Bershidsky on Europe: Austerity Rules-On in Euro Area
Here's today's look at some of the top stories on markets and politics in Europe:
EU finance officials refuse to soften budget deficit requirements
The European Union's Council of Economic Policy refused to adopt a new method of calculating the structural element in European nations' budget deficits, a number that directly affects how much austerity governments have to apply to meet targets. The change in methodology, approved by EU technical experts, was eagerly awaited in crisis-hit southern European countries, particularly in Spain. Currently, the EU sees two-thirds of Spain's six percent gross domestic product budget deficit as structural rather than cyclical, and Spain is pressured to collect more taxes and cut public spending. The calculation assumes that Spain's "natural" unemployment level is 23 percent, just a little lower than the actual 27 percent. The Council of Economic Policy's refusal to cut countries like Spain any slack is natural after Angela Merkel's landslide victory in the German parliamentary election: The EU's most powerful nation is a tough proponent of austerity for the weaker countries. Spaniards, however, may wonder how they will ever restart growth if they are stuck with the current policy, which the European Commission's bureaucrats also consider too tough, especially since not all of the continents stronger economies hold to strict austerity. France, for one, is about to approve a budget with a deficit of $110 billion, or 4.1 percent GDP, up from 3.6 percent this year, driven by an ambitious investment program, which does not qualify as deficit spending under EU rules.
Nokia chairman admits misleading public about CEO's payoff
Nokia chairman Risto Siilasmaa admitted he was wrong when he said the terms of outgoing chief executive Stephen Elop's $25.4 million payoff were "substantially similar to those of former Nokia CEOs." In fact, Elop's predecessor Olli-Pekka Kallasvuo was not entitled to anything like Elop's $19.7 million equity award. Siilasmaa is struggling to justify Elop's golden parachute, which was extremely unpopular in modest Finland. Prime Minister Jyrki Katainen has called it "quite outrageous." Indeed, from many Finns' point of view, Elop helped destroy a former national champion: Nokia once provided 20 percent of Finland's corporate taxes and now a large part of the company has been sold to Microsoft, where Elop is headed to run the newly-acquired business. The public outrage, however, will change nothing: Microsoft is providing 70 percent of the payoff, and it is not bound by the constraints of Nordic egalitarian culture.
Franceinvestigates Apple's relationship with dealers
The French government has ordered the country's competition authority to investigate Apple's relationship with dealers, including any obligations they take on to promote the iPhone over other devices, promises to buy a certain volume of Apple products. This is the second such investigation this year: The French authorities raided Apple's Paris office in July. Nothing happened in the aftermath, and one might conclude that French bureaucrats are merely harassing Apple, known among distributors as a tough negotiator, to warn it to stick to local rules. France deeply distrusts U.S. technology companies and envies them their market dominance. If it can make their life difficult on French soil, it will use every opportunity to do so.
Chinese sovereign fund buys into Russian potash
The Chengdong Investment Corporation bought 12.5 percent of Russian potash producer Uralkali, worth at least $2 billion, from its major Russian shareholders, Suleiman Kerimov, Filaret Galchev and Anatoly Skurov. The CIC has had an option to buy the stake since last year if Uralkali's share price dropped below a certain threshold, and it has now exercised that right. Uralkali, which produces about 20 percent of the world's potash, broke up its cartel with Belarussian state-owned company Belaruskali, causing fears of a global price war and essentially forcing Belaruskali to halve output in August. In response, Belarus president Alexander Lukashenko had Uralkali's chief executive arrested. The Chinese deal is a step toward the conflict's resolution. Kerimov, the biggest Uralkali shareholder, is looking to sell his entire stake. A new investor would not have his acrimonious history with Lukashenko and could make a deal with him. In any case, China, one of the biggest potash importers, now has a ringside seat.
Germany's Ifo index hits post-crisis high
The Ifo institute's index of German business executives' confidence rose from 107.5 in August to 108 in September, the highest since 2007. Germans are happy with their government, the relatively healthy export-driven economic growth and the lowest unemployment level in years. There are signs that domestic demand is finally picking up. It is now up to the victorious Chancellor Angela Merkel to form a governing coalition as quickly as she can, so as not to squander her advantage and start solving EU problems that accumulated during the German election campaign. Germany is doing well enough for her to concentrate on external matters.
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Leonid Bershidsky at email@example.com