virtue areidentified by their immodest appareland saucy table manners. In bothcases, morality is confused withmoralizing.

In the last act of “Americanah,”Ifemelu, feeling homesick—weigheddown by the “cement in her soul”—returns to Nigeria and re-connectswith Obinze. In her absence, he hasbecome rich as a consultant onshady real-estate deals. He has alsogotten married and had a child witha woman whom Ms. Adichie gratu-itously slags as being vain and stu-pid. The wife and daughter prove tobe little impediment, however, tothe reunited lovers. “This doesn’tfeel like cheating to me,” Obinzesays, pathetically. When he does fretabout his marriage vows, Ifemelutaunts him for his cowardice. It’stypical of this exasperating novelthat it expects such a narrow, self-serving romance to kindle interest.“Americanah” uncritically esteemsthese two characters and thinksharshly of everyone else. The readerwill have the opposite reaction.

—Mr. Sacks writes the fictionchronicle for the Saturday Journal.

Raymond Sokolov

Joy in the MorningBy P.G. Wodehouse (1946)

Wodehouse wrote his master-piece while interned in Upper Sile-sia as an alien enemy. “If this is Up-per Silesia,” he said, “what mustLower Silesia be like?” Then, toshow his American fans he waskeeping a stiff upper lip, he agreedto participate in a couple of chipperGerman broadcasts aimed at thestill-neutral U.S. In Britain, theywere seen as traitorous betrayals.The stink never abated and turnedhim into an exile from the home-land he never stopped recasting asa comic heaven of harmless pranksand pastoral misdoings. He was of-ficially cleared of aiding the enemyand no sane observer has ever be-lieved that Wodehouse understoodthe moral mess he was so blithelycreating. With his feckless BertieWooster and his omniscient man’sman Jeeves at the center of thesublime foolery, Wodehouse, innovel after novel, just kept on let-ting us smile at a world of privilegeand big houses, upstairs and down-stairs going gently topsy-turvy.“Joy” is the story of a countryweekend from hell at Steeple Bum-pleigh. Engagements crumble, jew-elry is mislaid, tempers are lost,drinks drunk. Jeeves saves the day,really he saves the world and nowhas time to read the latest scholarlyedition of Spinoza.

Jorrocks’ Jaunts andJollitiesBy R.S. Surtees (1838)

If you have bought a “fine” Eng-lish bone china coronation mugfrom the Prince of Wales CharitableFoundation and, like Gina Lollo-brigida in “Beat the Devil,” have al-ways kept up your subscription toCountry Life, there is still hope thatyou can be rescued from your naiveAnglophilia. In “Jorrocks’ Jauntsand Jollities,” Surtees provides sa-tirical views of a down-market Brit-ain unglimpsed on “Downton Ab-bey.” He makes fond fun of thereligion of fox hunting, with the

“substantial grocer” Jorrocks at thecenter of this antiheroic chronicle.The comedy here is broad: Someonedefends his menu against the chargeof having too few fish (a “defish-ency”). All levels of society mix invainglorious, inept chasing of thewily fox, with mongrel dogs and ad-dled strategy. Instead of a statelyhome, the hapless Nosey builds him-self his idea of a castle, with a doorso broad that it lets in winter blastsevery time it’s opened. Surtees’smotley crew drink like lords at Jor-rocks’s groaning board. AnticipatingW.C. Fields, Jorrocks boasts:“There’s all sorts of drench, in fact,except water—a thing I nevertouch—rots one’s shoes, don’t knowwhat it would do with one’s stom-ach if it was to get there.”

No More ParadesBy Ford Madox Ford (1925)

This is the second volume of thebest war novel not by Tolstoy.Ford’s whole great tetralogy “Pa-rade’s End” was recently com-pressed into a TV miniseries, whichdid a fine but ultimately inadequatejob of re-creating the inner world ofthe decent, self-lacerating Edward-ian Tory intellectual ChristopherTietjens, who is too good to be truebut true anyway to his vile, evil, un-faithful, endlessly seductive wife,Sylvia. The marriage withers, asdoes his civil-service career. Ti-etjens soldiers on, literally, in thetrenches and, figuratively, at coun-try estates and in the upper reachesof British politics. But the real ac-tion, thanks to Ford’s deft applica-tion of the then-hot technique of in-ternal monologue, occurs inTietjens’s stoical mind. The commit-ted reader will acquire the re-editedand (very usefully) annotated edi-tion of 2011.

The Complete PoemsBy Philip Larkin (2013)

Solitary, dour, detached, sour,creepy, Philip Larkin detested theworld of “abroad” and recoiled frommuch of what he saw at home. Yethe embraced jazz and wrote, in amostly traditional manner, the mostacclaimed—and chilling—Englishpoetry of the 20th century. That po-

etry, collected here in what must beits totality, with every scrap of hith-erto unpublished, lost or hiddenverse now shivering in full view, isexhaustively commented upon bythe editor, Archie Burnett. Thismarmoreal treatment only serves tounderline the strangeness of Lar-kin’s triumphant status, especiallyin the U.K., as a major writer. Hisunhappy view of his country is mor-dantly on view in “The WhitsunWeddings.” The poet sits on a trainto London as newly married couplesboard at station after station. He isat first repelled by the dreary urbanlandscapes passing by (“Canals withfloatings of industrial froth”). Thenhe notices the wedding parties withdisdain (“the perms, / The nylongloves and jewelry-substitutes”),ending with a note of guarded exal-tation. The train halts, and newlyjoined lives begin (“And as thetightened brakes took hold, thereswelled / A sense of falling, like anarrow-shower / Sent out of sight,somewhere becoming rain”). Theywill not be setting that to music forthe next royal wedding.

Never MindBy Edward St. Aubyn (1992)

If you want to sign up for thelatest literary cult, this lurid andmonstrously eloquent autobio-graphical novel is the place to start.It is the first of what ended in 2011as the Melrosiad, five interlockedinstallments in the life of well-bornand miserable Patrick Melrose. Toexplain the addictive brilliance ofthe Melrose saga, it would be alltoo easy to quote from the reptilianexpectorations of Patrick’s father,David, an alcoholic doctor who sod-omized his young son. But it is re-ally the detached and elegantly hor-rifying voice of Patrick that is thedraw. Here he is thinking himselfinto the mind of his mother: “Sheimagined vodka poured over ice andall the cubes that had been frostedturning clear and collapsing in theglass and the ice cracking, like aspine in the hands of a confidentosteopath.” Follow Patrick throughdrug addiction, marital collapse andother exquisitely rendered unhappi-ness. He survives, battered, soberedup and still acidly articulate.

BY SAM SACKS

AmericanahBy Chimamanda Ngozi Adichie(Fourth Estate, 477 pages, £20)

The novel is race-blind in itscondescension. EvenMichelle Obama is rebukedfor appearing ‘clamped,flattened’ and ‘tepidlywholesome.’

[ Five Best ]

her life.”It was a happy moment for the

entire country. The military triumphput the seal on an economic trans-formation that had already begun.Having been outperformed by everyWestern European state during the1960s and 1970s, Britain outgrewthem all in the 1980s (except Spain,which was bouncing back from aneven lower place). Thatcher’s faith inher countrymen was amply vindi-cated. She emerges from this bookmore subtle, more layered than ei-ther her supporters or her oppo-nents tend to believe. But the single-mindedness for which she is mostremembered was real.

Stubbornness in itself, however,is no virtue. Thatcher’s achievementlay in having got the big calls right:She saw that there could be no com-promise with the prevalent social-

Continued from previous page democratic consensus, or with thetrade-union militants, or with theSoviet Union, or with Gen. Galtieri.Though she showed more subtletyand suppleness on all these mattersthan most realized at the time, sheknew that her opponents would haveto be defeated. And so, in the end,they were.

That, ultimately, is what the leftcan’t forgive. She took a countrythat they had made bankrupt, dis-honored and demoralized and left itprosperous, confident and free. Shedid it all without ever losing an elec-tion to them. She ended up trans-forming, not just her party, but theLabour opposition, too, which had toaccept her economic settlement tobecome electable. That, perhaps,was what pleased her most of all.

—Mr. Hannan is a BritishConservative member of the

European Parliament.

Thatcher: Not for Turning


EUROPE NEWS

The Big Chill Inside French RestaurantsELANCOURT, France—When

Jean-Luc Madec opened his restau-rant west of Paris more than 20years ago, he would get up at 3 a.m.and race to the city’s wholesalemarket to select the best fresh food.

Nowadays, he can sleep in. Withhigh labor costs eating into his bot-tom line, Mr. Madec uses frozen in-gredients—and even complete maincourses—for the dishes served atLes Templiers.

“It’s the only way we can sur-vive,” he said. “But it’s also killingFrench cuisine.”

France is a country that pridesitself on the quality and sophistica-tion of its food—Unesco listed theGallic meal as an global treasureand more than a third of the 18 mil-lion annual visitors to Paris putfancy restaurant dinners at the topof their to-do list, according to a2010 survey by the Paris-Ile-de-France Tourism Committee.

But a steady increase in laborcosts and food prices has fueled anunexpected phenomenon: Many res-taurants can no longer afford to pre-pare meals from fresh ingredients intheir own kitchens.

Instead, they have progressedfrom buying frozen vegetables andthe like to outsourcing more andmore work to industrial suppliers inan attempt to keep their businessesviable.

“Frozen food got a foot into res-taurant kitchens two decades ago,and kept the door open to industri-ally prepared dishes,” said PatrickRambourg, a culinary historian whoworked on France’s application tohave its cuisine recognized by theUnited Nations Educational, Scien-tific and Cultural Organization.

“Today, most restaurants in thiscountry serve food that has beencooked elsewhere,” he said.

To be sure, France remains abeacon for talented chefs who de-vote hours to meticulous prepara-tion of fresh food in their kitchens.France has the most three-star Mi-chelin restaurants in the world afterJapan, and leads in the one- andtwo-star categories.

Of the 80,000 table-service res-taurants in France, fewer than 10%have labels certifying that most oftheir ingredients are fresh and thatthe dishes are cooked on site, saidGérard Guy, head of CPIH, one ofthe country’s largest restaurant andhotel organizations.

That number hasn’t changedmuch in recent years. There are sev-eral reasons why restaurants mightnot want to apply for such labels,including the cost and hassle of be-ing audited.

But since having the label is con-

sidered good for business, Mr. Guysaid it was fair to assume that mostof those that don’t have a label areusing a lot of frozen ingredients orindustrially prepared dishes—orboth.

Restaurateurs started buying de-hydrated meat and fish stock in the1960s, allowing them to skip longhours of preparation and simplifythe cooking of sauces.

In the 1990s, frozen ingredientswent from the family refrigerator,where they had been made popularby the rising rate of workingwomen, to restaurant cold rooms.Industrially prepared food followedin the 2000s.

Mr. Madec said the economicgain for his business from buyingprepared food is too big to pass up.Sitting at one of Les Templiers’ ta-bles, he takes bœuf bourguignon,the classic dish prepared with beefbraised in Burgundy red wine, as anexample.

Adding up the price of freshmeat, wine and vegetables and thelabor costs, a portion of the stewcosts Mr. Madec €3.53 (about $4.50)to make. Ready-to-serve portionsfrom Davigel, a unit of Nestlé SA,allow him to trim that to €3.17 perserving.

The 10% savings is significant ata time restaurant profit margins arethin.

“As a cook I hate it, but the pricepressure leaves me with no alterna-tive,” Mr. Madec said, who charges€18 for the dish but says profit isstill scant once other costs arecounted.

Independently owned restau-rants in France accounted for 60%of Davigel’s €800 million in saleslast year, up from 40% in 2000, saidmarketing manager Ignace de Ville-pin.

The company has recently up-graded its product line, which in-cludes classic meat dishes as well asdesserts. Others, including the Ger-man wholesale giant Metro AG, arealso feeding demand from restau-rants.

Restaurant owners argue thatthe 36.3% increase in real terms inFrance’s minimum wage since 1990has forced them to cut costs aggres-sively to preserve their profit mar-gins.

In 1995, Les Templiers’ lowest-paid employee cost Mr. Madec€12,610 a year. By 2012, that salaryhad doubled to €25,153, while infla-tion over the period was 33%.

Unions say pay for restaurantworkers should be even higher.

“Restaurant staff works nightsand weekends,” said Denis Raguet, aunion leader at Force Ouvrière. “It’snot an easy job.”

The growing dependence on pre-pared food has sparked a backlashfrom some restaurant owners whostill make everything in their kitch-ens, including Xavier Denamur, whoowns five restaurants in centralParis.

Helped by the recent discoveryacross Europe of horse meat in fro-zen dishes labeled as beef—whichexposed the lack of checks in theprocessed-food chain—he has lob-

bied for French authorities to forcerestaurants to disclose where theirfood comes from.

“It’s the client’s right to knowwhat’s on the plate,” said Mr. Dena-mur. “Otherwise it’s fraud.”

The extent of the practice is un-known to many diners.

“I guessed not everything washomemade, but I thought it was ex-ceptional practice, like little whitelies,” said Marie Gibert, a 23-year-old fashion photographer who saidshe dines out once a week on aver-age.

Worried by what they view asdeclining standards, a panel of 15top French chefs, including AlainDucasse and Joël Robuchon, starteda new quality label in April that willbe awarded only to establishmentsthat prepare their own food.

A diner “needs to be able to tellthe difference between restaurantswho have staff cooking in thekitchen and those who use micro-waves to reheat industrial dishes,”said Mr. Ducasse.

Politicians are joining the fray,too.

A group of Socialist lawmakers isworking on a draft bill it hopes tosubmit to Parliament by the summerthat would force restaurants to listdishes obtained from industrial sup-pliers on their menus—a practice al-ready in place in Italy, Europe’sother culinary giant.

Mr. Madec, the restaurant owner,said the fallout could be harsh.

“We all agree in principle,” hesaid, “but if that bill passes, busi-nesses like mine will be wiped out.”

BY GABRIELE PARUSSINI

Bill of Fare

Breakdown of costs

Sources: Xerfi, Eurogroup Consulting 2011 (restaurant cost breakdown); Insee (nominal minimum wage), Eurostat (monthly minimum wage)

100%

80

60

40

20

02004 ’09 ’95 ’05

Staff43.3%41.1%

30.8%32.4% Foodsupply

Other

Nominal minimum wage in France, perhour

Monthly minimum wages forselected countries, 2013EU€10

0

2

4

6

81. Luxembourg $2,414.3

2. Belgium $1,934.6

5. France $1,842.4

$1,628.6

$969.88. Spain

6. U.K.

1990 2000 ’12

Personnel costs are up at France’sindependent restaurants.*

France is fifth highest out of 20 in the EU with a national minimum wage.

U.S. $1,160†

2012€9.31

*With sales of up to €400,000 a year †Based on the national miniumum wage of $7.25 per hour

Jean-Luc Madec sitting at a table in his Les Templiers restaurant..

Riccardo

VecchiarelliforTh

eWallS

treetJournal


BOOKS

The Woman Who Saved Britain

All Britons remember where theywere when Margaret Thatcher re-signed in 1990. It was our equivalentof the Kennedy assassination—events that, curiously enough, bothfell on Nov. 22. No British politicianin living memory had provoked suchstrong feelings. At Thatcher’s funeralin April, 23 years after she left officeand a decade after her last interven-tion in public life, the battles shehad so enjoyed were re-enacted:Many threw flowers before her cof-fin, while a few, their faces twistedin unfeigned loathing, yelled abuse.

The funeral was a reminder ofwhat conviction politics looks like.These days, our leaders consult theirpollsters, weigh their words, fretabout how they are coming across.Margaret Thatcher, as CharlesMoore shows in the magisterial firstvolume of his authorized biography,had a healthy interest in public opin-ion, but she never lost sight ofwhere she wanted to go. While oth-ers drifted with the current, she waslike a shark swimming only forward:focused, patriotic, slightly humorlessand needing remarkably little sleep.

These were, happily, just the at-tributes that the times demanded. Itis hard to convey the sheer wretch-edness of the nation she was electedto govern in May 1979. Since WorldWar II, Britons had seen their em-pire vanish, their standing deterio-rate, their credit expire. Successivegovernments had inflated away theirdebts, with a disastrous effect oncompetitiveness and productivity.

By the mid-1970s, the U.K. hadreached its lowest point. These werethe years of double-digit inflation, ofpower cuts, of shortages. There wereconstant strikes, and trade-unionleaders were better known house-hold names than elected ministers. AConservative government—a govern-ment of which Thatcher was the de-spairing education minister—was re-duced to passing laws regulatingprices and incomes.

Mr. Moore, the former editor ofthe Daily Telegraph newspaper, cap-tures the atmosphere of these yearsbeautifully: the worsening trade fig-ures, the collapse in industrial out-put, the IMF bailout. “Britain is atragedy,” Henry Kissinger told Presi-dent Gerald Ford in 1975. “It hassunk to begging, borrowing, stealinguntil North Sea oil comes in.” An ed-itorial in The Wall Street Journal inApril of that year was more pointed:“Good-bye, Great Britain. It was niceknowing you.”

Thatcher, almost alone, wouldnot accept what was happening. “Ican’t bear Britain in decline, I justcan’t,” she blurted shortly before shebecame prime minister. Nowadays,those words sound unremarkable—which is the ultimate tribute to whatshe achieved. For, at the time, the al-most unanimous view of the Estab-lishment was that the slide was irre-versible and that the purpose of

politics was to make it as painless aspossible.

Born in Grantham in Lincolnshirein 1925, Margaret Thatcher wasnever part of the Establishment. Fe-male, Methodist, provincial and lit-eral-minded, she never acquired, norwanted to acquire, the amused cyni-cism that was the hallmark of theeducated Englishman. One of thereasons that she had such a deep af-fection for Americans was that sherecognized in them the qualities thatset her apart from most of her fel-low MPs: enthusiasm, optimism,guilelessness, self-belief.

Where did it come from, her self-belief? We find it in her characterfrom the beginning. When she won aschool prize at the age of 9, herprincipal congratulated her on herluck. “I wasn’t lucky, I deserved it,”replied the young Margaret Roberts,who, with her tendency to simplifyeverything, genuinely couldn’t un-derstand what luck had to do with it.Her single-mindedness, her obses-sive self-improvement, took her toOxford, despite the resistance of hersecondary-school headmistress, whothought she should attend the localuniversity. That headmistress wasthe first of many who were to findthemselves knocked aside by sheerforce of personality: Trade-unionleaders, Tory grandees, Eurocratsand Argentine strongmen were toexperience the same thing.

Willpower is not unusual in poli-ticians, of course. What is unusual isthe marriage of ambition and ideol-ogy. Many elected representativeswork extraordinary hours for rea-sons that have to do with personalpsychology. Think of, say, LyndonJohnson, whose drive came from thehumiliation of watching his familygoing bankrupt when he was 13. Ev-ery day that I spend in politics con-vinces me of the truth of P.J.O’Rourke’s observation that manycandidates are running for office, ashe imagines one of them admitting,“in order to even the score withthose grade-school classmates ofmine who, thirty-five years ago, gaveme the nickname Fish Face.”

Margaret Thatcher, by contrast,was animated by ideas—ideas fromwhich she never deviated. Her fa-ther, Alf Roberts, a shopkeeper andpopular Methodist preacher, was alocal councilor whose main preoccu-pation was to reduce the burden oftaxes and regulations on the shop-keeping class. A model of conserva-tive decency, he would send hisdaughters with loaves of bread tothe families he knew to be needy,carefully telling them that he hadbaked too much, so that the pride ofthe recipients should not be hurt. Hewas not perfect: There are tantaliz-ing hints in Mr. Moore’s narrativethat he may have been something ofa ladies’ man. Still, in his mind,thrift, sobriety and industry werenot abstract Protestant virtues butactive political principles.

Thatcherism was, in many ways,just a refinement of those core be-liefs. Thatcher herself was no intel-lectual, though she diligently readup on the works of the great think-ers who ennobled her prejudices, in-cluding Frédéric Bastiat, EdmundBurke, Joseph Schumpeter, Alexis deTocqueville, C.S. Lewis and, in par-ticular, F.A. Hayek, whose “Constitu-tion of Liberty” she used to pullfrom her handbag, declaring: “Thisis what we believe.” Still, Hayek canbe heavy going, and she was morecomfortable with the homespun pa-triotic conservatism of Rudyard Ki-pling, whose poetry she had recitedaloud as a girl in competitions. (Heraccent, which detractors took as evi-

dence of social climbing, was, Mr.Moore shows, the product of teenageelocution lessons.)

What surprised me most in read-ing this biography was the extent towhich Thatcher’s politics were in-formed by her Christianity. Withoutever renouncing the Methodism ofher girlhood, she drifted into attend-ing Church of England servicespunctiliously and quietly. British pol-iticians, unlike their American coun-terparts, almost never mention God.This is partly because our electorateis less churchgoing than yours andpartly because even the most devoutBritons are uncomfortable discuss-ing religion. Thatcher occasionallybroke this rule, horrifying the lead-ers of the Church of Scotland in1988, for instance, when she toldthem that the Good Samaritanwouldn’t have been of much use ifhe hadn’t had money to help the in-jured traveler.

Yet so successful has been thecaricature of Thatcher as a mechani-cal free-marketeer who thought onlyof economics that even her support-ers have lost sight of the extent towhich her doctrines had a moralbase. As Mr. Moore notes, her father,

had believed in what Gladstonecalled “effort, honest manful ef-fort,” and it was a combination ofGladstonian economic views ofretrenchment and reform withMethodism which animated Mrs.Thatcher. Denis Thatcher sharedthis analysis of her attitudes. Hebelieved that some of what peo-ple thought of as his wife’s“right-wingery” actually camefrom her religious upbringing:“She can’t find a sustainable ar-gument that people should bepaid for not doing any work.”

Like all successful leaders, sheused speechwriters who could ex-press her instincts in suitably ele-vated language. In New York in 1975,she brilliantly described the then-prevalent egalitarianism as “an un-distinguished combination of envyand what might be called ‘bourgeoisguilt.’ ” But her natural language wasblunter. “Why does he keep talkingabout the boojwah?” she once askedof a sympathetic journalist. “Whynot find a good plain English wordfor the good plain English people?The boojwah live in France.”

Like her close ally Ronald Rea-gan, Thatcher was often attacked for

her failure to grasp nuance. After lis-tening to a talk by the distinguishedhistorian Edward Norman, rightlypredicting, as Mr. Moore writes,“that the issue of nuclear weapons,which had fallen comparatively quietsince the early 1960s, would soon re-appear as a great moral struggle inthe West,” she declaimed above thehubbub: “I agree with Doctor Nor-man: we must defend Christian val-ues with the ATOM BOMB.”

Yet, as Mr. Moore shows, uncom-promising beliefs could go hand inhand with tactical flexibility. ThePentagon, perhaps surprisingly, wasreluctant to deploy intermediate-range nuclear missiles in Europe inthe early 1980s, regarding them asan unnecessary expense when theU.S. already had a massive arsenal.Those Americans who favored thedeployment, above all Reagan’s firstsecretary of state, Alexander Haig,knew that the best way to convincethe doubtful president would bethrough Thatcher. We then see herin these pages playing the unlikelyrole of a bridge-builder between theU.S. and Europe, securing Americanconcessions on the sanctions Reaganhad imposed on the U.S.S.R.—sanc-tions that disproportionately hurtWestern European companies—inexchange for agreement to deploythe missiles in Great Britain, WestGermany and Italy. Thank heavenshe did: That deployment set in mo-tion the events that were to lead tothe rise of Mikhail Gorbachev andthe end of the Cold War.

This biography gives us plenty ofnew material on Thatcher’s relation-ship with Reagan, who privatelycalled her “the only European leaderI know with balls.” The Gipper chiv-alrously allowed her to browbeathim, first over the missiles and laterover American attempts to mediateduring the Falklands War. She wasright on this latter occasion, too:The State Department feared thatthe humiliation of Gen. Galtieri’sjunta would lead to communism inArgentina. In fact, it led to democ-racy.

Mr. Moore also reveals, extraor-dinarily, that the prime minister wasin contact with the Irish RepublicanArmy during the hunger strikes byprisoners in the early 1980s. She al-ways denied this fact, even to her-self, hiding behind a piece of casu-istry: The contact was through anintelligence officer and was there-fore necessarily unofficial. Thatcher

had sought, reasonably enough, tofind a formula that might save thehunger strikers’ lives without com-promising the principle that demo-cratic governments don’t deal withparamilitary organizations. Nonethe-less, had the facts emerged at thetime, her reputation would have suf-fered gravely and, to the end of herdays, she could not bring herself toadmit that she had had dealingswith terrorists.

Such revelations are characteris-tic of Mr. Moore’s penetrating andhonest work. Broadly supportive ofthe Thatcher project, he is nonethe-less careful never to let his politicscolor his story. Though this is,oddly, his first book, he is arguablythe outstanding British journalist ofhis generation, one whose Torysympathies go hand in hand with adetermination to write from firstprinciples, disregarding conven-tional wisdom. This biography waswritten on the understanding thatits subject would never see it, whichgave the author a freedom that hemight not have enjoyed had he felther presence over his shoulder. Forexample, Thatcher never admittedto having any boyfriends beforeDenis, but Mr. Moore unearths four,including one Scottish farmer whomshe liked but never fancied and so,briskly, paired off with her sister,Muriel, who was happily married tohim ever after.

Mr. Moore combines great narra-tive sweep with telling details. Fol-lowing a false report of the sinkingof a Royal Navy vessel during theFalklands campaign, Denis found hiswife sitting on the end of the bed intears: “Oh no, oh no, another ship!All my young men!” Denis, who hadserved in Italy during World War II,quietly took her hand. “That’s whatwar’s like, love.” His military recordmade her depend even more heavilythan usual on his advice during thatcampaign, and he emerges as a herofrom these pages.

Thatcher, who published hermemoirs in two volumes in 1993 and1995, treated the 1979 election as theobvious dividing point. Mr. Moorefound that this would place toomuch material in the second volumeof the biography and so carried thefirst up to the moment of victory inthe Falklands in 1983. He ends witha celebratory dinner at No. 10 Down-ing Street that, he says, “may wellhave been the happiest moment of

Please turn to next page

BY DANIEL HANNAN

Margaret ThatcherBy Charles MooreAllen Lane, 896 pages, £30

PeterMarlow/M

agnu

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otos

Female,Methodist, provincialand literal-minded, sheneveracquired, norwanted toacquire, the amused cynicismthat is thehallmarkof theeducatedEnglishman.


EUROPE NEWS

Unemployment in Spain is at27%. Young people are fleeingPortugal and Ireland. One-in-fourGreeks say they have difficultypaying for food.

Despite the Depression-eraconditions, however, Europe has nocrash plan to get people back towork. Under the German-engineered strategy to escape theeuro crisis, struggling southernEuropean members must continueto cut public spending, lowerwages and grind down prices untilthey’re competitive again. Atcurrent rates, it could take adecade or more to complete theprocess, according to studies byGoldman Sachs.

All the pain being enduredraises the question: Is there abreaking point at which Europeanssimply say, “Enough”?

Certainly, Europeans haveprotested austerity. But despitesome scares, no country has leftthe euro. Support for remaining inthe common currency remainshigh, even though there’swidespread disenchantment withthe European Union. Over 60% ofSpaniards, Greeks, Italians andFrench want to keep the commoncurrency, according to a surveypublished this month by the PewResearch Center.

Euro doomsayers who expectedGreece would tumble out of thecurrency last year have seemingly

underestimated Europeans’willingness to put up with years ofhardship rather than gamble on anexit. But European officials whopoint to the stability of pro-eurosentiment may be making theopposite mistake.

Europeans’ reserves of patienceare deep, but surely finite.

“Just the sheer enormity ofquitting the euro has so farmilitated against a surge insupport to leave,” says SimonTilford, chief economist at theCenter for European Reform, aLondon-based think tank. Oncepeople feel there’s no light at theend of the tunnel, however, “we’llprobably start to see a more opendebate about the costs and benefitsof remaining in the singlecurrency,” he says. “And once yousee that debate, things couldhappen quite quickly.”

It has happened before. Likecountries that joined the eurozone, Argentina in the 1990s gaveup control over its own currency,fixing it 1-to-1 to the U.S. dollar.That tamed hyperinflation, but italso allowed a borrowing binge indollars that pushed up wages andbusiness costs. Like southernEurope today, Argentina becamedeeply uncompetitive and thecountry’s currency couldn’t fall tomake its goods attractive abroad.

Like euro members today,Argentina had to grin and bear ituntil wages and prices fell farenough for the country to becomecompetitive again. Conventionalwisdom at the time was thatArgentines would bear anyhardship to keep using the U.S.

dollar, so seared were they bydecades of political and economicchaos that included periods offour-digit inflation.

“Devaluation is not an option inArgentina,” a World Bankeconomist said at the time. “Withsuch a high dollarization level, adevaluation would be too costly.”

Technically, Argentina had itsown currency to return to, butabandoning parity with the dollarwas seen as too excruciating toundertake, because almost all debtsand business contracts were in theU.S. currency. After three years of

recession, though, Argentinesappeared to decide en masse thatwhatever came next couldn’t beworse than the unendingdepression needed to keep theirpesos interchangeable with dollars.

On a balmy night in December2001, the middle class took to thestreets of Buenos Aires in anexplosion of rage. Riots across thecountry swept the governmentfrom power. Argentina defaultedon its debt soon after, and then thecountry abandoned the peso’s pegto the dollar.

How similar is the situation

southern Europe today?Argentina’s economy hadcontracted by around 8% in thethree years before the uprising. Bythe end of this year, Italy’s andPortugal’s economies will haveshrunk by around 8% from theirpeak, Spain’s by around 6% andGreece’s by more than 23%,according to the InternationalMonetary Fund.

EU policy makers who takecomfort in the apparent popularityof the euro should consider thatArgentines also widely supportedthe dollar peg—right up until themoment they exploded. In a pollpublished in December 2001, thesame month that Argentinesrioted, just 14% said the currencyregime should be scrapped; 62%said they wanted to keep it. That’svirtually the same proportion ofSpaniards and Greeks who say theywant to keep the euro today.

Argentina, with its ups anddowns since devaluation, isn’t amodel for Europe. Rather, it’s acautionary tale.

In late 2001, Argentina’seconomy minister called thecountry’s dollar peg “a permanentinstitution,” whose unthinkablecollapse would cause “thedissolution of the basicinstitutions of the economy andsociety.” A month later it wasgone.

Those who say the risk ofcountries leaving the euro hasgone away should consider othertimes when people viewed acurrency regime as sacred, rightup until the time they swept itaway.

Euro-Zone Risking an Argentina Moment?[ The Outlook ]

BY THOMAS CATANAND MARCUS WALKER

BreakingPoint?Some euro countriesare now nearing thesame decline in grossdomestic productthat Argentina hadwhen it abandonedthe dollar peg.Greece has farsurpassed that level.


*Year zero for Argentina represents full-year 1998 GDP; for others, it represents full-year 2007

Source: WSJ analysis of International Monetary Fund data

0

–25

–20

–15

–10

–5

%

Greece–23.5%

Italy–8.3%

Portugal

–7.9%

Spain–5.7%

10 2 3YEARS SINCE START OF CRISIS*

4 5 6

Cumulativeloss in GDP

(2013projections)

Argentina’s GDP had fallen8.4%when it abandonedthe dollar peg in January 2002

Subdued Danish Songstress Captures EurovisionMALMO, SWEDEN—Eurovision

fans got what they expected in the58th edition of a song contestknown as much for kitsch outfits,over-the-top stage shows and geo-political tension as for musical qual-ity.

Memorable hallmarks of theweekend event included a Romanianresembling a vampire singing shock-ingly high notes; Greek men dancingin skirts; and a twiggy Ukrainianwrapped so tightly in her dress thatit seemed to make sense to have oneof the tallest men in the world carryher on stage.

Early Sunday morning however,after nearly four hours of perfor-mances and vote tallying, the crownwent to a 20-year-old Dane whoopted to go with a more predictableand mainstream formula that hasdelivered the prize to performers inrecent years. Picking a catchy balladcalled “Only Teardrops” written bya Scandinavian songwriter andabandoning shoes in favor of thesame barefoot approach taken bythe winner in 2012, Emmelie de For-est relied on powerful vocals and aload of pre-Eurovision hype tohandily beat the closest runners upAzerbaijan and Ukraine.

The more toned-down Ms. deForest stood in contrast to the an-tics that have made Eurovision fa-mous. Recent performances includeSweden’s Eric Saade breakingthough a wall of glass in 2011 andRussia’s band of grandmothers last

year. The most gimmicky act to winwas perhaps Lordi, the Finnish mon-ster mask-wearing rocker whowowed audiences in 2006 by blend-ing pyrotechnics with Tolkienesquemonsters.

Held in Malmo, Sweden’s third-largest city, the 2013 Eurovision isestimated by organizers to havebeen watched on TV by well over100 million people world-wide, withnew viewers from the U.S. watchingvia web stream. Organizers, under

pressure to rein in costs after somecountries sat the show out due tocost concerns, cut the budget in halfcompared with the prior year andspent about $20 million producing acontest of 39 nations, with 26 mak-ing it to the final.

Like the winner, this edition ofEurovision was a bit more subdued,reflecting a Europe that is having todo more with less.

With Ms. de Forest’s victory, Eu-rovison promises to stay close to

Sweden’s borders and in a Nordicregion that has proven to take thesong contest very seriously even asother participants show less enthu-siasm. As this year’s winner, Den-mark will become the fourth Nordicnation in the past eight years tohost Eurovision, following Finland’svictory in 2006, Norway’s win in2009 and Sweden’s conquest lastyear. Copenhagen is about a half-hour train ride from Malmo.

It will likely be several months

before Denmark picks the actual cityof the 2014 Eurovision, but the Dan-ish capital is the most likely pickgiven its size and infrastructure.

Ms. de Forest—with a Swedishfather and Danish mother and rela-tives in New York and North Caro-lina—is well aware of the event’ssustained global popularity, due inpart to its world-wide web stream-ing. She grew up inspired by thevictory of Denmark’s Olsen brothersin 2000, when she was 7 years old,and called that group “heroes” in arecent interview.

“It’s indescribable to win foryour country,” Ms. de Forest toldDanish broadcaster DR. “I think thiswill be fantastic for me and my ca-reer.” She was a strong favorite withbookmakers and Eurovision fansahead of the event.

While contestants are free tosing in their native tongue, most optto belt out tunes in English. Thishas led to a Eurovision that resem-bles the oft-random flavor of manyof the more commercial singing con-tests, such as “American Idol,” morethan it resembles a celebration ofthe unique aspects of the nationscompeting.

For instance, Alyona Lanskaya,from Belarus, performed “Soloya”with a flair more reflective of theMiami club scene than Eastern Eu-ropean tradition.

Finnish entrant Krista Siegfrids,who chose to sing “Marry Me,”staged a performance closely resem-bling the style of American popsinger Katy Perry. At the end of hersong, she kissed a female backupdancer as a protest against the factthat gays can’t marry in Finland.

By Frances Robinson,Jens Hansegard

and Clemens Bomsdorf

Denmark’s Emmelie de Forest raises her prize after winning the 2013 Eurovision Song Contest in Malmo, Sweden.

AgenceFrance-Presse/Getty

Images


In-Flight Texting Makes Pilots :-)Systems Helps Avoid Miscommunication, the Biggest Source of Air-Traffic Control Errors

MontrealPilots and air-traffic controllers

texting each other? OMG! Your air-line flight is finally starting tocommunicate the way the rest ofthe world does.

Controllers and pilots aren’tusing their cellphones to text,

even though many pas-sengers now do usingapps and in-flight Wi-Fi. Instead, planes withmodern cockpit sys-

tems can log on to new systems atair-traffic control centers and linkdigitally. Rather than sometimesdifficult radio calls, pilots and con-trollers simply send each othertext messages to change altitudes,routes and hand off from one con-troller to the next.

The system has been in use forflights across oceans for severalyears. Canada now has it activeacross its domestic skies and Eu-ropean controllers have it in use intwo large regions. But the U.S. isway behind.

By texting instead of talking,controllers have more time to pro-cess requests for airlines. Pilotssometimes request shortcuts ormore-preferential routes based onwind shifts. And as planes burnfuel and lighten, pilots often wantto climb to higher altitudes forsmoother rides, faster speed andbetter fuel burn. Sometimes thoserequests don’t get made or get putoff or denied simply because con-trollers don’t have time to coordi-nate new altitude and route as-signments with other controllersalong a plane’s flight path. Thechatter on radio frequencies canget intense.

If texting while flying soundsscary, relax. This isn’t like textingwhile driving, because planes havetwo pilots—one flies, one commu-nicates. And flying an airplane isall about working dials and read-ing instruments.

Air-traffic controllers say thebest benefit is safety—miscommu-nication is the biggest source ofair-traffic control errors. Overlong-distance radio transmissions,numbers and instructions can eas-ily be misheard. Sometimes pilotsare preoccupied and miss radiocalls for their flight. Sometimesinstructions get read back inaccu-rately and must be repeated by thecontroller and read back again bythe pilot. Sometimes transmis-sions get blocked because twopeople try to talk at the same timeover the radio.

Controllers say it frequentlycan take two or three tries to getsimple instructions to a flightcrew, especially if English, the uni-versal language of air-traffic con-trol, isn’t the pilot’s primary lan-guage.

“If you look at a lot of acci-dents and incidents, you see multi-ple events. This is an opportunityto eliminate one of them. You’reeliminating a source of potentialerror,” said Sid Koslow, chief tech-nology officer for Nav Canada, theprivatized air-traffic control serv-ices provider for Canada.

This new system is expected toboost capacity and reduce delays,people in the industry say. Planesoften must wait to take off so air-traffic controllers don’t get over-loaded with too many planes at

once. Eurocontrol, the agency thatcoordinates and plans air-trafficcontrol throughout Europe, saysthat once half of all airline flightsin Europe are equipped to commu-nicate by text message, controllerswill be able to handle 8% moreflights because their workload willbe reduced by 16%. When 75% ofairplanes have the equipment, 11%more planes will be able to fly si-multaneously as a result of a 22%

controller workload reduction.Direct data communications be-

tween planes and pilots is a cru-cial part of air-travel moderniza-tion, and it’s an upgrade the U.S.has been trying to implement formore than a decade without suc-cess. U.S., European and Pacificcontrollers do text message withpilots out over oceans beyond reg-ular radio range. But over land,where skies and radio frequencies

are more congested and the needfor better communications isstrong, the switch has been pain-fully slow.

Controller-pilot data links werewell on their way in the U.S. in2002. American Airlines equippedseveral airplanes that conductedairborne tests with the FederalAviation Administration’s Miamiair-traffic control center. But theprogram was canceled. A 2004FAA report cited cost growth andschedule delays.

Earlier this year, the FAAlaunched a limited test in Mem-phis, Tenn., to text instructions toplanes waiting to take off, withplans to expand it later this yearto Newark, N.J., and Atlanta. Theagency says it will begin deployingData Comm, as the program hasbeen renamed, in all control tow-ers in 2016 and in all high-altitudecontrol centers in 2019.

Canada offers a taste of the fu-ture for U.S. pilots close to home.Pilots there text with controllersboth over oceans and over domes-tic skies. U.S. airlines that fre-quently use Canadian airspace fortrips to and from Europe and Asiaare making use of the texting tech-nology. Cross-country domesticflights that entail flying over Can-ada also benefit.

“We love the technology. It’saccurate and quick—the same rea-sons why people like texting ontheir phones so much,” said Capt.Joseph Burns, managing directorfor flight standards and technol-ogy at United Airlines, which hastexting capabilities on most of its

wide-body fleet. “It does seem tomake the world a bit smaller.”

Europe also has controller-pilottext messaging in use at two air-traffic control centers, and shouldhave its system fully implementedby 2015.

Aircraft delivered from Boeingand Airbus over the past decadeor so come with the right gear in-stalled. Canadian authorities say50% of the planes flying in theeastern part of the country canmake use of Controller-Pilot DataLink Communications.

On a recent day in the Montrealcontrol center, Delta Air LinesFlight 41 sent a request by CPDLC.A blue message box popped up oncontroller Caroline Heroux’s largeradar screen.

“Request climb to FL360,”meaning the pilot wanted to takethe flight from London to Minne-apolis up a bit to 36,000 feetabove sea level. Ms. Heroux, 51years old and a veteran controller,confirmed she could clear thatflight level. With a couple of quickmouse clicks, she transmitted amessage back: “Climb and main-tain FL360.” The pilot respondedby text with “Wilco,” short for“will comply.”

“It’s rather easy,” Ms. Herouxsaid. “It’s a great benefit for thetraveler and a great benefit for thecontroller. This is the biggest stepforward, because human error istaken away.”

Controllers have pop-up win-dows with various choices of stan-dard messages for altitudechanges, frequency changes andsome re-routings. Colored squareson the data tags for airplanes onthe controller’s radar screenchange as pilots respond so thatcontrollers get an extra visual cuein case a pilot doesn’t see a mes-sage. Secure computers verifyidentity of the aircraft and makesure the links stay active.

“It’s not rocket science, but ithas to be done right,” Mr. Koslowsaid.

Like many projects in air-travelmodernization, there’s a chicken-and-egg question: Should airlinesspend money on equipment beforeair-traffic control agencies provethey can work with it, or should

air-traffic control service provid-ers spend first and then wait forairlines to catch up? In many proj-ects, one side or the other hasbacked out or balked.

Nav Canada decided to pushahead with the technology yearsago in part because it handles somany airplanes coming off theoceans from Asia and Europe thatit knew would be equipped withdata-link capabilities. The com-pany thought if airlines saw thebenefits in action, they would getplanes equipped faster.

“To us, it’s better to just do itrather than planning 10 yearsahead and telling everybody whatthey need to do,” Mr. Koslow said.

BY SCOTT MCCARTNEY

Nav

Canada

THEMIDDLESEAT

Source: Nav Canada The Wall Street Journal

The 34,000-Foot TextA typical conversation conducted via text message between a pilotin the air and an air-traffic controller.in the air and an air-traffic controller.

Source: Nav Canada

U/L • “Standby”

“Climb to and maintain FL340”

2. The pilot requests allowing the plane to climb to an altitude of34,000 feet above sea level. The plane performsmore efficiently at higheraltitudes and can go higher as it gets lighter through the burning of jet fuel.

1. A download link is a message coming from a plane to air-traffic control.

3. Air-traffic control grantspermission for the climb inan upload link to the plane.

4. The pilot responds thatshe “will comply.”

U/L

and maintain FL340”“Climb to and

TIME • DOWNLOAD LINK • MESSAGE• DOWNLOAD LINK •

19:14 • D/L • “Request climb to FL340 dueto aircraft performance”

Control

D/L • “WILCO”

Pilot

“WILCO”Pilot

PERSONAL JOURNAL

Europe also hascontroller-pilot textmessaging in use at twoair-traffic control centers


U.S. NEWS

White House AideChides the GOP for‘Fishing Expeditions’

White House senior adviserDan Pfeiffer said the Obama ad-ministration wouldn’t cooperate in“partisan fishing expeditions”over targeting of tea-party groupsby tax officials, raising the pros-pect of future battles with law-makers over their investigations.

Mr. Pfeiffer also hinted at thepossibility of further personnelchanges at the Internal RevenueService in coming days. PresidentBarack Obama last week forcedthe ouster of the acting commis-sioner.

Speaking on ABC, Mr. Pfeiffersaid the law governing the target-ing of conservative groups was“irrelevant,” saying the conductitself was “outrageous” and prom-ising the administration wouldmake sure it “never happensagain.”

Pressed on his characterizationof the law, he added: “What Imean is, whether it’s legal or ille-gal is not important to the factthat the conduct doesn’t matter.The Department of Justice hassaid they’re looking into the legal-ity of this. The president is notgoing to wait for that. We have tomake sure it doesn’t happenagain, regardless of how thatturns out.”

The IRS apologized Friday forwhat it said were mistakes in tar-geting tea-party and other conser-vative groups for extra scrutinyduring the 2012 election cam-paign, but said its actions weren’tpolitically motivated.

During a series of appearanceson the Sunday talk shows, Mr.Pfeiffer was at times defensiveabout what had happened at theIRS while also taking a more ag-gressive tone against GOP effortsto investigate the matter.

“We’ve seen this playbook fromthe Republicans before,” Mr. Pfeif-fer said on NBC. “What they wantto do when they’re lacking a posi-tive agenda is to try to dragWashington into a swamp of parti-san fishing expeditions, trumped-up hearings and false allegations.We’re not going let that happen.”

Mr. Pfeiffer said on ABC thatthe administration would considerany request that lawmakers putforward, adding that “our hope isthat they do this in a bipartisanway.”

Republicans said a hearing be-fore the House Ways and Means

Committee Friday representedonly a first step, and that muchmore fact-finding will occur be-fore they can judge who is toblame.

Speaking on NBC, Ways andMeans Chairman Dave Camp (R.,Mich.) said the Treasury inspectorgeneral for the IRS is now con-ducting a more thorough investi-gation. That will likely includemore documentary evidence, suchas emails, than the audit report is-sued on Tuesday.

Mr. Camp and the top Demo-crat on his panel, Rep. SanderLevin of Michigan, also have re-quested extensive evidence fromthe IRS. Mr. Camp hasn’t ruled outthe possibility of issuing subpoe-nas.

“Congress has been trying toget answers for two years and wewere stonewalled,” Mr. Camp said.“We still need to have the investi-gation.”

Two other committees areholding hearings this week.

Several GOP lawmakers ques-tioned the wisdom of allowingSarah Hall Ingram, who formerlyoversaw tax-exempt organiza-tions—the heart of the currentcontroversy—to run the IRS officein charge of compliance with the2010 health-care overhaul. Ms. In-gram was in charge of tax-exemptand government entities until theend of 2010. The improper target-ing of tea-party and other conser-vative groups appears to havestarted in early 2010.

On ABC, Mr. Pfeiffer said thenewly installed acting commis-sioner, Daniel Werfel, would do a30-day review “to see that anyonewho did anything wrong is heldaccountable.” He noted that “thisindividual you are referring to isnot mentioned in the inspectorgeneral’s report.”

He didn’t rule out the possibil-ity of other changes regarding thehealth-care implementation.

“He’s going to get in there, he’sgoing to do a top-to-bottom re-view and make sure that they cando the job and do it right,” Mr.Pfeiffer said.

Lawmakers also have been crit-ical of Lois Lerner, the director ofthe IRS exempt-organizations divi-sion.

Ms. Ingram and Ms. Lerner ha-ven’t responded to requests forcomment in recent days and didn’timmediately respond to requestson Sunday.

BY JOHN D. MCKINNON

President Barack Obama boards Air Force One Sunday in Maryland.

AssociatedPress Kenneth

Feinberg, theveteran victim-fund administrator,knew almostimmediately after

hearing about the BostonMarathon bombings that he wouldbe getting a call.

He likened the moment to ared light blinking, signaling: “Hereit comes.”

Soon after, Boston MayorThomas Menino called Mr.Feinberg, who was named by Mr.Menino and Massachusetts Gov.Deval Patrick to head the OneBoston Fund two days after thebombings last month. Mr. Patrickcited the 67-year-old Mr.Feinberg’s “long history of publicservice, especially in times oftragedy.”

That history includes runningfunds—or advising those runningfunds—on a pro bono basis in theaftermath of the Sept. 11, 2001,terrorist attacks and the massshootings in Blacksburg, Va.;Aurora, Colo.; and Newtown,Conn.

And it informs Mr. Feinberg’scalculations about distributingfunds to victims. “What betterevidence to rely on whendetermining the value of livesthan what you’ve done before?”he said in an interview.

There are nonethelessimportant differences between thefunds he has run. After Sept. 11,Congress formed a fund to offervictims’ families payments inexchange for agreeing not to suethe airlines involved, so amountsoffered were based on what theycould have expected to get incourt. Since court awards oftenare based on lifetime earningpotential of victims, survivors ofbig earners got the most from theSeptember 11th VictimCompensation Fund. By contrast,funds in Boston and for the mass-shooting victims were set up tohand out no-strings-attached gifts,not to substitute for the tortprocess.

Boston, meanwhile, differsfrom the others in that thebombings cost more limbs thanlives, and the number of severe,life-altering injuries of all kinds isso high—higher than after Sept.11, Mr. Feinberg said.

What unites all these funds isMr. Feinberg’s approach, which hecalls “rough justice.”

Though he works as a lawyerwhen not administering victimfunds, his approach isn’t based ontort law and none of his Bostonteam are lawyers—most arePricewaterhouseCoopersaccountants working pro bono.His priority is to get funds torecipients quickly, and with aminimum of strife.

“I’m trying to encouragepeople to move on as best theycan,” he said.

In practice, that meansdrawing simple, easy-to-followrules for dividing funds.

For instance, funds run by Mr.

Feinberg since Sept. 11 typicallyaward the same amount forrecipients within each category—survivors of those killed, forexample, or double amputees orthose with severe brain injuries.

Mr. Feinberg doesn’t reviseawards based on expectedearnings, financial means, medicalbills, health insurance, othersources of income—such as theindividual funds set up bymarathon victims—or the severityof injuries within each category.

“To ask [victims] and theirfamilies to start getting you reamsof information so you and youalone can do means testing—itwill slow getting the money out,”Mr. Feinberg said. “It willpromote, not help cure, emotionalwounds.”

Boston victims and theirfamilies got to hear from Mr.Feinberg about his approach thismonth, when he spoke at twotown-hall meetings.

To 25-year-old Kaitlynn Cates,a marathon spectator whosuffered a severe calf injury, Mr.Feinberg came off as “very blunt,very forward.”

Ms. Cates said that wasn’t abad thing: “He did what he had todo.”

Mr. Feinberg said he did takeinto account feedback fromvictims and their families whendrawing up the Boston plan,which was announced last weekwithout specific dollar figures, asthe fund is still acceptingdonations and the extent of somevictims’ injuries remains unclear.

Among the decisions heattributes to their feedback

include giving money to peoplewho were injured but treated onan outpatient basis.

One contentious point iswhether to compensate forpsychological trauma.

The Boston fund won’t do it,because Mr. Feinberg said thereisn’t enough money to go around.

Emotional trauma was asticking point in Aurora, whereRichard Audsley, adviser to acommittee distributing $5.3million, favored including thosewho had suffered trauma fromevents such as holding dyingpeople in their arms.

“His point of view was, therewasn’t enough money to deal withemotional trauma,” Mr. Audsleysaid of Mr. Feinberg’s work as a“special master” for the fund.

“I understand his point of view,but I think many victims, in thatparticular event, felt what theyhad experienced was minimized tothe point it created a lot ofadditional emotional strife.”

Many who have worked withMr. Feinberg before applaud hisperformance. John Ashcroft, theformer U.S. attorney general whochose him to administer the Sept.11 fund, said in an interview, “Idon’t think there’s any questionabout the fact that he did the jobwell.”

Despite their differences inpriorities, Mr. Audsley appreciatedMr. Feinberg’s work. Mr. Audsleycalled his approach “formulaic,”but said adhering to a formulamay be the best way to get fundsout quickly in a manner perceivedas fair.

Is his formula perfect?Mr. Feinberg answers his own

question: “Absolutely not. Is itnear perfect? Absolutely not. Butit’s the best way of thealternatives, I think.” He added,“By the end of June, $30 millionwill be out the door, and then wemove on, and hope there isn’tanother one.”

A Victim-Fund Chief’sCritical Calculations

[ The Numbers Guy]

BY CARL BIALIK

Relief MeasuresThe way Kenneth Feinberg determined compensation for victims of the 2007shooting at Virginia Tech and the 2012 shooting in Aurora, Colo., will influencehow he will distribute the donations pouring in for victims of the BostonMarathon bombings and their aftermath.

The Wall Street Journal*Includes 23 people not injured but present when shootings occurredSources: Feinberg Rozen LLP; One Fund Boston

Virginia Tech*

Aurora

50

26

32

12

$42,400

$103,783

$220,000

$220,000

Victimstatus

TOTAL FUND SIZE

PAST COMPENSATION PATTERNS

Injured

Deceased

Number of victimscompensated

Averagepayout

$30.4 million

One Fund Boston(as of Friday)

Hokie SpiritMemorial Fund

$5.3 mil.

Aurora VictimRelief Fund

$9.2 mil.

The Boston Marathonbombings took morelimbs than lives.


Currencies London close onMay 17Per In

AMERICAS Per euro In euros U.S. dollar U.S. dollars

Argentina peso-a 6.7060 0.1491 5.2313 0.1912Brazil real 2.6105 0.3831 2.0364 0.4911Canada dollar 1.3165 0.7596 1.0270 0.9738Chile peso 616.67 0.001622 481.06 0.002079Colombia peso 2357.44 0.0004242 1839.00 0.0005438EcuadorUS dollar-f 1.2819 0.7801 1 1Mexico peso-a 15.7886 0.0633 12.3164 0.0812Peru sol 3.3739 0.2964 2.6320 0.3799Uruguay peso-e 24.286 0.0412 18.945 0.0528U.S. dollar 1.2819 0.7801 1 1Venezuela bolivar 8.14 0.122847 6.35 0.157480

ASIA-PACIFICAustralia dollar 1.3166 0.7595 1.0271 0.97371-mo. forward 1.3196 0.7578 1.0294 0.97153-mos. forward 1.3252 0.7546 1.0337 0.96746-mos. forward 1.3332 0.7501 1.0400 0.9615

China yuan 7.8696 0.1271 6.1390 0.1629Hong Kong dollar 9.9512 0.1005 7.7627 0.1288India rupee 70.3773 0.0142 54.9000 0.0182Indonesia rupiah 12505 0.0000800 9755 0.0001025Japan yen 132.04 0.007574 103.00 0.0097091-mo. forward 132.02 0.007575 102.99 0.0097103-mos. forward 131.98 0.007577 102.95 0.0097136-mos. forward 131.89 0.007582 102.88 0.009720

Malaysia ringgit-c 3.8740 0.2581 3.0220 0.3309NewZealand dollar 1.5867 0.6303 1.2377 0.8079Pakistan rupee 126.263 0.0079 98.495 0.0102Philippines peso 52.839 0.0189 41.219 0.0243Singapore dollar 1.6114 0.6206 1.2570 0.7956South Koreawon 1433.69 0.0006975 1118.40 0.0008941Taiwan dollar 38.500 0.02597 30.033 0.03330Thailand baht 38.289 0.02612 29.868 0.03348

Per InEUROPE Per euro In euros U.S. dollar U.S. dollars

Euro zone euro 1 1 0.7801 1.2819

1-mo. forward 0.9998 1.0002 0.7799 1.2822

3-mos. forward 0.9994 1.0006 0.7796 1.2827

6-mos. forward 0.9986 1.0015 0.7789 1.2838

Czech Rep. koruna-b 26.060 0.0384 20.329 0.0492

Denmark krone 7.4523 0.1342 5.8134 0.1720

Hungary forint 291.17 0.003434 227.13 0.004403

Norway krone 7.5193 0.1330 5.8657 0.1705

Poland zloty 4.1821 0.2391 3.2624 0.3065

Russia ruble-d 40.302 0.02481 31.439 0.03181

Sweden krona 8.5903 0.1164 6.7011 0.1492

Switzerland franc 1.2476 0.8015 0.9732 1.0275

1-mo. forward 1.2472 0.8018 0.9729 1.0278

3-mos. forward 1.2464 0.8023 0.9723 1.0285

6-mos. forward 1.2449 0.8033 0.9711 1.0297

Turkey lira 2.3640 0.4230 1.8441 0.5423

U.K. pound 0.8449 1.1835 0.6591 1.5172

1-mo. forward 0.8451 1.1833 0.6593 1.5169

3-mos. forward 0.8454 1.1829 0.6595 1.5163

6-mos. forward 0.8458 1.1824 0.6598 1.5157

MIDDLE EAST/AFRICABahrain dinar 0.4833 2.0692 0.3770 2.6525

Egypt pound-a 8.9361 0.1119 6.9709 0.1435

Israel shekel 4.7013 0.2127 3.6674 0.2727

Jordan dinar 0.9079 1.1014 0.7083 1.4119

Kuwait dinar 0.3668 2.7266 0.2861 3.4953

Lebanon pound 1943.20 0.0005146 1515.85 0.0006597

Saudi Arabia riyal 4.8073 0.2080 3.7501 0.2667

South Africa rand 12.0660 0.0829 9.4125 0.1062

United Arab dirham 4.7085 0.2124 3.6730 0.2723

a-floating rate b-financial c-government rate c-commercial rate d-Russian Central Bank rate.Source: ICAPPlc.

Major stock market indexes Stock indexes fromaround theworld, grouped by region. Shown in local-currency terms.

PREVIOUS SESSION PERFORMANCERegion/Country Index Close Net change Percentage change Yr.-to-date 52-wk.

EUROPE Stoxx Europe 600 308.72 0.75 0.24% 10.4% 29.2%

Stoxx Europe 50 2823.22 8.43 0.30 9.5 25.5

Euro Zone Euro Stoxx 283.43 0.89 0.31 8.7 31.4

Euro Stoxx 50 2817.99 11.29 0.40 6.9 31.4

Austria ATX 2499.83 15.06 0.61 4.1 32.0

Belgium Bel-20 2732.29 4.78 0.18 10.4 31.7

Czech Republic PX 982.78 -2.50 -0.25% -5.4 13.1

Denmark OMXCopenhagen 504.34 -1.09 -0.21 11.5 25.2

Finland OMXHelsinki 6421.75 -13.41 -0.21 10.7 26.7

France CAC-40 4001.27 22.20 0.56 9.9 33.0

Germany DAX 8398.00 28.13 0.34 10.3 33.9

Hungary BUX 18779.57 6.13 0.03 3.3 14.0

Ireland ISEQ 4004.57 7.27 0.18 17.9 32.9

Italy FTSEMIB 17604.61 60.60 0.35 8.2 34.9

Netherlands AEX 368.08 2.71 0.74 7.4 27.5

Norway All-Shares 531.17 Closed 8.3 16.6

Poland WIG 46078.68 86.65 0.19 -2.9 23.7

Portugal PSI 20 6115.53 52.08 0.86 8.1 28.4


Russia RTSI 1405.34 24.76 1.79% -8.0 9.0

Spain IBEX 35 8582.4 40.10 0.47 5.1 30.7

Sweden OMXStockholm 389.45 2.55 0.66 13.2 29.4

Switzerland SMI 8280.25 24.10 0.29 21.4 42.8

Turkey ISE National 100 91924.84 -21.90 -0.02% 17.5 61.5

U.K. FTSE 100 6723.06 35.26 0.53 14.0 27.6

ASIA-PACIFIC DJAsia-Pacific 147.51 -0.38 -0.26 10.7 26.5

Australia SPX/ASX 200 5180.80 15.10 0.29 11.4 28.0

China CBN 600 21771.72 320.76 1.50 4.7 1.6

Hong Kong Hang Seng 23082.68 Closed 1.9 20.2

India Sensex 20286.12 38.79 0.19 4.4 25.6

Japan Nikkei Stock Average 15138.12 100.88 0.67 45.6 75.8

Singapore Straits Times 3449.30 -2.98 -0.09 8.9 24.1

South Korea Kospi 1986.81 Closed -0.5 7.7

AMERICAS DJAmericas 424.90 3.72 0.88 14.5 26.8

Brazil Bovespa 55164.27 391.65 0.72 -9.5 1.2

Mexico IPC 41806.73 45.62 0.11 -4.3 13.4

Note:Americas index data are as of 5:00 p.m. ET. Sources: SIX Financial Information;WSJMarketDataGroup

Cross rates U.S.-dollar and euro foreign-exchange rates in global trading

USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD

Australia 1.0271 1.5582 1.0553 0.1533 0.0327 0.1751 0.0100 0.2800 1.3166 0.1767 1.0001 ...

Canada 1.0270 1.5581 1.0552 0.1533 0.0327 0.1751 0.0100 0.2800 1.3165 0.1767 ... 0.9999

Denmark 5.8134 8.8199 5.9734 0.8675 0.1849 0.9911 0.0564 1.5852 7.4523 ... 5.6608 5.6603

Euro 0.7801 1.1835 0.8015 0.1164 0.0248 0.1330 0.0076 0.2127 ... 0.1342 0.7596 0.7595

Israel 3.6674 5.5641 3.7683 0.5473 0.1167 0.6252 0.0356 ... 4.7013 0.6309 3.5712 3.5708

Japan 102.9992 156.2673 105.8337 15.3704 3.2762 17.5596 ... 28.0850 132.0367 17.7176 100.2962 100.2860

Norway 5.8657 8.8992 6.0271 0.8753 0.1866 ... 0.0569 1.5994 7.5193 1.0090 5.7117 5.7112

Russia 31.4387 47.6979 32.3039 4.6916 ... 5.3598 0.3052 8.5725 40.3019 5.4080 30.6137 30.6105

Sweden 6.7011 10.1667 6.8855 ... 0.2131 1.1424 0.0651 1.8272 8.5903 1.1527 6.5253 6.5246

Switzerland 0.9732 1.4765 ... 0.1452 0.0310 0.1659 0.0094 0.2654 1.2476 0.1674 0.9477 0.9476

U.K. 0.6591 ... 0.6773 0.0984 0.0210 0.1124 0.0064 0.1797 0.8449 0.1134 0.6418 0.6418

U.S. ... 1.5172 1.0275 0.1492 0.0318 0.1705 0.0097 0.2727 1.2819 0.1720 0.9738 0.9737

Source: ICAPPlc.

MSCI indexesDeveloped and emerging-market regional and country indexesfromMSCI Barra as ofMay 17, 2013

Price-to- LOCAL-CURRENCYDividend earnings PERFORMANCEyield ratio MorganStanley Index Last Daily YTD 52-wk.

2.60% 15 ALLCOUNTRY (AC)WORLD* 376.74 0.16% 10.9% 14.6%

2.60 16 World (DevelopedMarkets) 1,508.02 0.19 12.7 16.5

2.40 16 World ex-EMU 185.79 0.26 13.6 16.3

2.50 16 World ex-UK 1,517.34 0.25 13.3 17.3

3.10 16 EAFE 1,772.81 -0.16 10.5 16.9

2.80 12 EmergingMarkets (EM) 1,046.33 -0.02 -0.8 2.0

3.50 14 EUROPE 105.61 -0.07 9.7 18.8

3.70 15 EMU 166.49 -0.33 5.9 18.2

3.50 16 Europe ex-UK 111.13 -0.11 10.1 22.4

4.60 12 EuropeValue 104.33 -0.10 7.6 19.1

2.50 19 EuropeGrowth 102.98 -0.04 11.7 18.4

2.70 26 EuropeSmall Cap 226.28 0.44 13.2 21.9

3.80 6 EMEurope 306.93 -0.98 -1.1 2.9

3.60 13 UK 1,978.01 -0.09 13.2 16.5

3.70 15 Nordic Countries 189.50 -0.10 9.6 17.2

3.70 5 Russia 728.18 -1.17 -5.0 -6.1

3.30 15 SouthAfrica 1,018.58 0.64 0.7 14.8

2.90 14 ACASIAPACIFICEX-JAPAN 481.06 0.12 3.2 9.0

1.70 23 Japan 772.95 -0.51 45.8 56.5

3.10 10 China 61.46 -0.11 -2.2 2.2

1.30 15 India 793.43 0.44 3.8 17.2

1.10 10 Korea 566.14 1.05 -2.4 -2.9

3.30 20 Taiwan 302.84 0.83 9.5 12.6

2.00 17 USBROADMARKET 1,864.64 0.50 16.0 18.4

1.50 26 USSmall Cap 2,750.32 0.40 16.8 21.9

3.30 16 EMLATINAMERICA 3,700.92 0.38 -2.6 -5.7

*Twenty-three developed and 26 emergingmarkets Source:MSCI Barra

Dow Jones IndexesPrice-to-

Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars)yield* ratio* Dows Jones Index Last Daily 52-wk. Last Daily 52-wk.

2.50%18.97 Global TSM 2975.80 0.30% 27.2%

2.78 23.49 GlobalDOW 1641.06 0.93% 26.4% 2235.02 0.20 27.4

3.11 14.91 Global Titans 50 226.30 1.02 23.0 216.75 0.29 23.9

3.40 19.69 DevEuropeTSM 2947.25 -0.45 30.7

2.51 19.87 DevelopedMarketsTSM 2951.42 0.33 28.5

9.78 13.80 S&PBMIEmgMarkets 268.83 -0.11 16.6

3.49 19.02 S&PEurope 350 1262.18 0.26 29.4 1453.86 -0.37 30.4

3.55 19.86 S&PEuro 1200.07 0.37 32.2 1400.87 -0.26 33.2

4.16 18.42 EuropeDow 1278.61 0.50 25.5 1741.38 -0.23 26.5

2.76 8.80 BRIC50 427.30 1.19 10.6 522.42 0.46 11.5

2.02 19.57 U.S. TSM 17389.25 1.02 29.7

Kuwait Titans 30 -c 205.85 -0.42 13.2

Price-to-Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars)yield* ratio* Dows Jones Index Last Daily 52-wk. Last Daily 52-wk.

TurkeyTitans 20 -c 935.46 0.02% 64.3%

6.17%22.22 Global SelectDiv 209.38 -0.03% 17.1% 229.79 -0.75 18.1

5.80 16.95 Asia/Pacific SelectDiv 325.15 -0.43 22.6 356.85 -1.15 23.6

U.S. SelectDividend -d 1183.40 1.75 1133.42 1.02 29.2

2.99 15.76 S&PGlbNatResources 2087.71 0.60 8.0 2662.53 -0.03 9.0

2.27 17.65 IslamicMarket 2505.27 0.29 21.4

2.69 16.48 IslamicMarket 100 2485.61 0.98 21.6 2727.90 0.25 22.6

Islamic Turkey -c 4767.55 0.02 35.9

3.45 20.87 Sustainability Europe 102.36 0.11 30.4 144.28 -0.61 31.5

4.04 21.45 S&PGlb Infrastructure 1520.61 0.77 15.9 2204.81 0.14 17.0

1.81 13.70 Luxury 1744.23 1.05 28.0 1896.31 0.33 29.1

DJ-UBSCommodity -p 116.73 0.61 -3.6 131.70 0.61 -3.2

*Fundamentals are based on data inU.S. dollar. Footnotes: a-inUSdollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&PDowJones Indices

GLOBAL MARKETS LINEUP

WSJ.com>> Follow the markets throughout the day with updated stock quotes, news andcommentary at WSJ.com. Also, receive email alerts that summarize the day’s trading in Europeand Asia. To sign up, go to WSJ.com/email.

Commodities Prices of futures contractswith themost open interestEXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: ChicagoMercantile Exchange; ICE-US: ICE Futures U.S.MDEX:BursaMalaysiaDerivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: LondonMetals Exchange;NYMEX:NewYorkMercantile Exchange;ICE-EU: ICE Futures Europe *Data as of 5/16/2013

ONE-DAY CHANGE Year YearCommodity Exchange Last price Net Percentage high low

Corn (cents/bu.) CBOT 653.25 11.75 1.83% 738.75 610.00Soybeans (cents/bu.) CBOT 1448.75 21.25 1.49 1,483.50 1,336.50Wheat (cents/bu.) CBOT 682.75 -5.00 -0.73% 813.25 664.75Live cattle (cents/lb.) CME 118.675 -1.050 -0.88 132.325 118.375Cocoa ($/ton) ICE-US 2,308 14 0.61 2,437 2,046Coffee (cents/lb.) ICE-US 137.05 -2.80 -2.00 163.30 132.70Sugar (cents/lb.) ICE-US 16.89 0.06 0.36 19.92 16.81Cotton (cents/lb.) ICE-US 86.37 0.34 0.40 94.20 75.58Rapeseed (euro/ton) LIFFE 435.00 -1.50 -0.34 442 413Cocoa (pounds/ton) LIFFE 1,550 21 1.37 1,583 1,400Robusta coffee ($/ton) LIFFE 2,035 -11 -0.54 2,217 1,926

Copper ($/lb.) COMEX 3.3145 0.0200 0.61 3.8155 3.0425Gold ($/troy oz.) COMEX 1357.60 -29.30 -2.11 1,702.00 1,321.50Silver ($/troy oz.) COMEX 22.200 -0.459 -2.03 32.510 21.120Aluminum ($/ton)* LME 1,834.50 -0.50 -0.03 2,165.50 1,828.50Tin ($/ton)* LME 20,700.00 50.00 0.24 25,150.00 19,775.00Copper ($/ton)* LME 7,125.50 -19.50 -0.27 8,286.00 6,842.00Lead ($/ton)* LME 1,968.00 7.00 0.36 2,455.00 1,961.00Zinc ($/ton)* LME 1,820.50 -4.50 -0.25 2,214.00 1,820.50Nickel ($/ton)* LME 14,900 -5 -0.03 18,665 14,850

Crude oil ($/bbl.) NYMEX 96.33 0.88 0.92 99.79 86.16Heating oil ($/gal.) NYMEX 2.9297 0.0292 1.01 3.2205 2.7277RBOB gasoline ($/gal.) NYMEX 2.8870 0.0241 0.84 3.1804 2.6750Natural gas ($/mmBtu) NYMEX 4.107 0.125 3.14 4.4990 3.3340Brent crude ($/bbl.) ICE-EU 104.63 0.85 0.82 115.93 96.76Gas oil ($/ton) ICE-EU 879.75 8.00 0.92 992.75 820.25

Sources: SIX Financial Information;WSJMarket Data Group


WORLD NEWS

Syrian ForcesPush to RetakeRebel Redoubt

DAMASCUS—Syrian governmentforces backed by members of Leba-nese militant group Hezbollahlaunched a sweeping operation Sun-day to capture a rebel strongholdnear the Lebanese border, accordingto Syrian state media and to activ-ists opposed to the regime.

Taking the town of Qusayr,southwest of the city of Homs,would bolster recent gains by re-gime forces in central Syria andaround the capital, Damascus. It alsocould further embolden Syrian Presi-dent Bashar al-Assad, who told anArgentine newspaper over the week-end that his fate would be decided inelections scheduled for next year.

Such a timetable complicates therenewed U.S.-Russian push for a po-litical settlement to end the morethan two-year civil war in Syria.Rebels and their Western and Arabbackers insist any settlement mustbe predicated on Mr. Assad relin-quishing power.

Government forces had cordonedoff Qusayr on Sunday and were wag-ing street battles against rebels onmultiple fronts, according to Syrianstate television. The state TV chan-

nel’s correspondent, who is embeddedwith government troops in Qusayr,said soldiers took over several govern-ment buildings, including the localmunicipal building, where the rebelflag was brought down and the Syrianflag hoisted in its place. The captureof the building couldn’t be indepen-dently verified.

“We have crushed more than 70terrorists, and the army is makingprogress, and it has liberated thecemetery and the church areas,” anarmy officer told the channel bytelephone from Qusayr. “God will-ing, Qusayr will be liberated in thecoming hours or days.”

The rebels in Qusayr, who are es-timated to number about 5,000 andwhose ranks include foreign fightersand extremists, denied the govern-ment’s claims. But rebels said thetown was being subjected to one ofthe most intensive bombardmentsby regime forces to date.

Activists said at least 40 peoplehad been killed so far, all men ex-cept for two women, in the offen-sive, which started overnight Satur-day with several airstrikes and abarrage of artillery and rocket fire.

Syrian government forces andHezbollah fighters have been gradu-ally tightening their siege of Qusayrsince mid-April. About 10 days ago,the Syrian regime dropped leafletson the town telling fighters to sur-render and civilians to evacuate.

An activist identified as Abu al-Hoda al-Homsi and purportedlyspeaking from Qusayr told the AlJazeera television channel—which isowned by Qatar, a principal backerof the Syrian rebels—that about40,000 civilians remained in Qusayr.

Al Jazeera broadcast what it saidwas exclusive footage from insideQusayr narrated by another activist,identified as Hadi al-Abudallah. Hespoke of civilian casualties, but theimages showed the bloodied corpseof a fighter wearing an ammunitionvest in the back of a truck and thebodies of bearded military-age menat a field hospital, shrouded inwhite sheets and being readied forburial in accordance with Islamictraditions. The footage showedparts of the town engulfed in blacksmoke, as explosions and the crackleof gunfire are heard in the back-ground.

It is unclear how many civiliansremain in Qusayr and whether thefigure given by opposition activists isaccurate.

Before the start of the conflict,Qusayr was home to about 60,000people, mostly Sunni Muslims andChristians. Almost all the Christians,who numbered about 10,000, fled thetown in early 2012 after rebels be-longing to the country’s Sunni major-

ity clashed with Christian familiessupporting the regime. Hundreds ofSunni families also left the town,with most going to neighboring Leb-anon, according to international aidworkers in Lebanon.

Last year, Sunni rebels alsostarted to attack Alawites and Shiiteminorities inhabiting the farmingvillages surrounding Qusayr, andearlier this year openly vowed to“cleanse” the area of the twogroups. Alawites belong to an off-shoot of Shia Islam and dominatethe Assad regime.

In April, the Iran-backed Leba-nese group Hezbollah took over atleast 14 villages around Qusayr andsaid it would defend Mr. Assadagainst what it called a conspiracyby Israel, the U.S. and Sunni Arabdynasties in the Persian Gulf.

Hezbollah has said nothing aboutits role in the current battle inQusayr, but a senior fighter with thegroup and residents of border townsand villages told The Wall StreetJournal at the end of April that Hez-

bollah was instrumental in planningfor Qusayr’s takeover. U.S. officialsestimate there are 2,000 to 2,500Hezbollah fighters in Syria.

In his interview with Argentinedaily El Clarín, published on thenewspaper’s website Saturday, Mr.Assad denied that Hezbollah washelping him battle rebels, but saidboth Iran and the Lebanese grouphave “experts” in Syria who havebeen “coming and going” for years.

An assertive Mr. Assad, who stillenjoys popular support, particularlyamong Syria’s minorities, said hisfate wouldn’t be decided at peacetalks that the U.S. and Russia aretrying to convene in Geneva be-tween the regime and the opposi-tion.

“I am a president elected by thepeople, and only the Syrian peoplewill decide whether I stay or leave,and the ballot box is the referee,”said Mr. Assad, according to a tran-script of the interview that was re-leased by the Syrian Ministry of In-formation.

BY SAM DAGHER

A Syrian soldier sits inside a tank as troops take control of the village of Western Dumayna last week.


Images

Karachi Suburb Shaken by Party Official’s KillingKARACHI, Pakistan—Political vi-

olence has shaken the most affluentarea of this sprawling city, as thekilling of a prominent local politicalorganizer appears to have fright-ened many voters away from a re-run election Sunday.

Zahra Shahid Hussain, one ofthe founders of Pakistan Tehreek-e-Insaf party led by former cricketstar Imran Khan, and an activecampaigner before the vote, wasshot outside her home in one ofKarachi’s richest areas—Defence,Saturday. It was a rare killing of awoman, even by the bloody stan-dards of Karachi politics.

On Sunday, a senior local policeofficer, Nasir Aftab, said the inves-tigation has “tilted more toward as-sassination,” after police initiallysaid it was unclear whether Ms.Hussain was a victim of streetcrime or a targeted killing.

PTI’s Mr. Khan said he held theleader of the Muttahida QaumiMovement, Altaf Hussain, who livesin self-imposed exile in London, re-sponsible for the killing of theparty worker Ms. Hussain, alongwith the British government, forsheltering him.

MQM described Mr. Khan’s alle-gations as “outrageous.” The party

already had been boycotting therevote in Karachi’s NA-250.

Don’t waste this martyrdom,people of Karachi,” Mr. Khan said ina video message from the hospitalbed to which he has been confinedafter an accidental fall earlier thismonth. “

Later Sunday, after polls closed,emotional funeral prayers for Ms.Hussain were held at a mosque inthe neighborhood, which is lined byostentatious villas. “People have

this perception that Defence is aposh area and nothing can happenhere. But last night, all that camecrashing down,” said Ahmed Godil,a 23-year-old PTI supporter at apolling station here. “Everyone wasasking this morning if it is safe tocome out to vote.”

Pakistan’s Election Commissionordered fresh voting in 43 of the180 voting stations in the NA-250parliamentary district of Karachi,after reports of widespread alleged

voting abuses here during the na-tional vote May 11. The main con-test in the district was between theMQM, an ethnic party that has con-trolled Karachi politics for decades,and the PTI.

Heavily armed soldiers were de-ployed inside and outside pollingstations, along with paramilitarytroops and police on Sunday.

The wealth and education ofvoters in Defence means NA-250 iswhere the PTI, which appeals tomiddle-class and upper-middle-class voters fed up with traditionalpatronage politics, stood its bestchance of winning a seat in Karachi,the nation’s economic capital.

The MQM represents descen-dants of Muslims who fled today’sIndia after partition in 1947. It haslong kept a political stranglehold onthe city, where this ethnic groupoutnumbers all others. Opponentsoften accuse the MQM of being rou-tinely involved in murder, extortionand intimidation, charges the partydenies. A secular political group,the MQM was part of the previousgovernment and was singled out forattacks by the Taliban ahead of thismonth’s elections. It didn’t make itinto the new government, however.

For the May 11 elections, the na-tional turnout was 60%, a substan-tial gain on previous elections. In

Karachi’s Defence area, long queuesof voters were seen that day, partlybecause polling stations didn’t openon time, but also due to voter en-thusiasm. But at Sunday’s revote,many polling stations were so quietat times that security and pollingofficials outnumbered voters.

At a polling station at the BayView School in Defence, a PTI poll-ing monitor, Aamra Tariq, said: “Igot involved with PTI because I’mso angry with what MQM does here.We want a progressive country. Weare sticking our necks out.”

Meantime, British officials saidpolice in London are investigatingwhether the MQM leader was incit-ing violence in a telephonic speechlast week to supporters in Karachi,in which he appeared to threatenPTI activists.

On Sunday, several hundreddemonstrators against the MQMgathered outside 10 DowningStreet, in London, residence of theU.K. prime minister. In Pakistanmany are critical about Mr. Hus-sain, who has British citizenship,being able to run his party fromLondon. British police are also in-vestigating the 2010 killing of a dis-sident former senior MQM leader inLondon, Imran Farooq. The Mutta-hida Qaumi Movement denies anyinvolvement in Mr. Farooq’s killing.

BY SAEED SHAH

Voting in Karachi’s NA-250 District was sparse on Sunday, after a local partyorganizer for Pakistan Tehreek-e-Insaf was killed the day before.


Images

Activists said at least 40people had been killed sofar, all men except fortwo women, in theoffensive.


Major players & benchmarks

Credit derivativesSpreads on credit derivatives are oneway themarket ratescreditworthiness. Regions that are treading in roughwaterscan see spreads swing toward themaximum—and vice versa.Indexes beloware for five-year swaps.

Markit iTraxx Indexes SPREADRANGE, in pct. pts.Mid-spread, sincemost recent roll

Index: series/version in pct. pts. Mid-price Coupon Maximum Minimum Average

Europe: 19/1 0.94 100.30% 0.01% 1.28 0.90 1.08

Eur. HighVolatility: 19/1 1.41 98.03 0.01 1.84 1.00 1.60

EuropeCrossover: 19/1 3.88 104.83 0.05 4.91 3.71 4.37

Asia ex-Japan IG: 19/1 1.02 99.89 0.01 1.24 0.98 1.12

Japan: 19/1 0.78 101.10 0.01 1.16 0.73 0.93

Note: Data as ofMay 16

SpreadsSpreads onfive-year swapsfor corporatedebt; based onMarkit iTraxxindexes.

In percentage points

7.00

5.00

3.00

1.00

–1

tEurope Senior Financials

tEurope Crossover

2012 2013Dec. Jan. Feb. Mar. April May

Index roll

Source: Markit Group

Trackingcreditmarkets &dealmakers

Dow Jones Industrial Average P/E: 17LAST: 15354.40 s 121.18, or 0.80%

YEAR TO DATE: s 2,250.26, or 17.2%

OVER 52WEEKS s 2,985.02, or 24.1%

Note: Price-to-earnings ratios are for trailing 12 months

15100

14600

14100

13600

13100

1260022 1 8 15 22 28

Mar.5 12 19 26

Apr.3 10 17

May

High

CloseLow

50–daymoving average

t

Stoxx Europe 50: Friday's best and worst...

Previousclose, in STOCK PERFORMANCE

Company Country Industry Volume local currency Previous session YTD 52-week

INGGroep Netherlands Life Insurance 43,943,971 7.11 3.95% 0.7% 55.2%

Daimler Germany Automobiles 10,287,859 49.00 3.85 18.6 32.3

Deutsche Bank Germany Banks 9,944,165 37.51 2.64 13.8 31.8

Standard Chartered United Kingdom Banks 4,468,051 1,623 2.53 3.1 23.2

Barclays United Kingdom Banks 58,962,421 326.80 2.00 24.5 79.7

Deutsche Telekom Germany Mobile Telecommunications 35,461,993 9.21 -8.30% 7.1 5.2

Telefon L.M. Ericsson B Sweden Telecommunications Equipment 9,780,040 79.95 -1.78 22.8 32.1

Bayer Germany Specialty Chemicals 4,501,891 83.79 -1.19 16.6 65.4

RocheHolding Part. Cert. Switzerland Pharmaceuticals 1,903,899 243.10 -1.18 32.1 57.3

Diageo United Kingdom Distillers & Vintners 4,272,634 2,028 -1.10 13.5 32.7

...And the rest of Europe's blue chipsLatest,in local STOCK PERFORMANCE

Company/Country (Industry) Volume currency Latest YTD 52-week

Tesco 24,230,425 380.80 1.85% 13.3% 21.3%United Kingdom (Food Retailers &Wholesalers)UBS 13,762,911 17.82 1.65 24.9 62.7Switzerland (Banks)Financiere Richemont 2,654,280 90.10 1.46 26.2 56.3Switzerland (Clothing & Accessories)BNPParibas 7,918,358 46.49 1.40 9.2 82.5France (Banks)L'Air Liquide 1,778,784 97.24 1.39 2.3 4.1France (Commodity Chemicals)Schneider Electric 3,147,805 60.06 1.37 9.5 41.6France (Electrical Components & Equipment)BGGrp 6,347,629 1,226 1.36 21.0 -0.6United Kingdom (Integrated Oil & Gas)Anglo American PLC 3,172,056 1,570 1.36 -17.1 -23.3United Kingdom (GeneralMining)HSBCHldgs 17,980,369 758.60 1.28 17.3 45.6United Kingdom (Banks)Banco Santander S.A. 85,667,610 5.51 1.19 -7.9 25.2Spain (Banks)Total 9,759,872 39.00 1.17 -0.8 12.7France (Integrated Oil & Gas)Royal Dutch Shell A 3,113,652 2,230 1.00 5.1 12.1United Kingdom (Integrated Oil & Gas)H&MHennes &Mauritz B 2,426,127 237.00 0.94 5.6 11.3Sweden (Apparel Retailers)BPPLC 23,206,698 469.95 0.89 10.6 18.5United Kingdom (Integrated Oil & Gas)Moet Hennessy Louis Vuitt 1,610,618 141.65 0.89 1.6 15.9France (Clothing & Accessories)BHPBilliton 5,883,486 1,929 0.89 -9.4 11.8United Kingdom (GeneralMining)ABB 5,525,795 21.58 0.84 15.1 37.9Switzerland (Industrial Machinery)Rio Tinto 5,142,965 2,900 0.75 -17.4 1.6United Kingdom (GeneralMining)Allianz SE 2,870,473 119.60 0.72 14.1 58.8Germany (Full Line Insurance)ENI 47,321,773 18.98 0.69 3.5 19.1Italy (Integrated Oil & Gas)

Latest,in local STOCK PERFORMANCE


BASF 4,919,943 74.42 0.59% 4.6% 30.7%Germany (Commodity Chemicals)British American Tobacco 2,196,672 3,763 0.49 20.6 22.7United Kingdom (Tobacco)Nestle 9,208,886 66.95 0.37 12.3 22.8Switzerland (Food Products)Vodafone Group 81,411,547 197.70 0.33 28.0 19.2United Kingdom (Mobile Telecommunications)GlaxoSmithKline 7,252,167 1,713 0.29 28.3 21.5United Kingdom (Pharmaceuticals)E.ONSE 14,101,789 12.91 0.23 -8.4 -15.1Germany (Multiutilities)Telefonica S.A. 26,759,282 11.20 0.22 9.9 12.9Spain (Fixed Line Telecommunications)Unilever 3,607,840 2,845 0.18 20.2 40.1United Kingdom (Food Products)Imperial Tobacco Grp 2,493,541 2,296 0.04 -3.2 -6.7United Kingdom (Tobacco)Siemens 5,173,799 80.87 -0.01 -1.6 22.5Germany (Diversified Industrials)Sanofi SA 5,813,342 84.50 -0.14 18.4 56.8France (Pharmaceuticals)AstraZeneca 2,197,919 3,383 -0.19 16.3 28.0United Kingdom (Pharmaceuticals)Unilever CVA 8,500,647 32.76 -0.27 13.6 28.8Netherlands (Food Products)SAP 6,085,775 62.73 -0.40 3.4 35.2Germany (Software)Banco Bilbao Vizcaya Argn 60,938,875 7.41 -0.44 7.5 52.9Spain (Banks)Reckitt Benckiser Grp 957,332 4,718 -0.53 21.6 37.5United Kingdom (Nondurable Household Products)Anheuser-Busch InBev 3,032,457 75.00 -0.54 14.1 36.3Belgium (Brewers)Novartis AG 4,336,948 71.75 -0.62 24.9 46.1Switzerland (Pharmaceuticals)Zurich Insurance Group 727,296 259.30 -0.77 6.5 27.8Switzerland (Full Line Insurance)National Grid 5,923,261 828.50 -0.78 17.9 22.7United Kingdom (Multiutilities)

Sources: SIX Financial Information

DJIA component stocksVolume, CHANGE

Stock Symbol inmillions Latest Points Percentage

AT&T T 16.3 $37.44 0.06 0.16%Alcoa AA 12.5 8.61 0.11 1.29AmExpress AXP 4.8 73.32 1.09 1.51BankAm BAC 106.3 13.43 0.07 0.52Boeing BA 7.4 98.92 2.34 2.42Caterpillar CAT 6.6 87.67 0.89 1.03Chevron CVX 6.8 123.42 0.66 0.54CiscoSys CSCO 77.8 24.24 0.35 1.48CocaCola KO 12.4 42.97 –0.12 –0.28Disney DIS 9.1 66.58 0.11 0.17DuPont DD 4.8 55.89 0.40 0.72ExxonMobil XOM 12.4 91.76 1.06 1.17GenElec GE 40.2 23.46 0.19 0.82HewlettPk HPQ 14.3 21.27 –0.09 –0.42HomeDpt HD 8.5 76.86 0.11 0.14Intel INTC 35.9 24.04 0.10 0.42IBM IBM 5.6 208.44 3.75 1.83JPMorgChas JPM 25.8 52.30 1.33 2.61JohnsJohns JNJ 11.3 88.09 0.64 0.73McDonalds MCD 4.0 101.54 0.42 0.42Merck MRK 21.6 45.99 –0.38 –0.82Microsoft MSFT 59.9 34.87 0.79 2.32Pfizer PFE 36.7 28.96 –0.29 –0.99ProctGamb PG 8.5 80.02 –0.18 –0.223M MMM 4.0 111.39 0.32 0.29TravelersCos TRV 2.2 86.50 –0.37 –0.43UnitedTech UTX 4.2 97.35 2.18 2.29UtdHlthGp UNH 5.8 62.84 0.70 1.13Verizon VZ 9.2 53.35 0.15 0.28

WalMart WMT 10.6 77.87 –0.63 –0.80

Source: WSJ Market Data Group

Credit-default swaps: European companiesAt itsmostbasic, thepricingofcredit-defaultswapsmeasureshowmuchabuyerhastopaytopurchase-andhowmuch a seller demands to sell-protection from default on an issuer's debt. The snapshot below gives asensewhichway themarketwasmoving yesterday.

Showing the biggest improvement...CHANGE, in basis points

Yesterday Yesterday Five-day 28-day

DixonsRetail 287 –48 –41 –125

BayMotorenWerke 66 –3 ... –16

CODEREFin LUXEMBOURG 2044 –95 597 413

CrAgricole 158 –7 –5 –44

ROLLSROYCE 61 –3 –3 –14

Volkswagen 75 –3 –1 –16

Daimler 77 –3 –1 –16

LHRARPTS 101 –4 –5 –40

EurpnAeroDefence SpaceCoEads 71 –3 –5 –28

FIAT 430 –15 –13 –139

And the most deteriorationCHANGE, in basis points


KabelDeutschlandVertriebundService 177 10 14 –22

Swedbank 99 2 ... –11

BP 61 1 2 –9

FranceTelecom 106 1 6 –8

Novartis 25 ... ... –3

ConvaTecHealthcare 484 4 10 –119

ITV 130 1 4 –7

Royal Bkof Scotland 155 1 6 –22

INEOSGROUPHldgs 105 1 7 –41

ReedElsevier 58 ... 4 –5

Source:Markit Group

BLUE CHIPS & BONDS

WSJ.com>>Follow the markets throughout the day, with updatedstock quotes, news and commentary at WSJ.com.

Also, receive emails that summarize the day’s trading inEurope and Asia. To sign up, go to WSJ.com/Email.

Below, a look at the Dow Jones Stoxx50, the biggest and best knowncompanies in Europe, including the U.K.

Behind Asia’s deals: Bank revenues from equity capital markets

Behind every IPO,follow-on orconvertible equityoffering is one ormore investmentbanks. At right,investment bankshistorical and year-to-date revenuesfrom global equity-capital-market(ECM) deals

Source: Dealogic

90%3

602

301

002005 2006 2007 2008 2009 2010 2011 2012 2013

n Equity capital markets n Debt capital markets (both in billions, left axis)

ECM as a percentage of total(right axis)t


WORLD NEWS

Social Media Pose New Riddles for CIAAlleged U.S. Spy Arrested in Russia Had 243 ‘Friends’ on Facebook; Technology and the Intelligence Business

Effective spycraft has longcalled for cover—a job, family orroutine that would keep a govern-ment agent from drawing undueattention. Now, that calculation ex-tends to spies’ use of social media.

Only in the past few years hasthe Central Intelligence Agency is-sued standardized guidelines onhow to use social media, accordingto one former intelligence official.The line these guidelines draw ap-pears to be thin: Revealing toomuch on Facebook and Twitterrisks tipping too much to theother side. But given that socialmedia use is becoming ubiquitous,revealing too little could alsoarouse suspicion.

“Technology is changing thespy business in so many differentways,” the ex-intelligence officialsaid. “It’s very easy to find out alot of information about people.”

The question of how much aspy should divulge online became

a touch less theoretical this weekafter Russia unmasked what itsaid was an American spy—sayingit had detained Ryan C. Fogle, ajunior political officer at the U.S.Embassy in Moscow, amid what italleged was an effort to recruit aRussian officer.

U.S. officials declined to saywhat agency employs the detainedman. His family wouldn’t speakabout the situation. The CIA de-clined to comment.

Regardless, the detention ofthe 29-year-old Mr. Fogle, a 2006graduate of Colgate University,makes him one of the first mem-bers of the social-media genera-tion whose online activities couldbe read against allegations that hespied.

Mr. Fogle’s Facebook page, asvisible to his 243 “friends,” of-fered details about his social life,contacts and travel plans. One ofthose friends provided The WallStreet Journal with images of howMr. Fogle’s page appeared tothem.

On that page, Mr. Fogle said heworked at the State Department,posted photos of a tour of a Mos-cow Cold War bunker and of MontSaint-Michel in France and Kra-kow, Poland. He bantered with ap-parent colleagues about flightsback to the U.S. He also indicatedhe had plans to return to the U.S.,

including a date and flight route,and said that over Memorial Dayweekend he planned to hang outat a restaurant in Arlington, Va.,Ray’s the Steaks.

Mr. Fogle’s level of sharing ap-pears restrained, by the standardsof his generation. His 243 friendsisn’t large for someone of his agegroup. The publicly accessible ver-sion of his Facebook profile

doesn’t include a photo of him orpersonal information.

Personal information is, ofcourse, the coin of the Facebookrealm, and each user determineshow little or much to divulge. TheCIA, in setting standards for itsown employees, appeared to drawits own lines.

The issue is particularly sensi-tive for young government em-ployees who went to college whenFacebook was already ubiquitouson campus. They are part of a gen-eration that shares personal infor-mation more widely and rapidlythan before.

The agency’s social-mediaguidelines, described by the for-mer official, allow even under-

cover officers to maintain Face-book accounts under their realnames. “The rules had to catch upwith the technology,” the formerofficial said.

But there are limits. While of-ficers can’t post details of theirwork projects or travel, they maypost personal notes on travel andphotos, according to the ex-offi-cial. Officers were encouraged touse discretion to avoid compro-mising their agency status.

Facebook friendships betweenundercover officers and peopleopenly working for the CIA werediscouraged, according to the for-mer official. Among other things,such connections could be used toidentify undercover agents,through link analysis.

When the policy was issued, itled to a quandary for CIA officers,the ex-official said: Whether todefriend undercover officers. Do-ing so en masse could have had anunintended effect of alerting oth-ers to an undercover officer’s sta-tus.

BY ANTON TROIANOVSKIAND SIOBHAN GORMAN

The issue is particularly sensitive for younggovernment employees who went to college whenFacebook was already ubiquitous on campus.

No one could see Pope Francis coming. He hailed from a small, troublednation haunted by civil war and poverty. Thanks to a series of stunning

twists, he is suddenly atop the Catholic Church and its 1.2 billion adherents.With in-depth reporting and unparalleled access, The Wall Street Journalpresents an original e-book detailing how Pope Francis rose to become

the most powerful religious leader on Earth.

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Leading 10 PerformersFUND FUND LEGAL %Return in $US **RATING * NAME FUNDMGM'T CO. CURR. BASE YTD 1-YR 2-YR 5-YR

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2 Access Access Turkey USDUSA 17.88 90.72 38.64 20.80Turkey LLC Advisors Ltd.

3 GFMLevant Levant Partenrs USDCYM 12.96 80.16 30.18 15.67Fund Greece S.A.

NS Harmony DMCapital Limited USDCYM 22.27 75.37 11.10 NSMaster Fund

4 Enhanced Enhanced USDBMU 21.16 43.05 38.68 21.79Philippine Index Fund Investment Products Limited

NS Toccata Toccata Capital USDCYM 9.24 38.72 39.20 NSCapital Fund Pte. Ltd.

4 Rega Capital Rega Technologies USDCYM 6.45 37.09 7.72 NSDynamic Value Fund Limited

3 Pure Heart Pureheart Capital USDCYM 14.21 34.11 11.20 NSNatural Selection Asia Limited

NS Fama Fama Investimentos BRLBRA 11.05 33.47 10.43 6.01Futurewatch I FIC FIA Ltda

3 Yellow AlphaMax USDCYM 14.12 32.40 2.39 1.67Cypress Opportunities Segregated InvestmentManagement Ltd.

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Fund Scorecard

Swedish Firms Squeezed by Kronalower limit for the euro’s exchangerate against the franc in order toprotect Swiss exporters. When therate reaches a floor, francs are soldfor euros.

However, Mr. Reinfeldt and cen-tral-bank officials in Sweden haveshown little interest in taking actionto weaken the krona.

Per Jansson, deputy governor ofSweden’s central bank, said cur-rency fears voiced by exporters areexaggerated. “Seen over a longerperspective, this is hardly a threat toour industry,” he said. “If it is, wehave big problems.”

Mr. Reinfeldt, who faces an elec-tion in about 16 months, said Swed-ish companies need to get more effi-cient. “You have to do that if youhave a stronger currency,” he saidrecently. Mr. Reinfeldt has reducedcorporate tax rates to one of thelowest levels in Europe.

Sweden is a member of the Euro-pean Union but rejected joining Eu-rope’s common currency in a refer-endum a decade ago. Euroskepticism still is widespread, withonly about 10% of Swedes expressinginterest in abandoning the 140-year-old krona, according to a study byGothenburg University. Like otherEuropean countries that don’t usethe euro, Sweden can make its ownmonetary and fiscal policy.

But Sweden’s currency has beentrading at stubbornly high levels

Continued from first page

against the euro for more than ayear, and the resulting pressure onexport-reliant manufacturers is in-tensifying.

Swedish companies say theycan’t move fast enough to keep upwith competitors with euro- or U.S.dollar-based production costs.

Sandvik said first-quarter profitwas cut by 350 million Swedish kro-nor ($52 million) because of the cur-rency’s strength. The hit was equalto about 15% of earnings. A similarhit is expected in the current quar-ter.

Robert Arnegard, who overseesfamily-run Svenska Lantchips, the

potato-chip maker, said, “We will tryand squeeze hard.” The company’sproducts are a staple sold in brownbags on grocery-store shelves acrossSweden. To resist the currency-re-lated headwinds, the company isconsidering whether to open a pro-duction plant somewhere in the eurozone, he said.

Bjorn Jakobson, the founder ofBabyBjorn, set up a production out-post in Milwaukee about four yearsago because of worries about thekrona’s value. Mr. Jakobson is wellknown in Sweden because of thepopularity of BabyBjorn productsthat allow parents to carry childrenin an ergonomically sound device.

“I didn’t trust the currencies,” hesaid, adding that it helps to “buy indollars and sell in dollars.” Mr. Jako-bson would like Sweden to adopt theeuro because it is important “forbusiness people to have clear laws ofthe game and to reduce risks.”

“It would have been great toknow that here the same playingfield applies all the time,” he said.

Ms. Stark, the farm-machineryexecutive, doesn’t necessarily wantto abandon the krona. She hopespolicy makers will take action thatfavors hiring and investing in Swed-ish factories.

“I think the export industry ismore important than people inStockholm seem to remember,” shesaid after Mr. Reinfeldt’s visit. “Thiswill strike back on us.”

Rating Upgrade Spurs Turkish Shares

ISTANBUL—Turkish stocks andbonds surged to record levels onFriday after Ankara secured its sec-ond investment-grade credit rating,offering a substantial boost to agovernment that has long covetedan upgrade to increase institutionalinvestment.

Moody’s Investors Service, oneof the three main rating firms,raised Turkey’s status by one notchto Baa3 on Thursday, joining FitchRatings in placing Ankara at thelowest rung of investment grade.Turkey’s improving economy andpublic finances warranted the up-grade, New York-based Moody’s saidin a note.

Six months after the Fitch up-grade gave Turkey its first invest-ment-level rating since 1994, the

Moody’s action is poised to reducethe country’s borrowing costs. Itcould also foreshadow a wave of in-vestments from funds seekinghigher returns than they can get indeveloped economies, as most port-folios require investment-grade rat-ings from two of the three majorfirms to buy assets in a country.

“The long-term implicationsshould be fairly positive, rangingfrom improved quality in inflowsand to possible improvement in in-vestment appetite,” said Tevfik Ak-soy, a London-based economist atMorgan Stanley. “New channels offund flows might emerge, especiallythose funds that have so far beenunable to invest in a country with a‘junk’ status.”

Investors have been pricing inthe Moody’s upgrade since Fitch’sNovember move, driving the BourseIstanbul 100 Index up about 30%

and on Friday pushing it above93000.

During the same period, Turkey’stwo-year benchmark bond yield fellto lows each week, declining to a re-cord 4.63% on Friday after tradingat 5.04% Thursday morning. Thelira, by contrast, lost ground inearly trading as investors sought tocash in, economists said.

Turkey’s government, which haspersistently said ratings firms un-derestimated the $786 billion econ-omy’s strength, framed the news asthe result of years of economicoverhauls in the decade under theJustice and Development Party andpredicted a new wave of investment.

“This upgrade is a delayed deliv-ery of our achievements,” said Econ-omy Minister Zafer Caglayan. “Now,we anticipate big flows in both for-eign-direct investments and portfo-lio investments.”

BY EMRE PEKERAND JOE PARKINSON

Bloomberg

New

s

SACWill ReduceAid in Insider Case

SAC Capital Advisors LP toldclients it will no longer cooperate“unconditionally” with the govern-ment on a criminal insider-tradingprobe of the hedge-fund firm, mark-ing an abrupt turn for a companythat has spent months reassuringinvestors.

The move signals that a multi-year, multipronged government in-vestigation of the company and itsbillionaire founder, Steven A. Cohen,has intensified, according to peoplefamiliar with the matter.

The Stamford, Conn., firm alsotold investors in a letter Friday thatit won’t any longer update them ondevelopments in the government in-vestigation, according to peoplewho have seen the letter.

“While we have in the past toldyou of our cooperation with thegovernment’s investigation, our co-operation is no longer uncondi-tional, and we do not intend to giveupdates in this area going forward,”the letter said.

Mr. Cohen hasn’t been accused ofany wrongdoing. Since 2009, six for-mer SAC employees have been con-victed in criminal cases or pleadedguilty to insider-trading charges;four of those are cooperating withauthorities. An SAC spokesman hassaid both the firm and Mr. Cohenacted appropriately.

The decisions reflect new devel-opments in the investigation, saidpeople familiar with the matter. SAChas been voluntarily providing doc-uments and engaging in discussionswith the government, but the shiftreflected in Friday’s letter meansthe government will have to presentsubpoenas to obtain further infor-mation from SAC, according to thepeople.

SAC manages $15 billion in total,most of which belongs to Mr. Cohenand SAC employees.

People who have been briefed onrecent conversations involving SAC

officials said the contrast betweenFriday’s letter and past communica-tions with SAC clients representedan acknowledgment that the firmexpects significantly more with-drawals.

SAC investors already havesought $1.7 billion in withdrawalsthis year, and the company haspostponed the next deadline to no-tify the firm of additional withdraw-als to June 3.

At the same time, the companysaid in Friday’s letter that it be-lieved its new stance “will not havea financial impact to our funds.”

The government continues toprobe SAC and its employees, justtwo months after the firm agreed toa record $616 million penalty to set-tle two civil insider-trading suitsbrought by the Securities and Ex-change Commission. In settling, SACneither admitted nor denied wrong-doing.

Both federal prosecutors in Man-hattan and the Federal Bureau of In-vestigation have been pursuing theSAC investigation for several years.At least a dozen FBI agents fromseveral squads are working on theinvestigation, with more involvedpart-time, people familiar with theprobe said.

A five-year deadline is approach-ing in July for prosecutors to decidewhether to file what could be themost serious criminal charges andfor regulators to decide whether tofile civil charges, related to tradingin one case that touches Mr. Cohen.

SAC officials for months have re-sisted assertions by some clientsand others close to the firm thatSAC might opt voluntarily to returnall external investors’ money, evenas the government’s investigationintensified. Friday’s letter didn’tnecessarily change that, accordingto people briefed on conversationswith the firm.

SAC previously said it was coop-erating with the government andmade accommodations to investors,repeatedly giving them more time todecide whether to withdraw moneyfrom the firm.

By Jenny Strasburg,MichaelRothfeld

and Juliet Chung

Export PainsHowmany Swedish kronaone euro buys

The Wall Street JournalSource: Factset

9.25

8.00

8.25

8.50

8.75

9.00

krona

’132012

Friday:8.59 krona

Sandvik, a maker of mining and construction equipment, said the strong krona shaved 15% off its first-quarter profit.


WORLD NEWS

isolate [North Korea] and under-mine international efforts to ensurepeace and stability in NortheastAsia,” said Caitlin Hayden, spokes-woman for the National SecurityCouncil in the U.S. “We continue tourge the North Korean leadership toheed President Obama’s call tochoose the path of peace and comeinto compliance with its interna-tional obligations.”

South Korea’s defense ministrysaid North Korea fired three mis-siles into waters off the Korean pen-insula on Saturday, followed by afourth missile Sunday. North Korea’sshort-range missiles have ranges ofaround 160 kilometers.

“In our judgment, the missilesare short-range guided missiles, notmidrange missiles such as theMusudan,” South Korean DefenseMinistry spokesman Kim Min-seoksaid. It remains unconfirmed whattype of short-range missiles werefired over the weekend.

Attention has been focused onthe deployment of two Musudanmissiles on North Korea’s east coastlast month for an expected test fir-ing. Officials and media reports ear-lier this month said North Koreahad moved the Musudan missilesaway from the firing locations.

The Musudan has a range of upto around 4,000 kilometers, mean-ing it could threaten U.S. bases inthe region, Guam and Japan. Tokyoput its missile defenses on alert inresponse to reports of the Musudandeployment.

North Korea launches smallermissiles with ranges of a few hun-dred miles, such as Scud variants, intest firings from its coasts a fewtimes each year. The last reportedfiring was in March.

North Korea made no immediatestatement about the latest launches.

Continued from first page Shin Jong-dae, a professor at theUniversity of North Korean Studiesin Seoul, said the launches werelikely a means of drawing attentionof the international community, par-ticularly from the U.S. “North Koreais an expert at crisis diplomacy, orcrisis marketing,” Mr. Shin said.

The firings came after Glyn Da-vies, the top U.S. envoy on NorthKorea, wrapped up a visit to Tokyo,Beijing and Seoul last week for talkson dealing with North Korea.

Pyongyang’s actions, includingthreats of attack that escalated inrecent months, are widely viewed asan attempt to generate enough fearto prompt other countries to con-sider concessions on security andaid, a gambit it has used in the past.

Those threats peaked during an-nual military drills held by SouthKorea and the U.S. through the endof April, which the North portrayedas a prelude to war. The heatedrhetoric eased following the end ofthe drills, but fresh naval exercisesearly last week prompted renewedwarnings of counterattack fromPyongyang.

The latest drills were led by theaircraft carrier USS Nimitz, a moveNorth Korea’s state media called “agrave military provocation.”

The missile launches also cameduring a low in inter-Korean rela-tions as Pyongyang has rejected re-peated calls from Seoul for dialogueover their closed joint industrialcomplex. The closure of the Kaesongcomplex—the last outpost of inter-Korean economic cooperation—inturn followed weeks of near-dailyverbal attacks by North Koreaagainst the South and the U.S. afterthe U.N. imposed tougher sanctionsagainst Pyongyang following itsthird nuclear test in February.—Dion Nissenbaum in Washington

contributed to this article.


South Korean soldiers monitor the North near the border village of Panmunjom.

AssociatedPress

Aide’s Pyongyang TripTroubles Tokyo’s Allies

TOKYO—A secretive trip toPyongyang this past week by a topaide to Japan’s prime minister israising concerns in South Korea andthe U.S. that Tokyo could underminecoordinated efforts to pressureNorth Korea into abandoning its nu-clear and missile programs.

Prime Minister Shinzo Abe andhis top officials declined to specifythe purpose of the aide’s unan-nounced trip, but suggested an effortto free some Japanese citizens be-lieved abducted by North Korea de-cades ago was atop his agenda. “It’sour government’s stance that abduc-tion, nuclear and missiles must beresolved in a comprehensive frame-work,” chief government spokesmanYoshihide Suga said on Friday.

Mr. Abe has defined the abducteeissue as a foreign-policy priorityand said in the past week he wouldconsider a bilateral summit withNorth Korean leader Kim Jong Un toresolve the issue. Meetings withNorth Korea’s leader are rare forforeign leaders, except for China’s.

But Japan’s focus on abducteeshas often been seen as an obstaclefor international efforts to copewith North Korea’s isolated regimeand its weapons programs.

Officials from the U.S. and SouthKorea warned that independent ac-tions could weaken joint efforts topressure North Korea’s youngleader. President Barack Obama andSouth Korean President Park Geun-hye emphasized a united front whenthey met in Washington this month.

On Thursday, South Korean For-eign Ministry spokesman Cho Tai-young noted there was no prior no-tice from Tokyo about the trip byIsao Iijima, a senior adviser to Mr.Abe’s cabinet, calling it “unhelpful.”

Glyn Davies, the U.S. special rep-resentative on North Korea, alsosaid he wasn’t aware of Mr. Iijima’strip. “The issue of denuclearizationis central and is paramount,” Mr.Davies told reporters in Tokyo onThursday. “That’s why it is impor-tant…that we stay connected veryclosely—all of us stay knitted up onthe issue of how we approach NorthKorea.” Mr. Davies didn’t criticizeMr. Iijima’s trip directly.

The trip added to heightenedtension between Japan and SouthKorea that stems from disagree-ments over Japan’s colonial ruleover the Korean peninsula.

Animosities have grown sinceMr. Abe’s return to power in Decem-ber. His nationalistic views haveraised ire among Japan’s neighbors.Visits to a war shrine by Mr. Abe’s

top officials in April led to the can-cellation of a bilateral meeting offoreign ministers, who were slatedto discuss North Korea. Offensiveremarks on wartime sex slaves byOsaka Mayor Toru Hashimoto lastMonday set off protests across Asia.

Mr. Iijima, upon landing in Bei-jing from Pyongyang on his returnto Tokyo on Friday, said he wouldn’trelease any details of his visit. Japa-nese Defense Minister Itsunori On-odera said he believed the visitwould “contribute to the efforts” toresolve outstanding issues.

Few details of Mr. Iijima’s visit toPyongyang have been made avail-able.North Korea’s state-run newsagency reported Mr. Iijima met KimYong Nam, Pyongyang’s No. 2 offi-cial, on Thursday, without providingfurther details. North Korean statetelevision showed Mr. Iijima’s ar-rival in Pyongyang on Tuesday.

“I think the Japanese govern-ment wasn’t planning on making Mr.Iijima’s visit open. It was supposedto be behind-the-scenes, but theNorth went ahead and publicizedit,” said Lee Young Hwa, professorat Kansai University in Osaka. “Nowthe Japanese government will bepressured to reveal what went onduring the trip,” he said.

—Toko Sekiguchicontributed to this article.

BY ALEXANDER MARTINAND YUKA HAYASHI

Senior Japanese government adviser Isao Iijima, shown above, likely discussed abductions with the North Koreans.

Associated Press/Kyodo

Canadian Prime Minister’s Chief Adviser ResignsOTTAWA—The chief adviser to

Canadian Prime Minister StephenHarper said he has stepped down,four days after the government saidhe gave an embattled Conservativelawmaker more than 90,000 Cana-dian dollars, or about US$87,540, torepay inappropriately claimed hous-ing expenses.

Analysts see the loss of a keyaide amid a scandal that hassparked negative headlines as a ma-jor blow to Mr. Harper, whose Con-servative Party has governed since

2006.Nigel Wright, a former private-

equity executive, said on Sundaythat his actions “were intendedsolely to secure the repayment offunds, which I considered to be inthe public interest, and I accept soleresponsibility.”

Mr. Wright said Mr. Harper hasaccepted his resignation. Mr. Wrightwasn’t immediately available tocomment.

Mr. Wright wrote a personalcheck to Conservative Party Sen.Mike Duffy, the subject of an inde-pendent probe about housing ex-penses claimed by members of the

country’s senate. Mr. Wright saidMr. Harper wasn’t aware of thecheck.

Mr. Duffy, appointed to Canada’supper chamber by Mr. Harper in De-cember 2008, said in late Februaryhe discovered he may have erred infiling expense records and pledgedto repay the amount inappropriatelyclaimed.

Mr. Duffy was one of three sena-tors targeted in an independent au-dit on expenses, amid accusationsthey had abused the payment sys-tem. In late March, Mr. Duffy’s law-yer informed the government-ap-pointed auditor, Deloitte LLP, that

his client had repaid allowancesowed, according to a report fromDeloitte released May 9. As a result,the lawyer said, Mr. Duffy’s partici-pation in the audit “was no longerneeded,” according to the Deloittereport.

Members of the Conservativecabinet later lauded Mr. Duffy forhis “leadership” in paying back theexpenses. But last Wednesday, theprime minister’s office confirmed amedia report that Mr. Wright gaveMr. Duffy the money to reimbursethe Senate. That led to accusationsfrom opposition politicians that thepayment may have violated conflict-

of-interest rules or rules governingthe receipt of gifts by politicians.Canadian lawmakers can acceptsmall gifts, but none that could in-fluence their work. For senators, anygift worth more than $500 has to bereported to the Senate ethics officer.

“This is the biggest blow to Ste-phen Harper since he came topower. It’s his big test,” said MichaelBehiels, a professor at the Univer-sity of Ottawa.

Even before the controversyover Mr. Wright’s payment, Mr.Harper had seen his opinion pollingfall as the country’s economy hitstiff headwinds.

BY PAUL VIEIRAAND ALISTAIR MACDONALD


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Dimon Makes His Case for ContinuityJ.P. Morgan Chase & Co. Chair-

man and Chief Executive James Di-mon is making the case for continuityin the final days before a potentiallydefining vote on his future.

Mr. Dimon told an audience inBoston last Tuesday that the na-tion’s largest bank had “fixed” theproblems that led to a massive trad-ing loss last year, according to peo-ple who were there. Mr. Dimon alsoreminded the 1,300 technology in-vestors that J.P. Morgan was amongthe industry’s best performers dur-ing the financial crisis.

“The board should be ap-plauded,” Mr. Dimon said, accordingto one of these people. He also saidhe didn’t think any changes werenecessary to the bank’s board or itscurrent structure.

Mr. Dimon is expected to fly toTampa, Fla., on Monday for a pivotalshareholder meeting on Tuesday,during which the final votes will betallied on a nonbinding resolution toseparate his CEO and chairman roles.

Mr. Dimon isn’t expressing anysense of panic over the vote, hisfriends say, and has repeatedly toldthem that he is “doing just fine.”

But behind the scenes, he hastaken steps to head off trouble.

William Daley, a former Dimonlieutenant who also served as WhiteHouse chief of staff, approached anofficial with the American Federa-tion of State, County and MunicipalEmployees union, which co-spon-sored the resolution on the split, tosniff out potential for a deal aheadof the final tally, said people famil-iar with the talks.

Mr. Daley wasn’t authorized toprovide the union with any potentialcompromise to evaluate, but insteadwas asked by Mr. Dimon to see if thegroup would agree to another con-versation with the board’s presidingdirector Lee Raymond, one of thesepeople said. Mr. Daley was told thatit was late to be discussing a deal.

On Thursday, J.P. Morgan sent aletter to shareholders urging themto reject the proposal to split thetop two roles. As of last Tuesday,support for the proposal was run-ning slightly ahead of the 40% it re-ceived last year.

The scrutiny has become a sourceof frustration for Mr. Dimon becauseit is taking time away from his regu-lar duties and distracting attentionfrom the bank’s strong performance,according to people who have spo-ken to him in recent weeks.

While J.P. Morgan lost more than

$6 billion from reckless trades lastyear, it is once again churning outrecord profits, and its stock is at afive-year high.

Proponents of the resolution saida split would help Mr. Dimon focuson running and fixing the company.

“J.P. Morgan has outperformedits peers, but it also has had moreregulatory sanctions than its peers,”said Michael Garland, an assistantcomptroller for New York City and aco-sponsor of the shareholder reso-

lution. An independent chairmanwould have more time than Mr. Di-mon to deal with unhappy regula-tors, Mr. Garland added.

There was a point last yearwhere it appeared that the bank andMr. Dimon would be able to put thetrading losses in the rearview mir-ror. When the CEO appeared beforethe U.S. Senate last June he apolo-gized and said the “buck stops withme.” A number of Republican sena-tors sought the CEO’s regulatory ad-

vice, as opposed to taking him totask for the episode.

But several events combined tokeep the pressure on.

On July 27, the Office of theComptroller of the Currency told J.P.Morgan in a supervisory letter that ithad downgraded a confidential man-agement rating. Other regulatory ac-tions, from the OCC and Federal Re-serve, came in the following months.

In January, the bank’s board ap-proved a 50% cut in Mr. Dimon’s pay,and the company released a reportsaying he shared responsibility forthe mistakes and oversights that al-lowed the trading losses to happen.

In April, meanwhile, regulatorstold the board and Mr. Dimon thattheir oversight of compliance, auditand risk was weak, and made it clearthey had lost trust in management.

Still, some institutional investorsbelieve Mr. Dimon and his team runthe bank well and that a change atthe top would only be a disruption.T. Rowe Price Group Inc. has sig-naled it will oppose the role-splitproposal. Another shareholder, Van-guard Group Inc., likely will also doso, according to a person close tothe situation. Both firms votedagainst the proposal last year.

—Joann S. Lublinand Julie Steinberg


By Dan Fitzpatrick,Robin Sidel

and Kirsten Grind

Data provided by:

MARKETS

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J.P. Morgan’s James Dimon speaks before U.S. lawmakers last June.

Getty

Images


WORLD NEWS

Rising Wages Pose Dilemma for ChinaAccelerating Wage Increases Have Manufacturers Turning to Cheaper Alternative Production Sites in the Region

BEIJING—China is showing rapidincreases in wages and signs of re-silience in hiring despite slowinggrowth, a reassuring sign for lead-ers seeking to put more money inthe pockets of ordinary Chinese, buta trend that could prove difficult tosustain as countries nearby threatento encroach on China’s manufactur-ing dominance.

Chinese private-sector wagesrose 14% in 2012, data showed Fri-day, good news overall for Beijing’spush to make consumer spending amore important part of growth. Buthigher labor costs also hurt busi-ness profitability and export com-petitiveness—which could pose itsown risks to the economic recovery.

Countries such as Bangladesh,Cambodia and Vietnam have allramped up their garment sectors asglobal retailers look for alternativesto China.

Crystal Group, an apparel pro-ducer for Marks & Spencer, Aber-crombie & Fitch, and Gap, says ithas more than tripled its staff inVietnam over the past three years,but made only small increases in itsChina workforce. “It’s a simple mat-ter of economics for us,” says An-drew Lo, CEO of the Hong Kong-based company, as it becomes lesscost-effective to make basic t-shirtsand jeans in China.

The 14% wage rise for private-sector workers in 2012, reported byChina’s National Bureau of Statisticson Friday, represented an accelera-tion from 12.3% in 2011. Over theperiod, China’s annual economicgrowth rate slowed to 7.8% from9.3%.

A recent spate of accidents, in-cluding a factory-building collapsein Bangladesh that killed more than1,100, has focused new attention ona shift away from China as costsrise there. Some experts say worriesthat China is pricing itself out of itsmanufacturing edge may be over-blown. Supply-chain linkages, stronginfrastructure and access to China’s

own market make the case for keep-ing a foothold. Overall, most manu-facturers operating in China are stillprofitable even though their mar-gins are being squeezed, says NigelKnight, who heads Ernst & Young’sadvisory practice for greater China.

“I don’t see a huge rush for thedoors,” says Mr. Knight. “The under-lying strategic rationale for manu-facturing in China is still very pow-erful.”

Meanwhile, job creation andwage increases are a key focus forChina’s leaders. In the past, turbo-charged growth was seen as essen-tial to creating enough employmentopportunities for a swelling work-force. On a visit to the northern cityof Tianjin this week, China’s topleader, Xi Jinping, signaled a contin-ued focus on employment by visit-ing a local job-training center andpledging to improve services for jobseekers.

Continued strength in the labormarkets suggests that China cannow create sufficient jobs to shoreup social stability with a signifi-cantly lower pace of growth.“Strength in the labor marketsmeans there is less need for short-term stimulus measures,” said RBS

China economist Louis Kuijs.Big increases in wages also help

the rebalancing of China’s econ-omy—a key objective for the newleadership. With growth in wagesoutstripping the rest of the econ-omy, households’ slice of the pie isgetting bigger. The governmenthopes that will drive higher levels ofconsumption, helping wean theeconomy off its addiction to exportsand investment as drivers ofgrowth.

Rising manufacturing costs inChina were one reason private-eq-uity firm Grumman Hill Group LLCdecided to put shoe maker Aero-soles up for sale this year, a personfamiliar with the matter said. TheEdison, N.J.-based shoe companymakes virtually all of its products inChina, but wage inflation there ispressuring margins, this personsaid.

Wages in the China’s manufac-turing sector have risen 71% since2008, according to the National Bu-reau of Statistics. Improvements inlabor productivity, which the WorldBank estimates is growing at about8.3% a year, offset some but not allof the wage growth.

An executive with Guangdong

Sunrise Houseware Corp.—a makerof high-end kitchenware for ex-port—said last year the firm’s laborcosts rose at least 30%. “We havemore than 600 workers, many ofthem left last year,” he said. “Whenyou hire new people you found thatthe average wage level had alreadyrisen.”

With that experience replicatedacross China’s factories, industrialprofits contracted for much of 2012.Export growth fell to 7.9% from20.3% in 2011, as Chinese firms lostout to Vietnam and other low-costcompetitors. That suggests China’sleaders face a tough choice betweenkeeping wages on a rising trend toboost household income, and con-trolling costs for the manufacturersthat create many of the mainland’sjobs.

Other data show signs thestrength extended into this year de-

spite a continuing slowdown. Datamade available to The Wall StreetJournal from Zhaopin.com, one ofChina’s largest recruitment web-sites, shows the total number ofjobs advertised rose 24.6% in Aprilfrom a year earlier. At the sametime, government data showed de-mand for workers outstripping sup-ply by a record amount in the firstquarter.

A migrant worker from Wuhan incentral China who gave his surnameas Chang is one who has benefited.In February he quit his job at anauto-parts factory in the southerncity of Shenzhen because themonthly salary of 2,800 yuan ($455)didn’t meet his expectations. InApril, after a month of searching, hefound a new job making shells forcellphones, with a take-home pay of4,200 yuan a month. “I’m not veryanxious to find a job so it took awhile,” said Mr. Chang.

Not all the most recent indica-tors on labor markets have beenpositive. China’s official purchasingmanagers’ index, and a similar sur-vey by HSBC Holdings PLC and busi-ness survey firm Markit Economicsboth suggest some factories laid offworkers in April.

A spokesman for Zhaopin.comalso pointed to signs that hiring hadeased off going into the secondquarter. “Many companies are pessi-mistic about the Chinese market in2013, and that is passing through torecruitment plans,” said a spokes-man for the company, “after a hiringpeak in the first quarter sentimenthas deteriorated somewhat.”

“So far we haven’t seen unem-ployment rates going up, with realestate, infrastructure, and servicessupporting strong job creation,”said Haibin Zhu, China economist atJ.P. Morgan. “But wage growth can’tbe sustained without profit growth.If the corporate sector remainsweak, rapid wage growth will be dif-ficult to sustain.”

—Kathy Chu,Dana Mattioli and Lilian Lin


BY TOM ORLIKExpensive China

…but manufacturing wagesrun above labor productivity…

China’s wages rise, despiteslowing growth…

…hitting exportcompetitiveness.

Sources: National Bureau of Statistics; CEIC; World Bank The Wall Street Journal

Change from a year earlier Change from a year earlierChange from a year earlier

15

0

5

10

%

2011 ’12

Wages: 14%

GDP: 7.8%

20

0

5

10

15

%

2009 ’10 ’11 ’12

Manufacturing wages: 17%

Labor productivity: 8.3%

40

–20

–10

0

10

20

30

%

2009 ’10 ’11 ’12

2012: 8%

Japan Will Invest $2 Billion in African ResourcesTOKYO—Japan is pledging $2

billion for energy and mineral proj-ects in Africa, capping a conferencewith government resource officialsfrom across the continent as itseeks to catch up with years of Chi-nese investment.

Japan needs to secure long-termreliable sources of natural materials.It is also eager to provide its tech-nologies to build roads, railways andutilities, providing a competitive al-ternative to the Chinese state-owned companies that have helpedChina become Africa’s dominant in-vestor.

The Japanese government fund-ing will be used for direct loans, un-derwriting of debt offerings and eq-uity stakes in projects coveringcrude oil, natural gas, coal and min-erals over the next five years.

“This conference has put in placethe building blocks to encourage in-vestment from Japanese companiesand to help create Africa’s sustain-able growth,” Toshimitsu Motegi,minister of economy, trade and in-dustry, said at a Saturday news con-

ference after a meeting with repre-sentatives from 15 African countriesthat followed the two-day J-SUMITconference.

Japan put together the confer-ence in hopes of demonstrating theappeal of the long-term approachtypical of Japanese companies.Many African countries have begunto complain about what they see asthe heavy-handed approach ofChina’s investments.

Delegates to the conference ap-

peared receptive to the overtures.John Bande, minister of mining

for Malawi, said he had expressionsof interest ranging from tradingcompanies such as Marubeni Corp.to auto maker Toyota Motor Corp.

“The idea is that we want to en-courage more faithful investors likethose from Japan,” he said, addingthat he admired Japan’s reputationfor honesty and willingness to pro-vide technical assistance and long-term investments.

For many Japanese industrialcompanies, the reason for the in-creased level of interest is clear—the need to secure resources.

“The competition for acquiringcoking coal has begun,” Shinichi Fu-jiwara, a managing executive officerfor Nippon Steel & SumitomoMetal Corp., told the conference.

Japan’s largest steelmaker is es-pecially interested in getting cokingcoal, a key ingredient in iron pro-duction, from Mozambique, Mr. Fuji-wara.

That is good news for companiessuch as Baobab Resources PLC, aLondon-based mineral-explorationgroup that is seeking investment forits iron project in Mozambique’sTete province.

Baobab officials and others alsospoke of the growing interest incompleting more of the value-addedsteps in the production processwithin the countries holding the re-sources, instead of just shipping rawmaterials overseas.

“We’re quite cognizant of the op-portunity here to take this right theway to steel,” said Managing Direc-tor Ben James.

For Congo, one of the largest

producers of copper in Africa, thedrive to keep more of the value athome has taken the form of a com-ing ban on copper concentrate ex-ports.

Mining Minister Martin Kabwe-lulu said the government wanted tostop the current export of unpro-cessed copper because of the lowertax revenue generated.

“On that, the government wasmaking nothing,” he said, addingthat it wants the copper refined do-mestically.

Attendees said the Japaneseoverture was welcome and that thecontinent’s dependence on Chinawas because of necessity, not neces-sarily by choice.

“When you have no friends, anyfriend is a good friend,” said Zimba-bwe’s deputy minister of mines andmining development, Gift Chimani-kire. “China came in when Zimba-bwe was shunned by the rest of theworld.”

For Japan, the resources confer-ence also was a curtain-raiser for asummit-level international confer-ence on African development thatwill take place next month in Yoko-hama.

BY MARI IWATAAND YUKO TAKEO

12

9

8

7

Platinum and palladium

Cobalt

Oil

Copper

Bauxite

Natural gas

Coal 4

Growth EngineAfrica's share of world commodity production, 2010

Sources: U.S. Geological Survey; BP Statistical Review of World Energy The Wall Street Journal

95%

70

The trend could be hardto sustain as firms lookelsewhere.


BUSINESS & FINANCE

E.ON to ConstructMetro Power Units

FRANKFURT—E.ON SE has madeits first significant move in Ger-many’s decentralized power marketby agreeing to build four combinedheat and power units for retailerMetro AG.

The deal comes as Germany triesto move away from relying on largenuclear and fossil-fueled powerplants in favor of a decentralizedsystem of much smaller powerplants and renewable energy, oftengenerated by the user itself.

While E.ON’s partnership withMetro is small—commercial termsweren't disclosed—the deal givesthe power company a beachhead ina market that it believes will beworth €10 billion ($12.83 billion) ayear across Europe by 2020.

E.ON, and other power compa-nies, hope the decentralized energymarket will help mitigate reducedearnings from conventional powerplants—especially those that burngas for fuel—which are under pres-sure from rising costs and the ex-pansion of renewable energysources, such as solar power.

However, some energy analystsquestion whether the move mayhave come too late and doubt thatsmall-scale power generation willever replace major power compa-nies’ core business.

Utilities in much of Europe arelosing money on larger gas-firedplants because European gas pricesremain stubbornly high whilewholesale electricity prices remaindepressed amid weak demand be-cause of the continent’s economicmalaise.

Germany is one of many coun-tries funding combined heat andpower plant technology, as thesesmall-scale plants capture heat andwaste less energy in the generationprocess than much larger industrial-scale power plants fueled by naturalgas.

Under E.ON’s deal with Metro,

the power company will build, fi-nance and maintain four small gas-fired power turbines, each capableof generating between 250 and 800kilowatts, at two of the retailer’sGerman cash & carry stores and twoRussian outlets.

For Metro, which will operatethe units, managing its own on-siteenergy supply will reduce its energycosts at a time when German retailpower prices are soaring as thecountry shifts away from fossil andnuclear fuels.

It also reduces the company’s re-liance on the country’s aging powergrid, as well as lowering its carbonemissions.

The companies said they wouldconsider adding renewable energy,such as solar power, and expandingthe partnership to other countries,including the U.S., in the future.

As retail power prices rise acrossmuch of Europe, many industrialand commercial businesses are con-sidering generating their own en-ergy, said Hervé Touati, head ofE.ON Connecting Energies, a re-cently formed division of the com-pany that focuses on decentralizedenergy supplies.

“We are starting this approachwith a few large customers likeMetro,” Mr. Touati said in an inter-view.

Cogeneration facilities such asthose E.ON is building for Metro areknown as combined heat and power,or CHP, plants. They produce elec-tricity and heating, and they haveenormous market potential, Mr.Touati said.

“We estimate the business-to-business market [for distributed anddecentralized] energy solutions inEurope to reach €10 billion a year interms of earnings before interestand taxes by 2020,” Mr. Touati said.

“It is the fastest-growing seg-ment in the energy sector. For CHPalone, we estimate the market to beat two gigawatts of newly installedcapacity per year in Europe,” hesaid.

BY JAN HROMADKOAND HENDRIK VARNHOLT

Oil Is Isolated Bright Spot in Commoditieslargely because oil products in manyparts of the country, such as alongthe coasts, are priced off of Brent.

“I need to see another develop-ment, either significantly strongergrowth or slower growth in theeconomy, to get oil prices to go upor down from here,” said Jan Stuart,

Continued from page 17 head of energy research at CreditSuisse.

Some investors are embracingnimble strategies to profit fromsmall short-term price moves. AtPacific Investment Management Co.,a unit of Allianz SE of Germany,which oversees about $30 billion incommodity holdings across different

funds, portfolio manager Nic John-son said he has been buying oil fu-tures and selling options on them ata higher strike price. It is essentiallya bet that the price will remain sta-ble and the funds will be able tokeep the premium collected on theoptions they sold without having todeliver the underlying futures.

Sources: Energy Information Administration (inventories); WSJ Market Data Group (futures); CFTC The Wall Street Journal

Crude EnthusiasmInvestors have driven U.S. oil futures higher despite large oil stockpiles and a tepid economy

300 thousand

0

100

200

’09 ’10 ’11 ’12 ’13’08

$150 a barrel

0

50

100

’08 ’09 ’10 ’11 ’12 ’13

400 million barrels

0

100

200

300

’09 ’10

Weekly data Weekly data

’11 ’12 ’13’08

WTI crude-oil futures price Net managed positionsU.S. crude-oil inventories

Energy Alliance TurnsToNatural-Gas Vehicles

CALGARY—A consortium of NorthAmerican energy producers plans toshowcase half a dozen natural-gas-powered vehicles, including a BMWX3 SUV and a Ford Mustang coupe,in an effort to drum up interest inuse of the fuel in passenger cars.

America’s Natural Gas Alliance,a trade group representing morethan two dozen North American oiland gas companies, is planning todemonstrate “bi-fuel” versions ofpopular vehicles retrofitted to runon compressed natural gas, or CNG,and use a conventional gasolinetank to extend their range, accord-ing to officials. The group declinedto provide further details ahead ofits marketing campaign.

The trade group will previewthose test vehicles on Tuesday at aSouthern California Gas Co. facilityin Los Angeles and then launch abroader public-awareness campaignnext month, officials said. Convertedvehicles from Ford Motor Co.,Chrysler Group LLC and four othermanufacturers are expected to bepart of the Alliance’s lineup.

Chrysler, which now offers a nat-ural-gas-powered pickup inspired bythe shale-gas boom, said it has noplans to make a passenger-car con-version available. Auto makers havebeen focusing on battery- and diesel-powered passenger vehicles andhave been reluctant to add anotherenergy source. A BMW spokesmansaid, “We are not currently involvedin natural-gas vehicles,” and Fordsaid it isn’t involved in the Alliance’sproject, nor does it plan to producea conversion kit for Mustang.

These “bi-fuel” vehicles costthousands of dollars more than gas-oline-powered vehicles. Advocatessay low natural-gas prices can makeup the difference over time. CNGcosts between $2.20 and $2.50 a gal-lon-equivalent, below the averagepump price for unleaded gasoline.But conversions aren’t cheap: Gen-eral Motors Co., which began selling

a pair of bi-fuel CNG pickups in De-cember, prices them at about $11,000more than gasoline versions.

The gas-industry group says thedemonstration is designed to spurconsumer and auto makers’ interestin CNG-powered cars at a time whensurging gas production has dramati-cally lowered prices. That has spurreda renewed drive by gas producers andauto makers to make the fuel a moreattractive substitute for gasoline.

“We hope the excitement createdby these vehicles encourages policymakers to take notice,” said AnneShen Smith, CEO of Southern Cali-fornia Gas.

Some commercial vehicles, in-cluding corporate fleets and heavytrucks, are already using or experi-menting with natural gas. One ad-vantage for these large-scale usersover retail buyers is that they canafford to build and maintain theirown refueling stations. While morethan 100,000 CNG vehicles are beingdriven in the U.S., just under 600stations are open to the public.

Gas producers hope that byshowcasing the CNG-retrofitted ve-hicles they can spark fresh interest.Auto-industry analysts remain skep-

tical manufacturers will rush intothe market, no matter how low nat-ural-gas prices fall.

“You can’t dedicate a vehicle tothis fuel until you’ve got natural-gaspumps almost as ubiquitous as gas-oline pumps,” said Phil Gott, seniordirector at IHS Automotive.

To help resolve that dearth innatural-gas fueling stations, twoleading gas producers have joinedforces with home-appliance manu-facturers in separate bids to developaffordable refueling equipment thatplugs into household gas lines. InDecember, Encana Corp., NorthAmerica’s third largest natural-gasproducer, linked up with WhirlpoolCorp. and four U.S. utilities. Simi-larly, Chesapeake Energy Corp. isworking with General Electric Co.

Gas company officials say majorauto makers are paying close atten-tion to these efforts and are ready-ing conceptual models that mayserve as trial balloons for futuremass-market vehicles. “You will seeover the next year or two, probablyless than a year, some concepts ofnatural-gas [passenger] cars,” EricMarsh, executive president at En-cana, said in an interview.

BY CHESTER DAWSON

A GM Chevrolet Traverse retrofitted to run on compressed natural gas is thetype of vehicle energy companies hope will stir interest in the fuel.

ChesterDaw

son/Th

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BANKRUPTCIES


Scotland Turns AggressiveAmid Spread of Hepatitis CGovernment Makes Push to Control a Virus Considered One of the Biggest Time Bombs in Medicine

Sam Nicoll, an unemployed laborer witha history of heroin use in this down-and-out city, has recently been re-

leased from prison. He’s just become a fa-ther. And on a recent morning, he ran out ofinjection needles. But a nurse here, BrianStephens, wants the 24-year-old to focus ona different problem: hepatitis C.

Mr. Nicoll recently took a blood test forthe virus at a local needle exchange, and itcame back positive. In most parts of theworld, he wouldn’t be diagnosed or consid-ered for treatment. Few countries conductwidespread testing of injection drug usersor offer them medication for hepatitis C, inpart because they are considered too unreli-able to turn up for appointments or to stickto the costly, monthslong treatment regi-men.

Scotland, however, is ignoring conven-tional wisdom and making a bold push tocontrol a virus that may be one of the big-gest ticking time bombs in medicine. Hepati-tis C kills about 350,000 people a year glob-ally, and in many Western countries itinfects far more people than HIV. The dis-ease can lead to cirrhosis or cancer of theliver and is the leading cause of liver trans-plants in many countries.

Yet because the virus often strikes injec-tion drug users, the homeless and otherhard-up populations, efforts to tackle theproblem have lagged behind, health expertssay. While hepatitis C now kills more Ameri-cans each year than HIV does, the U.S. Cen-ters for Disease Control and Preventionspends only about $30 million a year onprevention of viral hepatitis, compared withalmost $800 million for HIV.

For its part, Scotland, with a populationof only five million, has launched a £100million (about $150 million) program, run-ning from 2008 to 2015, to diagnose andtreat hepatitis C, regardless of the patient’shistory. Medication alone can cost anywherefrom $10,000 to $40,000 per patient.

Because Scotland was hit with a wave ofhepatitis C in the 1980s and it can take 20years or more for infections to seriouslydamage the liver, the country is “just at themoment beginning to see this increase inend-stage liver disease,” says David Gold-berg, head of Health Protection Scotland’shepatitis C and HIV programs and professorof public health at University of Glasgow.“That clearly is going to have a major im-pact on demand for liver transplants overthe next decade.”

The country’s taxpayer-funded healthsystem is scrambling to find and treat infec-tions in all hepatitis-prone communities, in-

cluding Pakistani immigrants and peoplewho received blood transfusions before thevirus was discovered in 1989. But it ismostly focusing on current and former in-jection drug users, who account for about90% of infections here.

Cities such as Dundee and Edinburgh—setting of the heroin-drenched 1996 film“Trainspotting”—have been particularly hardhit by injection drug use since an economicdownturn in the 1980s. Within the EuropeanUnion, Scotland has one of the highest re-ported prevalence levels of injection drug

use, according to the European MonitoringCentre for Drugs and Drug Addiction.

Early results of the Scottish program arepromising. About half of the 38,000 Scotsestimated to have been chronically infectedhave now been diagnosed, compared with39% in 2007. Of those, about 1,100 new pa-tients a year are receiving treatment, nearlytriple the number from 2007. Dr. Goldbergsays the aim is to reach 2,000 new patientsa year, which should help prevent up to5,200 cases of cirrhosis by 2030.

Tackling hepatitis C is a difficult assign-ment. It typically is spread when an infectedperson’s blood enters another person’s body,as often happens when drug users shareneedles. According to the U.K.’s NationalHealth Service, the virus can also be foundin some other body fluids, including salivaand semen, but this is far less common,making sexual transmission more rare thanit is with HIV.

Because symptoms often don’t surfaceuntil decades after infection, many peopledon’t know they are infected.

To find infections in current drug users,Scotland is blanketing needle exchangeswith simple finger-prick diagnostic kits. Af-ter identifying people with infections, manyparts of Scotland try to start weaning themoff heroin before offering hepatitis C medi-cation. The typical approach is to prescribe

BY JEANNE WHALENDundee, Scotland

Scotland has launched a $150 million program, running from 2008 to 2015, to diagnose and treat hepatitis C, regardless of the patient’s history, Sam Nicoll, above, has tested positive for hepatitis C.

IN DEPTH

Identifying the CasesNumber of people in Scotland testing positivein an initial screening test for hepatitis C

The Wall Street JournalSource: Health Protection Scotland

2001 '03 '05 '07 '09 '11

2011: 2,3182,500

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500

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1,500

2,000

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BUSINESS & FINANCE

Facebook Shifts Gears a Year After IPOThe Company Is Getting Serious About Making Money; But the Stock Is Stuck Well Below Its IPO Price

Two weeks ago, new posters be-gan appearing at the headquartersof Facebook Inc. The posters pro-claimed: “Advertisers are userstoo*.” At the bottom of the page, insmaller font, was the phrase “*nosrsly,” Internet shorthand for “noseriously.”

On the eve of Facebook’s IPO an-niversary Saturday, how the MenloPark, Calif., company tackles reve-nue is one of the biggest challengesin its short life as a public company.

After eight years of focusing onuser growth, Facebook has pushedrevenue up its priority list and re-structured its business so that manyof its best minds are now thinkingabout driving sales.

Before filing for its IPO, Face-book made 85% of its revenue fromdesktop ads in the right-hand col-umn of its website, with the restcoming from a payments businessfueled by virtual-goods sales fromZynga Inc. games.

Today, the company is experi-menting with more than 10 otherways to make money, including afledgling e-commerce store and feesthat it charges users to send chatmessages to strangers.

Facebook has also broadened itsad business, running ads for thefirst time on mobile devices, in itsNews Feed, and creating specialwidgets for mobile, such as ads thatpromote installations of third-partyapplications. Facebook has also in-troduced products familiar to adver-tisers, including tools that targetpeople based on their website visitsor their offline behavior. And it hasreorganized itself so project man-agers and some engineers take own-ership of revenue targets.

The changes have helped liftFacebook’s revenue to $1.46 billionin its most recently reported quar-ter, up 36% from $1.06 billion in thesame period a year earlier. A quar-ter of the company’s revenue nowcome from mobile ads.

But none of that has beenenough to push Facebook’s stockback up to its IPO price last May of$38. On Thursday, the company’sshares closed at $26.13, down 1.8%on the day and 31% from its IPOprice.

The increasing importance ofboosting sales also could jeopardizethe users’ experience—a point notlost on Facebook’s chief, who has re-peatedly said that Facebook wasn'toriginally built to be a company.

On this month’s earnings call,Mr. Zuckerberg assured investorsthat the site hasn't “seen any mean-ingful impact on the [user] satisfac-tion”—implying that there may besome drag on user experience—justnot enough to matter.

Still, some investors said they areencouraged by Facebook’s new atti-tude toward revenue. Mark Hawtin,portfolio manager of the roughly$250 million GAM Star TechnologyFund, said he’s bought more Face-book shares recently because of the

rollout of new ad products and be-cause of comments Mr. Zuckerbergmade in September about his focuson revenue and mobile.

When Facebook went public, thecompany’s message was “we focuson the user growth and engagementand the revenue will take care of it-self,” said Mr. Hawtin, who addedthat Facebook is now one of his topthree stock holdings. “After the IPO,the message was that revenue andmobile are now also key parts.”

The tone around revenue beganchanging in early 2012, especiallyafter the fourth-quarter earnings re-port revealed a sharp drop in salesgrowth.

Facebook rushed to shore-up itsmobile applications. The companyintroduced mobile ads in March2012 through its main channel, theNews Feed.

Now ads were no longer rele-gated to the right-hand side of thesite, but were literally at the centerof the product.

At one meeting last July, asFacebook’s newly public stock wasgetting pummeled, the social net-work’s managers, dubbed the “MTeam,” decided that more teamsneeded to be held responsible forrevenue.

Chief Executive Mark Zuckerbergand his top lieutenants, includingoperating chief Sheryl Sandberg andfinancial head David Ebersman, re-viewed Facebook’s entire business atthe meeting, going product by prod-uct and team by team.

Revenue was “a priority whosetime has come,” said David Fischer,vice president of marketing, who at-tended the meeting. “More leadersneeded to be accountable.”

Some of Facebook’s key engi-neers were asked to solve revenue-related issues for the first time. InFebruary, Andrew Bosworth, a mem-ber of the “M Team” and a creatorof News Feed, became the head ofadvertising engineering, in which heoversees the technical infrastructure

behind the ad products.Jason Sobel, a senior Facebook

engineer who spent six years work-ing on infrastructure and mobile,also switched to work on advertise-ments in November. “We were get-ting beat up a lot externally (so) Ifelt like it was an opportunity tohave a big impact,” he said.

Project managers for some busi-ness groups like News Feed wereencouraged to educate themselveson how their product made moneyand to own revenue targets.

More ad employees began towork closely alongside product en-gineers and engineers began to visitFacebook’s advertisers. Severalmembers of the ads team officiallyswitched to work with productteams.

In one sign of how a more reve-nue-centric culture was being incul-cated, Facebook in March organizeda field trip to Cincinnati for a fewdozen employees including product

engineers to one of its biggest ad-vertisers, Procter & Gamble Co., sothose employees could learn aboutthe client’s needs and objectives.

Members of Facebook’s “MTeam” who had never spent timewith clients before, such as humanresources head Lori Goler, also be-gan attending meetings with brands.

For advertisers, Facebook’s reve-nue-friendly attitude is giving themmore excuses to spend. Online re-tailer JackThreads.com said it hasdoubled spending on Facebook overthe past year because there aremore products to experiment with.

While it once only bought right-hand column ads on Facebook’swebsite, JackThreads now has pur-chased photo and link ads for thedesktop and mobile news feeds,among other things.

It also plans to use Facebook Ex-change, a real-time marketplace tobuy ads based on what sites usersare visiting. The company declined

to disclose how much it is spendingon Facebook.

“The more sophisticated thetools, the more comfortable we’llfeel spending significant dollarswith them,” said Ryan McIntyre,JackThreads’s executive vice presi-dent of marketing, who said hewould still like Facebook to providemore data for its newfangled mobileads.

In April, Facebook started hold-ing ad boot camps for employees toeducate them on what Facebook’sclients are looking for, how differentad products work and the company’sbroader strategies.

The program, which has beenheld twice so far, runs about half aweek and features sessions withFacebook’s ad experts.

In the future, the company plansto incorporate advertisers for “cli-ent immersion sessions,” said GokulRajaram, Facebook’s product direc-tor for ads.

BY EVELYN M. RUSLI

Reuters

How a $10,000 bet on Facebook’s IPOcompares with other investmentsover the past year

The Wall Street JournalSources: WSJ Market Data Group; SIX Financial Information; Barclays Live*Barclays capital aggragate bond index (through Wednesday)

$16,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

20132012

AppleApple

Google

Barclaysbondindex*

S&P 500Nasdaq

20132012

Today, the company isexperimenting with morethan 10 other ways tomake money.

Facebook CEO Mark Zuckerberg is seen on a screen televised from their headquarters in Menlo Park moments after their IPO launch in New York May 18, 2012.


methadone, a synthetic opiate that can help re-duce heroin cravings, and wait for the patientto gain some stability, says John Dillon, a doc-tor in Dundee who helps run the hepatitis Cprogram, which is staffed with about 85 doc-tors and nurses.

But Dundee and other regions have startedtreating drug users without necessarily tryingto stabilize them on methadone first. They aremotivated by research from University of Bris-tol, London School of Hygiene and TropicalMedicine and other institutions suggestingthat if just 20 out of 1,000 active injection drugusers are treated each year, it could stop theminfecting others and reduce the rate of hepati-tis C prevalence by nearly 30% in 10 years.

Doing that requires a ton of support, saysMr. Stephens, 41, the nurse at the hepatitis Cprogram in Dundee. But for many, it may beyears before they are ready to quit their drughabit, he says. “And how many people will theyhave infected in that time?”

Much of the program involves sendingnurses like him out into the field. A 16-yearveteran in nursing, he is known for going to ex-tremes to stay in touch with patients, some-times phoning them many times to remindthem to turn up for appointments. He givesthem his cellphone number, answers their callson weekends, helps them inject the weekly in-terferon shots they need to kill the virus andsometimes spends hours at needle exchangesand methadone clinics waiting in vain for themto appear.

On a recent morning, Mr. Stephens metwith Mr. Nicoll, who had come to a needle ex-change program for a new set of syringes. Mr.Stephens invited him into a private room todiscuss the results of the blood test he hadtaken at the exchange about seven months pre-viously, which indicated that he probably hadthe hepatitis C virus. Mr. Nicoll had missedseveral appointments to return for a secondtest needed to confirm the infection. “I’ve beenquite scared to come back,” he acknowledged.

Mr. Stephens seized the moment and drewthe blood on the spot, explaining what treat-ment would involve. Clutching a small bag ofsyringes, Mr. Nicoll mentioned that his life wasabout to get more hectic: “I’ve got a babydaughter coming. She’s due soon.”

About two weeks before meeting Mr. Ste-phens, Mr. Nicoll had started taking methadonein an effort to tame his drug habit. But likemany methadone recipients—particularly inthe early stages of treatment—he was continu-ing to use heroin. Mr. Stephens said thatwouldn’t disqualify him from hepatitis C treat-ment. “If someone is continuing to use heroinand they continue to come to appointments,we don’t really care. We’ll go ahead and treatthem anyway,” he said. (In a subsequent inter-view, Mr. Nicoll said he had stopping usingheroin, which Mr. Stephens said was confirmedin a urine test. The two are awaiting moreblood test results before deciding on the nextstep in his hepatitis treatment.)

Mr. Stephens said he wound up specializingin hepatitis C after a London surgeon once toldhim: “Whatever you do, get into hepatitis, be-cause it’s going to be huge.” The work takes itsown form of patience: At a nearby methadoneclinic that afternoon, Mr. Stephens met withGeorge Nelson, a 44-year-old addict who wassuccessfully cured of hepatitis C a few yearsago, only to find recently that he had rein-fected himself through risky drug use.

“I remember getting cleared last time andsaying, ‘I’ll never do that again,’” Mr. Nelsontold Mr. Stephens. “For 14 months I was clean.Then I put myself at risk again.”

Many countries don’t treat active drug us-ers or patients taking methadone because ofthis risk: they fear the money and effort will bewasted if the person continues using illicitdrugs and gets reinfected. “There’s been an ar-gument, if you have constrained resources,who would you treat first? Obviously not drugusers. But actually there’s an argument thatyou should treat them first,” says Charles Gore,president of the World Hepatitis Alliance inLondon. In Scotland and many places, injectiondrug use is by far the biggest source of the vi-rus’s transmission. Stopping that transmissionis “a way to turn off the tap, and then we canempty the pool,” Mr. Gore says.

In a recent study, University of Dundee ana-lyzed treatment results for 291 patients in theregion, comparing outcomes for people whohad never injected drugs to those of active andformer users. They found that 61% of noninjec-tion-drug-users achieved a sustained virologi-

cal response, or SVR, the clinical term for acure. About 55% of former users and 47% of ac-tive users obtained an SVR, the study showed.The authors concluded that active injectiondrug use “is not a barrier to treatment or asuccessful achievement of SVR.”

In the U.S., few doctors offer hepatitis Ctreatment to people taking drugs or metha-done, says Michael Ninburg, executive directorof the Hepatitis Education Project in Seattle.There are also few needle exchanges or metha-done clinics in many communities, and eventhose that do exist don’t typically test peoplefor hepatitis C. John Ward, director of theCDC’s viral hepatitis division, says the diseaseis simply “underrecognized, undermanagedand undertreated.”

Still, the Scottish approach is being tried ina few places.

Diana Sylvestre, an assistant clinical profes-sor of medicine at University of California, SanFrancisco, runs a nonprofit clinic in Oaklandthat treats many people with drug addictions.When she started the clinic 15 years ago, “itbecame apparent hepatitis C was a huge prob-lem,” she says. She started out treating peoplewho had achieved some stability in their liveswhile taking methadone, later branching out to

addicts in more of a “state of disarray,” shesays. The clinic conducts blood tests and dolesout medicine at weekly meetings that also in-clude lunch and hepatitis C education sessions.

“We find that some people you would neverpredict are able to organize themselves aroundthis schedule,” she says, adding that “virtually100%” of patients who start treatment com-plete it, and that 80% to 85% are cured.

The lack of medical insurance among manyU.S. drug users makes it hard to tackle thehepatitis C problem in a comprehensive way,says Brian Edlin, an associate professor atWeill Cornell Medical College in New York whotreats injection drug users for hepatitis C.

Indeed, in a recent study he led to evaluatehepatitis C treatment in active drug users,some of the patients didn’t have health insur-ance, Dr. Edlin says. He provided free care toeveryone in the study and helped eligible pa-tients get enrolled in Medicaid to cover thecost of medication. For those who weren’t eli-gible, he obtained free drugs from manufactur-ers. He also offered mental-health and sub-stance-abuse treatment to anyone who wantedit. Overall, 72% of the patients were cured ofhepatitis C, a result he called “very successful.”Next he is aiming to recruit up to 200 injectiondrug users for a larger trial that will more rig-orously test the benefits of treatment.

“Doctors raise legitimate uncertaintiesabout treating this population that need to beaddressed through research,” Dr. Edlin said.

In Dundee, Mr. Stephens and his colleaguesare also attempting to enroll injection drug us-ers in a similar study. To encourage them tosign up, they are offering participants a regularsupply of high-protein drinks and vouchers tobuy food at supermarkets. That is an incentivebecause “heroin users don’t eat very well,” Mr.Stephens says. “They spend most of theirmoney on drugs.”

Still, recruitment so far has been tough.One young woman he was hoping to enrolldidn’t turn up for a meeting at the needle ex-change. Later, he learned she was due in courton charges she had assaulted a shopkeeper af-ter she had been caught stealing. He ultimatelytracked her down and enrolled her in thestudy. If she goes to prison, he says, “we’ll con-tinue her treatment” there.

Meanwhile, Mr. Stephens says he has seenanecdotal evidence that current and recentheroin users can make it through treatment.One patient recently cured, 35-year-old LeannePetrie, took heroin for 16 years before quittingin late 2011. In an interview, she said shetested positive for hepatitis C around the ageof 25 but didn’t seek treatment for years.

In 2010, while living in the Scottish countyof Fife, she was taking methadone to try towithdraw from heroin, and attending hepatitisC support meetings to learn about treatment.But because she was drinking heavily, her sub-stance-abuse counselor cut off her methadone,which she says prompted her to drink more—about a bottle of vodka a day. She was also stilldabbling in heroin.

In 2011, she says she got involved with a vi-olent man who also took heroin. In December2011, he burned her hand with a cigarette andwrecked her apartment, she says. A few dayslater, she took an overdose of sleeping pills. “Ifelt I couldn’t get out,” she says.

She woke up in the hospital, and, at the en-couragement of her family, decided to move toDundee to say with her cousin. She stoppeddrinking and taking heroin, and in January2012, sought treatment for hepatitis C. In themiddle of her treatment, she had to leave hercousin’s house and stay in a homeless shelterfor three months, but she eventually got anapartment from social services. She completedher treatment in November.

Seeing progress with her hepatitis C treat-ment helped her cope with the instability inher life and stay off drugs, she says. “Since Imoved to Dundee I’ve achieved a lot,” she says.“When you see the treatment is working, ithelps you keep going.”

NEWS IN DEPTH

A Fatal ProblemDeaths from liver diseasein people diagnosed withhepatitis C in Scotland


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Nurse Brian Stephens, right, takes blood from Stephen Rachwell. He has seen anecdotal evidence that heroin users can make it through treatment.

Because the virus often strikesinjection drug users, thehomeless and other hard-uppopulations, efforts to tackle theproblem have lagged behind.

Cate Gillon for The Wall Street Journal


BUSINESS & FINANCE

Google Glass Stirs Privacy FearsAs Congress frets about the pri-

vacy implications of Google Glass,one thing is clear: The technologythat can redefine what is “public”and link the digital and physicalworlds is here.

Now the question is what willanyone do about it?

Owners of wearable Internet-connected devices already facechoices about where or when it isappropriate to wear them—while le-gal experts say there aren’t manyprotections for people whose activi-ties the technology records.

Noble Ackerson, a 33-year-oldsoftware developer in Washington,D.C., who has been wearing GoogleGlass for the past month, says hehas developed his own “commonsense” etiquette standards forGoogle Inc.’s new digital headset.

For instance, he takes Glass offin a public restroom, in a movie the-ater and in casinos, where havingsuch a device could give him an un-fair advantage. “Google Glass hastechnology that isn’t new, and theetiquette we’ve applied to existingtechnologies should roll into it,” hesays.

Products like Glass are sparkinga discussion about what is possiblewith technologies such as facial rec-ognition, and whether governmentsneed to intercede. While severalmembers of Congress pressedGoogle on Thursday for answersabout how its technology works,some business owners like bars orcasinos are already banning it.

Right now, Google Glass, whichplaces a small computer screenabove one eye and has a built in mo-tion sensor, camera and micro-phones, acts like an extension of aperson’s smartphone.

It lets the user take photos andrecord videos by touching the sideof the device or speaking commandsaloud, as well as allowing them togive Web users access to the de-vice’s camera so they can “see”what the wearer is looking at. Peo-ple also can use Glass to makephone calls, access Google’s Websearch, get turn-by-turn navigationinformation and receive text mes-sages on the screen, as well as sendtexts using their voice.

The device isn’t widely available,but Google plans to publicly launchit next year.

Early testers of the device saythe potential benefits—such as giv-ing paraplegics the ability to takephotos using their voice or makingit easier to document police brutal-ity, among other uses—outweighsuch privacy and security risks.

But one potential use has cap-tured the imaginations—and fears—of many: facial recognition.

While such technology still facesnumerous hurdles, the capability touse it for purposes once relegated toscience fiction have already been

proven in a real-world context, mostrecently by Carnegie Mellon Univer-sity researchers in 2011.

By combining public informationfrom social networks and facial-rec-ognition technology, the researchersused a webcam on a college campusto identify people by name, andthen—by using information fromtheir social-network profiles—alsopredict sensitive personal data, suchas hobbies and Social Security num-bers.

“The genie is out of the bottle,”says Carnegie Mellon professorAlessandro Acquisti, who was partof the research team. “My bet is fa-cial recognition and augmented re-ality will become commonplace andpopular.”

While real-time facial recogni-tion technology isn’t yet scalable,remaining hurdles already are beingovercome, he says, and societies willneed to “discuss and try to createframeworks so that good applica-tions will survive and creepy oneswill not.”

Google Glass product manage-ment director Steve Lee said in astatement Friday that “we won’tadd new face-recognition features toour services unless we have strongprivacy protections in place.”

On Thursday, Mr. Lee and otherGoogle employees say that whileany device, including today’s smart-phones, can be misused to hurt orspy on other people, the companywould endeavor to bar such applica-tions from being available on itspublic app store for the device.

Mr. Lee says the device wouldalso be a “lousy” way to spy on peo-ple because the wearer must facewhatever it is they are recording.The device’s small screen lights upwhen it is taking a photo or record-

ing a video using the camera, allow-ing people near the wearer to knowthat it is on.

Mr. Lee added that he expectedthere would be facial-recognitionapplications available on Glass inthe future, possibly created by thirdparty software developers.

Google has said data recorded bythe device would be bound by itscurrent privacy policy, meaning itcould be collected in an anonymousway and the company would holddata about specific individuals onlyif they explicitly agree to it, thesame as with smartphone-relateddata.

Most of the wearable devices onthe market, with names like LU-MOback and Fitbit, are meant tocapture health-related informationabout the person wearing them,such as heart rate and posture. Nownew devices led by Google Glasscapture data around the wearer—in-cluding the people they interactwith.

For instance, a forthcoming $279device called Memoto, designed tobe worn on a chain around the neckor clipped to clothing, automaticallysnaps photos every 30 seconds, ornearly 3,000 a day, and uploadsthem to the Web so the wearer canaccess them.

Oskar Kalmaru, a co-founder ofMemoto, said the company stressesto its customers “how it’s actually apretty crappy spycam: no remote

control, no streaming, very visibleand so on.”

There is almost nothing individu-als can do to prevent their activitiesfrom being recorded or trackedwhile in public, legal experts say.Chris Conley, a technology policy at-torney at the American Civil Liber-ties Union of Northern California,says that while Google Glass is cur-rently a primitive device, “it’s some-thing you could see evolving into astate of constant awareness of theenvironment, making it difficult forthird parties to understand whetherthey’re being analyzed or recorded.”

But he added that he “can’t thinkof anything that Google Glass couldconceivably do that is actually goingto run into legal concerns,” unlessperhaps someone creates an appli-cation that invades people’s privacyby “seeing” underneath theirclothes, similar to the passengerscans at U.S. airports.

Consumers and governmentsworld-wide have grappled withsome of these questions before withthe discreet cameras on cellphones.When they first emerged in theearly 2000s, some worried abouttheir potential use for espionageand voyeurism. Businesses such asgyms banned their use.

And in 2004, Congress passedthe Video Voyeurism Prevention Actwithout much opposition, which pro-hibits photographing a naked personwithout his or her explicit permis-sion in a gym, dressing room, orother places that one expects “a rea-sonable expectation of privacy.” (Vi-olators face fines of up to $100,000and up to a year in prison.)

Yet a decade later, camera-phones have become an acceptedand relatively uncontroversial partof modern culture.

BY AMIR EFRATIAND GEOFFREY A. FOWLER

Questions of appearance and privacy arrive for Google Glass wearers. Above, a Google engineer shows off the glasses.

Getty

Images

ComScore’sWeb RatingScoresWinOver Nielsen

The battle among companiesmeasuring the reach of online ads isheating up.

Ad-buying giants Starcom Medi-aVest Group and ZenithOptimediasaid they have signed on to usecomScore Inc.’s online-advertisingratings system, dealing a blow toTV-ratings leader Nielsen, which of-fers advertisers a comparable ser-vice. The ad-buying firms, both ofwhich are owned by PublicisGroupe SA, had been testing bothservices for some time.

Marketers have long been de-manding a way to measure online adcampaigns in a manner similar tohow TV is measured. ComScore’sValidated Campaign Essentials, orVCE, and Nielsen’s Online CampaignRatings, or OCR, are two productsthat offer a solution.

The new services are the firststep toward a measurement systemthat could track how ads performacross all screens, including TVs,the Web and mobile devices.

Online marketers say the inabil-ity to track ads effectively acrossmultiple screens is a hurdle theyface when trying to figure out howmuch money they should move fromtraditional advertising into digitalads.

The decision of the Publicis firmsto go with comScore’s system is sig-nificant, given the scale of the adbudgets they handle.

Starcom MediaVest and Zenithspend about $32 billion annually onads in the U.S. on behalf of compa-nies such as Coca-Cola Co., An-heuser-Busch InBev N.V and J.P.Morgan Chase & Co. Several weeksago, Procter & Gamble Co., theworld’s largest advertiser and aStarcom MediaVest client, signed upwith comScore.

Starcom MediaVest said its chosecomScore in part because its servicewill be offered in more countriesand because it will be able to collab-orate with comScore to create newmeasurement products.

Price also played a role in Star-com’s decision.

“It’s a multi-screen, mobile worldand we need to be able to measureaudiences fluidly and seamlessly,”said Laura Desmond, SMG’s chief ex-ecutive officer.

“Traditional industry measuresand players fall short on deliveringthe innovation we need for our cli-ents,” she said.

A Nielsen spokeswoman declinedto comment.

The Publicis ad-buying firms’ de-cisions are “favorable for com-Score” but the race in digital audi-ence measurement is “far fromover,” said Brian Wieser, an analystwith Pivotal Research Group.

As of April 15, Nielsen had signedup more than 100 advertisers suchas Unilever, Kimberly-Clark Corp.and WPP PLC’s ad-buying firmGroupM for its Online CampaignRatings product, and it had beenused on more than 4,000 cam-paigns.

Clients of Publicis aren’t obli-gated to use the comScore ratingssystem, despite the ad-buying firm’sdecision. Also, marketers and adagencies could choose to use bothcomScore and Nielsen’s productsrather than choosing one.

BY SUZANNE VRANICA

Some business ownerslike bars or casinos arealready banning it.

Yahoo to Pay $1.1 Billion to Acquire Tumblrcould help Tumblr bring in moremoney by selling ads, boosting itsown revenue in the process.

Tumblr has grown quickly. InMarch, the blogging site had about117 million unique users world-wide,up from about 58 million a year ear-lier, according to comScore Inc. Onsmartphones, Tumblr had almost 12million unique visitors, up from

Continued from first page about four million, comScore said.Yahoo has a bigger presence on

mobile devices but it is growingmuch slower. In March, Yahooclaimed about 84 million uniquesmartphone visitors, up from around63 million, comScore said.

Yahoo Chief Executive MarissaMayer, who joined the company lastsummer after a 13-year career atGoogle Inc., became interested in

the blogging site a couple of monthsago, one of the people familiar withthe matter said. Acquisitions havelong been expected to be part of Ms.Mayer’s strategy, though to date sheonly has acquired small companies—primarily for their engineering andproduct-management talent.

Yahoo recently pulled out of aroughly $200 million deal to buy acontrolling interest in the video

website Dailymotion, owned byFrance Télécom SA, after theFrench government indicated objec-tions to the transaction, people fa-miliar with the matter have said.

Yahoo would be paying a pre-mium for Tumblr. When Tumblr lastraised money, in the fall of 2011, the$85 million venture-capital invest-ment it received valued the NewYork company at $800 million.


OPINION: REVIEW & OUTLOOK

W ell, that was fast. JapanesePrime Minister Shinzo Abe’saggressive pro-inflation policy

is only a few months old and a fight haserupted over its early effects. And thiswhile there is no economy-wide infla-tion.

On Wednesday, the Nikkei 225 closedabove 15000 for the first time since2007. Former Vice Finance MinisterEisuke Sakakibara—known as “Mr. Yen”from his stint managing foreign-ex-change policy—took to the airwaves tocall the market “bubbly” and warn that“there will be some corrections . . . prob-ably by the summer.” Bank of Japan Gov-ernor Haruhiko Kuroda contested thisbubble theory in parliamentary testi-mony, arguing that fundamentals sup-port the market moves.

Then there’s real bubble trouble inthe market for Japanese governmentdebt. Years of exceptionally loose mon-etary policy encouraged markets tovalue Japanese government bonds

(JGBs) far above what one might expectfor a highly leveraged government sit-ting atop an anemic economy with ashrinking population. Last week pricesfell and yields for 10-year bonds rose to0.92% on Wednesday from 0.6% the pre-vious week, before the central bankstepped in to reduce yields slightly.

That yield is only a three-month high,but the speed of the move was surpris-ing, and the warning is clear. If investorsstart to believe the pledges by Messrs.Abe and Kuroda to deliver inflation of2%, they will demand higher returns ontheir investments. In a Japanese twist,looser money could lead to higher nomi-nal interest rates.

This would have potentially seriousconsequences for the balance sheets ofJapanese banks, insurers, pension fundsand households that are the main hold-ers of government debt that totals morethan 200% of GDP. It also raises the so-bering prospect that a rotation out ofJGBs could come long before other parts

of Abenomics have begun and a durableeconomic expansion that lifts revenueshas taken hold.

Meanwhile, commentators are en-gaged in an esoteric debate about whatsort of inflation Japan may develop. Agrowing chorus of observers suggeststhe economy is headed for “cost-pushinflation,” the kind that happens whena weaker yen causes import prices torise and consumers bear the burdenwhen their incomes don’t increase pro-portionately.

Mr. Abe and his supporters are hopingfor “demand-pull” inflation, in whichcompanies would increase wages toboost purchasing power. Since a weakyen is increasing operating costs and theeconomy remains sluggish, there’s littlesign this is happening. Wage growth isstill negligible.

Yet since inflation is by definition arise in the general price level, not oneset of prices, it’s never as orderly as pro-ponents of inflationary policies like to

claim. It’s hard for a central banker oranyone else to predict who will win orlose more. Meanwhile, investors arepouring into assets in search of a returnfor their loose cash, which takes us backto the rising stock market.

What ties all of this together is thedesperate need for growth in the realeconomy, and not simply in the moneysupply. Growth will boost corporateearnings in ways that give stocks a sus-tainable reason to rise, make the govern-ment’s debt burden repayable, and stim-ulate wage growth and consumerconfidence.

Japanese are discovering that al-though their politicians often equate areturn to inflation with a return togrowth, the two are different. Mr. Abehas set his sights on inflation, and per-haps he’s going to get some. But he’ll re-gret that choice unless the other policyreforms he is promising succeed. As heannounces his plans in the comingweeks, the stakes are high.

T he same press corps that hasblessed every Obama Administra-tion enforcement action and regu-

latory intrusion has suddenly concludedthat the feds are dangerously overreach-ing. The reason? The U.S. government isnow investigating the press. Welcome tothe club, but we’d also add some contextto the shouts of media outrage.

The press is exercised because theJustice Department issued a subpoenafor the phone records of AssociatedPress reporters and editors as part of acriminal probe into a national-securityleak. Some of the loudest protests arecoming from those, such as the NewYork Times, that cheered the criminalpursuit of the leak to conservative col-umnist Robert Novak during the Bushyears in the Valerie Plame case. (See“Prosecutor of the Times,” Feb. 23,2005.)

Then the target was Scooter Libby(who wasn’t even the leaker) while nowit’s someone who leaked to their main-stream comrades at AP. Such doublestandards are one reason the public mis-trusts the media.

In this case, Justice is investigatingbecause the leak may have done seriousnational-security damage. Attorney Gen-eral Eric Holder said last week that itwas one of the worst leaks he’s seen ingovernment. Our own security sourcessupport his claim.

The AP story at issue seems to be theMay 7, 2012 report that the U.S. had bro-

ken up a plot to bomb a U.S.-bound air-liner with a sophisticated new devicethat was difficult to detect. Governmentsources say the story led to the publicsuspicion that the U.S. had a source in-side al Qaeda, and that the source’scover was essentiallyblown. They add that theleak makes it that muchharder for the CIA to re-cruit future agents frominside terrorist networks.

AP says it withheld thestory for several days at White Houserequest, but then published it a day be-fore the government was going to dis-close the story anyway. The White Housedenounced the story at the time, blam-ing AP for the disclosure even as it con-firmed that it had foiled the plot.

Without a top-secret clearance, wecan’t judge these competing claims. Butit’s certainly possible the AP storyharmed U.S. antiterror efforts, with ben-efits to the public interest that are farfrom obvious. Americans learned fromthe story that al Qaeda was still activelyplanning threats, in this case a year af-ter Navy SEALs killed Osama bin Laden.This contradicted the re-election claimof President Obama that al Qaeda hadbeen “decimated.”

But if the AP story did contribute tocompromising a source inside al Qaeda,news of a foiled plot hardly seems worththe price. Balancing the potential dam-age to national security against the pub-

lic’s right to know is the obligation ofresponsible publications. Deciding whennot to publish is often the more public-spirited choice, especially in a nationthat protects a free press from forces(like al Qaeda) that would destroy it.

Too often these days themedia default is to pub-lish a story no matter thepotential damage.

This is the context inwhich the Justice Depart-ment subpoenaed the re-

cords over two months of some 20phone lines assigned to AP and severalbureaus. On the merits, the media’sNixon analogies are overwrought. Jus-tice issued subpoenas to telephone dataproviders that could object if the re-quests were extralegal. The subpoenaswere also approved at an appropriatelyhigh level—by the Deputy Attorney Gen-eral after Mr. Holder recused himself.

One fair media complaint is that thisdragnet was too broad, violating normalJustice practice of narrowly tailoringrequests that concern the media. Justicealso failed to tell AP about the subpoe-nas in advance and not for weeks, whentypically the media would have been in-formed immediately. Such blanket sub-poenas and secrecy can have an intimi-dating effect on the press, which mayhave been the Justice Department’s in-tent. Or perhaps the feds didn’t want torisk alerting the AP’s sources that theircalls might have been tracked.

Whatever the motive, this overreach istypical of the Obama Administration’s at-titude toward the law in many areas—non-recess recess appointments, environ-mental regulation, selective enforcementof immigration and drug laws, or its ownmedia leaks about the bin Laden raid in-tended to improve its terror-fighting im-age. The difference this time is that theAmerican press was the target.

i i iAmid the media backlash, the White

House is trying to make amends by re-viving a federal “shield law” to protectagainst having to disclose governmentsources. Some of our colleagues arecheering, but count us skeptical. We likethe shield law known as the First Amend-ment. Any legislation needs to be vettedfor unintended consequences that wouldprotect some journalists but not others,or that would undermine the balance ofrights (such as a free press vs. fair trial)that are inherent in the Constitution andtypically settled on a case by case basis.

Regarding AP and the Obama Adminis-tration, both sides might have exercisedbetter judgment. But the matter shouldbe negotiated without a prosecutorialfishing expedition or Constitutionalshowdown. Meantime, maybe the presscorps will be more skeptical the nexttime the political class starts calling forbankers to be hanged in the publicsquare.

Japan Discovers QE Has Risks

Those AP Subpoenas

The press corps finallydiscovers a case of

government overreach.

Pepper . . . and SaltTHE WALL STREET JOURNAL

Notable & QuotableFraser Nelson writing for the U.K. Specta-tor on May 19:

Most Brits think that Eurovision is con-fected tat. Denmark doesn’t seem to havereceived that memo. Its entry [Saturday]night had a (Scottish) immigrant’s influ-ence—as do most of Europe’s greatachievements. But the song was distin-guished not by some generic Eurotrashdrumbeat but flute, drums and the voice ofa leading light of the Danish folk scene. . . .

For all sorts of reasons (politics, class,

identity) our official arts bodies andbroadcasters struggle to recognise or pro-mote our indigenous talent. It is, alas, in-conceivable that a 19-year-old British folksinger would end up on what is now theworld’s most-watched musical stage. Un-less she emigrated—as so many of ourfolk musicians end up doing.

The pubs of Edinburgh and Aberdeenare full of similar acts. But the British en-try nowadays is picked by an anonymousBBC bureaucrat, who seems to have a su-

percilious disregard for Eurovision and anabject ignorance of the nature or locationof our young talent. . . .

We have hundreds of brilliant musi-cians who would kill to be given the kindof chance that Fraser Neill’s protégé wasgiven [Saturday] night. And I don’t thinkthis will ever happen, for as long as theBBC treats Eurovision as a kind of musicalfreak show. The BBC is becoming the UKIPof Eurovision: fielding weak candidates inan election which it holds up to ridicule.


BUSINESS & FINANCE

BloombergSets ReviewOf CustomerData Privacy

Bloomberg LP stepped up effortsto address client concerns over datasecurity and privacy, appointingSamuel Palmisano, former chairmanand chief executive of InternationalBusiness Machines Corp., to con-duct an independent review of thecompany’s data practices.

In Mr. Palmisano, Bloomberg hastapped a senior executive withstrong ties to Bloomberg’s clients onWall Street, a large and longtimesource of business to IBM. The com-puter-and-technology company,which Mr. Palmisano ran from 2002to the end of 2011, is consideredwell versed in high-level computersecurity and privacy matters.

Bloomberg also said it hired thePromontory Financial Group, aWashington, D.C.-based consultingfirm with deep ties to Wall Streetand its regulators, to assist Mr. Palm-isano with the review. Promontorycounts Arthur Levitt, former chair ofthe Securities and Exchange Com-mission, as a member of its advisoryboard.

Mr. Levitt is also a director atBloomberg and an adviser to Gold-man Sachs Group Inc., one ofBloomberg’s biggest customers. Itwas a complaint from GoldmanSachs last month that promptedBloomberg to restrict its journalists’access to certain subscriber data.

The announcement Friday adds anew level of review in Bloomberg’sattempt to contain an outpouring ofmedia attention and inquiries fromclients about what kind of sub-scriber data Bloomberg previouslymade available to its newsroom.

Bloomberg Chief Executive Dan-iel Doctoroff said the companywants to “go even further and getthe benefit of independent leadingexperts so that we set the new stan-dard for privacy and data security,”in a statement announcing Mr.Palmisano’s appointment Friday.

Bloomberg also said it had hiredlaw firm Hogan Lovells to assist Mr.Palmisano. Meanwhile, Clark Hoyt,editor-at-large at Bloomberg News,will conduct a review of BloombergNews’ relationship to the company’scommercial operations. Before com-ing to Bloomberg, Mr. Hoyt was atone point public editor at the NewYork Times.

Bloomberg has been consideringplans for an outside adviser such asMr. Palmisano since last month whenit first restricted the ability of itsjournalists to view subscriber infor-mation, a person familiar with thematter said.

Larry Tabb, founder of the re-search firm Tabb Group, called Mr.Palmisano’s appointment “a goodstart,” but he cautioned the movewouldn’t immediately resolve thescrutiny of Bloomberg. “I’m not surethey can erase all their problems.These things are hard to get over,”he said.

The company has said that inApril it restricted its journalistsfrom accessing information aboutsubscribers to its terminals, includ-ing when the subscribers last loggedon, when they first subscribed andhow often they accessed featureslike news or the chat function.—Christopher S. Stewart, SpencerE. Ante, Aaron Lucchetti and LizMoyer contributed to this article.

BY WILLIAM LAUNDERWhen General Electric Co.

Chief Executive Jeff Immelt takesthe stage at an industryconference Wednesday, flip quicklythrough his presentation slidesand watch for the possible returnof what once provided investorswith a “fear gauge” for Europe.

GE, which generated almost19% of its revenues from theregion in the first quarter,introduced a regular and detailedbreakdown of its Europeanexposure at the height of thefinancial crisis, but dropped thepractice in October 2011. It may beripe for a comeback.

Soft European markets were aconsistent and negative theme ofthe first-quarter results from bigU.S. industrial companies, andconcerns about furtherdeterioration are expected to be akey topic as leaders from most ofthe largest players gather for theannual Electrical Products Groupconference that starts Mondaynear Sarasota, Fla.

The event, which is sponsoredby a confederation of sell-sideindustrial analysts and limited tofewer than 300 attendees, hasbecome a barometer of companies’health, sandwiched between first-quarter financial reports and thestart of what’s becoming a crucialsecond half.

After a mostly lackluster firstquarter, many companiesanticipate a better performancelater in the year. Attendees will beon the lookout for tangibleevidence that companies’ second-half optimism is rooted in morethan faith alone.

“We’re all conditioned to beskeptical of second-half weightedstories,” said Deane Dray, ananalyst at Citi Research who plansto attend the Florida event.

Mr. Immelt, who traditionallycloses out the conference, will bejoined by other industrial

heavyweights such as LouisChênevert from UnitedTechnologies Corp., and DaveCote from Honeywell Inc.

Many of the 25 companies findthemselves at a crossroads. As therecovery phase from the 2008recession fades, companies are

looking for the next set of leversto pull for sales and profit growthin a slow-growing global economywith an increasing number ofmarkets to be wary of, startingwith Europe.

Most euro-zone economiesremain in recessionary headlocks

that have squeezed capitalspending by businesses and thepublic sector to a trickle. “If youhave a lot of exposure to Europe,you’re not doing so well,” saidNicholas Heymann, an analyst atWilliam Blair & Co. “A lot of whatis being done by Europeancompanies is to offset or mitigateweaker sales in their homemarkets.”

Mr. Heymann citedSwitzerland’s ABB Ltd. andFrance’s Schneider Electric SA asconference participants that haveaggressively diversified fromsluggish home markets in WesternEurope by buying companies inNorth America, where demand forelectrical gear has been stablethrough far from spectacular.

In recent years, ABB hasacquired U.S.-based equipmentmakers Baldor Electric andThomas & Betts and energysoftware and consulting companyVentyx in Atlanta. The acquisitionshelped ABB’s sales from North andSouth Americas increase 77% since2009 to $10.7 billion last year. TheAmericas now accounts for almosta third of ABB’s annual sales,compared with 19% in 2009.

But other companiespresenting have defiedconventional notions aboutavoiding Europe. Industrial andmaintenance-supply distributorW.W. Grainger Inc. bought FaboryGroup of the Netherlands in 2012to get more penetration in Europe.Grainger’s $344 million purchaswof Fabory, a distributor of toolsand fasteners, was the U.S.company’s largest in 15 years.

“We’re very happy with thebusiness,” said James Ryan,Grainger’s chief executive, who isdue to present at the conferenceon Wednesday. “We know how torun a distribution business in atough economy. If you keep upyour service levels and keeppeople front of customers, you cangain market share, even in a downeconomy.”

The Week Ahead looks at comingcorporate events.

How’s Europe Doing? Watch GE[ The Week Ahead ]

BY BOB TITAAND DOUG CAMERON

Carr Tipped for BAE’s Chairman PostLONDON—Roger Carr, the chair-

man of U.K. gas utility CentricaPLC, is the frontrunner to replaceDick Olver as chairman of Britain’sdefense contractor BAE SystemsPLC, a person familiar with the mat-ter said Sunday.

The person said that Mr. Carrwas “in the final stages of due dili-gence” with BAE Systems over theposition. The 66-year-old Mr. Carrwas on a “very short shortlist,” con-sisting of him and at most one otherperson, said this person.

A spokesman for BAE declined tocomment.

Mr. Olver, 66, is stepping downafter nine years in the post in thewake of BAE’s failed merger lastyear with Airbus-owner EuropeanAeronautic Defence and Space Co.

The deal was vetoed by the Ger-man government but some of BAE’sBritish institutional shareholderswere among the most vocal oppo-nents of the deal, which was cham-pioned by Mr. Olver. He will leavehis post by April 2014.

A new chairman at BAE—amaker of aircraft carriers, subma-rines, fighter jets, missiles and ar-mored vehicles—must repair itsbruised relations with U.K. inves-tors. Some investors have expressedconcerns over the company’s abilityto stand alone as an independentcompany at a time of plunging de-

fense spending in the U.K. and theU.S., which account for roughly 70%of the company’s business.

The post of chairman at BAE, thebiggest non-U.S. defense contractor,is highly sensitive and requires arubber-stamp from the British gov-ernment and the goodwill of thePentagon.

Mr. Carr was reportedly pro-posed for the BAE job by the U.K.government, according to a SundayTimes report.

Mr. Carr played a prominent roleas chairman of British gum andcandy maker Cadbury PLC when itdefended itself against the high-pro-file hostile takeover by Kraft FoodsGroup Inc. in 2009 and 2010. Afterinitially mounting a robust defense,saying Kraft’s approach “fundamen-tally undervalued” Cadbury, Mr.

Carr eventually accepted Kraft’sraised £11.9 billion ($18.1 billion) bidfor the company.

Mr. Carr afterward pressed U.K.lawmakers to toughen up rules toprotect British businesses againstforeign takeovers, arguing inspeeches and interviews that short-term shareholders like hedge fundsskewed takeovers against the inter-ests of the longer-term shareholderson whom companies depend fortheir long-term stability.

He is known to be a tough nego-tiator who is familiar with bothsides of takeover battles. While atCentrica, he led the company’s hos-tile takeover of Aberdeen-based oiland gas firm Venture Production for£1.3 billion, overcoming the Ventureboard’s initial opposition to thedeal.

In addition to holding the chair-man posts at Centrica and Cadbury,Mr. Carr has been a chairman atfour other U.K. companies, includingThames Water PLC and pubs chainMitchells & Butlers PLC. He is cur-rently president of the Confedera-tion of British Industry and a seniorindependent director at the Bank ofEngland.

Recent U.K. press reports havesuggested Mr. Carr was one of twoleading candidates for the BAE post,alongside John Rose, formerly chiefexecutive of Rolls Royce HoldingsPLC. The Sunday Telegraph on Sun-day reported that Mr. Rose has nowwithdrawn his candidacy.

Mr. Rose, currently a deputychairman of Rothschild Group, aninvestment bank, couldn’t bereached for comment on Sunday.

BY MARIETTA CAUCHIAND JESSICA HODGSON

CarlWiens

The new chairman will have to repair BAE’s bruisedrelations with investors, who have expressedconcerns over its ability to stand alone as a company.


OPINION

Last week, an Olympic goldmedalist died in San Francisco Baywhile training for America’s Cup,the world’s most famous sailingcompetition. British sailor AndrewSimpson’s death is the latest evi-dence that the current competi-tion is fundamentally flawed.

Billionaire Larry Ellison’s ambi-tions for the America’s Cup havealways gone beyond winning,which he did in 2010 with hisTeam Oracle. The America’s Cupwinner determines the groundrules for the next competition, andMr. Ellison created a new class oflarge but lightweight double-hulled vessels that are powered bysolid “wing” sails. He hoped thesupercharged catamarans wouldcatapult the 162-year-old eventinto the modern age and trans-form it into a spectator sport fitfor TV.

In terms of the hardware, Mr.Ellison has succeeded. When thewings and wind are properlyaligned, the 72-foot boats—orAC72s, as they are known—liter-ally lift out of the water, sup-ported only by the foils on theirdaggerboards, the retractable

keels that drop down from each ofthe hulls. The vessels skim acrossthe water at speeds of close to 50miles per hour.

In October, an AC72 built byMr. Ellison’s team, Oracle TeamUSA, flipped and was severelydamaged. The wipeout came as asurprise to many—but not to thesailors. They already knew thatAC72s are dangerous, overpow-ered beasts that are always skat-ing on the edge of catastrophe.

This risk—plus the massive ex-pense to design and build theboats—is why Mr. Ellison failed todeliver on his promise that morethan a dozen teams would chal-lenge Oracle for the cup this year.Only three signed up: Artemis Rac-ing, representing Sweden; LunaRossa Challenge, bankrolled by Pa-trizio Bertelli, the owner of Pradaand a longtime sponsor of Italy’sAmerica’s Cup campaigns; andEmirates Team New Zealand, theairline-backed national team.

The fatal accident came whenone of Artemis Racing’s bows duginto the water and structural ele-ments disintegrated, causing thevessel to fold up on itself and cap-size. Mr. Simpson, a 36-year-oldmarried father of two, was

trapped underneath.Artemis has not determined

whether it will press on with itscampaign. Luna Rossa’s Mr. Ber-telli says he will leave it up to hiscrew. “If they told me to stop, thatwouldn’t be a problem for me,” hetold Yacht Capital, an Italian sail-ing magazine, last week. “This Cupwith the AC72s is too extreme.They have to realize it and change,revise the rules, everything.”

Having written about sailingfor the last 15 years, I believe Mr.Bertelli is correct, and that LarryEllison should rethink the guide-lines for this year’s race.

Mr. Ellison didn’t become oneof the world’s richest men byholding back from challenges.When I interviewed him for mybook about the deadly 1998 Syd-ney to Hobart Race, in which hesailed, he told me he believed thepurpose of life is to engage in dif-ficult competitions to determine

how good we are.But after the Hobart Race, dur-

ing which six sailors died, Mr. Elli-son said there had to be limits:“This is not what racing is sup-posed to be. Difficult, yes. Danger-ous, no. Life-threatening, definitelynot.” Because of the Hobart Race,Mr. Ellison gave up ocean racingand turned to inshore sailing con-tests such as the America’s Cup. “Idecided to focus on a more techni-cal and less life-threatening formof sailing,” he told me in 2008.

Yet it is Mr. Ellison who hasmade the America’s Cup danger-ous. Until his involvement, begin-ning in 2000, winning was deter-mined both by the intrinsic speedsof the boats and by tactical deci-sions about where each team posi-tioned its vessel relative to theopposition throughout the race.

The AC72s are all aboutstraight-line speed. They are sodifficult, time-consuming and dan-gerous to turn that boat-to-boattactics are less important thansimply keeping the monstersunder control. Consequently, theenhanced technological sophistica-tion of the AC72s has had the ef-fect of dumbing down the sailing,another reason for Mr. Ellison to

reconsider.The Cup, which is supposed to

begin in September after an elimi-nation round in July, would nothave to be postponed. Since 2011,the contenders have been racingagainst each other in much safer45-foot catamarans. The Cup couldbe sailed with them.

You’re probably thinking thatthe headstrong Mr. Ellison willnever agree to it. You are probablyright. Then again, he understandsthat his legacy will be forever in-tertwined with the America’s Cup.Not long before he became thefirst American to win it since 1995,I suggested to him that if he pre-vailed the first words of his obitu-ary might be about sailing ratherthan his business achievements.He did not disagree. “Oracle coulddisappear someday,” he said. “TheAmerica’s Cup will not.”

Indeed. The best way for Mr.Ellison to secure his position asthe founder of the modern-dayAmerica’s Cup would be to admitthat the AC72s are a mistake.

Mr. Knecht is the author of “TheProving Ground: the Inside Storyof the 1998 Sydney to HobartRace” (Little, Brown & Co., 2001).

Americans arein the midst of theworst Washingtonscandal since Wa-tergate. The reputa-tion of the Obama

White House has, among conserva-tives, gone from sketchy to sinister,and, among liberals, from unsatis-fying to dangerous. No one likeswhat they’re seeing. The JusticeDepartment assault on theAssociated Press and the ugly polit-icization of the Internal RevenueService have left the administra-tion’s credibility deeply, probablyirretrievably damaged. They don’tlook jerky now, they look dirty. Thepatina of high-mindedness thepresident enjoyed is gone.

Something big has shifted. Thestanding of the administration haschanged.

As always it comes down totrust. Do you trust the president’sanswers when he’s pressed on anuncomfortable story? Do you trusthis people to be sober and fair-minded as they go about theirwork? Do you trust the IRS and theJustice Department? You do not.

The president, as usual, acts asif all of this is totally unconnectedto him. He’s shocked, it’s unaccept-able, he’ll get to the bottom of it.He read about it in the papers, justlike you.

But he is not unconnected, he isnot a bystander. This is his admin-istration. Those are his executiveagencies. He runs the IRS and theJustice Department.

A president sets a mood, a tone.He establishes an atmosphere. If heis arrogant, arrogance spreads. Ifhe is too partisan, too disrespectingof political adversaries, thatspreads too. Presidents always

undo themselves and then blame iton the third guy in the last row inthe sleepy agency across town.

The IRS scandal has two parts.The first is the obviously deliberateand targeted abuse, harassmentand attempted suppression of con-servative groups. The second is theauditing of the taxes of political ac-tivists.

In order to suppress conserva-tive groups—at first those withwords like “Tea Party” and “Pa-triot” in their names, then includ-ing those that opposed ObamaCareor advanced the Second Amend-ment—the IRS demanded donorrolls, membership lists, data on allcontributions, names of volunteers,the contents of all speeches madeby members, Facebook posts, min-utes of all meetings, and copies ofall materials handed out at gather-ings. Among its questions: Whatare you thinking about? Did youever think of running for office? Doyou ever contact political figures?What are you reading? One groupsent what it was reading: the U.S.Constitution.

The second part of the scandalis the auditing of political activistswho have opposed the administra-tion. The Journal’s Kim Strassel re-ported an Idaho businessmannamed Frank VanderSloot, who’ddonated more than a million dollarsto groups supporting Mitt Romney.He found himself last June, for thefirst time in 30 years, the target ofIRS auditors. His wife and his busi-ness were also soon audited. HalScherz, a Georgia physician, alsocame to the government’s atten-tion. He told ABC News: “It is oddthat nothing changed on my tax re-turn and I was never audited until Ipublicly criticized ObamaCare.”

Franklin Graham, son of Billy,told Politico he believes his fatherwas targeted. A conservative Cath-olic academic who has written forthese pages faced questions about

her meager freelance writing in-come. Many of these stories willcome out, but not as many as thereare. People are not only afraid ofbeing audited, they’re afraid of say-ing they were audited.

All of these IRS actions tookplace in the years leading up to the2012 election. They constitute theuse of governmental power to in-trude on the privacy and shacklethe political freedom of Americancitizens. The purpose, obviously,was to overwhelm and intimidate—to kill the opposition, question byquestion and audit by audit.

It is not even remotely possiblethat all this was an accident, amistake. Again, only conservativegroups were targeted, not liberal. Itis not even remotely possible thatonly one IRS office was involved.

Lois Lerner, who oversees tax-exempt groups for the IRS, was theperson who finally acknowledged,under pressure of a looming inves-tigative report, some of what theIRS was doing. She told reportersthe actions were the work of“frontline people” in Cincinnati. Butother offices were involved, includ-ing Washington. It is not even re-motely possible the actions werethe work of just a few agents. Thiswas more systemic. It was an oper-

ation. The word was out: Get theDemocratic Party’s foes. It is notremotely possible nobody in theIRS knew what was going on untilvery recently. The Washington Postreported efforts to target the con-servative groups reached the high-est levels of the agency by May2012—far earlier than the agencyhad acknowledged. Reuters re-ported high-level IRS officials, in-cluding its chief counsel, knew inAugust 2011 about the targeting.

The White House is reported tobe shellshocked at public reactionto the scandal. But why? Were theyso highhanded, so essentially igno-rant, that they didn’t understandwhat it would mean to the Ameri-can people when their IRS—therevenue-collecting arm of the U.S.government—is revealed as a low,ugly and bullying tool of the reign-ing powers? If they didn’t knowhow Americans would react to that,what did they know? I mean be-yond Harvey Weinstein’s cellphonenumber.

And why—in the matters of theAssociated Press and Benghazitoo—does no one in this adminis-tration ever take responsibility? At-torney General Eric Holder doesn’tknow what happened, exactly whodid what. The president speaks in

the passive voice. He attempts toact out indignation, but he alwaysseems indignant at only one thing:that he’s being questioned at all.That he has to address this. Thatfate put it on his plate.

We all have our biases. Mine isfor a federal government that, forall the partisan shootouts on thestreets of Washington, is allowed togo about its work. That it not bedistracted by scandal, that politicaldisagreement be, in the end, sub-sumed to the common good. It is adangerous world: Calculating peo-ple wish to do us harm. In thisworld no draining, unproductivescandals should dominate the gov-ernment’s life. Independent coun-sels should not often come in anddistract the U.S. government fromits essential business.

But that bias does not fit thesecircumstances.

What happened at the IRS is thegovernment’s essential business.The IRS case deserves and calls outfor an independent counsel, fullyarmed with all that position’s pow-ers. Only then will stables thatbadly need to be cleaned, becleaned. Everyone involved in thisabuse of power should pay a price,because if they don’t, the politiciza-tion of the IRS will continue—for-ever. If it is not stopped now, it willnever stop. And if it isn’t stopped,no one will ever respect or haveeven minimal faith in the revenue-gathering arm of the U.S. govern-ment again.

And it would be shameful andshallow for any Republican opera-tive or operator to make this scan-dal into a commercial and turn itinto a mere partisan arguing pointand part of the game. It’s not partof the game. This is not about theusual partisan slugfest. This isabout the integrity of Americans’system of government and our abil-ity to trust, which is to say ourability to function.

[ Declarations ]

BY PEGGY NOONAN

Larry Ellison’s Dangerous America’s Cup

This Is No Ordinary Scandal

BY G. BRUCE KNECHT

AssociatedPress

The new boats havemade therace life-threatening—andhave dumbed down the sailing.


INDEX TO BUSINESSES

ABB.............................19Abercrombie &Fitch.........................11

America’s Natural GasAlliance....................22

Anheuser-BuschInBev ....................... 20

Apple ..........................32BabyBjorn.....................1BAE Systems.............19Baobab Resources ..... 11BitTorrent...................32Bloomberg..................19BMW...........................22Cadbury ...................... 19Centrica......................19Chesapeake Energy....22Chrysler Group...........22

Coca-Cola....................20comScore....................20Encana........................22E.ON............................22European AeronauticDefence & Space.....19

Facebook................21,32Ford Motor.................22France Telecom..........20Gap..............................11General Electric.....19,22General Motors..........22Goldman Sachs..........19Google....................20,32Grumman HillGroup.......................11

International BusinessMachines.................19

JackThreads.com........21J.P. MorganChase..................20,23

Kimberly-Clark...........20Kraft Foods Group.....19Lloyds Banking.............4Manchester City ........ 30Marks & SpencerGroup.......................11

Marubeni....................11Mattel.........................31Málaga........................30Metro.......................5,22Mitchells & Butlers ...19Nestle...........................5Netflix ........................ 32News Corp....................1Nielsen Holdings........20

Nippon Steel &Sumitomo Metal.....11

Ocado Group...............32Procter &Gamble ...............20,21

Publicis Groupe..........20Real Madrid................30River Plate .................30Royal Bank ofScotland .................... 4

SAC CapitalAdvisors ..................24

SamsungElectronics...............32

Sandvik.........................1Schneider Electric......19Southern CaliforniaGas...........................22

Starbucks ...................17Starcom MediaVestGroup.......................20

Svenska Lantchips.......1Thames Water...........19TomTom......................32Toyota Motor.............11T. Rowe PriceGroup.......................23

Unilever......................20United Technologies..19Vaderstad-Verken........1Waitrose.....................32Waze...........................32Whirlpool....................22Wm. MorrisonSupermarkets..........32

WPP............................20

W.W. Grainger............19Yahoo.......................1,32

ZenithOptimedia........20Zynga..........................21

BusinessesThis index of businessesmentioned in today’sissue of TheWall StreetJournal is intended toinclude all significantreference to companies.First reference to thecompanies appears inbold face type in allarticles except thoseon page one and theeditorial pages.

Corrections Amplifications

The aggregate gross domestic product,or GDP, of the 17 euro-zone countries,when adjusted for inflation and season-ality, has contracted by 2.8% from itslevel at the end of 2007. A chart that ac-companied a front-page article Thursdayabout the euro-zone’s six-quarter con-traction incorrectly plotted and labeledthe change through the first quarter of2013 as -3.4%.Readers can alert the London newsroom of TheWall Street Journal to any errors in news articlesby emailing [email protected] or by calling+44 (0)20 7842 9901.

BUSINESS & FINANCE

Credit Lifts China Property64.7% year-to-year in the first fourmonths of 2013, according to gov-ernment statistics, with a substan-tial chunk flowing into the real-es-tate sector.

“It’s monetary policy, not admin-istrative controls, that determinewhat’s happening in China’s hous-ing,” said Jinsong Du, a real-estateanalyst at Credit Suisse. “WhenChina loosened credit in the secondhalf of 2012, it was inevitable thattransactions would rise, and thatmade it inevitable prices wouldrise.”

A city-by-city approach to imple-menting the State Council’s crack-down is also a factor. In Beijing—which according to analysts hasbeen the only city to deliver on thepromise of a 20% capital-gains taxon property sales—transaction vol-umes in the secondhand marketspiked in March as sellers rushed tocomplete deals before that tax cameinto effect.

Beijing resident Cao Chenggangcounts himself lucky that he com-pleted the purchase of his home justbefore the new measures were im-plemented. But Mr. Cao worried thatthe new tax would make it more dif-ficult for his girlfriend to buy ahouse. “You won’t find a single per-son who’s satisfied with this situa-

Continued from page 17 tion,” he said.High volatility in transactions

has led to some of the government’sown economists questioning the ef-fectiveness of crude administrativecontrols. “The spike in existinghome sales and prices in March in-dicated that the tightening mea-sures could have the opposite effectfrom what was intended,” said theState Information Center, a govern-ment think tank, in a recent report.

China’s overall economic growthin the first four months of the yearhas been lackluster.

A disappointing round of data inApril, showing overall investmentgrowth slowing and weak industrialoutput, prompted a round of fore-cast downgrades by investment-bank economists.

But strong real-estate demandand rising prices could prompt de-velopers to break ground on newprojects, supporting growth in theremaining months of the year.

There is some evidence that ishappening. Both land sales and newresidential floor area under con-struction have edged back intogrowth in 2013, having contractedfor much of 2012. A strong housingmarket bolsters demand for every-thing from cement to furniture.

E-House China, a propertyagency, reported surging revenue

from both real-estate brokerage andonline advertising when it publishedfirst-quarter results Wednesday.Chief Executive Xin Zhou sounded apositive note on the outlook.“Things didn’t fall off a cliff” follow-ing the government’s new controls,he said on the company’s first-quar-ter earnings call. “They returned toa normal level.”

But rapidly rising prices couldalso undo the government’s pains-taking efforts to bring the sectorunder control and to improve af-fordability for first-time home buy-ers. Prices that rise out of line withincome reflect demand from specu-lators and are difficult to sustain.That burst of activity could come atthe cost of a sharper correction inthe future as prices adjust down tolevels average households can af-ford.

A study by researchers at thegovernment’s Chinese Academy ofSocial Sciences, published in lateApril, warned that China’s real-es-tate sector is already out of balance.The government needs to imple-ment changes and enforce curbs onthe market, the authors of the re-port said, otherwise “there could bean overall loss in control of prop-erty prices.”

—Richard Silkcontributed to this article.

Starbucks Introduces Its Coffee Culture to Vietnammain relatively weak.

Still, Starbucks is back on the ex-pansion track following the financialcrisis of 2008, when it closed under-performing stores and slowed plansto roll out new U.S. outlets. The com-pany plans to open 1,500 new storesin the U.S. over the next five years toadd to the 11,100 it had last year.

In Asia, however, Starbucksnever really took its foot off thepedal. It plans to more than doublethe number of stores in China to1,500 by 2015 and build on the4,000 stores it operates across theAsian-Pacific region. SoutheastAsia’s fast-growing economies arean increasingly important growthzone, with the company aiming todouble the number of stores inThailand to 320 and possibly ven-ture into Myanmar in the next cou-ple of years.

“Ten years ago, if we looked at abusiness plan for some of thesemarkets it would have been muchsmaller than the reality today,” Mr.Schultz said.

Continued from page 17

Still, Vietnam could prove atough nut to crack.

In other Asian markets, Star-bucks often found itself introducingthe concept of drinking coffee to

consumers who traditionally dranktea, such as in India. In many casesthe company quickly supplementedits menu with drinks more familiarto local tastes.

Vietnam’s coffee culture datesback to the 19th century, when localsadopted the habit from French colo-nizers. Vietnam grows the stuff, too.Some farmers hunt down beans that

have been eaten and digested bycivet cats and are then collected fromthe animal’s dung. Aficionados say caphe chon, or weasel coffee, imparts adarker, smoother flavor, and its beanscan sell for as much as $500 a kilo inplaces like London and New York.

Some early customers at the newHo Chi Minh City store said theywere more interested in samplingthe ambience of the store than thetaste of Starbucks’s coffees.

“It was a fresh and exciting ex-perience,” said 22-year-old NguyenNgoc Mai Huong, whose recent tripto the Starbucks in Ho Chi MinhCity was her first visit to one of thecompany’s stores. “I like the loca-tion a lot, but the price is a littlehigh compared with other coffeeshops,” she said.

Ms. Huong added that Starbucksmight just be a trend for youngercustomers.

“My parents said they wouldstick with the traditional Vietnam-ese coffee.”

—Nguyen Anh Thucontributed to this article.

A real-estateexhibition inWuxi, China

All About the Money

Average of price changes in 70Chinese cities

China's house prices continue to rise, supported by abundant credit

The Wall Street JournalSources: National Bureau of Statistics, Credit Suisse, WSJ calculations*House sales are secondary market

Credit and house sales infirst-tier cities*Change from a year earlier

400

–100

0

100

200

300

%

’12 ’132011

8

–2

0

2

4

6

%

’12 ’132011

Year to year Month to month Credit House sales

Reuters

A Starbucks employee took orders during the opening of the first Starbucks store in Vietnam in February.


Images


OPINION

As the world economy contin-ues to stagnate, a story of hopeis unfolding on my continent.Nine out of 15 of the world’s fast-est growing countries today areAfrican. Over the past decade,the continent’s economies havegrown at an average 5% per an-num. Foreign direct investment,which stood at $9 billion at theturn of millennium, last year ex-ceeded $80 billion. Far from be-ing a flash in the pan, this is theresult of a sustained period of in-creasingly sophisticated eco-nomic management and stablepolitics.

This improvement in gover-nance has changed the lives ofcitizens across the continent. InRwanda alone, more than a mil-lion people have overcome pov-erty in the past six years. Tenyears ago, Rwandan villagerswould ask the government forfood and basic necessities; todaythey demand better roads, im-proved electricity access and fastbroadband. From Sierra Leone toEthiopia to Malawi, the story isthe same: an emerging middleclass, growing in confidence andambition, that seeks the sameeducational, economic and social

opportunities that Americans andSingaporeans enjoy.

That’s not to say the picturein Africa is perfect. Far from it.

Poverty levels are still toohigh and energy production istoo low. Infrastructure still needsmore investment, and access tocapital and savings remains prob-lematic. But in our pursuit of de-velopment, Rwandans will not al-low ourselves to stray from the

path of fiscal prudence. Rather,we will continue to focus onbuilding robust and reliable legaland regulatory frameworks.

When Rwanda issued its firstinternational bond last month,we stood true to these values.The $400 million in 10-yearbonds, sold at a yield of 6.875%,were a sign that Rwanda is nowfirmly on the path to economicmaturity, having retreated fromthe edge of the abyss after the1994 genocide. It also showed

our intention: to build a moderneconomy, with a vibrant privatesector that is connected to inter-national markets. We want to bea nation less dependent on aidand fully engaged in a globalizedeconomy.

That investors are pursuinghigh yields is perhaps one unin-tended consequence of the globalfinancial crisis. But that shouldnot diminish how encouraging itis that investors also embracedthe chance to seek returns be-yond the usual commodity-growth story. While Africa is acontinent rich in resources, with12% of the world’s oil reservesand 42% of its gold, we cannotfollow too narrow a path to de-velopment.

Yes, we need to keep liberaliz-ing our economies and pursuinggreater global integration. Butgovernance reforms and socialdevelopment, propelled by eco-nomic growth that delivers tangi-ble improvements in the lives ofcitizens, must also continue.

This has been our approach inRwanda. We have decentralizedthe state, reformed our businesssector and strengthened our in-stitutions. But we have also in-vested in health care, agricultureand education. As a result, the

World Bank this year rankedRwanda as the 8th easiest placein the world to start a business.A recent index in Foreign Policymagazine named the country the5th best investment destinationworld-wide.

There is a view that develop-ment is a marathon, not a sprint.We do not agree. Development isa marathon that must be run at asprint. In our pursuit of prog-ress, we have of course looked toEast Asia’s so-called “tiger”

economies for inspiration. ButAfrica’s experience is unique, andwe must now define our owndestiny.

So while being described asan “African tiger” is a welcomerecognition of how far Rwandahas come, perhaps it isn’t quiteright. After all, our continent hasits own big cat. Step forward thenew lions of Africa.

Mr. Kagame is president ofRwanda.

In Kigali, Rwanda: Development is a marathon that must be run at a sprint.

Getty

Images

Rwanda and the New Lions of AfricaBY PAUL KAGAME

Several tragedies at Ban-gadeshi garment factories in re-cent months have claimed hun-dreds of lives, and also focusedinternational attention on this im-portant but often overlooked in-dustry. Yet greater scrutiny hasnot led to greater understanding,raising the prospect that any pro-posed solutions will have seriousunintended consequences. Hereare some basic facts confrontingboth workers and employers inthe garment industry:

Much discussion has focusedon Bangladesh’s minimum wagelaw. It is true that at its currentlevel, even after two revisions inrecent years, the legal minimumwage still isn’t enough to supporta life. After working two hours ofovertime per day, the averagegarment worker’s take-home paystands at between $70 and $80per month.

Assuming the garment worker(80% of whom are women) ismarried to a rickshaw puller andhas a child, the rent on a one-room home is around $40 permonth. The average food intake of

30 kilograms per adult costs $13.Adding vegetables and occasionalmeat and fish costs another $20per adult. And add $5 for milk forthe child. Those bare necessitiesalone have already consumedmore than the garment worker’swage.

One problem is that in thishousehold, the garment worker isthe primary breadwinner. Fewother jobs in the country pay ashighly relative to the skill level ofthe worker. Increasing the mini-mum wage in the garment indus-try to $64 per month before over-time, or even $90 as some haveproposed, would certainly helpsuch a household make endsmeet. But that puts the entireburden for increasing Bangla-deshi’s standard of living on asingle industry that can ill affordit and now needs the price sup-port of global brands.

Then there’s the question ofwho is paying that minimumwage. While the worker is sewing,on another floor of the same fac-tory building, negotiations are un-derway between the factoryowner on one hand and a re-tailer’s representative on theother. They’re trying to settle onan order to produce over the nextfive months.

The factory owner is offering ashirt to the buyer at $6.75 perpiece. Of that, the owner willspend $4.75 buying the 1.9 yardsof 100% cotton with a fine 50’sthread count, and another $1 buy-ing the labels, accessories andother components the retailerspecifies. The remaining $1 pershirt gets stretched thin. Part ofit funds the “cutting and making,”which includes wages for theworkers. Part of it funds the nextround of letters of credit themanufacturer will use to ensure a

steady supply of raw materialsover the life of the supply con-tract. Part of it goes toward capi-tal expenses. And part of that dol-lar will become themanufacturer’s profit.

Imagine an order for 400,000pieces of one shirt style is spreadover a four-line (meaning fourrows of sewing machines, eachrow with 50 workers) factory of1,600 square meters. Those 400workers produce 3,077 pieces perday. The wage cost works out toabout 38 U.S. cents per shirt. An-other 15 cents goes to sending theshirt for a fine washing spin. Rentand utilities for the factory floorworks out to about 11 cents pershirt, and head-office and market-ing costs for the factory are 11cents.

As for the remaining 25 cents,that will just about cover repay-ing a 10-year bank loan at 18% in-terest, which the factory ownerhas used for set-up costs alongwith a home and car. All is at adelicate equilibrium, until the

owner feels compelled to give into a firmly worded request fromthe retailer for an additional dis-count, or a demand to air-freight,at manufacturer’s expense, someboxes of shirts that suffered atwo-week production delay andnow won’t be accepted by the re-tailer if they’re any later thanthey already are.

Given this financial situation,some recent “solutions” to work-ers’ problems would be extremelychallenging for the industry. Thegovernment has proposed an in-crease in the minimum wage, butwould make the increase retroac-tive to May 1. That will simply beimpossible for manufacturers whoare already locked into supplycontracts for the next fewmonths.

Meanwhile, an agreement an-nounced between European retail-ers and workers’ advocates thisweek, may lead to investment insafety enhancements. But manyground realities will continue tohaunt the industry unless land

and transitional funds are readilyavailable to turn out-of-date fac-tories into fully equipped andcompliant facilities. The approxi-mate calculation to set these fac-tories up, assuming 2,600 squaremeters per floor would cost ap-proximately $128,000 per factory.

Some factory owners may bein pursuit of a quick profit. Butfor many of us, the problem is notthat we don’t want to have gleam-ing, fully up-to-date factories orto pay our workers a living wage.Rather, it’s that we don’t have theresources. And we have to bal-ance the costs against the riskthat purchasers will turn to other,lower-cost countries. That wouldbe a disaster for Bangladesh,where 20 million people dependon garment workers for financialsupport.

Ms. Huq is managing director ofthe Mohammadi Group, a gar-ment manufacturer and exporterin Bangladesh.

Workers at a Dhaka factory last month.

Bloomberg

Letter From a Bangladesh FactoryBY RUBANA HUQ

Thorold Barker, Editor,Europe, Middle East & Africa

Bruce Orwall, Senior Editor, EuropeGren Manuel, Executive Editor, EuropeTerence Roth, Managing Editor, Europe

Brian M. Carney, Editorial Page Editor

Lauren Berkemeyer, MarketingKate Dobbin, Communications

Florence LeFevre, Institutional Sales EuropeMichael Lloyd, Institutional Sales U.K.Claudio Piovesana, Advertising SalesJonathan Wright, Circulation Sales

Kelly Leach, PublisherPublished since 1889 byDow Jones & Company

© 2013 Dow Jones & Company. All Rights Reserved

Economic growth andimproved governance havechanged the lives of citizensacross the continent.

Before you can improve thelives of workers, you haveto understand the industry.

Comments? The Journalwelcomes readers’ responses toall articles and editorials. It isimportant to include your fullname, address and telephonenumber. Please send letters to

the editor to: [email protected]

Monday, May 20, 2013

Pound/Euro 0.8449 À 0.22% Yen/$ ¥103.00 À 0.75% Global Dow 2235.02 À 0.20% Gold 1364.90 g 1.60% Oil 96.02 À 0.90% 3-month Libor 0.27360 10-year Treasury g 24/32 yield 1.949%

THE WALL STREET JOURNAL. europe.WSJ.com

Google Glass Is Watching—And It’s Not the Only OneBUSINESS & FINANCE 20

Risks Rise as TurkeyMoves Up a GradeHEARDONTHE STREET 32

Starbucks IntroducesIts Culture to Vietnam

Starbucks Corp. has enteredscores of new markets over theyears, but in Vietnam, could it havemet its match?

The Southeast Asian nation—known for its nerve-jangling strongcoffee, often sweetened with con-densed milk—has its own deep-rooted coffee culture that couldprove challenging to the Seattle-based coffee chain.

The company launched a flagshiptwo-story store in Ho Chi Minh Cityin February. So far sales at the newlocation are exceeding expectations,according to Starbucks Chief Execu-tive and Chairman Howard Schultz,though he didn’t provide specificsales figures.

Starbucks decorated the down-town store with local art and arti-facts to create a distinctly Vietnam-ese flavor. It also came up with adrink, the Asian Dolce Latte, to ap-peal to local palates. For food, itserves roast-duck wraps andFrench-style baguettes.

But some say the chain could domore. Nguyen Van Minh Khanh, 24years old, said Starbucks should usedrip filters perched on top of glassmugs, the way the Vietnamese do.

“If Starbucks wants to succeed inVietnam, they have to change theway they serve,” he said.

Local coffee entrepreneurs suchas Dang Le Nguyen Vu seem confi-

dent that drinkers will likely stickwith thick, oily Vietnamese coffee.The drink is available nearly any-where, from Mr. Vu’s 1,000 or soTrung Nguyen brand stores to theglamorous cafes of Ho Chi MinhCity. It is also sold by vendors inCong Vien Van Hoa Park in the cen-ter of the city, which is still referredto as Saigon by locals nearly 40years after the Vietnam War.

But Mr. Schultz, speaking at a re-cent interview in Bangkok, saidStarbucks is selling more than justcoffee. “The environment that wecreate, the store design, the experi-ence…they all add up to a much dif-ferent position to anything that any-one in Vietnam currently occupies,”he said.

Of course, Starbucks has man-aged to penetrate many seeminglytough markets since opening itsfirst overseas store in Japan in1996. The move into Vietnam re-flects a continuing effort to ventureinto far-flung regions as core mar-kets such as the U.S. and Europe re-


BY JAMES HOOKWAY

Vietnam’s coffee culture dates to colonial times. Above, a Starbucks cafe in Ho Chi Minh City prior to its launch this year.


Images

Credit Surge Lifts Chinese Property, Despite Government Crackdown

Surging credit has kept China’sreal estate-sector humming in theteeth of a renewed attempt by thegovernment to bring prices undercontrol, supporting short-term eco-nomic growth but risking a destabi-lizing correction in prices down theline.

While the rising prices may gen-erate a short-term burst of activity,China’s government could be facedwith a sharper correction in the fu-ture, as prices adjust down to levelsthat average households can afford.

Average house prices rose 4.3%from a year earlier in April aftergaining 3.1% in March, according toThe Wall Street Journal’s calcula-tions from official data on price

changes in 70 cities, released Satur-day. On a month-to-month basis, av-erage home prices rose 0.9% inApril, slowing from March’s 1% in-crease, the Journal’s calculationsshowed.

“While there has been somemoderation in April, there are stillmany cities with rising prices,” LiuJianwei, an official with China’s Na-tional Bureau of Statistics, said. “Ex-

pectations that prices will continueto rise haven’t been eliminated.”

That cuts against a March an-nouncement by China’s State Coun-cil, the government’s top policy-making body, saying it would crackdown on burgeoning speculationand sharply rising prices.

The State Council move sparkedfears of a downturn in the real-es-tate sector, which is the biggest sin-

gle contributor to China’s growthand a major part of global demandfor commodities.

Behind the continued climb inhome values is a big increase inlending that started in the secondhalf of 2012 and extended into thefirst four months of 2013.

Total credit, including bank loansand other forms of finance, rose


BY TOM ORLIKAND ESTHER FUNG

Oil Is Out of SyncWith Market Forces

Prices of many commodities aredown this year, but U.S. oil futureshave rallied. Skeptics say the mis-match is a sign of trouble.

U.S. benchmark crude-oil futuresended Friday at $96.02, up 4.6%

since the start of2013. Oil is astandout in amostly dismal year

for commodities, as the Dow Jones-UBS Commodity Index has fallen5.6%. The decline has been evensteeper for gold, copper and otherformer darlings.

Oil isn’t a gusher compared withstocks, such as the Dow Jones In-dustrial Average, which is up 16%this year. But some analysts and in-vestors say oil’s rise is remarkablebecause it came despite several fac-tors that often push prices lower.

For example, U.S. economicgrowth is tepid, domestic oil stock-piles are at their highest in morethan three decades, the unemploy-ment rate is at 7.5% in the U.S., andinflation is lower than the FederalReserve’s target of 2%.

Meanwhile, domestic oil produc-tion is soaring and U.S. fuel demandis soft.

“I think the optimism is a bitmisplaced. There’s a significant dis-connect between the physical mar-ket and the financial market for oil,”says Jaya Bajpai, managing directorof Applied Energy Analytics, an oiland natural-gas hedge fund in Bos-ton. The bullish bet on oil is fueledby hopes that “we will get enougheconomic growth over the next sixmonths that demand will recover,”he says.

Oil’s rise amid a shortage of eco-nomic fundamentals partly reflectsthe scramble for investments thatoffer the potential for higher re-turns than those shackled to rock-bottom interest rates.

Hedge funds, index funds and ex-change-traded funds remain a largepart of the trading picture. As muchas 70% of price moves in commoditymarkets are generated by tradingprograms reacting to one another,according to a recent study by theInternational Monetary Fund.

Crude has at times traded inleague with other commodities, forinstance in the wake of the Federal

Reserve’s 2010 decision to open asecond round of bond-buying knownas quantitative easing that brieflysent commodity prices higher.

Yet even as weak signals onglobal growth have taken a bite outof copper this year, U.S. oil priceshave remained aloft.

Traders, analysts and economistscite the resurgence of the U.S. dol-lar, growing global energy demandand a steady flow of investment dol-lars into markets designed to tradeand hedge price risks between pro-ducers and users of oil.

“It’s this investment demand forexposure to oil prices that is sup-porting the market,” said Tim Ev-ans, analyst with Citi Futures Per-spective, a unit of Citigroup Inc.“It’s not really runaway physical de-mand growth.”

The number of long and shortpositions held by banks and hedgefunds in the market outweighs thoseheld by producers, merchants andcommercial end-users, according todata released Friday by the Com-modity Futures Trading Commis-sion. Commercial participants arenow 31% of the market, while banksmake up 22% and speculators makeup 11%.

Questions about the stayingpower of oil’s rally underscore thedangers for those seeking to playcommodity markets that only a fewyears ago looked like a sure thing.Investors who bought oil and goldfutures a decade ago could count onsteadily rising prices, pocketing re-turns that easily outpaced stocksand Treasury bonds over that pe-riod.

In the last 10 years, gold futureshave gained 285% and U.S. crude fu-tures have risen 230%. The total re-turns on the S&P 500-stock index,reflecting price appreciation anddividend payments, have been 114%,compared with 71% on the 10-yearTreasury.

To be sure, this year’s rise in U.S.oil prices has been an isolatedbright spot for commodity bulls. Fu-tures prices for the Brent globalbenchmark contract have dropped5.8% this year on fears of fallingglobal demand, led by China’s cool-ing economy. And though the U.S.benchmark contract has risen, retailgasoline prices continue to decline,


BY CHRISTIAN BERTHELSEN

ABREAST OFTHE MARKET

Source: U.S. Department of Agriculture


Room to GrowAverage per capita annualconsumption of coffee,in kilograms

= 1 kg

Brazil 5.8

U.S. 4

Honduras 3.6

Vietnam 1.2


OPINION

Last week, an Olympic goldmedalist died in San Francisco Baywhile training for America’s Cup,the world’s most famous sailingcompetition. British sailor AndrewSimpson’s death is the latest evi-dence that the current competi-tion is fundamentally flawed.

Billionaire Larry Ellison’s ambi-tions for the America’s Cup havealways gone beyond winning,which he did in 2010 with hisTeam Oracle. The America’s Cupwinner determines the groundrules for the next competition, andMr. Ellison created a new class oflarge but lightweight double-hulled vessels that are powered bysolid “wing” sails. He hoped thesupercharged catamarans wouldcatapult the 162-year-old eventinto the modern age and trans-form it into a spectator sport fitfor TV.

In terms of the hardware, Mr.Ellison has succeeded. When thewings and wind are properlyaligned, the 72-foot boats—orAC72s, as they are known—liter-ally lift out of the water, sup-ported only by the foils on theirdaggerboards, the retractable

keels that drop down from each ofthe hulls. The vessels skim acrossthe water at speeds of close to 50miles per hour.

In October, an AC72 built byMr. Ellison’s team, Oracle TeamUSA, flipped and was severelydamaged. The wipeout came as asurprise to many—but not to thesailors. They already knew thatAC72s are dangerous, overpow-ered beasts that are always skat-ing on the edge of catastrophe.

This risk—plus the massive ex-pense to design and build theboats—is why Mr. Ellison failed todeliver on his promise that morethan a dozen teams would chal-lenge Oracle for the cup this year.Only three signed up: Artemis Rac-ing, representing Sweden; LunaRossa Challenge, bankrolled by Pa-trizio Bertelli, the owner of Pradaand a longtime sponsor of Italy’sAmerica’s Cup campaigns; andEmirates Team New Zealand, theairline-backed national team.

The fatal accident came whenone of Artemis Racing’s bows duginto the water and structural ele-ments disintegrated, causing thevessel to fold up on itself and cap-size. Mr. Simpson, a 36-year-oldmarried father of two, was

trapped underneath.Artemis has not determined

whether it will press on with itscampaign. Luna Rossa’s Mr. Ber-telli says he will leave it up to hiscrew. “If they told me to stop, thatwouldn’t be a problem for me,” hetold Yacht Capital, an Italian sail-ing magazine, last week. “This Cupwith the AC72s is too extreme.They have to realize it and change,revise the rules, everything.”

Having written about sailingfor the last 15 years, I believe Mr.Bertelli is correct, and that LarryEllison should rethink the guide-lines for this year’s race.

Mr. Ellison didn’t become oneof the world’s richest men byholding back from challenges.When I interviewed him for mybook about the deadly 1998 Syd-ney to Hobart Race, in which hesailed, he told me he believed thepurpose of life is to engage in dif-ficult competitions to determine

how good we are.But after the Hobart Race, dur-

ing which six sailors died, Mr. Elli-son said there had to be limits:“This is not what racing is sup-posed to be. Difficult, yes. Danger-ous, no. Life-threatening, definitelynot.” Because of the Hobart Race,Mr. Ellison gave up ocean racingand turned to inshore sailing con-tests such as the America’s Cup. “Idecided to focus on a more techni-cal and less life-threatening formof sailing,” he told me in 2008.

Yet it is Mr. Ellison who hasmade the America’s Cup danger-ous. Until his involvement, begin-ning in 2000, winning was deter-mined both by the intrinsic speedsof the boats and by tactical deci-sions about where each team posi-tioned its vessel relative to theopposition throughout the race.

The AC72s are all aboutstraight-line speed. They are sodifficult, time-consuming and dan-gerous to turn that boat-to-boattactics are less important thansimply keeping the monstersunder control. Consequently, theenhanced technological sophistica-tion of the AC72s has had the ef-fect of dumbing down the sailing,another reason for Mr. Ellison to

reconsider.The Cup, which is supposed to

begin in September after an elimi-nation round in July, would nothave to be postponed. Since 2011,the contenders have been racingagainst each other in much safer45-foot catamarans. The Cup couldbe sailed with them.

You’re probably thinking thatthe headstrong Mr. Ellison willnever agree to it. You are probablyright. Then again, he understandsthat his legacy will be forever in-tertwined with the America’s Cup.Not long before he became thefirst American to win it since 1995,I suggested to him that if he pre-vailed the first words of his obitu-ary might be about sailing ratherthan his business achievements.He did not disagree. “Oracle coulddisappear someday,” he said. “TheAmerica’s Cup will not.”

Indeed. The best way for Mr.Ellison to secure his position asthe founder of the modern-dayAmerica’s Cup would be to admitthat the AC72s are a mistake.

Mr. Knecht is the author of “TheProving Ground: the Inside Storyof the 1998 Sydney to HobartRace” (Little, Brown & Co., 2001).

Americans arein the midst of theworst Washingtonscandal since Wa-tergate. The reputa-tion of the Obama

White House has, among conserva-tives, gone from sketchy to sinister,and, among liberals, from unsatis-fying to dangerous. No one likeswhat they’re seeing. The JusticeDepartment assault on theAssociated Press and the ugly polit-icization of the Internal RevenueService have left the administra-tion’s credibility deeply, probablyirretrievably damaged. They don’tlook jerky now, they look dirty. Thepatina of high-mindedness thepresident enjoyed is gone.

Something big has shifted. Thestanding of the administration haschanged.

As always it comes down totrust. Do you trust the president’sanswers when he’s pressed on anuncomfortable story? Do you trusthis people to be sober and fair-minded as they go about theirwork? Do you trust the IRS and theJustice Department? You do not.

The president, as usual, acts asif all of this is totally unconnectedto him. He’s shocked, it’s unaccept-able, he’ll get to the bottom of it.He read about it in the papers, justlike you.

But he is not unconnected, he isnot a bystander. This is his admin-istration. Those are his executiveagencies. He runs the IRS and theJustice Department.

A president sets a mood, a tone.He establishes an atmosphere. If heis arrogant, arrogance spreads. Ifhe is too partisan, too disrespectingof political adversaries, thatspreads too. Presidents always

undo themselves and then blame iton the third guy in the last row inthe sleepy agency across town.

The IRS scandal has two parts.The first is the obviously deliberateand targeted abuse, harassmentand attempted suppression of con-servative groups. The second is theauditing of the taxes of political ac-tivists.

In order to suppress conserva-tive groups—at first those withwords like “Tea Party” and “Pa-triot” in their names, then includ-ing those that opposed ObamaCareor advanced the Second Amend-ment—the IRS demanded donorrolls, membership lists, data on allcontributions, names of volunteers,the contents of all speeches madeby members, Facebook posts, min-utes of all meetings, and copies ofall materials handed out at gather-ings. Among its questions: Whatare you thinking about? Did youever think of running for office? Doyou ever contact political figures?What are you reading? One groupsent what it was reading: the U.S.Constitution.

The second part of the scandalis the auditing of political activistswho have opposed the administra-tion. The Journal’s Kim Strassel re-ported an Idaho businessmannamed Frank VanderSloot, who’ddonated more than a million dollarsto groups supporting Mitt Romney.He found himself last June, for thefirst time in 30 years, the target ofIRS auditors. His wife and his busi-ness were also soon audited. HalScherz, a Georgia physician, alsocame to the government’s atten-tion. He told ABC News: “It is oddthat nothing changed on my tax re-turn and I was never audited until Ipublicly criticized ObamaCare.”

Franklin Graham, son of Billy,told Politico he believes his fatherwas targeted. A conservative Cath-olic academic who has written forthese pages faced questions about

her meager freelance writing in-come. Many of these stories willcome out, but not as many as thereare. People are not only afraid ofbeing audited, they’re afraid of say-ing they were audited.

All of these IRS actions tookplace in the years leading up to the2012 election. They constitute theuse of governmental power to in-trude on the privacy and shacklethe political freedom of Americancitizens. The purpose, obviously,was to overwhelm and intimidate—to kill the opposition, question byquestion and audit by audit.

It is not even remotely possiblethat all this was an accident, amistake. Again, only conservativegroups were targeted, not liberal. Itis not even remotely possible thatonly one IRS office was involved.

Lois Lerner, who oversees tax-exempt groups for the IRS, was theperson who finally acknowledged,under pressure of a looming inves-tigative report, some of what theIRS was doing. She told reportersthe actions were the work of“frontline people” in Cincinnati. Butother offices were involved, includ-ing Washington. It is not even re-motely possible the actions werethe work of just a few agents. Thiswas more systemic. It was an oper-

ation. The word was out: Get theDemocratic Party’s foes. It is notremotely possible nobody in theIRS knew what was going on untilvery recently. The Washington Postreported efforts to target the con-servative groups reached the high-est levels of the agency by May2012—far earlier than the agencyhad acknowledged. Reuters re-ported high-level IRS officials, in-cluding its chief counsel, knew inAugust 2011 about the targeting.

The White House is reported tobe shellshocked at public reactionto the scandal. But why? Were theyso highhanded, so essentially igno-rant, that they didn’t understandwhat it would mean to the Ameri-can people when their IRS—therevenue-collecting arm of the U.S.government—is revealed as a low,ugly and bullying tool of the reign-ing powers? If they didn’t knowhow Americans would react to that,what did they know? I mean be-yond Harvey Weinstein’s cellphonenumber.

And why—in the matters of theAssociated Press and Benghazitoo—does no one in this adminis-tration ever take responsibility? At-torney General Eric Holder doesn’tknow what happened, exactly whodid what. The president speaks in

the passive voice. He attempts toact out indignation, but he alwaysseems indignant at only one thing:that he’s being questioned at all.That he has to address this. Thatfate put it on his plate.

We all have our biases. Mine isfor a federal government that, forall the partisan shootouts on thestreets of Washington, is allowed togo about its work. That it not bedistracted by scandal, that politicaldisagreement be, in the end, sub-sumed to the common good. It is adangerous world: Calculating peo-ple wish to do us harm. In thisworld no draining, unproductivescandals should dominate the gov-ernment’s life. Independent coun-sels should not often come in anddistract the U.S. government fromits essential business.

But that bias does not fit thesecircumstances.

What happened at the IRS is thegovernment’s essential business.The IRS case deserves and calls outfor an independent counsel, fullyarmed with all that position’s pow-ers. Only then will stables thatbadly need to be cleaned, becleaned. Everyone involved in thisabuse of power should pay a price,because if they don’t, the politiciza-tion of the IRS will continue—for-ever. If it is not stopped now, it willnever stop. And if it isn’t stopped,no one will ever respect or haveeven minimal faith in the revenue-gathering arm of the U.S. govern-ment again.

And it would be shameful andshallow for any Republican opera-tive or operator to make this scan-dal into a commercial and turn itinto a mere partisan arguing pointand part of the game. It’s not partof the game. This is not about theusual partisan slugfest. This isabout the integrity of Americans’system of government and our abil-ity to trust, which is to say ourability to function.

[ Declarations ]

BY PEGGY NOONAN

Larry Ellison’s Dangerous America’s Cup

This Is No Ordinary Scandal

BY G. BRUCE KNECHT

AssociatedPress

The new boats havemade therace life-threatening—andhave dumbed down the sailing.


INDEX TO BUSINESSES

ABB.............................19Abercrombie &Fitch.........................11

America’s Natural GasAlliance....................22

Anheuser-BuschInBev ....................... 20

Apple ..........................32BabyBjorn.....................1BAE Systems.............19Baobab Resources ..... 11BitTorrent...................32Bloomberg..................19BMW...........................22Cadbury ...................... 19Centrica......................19Chesapeake Energy....22Chrysler Group...........22

Coca-Cola....................20comScore....................20Encana........................22E.ON............................22European AeronauticDefence & Space.....19

Facebook................21,32Ford Motor.................22France Telecom..........20Gap..............................11General Electric.....19,22General Motors..........22Goldman Sachs..........19Google....................20,32Grumman HillGroup.......................11

International BusinessMachines.................19

JackThreads.com........21J.P. MorganChase..................20,23

Kimberly-Clark...........20Kraft Foods Group.....19Lloyds Banking.............4Manchester City ........ 30Marks & SpencerGroup.......................11

Marubeni....................11Mattel.........................31Málaga........................30Metro.......................5,22Mitchells & Butlers ...19Nestle...........................5Netflix ........................ 32News Corp....................1Nielsen Holdings........20

Nippon Steel &Sumitomo Metal.....11

Ocado Group...............32Procter &Gamble ...............20,21

Publicis Groupe..........20Real Madrid................30River Plate .................30Royal Bank ofScotland .................... 4

SAC CapitalAdvisors ..................24

SamsungElectronics...............32

Sandvik.........................1Schneider Electric......19Southern CaliforniaGas...........................22

Starbucks ...................17Starcom MediaVestGroup.......................20

Svenska Lantchips.......1Thames Water...........19TomTom......................32Toyota Motor.............11T. Rowe PriceGroup.......................23

Unilever......................20United Technologies..19Vaderstad-Verken........1Waitrose.....................32Waze...........................32Whirlpool....................22Wm. MorrisonSupermarkets..........32

WPP............................20

W.W. Grainger............19Yahoo.......................1,32

ZenithOptimedia........20Zynga..........................21

BusinessesThis index of businessesmentioned in today’sissue of TheWall StreetJournal is intended toinclude all significantreference to companies.First reference to thecompanies appears inbold face type in allarticles except thoseon page one and theeditorial pages.

Corrections Amplifications

The aggregate gross domestic product,or GDP, of the 17 euro-zone countries,when adjusted for inflation and season-ality, has contracted by 2.8% from itslevel at the end of 2007. A chart that ac-companied a front-page article Thursdayabout the euro-zone’s six-quarter con-traction incorrectly plotted and labeledthe change through the first quarter of2013 as -3.4%.Readers can alert the London newsroom of TheWall Street Journal to any errors in news articlesby emailing [email protected] or by calling+44 (0)20 7842 9901.

BUSINESS & FINANCE

Credit Lifts China Property64.7% year-to-year in the first fourmonths of 2013, according to gov-ernment statistics, with a substan-tial chunk flowing into the real-es-tate sector.

“It’s monetary policy, not admin-istrative controls, that determinewhat’s happening in China’s hous-ing,” said Jinsong Du, a real-estateanalyst at Credit Suisse. “WhenChina loosened credit in the secondhalf of 2012, it was inevitable thattransactions would rise, and thatmade it inevitable prices wouldrise.”

A city-by-city approach to imple-menting the State Council’s crack-down is also a factor. In Beijing—which according to analysts hasbeen the only city to deliver on thepromise of a 20% capital-gains taxon property sales—transaction vol-umes in the secondhand marketspiked in March as sellers rushed tocomplete deals before that tax cameinto effect.

Beijing resident Cao Chenggangcounts himself lucky that he com-pleted the purchase of his home justbefore the new measures were im-plemented. But Mr. Cao worried thatthe new tax would make it more dif-ficult for his girlfriend to buy ahouse. “You won’t find a single per-son who’s satisfied with this situa-

Continued from page 17 tion,” he said.High volatility in transactions

has led to some of the government’sown economists questioning the ef-fectiveness of crude administrativecontrols. “The spike in existinghome sales and prices in March in-dicated that the tightening mea-sures could have the opposite effectfrom what was intended,” said theState Information Center, a govern-ment think tank, in a recent report.

China’s overall economic growthin the first four months of the yearhas been lackluster.

A disappointing round of data inApril, showing overall investmentgrowth slowing and weak industrialoutput, prompted a round of fore-cast downgrades by investment-bank economists.

But strong real-estate demandand rising prices could prompt de-velopers to break ground on newprojects, supporting growth in theremaining months of the year.

There is some evidence that ishappening. Both land sales and newresidential floor area under con-struction have edged back intogrowth in 2013, having contractedfor much of 2012. A strong housingmarket bolsters demand for every-thing from cement to furniture.

E-House China, a propertyagency, reported surging revenue

from both real-estate brokerage andonline advertising when it publishedfirst-quarter results Wednesday.Chief Executive Xin Zhou sounded apositive note on the outlook.“Things didn’t fall off a cliff” follow-ing the government’s new controls,he said on the company’s first-quar-ter earnings call. “They returned toa normal level.”

But rapidly rising prices couldalso undo the government’s pains-taking efforts to bring the sectorunder control and to improve af-fordability for first-time home buy-ers. Prices that rise out of line withincome reflect demand from specu-lators and are difficult to sustain.That burst of activity could come atthe cost of a sharper correction inthe future as prices adjust down tolevels average households can af-ford.

A study by researchers at thegovernment’s Chinese Academy ofSocial Sciences, published in lateApril, warned that China’s real-es-tate sector is already out of balance.The government needs to imple-ment changes and enforce curbs onthe market, the authors of the re-port said, otherwise “there could bean overall loss in control of prop-erty prices.”

—Richard Silkcontributed to this article.

Starbucks Introduces Its Coffee Culture to Vietnammain relatively weak.

Still, Starbucks is back on the ex-pansion track following the financialcrisis of 2008, when it closed under-performing stores and slowed plansto roll out new U.S. outlets. The com-pany plans to open 1,500 new storesin the U.S. over the next five years toadd to the 11,100 it had last year.

In Asia, however, Starbucksnever really took its foot off thepedal. It plans to more than doublethe number of stores in China to1,500 by 2015 and build on the4,000 stores it operates across theAsian-Pacific region. SoutheastAsia’s fast-growing economies arean increasingly important growthzone, with the company aiming todouble the number of stores inThailand to 320 and possibly ven-ture into Myanmar in the next cou-ple of years.

“Ten years ago, if we looked at abusiness plan for some of thesemarkets it would have been muchsmaller than the reality today,” Mr.Schultz said.

Continued from page 17

Still, Vietnam could prove atough nut to crack.

In other Asian markets, Star-bucks often found itself introducingthe concept of drinking coffee to

consumers who traditionally dranktea, such as in India. In many casesthe company quickly supplementedits menu with drinks more familiarto local tastes.

Vietnam’s coffee culture datesback to the 19th century, when localsadopted the habit from French colo-nizers. Vietnam grows the stuff, too.Some farmers hunt down beans that

have been eaten and digested bycivet cats and are then collected fromthe animal’s dung. Aficionados say caphe chon, or weasel coffee, imparts adarker, smoother flavor, and its beanscan sell for as much as $500 a kilo inplaces like London and New York.

Some early customers at the newHo Chi Minh City store said theywere more interested in samplingthe ambience of the store than thetaste of Starbucks’s coffees.

“It was a fresh and exciting ex-perience,” said 22-year-old NguyenNgoc Mai Huong, whose recent tripto the Starbucks in Ho Chi MinhCity was her first visit to one of thecompany’s stores. “I like the loca-tion a lot, but the price is a littlehigh compared with other coffeeshops,” she said.

Ms. Huong added that Starbucksmight just be a trend for youngercustomers.

“My parents said they wouldstick with the traditional Vietnam-ese coffee.”

—Nguyen Anh Thucontributed to this article.

A real-estateexhibition inWuxi, China

All About the Money

Average of price changes in 70Chinese cities

China's house prices continue to rise, supported by abundant credit

The Wall Street JournalSources: National Bureau of Statistics, Credit Suisse, WSJ calculations*House sales are secondary market

Credit and house sales infirst-tier cities*Change from a year earlier

400

–100

0

100

200

300

%

’12 ’132011

8

–2

0

2

4

6

%

’12 ’132011

Year to year Month to month Credit House sales

Reuters

A Starbucks employee took orders during the opening of the first Starbucks store in Vietnam in February.


Images


OPINION: REVIEW & OUTLOOK

W ell, that was fast. JapanesePrime Minister Shinzo Abe’saggressive pro-inflation policy

is only a few months old and a fight haserupted over its early effects. And thiswhile there is no economy-wide infla-tion.

On Wednesday, the Nikkei 225 closedabove 15000 for the first time since2007. Former Vice Finance MinisterEisuke Sakakibara—known as “Mr. Yen”from his stint managing foreign-ex-change policy—took to the airwaves tocall the market “bubbly” and warn that“there will be some corrections . . . prob-ably by the summer.” Bank of Japan Gov-ernor Haruhiko Kuroda contested thisbubble theory in parliamentary testi-mony, arguing that fundamentals sup-port the market moves.

Then there’s real bubble trouble inthe market for Japanese governmentdebt. Years of exceptionally loose mon-etary policy encouraged markets tovalue Japanese government bonds

(JGBs) far above what one might expectfor a highly leveraged government sit-ting atop an anemic economy with ashrinking population. Last week pricesfell and yields for 10-year bonds rose to0.92% on Wednesday from 0.6% the pre-vious week, before the central bankstepped in to reduce yields slightly.

That yield is only a three-month high,but the speed of the move was surpris-ing, and the warning is clear. If investorsstart to believe the pledges by Messrs.Abe and Kuroda to deliver inflation of2%, they will demand higher returns ontheir investments. In a Japanese twist,looser money could lead to higher nomi-nal interest rates.

This would have potentially seriousconsequences for the balance sheets ofJapanese banks, insurers, pension fundsand households that are the main hold-ers of government debt that totals morethan 200% of GDP. It also raises the so-bering prospect that a rotation out ofJGBs could come long before other parts

of Abenomics have begun and a durableeconomic expansion that lifts revenueshas taken hold.

Meanwhile, commentators are en-gaged in an esoteric debate about whatsort of inflation Japan may develop. Agrowing chorus of observers suggeststhe economy is headed for “cost-pushinflation,” the kind that happens whena weaker yen causes import prices torise and consumers bear the burdenwhen their incomes don’t increase pro-portionately.

Mr. Abe and his supporters are hopingfor “demand-pull” inflation, in whichcompanies would increase wages toboost purchasing power. Since a weakyen is increasing operating costs and theeconomy remains sluggish, there’s littlesign this is happening. Wage growth isstill negligible.

Yet since inflation is by definition arise in the general price level, not oneset of prices, it’s never as orderly as pro-ponents of inflationary policies like to

claim. It’s hard for a central banker oranyone else to predict who will win orlose more. Meanwhile, investors arepouring into assets in search of a returnfor their loose cash, which takes us backto the rising stock market.

What ties all of this together is thedesperate need for growth in the realeconomy, and not simply in the moneysupply. Growth will boost corporateearnings in ways that give stocks a sus-tainable reason to rise, make the govern-ment’s debt burden repayable, and stim-ulate wage growth and consumerconfidence.

Japanese are discovering that al-though their politicians often equate areturn to inflation with a return togrowth, the two are different. Mr. Abehas set his sights on inflation, and per-haps he’s going to get some. But he’ll re-gret that choice unless the other policyreforms he is promising succeed. As heannounces his plans in the comingweeks, the stakes are high.

T he same press corps that hasblessed every Obama Administra-tion enforcement action and regu-

latory intrusion has suddenly concludedthat the feds are dangerously overreach-ing. The reason? The U.S. government isnow investigating the press. Welcome tothe club, but we’d also add some contextto the shouts of media outrage.

The press is exercised because theJustice Department issued a subpoenafor the phone records of AssociatedPress reporters and editors as part of acriminal probe into a national-securityleak. Some of the loudest protests arecoming from those, such as the NewYork Times, that cheered the criminalpursuit of the leak to conservative col-umnist Robert Novak during the Bushyears in the Valerie Plame case. (See“Prosecutor of the Times,” Feb. 23,2005.)

Then the target was Scooter Libby(who wasn’t even the leaker) while nowit’s someone who leaked to their main-stream comrades at AP. Such doublestandards are one reason the public mis-trusts the media.

In this case, Justice is investigatingbecause the leak may have done seriousnational-security damage. Attorney Gen-eral Eric Holder said last week that itwas one of the worst leaks he’s seen ingovernment. Our own security sourcessupport his claim.

The AP story at issue seems to be theMay 7, 2012 report that the U.S. had bro-

ken up a plot to bomb a U.S.-bound air-liner with a sophisticated new devicethat was difficult to detect. Governmentsources say the story led to the publicsuspicion that the U.S. had a source in-side al Qaeda, and that the source’scover was essentiallyblown. They add that theleak makes it that muchharder for the CIA to re-cruit future agents frominside terrorist networks.

AP says it withheld thestory for several days at White Houserequest, but then published it a day be-fore the government was going to dis-close the story anyway. The White Housedenounced the story at the time, blam-ing AP for the disclosure even as it con-firmed that it had foiled the plot.

Without a top-secret clearance, wecan’t judge these competing claims. Butit’s certainly possible the AP storyharmed U.S. antiterror efforts, with ben-efits to the public interest that are farfrom obvious. Americans learned fromthe story that al Qaeda was still activelyplanning threats, in this case a year af-ter Navy SEALs killed Osama bin Laden.This contradicted the re-election claimof President Obama that al Qaeda hadbeen “decimated.”

But if the AP story did contribute tocompromising a source inside al Qaeda,news of a foiled plot hardly seems worththe price. Balancing the potential dam-age to national security against the pub-

lic’s right to know is the obligation ofresponsible publications. Deciding whennot to publish is often the more public-spirited choice, especially in a nationthat protects a free press from forces(like al Qaeda) that would destroy it.

Too often these days themedia default is to pub-lish a story no matter thepotential damage.

This is the context inwhich the Justice Depart-ment subpoenaed the re-

cords over two months of some 20phone lines assigned to AP and severalbureaus. On the merits, the media’sNixon analogies are overwrought. Jus-tice issued subpoenas to telephone dataproviders that could object if the re-quests were extralegal. The subpoenaswere also approved at an appropriatelyhigh level—by the Deputy Attorney Gen-eral after Mr. Holder recused himself.

One fair media complaint is that thisdragnet was too broad, violating normalJustice practice of narrowly tailoringrequests that concern the media. Justicealso failed to tell AP about the subpoe-nas in advance and not for weeks, whentypically the media would have been in-formed immediately. Such blanket sub-poenas and secrecy can have an intimi-dating effect on the press, which mayhave been the Justice Department’s in-tent. Or perhaps the feds didn’t want torisk alerting the AP’s sources that theircalls might have been tracked.

Whatever the motive, this overreach istypical of the Obama Administration’s at-titude toward the law in many areas—non-recess recess appointments, environ-mental regulation, selective enforcementof immigration and drug laws, or its ownmedia leaks about the bin Laden raid in-tended to improve its terror-fighting im-age. The difference this time is that theAmerican press was the target.

i i iAmid the media backlash, the White

House is trying to make amends by re-viving a federal “shield law” to protectagainst having to disclose governmentsources. Some of our colleagues arecheering, but count us skeptical. We likethe shield law known as the First Amend-ment. Any legislation needs to be vettedfor unintended consequences that wouldprotect some journalists but not others,or that would undermine the balance ofrights (such as a free press vs. fair trial)that are inherent in the Constitution andtypically settled on a case by case basis.

Regarding AP and the Obama Adminis-tration, both sides might have exercisedbetter judgment. But the matter shouldbe negotiated without a prosecutorialfishing expedition or Constitutionalshowdown. Meantime, maybe the presscorps will be more skeptical the nexttime the political class starts calling forbankers to be hanged in the publicsquare.

Japan Discovers QE Has Risks

Those AP Subpoenas

The press corps finallydiscovers a case of

government overreach.

Pepper . . . and SaltTHE WALL STREET JOURNAL

Notable & QuotableFraser Nelson writing for the U.K. Specta-tor on May 19:

Most Brits think that Eurovision is con-fected tat. Denmark doesn’t seem to havereceived that memo. Its entry [Saturday]night had a (Scottish) immigrant’s influ-ence—as do most of Europe’s greatachievements. But the song was distin-guished not by some generic Eurotrashdrumbeat but flute, drums and the voice ofa leading light of the Danish folk scene. . . .

For all sorts of reasons (politics, class,

identity) our official arts bodies andbroadcasters struggle to recognise or pro-mote our indigenous talent. It is, alas, in-conceivable that a 19-year-old British folksinger would end up on what is now theworld’s most-watched musical stage. Un-less she emigrated—as so many of ourfolk musicians end up doing.

The pubs of Edinburgh and Aberdeenare full of similar acts. But the British en-try nowadays is picked by an anonymousBBC bureaucrat, who seems to have a su-

percilious disregard for Eurovision and anabject ignorance of the nature or locationof our young talent. . . .

We have hundreds of brilliant musi-cians who would kill to be given the kindof chance that Fraser Neill’s protégé wasgiven [Saturday] night. And I don’t thinkthis will ever happen, for as long as theBBC treats Eurovision as a kind of musicalfreak show. The BBC is becoming the UKIPof Eurovision: fielding weak candidates inan election which it holds up to ridicule.


BUSINESS & FINANCE

BloombergSets ReviewOf CustomerData Privacy

Bloomberg LP stepped up effortsto address client concerns over datasecurity and privacy, appointingSamuel Palmisano, former chairmanand chief executive of InternationalBusiness Machines Corp., to con-duct an independent review of thecompany’s data practices.

In Mr. Palmisano, Bloomberg hastapped a senior executive withstrong ties to Bloomberg’s clients onWall Street, a large and longtimesource of business to IBM. The com-puter-and-technology company,which Mr. Palmisano ran from 2002to the end of 2011, is consideredwell versed in high-level computersecurity and privacy matters.

Bloomberg also said it hired thePromontory Financial Group, aWashington, D.C.-based consultingfirm with deep ties to Wall Streetand its regulators, to assist Mr. Palm-isano with the review. Promontorycounts Arthur Levitt, former chair ofthe Securities and Exchange Com-mission, as a member of its advisoryboard.

Mr. Levitt is also a director atBloomberg and an adviser to Gold-man Sachs Group Inc., one ofBloomberg’s biggest customers. Itwas a complaint from GoldmanSachs last month that promptedBloomberg to restrict its journalists’access to certain subscriber data.

The announcement Friday adds anew level of review in Bloomberg’sattempt to contain an outpouring ofmedia attention and inquiries fromclients about what kind of sub-scriber data Bloomberg previouslymade available to its newsroom.

Bloomberg Chief Executive Dan-iel Doctoroff said the companywants to “go even further and getthe benefit of independent leadingexperts so that we set the new stan-dard for privacy and data security,”in a statement announcing Mr.Palmisano’s appointment Friday.

Bloomberg also said it had hiredlaw firm Hogan Lovells to assist Mr.Palmisano. Meanwhile, Clark Hoyt,editor-at-large at Bloomberg News,will conduct a review of BloombergNews’ relationship to the company’scommercial operations. Before com-ing to Bloomberg, Mr. Hoyt was atone point public editor at the NewYork Times.

Bloomberg has been consideringplans for an outside adviser such asMr. Palmisano since last month whenit first restricted the ability of itsjournalists to view subscriber infor-mation, a person familiar with thematter said.

Larry Tabb, founder of the re-search firm Tabb Group, called Mr.Palmisano’s appointment “a goodstart,” but he cautioned the movewouldn’t immediately resolve thescrutiny of Bloomberg. “I’m not surethey can erase all their problems.These things are hard to get over,”he said.

The company has said that inApril it restricted its journalistsfrom accessing information aboutsubscribers to its terminals, includ-ing when the subscribers last loggedon, when they first subscribed andhow often they accessed featureslike news or the chat function.—Christopher S. Stewart, SpencerE. Ante, Aaron Lucchetti and LizMoyer contributed to this article.

BY WILLIAM LAUNDERWhen General Electric Co.

Chief Executive Jeff Immelt takesthe stage at an industryconference Wednesday, flip quicklythrough his presentation slidesand watch for the possible returnof what once provided investorswith a “fear gauge” for Europe.

GE, which generated almost19% of its revenues from theregion in the first quarter,introduced a regular and detailedbreakdown of its Europeanexposure at the height of thefinancial crisis, but dropped thepractice in October 2011. It may beripe for a comeback.

Soft European markets were aconsistent and negative theme ofthe first-quarter results from bigU.S. industrial companies, andconcerns about furtherdeterioration are expected to be akey topic as leaders from most ofthe largest players gather for theannual Electrical Products Groupconference that starts Mondaynear Sarasota, Fla.

The event, which is sponsoredby a confederation of sell-sideindustrial analysts and limited tofewer than 300 attendees, hasbecome a barometer of companies’health, sandwiched between first-quarter financial reports and thestart of what’s becoming a crucialsecond half.

After a mostly lackluster firstquarter, many companiesanticipate a better performancelater in the year. Attendees will beon the lookout for tangibleevidence that companies’ second-half optimism is rooted in morethan faith alone.

“We’re all conditioned to beskeptical of second-half weightedstories,” said Deane Dray, ananalyst at Citi Research who plansto attend the Florida event.

Mr. Immelt, who traditionallycloses out the conference, will bejoined by other industrial

heavyweights such as LouisChênevert from UnitedTechnologies Corp., and DaveCote from Honeywell Inc.

Many of the 25 companies findthemselves at a crossroads. As therecovery phase from the 2008recession fades, companies are

looking for the next set of leversto pull for sales and profit growthin a slow-growing global economywith an increasing number ofmarkets to be wary of, startingwith Europe.

Most euro-zone economiesremain in recessionary headlocks

that have squeezed capitalspending by businesses and thepublic sector to a trickle. “If youhave a lot of exposure to Europe,you’re not doing so well,” saidNicholas Heymann, an analyst atWilliam Blair & Co. “A lot of whatis being done by Europeancompanies is to offset or mitigateweaker sales in their homemarkets.”

Mr. Heymann citedSwitzerland’s ABB Ltd. andFrance’s Schneider Electric SA asconference participants that haveaggressively diversified fromsluggish home markets in WesternEurope by buying companies inNorth America, where demand forelectrical gear has been stablethrough far from spectacular.

In recent years, ABB hasacquired U.S.-based equipmentmakers Baldor Electric andThomas & Betts and energysoftware and consulting companyVentyx in Atlanta. The acquisitionshelped ABB’s sales from North andSouth Americas increase 77% since2009 to $10.7 billion last year. TheAmericas now accounts for almosta third of ABB’s annual sales,compared with 19% in 2009.

But other companiespresenting have defiedconventional notions aboutavoiding Europe. Industrial andmaintenance-supply distributorW.W. Grainger Inc. bought FaboryGroup of the Netherlands in 2012to get more penetration in Europe.Grainger’s $344 million purchaswof Fabory, a distributor of toolsand fasteners, was the U.S.company’s largest in 15 years.

“We’re very happy with thebusiness,” said James Ryan,Grainger’s chief executive, who isdue to present at the conferenceon Wednesday. “We know how torun a distribution business in atough economy. If you keep upyour service levels and keeppeople front of customers, you cangain market share, even in a downeconomy.”

The Week Ahead looks at comingcorporate events.

How’s Europe Doing? Watch GE[ The Week Ahead ]

BY BOB TITAAND DOUG CAMERON

Carr Tipped for BAE’s Chairman PostLONDON—Roger Carr, the chair-

man of U.K. gas utility CentricaPLC, is the frontrunner to replaceDick Olver as chairman of Britain’sdefense contractor BAE SystemsPLC, a person familiar with the mat-ter said Sunday.

The person said that Mr. Carrwas “in the final stages of due dili-gence” with BAE Systems over theposition. The 66-year-old Mr. Carrwas on a “very short shortlist,” con-sisting of him and at most one otherperson, said this person.

A spokesman for BAE declined tocomment.

Mr. Olver, 66, is stepping downafter nine years in the post in thewake of BAE’s failed merger lastyear with Airbus-owner EuropeanAeronautic Defence and Space Co.

The deal was vetoed by the Ger-man government but some of BAE’sBritish institutional shareholderswere among the most vocal oppo-nents of the deal, which was cham-pioned by Mr. Olver. He will leavehis post by April 2014.

A new chairman at BAE—amaker of aircraft carriers, subma-rines, fighter jets, missiles and ar-mored vehicles—must repair itsbruised relations with U.K. inves-tors. Some investors have expressedconcerns over the company’s abilityto stand alone as an independentcompany at a time of plunging de-

fense spending in the U.K. and theU.S., which account for roughly 70%of the company’s business.

The post of chairman at BAE, thebiggest non-U.S. defense contractor,is highly sensitive and requires arubber-stamp from the British gov-ernment and the goodwill of thePentagon.

Mr. Carr was reportedly pro-posed for the BAE job by the U.K.government, according to a SundayTimes report.

Mr. Carr played a prominent roleas chairman of British gum andcandy maker Cadbury PLC when itdefended itself against the high-pro-file hostile takeover by Kraft FoodsGroup Inc. in 2009 and 2010. Afterinitially mounting a robust defense,saying Kraft’s approach “fundamen-tally undervalued” Cadbury, Mr.

Carr eventually accepted Kraft’sraised £11.9 billion ($18.1 billion) bidfor the company.

Mr. Carr afterward pressed U.K.lawmakers to toughen up rules toprotect British businesses againstforeign takeovers, arguing inspeeches and interviews that short-term shareholders like hedge fundsskewed takeovers against the inter-ests of the longer-term shareholderson whom companies depend fortheir long-term stability.

He is known to be a tough nego-tiator who is familiar with bothsides of takeover battles. While atCentrica, he led the company’s hos-tile takeover of Aberdeen-based oiland gas firm Venture Production for£1.3 billion, overcoming the Ventureboard’s initial opposition to thedeal.

In addition to holding the chair-man posts at Centrica and Cadbury,Mr. Carr has been a chairman atfour other U.K. companies, includingThames Water PLC and pubs chainMitchells & Butlers PLC. He is cur-rently president of the Confedera-tion of British Industry and a seniorindependent director at the Bank ofEngland.

Recent U.K. press reports havesuggested Mr. Carr was one of twoleading candidates for the BAE post,alongside John Rose, formerly chiefexecutive of Rolls Royce HoldingsPLC. The Sunday Telegraph on Sun-day reported that Mr. Rose has nowwithdrawn his candidacy.

Mr. Rose, currently a deputychairman of Rothschild Group, aninvestment bank, couldn’t bereached for comment on Sunday.

BY MARIETTA CAUCHIAND JESSICA HODGSON

CarlWiens

The new chairman will have to repair BAE’s bruisedrelations with investors, who have expressedconcerns over its ability to stand alone as a company.


methadone, a synthetic opiate that can help re-duce heroin cravings, and wait for the patientto gain some stability, says John Dillon, a doc-tor in Dundee who helps run the hepatitis Cprogram, which is staffed with about 85 doc-tors and nurses.

But Dundee and other regions have startedtreating drug users without necessarily tryingto stabilize them on methadone first. They aremotivated by research from University of Bris-tol, London School of Hygiene and TropicalMedicine and other institutions suggestingthat if just 20 out of 1,000 active injection drugusers are treated each year, it could stop theminfecting others and reduce the rate of hepati-tis C prevalence by nearly 30% in 10 years.

Doing that requires a ton of support, saysMr. Stephens, 41, the nurse at the hepatitis Cprogram in Dundee. But for many, it may beyears before they are ready to quit their drughabit, he says. “And how many people will theyhave infected in that time?”

Much of the program involves sendingnurses like him out into the field. A 16-yearveteran in nursing, he is known for going to ex-tremes to stay in touch with patients, some-times phoning them many times to remindthem to turn up for appointments. He givesthem his cellphone number, answers their callson weekends, helps them inject the weekly in-terferon shots they need to kill the virus andsometimes spends hours at needle exchangesand methadone clinics waiting in vain for themto appear.

On a recent morning, Mr. Stephens metwith Mr. Nicoll, who had come to a needle ex-change program for a new set of syringes. Mr.Stephens invited him into a private room todiscuss the results of the blood test he hadtaken at the exchange about seven months pre-viously, which indicated that he probably hadthe hepatitis C virus. Mr. Nicoll had missedseveral appointments to return for a secondtest needed to confirm the infection. “I’ve beenquite scared to come back,” he acknowledged.

Mr. Stephens seized the moment and drewthe blood on the spot, explaining what treat-ment would involve. Clutching a small bag ofsyringes, Mr. Nicoll mentioned that his life wasabout to get more hectic: “I’ve got a babydaughter coming. She’s due soon.”

About two weeks before meeting Mr. Ste-phens, Mr. Nicoll had started taking methadonein an effort to tame his drug habit. But likemany methadone recipients—particularly inthe early stages of treatment—he was continu-ing to use heroin. Mr. Stephens said thatwouldn’t disqualify him from hepatitis C treat-ment. “If someone is continuing to use heroinand they continue to come to appointments,we don’t really care. We’ll go ahead and treatthem anyway,” he said. (In a subsequent inter-view, Mr. Nicoll said he had stopping usingheroin, which Mr. Stephens said was confirmedin a urine test. The two are awaiting moreblood test results before deciding on the nextstep in his hepatitis treatment.)

Mr. Stephens said he wound up specializingin hepatitis C after a London surgeon once toldhim: “Whatever you do, get into hepatitis, be-cause it’s going to be huge.” The work takes itsown form of patience: At a nearby methadoneclinic that afternoon, Mr. Stephens met withGeorge Nelson, a 44-year-old addict who wassuccessfully cured of hepatitis C a few yearsago, only to find recently that he had rein-fected himself through risky drug use.

“I remember getting cleared last time andsaying, ‘I’ll never do that again,’” Mr. Nelsontold Mr. Stephens. “For 14 months I was clean.Then I put myself at risk again.”

Many countries don’t treat active drug us-ers or patients taking methadone because ofthis risk: they fear the money and effort will bewasted if the person continues using illicitdrugs and gets reinfected. “There’s been an ar-gument, if you have constrained resources,who would you treat first? Obviously not drugusers. But actually there’s an argument thatyou should treat them first,” says Charles Gore,president of the World Hepatitis Alliance inLondon. In Scotland and many places, injectiondrug use is by far the biggest source of the vi-rus’s transmission. Stopping that transmissionis “a way to turn off the tap, and then we canempty the pool,” Mr. Gore says.

In a recent study, University of Dundee ana-lyzed treatment results for 291 patients in theregion, comparing outcomes for people whohad never injected drugs to those of active andformer users. They found that 61% of noninjec-tion-drug-users achieved a sustained virologi-

cal response, or SVR, the clinical term for acure. About 55% of former users and 47% of ac-tive users obtained an SVR, the study showed.The authors concluded that active injectiondrug use “is not a barrier to treatment or asuccessful achievement of SVR.”

In the U.S., few doctors offer hepatitis Ctreatment to people taking drugs or metha-done, says Michael Ninburg, executive directorof the Hepatitis Education Project in Seattle.There are also few needle exchanges or metha-done clinics in many communities, and eventhose that do exist don’t typically test peoplefor hepatitis C. John Ward, director of theCDC’s viral hepatitis division, says the diseaseis simply “underrecognized, undermanagedand undertreated.”

Still, the Scottish approach is being tried ina few places.

Diana Sylvestre, an assistant clinical profes-sor of medicine at University of California, SanFrancisco, runs a nonprofit clinic in Oaklandthat treats many people with drug addictions.When she started the clinic 15 years ago, “itbecame apparent hepatitis C was a huge prob-lem,” she says. She started out treating peoplewho had achieved some stability in their liveswhile taking methadone, later branching out to

addicts in more of a “state of disarray,” shesays. The clinic conducts blood tests and dolesout medicine at weekly meetings that also in-clude lunch and hepatitis C education sessions.

“We find that some people you would neverpredict are able to organize themselves aroundthis schedule,” she says, adding that “virtually100%” of patients who start treatment com-plete it, and that 80% to 85% are cured.

The lack of medical insurance among manyU.S. drug users makes it hard to tackle thehepatitis C problem in a comprehensive way,says Brian Edlin, an associate professor atWeill Cornell Medical College in New York whotreats injection drug users for hepatitis C.

Indeed, in a recent study he led to evaluatehepatitis C treatment in active drug users,some of the patients didn’t have health insur-ance, Dr. Edlin says. He provided free care toeveryone in the study and helped eligible pa-tients get enrolled in Medicaid to cover thecost of medication. For those who weren’t eli-gible, he obtained free drugs from manufactur-ers. He also offered mental-health and sub-stance-abuse treatment to anyone who wantedit. Overall, 72% of the patients were cured ofhepatitis C, a result he called “very successful.”Next he is aiming to recruit up to 200 injectiondrug users for a larger trial that will more rig-orously test the benefits of treatment.

“Doctors raise legitimate uncertaintiesabout treating this population that need to beaddressed through research,” Dr. Edlin said.

In Dundee, Mr. Stephens and his colleaguesare also attempting to enroll injection drug us-ers in a similar study. To encourage them tosign up, they are offering participants a regularsupply of high-protein drinks and vouchers tobuy food at supermarkets. That is an incentivebecause “heroin users don’t eat very well,” Mr.Stephens says. “They spend most of theirmoney on drugs.”

Still, recruitment so far has been tough.One young woman he was hoping to enrolldidn’t turn up for a meeting at the needle ex-change. Later, he learned she was due in courton charges she had assaulted a shopkeeper af-ter she had been caught stealing. He ultimatelytracked her down and enrolled her in thestudy. If she goes to prison, he says, “we’ll con-tinue her treatment” there.

Meanwhile, Mr. Stephens says he has seenanecdotal evidence that current and recentheroin users can make it through treatment.One patient recently cured, 35-year-old LeannePetrie, took heroin for 16 years before quittingin late 2011. In an interview, she said shetested positive for hepatitis C around the ageof 25 but didn’t seek treatment for years.

In 2010, while living in the Scottish countyof Fife, she was taking methadone to try towithdraw from heroin, and attending hepatitisC support meetings to learn about treatment.But because she was drinking heavily, her sub-stance-abuse counselor cut off her methadone,which she says prompted her to drink more—about a bottle of vodka a day. She was also stilldabbling in heroin.

In 2011, she says she got involved with a vi-olent man who also took heroin. In December2011, he burned her hand with a cigarette andwrecked her apartment, she says. A few dayslater, she took an overdose of sleeping pills. “Ifelt I couldn’t get out,” she says.

She woke up in the hospital, and, at the en-couragement of her family, decided to move toDundee to say with her cousin. She stoppeddrinking and taking heroin, and in January2012, sought treatment for hepatitis C. In themiddle of her treatment, she had to leave hercousin’s house and stay in a homeless shelterfor three months, but she eventually got anapartment from social services. She completedher treatment in November.

Seeing progress with her hepatitis C treat-ment helped her cope with the instability inher life and stay off drugs, she says. “Since Imoved to Dundee I’ve achieved a lot,” she says.“When you see the treatment is working, ithelps you keep going.”

NEWS IN DEPTH

A Fatal ProblemDeaths from liver diseasein people diagnosed withhepatitis C in Scotland


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Nurse Brian Stephens, right, takes blood from Stephen Rachwell. He has seen anecdotal evidence that heroin users can make it through treatment.

Because the virus often strikesinjection drug users, thehomeless and other hard-uppopulations, efforts to tackle theproblem have lagged behind.

Cate Gillon for The Wall Street Journal


BUSINESS & FINANCE

Google Glass Stirs Privacy FearsAs Congress frets about the pri-

vacy implications of Google Glass,one thing is clear: The technologythat can redefine what is “public”and link the digital and physicalworlds is here.

Now the question is what willanyone do about it?

Owners of wearable Internet-connected devices already facechoices about where or when it isappropriate to wear them—while le-gal experts say there aren’t manyprotections for people whose activi-ties the technology records.

Noble Ackerson, a 33-year-oldsoftware developer in Washington,D.C., who has been wearing GoogleGlass for the past month, says hehas developed his own “commonsense” etiquette standards forGoogle Inc.’s new digital headset.

For instance, he takes Glass offin a public restroom, in a movie the-ater and in casinos, where havingsuch a device could give him an un-fair advantage. “Google Glass hastechnology that isn’t new, and theetiquette we’ve applied to existingtechnologies should roll into it,” hesays.

Products like Glass are sparkinga discussion about what is possiblewith technologies such as facial rec-ognition, and whether governmentsneed to intercede. While severalmembers of Congress pressedGoogle on Thursday for answersabout how its technology works,some business owners like bars orcasinos are already banning it.

Right now, Google Glass, whichplaces a small computer screenabove one eye and has a built in mo-tion sensor, camera and micro-phones, acts like an extension of aperson’s smartphone.

It lets the user take photos andrecord videos by touching the sideof the device or speaking commandsaloud, as well as allowing them togive Web users access to the de-vice’s camera so they can “see”what the wearer is looking at. Peo-ple also can use Glass to makephone calls, access Google’s Websearch, get turn-by-turn navigationinformation and receive text mes-sages on the screen, as well as sendtexts using their voice.

The device isn’t widely available,but Google plans to publicly launchit next year.

Early testers of the device saythe potential benefits—such as giv-ing paraplegics the ability to takephotos using their voice or makingit easier to document police brutal-ity, among other uses—outweighsuch privacy and security risks.

But one potential use has cap-tured the imaginations—and fears—of many: facial recognition.

While such technology still facesnumerous hurdles, the capability touse it for purposes once relegated toscience fiction have already been

proven in a real-world context, mostrecently by Carnegie Mellon Univer-sity researchers in 2011.

By combining public informationfrom social networks and facial-rec-ognition technology, the researchersused a webcam on a college campusto identify people by name, andthen—by using information fromtheir social-network profiles—alsopredict sensitive personal data, suchas hobbies and Social Security num-bers.

“The genie is out of the bottle,”says Carnegie Mellon professorAlessandro Acquisti, who was partof the research team. “My bet is fa-cial recognition and augmented re-ality will become commonplace andpopular.”

While real-time facial recogni-tion technology isn’t yet scalable,remaining hurdles already are beingovercome, he says, and societies willneed to “discuss and try to createframeworks so that good applica-tions will survive and creepy oneswill not.”

Google Glass product manage-ment director Steve Lee said in astatement Friday that “we won’tadd new face-recognition features toour services unless we have strongprivacy protections in place.”

On Thursday, Mr. Lee and otherGoogle employees say that whileany device, including today’s smart-phones, can be misused to hurt orspy on other people, the companywould endeavor to bar such applica-tions from being available on itspublic app store for the device.

Mr. Lee says the device wouldalso be a “lousy” way to spy on peo-ple because the wearer must facewhatever it is they are recording.The device’s small screen lights upwhen it is taking a photo or record-

ing a video using the camera, allow-ing people near the wearer to knowthat it is on.

Mr. Lee added that he expectedthere would be facial-recognitionapplications available on Glass inthe future, possibly created by thirdparty software developers.

Google has said data recorded bythe device would be bound by itscurrent privacy policy, meaning itcould be collected in an anonymousway and the company would holddata about specific individuals onlyif they explicitly agree to it, thesame as with smartphone-relateddata.

Most of the wearable devices onthe market, with names like LU-MOback and Fitbit, are meant tocapture health-related informationabout the person wearing them,such as heart rate and posture. Nownew devices led by Google Glasscapture data around the wearer—in-cluding the people they interactwith.

For instance, a forthcoming $279device called Memoto, designed tobe worn on a chain around the neckor clipped to clothing, automaticallysnaps photos every 30 seconds, ornearly 3,000 a day, and uploadsthem to the Web so the wearer canaccess them.

Oskar Kalmaru, a co-founder ofMemoto, said the company stressesto its customers “how it’s actually apretty crappy spycam: no remote

control, no streaming, very visibleand so on.”

There is almost nothing individu-als can do to prevent their activitiesfrom being recorded or trackedwhile in public, legal experts say.Chris Conley, a technology policy at-torney at the American Civil Liber-ties Union of Northern California,says that while Google Glass is cur-rently a primitive device, “it’s some-thing you could see evolving into astate of constant awareness of theenvironment, making it difficult forthird parties to understand whetherthey’re being analyzed or recorded.”

But he added that he “can’t thinkof anything that Google Glass couldconceivably do that is actually goingto run into legal concerns,” unlessperhaps someone creates an appli-cation that invades people’s privacyby “seeing” underneath theirclothes, similar to the passengerscans at U.S. airports.

Consumers and governmentsworld-wide have grappled withsome of these questions before withthe discreet cameras on cellphones.When they first emerged in theearly 2000s, some worried abouttheir potential use for espionageand voyeurism. Businesses such asgyms banned their use.

And in 2004, Congress passedthe Video Voyeurism Prevention Actwithout much opposition, which pro-hibits photographing a naked personwithout his or her explicit permis-sion in a gym, dressing room, orother places that one expects “a rea-sonable expectation of privacy.” (Vi-olators face fines of up to $100,000and up to a year in prison.)

Yet a decade later, camera-phones have become an acceptedand relatively uncontroversial partof modern culture.

BY AMIR EFRATIAND GEOFFREY A. FOWLER

Questions of appearance and privacy arrive for Google Glass wearers. Above, a Google engineer shows off the glasses.

Getty

Images

ComScore’sWeb RatingScoresWinOver Nielsen

The battle among companiesmeasuring the reach of online ads isheating up.

Ad-buying giants Starcom Medi-aVest Group and ZenithOptimediasaid they have signed on to usecomScore Inc.’s online-advertisingratings system, dealing a blow toTV-ratings leader Nielsen, which of-fers advertisers a comparable ser-vice. The ad-buying firms, both ofwhich are owned by PublicisGroupe SA, had been testing bothservices for some time.

Marketers have long been de-manding a way to measure online adcampaigns in a manner similar tohow TV is measured. ComScore’sValidated Campaign Essentials, orVCE, and Nielsen’s Online CampaignRatings, or OCR, are two productsthat offer a solution.

The new services are the firststep toward a measurement systemthat could track how ads performacross all screens, including TVs,the Web and mobile devices.

Online marketers say the inabil-ity to track ads effectively acrossmultiple screens is a hurdle theyface when trying to figure out howmuch money they should move fromtraditional advertising into digitalads.

The decision of the Publicis firmsto go with comScore’s system is sig-nificant, given the scale of the adbudgets they handle.

Starcom MediaVest and Zenithspend about $32 billion annually onads in the U.S. on behalf of compa-nies such as Coca-Cola Co., An-heuser-Busch InBev N.V and J.P.Morgan Chase & Co. Several weeksago, Procter & Gamble Co., theworld’s largest advertiser and aStarcom MediaVest client, signed upwith comScore.

Starcom MediaVest said its chosecomScore in part because its servicewill be offered in more countriesand because it will be able to collab-orate with comScore to create newmeasurement products.

Price also played a role in Star-com’s decision.

“It’s a multi-screen, mobile worldand we need to be able to measureaudiences fluidly and seamlessly,”said Laura Desmond, SMG’s chief ex-ecutive officer.

“Traditional industry measuresand players fall short on deliveringthe innovation we need for our cli-ents,” she said.

A Nielsen spokeswoman declinedto comment.

The Publicis ad-buying firms’ de-cisions are “favorable for com-Score” but the race in digital audi-ence measurement is “far fromover,” said Brian Wieser, an analystwith Pivotal Research Group.

As of April 15, Nielsen had signedup more than 100 advertisers suchas Unilever, Kimberly-Clark Corp.and WPP PLC’s ad-buying firmGroupM for its Online CampaignRatings product, and it had beenused on more than 4,000 cam-paigns.

Clients of Publicis aren’t obli-gated to use the comScore ratingssystem, despite the ad-buying firm’sdecision. Also, marketers and adagencies could choose to use bothcomScore and Nielsen’s productsrather than choosing one.

BY SUZANNE VRANICA

Some business ownerslike bars or casinos arealready banning it.

Yahoo to Pay $1.1 Billion to Acquire Tumblrcould help Tumblr bring in moremoney by selling ads, boosting itsown revenue in the process.

Tumblr has grown quickly. InMarch, the blogging site had about117 million unique users world-wide,up from about 58 million a year ear-lier, according to comScore Inc. Onsmartphones, Tumblr had almost 12million unique visitors, up from

Continued from first page about four million, comScore said.Yahoo has a bigger presence on

mobile devices but it is growingmuch slower. In March, Yahooclaimed about 84 million uniquesmartphone visitors, up from around63 million, comScore said.

Yahoo Chief Executive MarissaMayer, who joined the company lastsummer after a 13-year career atGoogle Inc., became interested in

the blogging site a couple of monthsago, one of the people familiar withthe matter said. Acquisitions havelong been expected to be part of Ms.Mayer’s strategy, though to date sheonly has acquired small companies—primarily for their engineering andproduct-management talent.

Yahoo recently pulled out of aroughly $200 million deal to buy acontrolling interest in the video

website Dailymotion, owned byFrance Télécom SA, after theFrench government indicated objec-tions to the transaction, people fa-miliar with the matter have said.

Yahoo would be paying a pre-mium for Tumblr. When Tumblr lastraised money, in the fall of 2011, the$85 million venture-capital invest-ment it received valued the NewYork company at $800 million.


Scotland Turns AggressiveAmid Spread of Hepatitis CGovernment Makes Push to Control a Virus Considered One of the Biggest Time Bombs in Medicine

Sam Nicoll, an unemployed laborer witha history of heroin use in this down-and-out city, has recently been re-

leased from prison. He’s just become a fa-ther. And on a recent morning, he ran out ofinjection needles. But a nurse here, BrianStephens, wants the 24-year-old to focus ona different problem: hepatitis C.

Mr. Nicoll recently took a blood test forthe virus at a local needle exchange, and itcame back positive. In most parts of theworld, he wouldn’t be diagnosed or consid-ered for treatment. Few countries conductwidespread testing of injection drug usersor offer them medication for hepatitis C, inpart because they are considered too unreli-able to turn up for appointments or to stickto the costly, monthslong treatment regi-men.

Scotland, however, is ignoring conven-tional wisdom and making a bold push tocontrol a virus that may be one of the big-gest ticking time bombs in medicine. Hepati-tis C kills about 350,000 people a year glob-ally, and in many Western countries itinfects far more people than HIV. The dis-ease can lead to cirrhosis or cancer of theliver and is the leading cause of liver trans-plants in many countries.

Yet because the virus often strikes injec-tion drug users, the homeless and otherhard-up populations, efforts to tackle theproblem have lagged behind, health expertssay. While hepatitis C now kills more Ameri-cans each year than HIV does, the U.S. Cen-ters for Disease Control and Preventionspends only about $30 million a year onprevention of viral hepatitis, compared withalmost $800 million for HIV.

For its part, Scotland, with a populationof only five million, has launched a £100million (about $150 million) program, run-ning from 2008 to 2015, to diagnose andtreat hepatitis C, regardless of the patient’shistory. Medication alone can cost anywherefrom $10,000 to $40,000 per patient.

Because Scotland was hit with a wave ofhepatitis C in the 1980s and it can take 20years or more for infections to seriouslydamage the liver, the country is “just at themoment beginning to see this increase inend-stage liver disease,” says David Gold-berg, head of Health Protection Scotland’shepatitis C and HIV programs and professorof public health at University of Glasgow.“That clearly is going to have a major im-pact on demand for liver transplants overthe next decade.”

The country’s taxpayer-funded healthsystem is scrambling to find and treat infec-tions in all hepatitis-prone communities, in-

cluding Pakistani immigrants and peoplewho received blood transfusions before thevirus was discovered in 1989. But it ismostly focusing on current and former in-jection drug users, who account for about90% of infections here.

Cities such as Dundee and Edinburgh—setting of the heroin-drenched 1996 film“Trainspotting”—have been particularly hardhit by injection drug use since an economicdownturn in the 1980s. Within the EuropeanUnion, Scotland has one of the highest re-ported prevalence levels of injection drug

use, according to the European MonitoringCentre for Drugs and Drug Addiction.

Early results of the Scottish program arepromising. About half of the 38,000 Scotsestimated to have been chronically infectedhave now been diagnosed, compared with39% in 2007. Of those, about 1,100 new pa-tients a year are receiving treatment, nearlytriple the number from 2007. Dr. Goldbergsays the aim is to reach 2,000 new patientsa year, which should help prevent up to5,200 cases of cirrhosis by 2030.

Tackling hepatitis C is a difficult assign-ment. It typically is spread when an infectedperson’s blood enters another person’s body,as often happens when drug users shareneedles. According to the U.K.’s NationalHealth Service, the virus can also be foundin some other body fluids, including salivaand semen, but this is far less common,making sexual transmission more rare thanit is with HIV.

Because symptoms often don’t surfaceuntil decades after infection, many peopledon’t know they are infected.

To find infections in current drug users,Scotland is blanketing needle exchangeswith simple finger-prick diagnostic kits. Af-ter identifying people with infections, manyparts of Scotland try to start weaning themoff heroin before offering hepatitis C medi-cation. The typical approach is to prescribe

BY JEANNE WHALENDundee, Scotland

Scotland has launched a $150 million program, running from 2008 to 2015, to diagnose and treat hepatitis C, regardless of the patient’s history, Sam Nicoll, above, has tested positive for hepatitis C.

IN DEPTH

Identifying the CasesNumber of people in Scotland testing positivein an initial screening test for hepatitis C


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BUSINESS & FINANCE

Facebook Shifts Gears a Year After IPOThe Company Is Getting Serious About Making Money; But the Stock Is Stuck Well Below Its IPO Price

Two weeks ago, new posters be-gan appearing at the headquartersof Facebook Inc. The posters pro-claimed: “Advertisers are userstoo*.” At the bottom of the page, insmaller font, was the phrase “*nosrsly,” Internet shorthand for “noseriously.”

On the eve of Facebook’s IPO an-niversary Saturday, how the MenloPark, Calif., company tackles reve-nue is one of the biggest challengesin its short life as a public company.

After eight years of focusing onuser growth, Facebook has pushedrevenue up its priority list and re-structured its business so that manyof its best minds are now thinkingabout driving sales.

Before filing for its IPO, Face-book made 85% of its revenue fromdesktop ads in the right-hand col-umn of its website, with the restcoming from a payments businessfueled by virtual-goods sales fromZynga Inc. games.

Today, the company is experi-menting with more than 10 otherways to make money, including afledgling e-commerce store and feesthat it charges users to send chatmessages to strangers.

Facebook has also broadened itsad business, running ads for thefirst time on mobile devices, in itsNews Feed, and creating specialwidgets for mobile, such as ads thatpromote installations of third-partyapplications. Facebook has also in-troduced products familiar to adver-tisers, including tools that targetpeople based on their website visitsor their offline behavior. And it hasreorganized itself so project man-agers and some engineers take own-ership of revenue targets.

The changes have helped liftFacebook’s revenue to $1.46 billionin its most recently reported quar-ter, up 36% from $1.06 billion in thesame period a year earlier. A quar-ter of the company’s revenue nowcome from mobile ads.

But none of that has beenenough to push Facebook’s stockback up to its IPO price last May of$38. On Thursday, the company’sshares closed at $26.13, down 1.8%on the day and 31% from its IPOprice.

The increasing importance ofboosting sales also could jeopardizethe users’ experience—a point notlost on Facebook’s chief, who has re-peatedly said that Facebook wasn'toriginally built to be a company.

On this month’s earnings call,Mr. Zuckerberg assured investorsthat the site hasn't “seen any mean-ingful impact on the [user] satisfac-tion”—implying that there may besome drag on user experience—justnot enough to matter.

Still, some investors said they areencouraged by Facebook’s new atti-tude toward revenue. Mark Hawtin,portfolio manager of the roughly$250 million GAM Star TechnologyFund, said he’s bought more Face-book shares recently because of the

rollout of new ad products and be-cause of comments Mr. Zuckerbergmade in September about his focuson revenue and mobile.

When Facebook went public, thecompany’s message was “we focuson the user growth and engagementand the revenue will take care of it-self,” said Mr. Hawtin, who addedthat Facebook is now one of his topthree stock holdings. “After the IPO,the message was that revenue andmobile are now also key parts.”

The tone around revenue beganchanging in early 2012, especiallyafter the fourth-quarter earnings re-port revealed a sharp drop in salesgrowth.

Facebook rushed to shore-up itsmobile applications. The companyintroduced mobile ads in March2012 through its main channel, theNews Feed.

Now ads were no longer rele-gated to the right-hand side of thesite, but were literally at the centerof the product.

At one meeting last July, asFacebook’s newly public stock wasgetting pummeled, the social net-work’s managers, dubbed the “MTeam,” decided that more teamsneeded to be held responsible forrevenue.

Chief Executive Mark Zuckerbergand his top lieutenants, includingoperating chief Sheryl Sandberg andfinancial head David Ebersman, re-viewed Facebook’s entire business atthe meeting, going product by prod-uct and team by team.

Revenue was “a priority whosetime has come,” said David Fischer,vice president of marketing, who at-tended the meeting. “More leadersneeded to be accountable.”

Some of Facebook’s key engi-neers were asked to solve revenue-related issues for the first time. InFebruary, Andrew Bosworth, a mem-ber of the “M Team” and a creatorof News Feed, became the head ofadvertising engineering, in which heoversees the technical infrastructure

behind the ad products.Jason Sobel, a senior Facebook

engineer who spent six years work-ing on infrastructure and mobile,also switched to work on advertise-ments in November. “We were get-ting beat up a lot externally (so) Ifelt like it was an opportunity tohave a big impact,” he said.

Project managers for some busi-ness groups like News Feed wereencouraged to educate themselveson how their product made moneyand to own revenue targets.

More ad employees began towork closely alongside product en-gineers and engineers began to visitFacebook’s advertisers. Severalmembers of the ads team officiallyswitched to work with productteams.

In one sign of how a more reve-nue-centric culture was being incul-cated, Facebook in March organizeda field trip to Cincinnati for a fewdozen employees including product

engineers to one of its biggest ad-vertisers, Procter & Gamble Co., sothose employees could learn aboutthe client’s needs and objectives.

Members of Facebook’s “MTeam” who had never spent timewith clients before, such as humanresources head Lori Goler, also be-gan attending meetings with brands.

For advertisers, Facebook’s reve-nue-friendly attitude is giving themmore excuses to spend. Online re-tailer JackThreads.com said it hasdoubled spending on Facebook overthe past year because there aremore products to experiment with.

While it once only bought right-hand column ads on Facebook’swebsite, JackThreads now has pur-chased photo and link ads for thedesktop and mobile news feeds,among other things.

It also plans to use Facebook Ex-change, a real-time marketplace tobuy ads based on what sites usersare visiting. The company declined

to disclose how much it is spendingon Facebook.

“The more sophisticated thetools, the more comfortable we’llfeel spending significant dollarswith them,” said Ryan McIntyre,JackThreads’s executive vice presi-dent of marketing, who said hewould still like Facebook to providemore data for its newfangled mobileads.

In April, Facebook started hold-ing ad boot camps for employees toeducate them on what Facebook’sclients are looking for, how differentad products work and the company’sbroader strategies.

The program, which has beenheld twice so far, runs about half aweek and features sessions withFacebook’s ad experts.

In the future, the company plansto incorporate advertisers for “cli-ent immersion sessions,” said GokulRajaram, Facebook’s product direc-tor for ads.

BY EVELYN M. RUSLIRe

uters

How a $10,000 bet on Facebook’s IPOcompares with other investmentsover the past year

The Wall Street JournalSources: WSJ Market Data Group; SIX Financial Information; Barclays Live*Barclays capital aggragate bond index (through Wednesday)

$16,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

20132012

AppleApple

Google

Barclaysbondindex*

S&P 500Nasdaq

20132012

Today, the company isexperimenting with morethan 10 other ways tomake money.

Facebook CEO Mark Zuckerberg is seen on a screen televised from their headquarters in Menlo Park moments after their IPO launch in New York May 18, 2012.


WORLD NEWS

Rising Wages Pose Dilemma for ChinaAccelerating Wage Increases Have Manufacturers Turning to Cheaper Alternative Production Sites in the Region

BEIJING—China is showing rapidincreases in wages and signs of re-silience in hiring despite slowinggrowth, a reassuring sign for lead-ers seeking to put more money inthe pockets of ordinary Chinese, buta trend that could prove difficult tosustain as countries nearby threatento encroach on China’s manufactur-ing dominance.

Chinese private-sector wagesrose 14% in 2012, data showed Fri-day, good news overall for Beijing’spush to make consumer spending amore important part of growth. Buthigher labor costs also hurt busi-ness profitability and export com-petitiveness—which could pose itsown risks to the economic recovery.

Countries such as Bangladesh,Cambodia and Vietnam have allramped up their garment sectors asglobal retailers look for alternativesto China.

Crystal Group, an apparel pro-ducer for Marks & Spencer, Aber-crombie & Fitch, and Gap, says ithas more than tripled its staff inVietnam over the past three years,but made only small increases in itsChina workforce. “It’s a simple mat-ter of economics for us,” says An-drew Lo, CEO of the Hong Kong-based company, as it becomes lesscost-effective to make basic t-shirtsand jeans in China.

The 14% wage rise for private-sector workers in 2012, reported byChina’s National Bureau of Statisticson Friday, represented an accelera-tion from 12.3% in 2011. Over theperiod, China’s annual economicgrowth rate slowed to 7.8% from9.3%.

A recent spate of accidents, in-cluding a factory-building collapsein Bangladesh that killed more than1,100, has focused new attention ona shift away from China as costsrise there. Some experts say worriesthat China is pricing itself out of itsmanufacturing edge may be over-blown. Supply-chain linkages, stronginfrastructure and access to China’s

own market make the case for keep-ing a foothold. Overall, most manu-facturers operating in China are stillprofitable even though their mar-gins are being squeezed, says NigelKnight, who heads Ernst & Young’sadvisory practice for greater China.

“I don’t see a huge rush for thedoors,” says Mr. Knight. “The under-lying strategic rationale for manu-facturing in China is still very pow-erful.”

Meanwhile, job creation andwage increases are a key focus forChina’s leaders. In the past, turbo-charged growth was seen as essen-tial to creating enough employmentopportunities for a swelling work-force. On a visit to the northern cityof Tianjin this week, China’s topleader, Xi Jinping, signaled a contin-ued focus on employment by visit-ing a local job-training center andpledging to improve services for jobseekers.

Continued strength in the labormarkets suggests that China cannow create sufficient jobs to shoreup social stability with a signifi-cantly lower pace of growth.“Strength in the labor marketsmeans there is less need for short-term stimulus measures,” said RBS

China economist Louis Kuijs.Big increases in wages also help

the rebalancing of China’s econ-omy—a key objective for the newleadership. With growth in wagesoutstripping the rest of the econ-omy, households’ slice of the pie isgetting bigger. The governmenthopes that will drive higher levels ofconsumption, helping wean theeconomy off its addiction to exportsand investment as drivers ofgrowth.

Rising manufacturing costs inChina were one reason private-eq-uity firm Grumman Hill Group LLCdecided to put shoe maker Aero-soles up for sale this year, a personfamiliar with the matter said. TheEdison, N.J.-based shoe companymakes virtually all of its products inChina, but wage inflation there ispressuring margins, this personsaid.

Wages in the China’s manufac-turing sector have risen 71% since2008, according to the National Bu-reau of Statistics. Improvements inlabor productivity, which the WorldBank estimates is growing at about8.3% a year, offset some but not allof the wage growth.

An executive with Guangdong

Sunrise Houseware Corp.—a makerof high-end kitchenware for ex-port—said last year the firm’s laborcosts rose at least 30%. “We havemore than 600 workers, many ofthem left last year,” he said. “Whenyou hire new people you found thatthe average wage level had alreadyrisen.”

With that experience replicatedacross China’s factories, industrialprofits contracted for much of 2012.Export growth fell to 7.9% from20.3% in 2011, as Chinese firms lostout to Vietnam and other low-costcompetitors. That suggests China’sleaders face a tough choice betweenkeeping wages on a rising trend toboost household income, and con-trolling costs for the manufacturersthat create many of the mainland’sjobs.

Other data show signs thestrength extended into this year de-

spite a continuing slowdown. Datamade available to The Wall StreetJournal from Zhaopin.com, one ofChina’s largest recruitment web-sites, shows the total number ofjobs advertised rose 24.6% in Aprilfrom a year earlier. At the sametime, government data showed de-mand for workers outstripping sup-ply by a record amount in the firstquarter.

A migrant worker from Wuhan incentral China who gave his surnameas Chang is one who has benefited.In February he quit his job at anauto-parts factory in the southerncity of Shenzhen because themonthly salary of 2,800 yuan ($455)didn’t meet his expectations. InApril, after a month of searching, hefound a new job making shells forcellphones, with a take-home pay of4,200 yuan a month. “I’m not veryanxious to find a job so it took awhile,” said Mr. Chang.

Not all the most recent indica-tors on labor markets have beenpositive. China’s official purchasingmanagers’ index, and a similar sur-vey by HSBC Holdings PLC and busi-ness survey firm Markit Economicsboth suggest some factories laid offworkers in April.

A spokesman for Zhaopin.comalso pointed to signs that hiring hadeased off going into the secondquarter. “Many companies are pessi-mistic about the Chinese market in2013, and that is passing through torecruitment plans,” said a spokes-man for the company, “after a hiringpeak in the first quarter sentimenthas deteriorated somewhat.”

“So far we haven’t seen unem-ployment rates going up, with realestate, infrastructure, and servicessupporting strong job creation,”said Haibin Zhu, China economist atJ.P. Morgan. “But wage growth can’tbe sustained without profit growth.If the corporate sector remainsweak, rapid wage growth will be dif-ficult to sustain.”

—Kathy Chu,Dana Mattioli and Lilian Lin


BY TOM ORLIKExpensive China

…but manufacturing wagesrun above labor productivity…

China’s wages rise, despiteslowing growth…

…hitting exportcompetitiveness.

Sources: National Bureau of Statistics; CEIC; World Bank The Wall Street Journal

Change from a year earlier Change from a year earlierChange from a year earlier

15

0

5

10

%

2011 ’12

Wages: 14%

GDP: 7.8%

20

0

5

10

15

%

2009 ’10 ’11 ’12

Manufacturing wages: 17%

Labor productivity: 8.3%

40

–20

–10

0

10

20

30

%

2009 ’10 ’11 ’12

2012: 8%

Japan Will Invest $2 Billion in African ResourcesTOKYO—Japan is pledging $2

billion for energy and mineral proj-ects in Africa, capping a conferencewith government resource officialsfrom across the continent as itseeks to catch up with years of Chi-nese investment.

Japan needs to secure long-termreliable sources of natural materials.It is also eager to provide its tech-nologies to build roads, railways andutilities, providing a competitive al-ternative to the Chinese state-owned companies that have helpedChina become Africa’s dominant in-vestor.

The Japanese government fund-ing will be used for direct loans, un-derwriting of debt offerings and eq-uity stakes in projects coveringcrude oil, natural gas, coal and min-erals over the next five years.

“This conference has put in placethe building blocks to encourage in-vestment from Japanese companiesand to help create Africa’s sustain-able growth,” Toshimitsu Motegi,minister of economy, trade and in-dustry, said at a Saturday news con-

ference after a meeting with repre-sentatives from 15 African countriesthat followed the two-day J-SUMITconference.

Japan put together the confer-ence in hopes of demonstrating theappeal of the long-term approachtypical of Japanese companies.Many African countries have begunto complain about what they see asthe heavy-handed approach ofChina’s investments.

Delegates to the conference ap-

peared receptive to the overtures.John Bande, minister of mining

for Malawi, said he had expressionsof interest ranging from tradingcompanies such as Marubeni Corp.to auto maker Toyota Motor Corp.

“The idea is that we want to en-courage more faithful investors likethose from Japan,” he said, addingthat he admired Japan’s reputationfor honesty and willingness to pro-vide technical assistance and long-term investments.

For many Japanese industrialcompanies, the reason for the in-creased level of interest is clear—the need to secure resources.

“The competition for acquiringcoking coal has begun,” Shinichi Fu-jiwara, a managing executive officerfor Nippon Steel & SumitomoMetal Corp., told the conference.

Japan’s largest steelmaker is es-pecially interested in getting cokingcoal, a key ingredient in iron pro-duction, from Mozambique, Mr. Fuji-wara.

That is good news for companiessuch as Baobab Resources PLC, aLondon-based mineral-explorationgroup that is seeking investment forits iron project in Mozambique’sTete province.

Baobab officials and others alsospoke of the growing interest incompleting more of the value-addedsteps in the production processwithin the countries holding the re-sources, instead of just shipping rawmaterials overseas.

“We’re quite cognizant of the op-portunity here to take this right theway to steel,” said Managing Direc-tor Ben James.

For Congo, one of the largest

producers of copper in Africa, thedrive to keep more of the value athome has taken the form of a com-ing ban on copper concentrate ex-ports.

Mining Minister Martin Kabwe-lulu said the government wanted tostop the current export of unpro-cessed copper because of the lowertax revenue generated.

“On that, the government wasmaking nothing,” he said, addingthat it wants the copper refined do-mestically.

Attendees said the Japaneseoverture was welcome and that thecontinent’s dependence on Chinawas because of necessity, not neces-sarily by choice.

“When you have no friends, anyfriend is a good friend,” said Zimba-bwe’s deputy minister of mines andmining development, Gift Chimani-kire. “China came in when Zimba-bwe was shunned by the rest of theworld.”

For Japan, the resources confer-ence also was a curtain-raiser for asummit-level international confer-ence on African development thatwill take place next month in Yoko-hama.

BY MARI IWATAAND YUKO TAKEO

12

9

8

7

Platinum and palladium

Cobalt

Oil

Copper

Bauxite

Natural gas

Coal 4

Growth EngineAfrica's share of world commodity production, 2010

Sources: U.S. Geological Survey; BP Statistical Review of World Energy The Wall Street Journal

95%

70

The trend could be hardto sustain as firms lookelsewhere.


BUSINESS & FINANCE

E.ON to ConstructMetro Power Units

FRANKFURT—E.ON SE has madeits first significant move in Ger-many’s decentralized power marketby agreeing to build four combinedheat and power units for retailerMetro AG.

The deal comes as Germany triesto move away from relying on largenuclear and fossil-fueled powerplants in favor of a decentralizedsystem of much smaller powerplants and renewable energy, oftengenerated by the user itself.

While E.ON’s partnership withMetro is small—commercial termsweren't disclosed—the deal givesthe power company a beachhead ina market that it believes will beworth €10 billion ($12.83 billion) ayear across Europe by 2020.

E.ON, and other power compa-nies, hope the decentralized energymarket will help mitigate reducedearnings from conventional powerplants—especially those that burngas for fuel—which are under pres-sure from rising costs and the ex-pansion of renewable energysources, such as solar power.

However, some energy analystsquestion whether the move mayhave come too late and doubt thatsmall-scale power generation willever replace major power compa-nies’ core business.

Utilities in much of Europe arelosing money on larger gas-firedplants because European gas pricesremain stubbornly high whilewholesale electricity prices remaindepressed amid weak demand be-cause of the continent’s economicmalaise.

Germany is one of many coun-tries funding combined heat andpower plant technology, as thesesmall-scale plants capture heat andwaste less energy in the generationprocess than much larger industrial-scale power plants fueled by naturalgas.

Under E.ON’s deal with Metro,

the power company will build, fi-nance and maintain four small gas-fired power turbines, each capableof generating between 250 and 800kilowatts, at two of the retailer’sGerman cash & carry stores and twoRussian outlets.

For Metro, which will operatethe units, managing its own on-siteenergy supply will reduce its energycosts at a time when German retailpower prices are soaring as thecountry shifts away from fossil andnuclear fuels.

It also reduces the company’s re-liance on the country’s aging powergrid, as well as lowering its carbonemissions.

The companies said they wouldconsider adding renewable energy,such as solar power, and expandingthe partnership to other countries,including the U.S., in the future.

As retail power prices rise acrossmuch of Europe, many industrialand commercial businesses are con-sidering generating their own en-ergy, said Hervé Touati, head ofE.ON Connecting Energies, a re-cently formed division of the com-pany that focuses on decentralizedenergy supplies.

“We are starting this approachwith a few large customers likeMetro,” Mr. Touati said in an inter-view.

Cogeneration facilities such asthose E.ON is building for Metro areknown as combined heat and power,or CHP, plants. They produce elec-tricity and heating, and they haveenormous market potential, Mr.Touati said.

“We estimate the business-to-business market [for distributed anddecentralized] energy solutions inEurope to reach €10 billion a year interms of earnings before interestand taxes by 2020,” Mr. Touati said.

“It is the fastest-growing seg-ment in the energy sector. For CHPalone, we estimate the market to beat two gigawatts of newly installedcapacity per year in Europe,” hesaid.

BY JAN HROMADKOAND HENDRIK VARNHOLT

Oil Is Isolated Bright Spot in Commoditieslargely because oil products in manyparts of the country, such as alongthe coasts, are priced off of Brent.

“I need to see another develop-ment, either significantly strongergrowth or slower growth in theeconomy, to get oil prices to go upor down from here,” said Jan Stuart,

Continued from page 17 head of energy research at CreditSuisse.

Some investors are embracingnimble strategies to profit fromsmall short-term price moves. AtPacific Investment Management Co.,a unit of Allianz SE of Germany,which oversees about $30 billion incommodity holdings across different

funds, portfolio manager Nic John-son said he has been buying oil fu-tures and selling options on them ata higher strike price. It is essentiallya bet that the price will remain sta-ble and the funds will be able tokeep the premium collected on theoptions they sold without having todeliver the underlying futures.

Sources: Energy Information Administration (inventories); WSJ Market Data Group (futures); CFTC The Wall Street Journal

Crude EnthusiasmInvestors have driven U.S. oil futures higher despite large oil stockpiles and a tepid economy

300 thousand

0

100

200

’09 ’10 ’11 ’12 ’13’08

$150 a barrel

0

50

100

’08 ’09 ’10 ’11 ’12 ’13

400 million barrels

0

100

200

300

’09 ’10

Weekly data Weekly data

’11 ’12 ’13’08

WTI crude-oil futures price Net managed positionsU.S. crude-oil inventories

Energy Alliance TurnsToNatural-Gas Vehicles

CALGARY—A consortium of NorthAmerican energy producers plans toshowcase half a dozen natural-gas-powered vehicles, including a BMWX3 SUV and a Ford Mustang coupe,in an effort to drum up interest inuse of the fuel in passenger cars.

America’s Natural Gas Alliance,a trade group representing morethan two dozen North American oiland gas companies, is planning todemonstrate “bi-fuel” versions ofpopular vehicles retrofitted to runon compressed natural gas, or CNG,and use a conventional gasolinetank to extend their range, accord-ing to officials. The group declinedto provide further details ahead ofits marketing campaign.

The trade group will previewthose test vehicles on Tuesday at aSouthern California Gas Co. facilityin Los Angeles and then launch abroader public-awareness campaignnext month, officials said. Convertedvehicles from Ford Motor Co.,Chrysler Group LLC and four othermanufacturers are expected to bepart of the Alliance’s lineup.

Chrysler, which now offers a nat-ural-gas-powered pickup inspired bythe shale-gas boom, said it has noplans to make a passenger-car con-version available. Auto makers havebeen focusing on battery- and diesel-powered passenger vehicles andhave been reluctant to add anotherenergy source. A BMW spokesmansaid, “We are not currently involvedin natural-gas vehicles,” and Fordsaid it isn’t involved in the Alliance’sproject, nor does it plan to producea conversion kit for Mustang.

These “bi-fuel” vehicles costthousands of dollars more than gas-oline-powered vehicles. Advocatessay low natural-gas prices can makeup the difference over time. CNGcosts between $2.20 and $2.50 a gal-lon-equivalent, below the averagepump price for unleaded gasoline.But conversions aren’t cheap: Gen-eral Motors Co., which began selling

a pair of bi-fuel CNG pickups in De-cember, prices them at about $11,000more than gasoline versions.

The gas-industry group says thedemonstration is designed to spurconsumer and auto makers’ interestin CNG-powered cars at a time whensurging gas production has dramati-cally lowered prices. That has spurreda renewed drive by gas producers andauto makers to make the fuel a moreattractive substitute for gasoline.

“We hope the excitement createdby these vehicles encourages policymakers to take notice,” said AnneShen Smith, CEO of Southern Cali-fornia Gas.

Some commercial vehicles, in-cluding corporate fleets and heavytrucks, are already using or experi-menting with natural gas. One ad-vantage for these large-scale usersover retail buyers is that they canafford to build and maintain theirown refueling stations. While morethan 100,000 CNG vehicles are beingdriven in the U.S., just under 600stations are open to the public.

Gas producers hope that byshowcasing the CNG-retrofitted ve-hicles they can spark fresh interest.Auto-industry analysts remain skep-

tical manufacturers will rush intothe market, no matter how low nat-ural-gas prices fall.

“You can’t dedicate a vehicle tothis fuel until you’ve got natural-gaspumps almost as ubiquitous as gas-oline pumps,” said Phil Gott, seniordirector at IHS Automotive.

To help resolve that dearth innatural-gas fueling stations, twoleading gas producers have joinedforces with home-appliance manu-facturers in separate bids to developaffordable refueling equipment thatplugs into household gas lines. InDecember, Encana Corp., NorthAmerica’s third largest natural-gasproducer, linked up with WhirlpoolCorp. and four U.S. utilities. Simi-larly, Chesapeake Energy Corp. isworking with General Electric Co.

Gas company officials say majorauto makers are paying close atten-tion to these efforts and are ready-ing conceptual models that mayserve as trial balloons for futuremass-market vehicles. “You will seeover the next year or two, probablyless than a year, some concepts ofnatural-gas [passenger] cars,” EricMarsh, executive president at En-cana, said in an interview.

BY CHESTER DAWSON

A GM Chevrolet Traverse retrofitted to run on compressed natural gas is thetype of vehicle energy companies hope will stir interest in the fuel.

ChesterDaw

son/Th

eWallS

treetJournal

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WORLD NEWS

isolate [North Korea] and under-mine international efforts to ensurepeace and stability in NortheastAsia,” said Caitlin Hayden, spokes-woman for the National SecurityCouncil in the U.S. “We continue tourge the North Korean leadership toheed President Obama’s call tochoose the path of peace and comeinto compliance with its interna-tional obligations.”

South Korea’s defense ministrysaid North Korea fired three mis-siles into waters off the Korean pen-insula on Saturday, followed by afourth missile Sunday. North Korea’sshort-range missiles have ranges ofaround 160 kilometers.

“In our judgment, the missilesare short-range guided missiles, notmidrange missiles such as theMusudan,” South Korean DefenseMinistry spokesman Kim Min-seoksaid. It remains unconfirmed whattype of short-range missiles werefired over the weekend.

Attention has been focused onthe deployment of two Musudanmissiles on North Korea’s east coastlast month for an expected test fir-ing. Officials and media reports ear-lier this month said North Koreahad moved the Musudan missilesaway from the firing locations.

The Musudan has a range of upto around 4,000 kilometers, mean-ing it could threaten U.S. bases inthe region, Guam and Japan. Tokyoput its missile defenses on alert inresponse to reports of the Musudandeployment.

North Korea launches smallermissiles with ranges of a few hun-dred miles, such as Scud variants, intest firings from its coasts a fewtimes each year. The last reportedfiring was in March.

North Korea made no immediatestatement about the latest launches.

Continued from first page Shin Jong-dae, a professor at theUniversity of North Korean Studiesin Seoul, said the launches werelikely a means of drawing attentionof the international community, par-ticularly from the U.S. “North Koreais an expert at crisis diplomacy, orcrisis marketing,” Mr. Shin said.

The firings came after Glyn Da-vies, the top U.S. envoy on NorthKorea, wrapped up a visit to Tokyo,Beijing and Seoul last week for talkson dealing with North Korea.

Pyongyang’s actions, includingthreats of attack that escalated inrecent months, are widely viewed asan attempt to generate enough fearto prompt other countries to con-sider concessions on security andaid, a gambit it has used in the past.

Those threats peaked during an-nual military drills held by SouthKorea and the U.S. through the endof April, which the North portrayedas a prelude to war. The heatedrhetoric eased following the end ofthe drills, but fresh naval exercisesearly last week prompted renewedwarnings of counterattack fromPyongyang.

The latest drills were led by theaircraft carrier USS Nimitz, a moveNorth Korea’s state media called “agrave military provocation.”

The missile launches also cameduring a low in inter-Korean rela-tions as Pyongyang has rejected re-peated calls from Seoul for dialogueover their closed joint industrialcomplex. The closure of the Kaesongcomplex—the last outpost of inter-Korean economic cooperation—inturn followed weeks of near-dailyverbal attacks by North Koreaagainst the South and the U.S. afterthe U.N. imposed tougher sanctionsagainst Pyongyang following itsthird nuclear test in February.—Dion Nissenbaum in Washington



South Korean soldiers monitor the North near the border village of Panmunjom.

AssociatedPress

Aide’s Pyongyang TripTroubles Tokyo’s Allies

TOKYO—A secretive trip toPyongyang this past week by a topaide to Japan’s prime minister israising concerns in South Korea andthe U.S. that Tokyo could underminecoordinated efforts to pressureNorth Korea into abandoning its nu-clear and missile programs.

Prime Minister Shinzo Abe andhis top officials declined to specifythe purpose of the aide’s unan-nounced trip, but suggested an effortto free some Japanese citizens be-lieved abducted by North Korea de-cades ago was atop his agenda. “It’sour government’s stance that abduc-tion, nuclear and missiles must beresolved in a comprehensive frame-work,” chief government spokesmanYoshihide Suga said on Friday.

Mr. Abe has defined the abducteeissue as a foreign-policy priorityand said in the past week he wouldconsider a bilateral summit withNorth Korean leader Kim Jong Un toresolve the issue. Meetings withNorth Korea’s leader are rare forforeign leaders, except for China’s.

But Japan’s focus on abducteeshas often been seen as an obstaclefor international efforts to copewith North Korea’s isolated regimeand its weapons programs.

Officials from the U.S. and SouthKorea warned that independent ac-tions could weaken joint efforts topressure North Korea’s youngleader. President Barack Obama andSouth Korean President Park Geun-hye emphasized a united front whenthey met in Washington this month.

On Thursday, South Korean For-eign Ministry spokesman Cho Tai-young noted there was no prior no-tice from Tokyo about the trip byIsao Iijima, a senior adviser to Mr.Abe’s cabinet, calling it “unhelpful.”

Glyn Davies, the U.S. special rep-resentative on North Korea, alsosaid he wasn’t aware of Mr. Iijima’strip. “The issue of denuclearizationis central and is paramount,” Mr.Davies told reporters in Tokyo onThursday. “That’s why it is impor-tant…that we stay connected veryclosely—all of us stay knitted up onthe issue of how we approach NorthKorea.” Mr. Davies didn’t criticizeMr. Iijima’s trip directly.

The trip added to heightenedtension between Japan and SouthKorea that stems from disagree-ments over Japan’s colonial ruleover the Korean peninsula.

Animosities have grown sinceMr. Abe’s return to power in Decem-ber. His nationalistic views haveraised ire among Japan’s neighbors.Visits to a war shrine by Mr. Abe’s

top officials in April led to the can-cellation of a bilateral meeting offoreign ministers, who were slatedto discuss North Korea. Offensiveremarks on wartime sex slaves byOsaka Mayor Toru Hashimoto lastMonday set off protests across Asia.

Mr. Iijima, upon landing in Bei-jing from Pyongyang on his returnto Tokyo on Friday, said he wouldn’trelease any details of his visit. Japa-nese Defense Minister Itsunori On-odera said he believed the visitwould “contribute to the efforts” toresolve outstanding issues.

Few details of Mr. Iijima’s visit toPyongyang have been made avail-able.North Korea’s state-run newsagency reported Mr. Iijima met KimYong Nam, Pyongyang’s No. 2 offi-cial, on Thursday, without providingfurther details. North Korean statetelevision showed Mr. Iijima’s ar-rival in Pyongyang on Tuesday.

“I think the Japanese govern-ment wasn’t planning on making Mr.Iijima’s visit open. It was supposedto be behind-the-scenes, but theNorth went ahead and publicizedit,” said Lee Young Hwa, professorat Kansai University in Osaka. “Nowthe Japanese government will bepressured to reveal what went onduring the trip,” he said.

—Toko Sekiguchicontributed to this article.

BY ALEXANDER MARTINAND YUKA HAYASHI

Senior Japanese government adviser Isao Iijima, shown above, likely discussed abductions with the North Koreans.

Associated Press/Kyodo

Canadian Prime Minister’s Chief Adviser ResignsOTTAWA—The chief adviser to

Canadian Prime Minister StephenHarper said he has stepped down,four days after the government saidhe gave an embattled Conservativelawmaker more than 90,000 Cana-dian dollars, or about US$87,540, torepay inappropriately claimed hous-ing expenses.

Analysts see the loss of a keyaide amid a scandal that hassparked negative headlines as a ma-jor blow to Mr. Harper, whose Con-servative Party has governed since

2006.Nigel Wright, a former private-

equity executive, said on Sundaythat his actions “were intendedsolely to secure the repayment offunds, which I considered to be inthe public interest, and I accept soleresponsibility.”

Mr. Wright said Mr. Harper hasaccepted his resignation. Mr. Wrightwasn’t immediately available tocomment.

Mr. Wright wrote a personalcheck to Conservative Party Sen.Mike Duffy, the subject of an inde-pendent probe about housing ex-penses claimed by members of the

country’s senate. Mr. Wright saidMr. Harper wasn’t aware of thecheck.

Mr. Duffy, appointed to Canada’supper chamber by Mr. Harper in De-cember 2008, said in late Februaryhe discovered he may have erred infiling expense records and pledgedto repay the amount inappropriatelyclaimed.

Mr. Duffy was one of three sena-tors targeted in an independent au-dit on expenses, amid accusationsthey had abused the payment sys-tem. In late March, Mr. Duffy’s law-yer informed the government-ap-pointed auditor, Deloitte LLP, that

his client had repaid allowancesowed, according to a report fromDeloitte released May 9. As a result,the lawyer said, Mr. Duffy’s partici-pation in the audit “was no longerneeded,” according to the Deloittereport.

Members of the Conservativecabinet later lauded Mr. Duffy forhis “leadership” in paying back theexpenses. But last Wednesday, theprime minister’s office confirmed amedia report that Mr. Wright gaveMr. Duffy the money to reimbursethe Senate. That led to accusationsfrom opposition politicians that thepayment may have violated conflict-

of-interest rules or rules governingthe receipt of gifts by politicians.Canadian lawmakers can acceptsmall gifts, but none that could in-fluence their work. For senators, anygift worth more than $500 has to bereported to the Senate ethics officer.

“This is the biggest blow to Ste-phen Harper since he came topower. It’s his big test,” said MichaelBehiels, a professor at the Univer-sity of Ottawa.

Even before the controversyover Mr. Wright’s payment, Mr.Harper had seen his opinion pollingfall as the country’s economy hitstiff headwinds.

BY PAUL VIEIRAAND ALISTAIR MACDONALD


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Dimon Makes His Case for ContinuityJ.P. Morgan Chase & Co. Chair-

man and Chief Executive James Di-mon is making the case for continuityin the final days before a potentiallydefining vote on his future.

Mr. Dimon told an audience inBoston last Tuesday that the na-tion’s largest bank had “fixed” theproblems that led to a massive trad-ing loss last year, according to peo-ple who were there. Mr. Dimon alsoreminded the 1,300 technology in-vestors that J.P. Morgan was amongthe industry’s best performers dur-ing the financial crisis.

“The board should be ap-plauded,” Mr. Dimon said, accordingto one of these people. He also saidhe didn’t think any changes werenecessary to the bank’s board or itscurrent structure.

Mr. Dimon is expected to fly toTampa, Fla., on Monday for a pivotalshareholder meeting on Tuesday,during which the final votes will betallied on a nonbinding resolution toseparate his CEO and chairman roles.

Mr. Dimon isn’t expressing anysense of panic over the vote, hisfriends say, and has repeatedly toldthem that he is “doing just fine.”

But behind the scenes, he hastaken steps to head off trouble.

William Daley, a former Dimonlieutenant who also served as WhiteHouse chief of staff, approached anofficial with the American Federa-tion of State, County and MunicipalEmployees union, which co-spon-sored the resolution on the split, tosniff out potential for a deal aheadof the final tally, said people famil-iar with the talks.

Mr. Daley wasn’t authorized toprovide the union with any potentialcompromise to evaluate, but insteadwas asked by Mr. Dimon to see if thegroup would agree to another con-versation with the board’s presidingdirector Lee Raymond, one of thesepeople said. Mr. Daley was told thatit was late to be discussing a deal.

On Thursday, J.P. Morgan sent aletter to shareholders urging themto reject the proposal to split thetop two roles. As of last Tuesday,support for the proposal was run-ning slightly ahead of the 40% it re-ceived last year.

The scrutiny has become a sourceof frustration for Mr. Dimon becauseit is taking time away from his regu-lar duties and distracting attentionfrom the bank’s strong performance,according to people who have spo-ken to him in recent weeks.

While J.P. Morgan lost more than

$6 billion from reckless trades lastyear, it is once again churning outrecord profits, and its stock is at afive-year high.

Proponents of the resolution saida split would help Mr. Dimon focuson running and fixing the company.

“J.P. Morgan has outperformedits peers, but it also has had moreregulatory sanctions than its peers,”said Michael Garland, an assistantcomptroller for New York City and aco-sponsor of the shareholder reso-

lution. An independent chairmanwould have more time than Mr. Di-mon to deal with unhappy regula-tors, Mr. Garland added.

There was a point last yearwhere it appeared that the bank andMr. Dimon would be able to put thetrading losses in the rearview mir-ror. When the CEO appeared beforethe U.S. Senate last June he apolo-gized and said the “buck stops withme.” A number of Republican sena-tors sought the CEO’s regulatory ad-

vice, as opposed to taking him totask for the episode.

But several events combined tokeep the pressure on.

On July 27, the Office of theComptroller of the Currency told J.P.Morgan in a supervisory letter that ithad downgraded a confidential man-agement rating. Other regulatory ac-tions, from the OCC and Federal Re-serve, came in the following months.

In January, the bank’s board ap-proved a 50% cut in Mr. Dimon’s pay,and the company released a reportsaying he shared responsibility forthe mistakes and oversights that al-lowed the trading losses to happen.

In April, meanwhile, regulatorstold the board and Mr. Dimon thattheir oversight of compliance, auditand risk was weak, and made it clearthey had lost trust in management.

Still, some institutional investorsbelieve Mr. Dimon and his team runthe bank well and that a change atthe top would only be a disruption.T. Rowe Price Group Inc. has sig-naled it will oppose the role-splitproposal. Another shareholder, Van-guard Group Inc., likely will also doso, according to a person close tothe situation. Both firms votedagainst the proposal last year.

—Joann S. Lublinand Julie Steinberg


By Dan Fitzpatrick,Robin Sidel

and Kirsten Grind

Data provided by:

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J.P. Morgan’s James Dimon speaks before U.S. lawmakers last June.

Getty

Images


WORLD NEWS

Social Media Pose New Riddles for CIAAlleged U.S. Spy Arrested in Russia Had 243 ‘Friends’ on Facebook; Technology and the Intelligence Business

Effective spycraft has longcalled for cover—a job, family orroutine that would keep a govern-ment agent from drawing undueattention. Now, that calculation ex-tends to spies’ use of social media.

Only in the past few years hasthe Central Intelligence Agency is-sued standardized guidelines onhow to use social media, accordingto one former intelligence official.The line these guidelines draw ap-pears to be thin: Revealing toomuch on Facebook and Twitterrisks tipping too much to theother side. But given that socialmedia use is becoming ubiquitous,revealing too little could alsoarouse suspicion.

“Technology is changing thespy business in so many differentways,” the ex-intelligence officialsaid. “It’s very easy to find out alot of information about people.”

The question of how much aspy should divulge online became

a touch less theoretical this weekafter Russia unmasked what itsaid was an American spy—sayingit had detained Ryan C. Fogle, ajunior political officer at the U.S.Embassy in Moscow, amid what italleged was an effort to recruit aRussian officer.

U.S. officials declined to saywhat agency employs the detainedman. His family wouldn’t speakabout the situation. The CIA de-clined to comment.

Regardless, the detention ofthe 29-year-old Mr. Fogle, a 2006graduate of Colgate University,makes him one of the first mem-bers of the social-media genera-tion whose online activities couldbe read against allegations that hespied.

Mr. Fogle’s Facebook page, asvisible to his 243 “friends,” of-fered details about his social life,contacts and travel plans. One ofthose friends provided The WallStreet Journal with images of howMr. Fogle’s page appeared tothem.

On that page, Mr. Fogle said heworked at the State Department,posted photos of a tour of a Mos-cow Cold War bunker and of MontSaint-Michel in France and Kra-kow, Poland. He bantered with ap-parent colleagues about flightsback to the U.S. He also indicatedhe had plans to return to the U.S.,

including a date and flight route,and said that over Memorial Dayweekend he planned to hang outat a restaurant in Arlington, Va.,Ray’s the Steaks.

Mr. Fogle’s level of sharing ap-pears restrained, by the standardsof his generation. His 243 friendsisn’t large for someone of his agegroup. The publicly accessible ver-sion of his Facebook profile

doesn’t include a photo of him orpersonal information.

Personal information is, ofcourse, the coin of the Facebookrealm, and each user determineshow little or much to divulge. TheCIA, in setting standards for itsown employees, appeared to drawits own lines.

The issue is particularly sensi-tive for young government em-ployees who went to college whenFacebook was already ubiquitouson campus. They are part of a gen-eration that shares personal infor-mation more widely and rapidlythan before.

The agency’s social-mediaguidelines, described by the for-mer official, allow even under-

cover officers to maintain Face-book accounts under their realnames. “The rules had to catch upwith the technology,” the formerofficial said.

But there are limits. While of-ficers can’t post details of theirwork projects or travel, they maypost personal notes on travel andphotos, according to the ex-offi-cial. Officers were encouraged touse discretion to avoid compro-mising their agency status.

Facebook friendships betweenundercover officers and peopleopenly working for the CIA werediscouraged, according to the for-mer official. Among other things,such connections could be used toidentify undercover agents,through link analysis.

When the policy was issued, itled to a quandary for CIA officers,the ex-official said: Whether todefriend undercover officers. Do-ing so en masse could have had anunintended effect of alerting oth-ers to an undercover officer’s sta-tus.

BY ANTON TROIANOVSKIAND SIOBHAN GORMAN

The issue is particularly sensitive for younggovernment employees who went to college whenFacebook was already ubiquitous on campus.

No one could see Pope Francis coming. He hailed from a small, troublednation haunted by civil war and poverty. Thanks to a series of stunning

twists, he is suddenly atop the Catholic Church and its 1.2 billion adherents.With in-depth reporting and unparalleled access, The Wall Street Journalpresents an original e-book detailing how Pope Francis rose to become

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2 Access Access Turkey USDUSA 17.88 90.72 38.64 20.80Turkey LLC Advisors Ltd.

3 GFMLevant Levant Partenrs USDCYM 12.96 80.16 30.18 15.67Fund Greece S.A.

NS Harmony DMCapital Limited USDCYM 22.27 75.37 11.10 NSMaster Fund

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MARKETS

Fund Scorecard

Swedish Firms Squeezed by Kronalower limit for the euro’s exchangerate against the franc in order toprotect Swiss exporters. When therate reaches a floor, francs are soldfor euros.

However, Mr. Reinfeldt and cen-tral-bank officials in Sweden haveshown little interest in taking actionto weaken the krona.

Per Jansson, deputy governor ofSweden’s central bank, said cur-rency fears voiced by exporters areexaggerated. “Seen over a longerperspective, this is hardly a threat toour industry,” he said. “If it is, wehave big problems.”

Mr. Reinfeldt, who faces an elec-tion in about 16 months, said Swed-ish companies need to get more effi-cient. “You have to do that if youhave a stronger currency,” he saidrecently. Mr. Reinfeldt has reducedcorporate tax rates to one of thelowest levels in Europe.

Sweden is a member of the Euro-pean Union but rejected joining Eu-rope’s common currency in a refer-endum a decade ago. Euroskepticism still is widespread, withonly about 10% of Swedes expressinginterest in abandoning the 140-year-old krona, according to a study byGothenburg University. Like otherEuropean countries that don’t usethe euro, Sweden can make its ownmonetary and fiscal policy.

But Sweden’s currency has beentrading at stubbornly high levels

Continued from first page

against the euro for more than ayear, and the resulting pressure onexport-reliant manufacturers is in-tensifying.

Swedish companies say theycan’t move fast enough to keep upwith competitors with euro- or U.S.dollar-based production costs.

Sandvik said first-quarter profitwas cut by 350 million Swedish kro-nor ($52 million) because of the cur-rency’s strength. The hit was equalto about 15% of earnings. A similarhit is expected in the current quar-ter.

Robert Arnegard, who overseesfamily-run Svenska Lantchips, the

potato-chip maker, said, “We will tryand squeeze hard.” The company’sproducts are a staple sold in brownbags on grocery-store shelves acrossSweden. To resist the currency-re-lated headwinds, the company isconsidering whether to open a pro-duction plant somewhere in the eurozone, he said.

Bjorn Jakobson, the founder ofBabyBjorn, set up a production out-post in Milwaukee about four yearsago because of worries about thekrona’s value. Mr. Jakobson is wellknown in Sweden because of thepopularity of BabyBjorn productsthat allow parents to carry childrenin an ergonomically sound device.

“I didn’t trust the currencies,” hesaid, adding that it helps to “buy indollars and sell in dollars.” Mr. Jako-bson would like Sweden to adopt theeuro because it is important “forbusiness people to have clear laws ofthe game and to reduce risks.”

“It would have been great toknow that here the same playingfield applies all the time,” he said.

Ms. Stark, the farm-machineryexecutive, doesn’t necessarily wantto abandon the krona. She hopespolicy makers will take action thatfavors hiring and investing in Swed-ish factories.

“I think the export industry ismore important than people inStockholm seem to remember,” shesaid after Mr. Reinfeldt’s visit. “Thiswill strike back on us.”

Rating Upgrade Spurs Turkish Shares

ISTANBUL—Turkish stocks andbonds surged to record levels onFriday after Ankara secured its sec-ond investment-grade credit rating,offering a substantial boost to agovernment that has long covetedan upgrade to increase institutionalinvestment.

Moody’s Investors Service, oneof the three main rating firms,raised Turkey’s status by one notchto Baa3 on Thursday, joining FitchRatings in placing Ankara at thelowest rung of investment grade.Turkey’s improving economy andpublic finances warranted the up-grade, New York-based Moody’s saidin a note.

Six months after the Fitch up-grade gave Turkey its first invest-ment-level rating since 1994, the

Moody’s action is poised to reducethe country’s borrowing costs. Itcould also foreshadow a wave of in-vestments from funds seekinghigher returns than they can get indeveloped economies, as most port-folios require investment-grade rat-ings from two of the three majorfirms to buy assets in a country.

“The long-term implicationsshould be fairly positive, rangingfrom improved quality in inflowsand to possible improvement in in-vestment appetite,” said Tevfik Ak-soy, a London-based economist atMorgan Stanley. “New channels offund flows might emerge, especiallythose funds that have so far beenunable to invest in a country with a‘junk’ status.”

Investors have been pricing inthe Moody’s upgrade since Fitch’sNovember move, driving the BourseIstanbul 100 Index up about 30%

and on Friday pushing it above93000.

During the same period, Turkey’stwo-year benchmark bond yield fellto lows each week, declining to a re-cord 4.63% on Friday after tradingat 5.04% Thursday morning. Thelira, by contrast, lost ground inearly trading as investors sought tocash in, economists said.

Turkey’s government, which haspersistently said ratings firms un-derestimated the $786 billion econ-omy’s strength, framed the news asthe result of years of economicoverhauls in the decade under theJustice and Development Party andpredicted a new wave of investment.

“This upgrade is a delayed deliv-ery of our achievements,” said Econ-omy Minister Zafer Caglayan. “Now,we anticipate big flows in both for-eign-direct investments and portfo-lio investments.”

BY EMRE PEKERAND JOE PARKINSON

Bloomberg

New

s

SACWill ReduceAid in Insider Case

SAC Capital Advisors LP toldclients it will no longer cooperate“unconditionally” with the govern-ment on a criminal insider-tradingprobe of the hedge-fund firm, mark-ing an abrupt turn for a companythat has spent months reassuringinvestors.

The move signals that a multi-year, multipronged government in-vestigation of the company and itsbillionaire founder, Steven A. Cohen,has intensified, according to peoplefamiliar with the matter.

The Stamford, Conn., firm alsotold investors in a letter Friday thatit won’t any longer update them ondevelopments in the government in-vestigation, according to peoplewho have seen the letter.

“While we have in the past toldyou of our cooperation with thegovernment’s investigation, our co-operation is no longer uncondi-tional, and we do not intend to giveupdates in this area going forward,”the letter said.

Mr. Cohen hasn’t been accused ofany wrongdoing. Since 2009, six for-mer SAC employees have been con-victed in criminal cases or pleadedguilty to insider-trading charges;four of those are cooperating withauthorities. An SAC spokesman hassaid both the firm and Mr. Cohenacted appropriately.

The decisions reflect new devel-opments in the investigation, saidpeople familiar with the matter. SAChas been voluntarily providing doc-uments and engaging in discussionswith the government, but the shiftreflected in Friday’s letter meansthe government will have to presentsubpoenas to obtain further infor-mation from SAC, according to thepeople.

SAC manages $15 billion in total,most of which belongs to Mr. Cohenand SAC employees.

People who have been briefed onrecent conversations involving SAC

officials said the contrast betweenFriday’s letter and past communica-tions with SAC clients representedan acknowledgment that the firmexpects significantly more with-drawals.

SAC investors already havesought $1.7 billion in withdrawalsthis year, and the company haspostponed the next deadline to no-tify the firm of additional withdraw-als to June 3.

At the same time, the companysaid in Friday’s letter that it be-lieved its new stance “will not havea financial impact to our funds.”

The government continues toprobe SAC and its employees, justtwo months after the firm agreed toa record $616 million penalty to set-tle two civil insider-trading suitsbrought by the Securities and Ex-change Commission. In settling, SACneither admitted nor denied wrong-doing.

Both federal prosecutors in Man-hattan and the Federal Bureau of In-vestigation have been pursuing theSAC investigation for several years.At least a dozen FBI agents fromseveral squads are working on theinvestigation, with more involvedpart-time, people familiar with theprobe said.

A five-year deadline is approach-ing in July for prosecutors to decidewhether to file what could be themost serious criminal charges andfor regulators to decide whether tofile civil charges, related to tradingin one case that touches Mr. Cohen.

SAC officials for months have re-sisted assertions by some clientsand others close to the firm thatSAC might opt voluntarily to returnall external investors’ money, evenas the government’s investigationintensified. Friday’s letter didn’tnecessarily change that, accordingto people briefed on conversationswith the firm.

SAC previously said it was coop-erating with the government andmade accommodations to investors,repeatedly giving them more time todecide whether to withdraw moneyfrom the firm.

By Jenny Strasburg,MichaelRothfeld

and Juliet Chung

Export PainsHowmany Swedish kronaone euro buys

The Wall Street JournalSource: Factset

9.25

8.00

8.25

8.50

8.75

9.00

krona

’132012

Friday:8.59 krona

Sandvik, a maker of mining and construction equipment, said the strong krona shaved 15% off its first-quarter profit.


WORLD NEWS

Syrian ForcesPush to RetakeRebel Redoubt

DAMASCUS—Syrian governmentforces backed by members of Leba-nese militant group Hezbollahlaunched a sweeping operation Sun-day to capture a rebel strongholdnear the Lebanese border, accordingto Syrian state media and to activ-ists opposed to the regime.

Taking the town of Qusayr,southwest of the city of Homs,would bolster recent gains by re-gime forces in central Syria andaround the capital, Damascus. It alsocould further embolden Syrian Presi-dent Bashar al-Assad, who told anArgentine newspaper over the week-end that his fate would be decided inelections scheduled for next year.

Such a timetable complicates therenewed U.S.-Russian push for a po-litical settlement to end the morethan two-year civil war in Syria.Rebels and their Western and Arabbackers insist any settlement mustbe predicated on Mr. Assad relin-quishing power.

Government forces had cordonedoff Qusayr on Sunday and were wag-ing street battles against rebels onmultiple fronts, according to Syrianstate television. The state TV chan-

nel’s correspondent, who is embeddedwith government troops in Qusayr,said soldiers took over several govern-ment buildings, including the localmunicipal building, where the rebelflag was brought down and the Syrianflag hoisted in its place. The captureof the building couldn’t be indepen-dently verified.

“We have crushed more than 70terrorists, and the army is makingprogress, and it has liberated thecemetery and the church areas,” anarmy officer told the channel bytelephone from Qusayr. “God will-ing, Qusayr will be liberated in thecoming hours or days.”

The rebels in Qusayr, who are es-timated to number about 5,000 andwhose ranks include foreign fightersand extremists, denied the govern-ment’s claims. But rebels said thetown was being subjected to one ofthe most intensive bombardmentsby regime forces to date.

Activists said at least 40 peoplehad been killed so far, all men ex-cept for two women, in the offen-sive, which started overnight Satur-day with several airstrikes and abarrage of artillery and rocket fire.

Syrian government forces andHezbollah fighters have been gradu-ally tightening their siege of Qusayrsince mid-April. About 10 days ago,the Syrian regime dropped leafletson the town telling fighters to sur-render and civilians to evacuate.

An activist identified as Abu al-Hoda al-Homsi and purportedlyspeaking from Qusayr told the AlJazeera television channel—which isowned by Qatar, a principal backerof the Syrian rebels—that about40,000 civilians remained in Qusayr.

Al Jazeera broadcast what it saidwas exclusive footage from insideQusayr narrated by another activist,identified as Hadi al-Abudallah. Hespoke of civilian casualties, but theimages showed the bloodied corpseof a fighter wearing an ammunitionvest in the back of a truck and thebodies of bearded military-age menat a field hospital, shrouded inwhite sheets and being readied forburial in accordance with Islamictraditions. The footage showedparts of the town engulfed in blacksmoke, as explosions and the crackleof gunfire are heard in the back-ground.

It is unclear how many civiliansremain in Qusayr and whether thefigure given by opposition activists isaccurate.

Before the start of the conflict,Qusayr was home to about 60,000people, mostly Sunni Muslims andChristians. Almost all the Christians,who numbered about 10,000, fled thetown in early 2012 after rebels be-longing to the country’s Sunni major-

ity clashed with Christian familiessupporting the regime. Hundreds ofSunni families also left the town,with most going to neighboring Leb-anon, according to international aidworkers in Lebanon.

Last year, Sunni rebels alsostarted to attack Alawites and Shiiteminorities inhabiting the farmingvillages surrounding Qusayr, andearlier this year openly vowed to“cleanse” the area of the twogroups. Alawites belong to an off-shoot of Shia Islam and dominatethe Assad regime.

In April, the Iran-backed Leba-nese group Hezbollah took over atleast 14 villages around Qusayr andsaid it would defend Mr. Assadagainst what it called a conspiracyby Israel, the U.S. and Sunni Arabdynasties in the Persian Gulf.

Hezbollah has said nothing aboutits role in the current battle inQusayr, but a senior fighter with thegroup and residents of border townsand villages told The Wall StreetJournal at the end of April that Hez-

bollah was instrumental in planningfor Qusayr’s takeover. U.S. officialsestimate there are 2,000 to 2,500Hezbollah fighters in Syria.

In his interview with Argentinedaily El Clarín, published on thenewspaper’s website Saturday, Mr.Assad denied that Hezbollah washelping him battle rebels, but saidboth Iran and the Lebanese grouphave “experts” in Syria who havebeen “coming and going” for years.

An assertive Mr. Assad, who stillenjoys popular support, particularlyamong Syria’s minorities, said hisfate wouldn’t be decided at peacetalks that the U.S. and Russia aretrying to convene in Geneva be-tween the regime and the opposi-tion.

“I am a president elected by thepeople, and only the Syrian peoplewill decide whether I stay or leave,and the ballot box is the referee,”said Mr. Assad, according to a tran-script of the interview that was re-leased by the Syrian Ministry of In-formation.

BY SAM DAGHER

A Syrian soldier sits inside a tank as troops take control of the village of Western Dumayna last week.


Images

Karachi Suburb Shaken by Party Official’s KillingKARACHI, Pakistan—Political vi-

olence has shaken the most affluentarea of this sprawling city, as thekilling of a prominent local politicalorganizer appears to have fright-ened many voters away from a re-run election Sunday.

Zahra Shahid Hussain, one ofthe founders of Pakistan Tehreek-e-Insaf party led by former cricketstar Imran Khan, and an activecampaigner before the vote, wasshot outside her home in one ofKarachi’s richest areas—Defence,Saturday. It was a rare killing of awoman, even by the bloody stan-dards of Karachi politics.

On Sunday, a senior local policeofficer, Nasir Aftab, said the inves-tigation has “tilted more toward as-sassination,” after police initiallysaid it was unclear whether Ms.Hussain was a victim of streetcrime or a targeted killing.

PTI’s Mr. Khan said he held theleader of the Muttahida QaumiMovement, Altaf Hussain, who livesin self-imposed exile in London, re-sponsible for the killing of theparty worker Ms. Hussain, alongwith the British government, forsheltering him.

MQM described Mr. Khan’s alle-gations as “outrageous.” The party

already had been boycotting therevote in Karachi’s NA-250.

Don’t waste this martyrdom,people of Karachi,” Mr. Khan said ina video message from the hospitalbed to which he has been confinedafter an accidental fall earlier thismonth. “

Later Sunday, after polls closed,emotional funeral prayers for Ms.Hussain were held at a mosque inthe neighborhood, which is lined byostentatious villas. “People have

this perception that Defence is aposh area and nothing can happenhere. But last night, all that camecrashing down,” said Ahmed Godil,a 23-year-old PTI supporter at apolling station here. “Everyone wasasking this morning if it is safe tocome out to vote.”

Pakistan’s Election Commissionordered fresh voting in 43 of the180 voting stations in the NA-250parliamentary district of Karachi,after reports of widespread alleged

voting abuses here during the na-tional vote May 11. The main con-test in the district was between theMQM, an ethnic party that has con-trolled Karachi politics for decades,and the PTI.

Heavily armed soldiers were de-ployed inside and outside pollingstations, along with paramilitarytroops and police on Sunday.

The wealth and education ofvoters in Defence means NA-250 iswhere the PTI, which appeals tomiddle-class and upper-middle-class voters fed up with traditionalpatronage politics, stood its bestchance of winning a seat in Karachi,the nation’s economic capital.

The MQM represents descen-dants of Muslims who fled today’sIndia after partition in 1947. It haslong kept a political stranglehold onthe city, where this ethnic groupoutnumbers all others. Opponentsoften accuse the MQM of being rou-tinely involved in murder, extortionand intimidation, charges the partydenies. A secular political group,the MQM was part of the previousgovernment and was singled out forattacks by the Taliban ahead of thismonth’s elections. It didn’t make itinto the new government, however.

For the May 11 elections, the na-tional turnout was 60%, a substan-tial gain on previous elections. In

Karachi’s Defence area, long queuesof voters were seen that day, partlybecause polling stations didn’t openon time, but also due to voter en-thusiasm. But at Sunday’s revote,many polling stations were so quietat times that security and pollingofficials outnumbered voters.

At a polling station at the BayView School in Defence, a PTI poll-ing monitor, Aamra Tariq, said: “Igot involved with PTI because I’mso angry with what MQM does here.We want a progressive country. Weare sticking our necks out.”

Meantime, British officials saidpolice in London are investigatingwhether the MQM leader was incit-ing violence in a telephonic speechlast week to supporters in Karachi,in which he appeared to threatenPTI activists.

On Sunday, several hundreddemonstrators against the MQMgathered outside 10 DowningStreet, in London, residence of theU.K. prime minister. In Pakistanmany are critical about Mr. Hus-sain, who has British citizenship,being able to run his party fromLondon. British police are also in-vestigating the 2010 killing of a dis-sident former senior MQM leader inLondon, Imran Farooq. The Mutta-hida Qaumi Movement denies anyinvolvement in Mr. Farooq’s killing.

BY SAEED SHAH

Voting in Karachi’s NA-250 District was sparse on Sunday, after a local partyorganizer for Pakistan Tehreek-e-Insaf was killed the day before.


Images

Activists said at least 40people had been killed sofar, all men except fortwo women, in theoffensive.


Major players & benchmarks

Credit derivativesSpreads on credit derivatives are oneway themarket ratescreditworthiness. Regions that are treading in roughwaterscan see spreads swing toward themaximum—and vice versa.Indexes beloware for five-year swaps.

Markit iTraxx Indexes SPREADRANGE, in pct. pts.Mid-spread, sincemost recent roll

Index: series/version in pct. pts. Mid-price Coupon Maximum Minimum Average

Europe: 19/1 0.94 100.30% 0.01% 1.28 0.90 1.08

Eur. HighVolatility: 19/1 1.41 98.03 0.01 1.84 1.00 1.60

EuropeCrossover: 19/1 3.88 104.83 0.05 4.91 3.71 4.37

Asia ex-Japan IG: 19/1 1.02 99.89 0.01 1.24 0.98 1.12

Japan: 19/1 0.78 101.10 0.01 1.16 0.73 0.93

Note: Data as ofMay 16

SpreadsSpreads onfive-year swapsfor corporatedebt; based onMarkit iTraxxindexes.

In percentage points

7.00

5.00

3.00

1.00

–1

tEurope Senior Financials

tEurope Crossover

2012 2013Dec. Jan. Feb. Mar. April May

Index roll

Source: Markit Group

Trackingcreditmarkets &dealmakers

Dow Jones Industrial Average P/E: 17LAST: 15354.40 s 121.18, or 0.80%

YEAR TO DATE: s 2,250.26, or 17.2%

OVER 52WEEKS s 2,985.02, or 24.1%

Note: Price-to-earnings ratios are for trailing 12 months

15100

14600

14100

13600

13100

1260022 1 8 15 22 28

Mar.5 12 19 26

Apr.3 10 17

May

High

CloseLow

50–daymoving average

t

Stoxx Europe 50: Friday's best and worst...

Previousclose, in STOCK PERFORMANCE

Company Country Industry Volume local currency Previous session YTD 52-week

INGGroep Netherlands Life Insurance 43,943,971 7.11 3.95% 0.7% 55.2%

Daimler Germany Automobiles 10,287,859 49.00 3.85 18.6 32.3

Deutsche Bank Germany Banks 9,944,165 37.51 2.64 13.8 31.8

Standard Chartered United Kingdom Banks 4,468,051 1,623 2.53 3.1 23.2

Barclays United Kingdom Banks 58,962,421 326.80 2.00 24.5 79.7

Deutsche Telekom Germany Mobile Telecommunications 35,461,993 9.21 -8.30% 7.1 5.2

Telefon L.M. Ericsson B Sweden Telecommunications Equipment 9,780,040 79.95 -1.78 22.8 32.1

Bayer Germany Specialty Chemicals 4,501,891 83.79 -1.19 16.6 65.4

RocheHolding Part. Cert. Switzerland Pharmaceuticals 1,903,899 243.10 -1.18 32.1 57.3

Diageo United Kingdom Distillers & Vintners 4,272,634 2,028 -1.10 13.5 32.7

...And the rest of Europe's blue chipsLatest,in local STOCK PERFORMANCE


Tesco 24,230,425 380.80 1.85% 13.3% 21.3%United Kingdom (Food Retailers &Wholesalers)UBS 13,762,911 17.82 1.65 24.9 62.7Switzerland (Banks)Financiere Richemont 2,654,280 90.10 1.46 26.2 56.3Switzerland (Clothing & Accessories)BNPParibas 7,918,358 46.49 1.40 9.2 82.5France (Banks)L'Air Liquide 1,778,784 97.24 1.39 2.3 4.1France (Commodity Chemicals)Schneider Electric 3,147,805 60.06 1.37 9.5 41.6France (Electrical Components & Equipment)BGGrp 6,347,629 1,226 1.36 21.0 -0.6United Kingdom (Integrated Oil & Gas)Anglo American PLC 3,172,056 1,570 1.36 -17.1 -23.3United Kingdom (GeneralMining)HSBCHldgs 17,980,369 758.60 1.28 17.3 45.6United Kingdom (Banks)Banco Santander S.A. 85,667,610 5.51 1.19 -7.9 25.2Spain (Banks)Total 9,759,872 39.00 1.17 -0.8 12.7France (Integrated Oil & Gas)Royal Dutch Shell A 3,113,652 2,230 1.00 5.1 12.1United Kingdom (Integrated Oil & Gas)H&MHennes &Mauritz B 2,426,127 237.00 0.94 5.6 11.3Sweden (Apparel Retailers)BPPLC 23,206,698 469.95 0.89 10.6 18.5United Kingdom (Integrated Oil & Gas)Moet Hennessy Louis Vuitt 1,610,618 141.65 0.89 1.6 15.9France (Clothing & Accessories)BHPBilliton 5,883,486 1,929 0.89 -9.4 11.8United Kingdom (GeneralMining)ABB 5,525,795 21.58 0.84 15.1 37.9Switzerland (Industrial Machinery)Rio Tinto 5,142,965 2,900 0.75 -17.4 1.6United Kingdom (GeneralMining)Allianz SE 2,870,473 119.60 0.72 14.1 58.8Germany (Full Line Insurance)ENI 47,321,773 18.98 0.69 3.5 19.1Italy (Integrated Oil & Gas)

Latest,in local STOCK PERFORMANCE


BASF 4,919,943 74.42 0.59% 4.6% 30.7%Germany (Commodity Chemicals)British American Tobacco 2,196,672 3,763 0.49 20.6 22.7United Kingdom (Tobacco)Nestle 9,208,886 66.95 0.37 12.3 22.8Switzerland (Food Products)Vodafone Group 81,411,547 197.70 0.33 28.0 19.2United Kingdom (Mobile Telecommunications)GlaxoSmithKline 7,252,167 1,713 0.29 28.3 21.5United Kingdom (Pharmaceuticals)E.ONSE 14,101,789 12.91 0.23 -8.4 -15.1Germany (Multiutilities)Telefonica S.A. 26,759,282 11.20 0.22 9.9 12.9Spain (Fixed Line Telecommunications)Unilever 3,607,840 2,845 0.18 20.2 40.1United Kingdom (Food Products)Imperial Tobacco Grp 2,493,541 2,296 0.04 -3.2 -6.7United Kingdom (Tobacco)Siemens 5,173,799 80.87 -0.01 -1.6 22.5Germany (Diversified Industrials)Sanofi SA 5,813,342 84.50 -0.14 18.4 56.8France (Pharmaceuticals)AstraZeneca 2,197,919 3,383 -0.19 16.3 28.0United Kingdom (Pharmaceuticals)Unilever CVA 8,500,647 32.76 -0.27 13.6 28.8Netherlands (Food Products)SAP 6,085,775 62.73 -0.40 3.4 35.2Germany (Software)Banco Bilbao Vizcaya Argn 60,938,875 7.41 -0.44 7.5 52.9Spain (Banks)Reckitt Benckiser Grp 957,332 4,718 -0.53 21.6 37.5United Kingdom (Nondurable Household Products)Anheuser-Busch InBev 3,032,457 75.00 -0.54 14.1 36.3Belgium (Brewers)Novartis AG 4,336,948 71.75 -0.62 24.9 46.1Switzerland (Pharmaceuticals)Zurich Insurance Group 727,296 259.30 -0.77 6.5 27.8Switzerland (Full Line Insurance)National Grid 5,923,261 828.50 -0.78 17.9 22.7United Kingdom (Multiutilities)

Sources: SIX Financial Information

DJIA component stocksVolume, CHANGE

Stock Symbol inmillions Latest Points Percentage

AT&T T 16.3 $37.44 0.06 0.16%Alcoa AA 12.5 8.61 0.11 1.29AmExpress AXP 4.8 73.32 1.09 1.51BankAm BAC 106.3 13.43 0.07 0.52Boeing BA 7.4 98.92 2.34 2.42Caterpillar CAT 6.6 87.67 0.89 1.03Chevron CVX 6.8 123.42 0.66 0.54CiscoSys CSCO 77.8 24.24 0.35 1.48CocaCola KO 12.4 42.97 –0.12 –0.28Disney DIS 9.1 66.58 0.11 0.17DuPont DD 4.8 55.89 0.40 0.72ExxonMobil XOM 12.4 91.76 1.06 1.17GenElec GE 40.2 23.46 0.19 0.82HewlettPk HPQ 14.3 21.27 –0.09 –0.42HomeDpt HD 8.5 76.86 0.11 0.14Intel INTC 35.9 24.04 0.10 0.42IBM IBM 5.6 208.44 3.75 1.83JPMorgChas JPM 25.8 52.30 1.33 2.61JohnsJohns JNJ 11.3 88.09 0.64 0.73McDonalds MCD 4.0 101.54 0.42 0.42Merck MRK 21.6 45.99 –0.38 –0.82Microsoft MSFT 59.9 34.87 0.79 2.32Pfizer PFE 36.7 28.96 –0.29 –0.99ProctGamb PG 8.5 80.02 –0.18 –0.223M MMM 4.0 111.39 0.32 0.29TravelersCos TRV 2.2 86.50 –0.37 –0.43UnitedTech UTX 4.2 97.35 2.18 2.29UtdHlthGp UNH 5.8 62.84 0.70 1.13Verizon VZ 9.2 53.35 0.15 0.28

WalMart WMT 10.6 77.87 –0.63 –0.80

Source: WSJ Market Data Group

Credit-default swaps: European companiesAt itsmostbasic, thepricingofcredit-defaultswapsmeasureshowmuchabuyerhastopaytopurchase-andhowmuch a seller demands to sell-protection from default on an issuer's debt. The snapshot below gives asensewhichway themarketwasmoving yesterday.

Showing the biggest improvement...CHANGE, in basis points


DixonsRetail 287 –48 –41 –125

BayMotorenWerke 66 –3 ... –16

CODEREFin LUXEMBOURG 2044 –95 597 413

CrAgricole 158 –7 –5 –44

ROLLSROYCE 61 –3 –3 –14

Volkswagen 75 –3 –1 –16

Daimler 77 –3 –1 –16

LHRARPTS 101 –4 –5 –40

EurpnAeroDefence SpaceCoEads 71 –3 –5 –28

FIAT 430 –15 –13 –139

And the most deteriorationCHANGE, in basis points


KabelDeutschlandVertriebundService 177 10 14 –22

Swedbank 99 2 ... –11

BP 61 1 2 –9

FranceTelecom 106 1 6 –8

Novartis 25 ... ... –3

ConvaTecHealthcare 484 4 10 –119

ITV 130 1 4 –7

Royal Bkof Scotland 155 1 6 –22

INEOSGROUPHldgs 105 1 7 –41

ReedElsevier 58 ... 4 –5

Source:Markit Group

BLUE CHIPS & BONDS

WSJ.com>>Follow the markets throughout the day, with updatedstock quotes, news and commentary at WSJ.com.

Also, receive emails that summarize the day’s trading inEurope and Asia. To sign up, go to WSJ.com/Email.

Below, a look at the Dow Jones Stoxx50, the biggest and best knowncompanies in Europe, including the U.K.

Behind Asia’s deals: Bank revenues from equity capital markets

Behind every IPO,follow-on orconvertible equityoffering is one ormore investmentbanks. At right,investment bankshistorical and year-to-date revenuesfrom global equity-capital-market(ECM) deals

Source: Dealogic

90%3

602

301

002005 2006 2007 2008 2009 2010 2011 2012 2013

n Equity capital markets n Debt capital markets (both in billions, left axis)

ECM as a percentage of total(right axis)t


U.S. NEWS

White House AideChides the GOP for‘Fishing Expeditions’

White House senior adviserDan Pfeiffer said the Obama ad-ministration wouldn’t cooperate in“partisan fishing expeditions”over targeting of tea-party groupsby tax officials, raising the pros-pect of future battles with law-makers over their investigations.

Mr. Pfeiffer also hinted at thepossibility of further personnelchanges at the Internal RevenueService in coming days. PresidentBarack Obama last week forcedthe ouster of the acting commis-sioner.

Speaking on ABC, Mr. Pfeiffersaid the law governing the target-ing of conservative groups was“irrelevant,” saying the conductitself was “outrageous” and prom-ising the administration wouldmake sure it “never happensagain.”

Pressed on his characterizationof the law, he added: “What Imean is, whether it’s legal or ille-gal is not important to the factthat the conduct doesn’t matter.The Department of Justice hassaid they’re looking into the legal-ity of this. The president is notgoing to wait for that. We have tomake sure it doesn’t happenagain, regardless of how thatturns out.”

The IRS apologized Friday forwhat it said were mistakes in tar-geting tea-party and other conser-vative groups for extra scrutinyduring the 2012 election cam-paign, but said its actions weren’tpolitically motivated.

During a series of appearanceson the Sunday talk shows, Mr.Pfeiffer was at times defensiveabout what had happened at theIRS while also taking a more ag-gressive tone against GOP effortsto investigate the matter.

“We’ve seen this playbook fromthe Republicans before,” Mr. Pfeif-fer said on NBC. “What they wantto do when they’re lacking a posi-tive agenda is to try to dragWashington into a swamp of parti-san fishing expeditions, trumped-up hearings and false allegations.We’re not going let that happen.”

Mr. Pfeiffer said on ABC thatthe administration would considerany request that lawmakers putforward, adding that “our hope isthat they do this in a bipartisanway.”

Republicans said a hearing be-fore the House Ways and Means

Committee Friday representedonly a first step, and that muchmore fact-finding will occur be-fore they can judge who is toblame.

Speaking on NBC, Ways andMeans Chairman Dave Camp (R.,Mich.) said the Treasury inspectorgeneral for the IRS is now con-ducting a more thorough investi-gation. That will likely includemore documentary evidence, suchas emails, than the audit report is-sued on Tuesday.

Mr. Camp and the top Demo-crat on his panel, Rep. SanderLevin of Michigan, also have re-quested extensive evidence fromthe IRS. Mr. Camp hasn’t ruled outthe possibility of issuing subpoe-nas.

“Congress has been trying toget answers for two years and wewere stonewalled,” Mr. Camp said.“We still need to have the investi-gation.”

Two other committees areholding hearings this week.

Several GOP lawmakers ques-tioned the wisdom of allowingSarah Hall Ingram, who formerlyoversaw tax-exempt organiza-tions—the heart of the currentcontroversy—to run the IRS officein charge of compliance with the2010 health-care overhaul. Ms. In-gram was in charge of tax-exemptand government entities until theend of 2010. The improper target-ing of tea-party and other conser-vative groups appears to havestarted in early 2010.

On ABC, Mr. Pfeiffer said thenewly installed acting commis-sioner, Daniel Werfel, would do a30-day review “to see that anyonewho did anything wrong is heldaccountable.” He noted that “thisindividual you are referring to isnot mentioned in the inspectorgeneral’s report.”

He didn’t rule out the possibil-ity of other changes regarding thehealth-care implementation.

“He’s going to get in there, he’sgoing to do a top-to-bottom re-view and make sure that they cando the job and do it right,” Mr.Pfeiffer said.

Lawmakers also have been crit-ical of Lois Lerner, the director ofthe IRS exempt-organizations divi-sion.

Ms. Ingram and Ms. Lerner ha-ven’t responded to requests forcomment in recent days and didn’timmediately respond to requestson Sunday.

BY JOHN D. MCKINNON

President Barack Obama boards Air Force One Sunday in Maryland.

AssociatedPress Kenneth

Feinberg, theveteran victim-fund administrator,knew almostimmediately after

hearing about the BostonMarathon bombings that he wouldbe getting a call.

He likened the moment to ared light blinking, signaling: “Hereit comes.”

Soon after, Boston MayorThomas Menino called Mr.Feinberg, who was named by Mr.Menino and Massachusetts Gov.Deval Patrick to head the OneBoston Fund two days after thebombings last month. Mr. Patrickcited the 67-year-old Mr.Feinberg’s “long history of publicservice, especially in times oftragedy.”

That history includes runningfunds—or advising those runningfunds—on a pro bono basis in theaftermath of the Sept. 11, 2001,terrorist attacks and the massshootings in Blacksburg, Va.;Aurora, Colo.; and Newtown,Conn.

And it informs Mr. Feinberg’scalculations about distributingfunds to victims. “What betterevidence to rely on whendetermining the value of livesthan what you’ve done before?”he said in an interview.

There are nonethelessimportant differences between thefunds he has run. After Sept. 11,Congress formed a fund to offervictims’ families payments inexchange for agreeing not to suethe airlines involved, so amountsoffered were based on what theycould have expected to get incourt. Since court awards oftenare based on lifetime earningpotential of victims, survivors ofbig earners got the most from theSeptember 11th VictimCompensation Fund. By contrast,funds in Boston and for the mass-shooting victims were set up tohand out no-strings-attached gifts,not to substitute for the tortprocess.

Boston, meanwhile, differsfrom the others in that thebombings cost more limbs thanlives, and the number of severe,life-altering injuries of all kinds isso high—higher than after Sept.11, Mr. Feinberg said.

What unites all these funds isMr. Feinberg’s approach, which hecalls “rough justice.”

Though he works as a lawyerwhen not administering victimfunds, his approach isn’t based ontort law and none of his Bostonteam are lawyers—most arePricewaterhouseCoopersaccountants working pro bono.His priority is to get funds torecipients quickly, and with aminimum of strife.

“I’m trying to encouragepeople to move on as best theycan,” he said.

In practice, that meansdrawing simple, easy-to-followrules for dividing funds.

For instance, funds run by Mr.

Feinberg since Sept. 11 typicallyaward the same amount forrecipients within each category—survivors of those killed, forexample, or double amputees orthose with severe brain injuries.

Mr. Feinberg doesn’t reviseawards based on expectedearnings, financial means, medicalbills, health insurance, othersources of income—such as theindividual funds set up bymarathon victims—or the severityof injuries within each category.

“To ask [victims] and theirfamilies to start getting you reamsof information so you and youalone can do means testing—itwill slow getting the money out,”Mr. Feinberg said. “It willpromote, not help cure, emotionalwounds.”

Boston victims and theirfamilies got to hear from Mr.Feinberg about his approach thismonth, when he spoke at twotown-hall meetings.

To 25-year-old Kaitlynn Cates,a marathon spectator whosuffered a severe calf injury, Mr.Feinberg came off as “very blunt,very forward.”

Ms. Cates said that wasn’t abad thing: “He did what he had todo.”

Mr. Feinberg said he did takeinto account feedback fromvictims and their families whendrawing up the Boston plan,which was announced last weekwithout specific dollar figures, asthe fund is still acceptingdonations and the extent of somevictims’ injuries remains unclear.

Among the decisions heattributes to their feedback

include giving money to peoplewho were injured but treated onan outpatient basis.

One contentious point iswhether to compensate forpsychological trauma.

The Boston fund won’t do it,because Mr. Feinberg said thereisn’t enough money to go around.

Emotional trauma was asticking point in Aurora, whereRichard Audsley, adviser to acommittee distributing $5.3million, favored including thosewho had suffered trauma fromevents such as holding dyingpeople in their arms.

“His point of view was, therewasn’t enough money to deal withemotional trauma,” Mr. Audsleysaid of Mr. Feinberg’s work as a“special master” for the fund.

“I understand his point of view,but I think many victims, in thatparticular event, felt what theyhad experienced was minimized tothe point it created a lot ofadditional emotional strife.”

Many who have worked withMr. Feinberg before applaud hisperformance. John Ashcroft, theformer U.S. attorney general whochose him to administer the Sept.11 fund, said in an interview, “Idon’t think there’s any questionabout the fact that he did the jobwell.”

Despite their differences inpriorities, Mr. Audsley appreciatedMr. Feinberg’s work. Mr. Audsleycalled his approach “formulaic,”but said adhering to a formulamay be the best way to get fundsout quickly in a manner perceivedas fair.

Is his formula perfect?Mr. Feinberg answers his own

question: “Absolutely not. Is itnear perfect? Absolutely not. Butit’s the best way of thealternatives, I think.” He added,“By the end of June, $30 millionwill be out the door, and then wemove on, and hope there isn’tanother one.”

A Victim-Fund Chief’sCritical Calculations

[ The Numbers Guy]

BY CARL BIALIK

Relief MeasuresThe way Kenneth Feinberg determined compensation for victims of the 2007shooting at Virginia Tech and the 2012 shooting in Aurora, Colo., will influencehow he will distribute the donations pouring in for victims of the BostonMarathon bombings and their aftermath.

The Wall Street Journal*Includes 23 people not injured but present when shootings occurredSources: Feinberg Rozen LLP; One Fund Boston

Virginia Tech*

Aurora

50

26

32

12

$42,400

$103,783

$220,000

$220,000

Victimstatus

TOTAL FUND SIZE

PAST COMPENSATION PATTERNS

Injured

Deceased

Number of victimscompensated

Averagepayout

$30.4 million

One Fund Boston(as of Friday)

Hokie SpiritMemorial Fund

$5.3 mil.

Aurora VictimRelief Fund

$9.2 mil.

The Boston Marathonbombings took morelimbs than lives.


Currencies London close onMay 17Per In

AMERICAS Per euro In euros U.S. dollar U.S. dollars

Argentina peso-a 6.7060 0.1491 5.2313 0.1912Brazil real 2.6105 0.3831 2.0364 0.4911Canada dollar 1.3165 0.7596 1.0270 0.9738Chile peso 616.67 0.001622 481.06 0.002079Colombia peso 2357.44 0.0004242 1839.00 0.0005438EcuadorUS dollar-f 1.2819 0.7801 1 1Mexico peso-a 15.7886 0.0633 12.3164 0.0812Peru sol 3.3739 0.2964 2.6320 0.3799Uruguay peso-e 24.286 0.0412 18.945 0.0528U.S. dollar 1.2819 0.7801 1 1Venezuela bolivar 8.14 0.122847 6.35 0.157480

ASIA-PACIFICAustralia dollar 1.3166 0.7595 1.0271 0.97371-mo. forward 1.3196 0.7578 1.0294 0.97153-mos. forward 1.3252 0.7546 1.0337 0.96746-mos. forward 1.3332 0.7501 1.0400 0.9615

China yuan 7.8696 0.1271 6.1390 0.1629Hong Kong dollar 9.9512 0.1005 7.7627 0.1288India rupee 70.3773 0.0142 54.9000 0.0182Indonesia rupiah 12505 0.0000800 9755 0.0001025Japan yen 132.04 0.007574 103.00 0.0097091-mo. forward 132.02 0.007575 102.99 0.0097103-mos. forward 131.98 0.007577 102.95 0.0097136-mos. forward 131.89 0.007582 102.88 0.009720

Malaysia ringgit-c 3.8740 0.2581 3.0220 0.3309NewZealand dollar 1.5867 0.6303 1.2377 0.8079Pakistan rupee 126.263 0.0079 98.495 0.0102Philippines peso 52.839 0.0189 41.219 0.0243Singapore dollar 1.6114 0.6206 1.2570 0.7956South Koreawon 1433.69 0.0006975 1118.40 0.0008941Taiwan dollar 38.500 0.02597 30.033 0.03330Thailand baht 38.289 0.02612 29.868 0.03348

Per InEUROPE Per euro In euros U.S. dollar U.S. dollars

Euro zone euro 1 1 0.7801 1.2819

1-mo. forward 0.9998 1.0002 0.7799 1.2822

3-mos. forward 0.9994 1.0006 0.7796 1.2827

6-mos. forward 0.9986 1.0015 0.7789 1.2838

Czech Rep. koruna-b 26.060 0.0384 20.329 0.0492

Denmark krone 7.4523 0.1342 5.8134 0.1720

Hungary forint 291.17 0.003434 227.13 0.004403

Norway krone 7.5193 0.1330 5.8657 0.1705

Poland zloty 4.1821 0.2391 3.2624 0.3065

Russia ruble-d 40.302 0.02481 31.439 0.03181

Sweden krona 8.5903 0.1164 6.7011 0.1492

Switzerland franc 1.2476 0.8015 0.9732 1.0275

1-mo. forward 1.2472 0.8018 0.9729 1.0278

3-mos. forward 1.2464 0.8023 0.9723 1.0285

6-mos. forward 1.2449 0.8033 0.9711 1.0297

Turkey lira 2.3640 0.4230 1.8441 0.5423

U.K. pound 0.8449 1.1835 0.6591 1.5172

1-mo. forward 0.8451 1.1833 0.6593 1.5169

3-mos. forward 0.8454 1.1829 0.6595 1.5163

6-mos. forward 0.8458 1.1824 0.6598 1.5157

MIDDLE EAST/AFRICABahrain dinar 0.4833 2.0692 0.3770 2.6525

Egypt pound-a 8.9361 0.1119 6.9709 0.1435

Israel shekel 4.7013 0.2127 3.6674 0.2727

Jordan dinar 0.9079 1.1014 0.7083 1.4119

Kuwait dinar 0.3668 2.7266 0.2861 3.4953

Lebanon pound 1943.20 0.0005146 1515.85 0.0006597

Saudi Arabia riyal 4.8073 0.2080 3.7501 0.2667

South Africa rand 12.0660 0.0829 9.4125 0.1062

United Arab dirham 4.7085 0.2124 3.6730 0.2723

a-floating rate b-financial c-government rate c-commercial rate d-Russian Central Bank rate.Source: ICAPPlc.

Major stock market indexes Stock indexes fromaround theworld, grouped by region. Shown in local-currency terms.


EUROPE Stoxx Europe 600 308.72 0.75 0.24% 10.4% 29.2%

Stoxx Europe 50 2823.22 8.43 0.30 9.5 25.5

Euro Zone Euro Stoxx 283.43 0.89 0.31 8.7 31.4

Euro Stoxx 50 2817.99 11.29 0.40 6.9 31.4

Austria ATX 2499.83 15.06 0.61 4.1 32.0

Belgium Bel-20 2732.29 4.78 0.18 10.4 31.7

Czech Republic PX 982.78 -2.50 -0.25% -5.4 13.1

Denmark OMXCopenhagen 504.34 -1.09 -0.21 11.5 25.2

Finland OMXHelsinki 6421.75 -13.41 -0.21 10.7 26.7

France CAC-40 4001.27 22.20 0.56 9.9 33.0

Germany DAX 8398.00 28.13 0.34 10.3 33.9

Hungary BUX 18779.57 6.13 0.03 3.3 14.0

Ireland ISEQ 4004.57 7.27 0.18 17.9 32.9

Italy FTSEMIB 17604.61 60.60 0.35 8.2 34.9

Netherlands AEX 368.08 2.71 0.74 7.4 27.5

Norway All-Shares 531.17 Closed 8.3 16.6

Poland WIG 46078.68 86.65 0.19 -2.9 23.7

Portugal PSI 20 6115.53 52.08 0.86 8.1 28.4


Russia RTSI 1405.34 24.76 1.79% -8.0 9.0

Spain IBEX 35 8582.4 40.10 0.47 5.1 30.7

Sweden OMXStockholm 389.45 2.55 0.66 13.2 29.4

Switzerland SMI 8280.25 24.10 0.29 21.4 42.8

Turkey ISE National 100 91924.84 -21.90 -0.02% 17.5 61.5

U.K. FTSE 100 6723.06 35.26 0.53 14.0 27.6

ASIA-PACIFIC DJAsia-Pacific 147.51 -0.38 -0.26 10.7 26.5

Australia SPX/ASX 200 5180.80 15.10 0.29 11.4 28.0

China CBN 600 21771.72 320.76 1.50 4.7 1.6

Hong Kong Hang Seng 23082.68 Closed 1.9 20.2

India Sensex 20286.12 38.79 0.19 4.4 25.6

Japan Nikkei Stock Average 15138.12 100.88 0.67 45.6 75.8

Singapore Straits Times 3449.30 -2.98 -0.09 8.9 24.1

South Korea Kospi 1986.81 Closed -0.5 7.7

AMERICAS DJAmericas 424.90 3.72 0.88 14.5 26.8

Brazil Bovespa 55164.27 391.65 0.72 -9.5 1.2

Mexico IPC 41806.73 45.62 0.11 -4.3 13.4

Note:Americas index data are as of 5:00 p.m. ET. Sources: SIX Financial Information;WSJMarketDataGroup

Cross rates U.S.-dollar and euro foreign-exchange rates in global trading

USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD

Australia 1.0271 1.5582 1.0553 0.1533 0.0327 0.1751 0.0100 0.2800 1.3166 0.1767 1.0001 ...

Canada 1.0270 1.5581 1.0552 0.1533 0.0327 0.1751 0.0100 0.2800 1.3165 0.1767 ... 0.9999

Denmark 5.8134 8.8199 5.9734 0.8675 0.1849 0.9911 0.0564 1.5852 7.4523 ... 5.6608 5.6603

Euro 0.7801 1.1835 0.8015 0.1164 0.0248 0.1330 0.0076 0.2127 ... 0.1342 0.7596 0.7595

Israel 3.6674 5.5641 3.7683 0.5473 0.1167 0.6252 0.0356 ... 4.7013 0.6309 3.5712 3.5708

Japan 102.9992 156.2673 105.8337 15.3704 3.2762 17.5596 ... 28.0850 132.0367 17.7176 100.2962 100.2860

Norway 5.8657 8.8992 6.0271 0.8753 0.1866 ... 0.0569 1.5994 7.5193 1.0090 5.7117 5.7112

Russia 31.4387 47.6979 32.3039 4.6916 ... 5.3598 0.3052 8.5725 40.3019 5.4080 30.6137 30.6105

Sweden 6.7011 10.1667 6.8855 ... 0.2131 1.1424 0.0651 1.8272 8.5903 1.1527 6.5253 6.5246

Switzerland 0.9732 1.4765 ... 0.1452 0.0310 0.1659 0.0094 0.2654 1.2476 0.1674 0.9477 0.9476

U.K. 0.6591 ... 0.6773 0.0984 0.0210 0.1124 0.0064 0.1797 0.8449 0.1134 0.6418 0.6418

U.S. ... 1.5172 1.0275 0.1492 0.0318 0.1705 0.0097 0.2727 1.2819 0.1720 0.9738 0.9737

Source: ICAPPlc.

MSCI indexesDeveloped and emerging-market regional and country indexesfromMSCI Barra as ofMay 17, 2013

Price-to- LOCAL-CURRENCYDividend earnings PERFORMANCEyield ratio MorganStanley Index Last Daily YTD 52-wk.

2.60% 15 ALLCOUNTRY (AC)WORLD* 376.74 0.16% 10.9% 14.6%

2.60 16 World (DevelopedMarkets) 1,508.02 0.19 12.7 16.5

2.40 16 World ex-EMU 185.79 0.26 13.6 16.3

2.50 16 World ex-UK 1,517.34 0.25 13.3 17.3

3.10 16 EAFE 1,772.81 -0.16 10.5 16.9

2.80 12 EmergingMarkets (EM) 1,046.33 -0.02 -0.8 2.0

3.50 14 EUROPE 105.61 -0.07 9.7 18.8

3.70 15 EMU 166.49 -0.33 5.9 18.2

3.50 16 Europe ex-UK 111.13 -0.11 10.1 22.4

4.60 12 EuropeValue 104.33 -0.10 7.6 19.1

2.50 19 EuropeGrowth 102.98 -0.04 11.7 18.4

2.70 26 EuropeSmall Cap 226.28 0.44 13.2 21.9

3.80 6 EMEurope 306.93 -0.98 -1.1 2.9

3.60 13 UK 1,978.01 -0.09 13.2 16.5

3.70 15 Nordic Countries 189.50 -0.10 9.6 17.2

3.70 5 Russia 728.18 -1.17 -5.0 -6.1

3.30 15 SouthAfrica 1,018.58 0.64 0.7 14.8

2.90 14 ACASIAPACIFICEX-JAPAN 481.06 0.12 3.2 9.0

1.70 23 Japan 772.95 -0.51 45.8 56.5

3.10 10 China 61.46 -0.11 -2.2 2.2

1.30 15 India 793.43 0.44 3.8 17.2

1.10 10 Korea 566.14 1.05 -2.4 -2.9

3.30 20 Taiwan 302.84 0.83 9.5 12.6

2.00 17 USBROADMARKET 1,864.64 0.50 16.0 18.4

1.50 26 USSmall Cap 2,750.32 0.40 16.8 21.9

3.30 16 EMLATINAMERICA 3,700.92 0.38 -2.6 -5.7

*Twenty-three developed and 26 emergingmarkets Source:MSCI Barra

Dow Jones IndexesPrice-to-

Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars)yield* ratio* Dows Jones Index Last Daily 52-wk. Last Daily 52-wk.

2.50%18.97 Global TSM 2975.80 0.30% 27.2%

2.78 23.49 GlobalDOW 1641.06 0.93% 26.4% 2235.02 0.20 27.4

3.11 14.91 Global Titans 50 226.30 1.02 23.0 216.75 0.29 23.9

3.40 19.69 DevEuropeTSM 2947.25 -0.45 30.7

2.51 19.87 DevelopedMarketsTSM 2951.42 0.33 28.5

9.78 13.80 S&PBMIEmgMarkets 268.83 -0.11 16.6

3.49 19.02 S&PEurope 350 1262.18 0.26 29.4 1453.86 -0.37 30.4

3.55 19.86 S&PEuro 1200.07 0.37 32.2 1400.87 -0.26 33.2

4.16 18.42 EuropeDow 1278.61 0.50 25.5 1741.38 -0.23 26.5

2.76 8.80 BRIC50 427.30 1.19 10.6 522.42 0.46 11.5

2.02 19.57 U.S. TSM 17389.25 1.02 29.7

Kuwait Titans 30 -c 205.85 -0.42 13.2

Price-to-Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars)yield* ratio* Dows Jones Index Last Daily 52-wk. Last Daily 52-wk.

TurkeyTitans 20 -c 935.46 0.02% 64.3%

6.17%22.22 Global SelectDiv 209.38 -0.03% 17.1% 229.79 -0.75 18.1

5.80 16.95 Asia/Pacific SelectDiv 325.15 -0.43 22.6 356.85 -1.15 23.6

U.S. SelectDividend -d 1183.40 1.75 1133.42 1.02 29.2

2.99 15.76 S&PGlbNatResources 2087.71 0.60 8.0 2662.53 -0.03 9.0

2.27 17.65 IslamicMarket 2505.27 0.29 21.4

2.69 16.48 IslamicMarket 100 2485.61 0.98 21.6 2727.90 0.25 22.6

Islamic Turkey -c 4767.55 0.02 35.9

3.45 20.87 Sustainability Europe 102.36 0.11 30.4 144.28 -0.61 31.5

4.04 21.45 S&PGlb Infrastructure 1520.61 0.77 15.9 2204.81 0.14 17.0

1.81 13.70 Luxury 1744.23 1.05 28.0 1896.31 0.33 29.1

DJ-UBSCommodity -p 116.73 0.61 -3.6 131.70 0.61 -3.2

*Fundamentals are based on data inU.S. dollar. Footnotes: a-inUSdollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&PDowJones Indices

GLOBAL MARKETS LINEUP

WSJ.com>> Follow the markets throughout the day with updated stock quotes, news andcommentary at WSJ.com. Also, receive email alerts that summarize the day’s trading in Europeand Asia. To sign up, go to WSJ.com/email.

Commodities Prices of futures contractswith themost open interestEXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: ChicagoMercantile Exchange; ICE-US: ICE Futures U.S.MDEX:BursaMalaysiaDerivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: LondonMetals Exchange;NYMEX:NewYorkMercantile Exchange;ICE-EU: ICE Futures Europe *Data as of 5/16/2013

ONE-DAY CHANGE Year YearCommodity Exchange Last price Net Percentage high low

Corn (cents/bu.) CBOT 653.25 11.75 1.83% 738.75 610.00Soybeans (cents/bu.) CBOT 1448.75 21.25 1.49 1,483.50 1,336.50Wheat (cents/bu.) CBOT 682.75 -5.00 -0.73% 813.25 664.75Live cattle (cents/lb.) CME 118.675 -1.050 -0.88 132.325 118.375Cocoa ($/ton) ICE-US 2,308 14 0.61 2,437 2,046Coffee (cents/lb.) ICE-US 137.05 -2.80 -2.00 163.30 132.70Sugar (cents/lb.) ICE-US 16.89 0.06 0.36 19.92 16.81Cotton (cents/lb.) ICE-US 86.37 0.34 0.40 94.20 75.58Rapeseed (euro/ton) LIFFE 435.00 -1.50 -0.34 442 413Cocoa (pounds/ton) LIFFE 1,550 21 1.37 1,583 1,400Robusta coffee ($/ton) LIFFE 2,035 -11 -0.54 2,217 1,926

Copper ($/lb.) COMEX 3.3145 0.0200 0.61 3.8155 3.0425Gold ($/troy oz.) COMEX 1357.60 -29.30 -2.11 1,702.00 1,321.50Silver ($/troy oz.) COMEX 22.200 -0.459 -2.03 32.510 21.120Aluminum ($/ton)* LME 1,834.50 -0.50 -0.03 2,165.50 1,828.50Tin ($/ton)* LME 20,700.00 50.00 0.24 25,150.00 19,775.00Copper ($/ton)* LME 7,125.50 -19.50 -0.27 8,286.00 6,842.00Lead ($/ton)* LME 1,968.00 7.00 0.36 2,455.00 1,961.00Zinc ($/ton)* LME 1,820.50 -4.50 -0.25 2,214.00 1,820.50Nickel ($/ton)* LME 14,900 -5 -0.03 18,665 14,850

Crude oil ($/bbl.) NYMEX 96.33 0.88 0.92 99.79 86.16Heating oil ($/gal.) NYMEX 2.9297 0.0292 1.01 3.2205 2.7277RBOB gasoline ($/gal.) NYMEX 2.8870 0.0241 0.84 3.1804 2.6750Natural gas ($/mmBtu) NYMEX 4.107 0.125 3.14 4.4990 3.3340Brent crude ($/bbl.) ICE-EU 104.63 0.85 0.82 115.93 96.76Gas oil ($/ton) ICE-EU 879.75 8.00 0.92 992.75 820.25

Sources: SIX Financial Information;WSJMarket Data Group


EUROPE NEWS

Unemployment in Spain is at27%. Young people are fleeingPortugal and Ireland. One-in-fourGreeks say they have difficultypaying for food.

Despite the Depression-eraconditions, however, Europe has nocrash plan to get people back towork. Under the German-engineered strategy to escape theeuro crisis, struggling southernEuropean members must continueto cut public spending, lowerwages and grind down prices untilthey’re competitive again. Atcurrent rates, it could take adecade or more to complete theprocess, according to studies byGoldman Sachs.

All the pain being enduredraises the question: Is there abreaking point at which Europeanssimply say, “Enough”?

Certainly, Europeans haveprotested austerity. But despitesome scares, no country has leftthe euro. Support for remaining inthe common currency remainshigh, even though there’swidespread disenchantment withthe European Union. Over 60% ofSpaniards, Greeks, Italians andFrench want to keep the commoncurrency, according to a surveypublished this month by the PewResearch Center.

Euro doomsayers who expectedGreece would tumble out of thecurrency last year have seemingly

underestimated Europeans’willingness to put up with years ofhardship rather than gamble on anexit. But European officials whopoint to the stability of pro-eurosentiment may be making theopposite mistake.

Europeans’ reserves of patienceare deep, but surely finite.

“Just the sheer enormity ofquitting the euro has so farmilitated against a surge insupport to leave,” says SimonTilford, chief economist at theCenter for European Reform, aLondon-based think tank. Oncepeople feel there’s no light at theend of the tunnel, however, “we’llprobably start to see a more opendebate about the costs and benefitsof remaining in the singlecurrency,” he says. “And once yousee that debate, things couldhappen quite quickly.”

It has happened before. Likecountries that joined the eurozone, Argentina in the 1990s gaveup control over its own currency,fixing it 1-to-1 to the U.S. dollar.That tamed hyperinflation, but italso allowed a borrowing binge indollars that pushed up wages andbusiness costs. Like southernEurope today, Argentina becamedeeply uncompetitive and thecountry’s currency couldn’t fall tomake its goods attractive abroad.

Like euro members today,Argentina had to grin and bear ituntil wages and prices fell farenough for the country to becomecompetitive again. Conventionalwisdom at the time was thatArgentines would bear anyhardship to keep using the U.S.

dollar, so seared were they bydecades of political and economicchaos that included periods offour-digit inflation.

“Devaluation is not an option inArgentina,” a World Bankeconomist said at the time. “Withsuch a high dollarization level, adevaluation would be too costly.”

Technically, Argentina had itsown currency to return to, butabandoning parity with the dollarwas seen as too excruciating toundertake, because almost all debtsand business contracts were in theU.S. currency. After three years of

recession, though, Argentinesappeared to decide en masse thatwhatever came next couldn’t beworse than the unendingdepression needed to keep theirpesos interchangeable with dollars.

On a balmy night in December2001, the middle class took to thestreets of Buenos Aires in anexplosion of rage. Riots across thecountry swept the governmentfrom power. Argentina defaultedon its debt soon after, and then thecountry abandoned the peso’s pegto the dollar.

How similar is the situation

southern Europe today?Argentina’s economy hadcontracted by around 8% in thethree years before the uprising. Bythe end of this year, Italy’s andPortugal’s economies will haveshrunk by around 8% from theirpeak, Spain’s by around 6% andGreece’s by more than 23%,according to the InternationalMonetary Fund.

EU policy makers who takecomfort in the apparent popularityof the euro should consider thatArgentines also widely supportedthe dollar peg—right up until themoment they exploded. In a pollpublished in December 2001, thesame month that Argentinesrioted, just 14% said the currencyregime should be scrapped; 62%said they wanted to keep it. That’svirtually the same proportion ofSpaniards and Greeks who say theywant to keep the euro today.

Argentina, with its ups anddowns since devaluation, isn’t amodel for Europe. Rather, it’s acautionary tale.

In late 2001, Argentina’seconomy minister called thecountry’s dollar peg “a permanentinstitution,” whose unthinkablecollapse would cause “thedissolution of the basicinstitutions of the economy andsociety.” A month later it wasgone.

Those who say the risk ofcountries leaving the euro hasgone away should consider othertimes when people viewed acurrency regime as sacred, rightup until the time they swept itaway.

Euro-Zone Risking an Argentina Moment?[ The Outlook ]

BY THOMAS CATANAND MARCUS WALKER

BreakingPoint?Some euro countriesare now nearing thesame decline in grossdomestic productthat Argentina hadwhen it abandonedthe dollar peg.Greece has farsurpassed that level.


*Year zero for Argentina represents full-year 1998 GDP; for others, it represents full-year 2007

Source: WSJ analysis of International Monetary Fund data

0

–25

–20

–15

–10

–5

%

Greece–23.5%

Italy–8.3%

Portugal

–7.9%

Spain–5.7%

10 2 3YEARS SINCE START OF CRISIS*

4 5 6

Cumulativeloss in GDP

(2013projections)

Argentina’s GDP had fallen8.4%when it abandonedthe dollar peg in January 2002

Subdued Danish Songstress Captures EurovisionMALMO, SWEDEN—Eurovision

fans got what they expected in the58th edition of a song contestknown as much for kitsch outfits,over-the-top stage shows and geo-political tension as for musical qual-ity.

Memorable hallmarks of theweekend event included a Romanianresembling a vampire singing shock-ingly high notes; Greek men dancingin skirts; and a twiggy Ukrainianwrapped so tightly in her dress thatit seemed to make sense to have oneof the tallest men in the world carryher on stage.

Early Sunday morning however,after nearly four hours of perfor-mances and vote tallying, the crownwent to a 20-year-old Dane whoopted to go with a more predictableand mainstream formula that hasdelivered the prize to performers inrecent years. Picking a catchy balladcalled “Only Teardrops” written bya Scandinavian songwriter andabandoning shoes in favor of thesame barefoot approach taken bythe winner in 2012, Emmelie de For-est relied on powerful vocals and aload of pre-Eurovision hype tohandily beat the closest runners upAzerbaijan and Ukraine.

The more toned-down Ms. deForest stood in contrast to the an-tics that have made Eurovision fa-mous. Recent performances includeSweden’s Eric Saade breakingthough a wall of glass in 2011 andRussia’s band of grandmothers last

year. The most gimmicky act to winwas perhaps Lordi, the Finnish mon-ster mask-wearing rocker whowowed audiences in 2006 by blend-ing pyrotechnics with Tolkienesquemonsters.

Held in Malmo, Sweden’s third-largest city, the 2013 Eurovision isestimated by organizers to havebeen watched on TV by well over100 million people world-wide, withnew viewers from the U.S. watchingvia web stream. Organizers, under

pressure to rein in costs after somecountries sat the show out due tocost concerns, cut the budget in halfcompared with the prior year andspent about $20 million producing acontest of 39 nations, with 26 mak-ing it to the final.

Like the winner, this edition ofEurovision was a bit more subdued,reflecting a Europe that is having todo more with less.

With Ms. de Forest’s victory, Eu-rovison promises to stay close to

Sweden’s borders and in a Nordicregion that has proven to take thesong contest very seriously even asother participants show less enthu-siasm. As this year’s winner, Den-mark will become the fourth Nordicnation in the past eight years tohost Eurovision, following Finland’svictory in 2006, Norway’s win in2009 and Sweden’s conquest lastyear. Copenhagen is about a half-hour train ride from Malmo.

It will likely be several months

before Denmark picks the actual cityof the 2014 Eurovision, but the Dan-ish capital is the most likely pickgiven its size and infrastructure.

Ms. de Forest—with a Swedishfather and Danish mother and rela-tives in New York and North Caro-lina—is well aware of the event’ssustained global popularity, due inpart to its world-wide web stream-ing. She grew up inspired by thevictory of Denmark’s Olsen brothersin 2000, when she was 7 years old,and called that group “heroes” in arecent interview.

“It’s indescribable to win foryour country,” Ms. de Forest toldDanish broadcaster DR. “I think thiswill be fantastic for me and my ca-reer.” She was a strong favorite withbookmakers and Eurovision fansahead of the event.

While contestants are free tosing in their native tongue, most optto belt out tunes in English. Thishas led to a Eurovision that resem-bles the oft-random flavor of manyof the more commercial singing con-tests, such as “American Idol,” morethan it resembles a celebration ofthe unique aspects of the nationscompeting.

For instance, Alyona Lanskaya,from Belarus, performed “Soloya”with a flair more reflective of theMiami club scene than Eastern Eu-ropean tradition.

Finnish entrant Krista Siegfrids,who chose to sing “Marry Me,”staged a performance closely resem-bling the style of American popsinger Katy Perry. At the end of hersong, she kissed a female backupdancer as a protest against the factthat gays can’t marry in Finland.

By Frances Robinson,Jens Hansegard

and Clemens Bomsdorf

Denmark’s Emmelie de Forest raises her prize after winning the 2013 Eurovision Song Contest in Malmo, Sweden.


Images


In-Flight Texting Makes Pilots :-)Systems Helps Avoid Miscommunication, the Biggest Source of Air-Traffic Control Errors

MontrealPilots and air-traffic controllers

texting each other? OMG! Your air-line flight is finally starting tocommunicate the way the rest ofthe world does.

Controllers and pilots aren’tusing their cellphones to text,

even though many pas-sengers now do usingapps and in-flight Wi-Fi. Instead, planes withmodern cockpit sys-

tems can log on to new systems atair-traffic control centers and linkdigitally. Rather than sometimesdifficult radio calls, pilots and con-trollers simply send each othertext messages to change altitudes,routes and hand off from one con-troller to the next.

The system has been in use forflights across oceans for severalyears. Canada now has it activeacross its domestic skies and Eu-ropean controllers have it in use intwo large regions. But the U.S. isway behind.

By texting instead of talking,controllers have more time to pro-cess requests for airlines. Pilotssometimes request shortcuts ormore-preferential routes based onwind shifts. And as planes burnfuel and lighten, pilots often wantto climb to higher altitudes forsmoother rides, faster speed andbetter fuel burn. Sometimes thoserequests don’t get made or get putoff or denied simply because con-trollers don’t have time to coordi-nate new altitude and route as-signments with other controllersalong a plane’s flight path. Thechatter on radio frequencies canget intense.

If texting while flying soundsscary, relax. This isn’t like textingwhile driving, because planes havetwo pilots—one flies, one commu-nicates. And flying an airplane isall about working dials and read-ing instruments.

Air-traffic controllers say thebest benefit is safety—miscommu-nication is the biggest source ofair-traffic control errors. Overlong-distance radio transmissions,numbers and instructions can eas-ily be misheard. Sometimes pilotsare preoccupied and miss radiocalls for their flight. Sometimesinstructions get read back inaccu-rately and must be repeated by thecontroller and read back again bythe pilot. Sometimes transmis-sions get blocked because twopeople try to talk at the same timeover the radio.

Controllers say it frequentlycan take two or three tries to getsimple instructions to a flightcrew, especially if English, the uni-versal language of air-traffic con-trol, isn’t the pilot’s primary lan-guage.

“If you look at a lot of acci-dents and incidents, you see multi-ple events. This is an opportunityto eliminate one of them. You’reeliminating a source of potentialerror,” said Sid Koslow, chief tech-nology officer for Nav Canada, theprivatized air-traffic control serv-ices provider for Canada.

This new system is expected toboost capacity and reduce delays,people in the industry say. Planesoften must wait to take off so air-traffic controllers don’t get over-loaded with too many planes at

once. Eurocontrol, the agency thatcoordinates and plans air-trafficcontrol throughout Europe, saysthat once half of all airline flightsin Europe are equipped to commu-nicate by text message, controllerswill be able to handle 8% moreflights because their workload willbe reduced by 16%. When 75% ofairplanes have the equipment, 11%more planes will be able to fly si-multaneously as a result of a 22%

controller workload reduction.Direct data communications be-

tween planes and pilots is a cru-cial part of air-travel moderniza-tion, and it’s an upgrade the U.S.has been trying to implement formore than a decade without suc-cess. U.S., European and Pacificcontrollers do text message withpilots out over oceans beyond reg-ular radio range. But over land,where skies and radio frequencies

are more congested and the needfor better communications isstrong, the switch has been pain-fully slow.

Controller-pilot data links werewell on their way in the U.S. in2002. American Airlines equippedseveral airplanes that conductedairborne tests with the FederalAviation Administration’s Miamiair-traffic control center. But theprogram was canceled. A 2004FAA report cited cost growth andschedule delays.

Earlier this year, the FAAlaunched a limited test in Mem-phis, Tenn., to text instructions toplanes waiting to take off, withplans to expand it later this yearto Newark, N.J., and Atlanta. Theagency says it will begin deployingData Comm, as the program hasbeen renamed, in all control tow-ers in 2016 and in all high-altitudecontrol centers in 2019.

Canada offers a taste of the fu-ture for U.S. pilots close to home.Pilots there text with controllersboth over oceans and over domes-tic skies. U.S. airlines that fre-quently use Canadian airspace fortrips to and from Europe and Asiaare making use of the texting tech-nology. Cross-country domesticflights that entail flying over Can-ada also benefit.

“We love the technology. It’saccurate and quick—the same rea-sons why people like texting ontheir phones so much,” said Capt.Joseph Burns, managing directorfor flight standards and technol-ogy at United Airlines, which hastexting capabilities on most of its

wide-body fleet. “It does seem tomake the world a bit smaller.”

Europe also has controller-pilottext messaging in use at two air-traffic control centers, and shouldhave its system fully implementedby 2015.

Aircraft delivered from Boeingand Airbus over the past decadeor so come with the right gear in-stalled. Canadian authorities say50% of the planes flying in theeastern part of the country canmake use of Controller-Pilot DataLink Communications.

On a recent day in the Montrealcontrol center, Delta Air LinesFlight 41 sent a request by CPDLC.A blue message box popped up oncontroller Caroline Heroux’s largeradar screen.

“Request climb to FL360,”meaning the pilot wanted to takethe flight from London to Minne-apolis up a bit to 36,000 feetabove sea level. Ms. Heroux, 51years old and a veteran controller,confirmed she could clear thatflight level. With a couple of quickmouse clicks, she transmitted amessage back: “Climb and main-tain FL360.” The pilot respondedby text with “Wilco,” short for“will comply.”

“It’s rather easy,” Ms. Herouxsaid. “It’s a great benefit for thetraveler and a great benefit for thecontroller. This is the biggest stepforward, because human error istaken away.”

Controllers have pop-up win-dows with various choices of stan-dard messages for altitudechanges, frequency changes andsome re-routings. Colored squareson the data tags for airplanes onthe controller’s radar screenchange as pilots respond so thatcontrollers get an extra visual cuein case a pilot doesn’t see a mes-sage. Secure computers verifyidentity of the aircraft and makesure the links stay active.

“It’s not rocket science, but ithas to be done right,” Mr. Koslowsaid.

Like many projects in air-travelmodernization, there’s a chicken-and-egg question: Should airlinesspend money on equipment beforeair-traffic control agencies provethey can work with it, or should

air-traffic control service provid-ers spend first and then wait forairlines to catch up? In many proj-ects, one side or the other hasbacked out or balked.

Nav Canada decided to pushahead with the technology yearsago in part because it handles somany airplanes coming off theoceans from Asia and Europe thatit knew would be equipped withdata-link capabilities. The com-pany thought if airlines saw thebenefits in action, they would getplanes equipped faster.

“To us, it’s better to just do itrather than planning 10 yearsahead and telling everybody whatthey need to do,” Mr. Koslow said.

BY SCOTT MCCARTNEY

Nav

Canada

THEMIDDLESEAT

Source: Nav Canada The Wall Street Journal

The 34,000-Foot TextA typical conversation conducted via text message between a pilotin the air and an air-traffic controller.in the air and an air-traffic controller.

Source: Nav Canada

U/L • “Standby”

“Climb to and maintain FL340”

2. The pilot requests allowing the plane to climb to an altitude of34,000 feet above sea level. The plane performsmore efficiently at higheraltitudes and can go higher as it gets lighter through the burning of jet fuel.

1. A download link is a message coming from a plane to air-traffic control.

3. Air-traffic control grantspermission for the climb inan upload link to the plane.

4. The pilot responds thatshe “will comply.”

U/L

and maintain FL340”“Climb to and

TIME • DOWNLOAD LINK • MESSAGE• DOWNLOAD LINK •

19:14 • D/L • “Request climb to FL340 dueto aircraft performance”

Control

D/L • “WILCO”

Pilot

“WILCO”Pilot

PERSONAL JOURNAL

Europe also hascontroller-pilot textmessaging in use at twoair-traffic control centers


EUROPE NEWS

The Big Chill Inside French RestaurantsELANCOURT, France—When

Jean-Luc Madec opened his restau-rant west of Paris more than 20years ago, he would get up at 3 a.m.and race to the city’s wholesalemarket to select the best fresh food.

Nowadays, he can sleep in. Withhigh labor costs eating into his bot-tom line, Mr. Madec uses frozen in-gredients—and even complete maincourses—for the dishes served atLes Templiers.

“It’s the only way we can sur-vive,” he said. “But it’s also killingFrench cuisine.”

France is a country that pridesitself on the quality and sophistica-tion of its food—Unesco listed theGallic meal as an global treasureand more than a third of the 18 mil-lion annual visitors to Paris putfancy restaurant dinners at the topof their to-do list, according to a2010 survey by the Paris-Ile-de-France Tourism Committee.

But a steady increase in laborcosts and food prices has fueled anunexpected phenomenon: Many res-taurants can no longer afford to pre-pare meals from fresh ingredients intheir own kitchens.

Instead, they have progressedfrom buying frozen vegetables andthe like to outsourcing more andmore work to industrial suppliers inan attempt to keep their businessesviable.

“Frozen food got a foot into res-taurant kitchens two decades ago,and kept the door open to industri-ally prepared dishes,” said PatrickRambourg, a culinary historian whoworked on France’s application tohave its cuisine recognized by theUnited Nations Educational, Scien-tific and Cultural Organization.

“Today, most restaurants in thiscountry serve food that has beencooked elsewhere,” he said.

To be sure, France remains abeacon for talented chefs who de-vote hours to meticulous prepara-tion of fresh food in their kitchens.France has the most three-star Mi-chelin restaurants in the world afterJapan, and leads in the one- andtwo-star categories.

Of the 80,000 table-service res-taurants in France, fewer than 10%have labels certifying that most oftheir ingredients are fresh and thatthe dishes are cooked on site, saidGérard Guy, head of CPIH, one ofthe country’s largest restaurant andhotel organizations.

That number hasn’t changedmuch in recent years. There are sev-eral reasons why restaurants mightnot want to apply for such labels,including the cost and hassle of be-ing audited.

But since having the label is con-

sidered good for business, Mr. Guysaid it was fair to assume that mostof those that don’t have a label areusing a lot of frozen ingredients orindustrially prepared dishes—orboth.

Restaurateurs started buying de-hydrated meat and fish stock in the1960s, allowing them to skip longhours of preparation and simplifythe cooking of sauces.

In the 1990s, frozen ingredientswent from the family refrigerator,where they had been made popularby the rising rate of workingwomen, to restaurant cold rooms.Industrially prepared food followedin the 2000s.

Mr. Madec said the economicgain for his business from buyingprepared food is too big to pass up.Sitting at one of Les Templiers’ ta-bles, he takes bœuf bourguignon,the classic dish prepared with beefbraised in Burgundy red wine, as anexample.

Adding up the price of freshmeat, wine and vegetables and thelabor costs, a portion of the stewcosts Mr. Madec €3.53 (about $4.50)to make. Ready-to-serve portionsfrom Davigel, a unit of Nestlé SA,allow him to trim that to €3.17 perserving.

The 10% savings is significant ata time restaurant profit margins arethin.

“As a cook I hate it, but the pricepressure leaves me with no alterna-tive,” Mr. Madec said, who charges€18 for the dish but says profit isstill scant once other costs arecounted.

Independently owned restau-rants in France accounted for 60%of Davigel’s €800 million in saleslast year, up from 40% in 2000, saidmarketing manager Ignace de Ville-pin.

The company has recently up-graded its product line, which in-cludes classic meat dishes as well asdesserts. Others, including the Ger-man wholesale giant Metro AG, arealso feeding demand from restau-rants.

Restaurant owners argue thatthe 36.3% increase in real terms inFrance’s minimum wage since 1990has forced them to cut costs aggres-sively to preserve their profit mar-gins.

In 1995, Les Templiers’ lowest-paid employee cost Mr. Madec€12,610 a year. By 2012, that salaryhad doubled to €25,153, while infla-tion over the period was 33%.

Unions say pay for restaurantworkers should be even higher.

“Restaurant staff works nightsand weekends,” said Denis Raguet, aunion leader at Force Ouvrière. “It’snot an easy job.”

The growing dependence on pre-pared food has sparked a backlashfrom some restaurant owners whostill make everything in their kitch-ens, including Xavier Denamur, whoowns five restaurants in centralParis.

Helped by the recent discoveryacross Europe of horse meat in fro-zen dishes labeled as beef—whichexposed the lack of checks in theprocessed-food chain—he has lob-

bied for French authorities to forcerestaurants to disclose where theirfood comes from.

“It’s the client’s right to knowwhat’s on the plate,” said Mr. Dena-mur. “Otherwise it’s fraud.”

The extent of the practice is un-known to many diners.

“I guessed not everything washomemade, but I thought it was ex-ceptional practice, like little whitelies,” said Marie Gibert, a 23-year-old fashion photographer who saidshe dines out once a week on aver-age.

Worried by what they view asdeclining standards, a panel of 15top French chefs, including AlainDucasse and Joël Robuchon, starteda new quality label in April that willbe awarded only to establishmentsthat prepare their own food.

A diner “needs to be able to tellthe difference between restaurantswho have staff cooking in thekitchen and those who use micro-waves to reheat industrial dishes,”said Mr. Ducasse.

Politicians are joining the fray,too.

A group of Socialist lawmakers isworking on a draft bill it hopes tosubmit to Parliament by the summerthat would force restaurants to listdishes obtained from industrial sup-pliers on their menus—a practice al-ready in place in Italy, Europe’sother culinary giant.

Mr. Madec, the restaurant owner,said the fallout could be harsh.

“We all agree in principle,” hesaid, “but if that bill passes, busi-nesses like mine will be wiped out.”

BY GABRIELE PARUSSINI

Bill of Fare

Breakdown of costs

Sources: Xerfi, Eurogroup Consulting 2011 (restaurant cost breakdown); Insee (nominal minimum wage), Eurostat (monthly minimum wage)

100%

80

60

40

20

02004 ’09 ’95 ’05

Staff43.3%41.1%

30.8%32.4% Foodsupply

Other

Nominal minimum wage in France, perhour

Monthly minimum wages forselected countries, 2013EU€10

0

2

4

6

81. Luxembourg $2,414.3

2. Belgium $1,934.6

5. France $1,842.4

$1,628.6

$969.88. Spain

6. U.K.

1990 2000 ’12

Personnel costs are up at France’sindependent restaurants.*

France is fifth highest out of 20 in the EU with a national minimum wage.

U.S. $1,160†

2012€9.31

*With sales of up to €400,000 a year †Based on the national miniumum wage of $7.25 per hour

Jean-Luc Madec sitting at a table in his Les Templiers restaurant..

Riccardo

VecchiarelliforTh

eWallS

treetJournal


BOOKS

The Woman Who Saved Britain

All Britons remember where theywere when Margaret Thatcher re-signed in 1990. It was our equivalentof the Kennedy assassination—events that, curiously enough, bothfell on Nov. 22. No British politicianin living memory had provoked suchstrong feelings. At Thatcher’s funeralin April, 23 years after she left officeand a decade after her last interven-tion in public life, the battles shehad so enjoyed were re-enacted:Many threw flowers before her cof-fin, while a few, their faces twistedin unfeigned loathing, yelled abuse.

The funeral was a reminder ofwhat conviction politics looks like.These days, our leaders consult theirpollsters, weigh their words, fretabout how they are coming across.Margaret Thatcher, as CharlesMoore shows in the magisterial firstvolume of his authorized biography,had a healthy interest in public opin-ion, but she never lost sight ofwhere she wanted to go. While oth-ers drifted with the current, she waslike a shark swimming only forward:focused, patriotic, slightly humorlessand needing remarkably little sleep.

These were, happily, just the at-tributes that the times demanded. Itis hard to convey the sheer wretch-edness of the nation she was electedto govern in May 1979. Since WorldWar II, Britons had seen their em-pire vanish, their standing deterio-rate, their credit expire. Successivegovernments had inflated away theirdebts, with a disastrous effect oncompetitiveness and productivity.

By the mid-1970s, the U.K. hadreached its lowest point. These werethe years of double-digit inflation, ofpower cuts, of shortages. There wereconstant strikes, and trade-unionleaders were better known house-hold names than elected ministers. AConservative government—a govern-ment of which Thatcher was the de-spairing education minister—was re-duced to passing laws regulatingprices and incomes.

Mr. Moore, the former editor ofthe Daily Telegraph newspaper, cap-tures the atmosphere of these yearsbeautifully: the worsening trade fig-ures, the collapse in industrial out-put, the IMF bailout. “Britain is atragedy,” Henry Kissinger told Presi-dent Gerald Ford in 1975. “It hassunk to begging, borrowing, stealinguntil North Sea oil comes in.” An ed-itorial in The Wall Street Journal inApril of that year was more pointed:“Good-bye, Great Britain. It was niceknowing you.”

Thatcher, almost alone, wouldnot accept what was happening. “Ican’t bear Britain in decline, I justcan’t,” she blurted shortly before shebecame prime minister. Nowadays,those words sound unremarkable—which is the ultimate tribute to whatshe achieved. For, at the time, the al-most unanimous view of the Estab-lishment was that the slide was irre-versible and that the purpose of

politics was to make it as painless aspossible.

Born in Grantham in Lincolnshirein 1925, Margaret Thatcher wasnever part of the Establishment. Fe-male, Methodist, provincial and lit-eral-minded, she never acquired, norwanted to acquire, the amused cyni-cism that was the hallmark of theeducated Englishman. One of thereasons that she had such a deep af-fection for Americans was that sherecognized in them the qualities thatset her apart from most of her fel-low MPs: enthusiasm, optimism,guilelessness, self-belief.

Where did it come from, her self-belief? We find it in her characterfrom the beginning. When she won aschool prize at the age of 9, herprincipal congratulated her on herluck. “I wasn’t lucky, I deserved it,”replied the young Margaret Roberts,who, with her tendency to simplifyeverything, genuinely couldn’t un-derstand what luck had to do with it.Her single-mindedness, her obses-sive self-improvement, took her toOxford, despite the resistance of hersecondary-school headmistress, whothought she should attend the localuniversity. That headmistress wasthe first of many who were to findthemselves knocked aside by sheerforce of personality: Trade-unionleaders, Tory grandees, Eurocratsand Argentine strongmen were toexperience the same thing.

Willpower is not unusual in poli-ticians, of course. What is unusual isthe marriage of ambition and ideol-ogy. Many elected representativeswork extraordinary hours for rea-sons that have to do with personalpsychology. Think of, say, LyndonJohnson, whose drive came from thehumiliation of watching his familygoing bankrupt when he was 13. Ev-ery day that I spend in politics con-vinces me of the truth of P.J.O’Rourke’s observation that manycandidates are running for office, ashe imagines one of them admitting,“in order to even the score withthose grade-school classmates ofmine who, thirty-five years ago, gaveme the nickname Fish Face.”

Margaret Thatcher, by contrast,was animated by ideas—ideas fromwhich she never deviated. Her fa-ther, Alf Roberts, a shopkeeper andpopular Methodist preacher, was alocal councilor whose main preoccu-pation was to reduce the burden oftaxes and regulations on the shop-keeping class. A model of conserva-tive decency, he would send hisdaughters with loaves of bread tothe families he knew to be needy,carefully telling them that he hadbaked too much, so that the pride ofthe recipients should not be hurt. Hewas not perfect: There are tantaliz-ing hints in Mr. Moore’s narrativethat he may have been something ofa ladies’ man. Still, in his mind,thrift, sobriety and industry werenot abstract Protestant virtues butactive political principles.

Thatcherism was, in many ways,just a refinement of those core be-liefs. Thatcher herself was no intel-lectual, though she diligently readup on the works of the great think-ers who ennobled her prejudices, in-cluding Frédéric Bastiat, EdmundBurke, Joseph Schumpeter, Alexis deTocqueville, C.S. Lewis and, in par-ticular, F.A. Hayek, whose “Constitu-tion of Liberty” she used to pullfrom her handbag, declaring: “Thisis what we believe.” Still, Hayek canbe heavy going, and she was morecomfortable with the homespun pa-triotic conservatism of Rudyard Ki-pling, whose poetry she had recitedaloud as a girl in competitions. (Heraccent, which detractors took as evi-

dence of social climbing, was, Mr.Moore shows, the product of teenageelocution lessons.)

What surprised me most in read-ing this biography was the extent towhich Thatcher’s politics were in-formed by her Christianity. Withoutever renouncing the Methodism ofher girlhood, she drifted into attend-ing Church of England servicespunctiliously and quietly. British pol-iticians, unlike their American coun-terparts, almost never mention God.This is partly because our electorateis less churchgoing than yours andpartly because even the most devoutBritons are uncomfortable discuss-ing religion. Thatcher occasionallybroke this rule, horrifying the lead-ers of the Church of Scotland in1988, for instance, when she toldthem that the Good Samaritanwouldn’t have been of much use ifhe hadn’t had money to help the in-jured traveler.

Yet so successful has been thecaricature of Thatcher as a mechani-cal free-marketeer who thought onlyof economics that even her support-ers have lost sight of the extent towhich her doctrines had a moralbase. As Mr. Moore notes, her father,

had believed in what Gladstonecalled “effort, honest manful ef-fort,” and it was a combination ofGladstonian economic views ofretrenchment and reform withMethodism which animated Mrs.Thatcher. Denis Thatcher sharedthis analysis of her attitudes. Hebelieved that some of what peo-ple thought of as his wife’s“right-wingery” actually camefrom her religious upbringing:“She can’t find a sustainable ar-gument that people should bepaid for not doing any work.”

Like all successful leaders, sheused speechwriters who could ex-press her instincts in suitably ele-vated language. In New York in 1975,she brilliantly described the then-prevalent egalitarianism as “an un-distinguished combination of envyand what might be called ‘bourgeoisguilt.’ ” But her natural language wasblunter. “Why does he keep talkingabout the boojwah?” she once askedof a sympathetic journalist. “Whynot find a good plain English wordfor the good plain English people?The boojwah live in France.”

Like her close ally Ronald Rea-gan, Thatcher was often attacked for

her failure to grasp nuance. After lis-tening to a talk by the distinguishedhistorian Edward Norman, rightlypredicting, as Mr. Moore writes,“that the issue of nuclear weapons,which had fallen comparatively quietsince the early 1960s, would soon re-appear as a great moral struggle inthe West,” she declaimed above thehubbub: “I agree with Doctor Nor-man: we must defend Christian val-ues with the ATOM BOMB.”

Yet, as Mr. Moore shows, uncom-promising beliefs could go hand inhand with tactical flexibility. ThePentagon, perhaps surprisingly, wasreluctant to deploy intermediate-range nuclear missiles in Europe inthe early 1980s, regarding them asan unnecessary expense when theU.S. already had a massive arsenal.Those Americans who favored thedeployment, above all Reagan’s firstsecretary of state, Alexander Haig,knew that the best way to convincethe doubtful president would bethrough Thatcher. We then see herin these pages playing the unlikelyrole of a bridge-builder between theU.S. and Europe, securing Americanconcessions on the sanctions Reaganhad imposed on the U.S.S.R.—sanc-tions that disproportionately hurtWestern European companies—inexchange for agreement to deploythe missiles in Great Britain, WestGermany and Italy. Thank heavenshe did: That deployment set in mo-tion the events that were to lead tothe rise of Mikhail Gorbachev andthe end of the Cold War.

This biography gives us plenty ofnew material on Thatcher’s relation-ship with Reagan, who privatelycalled her “the only European leaderI know with balls.” The Gipper chiv-alrously allowed her to browbeathim, first over the missiles and laterover American attempts to mediateduring the Falklands War. She wasright on this latter occasion, too:The State Department feared thatthe humiliation of Gen. Galtieri’sjunta would lead to communism inArgentina. In fact, it led to democ-racy.

Mr. Moore also reveals, extraor-dinarily, that the prime minister wasin contact with the Irish RepublicanArmy during the hunger strikes byprisoners in the early 1980s. She al-ways denied this fact, even to her-self, hiding behind a piece of casu-istry: The contact was through anintelligence officer and was there-fore necessarily unofficial. Thatcher

had sought, reasonably enough, tofind a formula that might save thehunger strikers’ lives without com-promising the principle that demo-cratic governments don’t deal withparamilitary organizations. Nonethe-less, had the facts emerged at thetime, her reputation would have suf-fered gravely and, to the end of herdays, she could not bring herself toadmit that she had had dealingswith terrorists.

Such revelations are characteris-tic of Mr. Moore’s penetrating andhonest work. Broadly supportive ofthe Thatcher project, he is nonethe-less careful never to let his politicscolor his story. Though this is,oddly, his first book, he is arguablythe outstanding British journalist ofhis generation, one whose Torysympathies go hand in hand with adetermination to write from firstprinciples, disregarding conven-tional wisdom. This biography waswritten on the understanding thatits subject would never see it, whichgave the author a freedom that hemight not have enjoyed had he felther presence over his shoulder. Forexample, Thatcher never admittedto having any boyfriends beforeDenis, but Mr. Moore unearths four,including one Scottish farmer whomshe liked but never fancied and so,briskly, paired off with her sister,Muriel, who was happily married tohim ever after.

Mr. Moore combines great narra-tive sweep with telling details. Fol-lowing a false report of the sinkingof a Royal Navy vessel during theFalklands campaign, Denis found hiswife sitting on the end of the bed intears: “Oh no, oh no, another ship!All my young men!” Denis, who hadserved in Italy during World War II,quietly took her hand. “That’s whatwar’s like, love.” His military recordmade her depend even more heavilythan usual on his advice during thatcampaign, and he emerges as a herofrom these pages.

Thatcher, who published hermemoirs in two volumes in 1993 and1995, treated the 1979 election as theobvious dividing point. Mr. Moorefound that this would place toomuch material in the second volumeof the biography and so carried thefirst up to the moment of victory inthe Falklands in 1983. He ends witha celebratory dinner at No. 10 Down-ing Street that, he says, “may wellhave been the happiest moment of

Please turn to next page

BY DANIEL HANNAN

Margaret ThatcherBy Charles MooreAllen Lane, 896 pages, £30

PeterMarlow/M

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Female,Methodist, provincialand literal-minded, sheneveracquired, norwanted toacquire, the amused cynicismthat is thehallmarkof theeducatedEnglishman.


EUROPE NEWS

Are you a majormanufacturertrying to decidewhere to locateyour new factoryto serve the

European market? Maybe you’re acar-maker that already hassubstantial operations in the U.K.Or a large U.S. or Asian bank thathas established a Europeanheadquarters in the City ofLondon? Or perhaps you’re aninvestment manager hoping totake advantage of new EuropeanUnion rules allowing you tomarket your funds across thecontinent from London withoutthe need for separateauthorization in each of its 27member states? Or perhaps you’resimply a British business anxiousto know whether your exports willcontinue to enjoy favorabletreatment available under EU free-trade agreements with countrieslike South Korea—and possiblysoon, the U.S.

All sorts of businesses all overthe world have good reason to bealarmed at the latest twists in theU.K. debate over the country’smembership of EU. Many willalready have doubts aboutinvesting in the U.K. because of itsdraconian new immigration lawswhich make it hard to bring inhighly-qualified staff to make upfor the U.K.’s chronic skillshortages. Now they mustconfront a new reality: an in/outreferendum on U.K. membershipof the EU has turned from apossibility into a near-certainty.

Even Deputy Prime MinisterNick Clegg—the most pro-EUparty leader in the U.K.—acknow-ledges that it is now a question ofwhen rather than if the countryhas an in/out referendum. That inturn means there is a real risk ofa U.K exit or “Brexit”.

How big a risk of Brexitdepends largely on Prime MinisterDavid Cameron. Referendums arealways risky because they areoften decided on extraneousfactors such as the popularity ofthe government rather than themerits of the question. As things

stand, 46% of voters say theywould vote out, versus 36% whowould vote to stay in, according tothe latest poll by MORI. To theextent Mr. Cameron has astrategy, it is to delay the voteuntil 2017, buying him time tonegotiate sufficient changes to theterms of Britain’s membership toreconcile his party and thecountry to support staying in.

The first plank in this approachof persuasion is a government-ledreview of the workings of the EUwhich is due to start reportingafter the summer. This issupposed to provide authoritativeproof of the benefits of EUmembership while highlightingpotential reforms that could feedinto Mr. Cameron’s promisedrenegotiation.

But this step-by-step strategyis being blown away by events. Alarge section of Mr. Cameron’sConservative party does not wantto be persuaded. For them, the EU

debate doesn’t turn on economicsand cost/benefit analyses butquestions of sovereignty wrappedin notions of British exception-alism. Their antipathy to the EU isas much emotional as rational.

For this group, Mr. Cameron’spromise of a referendum wasnever sufficient. They don’t wanthim to reform the EU to make itpalatable; they want him to leadthe campaign to take Britain out.Their two-part strategy is first tobully Mr. Cameron into publiclydeclaring he would vote to leavean unchanged EU, as twoambitious senior cabinet ministersdid last week. Then they want toset the bar for Mr. Cameron’srenegotiation so high that he isdoomed to fail.

Whether Mr. Cameron falls intothis trap is the central question inBritish politics. For supporters ofU.K. membership, which includesthe overwhelming majority ofBritish-based businesses as

represented by the Confederationof British Industry, the Instituteof Directors and TheCityUK, theomens do not look good. After all,Mr. Cameron has consistentlybuckled under pressure to thedemands of the anti-EU wing ofhis party that one of hiscolleagues last week allegedlydubbed “mad, swivel-eyedloonies.” To win the leadership, hecourted their support with an ill-judged promise to quit theEuropean People’s Party groupingin the European Parliament thathis rival refused to match.

In December 2011, he opted fordiplomatic isolation by vetoingthe euro zone’s plan to embed itsfiscal pact in the EU treatiesrather than risk confrontationwith his party’s Europhobes inparliament. The referendumpromise he made in January wasanother concession extractedunder extreme pressure.

But to govern is to choose—

and Mr. Cameron may not muchlonger be able to avoid stakingout the ground on which heintends to fight the referendum.The politics is now running farahead of his policy. The electoralsuccess of the anti-EU UKIndependence Party is having agalvanizing effect on all partiesbut particularly his own; positionsare hardening, reducing the scopefor compromise, even before theproper debate that Mr. Cameronsays he wants to lead has started.

Meanwhile, uncertainty overBritish membership is having realworld consequences, undermininghis efforts to win battles inBrussels. The U.K. is alreadypaying a price for Mr. Cameron’sisolation in Europe; the recentdefeat over new EU bank-bonuscurbs was the first time the U.K.had been defeated on asubstantial issue relating tofinancial services.

U.K allies such as Poland,Sweden and the Netherlands arewary of being identified with whatis perceived to be Britishobstructionism. Far too late, Mr.Cameron has understood thenecessity of strengthening hisgovernment’s relationship withGermany—the number of bilateralmeetings at all levels has risenfour-fold since 2010—but there isstill a long way to go, a seniorgovernment figure concedes.

The stakes could not be higher.Mr. Cameron likes to say thatBritain is engaged in a global race.While he sits on the fence, hidingbehind promised renegotiation,other EU countries such as Irelandare taking full advantage of theuncertainty to try to lure awayvaluable foreign investment. Mr.Cameron is fast approaching asimple choice: Either he mustallow himself to be draggedfurther down the path towardsBrexit, shoring up his short-termpolitical position but riskingmajor damage to the U.K. nationalinterest. Or he must make a full-throated defense of Britishmembership that categoricallyrules out an exit.

Of course, the latter comeswith significant risk that he splitshis party and swiftly finds himselfout of a job. But that’s the thingabout leadership: Sometimes youhave no option but to lead.

The EUWaiting Game Is Over for Cameron[ Agenda ]

BY SIMON NIXON

U.K. Prime mInister David Cameron attends a press conference at the United Nations headquarters in New York last week.

European

Presspho

toAgency

An Independent Scotland Risks Financial ShocksLONDON—An independent Scot-

land would have an exceptionallylarge banking sector, compared withthe size of the rest of its economy,making it vulnerable to financialshocks and putting Scottish taxpay-ers at significant risk in the event ofthe country being hit by anotherbanking crisis, the U.K. Treasurysaid Sunday.

In an analysis paper, the third ina series the U.K. government is re-leasing ahead of the independencereferendum next year, the treasuryestimated that an independent Scot-land would have banking assetsworth more than 1,250% of Scottishgross domestic product.

The scale of Scotland’s bankingassets dwarfs those of Iceland andCyprus, which had banking assetsaround 880% of GDP and 800% ofGDP before their respective col-

lapses in 2008 and 2013. Both coun-tries suffered severe financial prob-lems due in part to thedisproportionate size of their bank-ing sectors.

“The experience of financial cri-ses shows that countries with alarge banking sector compared tothe size of their GDP are signifi-cantly more vulnerable,” the reportsays.

The treasury analysis foundbanking sector assets for the wholeU.K. at present are around 492% ofGDP.

“The size of the U.K. economyrelative to its financial sector meansthat the U.K. authorities are in a po-sition to effectively coordinate theresolution of failing firms, and tostand behind any resolution ar-rangements,” the paper said. “Re-solving large banking failures withconfidence is likely to be impossibleunless there is a strong and large

fiscal base underpinning actions tomitigate financial risk.”

Scots go to the polls Sept. 18,2014, to vote on whether to stay inthe U.K. or go it alone as an inde-pendent nation.

As the date draws nearer, theLondon-based U.K. government,which is staunchly in favor of main-taining the 300-year-old union be-tween Scotland and the rest of theU.K., is pointing out the economicrisks and uncertainty that it be-

lieves an independent Scotlandwould create.

By contrast, the semiautonomousScottish government, which is pro-independence, is campaigning toconvince Scots that their small na-tion, which is rich in natural re-sources such as oil and gas in theU.K. sectors of the North Sea, wouldbe better off if it cut its ties to therest of the U.K.

Alex Salmond, Scotland’s firstminister and the leader of the Scot-tish National Party, last month toldThe Wall Street Journal that the in-dependence referendum isn’t deter-ring foreign companies from invest-ing in the country, despite‘scaremongering’ from the U.K. gov-ernment.

“In the last 18 months we haveseen record levels of investment inScotland,” Mr. Salmond said.

The first minister said the Scot-tish government would use its natu-

ral resources as a bargaining chip innegotiations with the U.K. govern-ment about forming a sterling mon-etary union.

The treasury paper also said thatif Scotland became independent, itcould cause difficulties for financialservices firms, particular aroundtheir cost of borrowing.

“There is a substantial area ofuncertainty around the reaction oflarge firms to these risks,” accord-ing to the paper. “These would bedifficult decisions for industry, par-ticularly those firms that havestrong historic and cultural links toScotland.”

It is not clear whether an inde-pendent Scotland would be pre-sented with a bill from London forbailing out Royal Bank of ScotlandGroup PLC and Bank of Scotland,now part of Lloyds Banking GroupPLC, at the height of the global fi-nancial crisis in 2008.

BY AINSLEY THOMSON

“There is a substantialarea of uncertaintyaround the reaction oflarge firms to theserisks.”


BOOKS

The Reluctant American

Two-thirds of the way into Chi-mamanda Ngozi Adichie’s “America-nah,” an African-American womannamed Shan, while slightly in hercups, delivers a diatribe against thepublishing world’s timid dealingswith black writers who candidlyconfront the topic of racism. “Youcan’t write an honest novel aboutrace in this country,” she says. “Ifyou write about how people arereally affected by race, it’ll be tooobvious. Black writers who do liter-ary fiction in this country . . . havetwo choices: they can do precious orthey can do pretentious.”

It’s an astute bit of meta-com-mentary on the stumbling blocksthat Ms. Adichie, who divides hertime between Nigeria and the U.S.,needed to navigate while writing herbook: calls for blurry sentimentalityon one side, doctrinaire preaching

on the other. Yet the unhappy ironyis that, for all its prodding intelli-gence, Shan’s rant appears after“Americanah” has already crashedagainst one of the obstacles itnames. You won’t find a trace ofpreciousness in this novel, but, dearLord, is it pretentious.

Born and raised in Nigeria, Ms.Adichie came to the U.S. in 1996, atage 19. Ifemelu, the main characterof “Americanah,” is in much thesame circumstance. We read of herupbringing among Nigeria’s middleclass and of her early courtship witha gentle young scholar namedObinze. The two seem destined for

marriage and promising careers, butwhen the country’s universities goon strike in protest against the cor-rupt military regime, Ifemelu joins acrowded exodus of students hopingto complete their degrees in Amer-ica.

She moves in with her Aunt Ujuin Philadelphia, and the novel com-prehensively charts her strugglesover the next 13 years. She cuts offcontact with Obinze and has a seriesof intense but unsatisfying relation-ships with American men. She findswork as a nanny for obnoxious lim-ousine liberals. And even after sheestablishes herself, attending Yaleand then receiving a fellowship toPrinceton, she remains ambivalentabout America, attracted to its op-portunities and repelled by its atti-tudes about race, which strike her asstrange. “I came from a countrywhere race was not an issue,” shecomments. “I did not think of myselfas black and I only became blackwhen I came to America.”

Such observations inform a blogthat Ifemelu begins while in schoolcalled “Raceteenth or Various Obser-

vations About American Blacks(Those Formerly Known as Negroes)by a Non-American Black.” Herpointed and contentious posts areexcerpted throughout the novel andare broadsides against unconsciousAmerican “tribalism”: “Diversitymeans different things to differentfolks. If a white person is saying aneighborhood is diverse, they meannine percent black people. (The min-ute it gets to ten percent black peo-ple, the white folks move out.) If ablack person says diverse neighbor-hood, they are thinking forty per-cent black.”

Ifemelu is a natural blogger—confrontational, inflexible in heropinions and relentlessly judgmental(the blog is both a hit and finan-cially rewarding). But what makesfor a successful blog—reinforcingthe beliefs of readers who, in Ife-melu’s words, “get it” and browbeat-ing everyone else—has nothing to dowith good fiction. The lethalproblem in “Americanah” is that itestablishes little authorial separa-tion from Ifemelu. Her snap verdictsgo unchallenged; while devoting somuch time to calling out prejudicesin others, the novel unquestioninglyendorses those of its protagonist.

Throughout “Americanah” thereis a sense that Ms. Adichie believesthe world requires a good lecturingand that she is the person to deliverit. The story balloons with unearnedsmugness. Virtually every secondarycharacter seems to have been intro-duced for no other reason than to bescolded or belittled. Aunt Uju, weare told, possessed a “strange na-ïvete” with which she “covered her-self like a blanket.” Ifemelu’s em-ployer in Philadelphia shows thehypocritical “nationalism of liberalAmericans who copiously criticizedAmerica but did not like you to do

so.” The mother of one of her boy-friends is “the kind of wealthy per-son who did not tip well.” The onlything we learn about one of her col-leagues during a short-lived job at amagazine is that she has ashy skin,“and Ifemelu’s first urge, when theymet, was to suggest a good moistur-izer.” The novel is race-blind in itscondescension—even MichelleObama is rebuked for appearing“clamped, flattened, made to soundtepidly wholesome in interviews”—but it is especially disparaging ofwomen.

Ifemelu is somewhat shallowlypreoccupied with forms and appear-ance, and in black women’s hair-styles she finds what she believes is“the perfect metaphor for race inAmerica.” She herself favors braidsor, even better, letting her hair growout naturally in an Afro. She remem-bers her mother chopping her ownhair short in Nigeria, and this is por-trayed as evidence of religious zeal-otry. When Aunt Uju gets a weaveand extensions, it is a symbol offrivolousness. Worst of all are blackwomen who relax their hair, whichbrands them as sellouts sucking upto straight-haired white America.There’s something strangely old-fashioned about the strain of intol-erance that runs through this book—artistically, it’s no different thantendentious Victorian novels inwhich women of loose virtue areidentified by their immodest appareland saucy table manners. In bothcases, morality is confused withmoralizing.

In the last act of “Americanah,”Ifemelu, feeling homesick—weigheddown by the “cement in her soul”—returns to Nigeria and re-connectswith Obinze. In her absence, he hasbecome rich as a consultant onshady real-estate deals. He has alsogotten married and had a child witha woman whom Ms. Adichie gratu-itously slags as being vain and stu-pid. The wife and daughter prove tobe little impediment, however, tothe reunited lovers. “This doesn’tfeel like cheating to me,” Obinzesays, pathetically. When he does fretabout his marriage vows, Ifemelutaunts him for his cowardice. It’stypical of this exasperating novelthat it expects such a narrow, self-serving romance to kindle interest.“Americanah” uncritically esteemsthese two characters and thinksharshly of everyone else. The readerwill have the opposite reaction.

—Mr. Sacks writes the fictionchronicle for the Saturday Journal.

Raymond Sokolov

Joy in the MorningBy P.G. Wodehouse (1946)

Wodehouse wrote his master-piece while interned in Upper Sile-sia as an alien enemy. “If this is Up-per Silesia,” he said, “what mustLower Silesia be like?” Then, toshow his American fans he waskeeping a stiff upper lip, he agreedto participate in a couple of chipperGerman broadcasts aimed at thestill-neutral U.S. In Britain, theywere seen as traitorous betrayals.The stink never abated and turnedhim into an exile from the home-land he never stopped recasting asa comic heaven of harmless pranksand pastoral misdoings. He was of-ficially cleared of aiding the enemyand no sane observer has ever be-lieved that Wodehouse understoodthe moral mess he was so blithelycreating. With his feckless BertieWooster and his omniscient man’sman Jeeves at the center of thesublime foolery, Wodehouse, innovel after novel, just kept on let-ting us smile at a world of privilegeand big houses, upstairs and down-stairs going gently topsy-turvy.“Joy” is the story of a countryweekend from hell at Steeple Bum-pleigh. Engagements crumble, jew-elry is mislaid, tempers are lost,drinks drunk. Jeeves saves the day,really he saves the world and nowhas time to read the latest scholarlyedition of Spinoza.

Jorrocks’ Jaunts andJollitiesBy R.S. Surtees (1838)

If you have bought a “fine” Eng-lish bone china coronation mugfrom the Prince of Wales CharitableFoundation and, like Gina Lollo-brigida in “Beat the Devil,” have al-ways kept up your subscription toCountry Life, there is still hope thatyou can be rescued from your naiveAnglophilia. In “Jorrocks’ Jauntsand Jollities,” Surtees provides sa-tirical views of a down-market Brit-ain unglimpsed on “Downton Ab-bey.” He makes fond fun of thereligion of fox hunting, with the

“substantial grocer” Jorrocks at thecenter of this antiheroic chronicle.The comedy here is broad: Someonedefends his menu against the chargeof having too few fish (a “defish-ency”). All levels of society mix invainglorious, inept chasing of thewily fox, with mongrel dogs and ad-dled strategy. Instead of a statelyhome, the hapless Nosey builds him-self his idea of a castle, with a doorso broad that it lets in winter blastsevery time it’s opened. Surtees’smotley crew drink like lords at Jor-rocks’s groaning board. AnticipatingW.C. Fields, Jorrocks boasts:“There’s all sorts of drench, in fact,except water—a thing I nevertouch—rots one’s shoes, don’t knowwhat it would do with one’s stom-ach if it was to get there.”

No More ParadesBy Ford Madox Ford (1925)

This is the second volume of thebest war novel not by Tolstoy.Ford’s whole great tetralogy “Pa-rade’s End” was recently com-pressed into a TV miniseries, whichdid a fine but ultimately inadequatejob of re-creating the inner world ofthe decent, self-lacerating Edward-ian Tory intellectual ChristopherTietjens, who is too good to be truebut true anyway to his vile, evil, un-faithful, endlessly seductive wife,Sylvia. The marriage withers, asdoes his civil-service career. Ti-etjens soldiers on, literally, in thetrenches and, figuratively, at coun-try estates and in the upper reachesof British politics. But the real ac-tion, thanks to Ford’s deft applica-tion of the then-hot technique of in-ternal monologue, occurs inTietjens’s stoical mind. The commit-ted reader will acquire the re-editedand (very usefully) annotated edi-tion of 2011.

The Complete PoemsBy Philip Larkin (2013)

Solitary, dour, detached, sour,creepy, Philip Larkin detested theworld of “abroad” and recoiled frommuch of what he saw at home. Yethe embraced jazz and wrote, in amostly traditional manner, the mostacclaimed—and chilling—Englishpoetry of the 20th century. That po-

etry, collected here in what must beits totality, with every scrap of hith-erto unpublished, lost or hiddenverse now shivering in full view, isexhaustively commented upon bythe editor, Archie Burnett. Thismarmoreal treatment only serves tounderline the strangeness of Lar-kin’s triumphant status, especiallyin the U.K., as a major writer. Hisunhappy view of his country is mor-dantly on view in “The WhitsunWeddings.” The poet sits on a trainto London as newly married couplesboard at station after station. He isat first repelled by the dreary urbanlandscapes passing by (“Canals withfloatings of industrial froth”). Thenhe notices the wedding parties withdisdain (“the perms, / The nylongloves and jewelry-substitutes”),ending with a note of guarded exal-tation. The train halts, and newlyjoined lives begin (“And as thetightened brakes took hold, thereswelled / A sense of falling, like anarrow-shower / Sent out of sight,somewhere becoming rain”). Theywill not be setting that to music forthe next royal wedding.

Never MindBy Edward St. Aubyn (1992)

If you want to sign up for thelatest literary cult, this lurid andmonstrously eloquent autobio-graphical novel is the place to start.It is the first of what ended in 2011as the Melrosiad, five interlockedinstallments in the life of well-bornand miserable Patrick Melrose. Toexplain the addictive brilliance ofthe Melrose saga, it would be alltoo easy to quote from the reptilianexpectorations of Patrick’s father,David, an alcoholic doctor who sod-omized his young son. But it is re-ally the detached and elegantly hor-rifying voice of Patrick that is thedraw. Here he is thinking himselfinto the mind of his mother: “Sheimagined vodka poured over ice andall the cubes that had been frostedturning clear and collapsing in theglass and the ice cracking, like aspine in the hands of a confidentosteopath.” Follow Patrick throughdrug addiction, marital collapse andother exquisitely rendered unhappi-ness. He survives, battered, soberedup and still acidly articulate.

BY SAM SACKS

AmericanahBy Chimamanda Ngozi Adichie(Fourth Estate, 477 pages, £20)

The novel is race-blind in itscondescension. EvenMichelle Obama is rebukedfor appearing ‘clamped,flattened’ and ‘tepidlywholesome.’

[ Five Best ]

her life.”It was a happy moment for the

entire country. The military triumphput the seal on an economic trans-formation that had already begun.Having been outperformed by everyWestern European state during the1960s and 1970s, Britain outgrewthem all in the 1980s (except Spain,which was bouncing back from aneven lower place). Thatcher’s faith inher countrymen was amply vindi-cated. She emerges from this bookmore subtle, more layered than ei-ther her supporters or her oppo-nents tend to believe. But the single-mindedness for which she is mostremembered was real.

Stubbornness in itself, however,is no virtue. Thatcher’s achievementlay in having got the big calls right:She saw that there could be no com-promise with the prevalent social-

Continued from previous page democratic consensus, or with thetrade-union militants, or with theSoviet Union, or with Gen. Galtieri.Though she showed more subtletyand suppleness on all these mattersthan most realized at the time, sheknew that her opponents would haveto be defeated. And so, in the end,they were.

That, ultimately, is what the leftcan’t forgive. She took a countrythat they had made bankrupt, dis-honored and demoralized and left itprosperous, confident and free. Shedid it all without ever losing an elec-tion to them. She ended up trans-forming, not just her party, but theLabour opposition, too, which had toaccept her economic settlement tobecome electable. That, perhaps,was what pleased her most of all.

—Mr. Hannan is a BritishConservative member of the

European Parliament.

Thatcher: Not for Turning


NEWS

Terror Threats to U.S. Embassies RisingWASHINGTON—The U.S. is see-

ing a spike in al Qaeda-related terrorplots and threats against its embas-sies in Libya, Yemen and Egypt, saycurrent and former U.S. officials cit-ing domestic and foreign intelli-gence reports.

The threats against U.S. missionsin Tripoli and Yemen’s capital, Sana’a,are believed to involve bomb plots bySunni extremists and perhaps alQaeda-linked individuals, and have setoff alarms among U.S. officials stillshaken by September’s attack on adiplomatic outpost in Benghazi, Libya.

A planned attack against U.S. andFrench diplomatic targets in Egyptwas wider and more precise thanhad been reported when Cairo au-thorities said earlier in May thatthey detained three men in connec-tion with it, according to intelli-gence cited by the U.S. officials.

Earlier reports had indicatedthat embassies had been targeted.But the plots focused primarily onthe U.S. and French ambassadorsthere, the current and former U.S.officials said Friday.

One of the three detainees wasthe intended suicide bomber, thesepeople said.

“There appear to be serious ter-rorist threats against U.S. embassiesin North Africa and the broaderMiddle East,” said Seth Jones, an alQaeda specialist at Rand Corp. anda former adviser to the U.S. military.“It shows that terrorist groups, in-cluding al Qaeda, remain very ac-tive. They have flourished in a polit-ical vacuum in several of thesecountries.”

The apparent uptick in threatscomes eight months after the alQaeda-linked terrorist attack killedfour Americans in Benghazi and asU.S. counterterrorism officials watchfor threats in the wake of the ArabSpring.

They also emerge as the Obamaadministration faces heightenedpressure over security issues—in-cluding accusations that it couldhave better anticipated the Beng-hazi attacks, and that it had over-stepped by seizing the phone re-cords of Associated Press reportersin connection with another counter-terrorism operation.

Counterterrorism specialistsdraw a distinction between threatsin Egypt and Libya and those in Ye-men. Daniel Benjamin, who until re-cently was the top State Departmentcounterterrorism official, said thereare frequent threats to the U.S. em-bassy in Sana’a but that the coun-try’s counterterrorism efforts aremaking inroads.

By contrast, he said, the weakergovernments in Libya and Egyptface a growing threat from extrem-ist groups that previous regimeskept under wraps.

These groups are “under consider-ably less pressure than they used tobe,” said Mr. Benjamin, now directorof the Dickey Center for InternationalUnderstanding at Dartmouth College.“That has certainly changed the secu-rity scene.”

U.S. officials are scrutinizing the

alleged plots in Tripoli, Sana’a andCairo, although they say there haveso far been no signs of ties betweenthem.

In the thwarted Cairo plot, onemilitant group implicated by the in-telligence reports is led by an Egyp-tian who has training camps in Libyaand has received support from alQaeda’s Yemen branch.

That group, known as the JamalNetwork, is among those implicatedin the Benghazi attacks, where atleast one of its operatives wasamong the attackers, U.S. officialssay. The group’s leader, MuhammadJamal Abu Ahmad, and his top dep-uty were detained by Egyptian au-thorities prior to the most recentCairo arrests, according to U.S. offi-cials.

State Department spokeswomanJen Psaki declined to speak specifi-cally about the embassy plots. But

she said the department works “ev-ery day with foreign governmentsand interagency partners to mitigatethe risks to our diplomatic and con-sular operations overseas.”

The alleged Tripoli and Sana’aplots appeared less developed thanthe one in Cairo, and it wasn’t clearhow likely they were to be carriedout. Still, their inclusion in recentintelligence reporting suggests theseriousness with which the U.S. gov-ernment is taking them.

A car-bombing plot against theU.S. embassy in Tripoli was corrobo-rated by multiple intelligence agen-cies, and the U.S. has identified indi-viduals associated with the plot whoare part of Sunni extremist groupsthat may have al Qaeda links, said aformer U.S. official familiar with theintelligence. It isn’t clear whetherthe plot remains active.

Tripoli has been restive in the

months following the Benghazi at-tacks. On April 23, a car bomb ex-ploded outside the French embassythere, injuring two guards.

On May 8, the State Departmentevacuated a handful of “nonemer-gency” personnel from Tripoli. Thenext day it issued a travel warningfor U.S. citizens but didn’t cite a ter-rorist threat.

The department warned of civilunrest and urged U.S. citizens toavoid demonstrations, which couldturn violent. “The security situationin Libya remains unpredictable,” thewarning said, citing an early Mayincident when armed groups seizedLibyan government buildings.

In Yemen, intelligence agencieshave warned recently of a car-bombplot against the U.S. embassy inSana’a.

That plot, according to the intel-ligence reports, is connected to indi-

viduals who are part of al Qaeda inthe Arabian Peninsula, the group’sYemen branch.

There have been periodic threatsagainst the U.S. embassy there in re-cent years, officials said. The StateDepartment travel warning for Ye-men was last updated in November2012, warning of a high securitythreat level.

The Egypt plot, however, appearsto have been fairly advanced, saidthe former U.S. official, especiallygiven that U.S. intelligence con-cluded that one of the three men ar-rested was the suicide bomber re-cruited to attack either the U.S. orFrench ambassador to Egypt.

U.S. officials believe that at leastone of the men the Egyptians ar-rested has direct links to the JamalNetwork’s second-in-command andalso has ties to al Qaeda facilitators,the former official said.

BY SIOBHAN GORMAN

Threats against U.S.missions in Tripoli andSana’a are believed toinvolve bomb plots bySunni extremists.


HEARD ONTHE FIELD

SPORT

Pellegrini Eyes Senior CitizenshipChilean Manager Has the Experience and Sophistication to Suit Manchester City

Roberto Mancini andManchesterCity parted ways last week, whichmeans that one of the best re-sourced, most desirable jobs in thegame is now up for grabs. The Pre-mier League club, after years ofplaying second banana to Manches-ter United, is now a legitimate force,having finished third, first and sec-ond in the past three seasons andwinning an FA Cup along the way.What’s more, club owner SheikhMansour bin Zayed Al Nahyan hasshown a willingness to spend heavilywhen needed.

Speculation abounds over whowill succeed Mancini as City man-ager, but the smart money seems tobe on Malaga’s Chilean manager,Manuel Pellegrini.

On paper, he’s an excellent fit. Hehasn’t won much in the way of Euro-pean silverware—though he did wintwo league titles in Argentina andone in Ecuador—but his sophisti-cated, creative style of play has wonhim many plaudits.

Pellegrini spent five years at Vil-larreal, an ambitious, yet still provin-cial and relatively underfunded clubin Spain’s Liga, guiding it to four top-five finishes, as well as the Champi-ons League semifinal in 2005-06.

Since November 2010, Pellegrinihas been at Málaga, a team on theverge of financial oblivion. (UEFA,the governing body of European soc-cer, has banned it from the next con-tinental competition it qualifies forbecause of violations of its financialregulations.)

He took over a team in the rele-gation zone and guided it to ninthplace, following up with a fourth-place finish. This season, despite los-

ing a number of top players in thesummer, Málaga is sixth and camewithin seconds of reaching theChampions League semifinals.

In between, in 2009-10, Pellegrinihad a crack at Real Madrid, the oneEuropean club where silverware wasexpected. He came up short, but stillfinished second to Barcelona, despiteracking up 96 points, the second-highest total ever in the history of LaLiga at the time.

But beyond the results, Pellegrinicomes across as intelligent, educated(he has a degree in civil engineering)and charismatic, in a statesmanlikesort of way. After Mancini, who wasprone to the occasional postgameoutburst, he seems a logical choice.

And yet there is one little wrinklethat doesn’t bode well. Or, rather,one statistical precedent that sug-gests that if he does well in the me-dium-term at City, he will truly be atrailblazer capable of rewriting his-tory.

Pellegrini turns 60 in September.In the past 20 years, in Europe’s topfour leagues, only five managers thatage or older were appointed to clubsin nations where they had neverplayed or coached before. Nonelasted more than a season.

Only two of the five won silver-ware: Bobby Robson, who guidedBarcelona to a Spanish Cup and Eu-ropean Cup Winners Cup in 1996-97and Guus Hiddink, who spent four

months at Chelsea in 2008-09 andwon the FA Cup. (Even then, Hiddinkis something of a special case. Hewas a short-term appointment witha clear mandate and, in any case, heis a natural born globe-trotter whowas on his 10th job in three differentcontinents by that point.)

Even more telling is if you use thesame criteria—foreigner, no previoussoccer experience in the country—and widen the net to include every-one over the age of 50 at the time oftheir appointment, then the searchyields 20 managers.

Just three lasted more than 12months: Louis Van Gaal at BayernMunich, Reynald Denoueix at RealSociedad and Bert Van Marwijk atBorussia Dortmund. Only Denoueixcompleted his second season. Onlysix of the 20 improved the team’sleague position in their first full sea-son—or part-season—and just fourleft the team higher up the tablethan when they took over (and twoof them are Hiddink and AvramGrant, who were never meant to bepermanent managers).

Note that the list includes someof the finest managers of the pastfew decades. In addition to the afore-mentioned Van Gaal, Robson andHiddink, you also have the likes ofGiovanni Trapattoni (Bayern), DickAdvocaat (Borussia Moenchenglad-bach), Cesar Menotti (Sampdoria),Luiz Felipe Scolari (Chelsea) andCarlos Bianchi (Atletico Madrid). Yet,as a group, they all fell short of ex-pectations.

Understanding why is tricky. It’snot merely a question of age: Themen who won the league titles inGermany and England this year, JuppHeynckes and Alex Ferguson, are 68and 71 respectively. Rather it’s the

mixture of age and having to adaptto a soccer culture which is differentand unfamiliar.

In some ways, these men are vic-tims of their own success. Foreignclubs turn to them because whatthey do has worked very well over along time. Yet it also means theytend to be more set in their ways.

Experience, of course, is a valu-able commodity. But when you’rethrown into an entirely new environ-ment, it can take time to adapt andto grasp the subtle, though impor-tant nuances that still differentiateEurope’s soccer cultures.

None of this, of course, meansthat Pellegrini won’t be a success ifhe is appointed at City. In fact, hehas a number of things going forhim, beyond his ability as a manager.He speaks excellent English, for astart—though, again, many of thoseon the list didn’t have to deal withlanguage barriers either. He will havebeen handpicked by City’s high com-mand and recent history shows theycan be a patient bunch. Most of all,the fact that he has only evercoached two top clubs before (Argen-tina’s River Plate and Spain’s RealMadrid, each for just a year) sug-gests he may bring a certain humilityand pragmatism; he’ll be less proneto thinking he can simply replicatewhat worked elsewhere.

Still, the past two decades sug-gest City would be taking quite aleap of faith in picking a man of Pel-legrini’s age. And if he does lastmore than two seasons, he will—interms of longevity alone—have madehistory.

—Gabriele Marcotti is the worldsoccer columnist for the Times ofLondon and a regular broadcaster

for the BBC.

BY GABRIELE MARCOTTI

Manuel Pellegrini offers a hand during Malaga’s La Liga match against Real Madrid at Santiago Bernabeu stadium in Madrid on May 8.

Getty

Images

His sophisticated, creativestyle of play has won himmany plaudits.

Arsenal Beats TottenhamIn Champions League Race

Arsenal edged out Tottenhamby a point to claim the fourth andfinal spot in next season’s Champi-ons League as both sides held onto 1-0 victories Sunday afternoon.Arsenal, which won a tense gameat Newcastle with a goal by Lau-rent Koscielny, will have to play atwo-legged qualifying match in Au-gust to guarantee its place in thecompetition’s group stage.

The Gunners’ result renderedTottenham’s home victory over adogged Sunderland side academic.Spurs will now appear in next sea-son’s Europa League, but the club’sbig question this summer iswhether Gareth Bale will stickaround. Bale, who scored the 89th-minute winner on Sunday, is widelyconsidered one of the mostsought-after players in Europe.

Arsenal trailed its North Londonrival by as many as seven points inlate January, but an unbeaten runof 10 games to finish the seasonerased the gap. It also preservedmanager Arsène Wenger’s streakof qualifying for the ChampionsLeague in each of his 16 full sea-sons in London.

“We needed to be resilient be-cause we played against a verystrong Tottenham team, a verystrong Everton team and weneeded to be really special to comeback and get in front of them,”Wenger told Sky Sports.

Chelsea’s 2-1 victory over Ever-ton sealed third place. And mean-while, the curtain came down onAlex Ferguson’s career with a crazy5-5 draw at West Bromwich Al-bion. —Joshua Robinson

England Tops New ZealandIn First Test at Lord’s

A dominant bowling perform-ance by Stuart Broad at Lord’s onthe fourth day of England’s Testmatch against New Zealand gavethe home side a victory by 170runs Sunday afternoon. Broad tooka stunning seven wickets in 11overs as the Kiwis were held tojust 68 runs in their second in-nings.

Broad’s bowling was just the re-sponse England needed after itsown second innings ended with awhimper. The last four wickets fellin quick succession Sunday morn-ing to complete a collapse thatsaw the final eight wickets go for54 runs. Broad finished the gamewith a total of eight wickets for anaverage of 13.50. The second Testas England gears up for this sum-mer’s Ashes will begin Friday atHeadingley. —J.R.

HEARD ONTHE PITCH

Agence France-Presse/Getty Images

Stuart Broad salutes the crowdafter one of his seven wickets.

2 | Monday, May 20, 2013 AM IM UK SW FR IT SP TK BR PL IS AE GR THEWALL STREET JOURNAL.

PAGE TWO

i i iBusiness & Finance

n Japan pledged $2 billion forenergy and mineral projects in Af-rica, as it seeks to catch up withyears of Chinese investment. 11

n China is showing rapid in-creases in wages despite slowinggrowth, a reassuring sign for lead-ers, but a trend that could provedifficult to sustain. 11

n Starbucks has penetratedscores of markets, but might facea challenge in Vietnam’s deep-rooted coffee culture. 17

n Prices of many commodities aredown this year, but U.S. oil futureshave rallied. Skeptics say the mis-match is a sign of trouble. 17

n Surging credit has kept China’sreal-estate sector humming duringa renewed attempt by the govern-ment to bring prices under con-trol, risking a destabilizing correc-tion in prices down the line. 17

n Roger Carr, the chairman ofU.K. gas utility Centrica, is thefront-runner to replace Dick Olveras chairman of Britain’s defensecontractor BAE Systems. 19

n As U.S. lawmakers fret aboutprivacy implications of GoogleGlass, one thing is clear: The tech-nology that can redefine what is“public” and link the digital andphysical worlds is here. 20

n As Facebook reached the anni-versary of its IPO, how the social-networking giant tackles revenuewill be one of the largest chal-lenges in its short life as a publiccompany. 21

n E.ON has made its first signifi-cant move in Germany’s decentral-ized power market by agreeing tobuild four combined heat andpower units for retailer Metro. 22

n A North American natural-gastrade group is planning a cam-paign to show compressed naturalgas can be an effective fuel for

passenger cars to encourage wideruse of the fuel. 22

n J.P. Morgan Chase Chairmanand CEO James Dimon is makingthe case for continuity in the finaldays before a potentially definingvote on his future. 23

n SAC Capital Advisors told cli-ents it will no longer cooperate“unconditionally” with the U.S.government on an insider-tradingprobe of the hedge-fund firm. 24

n Turkish stocks and bondssurged to record levels after An-kara secured its second invest-ment-grade credit rating, offeringa boost to a government that haslong coveted an upgrade to in-crease institutional investment. 24

i i iWorld-Wide

n The U.S. is seeing a rise inal Qaeda-related terror plots andthreats against its embassies inLibya, Yemen and Egypt, currentand former U.S. officials say. 3

n Eurovision fans got Greek mendancing in skirts, a Romanian re-sembling a vampire singing shock-ingly high notes and other over-the-top shows as a Danishsongstress won in the 58th editionof the song contest. 6

n Political violence has shakenthe most affluent area of Karachi,as the killing of a prominent localpolitical organizer appears to havefrightened many Pakistani votersaway from a rerun election. 8

n Syrian government forcesbacked by members of Lebanesemilitant group Hezbollah began apush to capture a rebel strongholdnear the Lebanese border, Syrianstate media and activists said. 8

n The chief adviser to Canada’sprime minister stepped down, af-ter the government said he gavean embattled Conservative law-maker around $87,540 to repay in-appropriately claimed housing ex-penses. 10

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1. Opinion: Strassel—The IRSScandal Started at the Top2. Opinion: No Ordinary Scandal3. Swearing In the Enemy4. France’s Plat du Jour: FrozenMeals5. Higher Ups Knew of IRS Case6. Opinion: Annise Parker—TheModern American Boomtown7. U.S. Approves Expanded GasProducts8. Opinion: Merely a TaxMisunderstanding9. Denmark Wins Eurovision SongContest10. Apps Raise the iPad’s Aptitudefor Real Work

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STAND ON MY SHOULDERS: Members of the Castellers de la Vila de Gràcia form a human tower Sunday in theBarcelona neighborhood of Gracia. A castell is a human tower usually built during festivals in Spain’s Catalonia region.

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OFF THE WALL

In Berlin, Activists Target BarbieGroup Protests Life-Size DreamhouseAnd ‘Pinkified’ Icon; Stiletto Chairs

About 15 leftist radicalsgathered over stale coffeeon a recent Friday night in

the German capital to plan theirnext communist plot. “We musttake care not to sound elitist, as ifwe’re outside the mainstream, be-cause the mainstream is the prole-tariat,” said a young man dressedin black clothes, a tattered greencopy of Friedrich Engels’s 1884book, “The Origin of the Family,Private Property and the State,” athis side.

The object of the group’s irewasn’t the European Central Bankor Angela Merkel. Instead, thethree-hour discussion focused ona perky blonde from Wisconsin—Barbara Millicent Roberts, betterknown as Barbie.

“It would be a huge danger forcapitalism if working men andwomen were united, so one of thebest ways to divide and conquerthe workers is by enabling men toover-sexualize women and by pre-occupying women with sexualizingthemselves,” said group leaderMichael Koschitzki, 27 years old.“This is why we need to opposeBarbie.”

The group, a faction of theJunge Linke—heirs to East Ger-many’s main communist organ—organized a march through Berlinon Thursday to the Barbie Dream-house, one of two interactive, life-size dollhouses launched recentlyas Barbie maker Mattel Inc.’s lat-est effort to expand the doll’sfranchise.

The smell of pot waftedthrough the air at Berlin’s famousAlexanderplatz, as Junge Linkeleaders gave speeches to a clap-ping crowd of about 200. Threeteenagers with raccoon-like eye-liner watched, holding bags read-ing “Shopping is better than apsychiatrist.”

The anti-Barbie crowd thentraversed to the Barbie Dream-house, guarded by police.

With punk music playing, oneprotester brandished a sign read-ing “I’ll pull you out of the houseof horror!” as a little girl in heavyturquoise eye shadow told hermother that she wanted to goback inside the Dreamhouse.

The demonstra-tion—dubbed “Oc-cupy BarbieDreamhouse”—was a culminationof weeks of plan-ning, visitingschools and dis-tributing over7,000 hot pink fli-ers with aclenched fistpunching throughthe phrase “TheBarbie Dream-house Experience.”

Many Berliners have been be-fuddled by the brouhaha. “Barbiehas been around for over 50years. Can you show me that’s re-ally held back society with all thepositive changes for women?”asked Jörg Niepraschk, a father oftwo girls he brought to theDreamhouse for a preview onTuesday.

The Junge Linke adamantly say

“yes,” arguing that Barbie is asymbol of proletariat repressionand a consumerist society set inplace by power-hungry capitalists.

Their outcry against the50,000-square-foot Dreamhouseand outdoor cafe comes as in-creasing tourism to Berlin is soft-ening the edges of a once grittycity. Four years ago, Berlin’s tour-ist population was buoyed byhard-partying youth who flew infor a few days of clubbing. Morerecently, Berlin’s affordable priceshave drawn more families.

Mattel hopes the Dreamhousewill attract summer visitors inBerlin before it moves on to Han-nover and Munich. “Barbie hasand always will be a lightning rodfor cultural conversation,” saidStephanie Cota, 42, senior vicepresident of Girls Global BrandMarketing at Mattel.

Barbie is a familiar face in Ger-many, where she was first avail-able in 1959. Germany is one ofthe largest European markets forher, according to Mattel.

“I like Barbie because she’spretty and wears pretty clothes. Iplay with my Barbie a lot,” said 3-year-old Charlotte, Mr. Niepra-schk’s daughter.

Inside the Dreamhouse, girlsdance around a 3-meter-tall dia-mond ring and look into cases fea-turing 15-centimeter, red-se-quined, platform heels. Each roomis bathed in neon pink light, andpictures of Barbie and her boy-friend, Ken, hang on the walls.Parents have the option to remainstanding or sit on plush chairsshaped like stilettos.

Kids under 4 get in free, whileolder children are charged €22 (or$28); adults pay €15. The childrencan choose between two careertracks to act out on their visit:model or pop star. Models learn toprance down a mini-catwalk, whilepop stars belt out tunes on a Lil-liputian stage.

The Junge Linke argue thatBarbie’s “pinkified” personalitycultivates a desire in girls to focuson looks instead of careers andspend their cash on expensivebeauty products.

Christoph Rahofer, 47, worksfor EMS Entertainment, whichcreated the Dreamhouse with Mat-tel. Mr. Rahofer, who has three

daughters rangingin age from 8 to20, said it is ab-surd to argue thatBarbie can ruin agirl’s career ambi-tions.

“Baking a digi-tal cupcake on atouch screen in theDreamhousekitchen won’t con-fine you to standby an oven for therest of your life,”he said.

In an open letter to Mr. Ra-hofer titled “Peddling Porn in Ger-many” that was published in Spie-gel, Germany’s leading politicalmagazine, columnist Silke Burm-ester asked “How do I bake tastycupcakes? How do I strut sexilyon a catwalk? And how do I drawattention to my anorexic body?”

“I feel sorry about how somepeople interpret our giant pink

playground,” Mr. Rahofer said inresponse to Ms. Burmester’s col-umn. “I have looked into so manykids’ eyes cheering and having awonderful time.”

At the final “Occupy Barbie”meeting Tuesday, Franziska Sed-lak, 25, wondered why the Dream-house lets girls act out careerslike model and pop star, instead ofjobs like engineer and mathemati-cian. Mattel’s Ms. Cota said thedecision was one of logistics and

entertainment. “Pretending to bean engineer is a hard concept fora 4- or 6-year-old to play out,”she said. She notes that theDreamhouse has a space wherechildren can impose their faces onoutfits for Barbie’s 135 careers, in-cluding astronaut, engineer, doc-tor and chancellor.

Yet even Mattel’s attempts toportray Barbie as a quantumchemist who leads the euro zonehave been mocked in Germany.

Mattel introduced a specialedition Angela Merkel Barbie in2009, complete with one of Ms.Merkel’s practical pantsuits, whichwas promptly mocked by PhilippRösler, her current economy min-ister. “So, now there’s a MerkelBarbie,” said Mr. Rösler in a tele-vised speech at the time. “Theonly downside is it costs €300.The actual doll is only €20, butthose 40 pantsuits sure are expen-sive.”

BY MARY M. LANEBerlin

A protester yells slogans outside the Barbie Dreamhouse in Berlin. Many Berliners have been befuddled by the brouhaha.

Getty

Images

Merkel Barbie

DiscoverEurope’sBestAnalystsWhich analysts outsmartedtheir rivals in 2012? In the firstEurope-wide survey of its kind,The Wall Street Journal hasteamed up with FactSetResearch Systems to revealthe master stock pickers of theyear—and their current topstock choices.

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MOREFINANCE.MORE IDEAS.

VOL. XXXI NO. 76

MONDAY, MAY 20, 2013

Manchester United followers found it hard to smile Sunday as Alex Ferguson bade farewell at theend of his final match as manager. His side drew 5-5 with West Bromwich Albion. Sport, page 30

All the Fives in Ferguson’s Final Farewell

Reuters


SEOUL—North Korea onSunday fired a short-rangemissile into the sea off theeastern coast of the Koreanpeninsula following three sim-ilar launches Saturday, onceagain stirring tensions thathad appeared to ease in thewake of a recent series ofthreats directed at South Ko-rea and the U.S.

The latest missile firingcame after the South Koreangovernment on Sunday con-demned Pyongyang’s earlierlaunches and urged it to cometo the negotiating table overthe jointly run Kaesong Indus-trial Complex to allow SouthKorean companies to with-draw their raw materials andfinished goods.

On Sunday, U.N. chief BanKi-moon also asked the Northto refrain from further missiletests.

The missiles posed no dan-ger to neighboring countries.Analysts said the launches,which aren’t uncommon, werelikely intended as a protestagainst joint South Korean-U.S. naval drills last week.North Korea, a financially be-leaguered state hit by freshU.N. sanctions following itsnuclear test in February, mayexpect the launches willprompt the offer of dialoguefrom the U.S., they said.

“North Korea will achievenothing by threats or provo-cations, which only further


Swedish Firms SqueezedAs Krona Rises on Euro

VADERSTAD, Sweden—This cozy village got a visit inMarch from Sweden’s primeminister, who praised farm-machinery company Vader-stad-Verken AB as one of thecountry’s “successful exportcompanies.”

But Fredrik Reinfeldt got astern complaint from Chris-tina Stark, an executive at thefamily-run company, whichhas been in business for half acentury. She told the primeminister that the strongSwedish krona is batteringthe bottom line, while rivalsespecially in Germany benefitfrom the comparativelyweaker euro.

Because Sweden isn’t a

member of the euro zone, ithas avoided much of the eco-nomic mess that spreadacross Europe. The Nordiccountry is a popular destina-tion for investors throughoutthe world, pushing the kronahigher.

That is bad for profits atSwedish companies becausethe money they make fromproducts sold elsewhere isworth less when convertedback into Swedish kronor. Asof Friday, one euro was worth8.59 Swedish kronor, downabout 6% from around 9.15kronor a year earlier.

The squeeze is hurtingfirms ranging from baby-car-rier maker BabyBjorn AB topotato-chip maker SvenskaLantchips to Sandvik AB,

which makes equipment forminers and construction com-panies.

In March, Sweden ex-ported goods worth 14% lessthan a year earlier. A purchas-ing managers’ index fell below50 in April, indicating con-traction in business activity.

Other European countriesthat aren’t in the euro zoneface the same challenge inmanaging the appreciation oftheir currencies against theeuro.

In Switzerland, though,the central bank enforces a


BY CHARLES DUXBURY

BY KYONG-AE CHOIAND ALASTAIR GALE

YahootoPay$1.1BillionToBuyTumblr

Yahoo Inc.’s board has ap-proved a deal to acquire blog-ging startup Tumblr, peoplefamiliar with the matter saidSunday.

Yahoo has agreed to pay$1.1 billion for the company,one of the people said. Tum-blr would continue to operatelargely as an independentbusiness, the people said.

It wasn’t immediately clearwhether Tumblr’s board hadapproved the deal. Spokesmenfor Yahoo and Tumblr didn’timmediately respond to re-quests for comment.

Yahoo’s board approvedthe deal in a meeting by tele-phone on Friday, one of thepeople said. A deal could beannounced as soon as Mon-

day, the person said.Tumblr, founded in 2007,

fast built a following by mak-ing it easy for people to postblogs and photos, follow otherpeople on Tumblr and receiveupdates via a feed. The web-site’s simple design has low-ered the bar for online pub-lishing and effectively mergedblogging with social media.

By acquiring Tumblr, Ya-hoo would gain a social-mediasite that has become a hub ofcommunication and blogging

for millions of people, but onethat generates little revenue.

Talks between Yahoo andTumblr were reported earlierby technology news and opin-ion website All Things D, aunit of Wall Street Journalparent News Corp.

Tumblr Chief Executive Da-vid Karp has focused on build-ing the company’s user basefor its minimalist bloggingplatform while leaving forlater the question of earningmoney. It is a pattern typicalfor young Internet companies.

Tumblr began placing adson its service last year. Mr.Karp, who once told the LosAngeles Times that he was“pretty opposed to advertis-ing,” said in recent media re-ports that Tumblr generated$13 million in revenue last year.

People familiar with thematter said Yahoo believes it


By Joann S. Lublin,Amir Efrati

and Spencer E. Ante

U.K. Treasury cites dangersin Scottish independence..... 4

Outlook: Euro zone risking anArgentina moment?................. 6

David Cameron’s EUwaiting game is over,says Simon NixonAgenda ................... 4

French restaurantsfacing cost crisispreparing mealsEurope News .......... 5

U.S. government nowinvestigating the pressOpinion ................. 14

Inside

Oil-Price Rally Out of SyncBUSINESS & FINANCE 17

DJIA 15354.40 À 0.80% Nasdaq 3498.97 À 0.97% Stoxx Eur 600 308.72 À 0.24% FTSE 100 6723.06 À 0.53% DAX 8398.00 À 0.34% CAC 40 4001.27 À 0.56% Euro 1.2819 g 0.62% Pound 1.5172 g 0.85%

BHR BD 1.50 EGY $1.75(C/V) JOR JD2 KWT KD 1 OMNOR 1.5 POL ZL 12 QATQR 14 SAU SR 14 UAE 15 AED £1.70 /€3.20EUROPE EDITION

WSJ.com

Business & Finance Big U.S. companies aresizing up Europe..........19

Bloomberg ramps upcompliance efforts......19

Battle for Web adratings heats up..........20

Heard: Yahoo’s Tumblrof opportunity...............32

Seoul concerned as Japaneseofficial visits Pyongyang..... 10


HEARDON THE STREETEmail: [email protected] FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard

Risks RiseAs TurkeyMoves UpA Grade

It has been a long roadback for Turkey.

Cut to “junk” by Moody’sin 1994, the country won acredit-rating upgrade back toBaa3 Thursday. Turkey nowhas two investment-grade rat-ings, a development thatshould expand the pool of po-tential buyers of its sovereigndebt.

This is welcome news for acountry that has to finance acurrent-account deficit thatwas 6% of gross domesticproduct last year. But it couldput further pressure on thecentral bank, which is tryingto balance capital inflows, in-flation, growth and the ex-change rate.

On some indicators, Tur-key has long punched aboveits rating. Debt stands at 36%of GDP and has fallen by 10percentage points since thebeginning of 2009. The bud-get deficit in 2012 was just1.4% of GDP. Turkey has beenextending the maturity of itsdebt, reducing its exposure tointerest-rate increases. It isalso less reliant on foreign-currency debt: just 27% of thetotal last year, down from46% in 2003.

Turkey’s Achilles’ heel hasbeen its dependence on po-tentially fickle investmentflows.

Moody’s upgrade is a dou-ble-edged sword. It should ex-pand Turkey’s investor baseand potentially make it morestable. In an environment inwhich investors are huntingfor yield, Turkish paper couldbe attractive. Moody’s notes,too, that the government isencouraging savings throughpension overhauls.

That is all good news. Butthere is also a risk that a rushof foreign investment putsupward pressure on Turkey’scurrency, particularly as manycentral banks continue print-ing money.

The Central Bank of Tur-key is already watching this.It cut rates Thursday to 4.5%from 5%, specifically notingstrong capital inflows. Fur-ther cuts may be needed, rais-ing the risk that the centralbank will miss its inflationtarget of 5%. Inflation stoodat 6.1% in April.

Lower rates will also re-quire management of domes-tic-lending growth, one of amultitude of factors the cen-tral bank targets.

Moody’s upgrade gener-ated immediate results. Tur-key’s main stock index hit arecord, and bond yieldsdropped. More upgrades mayfollow. But Turkey will haveto savor its success carefully.

—Richard Barley

A Tumblr of OpportunitySeven years ago, Yahoo

tried to buy a social networkfor $1 billion. But Mark Zuck-erberg wasn’t interested inselling Facebook.

Still seeking credibilitywith the kids, Yahoo nowplans to buy social bloggingcompany Tumblr for a similarprice tag: $1.1 billion. As con-solation prizes go, it wouldn’tbe a bad one, provided Yahoocan monetize its potential.

The sites and mobile appsTumblr, Instagram, Snapchatand Facebook are similar inthat they enable teens,twenty-somethings and othersto create and share photos,links or blogs. Such navel gaz-ing can be big business, asFacebook has shown. Twitterhas also been successful. It isexpected to generate world-wide advertising revenue of$580 million this year, ac-cording to eMarketer.

Tumblr is actually farlarger in terms of users thanFacebook was in 2006, host-ing more than 100 millionblogs. Facebook had just 10million or so users when Ya-hoo came waving its check-book.

Though Tumblr began as adesktop destination, it alsohas a solid presence on mo-bile devices. At No. 63 amongiPhone apps in the U.S., as

ranked by App Annie, Tumblris ahead of all Yahoo apps. OnAndroid smartphones, AppAnnie ranks Tumblr 85th; theonly Yahoo app rankinghigher is Yahoo Mail.

Indeed, the shift to mobilepresents an existential chal-lenge for more mature webcompanies like Yahoo. Evennine-year-old Facebook findsits business at risk. But Face-book’s mobile app has been abig hit, and Facebook gobbledup top photo-sharing app In-stagram in a deal worth justover half a billion dollars.

So Tumblr boasts a hugebase of users and would be auseful weapon in mobile wars.

But could Yahoo wring profitsfrom it?

Tumblr has only juststarted generating revenue,but it has lots of potential.Here again, Facebook andTwitter are good models. Bothare structured so that userssee their friends’ posts streamby as a news feed. And bothhave found success by passingads intermittently throughthese feeds. Similarly, Tumblrusers see a stream of postsfrom those they follow, so thesite is a logical candidate torun the same kinds of ads.

With its advertising chopsand huge computing infra-structure, Yahoo can help

Tumblr exploit these opportu-nities. Yahoo can also pro-mote the service to its hun-dreds of millions of users.

Google bought do-it-your-self blogging tool Blogger in2003 when the latter had just250,000 users. Today, Bloggerhas more than 400 million.Google has also enjoyed suc-cess with another user-gener-ated content site: YouTube.

Yahoo’s relatively newchief executive officer, Ma-rissa Mayer, needs to showprogress turning around thecompany. Granted, shareshave soared 70% since Ms.Mayer took over last July. Butlittle of that can be crediteddirectly to her.

The stock’s rise began inOctober, when Yahoo boostedstock buybacks. Since then ithas repurchased about 10% ofits shares outstanding for$2.3 billion. A bigger bumpmay have come from excite-ment over Chinese e-com-merce giant Alibaba Group, inwhich Yahoo has a 24% stake.

The Tumblr deal would beMs. Mayer’s first big move torevitalize Yahoo. The $1.1 bil-lion price tag seems expensiveon conventional metrics.

But Tumblr’s price willprove cheap if Yahoo gets itscool back with the kids.

—Rolfe Winkler

Finding Exit Ramp for TomTomOne of the most compel-

ling reasons to own a smart-phone is simply to tell youwhere you are—and whereyou’re going.

That’s why mapping-soft-ware companies are potentialtakeover targets. Facebookmay be willing to pay up to $1billion for Waze, according torecent reports, including inThe Wall Street Journal.Closely held Waze doesn’tgenerate much revenue, butits primary asset consists ofreal-time maps and traffic in-formation.

That should pique interestin one of Waze’s publiclytraded rivals: TomTom.

If Waze is sold, Nether-lands-based TomTom wouldbe the last independent pro-vider of digital maps thatcover much of the globe.These have become a valuableasset. As smartphones be-come ever more similar, dis-tinguishing the app ecosys-tems on them becomescritical to companies rangingfrom Apple to Samsung Elec-tronics to Microsoft. EvenAmazon.com is developing itsown smartphones.

The importance of mapswas underlined by Apple’sbungled replacement last yearof Google Maps on the iPhonewith its inferior alternative.Meanwhile, Google announcedupdates for its maps lastweek, putting them further

ahead of rivals.But there are only four

sources of high-quality maps.Google has its own, and Face-book may grab Waze. Navteqis owned by Nokia, withwhom Microsoft worksclosely. That leaves TomTom,whose maps are licensed byApple, Samsung and Black-Berry, among others.

Building maps fromscratch is capital intensive.Yet this scarcity value seemsonly partly reflected in Tom-Tom’s shares, down morethan 90% from their 2007peak. The company now hasan enterprise value, includingnet debt, of about €850 mil-lion ($1.1 billion), or aboutsix times this year’s consen-sus estimate for earnings be-fore interest, taxes, deprecia-

tion and amortization, orEbitda.

The low valuation reflectsthe impact smartphones havehad on sales of personal navi-gation devices. These repre-sent about half of TomTom’srevenue, are down by two-thirds over the past fiveyears, and continue to fallrapidly. TomTom also pro-vides navigation systems forcar companies, but these, too,are vulnerable to smartphonesubstitution over time.

Cutthroat competitionamong TomTom’s customersmight be the best thing goingfor it. Able to play TomTomand Navteq against eachother, Apple and others don’tpay a lot to license maps. Butthe risk of them falling intorival hands could spark a bid-ding war. A potential suitorlike Apple could finance adeal with trapped offshorecash.

The big obstacle is thatTomTom’s four founders con-trol 47% of the company andaren’t eager to sell. For othershareholders, though, Tom-Tom’s lackluster stand-aloneprospects make a compellingcase to at least explore anexit. It would be a braveshareholder activist whowould take on such a chal-lenge. But it may offer thebest route to realizing thecompany’s full value.

—Rolfe Winkler

Road RageTomTom’s market capitalization

Source: FactSet


$12 billion

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The pirates are beingkept at bay.

BitTorrent is a file-shar-ing site that has oftenplayed host to unauthorizedcopyrighted material. In thepast six months, it ac-counted for 9.2% of peak-pe-riod traffic on North Ameri-can fixed-access broadbandnetworks, according to net-working-equipment companySandvine. That is down from17.2% in 2011.

Meanwhile, the tideseems to be turning in favorof authorized video sources.Netflix has retained aroughly 29% share of peak-period traffic. Google’s You-Tube climbed to 15.4% from13.8% over the past year.

This doesn’t mean BitTor-rent is going away. Its vol-ume in North America con-tinues to expand, Sandvinesays.

What is happening isthat overall North Americanbroadband usage is also in-creasing rapidly, with meanusage up 39% over the pastyear. BitTorrent clearly isn’tkeeping pace.

The pirates may not yetbe walking the plank. But asInternet video expands, con-tent owners are claimingmore of the spoils.

—[email protected]

OVERHEARD

Hidden CostsOf Ocado’s Deal

Online U.K. grocer OcadoGroup always wants morecustomers to take advantageof its high-tech delivery ser-vice. Friday, it landed its big-gest catch to date: rival Wm.Morrison Supermarkets.

Ocado’s shares surged 36%after it announced a deal withMorrison to give the chain aquick entry into the fast-ex-panding online-grocery mar-ket. Essentially, Ocado willhandle the magic behind thescenes, including order pro-cessing and distribution logis-tics. But Morrison customersmay never know. They willuse a Morrison website andhave groceries delivered inMorrison-marked trucks.

What’s in it for Ocado?The company, which hasn’tearned an annual profit sincelisting its shares in 2011, getsa cash payment of about £165million ($250 million), threetimes its £55 million net debt.

Ocado also expects aroughly £15 million annualboost to its bottom line, awelcome cushion, as it strug-gles to generate revenue tooffset infrastructure invest-ment. While sales surged 28%in 2010, they rose at abouthalf that rate in 2012.

Yet the deal also involves

sacrifices. First, Morrisonmay disrupt Ocado’s relation-ship with Waitrose, whoseproducts are available on Oc-ado.com alongside its own-la-bel groceries. That contractexpires in 2017, after whichOcado may have to rely on itsown brand strength.

Also, a big chunk of Oc-ado’s work will be done anon-ymously. Morrison plans toprocess about £500 million ofannual sales through Ocado’ssecond facility, which justopened.

Ocado’s entire sales lastyear were £674 million. Untilnow, many customers have as-sociated their shopping expe-riences with Ocado. Suchbrand strength can help a re-tailer expand faster and in-crease margins.

There is no doubt Ocado’sdeal helps its near-term prof-itability, but its long-termprospects may have dimmed.Adjusting for the benefits ofthe new arrangement, Ocado’sshare price indicates an enter-prise value of about 25 timesconsensus earnings before in-terest, taxes, depreciation,and amortization.

At that price, Ocado lookslikely to go on sale soon.

—John Jannarone

Out of SiteYahoo’s share price

The Wall Street JournalSource: WSJ Market Data Group

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