Bershidsky's View From Europe
Here's today's look at some of the top stories on markets and politics in Europe.
Euro area business activityrises.
The euro area's Purchasing Managers Index rose 1.2 points in August to 51.7, the highest since June, 2011. Most of the increase in business activity was driven by Germany, where exports continue to grow, and Southern Europe. In France, the index dropped below 50 percent, an early sign that the economy may be contracting again after showing surprising growth in the second quarter. The euro area has supplied a string of encouraging statistics in recent days, but there is little fundamental improvement behind these. Companies in most industries still report weak consumer demand and employment has been falling for 20 straight months. The positive numbers encourage investors to seek opportunities in the euro area, but they will flee again at the slightest adverse shock.
Moody's, the credit ratings agency, downgraded the Finnish telecom equipment producer Nokia to B1, four notches below investment grade, with a negative outlook. Moody's vote of no-confidence followed Nokia's decision to buy out its partner, Siemens, from NSN, the joint venture producing network equipment. Siemens' share cost Nokia $2.3 billion, and, given the Finnish company's continuing losses in the mobile handset business, Moody's warns that Nokia may soon run out of cash. Nokia counters that its Lumia smartphones are gaining market share and the company has access to substantial credit facilities. Those arguments would be more convincing if Lumia's share of the smartphone market were more than just 3.3 percent, (compared to a combined 93.2 percent for Samsung and Apple). Nokia's bet on the unpopular Windows Mobile operating system is hindering progress, and the company's financial position will remain precarious unless it either embraces other operating systems or sells the handset division to concentrate on the profitable network equipment business.
German finance minister says next Greek aid package will be small.
German Finance Minister Wolfgang Schaeuble said in an interview with the business daily Handelsblatt that he expects a third rescue package for Greece to be much smaller than the previous two. "This is about far smaller sums than before because Greece will have already achieved a primary surplus," Schaeuble said, adding that the aid would only be provided in 2014 if Athens follows the approved program of fiscal austerity and structural reforms. Asked where the money would come from, Schaeuble mentioned the European Stability Mechanism, a $667 billion bailout fund created last year, saying it was still "far from exhausted." So far, the fund has been used for a $133 billion recapitalization of Spanish banks and a few smaller programs -- if the third aid package for Greece is indeed substantially smaller than the second one, which cost $173 billion, there will be enough money for it in the fund. The question is what happens if Greece doesn't meet its fiscal targets next year. So far, with privatization and tax revenues lagging, it seems unlikely to do so.
Spanish tourist industry having a record year.
Spain received 7.9 million foreign tourists last month, making it the best July in the industry's history. Thirty-four million foreigners visited Spain in the first seven months of 2013, another all-time record and 3.9 percent more than in the same period of 2012. A nascent European economic recovery is cited as one reason for the boom, but severely depressed Spain is also attracting bargain hunters. One indication of this is that 30-percent of the growth in arrivals so far this year has come from Russia. Middle-class Russians are looking for new budget destinations as Egypt, a favorite, plunges into chaos. Spain -- where real estate prices are down almost 38 percent from 2007 highs and unemployment is above 26 percent -- needs the tourists. Spanish resort prices are down by as much as 20 percent since last year, according to a regular survey by the U.K.'s Post Office. That buys a lot more beach and paella.
France says no newtaxes. (Unless they're good for you).
"We already have fiscal stability and there will be no new taxes," said Bruno Le Roux, leader of the Socialist party faction in the French National Assembly, on national television. His statement came the day after Ecology Minister Philippe Martin said that the government planned to introduce a "carbon tax" to reduce emissions. Le Roux didn't deny the carbon tax would come to pass, only he said it "would not be punitive but rather behavior-changing." So that's OK then. Even the ruling Socialists are getting worried about French taxation levels, and rightly so. In July, the number of new businesses registered in France dropped 1.4 percent month-on-month. The number of startups is down 3.2 percent in the last 12 months. Tax the French some more, and the nation's tentative economic recovery is doomed.
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Leonid Bershidsky at email@example.com