Bershidsky on Europe: 'Non' to Fracking
Here's today's look at some of the top stories on markets and politics in Europe:
Italian post office to save Alitalia
The Italian government has persuaded the state owned Poste Italiane to rescue the national flag carrier, Alitalia, from a second bankruptcy in four years. The oil and gas company ENI had threatened to cut off kerosene supplies to the cash-drained airline, and ticket sales fell dramatically, so the government embarked on a frantic search for a partner for Alitalia. A number of state-owned companies did not qualify for one reason or another. Finally, the postal group agreed to buy a 10-15 percent stake in the airline, reportedly for about $100 million. The Italian government said that after what amounts to a partial re-nationalization, the airline will need a change of management and a major restructuring effort. Both are long overdue, but the current $675 million rescue package, which includes the extra capital from Poste Italiane but is mostly provided by banks, may not be enough to tide Alitalia over. Air France KLM, which now owns 25 percnet of the Italian carrier, is still likely to take it over eventually and subject it to the kind of rigorous restructuring that it is undergoing itself. Pumping money into this inefficient airline provides only temporary solution.
Google's Dutch accounts reveal massive tax reduction scheme
Google Netherlands Holding, a Dutch company used by Google to route profits so it can avoid withholding tax, reported that in 2012, it received $11.6 billion in royalties from Google Ireland Ltd., the U.S. company's low-tax profit center, and $315 million from Google's Singapore operation. Almost all the money was then paid out to Google Ireland Holdings, an Irish company controlled from Bermuda. The entity is viewed as Irish for U.S. tax purposes and Bermudan for Irish tax purposes. The scheme reduces Google's effective corporate tax rate to about 5 percent, and most of that is paid in Ireland, a small market for the global internet search leader. Google's ingenious tax planning practices will not survive long in a world where developed nations are talking about a joint crackdown on offshore havens. Countries like Germany and France insist that Google pay more of its taxes where it does most of its business, and it is only a matter of time before the loopholes it uses are closed.
France confirmsfracking ban
France's Constitutional Council, the authority of last resort on the validity of French laws, upheld the 2011 ban on hydraulic fracturing, or fracking, the technology used to extract shale oil and gas. The matter came before the Constitutional Council because a shale operator, Schuepbach, demanded $1.35 billion in compensation from the French authorities for damages sustained as a result of the ban. The council, however, was deaf to the company's arguments and effectively quashed any hopes for shale projects in France. With most of its energy coming from nuclear plants, France's stand is questionable as far as environmentalists are concerned. But this relative independence from hydrocarbon fuel is precisely why France can afford to ban fracking. It is also the reason the ban is not contagious: the U.K. and some East European countries, which do not have France's nuclear power capacity, see shale gas as a guarantee of their current or potential energy independence.
ECB signs currency swap deal with China's Central Bank
The European Central Bank established a currency swap line with the People's Bank of China, getting access to 350 billion yuan ($57.2 billion) and granting its Chinese counterpart access to 45 billion euros ($60.9 billion). This is the biggest step China has taken so far to make the yuan a global reserve currency. Previously, it only had a similar deal with the Bank of England and a number of smaller central banks. With Europe's support, the yuan's share of foreign exchange trading volume is likely to rise, bringing it closer in importance to the Canadian dollar and Swiss franc. The yuan is already the most popular developing markets currency. For the ECB, the deal makes sense because of China's growing importance as a foreign trade partner. It will now be easier for Europeans to make deals in Chinese currency and invest it in Chinese ventures, which is allowed under recently adopted rules in China. Other countries, such as Russia, also dream of having their currencies more widely adopted, but China's industrial might makes it easier to achieve such policy goals, as the current deal shows.
Spendthrift Germanbishop's fate in Pope's hands
Robert Zollitsch, head of the German Bishops' Conference, said he will have an audience with Pope Francis I to discuss the new $42 million residence of the Bishop of Limburg, Franz-Peter Tebarz-van Elst. Local Catholics still remember Tebarz-van Elst's predecessor, a liberal who used his residence to harbor asylum seekers, until he was replaced by Pope Benedict. Now, Germany's Catholic community is in an uproar about the lavish construction. The bishop is also embroiled in a scandal involving a trip to India, where he reportedly flew first-class and then lied about it, according to Hamburg prosecutors. If Pope Francis removes Tebarz-van Elst, it will signal that he is serious about following the Franciscan tradition of priestly humility.
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Leonid Bershidsky at email@example.com