Bershidsky on Europe: Ireland Exiting Bailout
Here's today's look at some of the top stories on markets and politics in Europe:
Ireland to make a clean bailout exit
Irish Prime Minister Enda Kenny told the national conference of Fine Gael, Ireland's strongest political party, that on Dec. 15 the nation will exit the bailout program set out by the EU and the International Monetary Fund. Ireland will receive the last of its $91 billion of bailout loans and return to relying on the market for its borrowing needs in 2014. Finance Minister Michael Noonan said Ireland had sufficient cash reserves not to require any kind of precautionary credit line to pave the way. As the country's coalition government prepares to introduce the seventh austerity budget in as many years, its efforts will be rewarded by investors: Irish debt already trades at yields below those of Spanish and Italian bonds, and the economy has returned to modest growth. Regardless of whether Ireland's example is relevant to Greece, the EU and the IMF will no doubt cite it when Greece misses its next fiscal target.
EU Parliament head callsfor U.S.-style immigration policy
Reacting to the Lampedusa tragedy, in which about 360 illegal immigrants died when a boat capsized near the Italian shore, European Parliament President Martin Schultz called for a new EU immigration policy. Europe must "finally recognize that it is an immigration continent" and set up "a legal immigration system" along the lines of those functioning in the U.S. and Canada. Shultz called on Germany in particular to let in more refugees: Europe's most economically powerful nation can afford it, he said. Europe, however, is not likely to soften its immigration policies: Anti-immigrant parties are on the rise throughout the continent. In France, nationalists from the Front National have just won a closely-watched local election, confirming fears that they could emerge as a leading party in the European elections. Though a more open immigration policy could save lives, it is politically unpopular.
Banks' exposure to sovereign debt grows
According to the European Central Bank, government bonds account for 10 percent of banks' assets in Italy and 9.5 percent in Spain, up from 6.8 percent and 6.3 percent respectively in early 2012. In Portugal, banks have increased sovereign debt holdings, too. Banks mainly hold their own governments' high-yielding paper. Despite recent developments in the sovereign debt markets, government bonds are still considered risk-free and banks are not required to build up reserves against them, so much of the extra liquidity provided by the ECB ends up invested in these securities. The practice, while logical as a series of day-to-day business decisions, is fraught with danger for the euro area's banking system: Banks in a number of countries have already required bailouts because they held too much overvalued government debt.
Richard Branson accused of leaving U.K. for tax reasons
A story in the Sunday Times titled "Goodbye Britain, I am a tax exile," accused billionaire Sir Richard Branson of not paying any U.K. taxes on non-British business operations since moving to his private Caribbean island, Necker, despite Branson's avowed patriotism and disapproval of tax emigration. Branson responded in his blog that he lived on Necker simply because he enjoyed the Caribbean, not for tax reasons. Besides, he said, he mainly works on not-for-profit ventures now and gives all the proceeds from his speech tours to charity. Tax benefits, then, are just a pleasant side effect, especially since Branson has not given up completely on his business ventures: recently, he appeared in Paris dressed as Che Guevara for a Virgin Mobile product launch.
Greek bureaucrat who shot a mayor still on payroll
Three years ago, Savvas Saltouridis, a treasury employee in Pangaio, Greece, shot the mayor with an Uzi submachine gun to cover up an embezzlement scheme and was sentenced to life in prison. Saltouridis still remains on the municipal payroll, though, and so does his accomplice Ioakeim Monos, sentenced to 16 years. In Greece, government employees are extremely hard to fire, even if they have been accused of crimes or disciplinary violations. The practice is one of the reasons Greece's compliance with the requirements of two international bailouts is constantly in question. The country is supposed to fire 15,000 unnecessary or under-qualified civil servants by the end of 2014, but it will be allowed to hire one higher-skilled worker for each one fired. That is easier said than done: Saltouridis and Monos have been receiving 50 percent of their pay, $800 per month, while in prison, because they appealed every disciplinary board decision to have them dismissed. Their appeals have not run out yet. Every "unsuitable" public employee has the same power to draw out the dismissal process for years. No wonder Greece is the toughest of the crisis-hit countries to reform.
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Leonid Bershidsky at email@example.com