Bershidsky on Europe: Alitalia Nears Bankruptcy

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Here's today's look at some of the top stories on markets and politics in Europe:

EU declines to restrict e-cigarettes

The European Parliament approved new tobacco regulations that increase the required size of warning labels from the current 30-40 percent to 65 percent of the pack, and ban menthol and other flavored cigarettes from 2022. The parliament, however, declined to classify electronic cigarettes as medicines, which would have imposed restrictions on their sale. The global tobacco industry is now making a big bet on e-cigarettes, the only growth area for companies that see traditional cigarette sales declining at a rate of 3 percent a year. It is clear to Big Tobacco that Europe is going to regulate their core business to death. The industry is therefore concentrating its lobbying efforts on vaping, which isn't nearly as dangerous as smoking, so there is no reason why the lobbyists should not be rewarded for their efforts. Over-zealous regulation could only lead to black market expansion, already noticeable across Europe: Illegal cigarettes make up about 10 percent of the EU market.

Alitalia gives itself until Oct. 10 to avoid bankruptcy

Paolo Scaroni, chief executive of the Italian fuel company ENI, warned it would stop supplying the failing national flag carrier Alitalia with fuel unless it paid for previous supplies by Oct. 12. In response, Alitalia's board of directors vowed to find a solution by Oct. 10, saying its shareholders and banks stood ready to restore liquidity to the company. Yet neither the banks nor the shareholders have committed enough money: Alitalia needs about $200 million more. The Italian government is in talks with state-owned companies, hoping they will provide temporary relief until a strategic investor - such as the Franco-Dutch Air France KLM - steps in. The cash and fuel crisis, however, makes it uncertain that Alitalia will last long enough for that to happen. Ticket sales have already plummeted as passengers expect delays and cancellations. This may be the end of the road for a company that has dragged its feet on restructuring despite not having made a profit since 2002.

U.K. banks prepare for U.S. default

Some big U.K. banks have been talking with regulators on how to survive a possible U.S. technical default, according to The Wall Street Journal. They are worried about getting access to enough U.S. dollars to meet client demand if U.S. short-term funding markets are paralyzed. So far, the Bank of England has assured bankers that it will be able to provide them with dollars. While publicly expressing confidence that the U.S. debt ceiling crisis will be resolved, London bankers are quietly readying their internal models for the worst: The Lehman Bros. failure is recent enough for everyone to remember what a single cataclysmic event can do to markets and balance sheets. Trust in the U.S. as a pillar of stability is a thing of the past.

Spanish, Italian workers the lowest-skilled in developed world

The Organization for Economic Cooperation and Development has published the results of an extensive study measuring the skills of workforces in 24 developed countries. The organization tested what 166,000 people have learned at school and the results are shocking for southern European nations. Italy ranks last and Spain next-to-last in literacy skills: In both countries, 20 percent of adults cannot read at the level expected of a 10-year-old in most education systems. In numeracy skills, Spain is last and Italy second-to-last. This could be an alternative explanation of both countries' high unemployment rates and economic woes. Finland, which boasts the most skilled workforce in Europe, is doing better economically: Unlike Spain and Italy, it is expected to post an increase in gross domestic product this year.

Turkey lifts banon headscarves in state institutions

Turkey has given permission for public sector workers to wear headscarves, breaking an 88-year tradition started under the republic's founder, Mustafa Kemal Ataturk. Prime Minister Recep Tayyip Erdogan says the move constitutes "democratization," and indeed, devout women from conservative areas who previously couldn't work as civil servants will now be able to. Yet secular Turks already complain that only those government employees whose wives wear headscarves get promoted in Erdogan's Turkey, and they will see the latest move as a further attempt to Islamize the state.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at lbershidsky@bloomberg.net