Bershidsky on Europe: Euro Area Rising
Here's today's look at some of the top stories on markets and politics in Europe:
Fiat to restructure after Chrysler merger.
After merging with its American subsidiary, Chrysler, the Italian carmaker Fiat plans to turn itself into a Dutch-registered company, with a tax domicile in the U.K. and share listings in New York and Milan. After the globalisation of Fiat is completed, chief executive Sergio Marchionne is likely to step down and leave his successor with the task of doing something about the company's main problem: the product. While Chrysler has been doing great, Fiat's Italian factories have been running at just 41 percent capacity, and the company has lost share in Europe: It is down to 4.5 percent from 6.7 percent in 2007. Marchionne has focused on deal making while his company's rivals have been investing in technology and new models. Germany's Volkswagen Group, for example, recently announced a $115 billion 5-year investment plan.
Euro area manufacturing grows in December.
Industrial production in the euro area grew for the third straight month. The research company Markit said new orders were at a 30-month high and put the purchasing managers index at 52.7 percent, up from 51.6 percent in November. Germany, Italy and Spain were solidly in the growth zone, and even Greece approached it with a PMI of 49.6. Only France disappointed. Its PMI, at 47, was lower than Greece's. It declined from 48.1 percent in November, indicating a further drop in exports. As its neighbors recover, France is losing competitiveness for no other reason than economic mismanagement by Francois Hollande's government.
Remy Cointreau chief fired after three months.
Frederic Pflanz became the chief executive of Remy Cointreau, France's number two spirits producer and maker of Remy Martin cognac, only three months ago. He has now resigned for "personal reasons," a decision that followed poor results for the company in the six months to September: a 6.3 percent drop in sales and a 20 percent decline in earnings. The slowdown was mainly due to problems in China, where the Communist Party is trying to force officials to be more modest. Since China is the biggest growth market for luxuries such as expensive alcohol, companies in the sector cannot afford to lose ground there. Even six months of low sales can be troubling enough to prompt a management change.
Catalan prime minister asks EU leaders to back secession referendum.
The prime minister of Catalonia, Spain's economically strongest region, has sent personal letters to the 27 EU leaders asking them to support the region's independence referendum, planned for November, 2014. The Spanish government has declared the vote unconstitutional, and European leaders have backed Spain's Prime Minister Mariano Rajoy, saying a newly independent Catalonia would be outside the EU. Catalan leader Artur Mas, however, insists there are at least five ways to hold the referendum under Spanish law and wants EU heavyweights such as German Chancellor Angela Merkel to help organize dialogue with the Spanish authorities on Catalonia's future. While Mas's move is unlikely to have any effect because there is no reason for any European leader to weigh in on his side, it is a gesture of open disloyalty to the Spanish government. Rajoy may be justified in taking a hard line on Catalan separatism, but it will not go away in the long term. The EU as an institution could help negotiate a mutually acceptable deal that would fall short of secession.
Official Sochi price tag reaches $45.4 billion.
Subtropical Sochi in Southern Russia is finally ready to host the winter Olympics, and the Russian regional development ministry has reported the final price tag: 1.5 trillion rubles, or $45.4 billion. The initial estimate was about one-fifth of that. These are the most expensive Olympic Games in history, with a lion's share of the spending coming out of government coffers: Russia has had to sequester its budget for 2014. Even the private companies involved in the project used $7.25 billion in cheap loans from the government-owned Vnesheconombank. Nine out of 20 such loans, for a total of $5.74 billion, have since gone bad. No amount of added international prestige can justify such extravagant expenditure. With no end in sight to economic stagnation, the country faces another major sports project: the 2018 soccer world cup, now expected to cost Russia $6 billion. President Vladimir Putin's government may have bitten off more than it can chew.
(Leonid Bershidsky can be reached at firstname.lastname@example.org).