Bershidsky on Europe: Ireland Sells Bonds
Here's today's look at some of the top stories on markets and politics in Europe.
Romania jails ex-prime minister again.
Former Romanian Prime Minister Adrian Nastase received his second prison term for taking bribes less than a year after serving eight months on different charges. This time, he is to spend four years in jail for accepting about $1 million in bribes during his tenure as prime minister. His wife Diana got a three-year suspended sentence for aiding the politician. The bribes were paid in goods imported from China and construction work on the couple's two homes. Nastase, who tried to commit suicide when first sentenced, believes his persecution is politically motivated and that President Traian Basescu has done his best to keep him out of elections to be held this year. Be that as it may, the bribes for which Nastase has been convicted look modest for one of Europe's most corrupt countries, ranked 69th of 177 globally by Transparency International. In Russia, where bribes of tens of millions of dollars are common for lower-ranking officials, corrupt bureaucrats would have laughed at Nastase for getting caught in such petty wrongdoing.
Ireland to sell first post-bailout bond.
Ireland, which has just exited a $92 million bailout by the EU and the International Monetary Fund, has announced plans for a $680 million, 10-year bond issue. Irish bonds maturing in 2023 now yield just 3.3 percent, just 0.3 percentage points more than similar U.S. or U.K. bonds and less than those issued by most European countries. Investors' faith in Ireland is hard to understand, despite the bailout's success: The nation's economic growth rate hovered close to zero in 2013, population shrank because of emigration, and the structural problems that necessitated the bailout are hardly overcome.
U.K. car market points up fragility of growth.
The U.K. car market surged 10.5 per cent last year, bucking the European trend: In Europe as a whole, car sales dropped 2 percent. The particulars of the boom explain a lot about the U.K.'s relatively fast economic recovery. While the total car sales, 2.26 million units, are just 6 percent lower than in 2007, three in every four cars were bought on credit compared to every other car before the financial crisis. Besides, locally-made automobiles make up a higher percentage of the total than before the crisis. People are not really reducing their savings rate as they would in a buoyant economy; they are taking advantage of low interest rates and buying cheaper products. That kind of behavior is behind the U.K.'s unexpectedly fast economic growth in 2013: in the year to the third quarter, household spending accounted for five-sixths of total growth. The abundance of cheap credit is by nature only a temporary cure: True growth requires increased investment. The stellar U.K. statistics should not deceive, and the government knows it: George Osborne, the finance minister, says that if the current cabinet remains in power after the 2015 parliamentary election, it will look for ways to cut public spending by $41 billion to make sure the recovery is sustainable.
France to ‘simplify’ 150 unneeded taxes.
The French government announced its intention to prune some of the quaint taxes that poison small business and yield almost nothing to the state. Budget minister Bernard Cazeneuve has asked for an inventory of about 150 such levies with a view to getting rid of some of them. They include taxes on skiing, flour, photocopies, cereals, the registration of homeopathic medicines, etc. While cutting the number of such meaningless levies will bring France a step closer toward a modern tax system, based on fewer taxes with a broader base and lower rates, it will be largely a symbolic step. There will be fewer irritants for business people, but the general tax burden will remain one of the highest in Europe.
Nissan enters the market for traditional London cabs.
The Japanese carmaker Nissan unveiled a new model complying with the strict requirements for London taxi service. The London cab market now belongs almost exclusively to the London Taxi Company, saved from bankruptcy last year by China's Zhejiang Geely. Daimler has also supplied a few thousand of its Vito taxis. Nissan, which has produced a modification of its NV200 cab with elements of the traditional design, such as round headlights and a nostalgic-looking grille, expects to undercut the competitors, selling its cabs for $49,000, compared to the LTC's minimum of $54,000. The Vitos are even more expensive. For Nissan, which sells about 400,000 cars a month, the London cab market, with its 1,200 units sold annually, is tiny. It is, however, worth making a bid for a significant market share just for the visibility: the London taxi service carries 1.8 million people per week.
(Leonid Bershidsky is a Bloomberg View contributor. He can be reached at email@example.com).