Bershidsky on Europe: Greek Cabinet Survives
Here's today's look at some of the top stories on markets and politics in Europe:
Greek government survives no-confidence vote
The coalition government of Greece, dominated by the center-right New Democracy party, survived a parliamentary no-confidence vote initiated by the left-wing Syriza party. It won only by a narrow margin, 153 votes out of 300 against the censure motion. The government has been rocked by the decision to close down the state-owned broadcaster, ERT. In June, one of the junior coalition partners, DIMAR, left the government in protest against the move. The vote cost the government's parliamentary bloc one member, a Socialist, who sided with the opposition. ERT employed 2650 people, and the government eliminated the jobs as part of the bailout plan approved by the EU and the International Monetary Fund. According to the plan, 4,000 public sector jobs have to be cut by the end of this year. Greece has a chaotic and highly competitive TV market, and the government decided it did not want to pay for a bloated, inefficient state-owned station. About a quarter of its former employees are being rehired at lower salaries to start over in January. Greece needs to do the same to its entire bureaucracy, but the government is hanging by a thread as it is.
France to borrow $6 billion to settle Credit Lyonnais debt
French Finance Minister Pierre Moscovici said France would borrow $6 billion by the end of this year to put the bankruptcy of Credit Lyonnais behind it. The major bank went belly up in the mid-1990s, and was taken over by Credit Agricole in 2003, landing French taxpayers with a total bill for about $20 billion. The government could wait until next year to raise money for its final payments, but it doesn't want to because borrowing costs are now low. Despite the recent downgrade of its sovereign debt by Standard & Poor's, yields on its 10-year bonds are 2.2 percent. The market is overpricing French debt. The country, which borrowed a record $250 billion in 2010, will need to refinance $133 billion worth of debt next year and $187 billion in 2015. Given sluggish growth and the fact that the current government can no longer raise taxes without facing broad-based protests, that is a daunting prospect.
Major German parties agree energy plan
Three weeks into their coalition talks, Germany's Christian Democrats and Social Democrats have hammered out an agreement on energy policy. Apart from a moratorium on shale gas extraction and cuts to wind energy subsidies, the plan calls for the introduction of prepaid cards for households' energy costs. Consumers will have to buy them, or acquire credit online, to ensure electricity supply. German energy companies have suffered from the country's tough plan to move from hydrocarbon-based to "green" energy, and the government's prepayment plan should help them improve cash flow. So far, the coalition negotiations have been quite constructive. The parties have also agreed to push for a European tax on financial transactions. It is unlikely to be approved by other EU members, but the compromise is an important sign of goodwill between the negotiators. There are, however, still plenty of unresolved issues, from highway tolls to taxes and the minimum wage. Progress on these has been harder to come by. In 2005, it took the same parties three months to produce a so-called grand coalition. It looks as though this time, the gestation period will be even longer.
Renault Nissan steps back from promise on electric cars
In an interview with Financial Times, Carlos Ghosn, head of the Renault Nissan alliance, admitted that the Franco-Japanese car maker will not hit its target of selling 1.5 million electric cars by 2016. "At the speed right now, I'm seeing it more four or five years later," Ghosn said. He blamed lack of infrastructure for the slow progress: There are more or less enough car charging stations in Norway and California, but hardly anywhere else. So far, Renault Nissan has sold 120,000 electric vehicles, most of them Nissan Leaf models. Ghosn expects sales growth to speed up once German car makers step into the market. It's a chicken-and-egg problem: It makes no sense to build charging stations when there are not enough electric cars, or to buy an electric vehicle when there are too few places to charge them. The more major companies have affordable "green" cars on the market, the better for each of them because of the added incentive to remove the infrastructure constraint.
Templeton Ukraine's biggest private creditor
The U.S. money manager Franklin Templeton disclosed that it bought $171 million of Ukraine's August bond issue, bringing up its position in the country's sovereign debt to $5 billion, almost 20 percent of Ukraine's outstanding international government bonds. Michael Hasenstab, Templeton's bond fund manager who also bet big on Ireland's debt during the euro-area crisis, is behind the investments. Those bets paid off, and Hasenstab claimed local knowledge had helped make them. One has to wonder what he knows about Ukraine to be sure its money is safe. The country faces a cash crunch and is in a difficult political situation, trying to maneuver between signing an association agreement with the EU and maintaining a working relationship with Russia, which is unhappy about Ukraine's attempts to break out of its sphere of influence. In short, Ukraine is between a rock and a hard place. Templeton must be banking on someone - the EU, Russia or the IMF - bailing the country out in the worst case scenario, but even people with vast local knowledge are at a loss as to which of them it will be.
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Leonid Bershidsky at email@example.com