Bershidsky on Europe: Draghi Opposes Haircuts

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

ECB head warnsEU against haircuts for bank creditors

European Central Bank President Mario Draghi wrote in a leaked letter to the EU's competition commissioner, Joaquin Almunia, that new state aid rules risk "disorderly deleveraging," a euphemism for investor flight. As the ECB takes over the regulation of euro area banks, Draghi is worried about regulations, in effect since August, which require the conversion of subordinated debt into bank shares before a bank in need of recapitalization can receive taxpayer funds. The ECB is preparing to administer stress tests to banks coming under its supervision, and some may well require more capital. At the same time, Germany is taking an uncompromising stand on taxpayer-funded bank bailouts. If Draghi is to be a tough regulator, he will have to force haircuts on investors, undermining their trust in the very system he is charged with protecting. Thus, the current rules give the ECB little incentive to be serious about supervising banks.

Hollande seen as weak in schoolgirl's deportation case

The case of a 15-year-old Roma school girl detained on a school bus and deported to Kosovo with her family has created a painful dilemma for French President Francois Hollande. On the one hand, Interior Minister Manuel Valls says the deportation was legal and believes France should crack down on illegal immigration. On the other, liberals within the ruling Socialist party and among France's student have protested against the cruelty of the action. Hollande offered Leonarda Dubrani a chance to return to France alone to finish school in France, but she angrily rejected the proposal, saying: "Not without my family. I am not a dog." Hollande was attacked both from the right and from the left, with nationalists saying he was too soft on immigration and liberals saying his proposed compromise for Dubrani was unethical. Immigration is probably the single most contentious issue in Europe today, and governments have to make a clear choice whether to take a hard line or to show compassion. Half-measures are politically untenable.

Deutsche Bank steps up internal Libor investigation

Deutsche Bank is questioning about 50 employees in a major internal investigation of suspected interest rate manipulation. This is the second stage of the investigation: During the first one, auditors Ernst&Young studied emails and chat logs. Now the results are in. Deutsche is determined to eliminate the possibility of legal surprises in the wake of rate-fixing scandals that have cost European financial institutions $2.6 billion. As a result of the investigation, Germany's biggest bank is expected to increase its provision for legal risks by $400 million in the fourth quarter. Given that another scandal, this time centered on the fixing currency exchange rates, is now looming in the U.K. and Switzerland, banks ought to check for every type of corrupt scheme. Regulators are on a witch-hunt, and it is better to discover past wrongdoing before they do.

Philips triples quarterly profit

Dutch electronics group Philips reported net income of $385 million in the third quarter, compared to $143 million a year ago. Chief executive Frans van Houten has achieved spectacular success with his ambitious restructuring program over the last 30 months. He took the company out of the consumer electronics segment, selling its TV, audio and video operations, and concentrated on lighting, medical equipment and appliances such as shavers and soup blenders. Philips cut thousands of jobs in the process, but those would have gone anyway: The Dutch company could not compete with low-cost Chinese competitors producing commodities such as televisions. Today's Philips is a lean company with strong positions in its chosen lines of business - until Chinese rivals catch up in these areas, too.

Private equity companiescatch IPO fever

Terra Firma, one of the biggest private equity firms in Europe, is hoping to raise $1.6 billion by floating shares in Infinis, a U.K.-based wind power company. Though Terra Firma received offers for the entire company, it believes it will achieve a higher valuation with an IPO. After the successful public offerings of Royal Mail and real estate firm Foxtons, London's IPO market is heating up, with large flotations planned for insurer Just Retirement and theme park operator Merlin Entertainment. Foreign companies are also flocking to market: Russian diamond monopoly Alrosa and retail lender TCS are planning to float stock in London this year. This is a good time to raise money on the stock exchange, a U.S. debt crisis having been averted and optimistic European economic numbers coming in. Like in any boom, however, there will be casualties: In times like these, investors are not inclined to be thorough enough in their analysis of the actual businesses being offered for sale.

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

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Leonid Bershidsky at