Bershidsky on Europe: NSA Tapped Merkel
Here's today's look at some of the top stories on markets and politics in Europe:
NSA may have eavesdropped on Merkel
German government security experts believe the U.S. National Security Agency has tapped Chancellor Angela Merkel's mobile phone. The information again comes from former NSA contractor Edward Snowden, via the weekly magazine Der Spiegel. Merkel called U.S. President Barack Obama to ask if the spying allegation was true, and Obama replied that the U.S. government "is not monitoring and will not monitor" her communications, ostensibly declining to say whether it did so in the past. To Germans, staunch U.S. allies in Europe, U.S. spying on their popular chancellor would constitute a major breach of trust. It will probably prompt Germany to back a new European data-protection law that would, among other things, allow internet users to opt out of providing personal information to companies like Google. For U.S. internet giants, the law might mean an overhaul of their business models. They would pay a heavy price for cooperating with the U.S. government in its spying efforts revealed by Snowden.
EU summit to agree new digital policy, push banking union
According to the draft conclusions of the EU summit starting Oct. 24, European leaders will concentrate on adopting a common digital policy that includes investments in infrastructure and ICT training as well as moving toward a single digital and mobile services market. The data protection issue, forced onto the agenda by recent U.S. cyber-intelligence scandals, will be discussed. Two other areas of importance are the banking union and immigration. The leaders will seek to agree on a "single resolution mechanism" and euro area-wide deposit guarantee. On immigration, Italy and Spain will push for more EU aid to prevent disasters like two recent ones near the Italian island of Lampedusa, where hundreds of asylum seekers drowned when their overloaded boats foundered. Money is unlikely to be forthcoming, however. Perhaps the biggest factor affecting EU decisions now is Germany's desire to cut the cost of European solidarity without appearing uncooperative. Thus, on the banking union, Germany will insist that deposit guarantees and bailout funding only be available for the 130 large banks directly supervised by the European Central Bank.
End of Spanish recession confirmed
Spain's central bank confirmed that the fourth largest economy in the EU is out of a prolonged recession, posting 0.1 percent gross domestic product growth in the third quarter. This is psychologically important news for investors, who drove up the price of Spanish bonds after the announcement. It is also considered smart these days to invest in Spanish equities, even Microsoft co-founder Bill Gates having acquired a stake in the construction company FCC. Yet as the economy expanded, domestic demand in Spain shrank 0.3 percent quarter-on-quarter. Only exports are showing any real growth. It might not be wise to make a wholesale bet on Spanish stocks and bonds despite the formal signs of recovery.
GlaxoSmithKline growth stalls on China bribery charges
U.K.-based GlaxoSmithKline's quarterly results showed a 61 percent drop in pharmaceutical and vaccine sales in China, formerly a major growth area. Glaxo and other European companies are under investigation for bribery in China, some of their employees detained. As a result, doctors hesitate to prescribe Glaxo products, fearing they will be accused of being on the company's payroll. For the company as a whole, this is not a major disaster: China accounted for only 4 percent of its sales. Yet quarterly sales were flat at $10.6 billion, and profit fell 12 percent to $1.6 billion year-on-year. Emerging markets provide a powerful growth opportunity, but it does not pay to milk it too crudely, especially in a highly competitive industry like pharma. Glaxo's competitors such as Novartis and Roche, have reported healthy growth in China.
French prefer interior minister to Hollande
Francois Hollande may be the first French president since 1974 not in a position to run for a second term in office. A poll commissioned by Le Figaro Magazine said 80 percent of the French do not believe the Socialist leader would win against a center-right candidate in the 2017 election. His interior minister Manual Valls could, though: 54 percent of those polled believe so. In fact, 33 percent of those polled would like Valls to be the Socialist candidate for president in 2017, compared to only 9 percent for Hollande. Valls is known for his hardline stand on immigration, and his popularity reflects a shift to the right, even though Socialist Party supporters still prefer Hollande. It is still early days to talk about who might win the next election, but it's clear that France's indecisive leader has squandered his popularity in just two years in power. It will be an uphill battle for Hollande to regain it as he faces strong competition within his own party.
(Leonid Bershidsky, an editor and novelist, is a Bloomberg View contributor. He can be reached at email@example.com).