Bershidsky on Europe: All Change for Vatican Finance
Here's today's look at some of the top stories on markets and politics in Europe.
Pope overhauls Vatican finance.
Pope Francis has decreed a simple, radical reform of the Vatican's financial system. He has created a kind of super ministry of economics and finance, called the Secretariat for the Economy, headed by Australian Cardinal George Pell. The Secretariat will implement policies adopted by a Council for the Economy, comprised of eight cardinals or bishops and seven reputable lay experts. The papal decree also, for the first time, described the Administration of the Patrimony of the Apostolic See as the Vatican's central bank. Its head, and Pell, now report directly to the Pope, who also created the post of Auditor General, who will have the power to audit any Vatican agency. The new system neatly removes the current mess, in which every Vatican department handles its own economic affairs, and puts in place a clear-cut structure. Pope Francis is proving to be a competent chief executive, not just an inspiring spiritual leader.
EU seeks enforcement powers.
The EU's top justice official, Viviane Reding, is drafting legislation that will, if passed, allow Brussels to punish member states for disrespecting the rule of law. The bill will include a "formal notice" system for countries that fall afoul of EU principles. Ignoring the notices could presumably lead to the ultimate punishment – suspending a country's vote within the EU. The legislation would give Brussels more power to fight corrupt political machines in EU countries and is a rare example of supranational legislation that has popular support throughout the EU. Member states, however, will oppose Reding's efforts because they do not want Brussels interfering with their internal judicial matters – and because in countries such as Romania, Hungary and the Baltic states, where corruption is rife, politicians know the new legislation would make their life more difficult. The problem with trying to enforce the same democratic principles throughout the EU is that the bloc's quick expansion has made homogeneity of any kind an impossible dream.
German growth powered by export surge.
Germany's Federal Statistics Office officially confirmed its earlier estimate of 0.4 percent gross domestic product growth in the fourth quarter of 2013. The expansion was predictably feeble, but the export growth that powered it was not. German exports rose 2.6 percent quarter on quarter, the most in three years. Private consumption in Germany declined 0.1 percent, and total domestic demand made a 0.7 percentage point negative contribution to growth. Numbers like these reinforce last year's much-publicized assertions by the U.S. Treasury that Germany is growing at the expense of its neighbors, while doing too little to stimulate domestic demand. It is true that export-oriented industries help keep unemployment low in Germany, but increasing exports does not remove the biggest threat to European recovery now – slow price growth that could lead to deflation. Another drop in domestic demand is evidence that the problem is real.
Erdogan and thousands of others may have had phones tapped.
Two pro-government Turkish newspapers published lists of members of Turkish elite whose phones were supposedly tapped by prosecutors loyal to self-exiled cleric Fethullah Gulen. Prime Minister Recep Tayyip Erdogan and intelligence chief Hakan Fidan are among the 7,000 alleged victims. Although the prosecutors deny wrongdoing, in the paranoid world of Turkish politics everybody could well be listening to everybody else. A civilized way out of the convoluted situation is hard to imagine. Perhaps both Erdogan and his rivals should take time to study the experience of Ukrainian President Viktor Yanukovych, who fled his riot-torn capital, Kiev, last Friday and has been missing for three days now. Sooner or later, the people get tired of under-the-rug politics.
Ukraine markets rally despite anarchy.
On Monday, the Ukrainian stock exchange had to stop trading because of a 17-percent surge in the UX index to 1092, the highest since September, 2012. Ukrainian bonds also rallied on news of forthcoming international aid. And indeed, everyone seems to be ready to help Ukraine – from the International Monetary Fund to the EU and Russia. All the potential lenders need is a government that can take charge of the battered Ukrainian economy and tackle the country 's high default probability, 52 percent according to Markit. Some kind of interim cabinet could even emerge today, replacing acting Prime Minister Serhiy Arbuzov's now-dysfunctional government. It would then need to act extra fast to adopt some kind of action plan and negotiate a relief package before billions in Ukrainian short-term debt start coming due. Among other things, tax collection in Ukraine has almost stopped during the revolution, and restoring it may take some time.
(Leonid Bershidsky writes on Russia, Europe and technology for Bloomberg View. Follow him on Twitter at @Bershidsky.)
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