Bershidsky on Europe: 'Bad Bank' for RBS
Here's today's look at some of the top stories on markets and politics in Europe:
Germany rejects U.S. criticism of "deflationary" policies
German bureaucrats and politicians rejected the unusually strong criticism of Germany's economic policy in the U.S. Treasury's latest international report. The U.S. slammed the euro area's economic leader for increasing its trade surplus while failing to stimulate domestic demand and thus creating deflationary pressure throughout Europe. Stephen Kampeter, a junior finance minister representing Germany's strongest party, the Christian Democratic Union, said he saw no reason to put the brakes on exports. "We have always been an export-oriented country and proud of it," Kampeter said, adding that domestic demand depended on exporters because they create jobs. The U.S. criticism plays into the hands of the CDU's rivals, the Social Democrats. The two parties are negotiating about forming a coalition government, and the Social Democrats are pushing the CDU to agree to a Germany-wide minimum wage. The party's representatives pointed out that it would increase domestic demand and help fix the problem highlighted in the U.S. report. The public American criticism, however, is hardly likely to help the Social Democrats' cause: U.S.-German relations have hit a low point because of recent allegations of American spying against Chancellor Angela Merkel, and Germans are angry. Meanwhile, European inflation slowed even more than expected in October, to an annualized 0.7 percent, and the export-fueled growth in Germany, France and Spain coupled with anemic domestic spending is still a plausible explanation for that.
AT&T faces problems in Europe because of spying scandal
European and German officials interviewed by The Wall Street Journal said AT&T would face increased scrutiny if it attempts to acquire a European mobile operator, as it is expected to do next year. The U.S. telecom giant is intensely interested in the European market, and U.K.-based Vodafone is seen as a potential target for one of the biggest M&A deals in history. The bureaucrats, however, said AT&T would have to prove that it would not provide any user data to the National Security Agency and that it would comply with European privacy laws. The attitude is a first sign that U.S. companies implicated in the NSA spying scandal, including Internet industry leaders such as Google, Facebook and Apple, will face new hurdles in the EU. The business implications of Datagate are not immediate, but they will gradually manifest themselves.
RBS wants to set up internal "bad bank"
Ross McEwan, the new chief executive of nationalized Royal Bank of Scotland has devised a plan to clean up the bank's balance sheet. He wants to transfer $61 billion worth of risky assets to an internal "bad bank", hoping to eliminate the portfolio within the next three years. The plan means the bank will record an impairment charge of at least $6.4 billion this year, which would lead to an astronomical loss. Increased provisions have led to an expected loss for RBS in the third quarter. McEwan clearly intends for the bank to take a bath in 2013 and 2014, not caring about the size of the losses. The radical clean-up, if successful, may speed up the re-privatization of RBS.
French soccer confirms strike over 75 percent tax
French President Francois Hollande received the representatives of soccer clubs that threatened to strike later this month in protest against the new 75 percent tax on annual income over $1.37 million, due to come into effect next year. The clubs argue that the tax will so reduce players' income that French teams will cease to be competitive in Europe. Hollande countered that he had already made a concession, capping total tax contributions at 5 percent of a club's revenue. The club representatives demanded a 1 percent cap, but Hollande refused, so they decided to go ahead with the strike, set for the last weekend of November. The French are already fed up with Hollande's taxes, and a weekend without soccer will only reinforce the president's unprecedented lack of popularity. The tax, meanwhile, will hardly provide enough revenue to justify Hollande's obstinacy. Many French companies have already moved their highest-paid employees to subsidiaries in other EU countries.
ECB's $1.64 billion building almost ready
The European Central Bank, which now occupies space in several office buildings in Frankfurt, will soon get a new headquarters. Construction, which was initially meant to cost less than $700 million, will set the ECB back $1.64 billion, but it is drawing to a close and the euro area's monetary authority will be able to move in in the middle of next year. The problem is, the building is meant to accommodate 2,300 workers, and the 1,000-strong force performing the ECB's new function of bank supervision will not fit in the building, a combination of historic Grossmarkthalle and a new twin skyscraper. German contractors may be fast, but the European bureaucracy grows faster.
(Leonid Bershidsky can be reached at firstname.lastname@example.org).
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