Bershidsky on Europe: French Rating Cut

Here's today's look at some of the top stories on markets and politics in Europe:

Here's today's look at some of the top stories on markets and politics in Europe:

S&P downgrades France

The ratings agency S&P downgraded France's sovereign debt from AA+ to AA, saying it did not see how the current government's fiscal and structural reforms could improve the nation's growth prospects. Economy minister Pierre Moscovici said he regretted the rating agency's "criticisms and inaccurate judgments," but S&P has only, as is its wont, stated the obvious. Even leftists oppose the government's plans to stifle the economy with new taxes, and President Francois Hollande keeps setting unpopularityrecords. The French socialists have mishandled the economy, and while cutting France's debt rating by one notch to the third highest grade in S&P's classification is not going to hurt too much economically, the move is a reprimand that will be heard throughout the world.

ECB unexpectedly cuts rates to combat deflation risk

The ECB was expected to keep its key rate steady at 0.5 percent on Nov. 7, but the euro area's monetary authority chose to cut it to 0.25 percent, responding to fears of deflation after consumer prices in the euro area rose only 0.7 percent in October. Ireland and Greece saw actual price drops. ECB head Mario Draghi warned the euro area could be in for a "prolonged period of low inflation": Indeed, the slight rate drop won't have a significant effect on prices. The decision, however, signaled the ECB's resolve to safeguard Europe's nascent recovery and had a predictable short-term effect: Government bond yields fell and the euro dropped. The problem is that the ECB's refinancing rate is now too close to zero to leave much room for manoeuver. Besides, low inflation in the euro area is caused largely by structural factors such as high unemployment, which are pushing down demand. Cutting the interest rate will not solve those problems.

Ex-Greek finance minister faces prosecution for tax evasion

The so-called Lagarde list, detailing 2,000 deposits held by Greek luminaries at the Geneva branch of HSBC, is finally getting serious attention from the Greek government. The prosecutor's office in Athens accused former finance minister Yannos Papantoniou and his wife of failing to pay $4 million in taxes between 2000 and 2010, and said charges could be brought against them "after all procedures are completed by the relevant tax office." Papantoniou was the minister who led Greece into the euro area. When the country nearly destroyed the currency project in 2010, and the EU and the International Monetary Fund had to step in, France handed over the HSBC Geneva database, but the Greek finance ministry "mislaid" it. Current finance minister Yiannis Stournaras had to request a second copy. The official accusations against Papantoniou are a hopeful sign: Widespread tax evasion is a major reason why Greece is in trouble. If the government can show that even important people will not be allowed to dodge taxes, ordinary taxpayers may draw the right conclusions.

U.K. spy chiefs say terrorists and criminals "gleeful" over Snowden leaks

In their first ever public appearance before parliament members, the heads of the U.K.'s three intelligence services, the GCHQ, MI5 and MI6, said U.S. National Security Agency leaker Edward Snowden has done grave damage to Britain's national security. "It is clear that our adversaries are rubbing their hands with glee, al-Qaeda is lapping it up and Western security has suffered as a consequence," said MI6 chief Sir John Sawers. The adversaries include organized crime groups and paedophiles who are supposedly changing their tactics now that they know exactly how intelligence serviced can detect them using electronic surveillance. The spymasters maintained they did not monitor the communications of innocent people, although it remained unclear how they made the distinction. If that had been easier to understand, the information on electronic spying would not have caused such a furore.

LME cuts wait times at warehouses

The London Metal Exchange has changed its warehousing system to cut wait times for buyers, which now average 18 months. Warehouses registered with the exchange will have to ship out more metal than they take in if the wait exceeds 50 days. The current delays started after the financial crisis, which saw aluminum and other metal producers pledge their product to secure financing. The warehouses became jammed. The producers took advantage of that and started charging high premiums to ship metal on the same day. The current premium if 14 percent of the price of aluminum, or $245 per ton. New LME rules will hurt producers like Russia's UC Rusal, which can lose roughly a third of its profit. The LME, however, is right to favor consumers: A situation where producers make money on an artificial shortage shouldn't be allowed to stand.

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