Bershidsky on Europe: IMF Knocks Greece
Here's today's look at some of the top stories on markets and politics in Europe:
IMF says Greece will miss bailout target
The International Monetary Fund published a report predicting that Greece's 2014 budget surplus will fall 0.4 percentage points short of the 1.5 percent gross domestic product mark required by the terms of the country's international bailout. Greece was previously thought to be on track to meet the surplus target, but the forecasts were overoptimistic. Tax collection is sagging; Greece is still in recession; and privatization is proceeding much slower than planned. The Greek finance ministry immediately responded to the new IMF projection, saying the government would do whatever was necessary to achieve a surplus of 1.5 percent GDP: cut spending, step up tax collection or both. Further cuts, however, may be politically untenable: The country is already in turmoil over the government's austerity measures. Meanwhile, failure to reach fiscal targets may delay further aid from both the IMF and the euro area. A new Greek crisis is a distinct possibility for next year.
U.K. Royal Mail privatization a hit with investors
The U.K.'s biggest retail sell-off of a state-owned company since the Thatcher era has investors falling all over each other to buy shares. There are 700,000 individual applications for stock in Royal Mail. The government is selling up to 60 percent of the mail operator, valuing it at $5.2 billion. About 30 percent is earmarked for the public. Even people who were not stock market investors before have subscribed, expecting high dividends and remembering how 1980s privatizations of companies like British Gas and British Telecom made private investors rich. The institutional part of the offering is also heavily oversubscribed. Royal Mail's 150,000 workers are to receive 10 percent of the shares free of charge. The Royal Mail sell-off is a rare win-win proposition: privatization will probably improve its efficiency, at the same time bringing in revenue for the government, pleasing the workers and giving the public a chance to invest in a household name.
Spain places first long-term bond in four years
On Oct. 9, Spain successfully placed 31-year bonds, the first such long-term borrowing by the southern European country since 2009. The government planned to sell between $2.7 billion and $4 billion worth of the bonds, but investors subscribed for more than $13.5 billion, allowing Spain to place $5.4 billion worth of the debt instruments, yielding 5.2 percent. About two thirds of the issue went to foreign investors, clearly attracted by the yield, high for a developed country. But given Spain's debt history, the placement is a strong vote of confidence in a country that is still in recession and only showing signs of growth in export-oriented sectors. International investors may be putting too much trust in euro area recovery forecasts.
Russia moves toward floating ruble
The Bank of Russia said it would no longer intervene to smooth fluctuations of the ruble against a euro-dollar basket as long as they occurred within a 3.1-ruble band. Previously, the band was one-third as wide. Generally, the central bank has pledged to keep the national currency within a seven-ruble range, but it plans to get rid of that constraint by 2015, floating the ruble and using inflation rather than the exchange rate as its major target. The expansion of the no-intervention band is a major step in this direction. Apart from the strategic significance, the move is meant to save currency reserves the central bank has been spending on small interventions. Every dollar is valuable when the global economic environment is so uncertain, from the future of the dollar to the oil prices which are all-important for Russian stability.
Aliyev wins third term as Azerbaijan president
The official count in the former Soviet republic of Azerbaijan gave President Ilham Aliyev 85 percent of the vote, giving him a third five-year presidential term. Aliyev, who, to all intents and purposes inherited the presidency from his father, Soviet-era political heavyweight Geidar Aliyev, held a referendum in 2009 to remove restrictions on the number of consecutive terms a president is allowed to serve. The main opposition candidate got only 5 percent of the vote and no one is paying much attention to opposition claims of polling violations. Oil-rich Azerbaijan could easily get away with scrapping elections altogether and announcing that it is ruled by a dynasty, like some Gulf states. So far, however, no former Soviet state has done that, though a number are unabashed dictatorships. One has to wonder what makes them maintain the "democracy" charade.
(Leonid Bershidsky, an editor and novelist, is a Bloomberg View contributor. He can be reached at email@example.com).