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Architecture’s New Age

PLUS:

Joan Smalls & Lil Buck in WSJ. Magazine

EUROPE EDITION

VOL. XXXII NO. 197

FRIDAY - SUNDAY, NOVEMBER 7 - 9, 2014

$1.75 (C/V)

KES 250

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WSJ.com

A Look Into the Past for Children in Berlin

ATTHEW

ARNITSCHNIG

Tax Leak Puts

EU’s Juncker

IntheHotSeat

took over Europe’s top office

and threaten to cast a shadow

over his campaign to move

the 28-member European

Union beyond the political

and economic travails that

have hobbled it in recent

years. All of the tax deals de-

scribed in the documents,

which run until 2010, were

granted during Mr. Juncker’s

time as Luxembourg’s leader.

“I expect Mr. Juncker, who

served for 20 years as Luxem-

bourg’s prime minister and fi-

nance minister, to provide de-

tails of how Luxembourg’s tax

authorities operate,” Carsten

Schneider, a senior member of

Germany’s Social Democrats,

said during a heated parlia-

mentary debate on Thursday.

The main question Mr.

Juncker faces in the short

term is how he can demand

continued belt tightening in

countries such as Greece and

Portugal, when his own coun-

try is helping companies

avoid paying taxes across Eu-

rope. Even as much of Europe

has been stuck in an economic

funk, Luxembourg has pros-

pered.

The corporate tax breaks,

which are confidential under

Luxembourg law, allowed the

country, which has a popula-

tion of just 550,000, to build a

strong financial sector. Finan-

cial services account for more

than 35% of Luxembourg’s

economic output. The corpo-

rate tax sector, which includes

big accounting firms such as

PricewaterhouseCoopers

and

dozens of law offices, pro-

vides thousands of jobs to the

Luxembourg economy and has

helped make the country one

of the world’s richest on a per

capita basis.

As Luxembourg’s prime

minister, Mr. Juncker was a

strong defender of his coun-

Please turn to page 19

Reuters

As Germany prepares for Sunday’s 25th anniversary of the fall of the Berlin Wall, children peek

through a hole in the last remnant of the barrier, which serves as a memorial.

Articles 10-11,13 & 27

European

Commission

President

Jean-Claude

Juncker was thrust to the

center of a global debate on

corporate tax havens follow-

ing the release of thousands

of secret documents detailing

how Luxembourg, the country

he led for nearly 20 years as

prime minister, helped com-

panies avoid paying taxes.

The documents, disclosed

by the Washington-based In-

ternational Consortium of In-

vestigative Journalists on

Thursday, provide fresh detail

on how hundreds of the

world’s biggest companies, in-

cluding PepsiCo Inc., FedEx

Corp. and Amazon.com Inc.,

have funneled profit through

subsidiaries in Luxembourg,

avoiding billions in taxes in

other jurisdictions.

The revelations come less

than a week after Mr. Juncker

OPEC Is Concerned, but

Not Panicky on Oil Drop

VIENNA—As oil prices slid

further Thursday, OPEC sig-

naled that it isn’t ready to hit

the panic button—yet.

Benoît Faucon,

Summer Said

and

Mercedes Alvaro

Oil’s more-than-25% de-

cline since the summer has

led to speculation that the Or-

ganization of the Petroleum

Exporting Countries—whose

crude accounts for about a

third of global oil supply—

would cut its output to try to

support prices, especially as

some of the group’s members

grow fearful of the likely hit

to their government budgets.

At a news conference in

Vienna on Thursday, OPEC

Secretary-General Abdalla Sa-

lem el-Badri said the group is

“concerned, but we are not

panicking.” Mr. el-Badri

blamed market speculators

for the sharp oil-price drop,

saying “fundamentals don’t

deserve this price decline.”

Both major crude bench-

marks fell Thursday. But the

OPEC statements were over-

shadowed by reports that Lib-

yan officials said they expect

production at its biggest field,

El Sharara, to restart soon,

recovering quickly from a

rebel attack the day before.

The Brent crude futures

contract, the international

benchmark, fell 9 cents to

$82.86 a barrel, while the U.S.

benchmark fell 77 cents to

$77.91 a barrel.

Inside

ECB Pulls Together

On Possible Stimulus

RIAN

LACKSTONE

FRANKFURT—The Euro-

pean Central Bank sent a

strong signal Thursday that it

is prepared to act more ag-

gressively to combat ultralow

inflation by buying large

amounts of private-sector

debt and perhaps even gov-

ernment bonds.

The central bank’s policy

makers are unanimous in their

readiness to back more stimu-

lus if needed, ECB President

Mario Draghi said at his

monthly news conference. He

added that officials all expect

the central bank’s balance

sheet—the amount of assets it

holds—to rise toward early

2012 levels, implying an in-

crease of up to €1 trillion

($1.24 trillion).

Following Mr. Draghi’s’ re-

Analysts and brokers said

the market appeared to be

taking a wait-and-see ap-

proach to the OPEC com-

ments, reserving judgment

until the group’s Nov. 27

meeting in Vienna to see if

the organization takes any of-

ficial action to reduce output

and shore up prices.

“I certainly think they’ll

say something,” said Kyle

Cooper, managing partner of

research consultancy IAF Ad-

visors in Houston. “What kind

of real action they’ll take re-

mains to be seen.”

Despite Mr. el-Badri’s com-

ments, some within OPEC al-

ready are thinking about the

oil-price level at which the

group will be forced to re-

Please turn to page 16

Frugal France: Towns

struggle to make do

with less

Europe News............ 5

Going for a song?

Qatari bid for control

of Canary Wharf

Business................. 18

Tricks for teaching

children to clean up

Personal Journal... 25

marks, the euro fell to a two-

year low and European stocks

surged. Expansionary central

bank measures, which typi-

cally lead to higher inflation,

tend to weaken a currency

while brightening the pros-

pects for businesses and con-

sumers.

Mr. Draghi has made simi-

lar comments of his own ac-

cord on the balance sheet,

but its inclusion in the intro-

ductory statement to the

news conference means the

entire 24-member Governing

Council approved it. In a sign

of the bank’s unity, Bundes-

bank

President

Jens

Weidmann—a harsh critic at

times of ECB policies—played

Please turn to page 5

 Euro drops to two-year low

on ECB news............................. 22

| Friday - Sunday, November 7 - 9, 2014

SW FR

IT SP

TK BR

THE WALL STREET JOURNAL.

PAGE TWO

What’s News—

Business & Finance

Adidas’s net profit fell

11%

in the third quarter as the com-

pany cited negative currency

effects, a continuing slide in

sales at its golf division and

higher marketing costs.

Commerzbank said

net

profit tripled to nearly $281

million in the third quarter,

helped by a drop in provi-

sions for bad loans and an in-

crease in revenue.

Standard Chartered’s

chair-

man said the bank is too bu-

reaucratic and has been slow

to adapt to changes in the in-

dustry, even as he sought to

convince managers that recent

stumbles are far from fatal.

The big pay rise

Helge Lund is

getting to move to BG Group as

CEO is raising worries among

corporate governance experts

and investors over rising execu-

tive compensation in Europe.

Siemens said

it would sell

its hearing-aid business to pri-

vate-equity firm EQT and

Santo Holding, an investment

vehicle, for $2.68 billion.

China’s Bright Food Group

said it is on the hunt for more

international deals, and it

plans IPOs for Weetabix and

Manassen Foods.

Air-bag maker Takata

took

$25.3 million in new recall-re-

lated charges, widening a pro-

jected full-year net loss.

World-Wide

Migrants leaping fences

two Spanish enclaves in Mo-

rocco are being deported by po-

lice without the opportunity to

appeal, in violation of EU law.

Obama secretly wrote

Iran’s

supreme leader last month and

described a shared interest in

fighting Islamic State militants

in Iraq and Syria.

U.S. prosecutors have

launched a money-laundering

investigation of a member of

Putin’s inner circle, escalating

pressure on the Russian presi-

dent’s billionaire supporters.

Libya’s Supreme Court

ruled the nation’s isolated but

internationally recognized par-

liament is unconstitutional.

An annual U.S. visa lottery

drew more than 11 million appli-

cants, though lawmakers look

poised to end the program.

The U.S. House speaker

put

the onus on Obama to work

with Republicans, especially

on immigration.

The effort to detect

Ebola

more quickly has been taken up

by companies, government agen-

cies and nonprofits to improve

the response to the outbreak.

Pakistan plans

to sign deals

worth billions of dollars with

China for development of infra-

structure and energy projects

during Sharif’s visit to Beijing.

Europe’sRecoveryRecedes

AmidDivisionsonSolutions

[ Brussels Beat ]

TEPHEN

IDLER

Where is the

robust eurozone

economic recovery

that has been just

around the corner

for the last couple

of years? The answer, according to

the economic forecasts released

this week by the European

Commission, appears to be

somewhere around the corner.

Confirmation of the ever-

receding recovery came in the

sharp downgrading of growth and

inflation expectations for this year

and next. The upturn that seemed

under way in the spring has

faltered.

In its report accompanying the

forecasts, the commission, the

European Union’s executive arm,

admitted that it was “becoming

harder to see the dent in the

recovery as the result of

temporary factors only.”

Another round of downgraded

forecasts made for an inauspicious

start for the new commission of

Jean-Claude Juncker, which took

office this week.

“This risks being a long

tunnel,” said Michel Sapin, the

French finance minister, before a

meeting with his eurozone

counterparts Thursday.

It is already a long tunnel. The

commission report piles on the

gloom, noting that the period of

weak growth is already in its

seventh year. “As many of the

factors behind the weak

recovery…are expected to diminish

only very gradually, a continuation

of protracted low growth is

expected over the forecast

horizon,” it said.

It also ventures that there may

be something peculiar to the

eurozone that is delaying the

typical pattern of recovery after a

deep monetary and financial crisis.

Possible explanations could

include the precrisis weakness of

European economies, the policy

response to the financial crisis,

the legacy of the sovereign-debt

crisis and the incomplete state of

monetary union in Europe.

Nonetheless, Mr. Sapin claimed,

“we have a good understanding of

the situation. We have a good

diagnosis.”

But, in fact, it isn’t at all clear

that there is a shared diagnosis of

what is holding back the bloc. At

the very least agreement is lacking

on what the priorities are.

The analysis from Paris—

backed by the Italian

government—emphasizes the lack

of demand in Europe. According to

this view, you can implement all

the supply-side reforms you want,

but you won’t succeed in reviving

an economy suffering a chronic

lack of demand. Boosting demand

requires giving governments more

leeway, where feasible, to borrow

cheaply.

Germany, the eurozone’s

dominant economy, takes a view

that is almost the opposite. It

argues that the solution lies in

countries becoming more

competitive by delivering further

supply-side reforms of labor and

product markets and believes that

Reuters

Demonstrators protesting government austerity cuts in Brussels on Thursday.

issuing more debt isn’t the way to

resolve a debt crisis.

Jeroen Dijsselbloem, the Dutch

finance minister who is usually in

Berlin’s camp, said Thursday that

politicians always want to go for

the “easy routes”of monetary

policy and public spending, rather

than necessary supply-side

reforms. But he did say there was

room in the budget of at least one

country—Germany—to increase

public investment. “And I hope

that they will use it.”

Trouble is Germany is

committed to balancing its budget

next year. Finance Minister

Wolfgang Schäuble did say

Thursday that Berlin was indeed

open to expanding public

investment, by €10 billion ($12.5

billion) from 2016 to 2018.

That seems unlikely to move

the needle much, even in Germany

let alone across the eurozone.

So can Brussels help? Mr.

Juncker is a man with a plan: to

galvanize some €300 billion in

investments in infrastructure and

possibly in small and medium-size

enterprises, over three or so years.

Details of the program, which

will be announced in December,

have yet to be fleshed out. But at

this point its main vehicle seems

to be the European Investment

Bank, the EU’s own project-lending

institution, which will get a capital

boost.

The current state of the capital

markets should allow the EIB to

borrow long term at low interest

rates to finance investment

profitably. The question is

whether a sufficient number of

realistic projects can be identified

and managed for that money to be

spent in a relatively short space of

time.

Given the minimal impact of

previous “growth and jobs”

initiatives that have been cooked

up in Brussels, Mr. Juncker’s plan

has a hill of skepticism to climb.

All of which places more

responsibility for the recovery on

the shoulders of the European

Central Bank. Its president, Mario

Draghi, assured financial markets

Thursday that the bank would

inject funds into the eurozone

economy sufficient to expand its

balance sheet to the size it was

back in early 2012.

The central bank may thus help

the economy avoid the worst.

However, it seems unlikely on its

own to spur a return to strong

growth.

One small silver lining in the

cloud of gloom, one commission

official said this week, is that the

dire outlook may encourage

governments to back policy action

to spur the economy.

Yet weak as the eurozone

economy is, we may not be at that

point yet. For governments to

move, “the sense of urgency has to

become a lot stronger,” said Mr.

Dijsselbloem. Small wonder

economic optimism in Brussels is

scarce these days.

—Gabriele Steinhauser

contributed to this article

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The Wall Street Journal

THE WALL STREET JOURNAL.

Friday - Sunday, November 7 - 9, 2014 |

EUROPE NEWS

EU Seeks Deal on U.K., Dutch Payments

AURENCE

ORMAN

BRUSSELS—The European Union

appeared headed for a compromise

that would give the U.K. and the

Netherlands more time to pay extra

EU budget bills.

The details of an agreement were

still far from resolved, but the Euro-

pean Commission proposed to mem-

ber states Thursday that payments

could be made in installments

through mid-2015, according to two

people briefed on the discussions.

The bloc’s finance ministers will

discuss the issue at a meeting in

Brussels on Friday. Several of the

ministers said Thursday a compro-

mise deal is likely.

U.K. Prime Minister David Cam-

eron reacted angrily last month af-

ter being confronted with a huge

new bill for EU membership and said

he wouldn’t pay the full amount by

the Dec. 1 deadline.

One U.K. official said Thursday

an installment plan might be “help-

ful” but the bill is still too large. The

official said U.K. ministers still

aren’t clear how it was calculated.

While some other EU countries

were also being hit by the one-time

agreed EU legislation that governs

budget payments. That requires ap-

proval by the European Parliament

and the European Commission.

“I understand the solution that is

brewing right now is a bigger deal

linking, on one level, some flexibility

in the schedule of payments if they

are particularly large” with a solu-

tion for “the looming liquidity crisis

for the EU budget,” Polish Finance

Minister Mateusz Szczurek told re-

porters.

Irish Finance Minister Michael

Noonan said his government has “no

objection” to giving the U.K. an extra

year to make the payments. French

Finance Minister Michel Sapin said

the rules should be applied with ap-

propriate “flexibility.”

The U.K. and Dutch payments

won’t go into Brussels coffers but

will be passed on to other EU gov-

ernments whose economic output

estimates weren’t revised sharply

higher. That means any delay in the

payments will push back the time

when other governments can use the

money for their budget plans.

EU officials said a compromise

deal needs to come in the next 10

days if the U.K. is to avoid penalty

David Cameron speaking in the House of Commons, in London, on Wednesday.

charges, Britain is getting the big-

gest bill: an additional €2.1 billion

($2.6 billion) or almost a fifth of its

annual payment to the EU budget.

The demands come amid growing

anti-EU sentiment across much of

Europe. Some U.K. politicians on the

right have become increasingly vocal

about frustrations with EU policies

such as immigration, as well as the

cost of membership.

The Netherlands’ extra bill totals

€643 million. Italy and Greece were

among others asked to give addi-

tional money. The new bills were a

result of an upward recalculation

over a number of years of the size of

these economies.

Any delay in payments will al-

most certainly require changing the

fines by the start of next month. Fri-

day’s finance ministers meeting is

likely to produce a political deal to

ask the European Commission to

present a formal compromise pro-

posal at the start of next week, offi-

cials said.

Still, an agreement remains com-

plicated because the budget-bill is-

sue has become wrapped up with

other discussions, officials say.

One is the European Parliament’s

demand to raise the EU budget ceil-

ing for 2014 by more than €4 billion

and to have extra money from mem-

ber states to spend in 2015.

The 2014 money would go to

paying unpaid EU bills and it would

be paid for mainly by EU antitrust

and other fines that would normally

go back to member-state coffers.

However that means a double

cost for countries like France and

Germany, which wouldn’t get all the

U.K. and Dutch Dec. 1 payments or a

windfall from billions of euros of EU

fines. That will likely require some

kind of sweetener.

—Matthew Dalton in Brussels,

and Nicholas Winning

and Jason Douglas in London

contributed to this article.

Press Association

| Friday - Sunday, November 7 - 9, 2014

THE WALL STREET JOURNAL.

EUROPE NEWS

Spain Tries Deporting

Would-Be Immigrants

AVID

OMÁN

MELILLA, Spain—For nearly a

decade, Spain has counted on tall

border fences to discourage mi-

grants from crossing illegally from

Morocco into two small Spanish en-

claves on Africa’s Mediterranean

coast.

But as growing numbers of Afri-

cans scale the barriers, Spanish offi-

cials have adopted a different strat-

egy, one that appears to challenge

European Union law: Police are de-

porting some fence jumpers as they

drop into the enclaves.

EU law bars summary deporta-

tions and requires members to allow

anyone who steps foot on their terri-

tory to apply for political asylum.

Spain is trying to finesse that re-

quirement by declaring a “security

perimeter” on the Spanish side of

the border fences. It is no longer

enough, it says, to clamber up the

fences and tumble onto Spanish soil

to be assured of an asylum hearing.

Instead, it claims, migrants de-

tained in this zone can immediately

be sent back to Morocco without a

hearing. Authorities have proposed

an amendment to Spain’s national-

security law that would retroactively

legalize this practice, which border

police say has become routine.

The shift is part of a hardening

stance against illegal immigration by

Southern European countries as

mounting turmoil from Syria to

Libya and violence and oppression in

Africa uproot and drive thousands of

people toward the Continent. It re-

flects a preference by some Euro-

pean governments to assert national

control over regional bodies on con-

tentious matters of migration policy.

Greece has drawn criticism from

EU officials for building a 6-mile-

long fence along its land border with

Turkey to keep out migrants. Nils

Muiznieks, commissioner for human

rights at the Council of Europe, the

Continent’s leading human-rights or-

ganization, said Italy, Greece and

Bulgaria have violated EU law by re-

cently pushing back migrants, an al-

legation Athens denies. Italian and

Bulgarian officials didn’t respond to

requests to comment.

Spain, Mr. Muiznieks added, is

the only European country attempt-

ing to legalize the practice.

In the U.S., border agents some-

times informally encourage immi-

grants to turn around when they en-

counter them at the border—an

alternative to the more common

procedure of detention and initiat-

ing deportation proceedings.

Under U.S. law, any person ap-

prehended at the border who isn’t

legally allowed entry into the U.S.

can be deported by the U.S. Depart-

ment of Homeland Security without

an appearance before an immigra-

tion judge or the opportunity to re-

tain legal counsel. Only a well-

founded fear of political or religious

persecution can avert immediate de-

portation.

Spanish officials say they are

fighting a rising tide of migrants

who are being funneled toward their

North African enclaves by trafficking

organizations wary of riskier cross-

ings of the Mediterranean Sea. The

enclaves, Ceuta and Melilla, make

Spain the only European country

whose territory has a land border

with the African continent.

In the first nine months of this

year, more than 5,000 people fleeing

African countries have journeyed to

Morocco, dodged police there, and

scaled three parallel rows of fences

to reach the two enclaves, according

to the office of the United Nations

High Commissioner for Refugees.

That is double the number who

had entered the enclaves illegally in

the year-earlier period.

Groups of up to 300 migrants

have stormed the border at once,

some using rock-climbing hooks to

scale the tallest fences, which are 20

feet. In videos released by Spanish

police, some fence jumpers shout

that they are infected with Ebola

and spit at officers in an effort to

avoid detention.

Few migrants reaching the en-

claves gain asylum, but even most of

those who fail are allowed to remain

there or move to the European

mainland, since few African coun-

tries have repatriation treaties with

Spain.

“The way this works, you spend

some time here, and then they let

you go to Europe,” said Abu Bakr, a

20-year-old migrant from Guinea

who jumped the fence into Melilla

two months ago.

Abdelmalik El Barkani, the head

of Melilla’s local government, said

the influx had become intolerable.

“We can’t resign ourselves to an im-

migration system that works along

these lines,” he said.

Under the proposed amendment,

police who detain fence jumpers

within a “security perimeter” inside

the enclaves would have a right to

send them back to Morocco. The

proposal doesn’t specify the width.

African migrants are taken down from a border fence by Spanish Civil Guard

officers during an attempt to cross into Spain’s enclave of Melilla last month.

Speaking in the Spanish parlia-

ment last month, Interior Minister

Jorge Fernández Díaz said the

amendment was necessary to pro-

tect officers from possible legal ac-

tion by critics of their border en-

forcement methods.

Spain’s ruling Popular Party has

enough votes to get the amendment

approved, but the Council of Europe

and the U.N. refugee agency say it

would violate international law.

Money-Laundering Probe Touches Putin Inner Circle

HRISTOPHER

ATTHEWS

NDREW

ROSSMAN

U.S. prosecutors have launched a

money-laundering investigation of a

member of Vladimir Putin’s inner cir-

cle, several people familiar with the

efforts said, in a politically sensitive

escalation of pressure on the Russian

president’s cadre of billionaire sup-

porters.

The U.S. Attorney’s Office for the

Eastern District of New York, aided

by the Justice Department, is investi-

gating whether Gennady Timchenko

transferred funds linked to allegedly

corrupt deals in Russia through the

U.S. financial system, the people said.

The prosecutors are probing

transactions in which the Geneva-

based commodities firm Mr. Tim-

chenko co-founded,

Gunvor Group,

purchased oil from Russia’s OAO Ros-

neft and later sold it to third parties,

one of the people familiar with the

matter said. Investigators have in re-

cent months requested information

about the prices Gunvor charged, the

person said.

The transactions predate the fi-

nancial sanctions leveled by the U.S.

on Mr. Timchenko and other Putin al-

lies in March in the wake of Russia’s

intervention in Ukraine. But transfers

of funds related to the transactions

could constitute illegal money laun-

dering if the funds were found to

have originated from illicit activity

such as, for example, irregular sales

of state assets like oil.

Mr. Timchenko and Rosneft de-

clined to comment.

Gunvor said it hadn’t been noti-

fied of any investigation involving

the company itself and couldn’t com-

ment about Mr. Timchenko, who sold

his stake in the firm just before the

U.S. sanctions were announced. Gun-

vor, one of the world’s largest trading

companies, said it hadn’t purchased

crude oil from Rosneft in more than

two years. The company denies any

wrongdoing regarding the Rosneft

tenders.

The effort is related to a wider

push by U.S. prosecutors to go after

the proceeds of foreign corruption

under the Kleptocracy Asset Recov-

ery Initiative, two people familiar

with the matter said.

The initiative, announced in 2010,

has targeted allegedly corrupt offi-

cials in Africa and the Middle East,

but this appears to be the first-

known probe involving Russia since

the country’s relations with the West

deteriorated over the Ukraine crisis.

The U.S. Attorney’s Office in

Brooklyn and the Justice Department

declined to comment.

The probe is also examining

whether any of Mr. Putin’s personal

wealth is connected to allegedly illicit

funds, one person said. U.S. officials

have previously said that Mr. Putin

has investments in Gunvor.

Mr. Putin’s spokesman, Dmitry

Peskov, said: “We’re not aware of any

investigation, and we’re not follow-

ing such things.” He dismissed alle-

gations of any financial or business

ties between Messrs. Putin and Tim-

chenko, including any investment in

Gunvor, as “nonsense.”

Mr. Putin has confirmed knowing

Mr. Timchenko since the early 1990s,

but denied playing any role in his

business success.

Mr. Timchenko has long played

down his relationship with Mr. Putin

and has flatly denied that he has per-

sonally benefited from it.

“I’m a businessman, not a politi-

cian,” he said in a 2008 interview

with The Wall Street Journal, attrib-

uting Gunvor’s success to its ability

to transport oil on time and on bud-

get. “Our advantage is clearly logis-

tics.”

Mr. Timchenko, who has both

Russian and Finnish citizenship, is a

former Soviet trade official. He and

Mr. Putin met in St. Petersburg,

where Mr. Putin was a local official,

and joined the same judo club, to

which they still belong.

Mr. Timchenko was a quick con-

vert to capitalism and by the early

2000s had established himself as

successful trader of Russian oil. As

Mr. Putin rose to power, Mr. Tim-

chenko’s wealth exploded.

By 2008, Gunvor was shipping 16

times as much Russian crude as it

did in 2002 and the firm had become

the No. 4 independent trader behind

Glencore International AG, Vitol

Group and Trafigura Beheer BV. In

September, Gunvor reported $45 bil-

lion in revenue for the first six

months of 2014.

Russian opposition leaders have

accused Mr. Timchenko of leveraging

his relationship with Mr. Putin to

purchase Russian oil and gas at bar-

gain-rate prices.

Cables from the U.S. Department

of State in 2008, later released by

WikiLeaks, relayed allegations that

Gunvor is the mandatory trader for

certain oil exports, and that the firm

adds $1 to each barrel. “In a competi-

tive market, by contrast, an oil trader

might add anywhere from five to 20

cents ‘maximum’ to the price,” they

said. One cable relayed allegations

that Gunvor “is just a front for ‘mas-

sive corruption.’ ”

Company spokesman Seth Pietras

said all of Gunvor’s activities “are in

line with international standards for

financial crime risk, including anti-

Gennady Timchenko leaving an

economic forum in Russia in May.

money laundering, economic sanc-

tions, counter-terrorist financing,

and anti-bribery and anti-corrup-

tion.”

Mr. Timchenko was among the

first Russian businessmen to be sanc-

tioned by the U.S. following Russia’s

intervention in Ukraine’s Crimea re-

gion. The Treasury Department’s Of-

fice of Foreign Assets Control singled

him out as a member of “the Russian

leadership’s inner circle” and said

Mr. Putin had a stake in Gunvor and

“may have access” to its funds.

Under the sanctions, Mr. Tim-

chenko is banned from traveling to

the U.S., and his assets in the U.S. are

subject to a freeze. After the sanc-

tions were imposed, Mr. Timchenko

said he had sold his stake in Gunvor,

which is privately held, to his partner

the day before. The firm itself wasn't

blacklisted.

Mr. Pietras said Mr. Timchenko

was “only ever a shareholder in Gun-

vor” and never a member of manage-

ment or on the board.

“When it comes to President Pu-

tin, he does not and never has had

any ownership, beneficial or other-

wise in Gunvor,” he said.

Forbes puts Mr. Timchenko’s per-

sonal wealth at more than $13 billion.

Through another entity, the Luxem-

bourg-based

Volga Group,

he con-

trols shipping, railway and port in-

terests as well as two luxury hotels in

France.

—Gregory L. White

and Philip Shishkin

contributed to this article.

Bloomberg News

Reuters

THE WALL STREET JOURNAL.

Friday - Sunday, November 7 - 9, 2014 |

EUROPE NEWS

French Towns Struggle to Do With Less

ILLIAM

OROBIN

SAINT-DENIS, France—In this

town in the former industrial heart-

land outside Paris, Mayor Didier

Paillard is straining to deal with the

new French reality of austerity.

Until now, cash transfers from

the French state made it relatively

straightforward for mayors like Mr.

Paillard to build, staff and maintain

child-care centers, sports facilities

and medical clinics.

But halfway through François

Hollande’s five-year term, the so-

cialist President is upending the

model by slashing financial support

for towns and regions by €11 billion

($13.8 billion) in the next three

years in an effort to cut the budget

deficit.

In Saint-Denis, one of France’s

poorest towns, Mr. Paillard is

scrambling to adjust to the shortfall.

With little room for maneuver on

operating costs, he says he will have

to pare investment vital to support-

ing local jobs and business.

“We are looking at all the sav-

ings we can possibly make, but we

are already stripped to the bone,”

Mr. Paillard said.

The mayor’s alarm call is echoing

across France. If the government

pushes ahead, investment from local

authorities—which accounts for

around 70% of total public invest-

ment—will drop around 10% next

year after a 6% fall in 2014, the na-

tional association of mayors says.

In a country where public spend-

ing makes up over 56% of the econ-

omy, such a decline is set to wield a

Slimming Down

French government’s planned

transfers to regional and local

authorities, in billions

€56.86

53.20

49.53

45.86

2014

2015

2016

2017

Source: France’s 2015 budget bill

The Wall Street Journal

French Interior Minister Bernard Cazeneuve, right, tours Saint-Denis with its mayor, Didier Paillard, left, earlier this year.

blow to jobs and growth, businesses

warn. Public-infrastructure compa-

nies alone will shed 60,000 jobs be-

tween now and 2017, according to

estimates by France’s federation of

public works.

The stakes are high for Mr. Hol-

lande, who went on national televi-

sion Thursday night to discuss his

record. He has repeatedly failed to

deliver on promises to bring down

unemployment, which has surpassed

10% during his presidency and con-

tinues to rise. Recent forecasts show

the French economy is already vul-

nerable to cutbacks: the European

Union expects barely any French

economic growth this year and only

0.7% next year.

In the interview on French tele-

vision channel TF1, Mr. Hollande

said it wouldn’t be credible for him

to stand for re-election if he didn’t

manage to bring unemployment

down by 2017.

“French people would be merci-

less, and rightfully,” Mr. Hollande

said. He pledged to use the remain-

ing two and half years to continue

pushing through overhauls of fi-

nances and the economy.

The spending cuts for local au-

thorities mark a shift in policy for

Mr. Hollande, who came to power in

2012 promising to fight back against

German-inspired austerity in the eu-

rozone. While other countries im-

plemented deep spending cuts to re-

pair their finances, Mr. Hollande

instead raised taxes sharply in the

summer of 2012 in a bid to pay

down the deficit while maintaining

the generosity of the French state.

The change of tack comes as Mr.

Hollande acknowledged the policy

had reached a limit. The socialist

leader is also under pressure from

the EU to bring down the budget

deficit after France repeatedly failed

to meet fiscal targets. The govern-

ment says the depth of cuts strikes

the right balance between the de-

mands of Brussels and the need to

sustain economic growth.

But local leaders such as Mr.

Paillard warn Mr. Hollande’s bet on

spending cuts won’t pay off.

Saint-Denis, a town of about

109,000 people with a poverty rate

estimated at 35%, will get around

€20 million to €22 million less from

the state in the next three years—

the equivalent of a new school.

Mr. Paillard has asked his teams

to come up with ideas for spending

cuts by the end of the year. He is

considering raising the price of

school lunches, an unpopular move

in a town with 22% unemployment.

“This is in no way a virtuous cir-

cle,” he said. “Bleeding us with aus-

terity isn’t the right remedy.”

Mr. Hollande argues that his

switch to spending cuts will help

businesses recover. By cutting

spending, he says he will be able to

bring down the budget deficit and

cut taxes for business, which will

spur job creation and investment in

the private sector.

But Saint-Denis’ entrepreneurs

are already feeling the pinch. Phil-

ippe Servalli, who runs Saint-Denis

Construction—which specializes in

renovating and building day care

centers and gymnasiums—says his

order backlog is evaporating. As

companies chase a smaller number

of contracts, prices have fallen

around 20%.

Unable to hold on for rosier

times, he has cut his staff to 70

from around 100 last year and plans

to bring the number down to 55 by

the end of the year. “It is like riding

a bike: if you stop pedaling, you

fall,” Mr. Servalli said.

Continued from first page

a central role in crafting that lan-

guage, according to a person famil-

iar with the matter.

The ECB left its main rate—the

rate that it charges commercial

banks on its regular loans—at a re-

cord low 0.05% as expected.

However, Mr. Draghi said ECB

staff and committees have been

asked to ensure “the timely prepara-

tion of further measures to be im-

plemented, if needed.” He added

that ECB staff and committees have

a proven record of delivering what

they have been asked to do, an indi-

cation that the ECB is prepared to

act on their recommendations if

necessary.

“They’re closer to new action,”

said Carsten Brzeski, economist at

ING Bank. But new stimulus as soon

as December isn’t assured, he said.

For that to happen, inflation would

need to show further signs of weak-

ening and ECB officials would need

to be convinced that recently ap-

proved measures, including bank

loans and purchases of covered

bonds and asset backed securities,

won’t suffice.

The bar still appears high for

Germany’s central bank president to

approve additional easing despite

the unanimous statement. Mr.

Weidmann doesn’t see the balance-

sheet statement as an explicit target,

rather it is an expectation, according

to the person familiar with the mat-

ter.

Mr. Weidmann is open to new

steps, the person said, but this

would require a significant erosion

in the economic and inflation out-

look.

The ECB has so far held off on

large-scale purchases of public-sec-

tor assets known as quantitative

ECB Signals Readiness to Act

easing that have been a bedrock of

monetary policy responses to the fi-

nancial crises in the U.S., U.K. and

Japan.

The Federal Reserve recently

halted QE purchases amid firmer

economic activity and higher infla-

tion than in the eurozone. Mean-

while the Bank of Japan last week

expanded its asset-buying program

by up to one-third, with additional

purchases of government bonds,

stocks and real-estate funds.

Agence France-Presse/Getty Images

ECB officials spent considerable

time discussing the experience of

other central banks, and the lessons

to be drawn from them for Europe,

Mr. Draghi said. Buying government

bonds is an option for the ECB, too,

he said, provided that such a policy

doesn’t finance European govern-

ments. The ECB could avoid this re-

striction by buying the bonds in the

financial markets.

“It is now a matter of when

rather than if” the ECB buys public

debt securities, said Jennifer McKe-

own, economist at consultancy Capi-

tal Economics.

The Organization for Economic

Cooperation and Development, a

Paris-based research group that in-

cludes developed and large develop-

ing countries, said Thursday that the

ECB should launch an expanded pro-

gram of asset purchases starting

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fpjourne.com

Sonnerie Souveraine - Ref. GS

Bank chief Mario Draghi

said policy makers are

unanimous in their

readiness to back more

stimulus if needed.

with private-debt securities and per-

haps eventually government bonds.

In October, the ECB started pur-

chasing covered bank bonds under a

program approved in September. It

has said it would also start buying

asset-backed securities later this

month. But many analysts doubt

these will be sufficient to raise the

money supply as much as needed,

given the size of these markets.

Mr. Draghi said policy makers

“will continuously assess the appro-

priateness of its stance,” and re-

peated that the Governing Council is

unanimous in its readiness to take

further unconventional measures

should the outlook for inflation de-

teriorate.

Annual eurozone inflation was

0.4% last month, far below the ECB’s

target of just below 2%.

Mr. Draghi repeatedly presented

ECB officials as being united to

stimulate the economy and boost in-

flation.

His statement in September that

the ECB wanted to increase the size

of its balance sheet toward

early-2012 levels frustrated some of

his colleagues who hadn’t agreed to

such a specific target. Some mem-

bers also felt the September plan to

purchase covered bonds and asset-

backed securities, which was ap-

proved by a wide margin, was put

together haphazardly without

enough preparatory work.

“It is fairly normal to disagree, it

happens everywhere,” Mr. Draghi

said, citing central banks in the U.S.,

U.K. and Japan as examples.

“There is going to be a variety of

people involved in these discus-

sions” about additional easing op-

tions, Mr. Draghi said.

—Todd Buell and Paul Hannon

contributed to this article.

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