Bershidsky on Europe: Merkel Turns on US
Here's today's look at some of the top stories on markets and politics in Europe:
Germany wants data protection in U.S. trade pact
The Financial Times reports a surprising about-face by Germany: Now Chancellor Angela Merkel wants to push for tough data protection rules as a condition of signing an EU-U.S. free trade agreement. At the recent EU summit, Germany had objected to coupling the two issues, in line with the stand of Viviane Reding, the EU's commissioner for justice. Now, however, the wind seems to have changed because the U.S. still hasn't provided any guarantees it will curb spying on its allies. Germany's particular concern is industrial espionage. For the trade pact to include data protection, the talks, which began in July, would have to start from scratch with a new mandate agreed by all 28 EU members. Germany's volte-face is a way to put pressure on the U.S., but also respond to voter sentiment. In Germany and across Europe, the idea of keeping user data on the continent is gaining popularity, with local telecoms offering cloud services as an alternative to U.S.-based ones. Deutsche Telekom even advertises "email made in Germany," saying it routes German internet traffic inside the country only.
Switzerland to demand higher leverage ratios of banks
Swiss politicians have proposed raising the minimum leverage ratios required of banks, with the Social Democrats pushing for a 10 percent ratio of capital to assets the and right-wing People's Party for 6 percent. Even the lower level would be more than regulators demand anywhere in the world. Switzerland's biggest banks, Credit Suisse and UBS, both have leverage ratios below 4 percent now. Switzerland, however, has a good reason to require a higher capitalization: The national banking system has assets of $630 billion, more than three times gross domestic product, which would make a bailout about as difficult as it was in Cyprus this year. The global drive to toughen bank regulation is having various adverse effects, from the growth of "shadow banking" to drops in credit availability. According to a study by Fitch, in 2011 and 2012, European banks increased their exposure to sovereign debt by 26 percent or $740 billion while reducing exposure to corporate debt by $590 billion. We know sovereign borrowers can be careless, too, when too much money is available to them, and forcing business to look outside the banking system when they need cash is hardly going to make the world safer from financial crises.
Air France KLM writes off Alitalia stake
Franco-Dutch Air France KLM has fully depreciated its 25 percent stake in Alitalia, Italy's near-bankrupt flag carrier. It is demanding up to 5,000 job cuts at Alitalia as a condition for taking part in the capital increase that was approved by the Italian company's shareholders last month. Other conditions include the resignation of the board of directors and a restructuring of the company's $1.35 billion debt, to cut it by at least 70 percent. Air France KLM has until Nov. 16 to decide whether it will shoulder its share of the $400 million capital call or see its stake diluted to 11 percent. In the latter case, the Italian transport ministry is threatening to look for another partner for Alitalia. That is not much of a threat: Now that Air France KLM has admitted its shares in Alitalia, which hasn't made money for more than a decade, are worthless, there is little incentive to help rescue the Italian carrier except on its own terms.
Investors bid for Versace stake
The Versace family has invited private equity investors to make a second round of competitive bids for a stake in the Italian fashion house by Nov. 25. Versace expects a valuation of about $1.15 billion so it could raise $200 million for international expansion. There is plenty of interest: The roster of bidders includes former Gucci owner Investcorp, Hugo Boss owner Permira, the U.S. fund manager Blackstone and some European funds. For Versace, which plans a listing in a few years, this may be the ideal time to sell a stake. The house made its name in the 1980's with extravagant, provocative styles, and now 80s fashion is back. The in-your-face glamor of Versace products that could be seen as the firm's drawback a couple of years ago is now an asset.
Greece ends Sunday shopping ban
From Nov. 3, Greece allowed shops to open on Sundays for the first time in 100 years. The idea is to boost domestic demand and help the economy return to growth. Many Greeks, however, were unhappy enough with the decision to march against it. The demonstrators in Athens included Orthodox priests, small business owners and retail workers. Apart from keeping up religious traditions and not wanting to work on weekends, protesters pointed to the extra cost of keeping smaller stores open on Sundays. According to them, the new rules only benefit multinational retailers. The protests show the cultural difference between Greece and Europe's stronger economies. Even in France, where locals are not known for an excessive zeal to work more, retail employees recently demonstrated against laws and court decisions to shorten store opening hours and, in some cases, prevailed. Besides, whatever Greek shopkeepers say, being always open is good for business – just ask the hardworking Asian owners of your corner store.
Leonid Bershidsky can be reached at email@example.com).