Bershidsky on Europe: No U-Turn on Euro From Merkel
Here's today's look at some of the top stories on markets and politics in Europe.
Merkel vows not to change her euro policy.
German Chancellor Angela Merkel declared her party's weekend election victory "a very strong vote for a united Europe," and said that once she forms a new coalition government it will pursue the same European policy as the old one. A coalition it definitely will be: Merkel ruled out forming a minority government, although her Christian Democratic Party and its Bavarian sister are just five votes short of an absolute majority in parliament. The main opposition party, the Social Democrats, have called a convention to determine whether its membership favors a "grand coalition," and Merkel said she is waiting for the outcome of the convention to open talks. Though the negotiations will be difficult politically, it will be easier for the two major parties to agree on policy: German economists point out that Merkel has gradually moved towards a center-left agenda. The Social Democrats have demanded higher taxes for wealthier Germans and a higher minimum wage, and Merkel is likely to compromise on that front.
ECB considering new cash injection.
European Central Bank President Mario Draghi said the bank was willing to provide a new large long-term loan to banks in order to keep money-market interest rates from rising. In 2011 and 2012, the ECB pumped more than $1.3 trillion into the market through long term refinancing operation, creating more than $1 trillion in excess liquidity. Early repayment of these loans has cut that down to about $300 billion, close to the level at which the ECB believes interest rates may start edging up. That's something the euro-area's monetary authority does not want to see, for fear of undercutting Europe's timid economic growth. If the ECB decides to increase liquidity, however, it will need to persuade banks to take it: They have been repaying emergency loans early precisely because they have plenty of cash and precious few ideas on what do with more.
Italian minister encourages Air France takeover of Alitalia.
The Air France-KLM board of directors met on September 23 to discuss a takeover of cash-strapped Italian flag carrier Alitalia, but stopped short of a decision. The board said it needed more information, including on the position of Alitalia's own board, which is expected to become clear on September 26. There is little doubt that the Italian company will back the deal: Apart from a lack of other viable options, it is under pressure from the Italian government to let the Franco-Dutch airline increase its stake from the current 25 percent to 50 percent. Transport Minister Maurizio Lupi said on September 23 he expected that to happen and had "no objection." The rescue may benefit both companies operationally: Italy is a large market for Air France and a merger with Alitalia could create synergies to eliminate a third of Alitalia's losses, about $370 million last year. The problem is Alitalia's $1.5 billion debt, which Air France would like to restructure. The outcome of the deal will depend on whether that can be done on terms acceptable to Air France.
Telefonica moves to boost stake in Telecom Italia.
The Spanish telecommunications company Telefonica will pay $1 billion to increase its stake in Telco, the holding company that controls Telecom Italia, from 46 percent to 66 percent. The deal ensures that Telefonica's partners in Telco, Italian banks Intesa Sanpaolo and Mediobanca and insurance company Generali, remain in the partnership past its September 28 dissolution deadline. More control over Telco will allow Telefonica to arrange the sale of Telecom Italia's important Brazilian asset, Team Brazil, the country's second cellular operator, and cut down the Italian group's $39 billion debt. The 2007 purchase of Telecom Italia shares has been a disaster for Telefonica, the stake having lost more than three quarters of its market value since, and the Spanish company is willing to spend a bit more to get a chance to clear up the mess.
French court forces iconic store to cut working hours.
A Paris appeals court ruled that the Sephora cosmetics store on the Champs Elysees must close at 9 p.m., rather than midnight on weekdays and 1 a.m. on weekends, as it does now. The cavernous store, which belongs to luxury-goods holding LVMH Moet Hennessy Louis Vuitton, attracts 6 million shoppers a year, many of them tourists and does 20 percent of its business after 9 p.m. During a previous stage of the trial, 177 of the store's employees signed a petition saying they wanted to keep working late, and LVMH published it as an ad in several newspapers. Yet the French labor unions, which filed a complaint with the court, are implacable: They have already forced a number of Paris stores to close early and will not make an exception for Sephora. In France, the principle of defending workers' rights sometimes means more than those rights themselves.
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Leonid Bershidsky at email@example.com