Bershidsky's View From Europe
Here's today's look at some of the top stories on markets and politics in Europe:
Bank of England won't raise rates until unemployment falls
Mark Carney, appointed Bank of England governor just over a month ago, announced that the U.K.'s central bank will keep its benchmark rate at 0.5 percent until unemployment drops below 7 percent. Using unemployment as a target instead of inflation is new to the BOE, but it is a better way to explain the central bank's commitment to low rates. Their purpose, after all, is to ensure economic recovery, and as far as that goes, job creation is a better indicator than price growth.
According to Carney, the U.K. economy is making its slowest recovery ever. Unemployment now stands at 7.8 percent, and it would take 750,000 new jobs to bring it below Carney's target, which he does not expect will be achieved until 2016.
The pound rose on the foreign exchange market following Carney's statement. The market believes the central bank will respond to higher inflation before unemployment drops: After all, if monetary stimulus is not effective in jump-starting growth, there is no point in letting it drive up inflation.
Henkel reports higher profit thanks to emerging markets
Henkel of Dusseldorf, one the world's top three consumer chemical producers, reported a 15 percent jump in its return on sales and a net profit of $590 million in the second quarter of 2013. The producer of Persil detergent, Fa soap and Schauma shampoo bet heavily on emerging-markets expansion in the late 1990s, and the strategy has paid off for it since the 2008 economic crisis. Henkel has barely noticed the consumption slump in the European Union and has even managed to increase sales in Germany.
Yet the success of far-sighted companies like Henkel is not changing the fundamental fact that the high German trade surplus comes, to a large extent, from other EU countries, and nothing is being done to reduce this dependence, contributing to the economic woes of Germany's weaker neighbors. In June 2013, German exports outside the EU dropped 4.6 percent year-on-year.
Nestle results below expectations
The biggest food company in the world, Nestle, disappointed analysts with its half-year results, posting sales of $48.9 billion rather than the expected $49.3 billion. Paul Bulcke, chief executive officer of the Swiss group, attributed this to the fact that the company had to keep prices lower to satisfy increasingly value-conscious consumers, especially in Europe. Neither the company nor the analysts really have anything to complain about, however: Nestle's net income came in at $5.5 billion as expected. The discounts and the increased marketing spending to get consumers to buy more Nestle products were offset by cheaper ingredients. A company of Nestle's size and specialization is effectively crisis-proof, and it is not fast growth that should be expected of it but a stable profit margin.
Corsican leader wants to restrict land sales to foreigners
Paul Giacobbi, head of the executive council of the French island of Corsica, has proposed a ban on land sales to anyone who has not lived on the island for at least five years. "If you can buy land in Corsica as easily as chocolate from a supermarket shelf, we are headed for disaster," Giacobbi said.
The proposed measure goes against French and EU law, but it has strong local support: Real-estate speculators have driven up prices at the popular tourist destination so locals are hard put to find affordable housing.
Europe's real estate has become especially attractive to foreigners because of the economic crisis, even though prices have been going up in the most touristy areas lately. The high unemployment rates and tax increases, however, are making locals hostile toward foreigners buying homes. The social tension may well lead to regulatory tightening along the lines proposed in Corsica.
Potash magnate cuts soccer spending as price war nears
Russian billionaire Suleiman Kreimov has announced that he will cut spending on his soccer club, Anji, from the current $180 million per year to $50-70 million. This will probably mean the sale of most of the club's stars an end to Anji's European ambitions. This year, the club was seen as a top contender for the Russian championship, and there were no signs that the owner might be tiring of it.
Now, Kremov has reconsidered. He is the biggest shareholder in Uralkali, the Russian fertilizer company that has recently wreaked havoc in the global market for potash by breaking up one of the two cartels that constituted an oligopoly in the industry. Uralkali accused its partner, Belaruskali, of selling outside the cartel, and prepared for a price war that may see potash prices drop to a half of the current level.
Uralkali is well-positioned for the war: Its production costs are the lowest in the industry. Kerimov, however, clearly feels this is no time for luxuries like championship soccer clubs.
(Leonid Bershidsky, an editor and novelist, is a Bloomberg View contributor. He can be reached at firstname.lastname@example.org.)