Bershidsky's View From Europe
Here's today's look at some of the top stories on markets and politics in Europe.
Putin would back Syria strike given proof.
Russian President Vladimir Putin said ahead of a G20 summit, to open in St. Petersburg on Sept. 5, that he did not rule out supporting military action against Syrian leader Bashar al-Assad if it can be proved that he used chemical weapons and if the United Nations approves the intervention. During the summit, Putin will face Western leaders who have backed milutary action, such as U.S. President Barack Obama and his French counterpart Francois Hollande, and it is important for the Russian leader to show that they share at least some common ground. Putin, however, has also issued a thinly veiled threat to complete the now-suspended delivery of S-300 anti-missile systems to Assad if the U.S. uses force against Syrian without a UN mandate. Putin will do his best to delay foreign intervention in Syria, not only to help Assad, a long-time ally, but to extend the market uncertainly linked to the planned military escalation: It leads to higher oil prices, which are highly beneficial to Russia's hydrocarbon-based economy.
OECD raises growth forecasts for major EU economies.
The Organization for Economic Cooperation and Development said that as emerging economies faced an economic slowdown, growth in developed countries was gaining momentum. The OECD revised its 2013 growth forecast upward for Germany by 0.3 percentage points, France by 0.6 points and the U.K. by 0.7 points. The U.K., according to the OECD, will be the European Union's fastest-growing major economy this year, adding more than 3 percent to its gross domestic product in each of the next two quarters and expanding 1.5 percent on an annual basis. The optimism of the forecast, however, is undermined by the fact that the OECD predicted a good second half in 2011 and 2012, only to be frustrated by sluggish actual growth. While the emerging markets are losing momentum, an upturn in the developed world is still mainly a matter of perception and a consequence of loose monetary policies, which the OECD says should be maintained for now.
Ryanair to miss profit target.
Ryanair, Europe's largest discount airline, lost about $1.3 billion in market cap after issuing a surprise profit warning. The company said its net income for the financial year could be lower than $750 million, because of this summer's heat wave and low forward bookings. Chief executive Michael O'Leary cited increased price competition in the U.K., Scandinavia, Spain and Ireland as one of the reasons for Ryanair's dip in yields. Competition in these markets, meanwhile, is only going to get fiercer. Recently, U.K. antitrust authorities told Ryanair to sell down its stake in Ireland's flag carrier Aer Lingus, and now the Spanish airline, Iberia, is taking the battle to the discounters by introducing a low, nonrefundable "hand luggage only" tariff. Tired of losses, "classic" airlines are finding ways to adapt discount airlines' business model to their needs. The more succesful they are at this, the harder times will be for the original budget airlines.
Peugeot and BMW to end partnership.
After more than 10 years of cooperation, France's PSA Peugeot Citroen and Germany's BMW agreed to end their engine partnership. Since 2002, the two firms developed petrol engines together. The engines, produced in France, were used in the Mini and BMW's Series 1 and Series 3 cars, as well as mid-range Peugeot and Citroen models. The partneship expires in 2016 and will not be renewed, the two carmakers going their separate ways largely because PSA has forged an alliance with General Motors. BMW, for its part, is stepping up its cooperation with Toyota in developing hybrid engines. Whatever alliances these thoroughly globalized carmakers make, a modern-day car buyer has no idea what country's product is under the hood. Gone are the days when cars had clear national characteristics. These days, a car's nationality is primarily a marketing tool.
Germany's competitiveness rises.
The World Economic Forum published its Global Competitiveness Index for 2013-2014, with six European countries in the top 10 of the 148-country ranking: Switzerland, Finland, Germany, Sweden, the Netherlands and the U.K. Switzerland has topped the ranking for the last five years. This year, Germany moved up two notches from sixth to fourth place, its rise driven by growing domestic competition, R&D spending and innovation. The U.K. slipped two notches to 10th place because a deterioration in macroeconomic climate and the financial markets. Some European nations posted steep drops, the Czech republic falling seven places to 46th - to a large extent because it now ranks 146th in the world in public trust in politicians: The recent government crisis undermined Czechs' faith in their institutions. The WEF competitiveness ranking is a vanity contest, yet it is a good indicator of a country's international prestige. Despite their recent economic woes, major European nations have managed to keep it.
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Leonid Bershidsky at email@example.com