Bershidsky's View From Europe
Here is today's look at some of the stories driving the debate in politics, finance and social issues across Europe:
Publicis and Omnicom form world-leading marketing group
Two of the world's biggest marketing groups, Publicis and Omnicom, announced in Paris on that they would merge, displacing WPP as the industry leader. For the next 30 months, Publicis head Maurice Lévy and his Omnicom counterpart John Wren will run the Publicis Omnicom Group as co-chief executive officers, then Lévy will become chairman of the board. When rumors of the deal first emerged, David Jones, CEO of rival Havas, described the merger as "a flying pig." Indeed, an advertising behemoth with revenues of almost $23 billion, run jointly by an American and a Frenchman who must somehow manage to sort out numerous client conflicts and antitrust concerns, is hard to imagine. It is harder still to figure out why Publicis and Omnicom are going for it. For all the trouble of bringing together two markedly different corporate cultures, they only expect to gain $500 million a year, or 2 percent of revenue, half from cross-selling and half from procurement savings. The merger comes at a time when clients increasingly deal directly with digital platforms, bypassing ad agencies. These paradigm changes appear to call for nimbleness, not gigantism.
Siemens sacks CEO, will replace him with charismatic insider
Siemens, one of Germany's biggest companies, has announced that it will fire its CEO Peter Löscher on Wednesday and replace him with another insider. According to reports in the German press, this will be Joe Kaeser, currently the chief financial officer. Kaeser is said to have been making all the important decisions at Siemens lately as a "shadow CEO." Löscher's failings were of the kind the German business culture finds intolerable. Under him, Siemens missed the deadline for the delivery of high-speed trains to the national railroad and delayed the completion of several other projects. Last week, Siemens said it would not meet its profit target for this year. The outgoing CEO's other problem was that he lacked charisma. An ineffectual public speaker, he has recently ceded the limelight to ambitious and outgoing Kaeser, who is well-liked by the press.
Europeans win world's biggest subway contracts in Saudi Arabia
A total of 38 consortiums including virtually all the big names in the world construction industry bid for a $22.5 billion contract to build a subway system in Riyadh, the capital of Saudi Arabia. This is the world's largest project of its kind, involving the construction of 175 kilometers of underground rail. Driverless electric trains will carry passengers over six planned lines. The Saudis picked the three winners on July, 28. A consortium led by the U.S.-based Bechtel and including Germany's Siemens will build two of the lines. The other two winning consortiums are led by Spain's Fomento de Construcciones y Contratas and Italy's Ansaldo, part of the Finmeccanica conglomerate. The European companies needed the contracts: There is a dearth of large construction projects on the old continent these days. The Saudis, for their part, have been pumping money into infrastructure since the Arab Spring revolutions: Investing in public transportation is an obvious way to give people a sense that their quality of life is improving. Riyadh is a city of six million and growing, and the subway system will noticeably ease congestion. The construction is scheduled to be completed in 2019.
Social Democrats outspend conservatives in German election
The German business daily Handelsblatt reports that the Social Democratic Party's budget for the upcoming Bundestag election is the highest of all German parties, 23 million euros ($30.5 million). The conservative Christian Democrats, headed by Chancellor Angela Merkel, will only spend 20 million euros ($26.5 million). Germany is likely to be ruled by a coalition following the September election, and the Social Democrats, trailing in the polls, need the extra spending if they are to be part of it. The German election budgets are tiny by U.S. standards. The major contenders for parliament seats in the EU's major power are only planning to spend a combined $57 million, while in the 2012 U.S. presidential election the candidates, their backers and major party committees spent $2 billion. European democracies, while hardly less efficient than the American one, are definitely less costly.
Russians taking on too much debt
In its latest Financial Stability Report, the Russian Central Bank warned that banks issuing consumer loans are taking on too much risk. The Central Bank wants to cap the total amount of consumer loans and confine the monthly loan payments to a certain percentage of a customer's income. In the last two years, Russians have almost doubled their debt burden to 8.8 trillion rubles ($267 billion). About 34 million people, or 45 percent of the economically active population, have outstanding loans. The daily newspaper Vedomosti reported that 19 percent of the borrowers are paying out five or more loans each, citing research by one of the banks. For a country that has been taking on consumer debt for just a little more than a decade, these are alarming numbers. Russians are turning into credit junkies so fast that a homegrown debt crisis in the next few years is not out of the question.
(Leonid Bershidsky, an editor and novelist, is a Bloomberg View contributor. Follow him on Twitter.)