Bershidsky on Europe: French GDP Shrinks
Here's today's look at some of the top stories on markets and politics in Europe:
French economy shrinksin third quarter
The French official statistical service, INSEE, reported that the nation's gross domestic product dropped 0.1 percent in the third quarter of 2013 compared to the second quarter. The drop comes as a surprise: Zero growth had been expected. Though the government still insists there will be a rebound in the fourth quarter, with 0.4 percent growth, current numbers do not point to an improvement. The third quarter saw a drop in exports and investment, and domestic demand only increased 0.2 percent. The news comes just one day after the Organization for Economic Cooperation and Development issued a harsh 87-page report calling on the French government to rethink economic policy, reduce bureaucracy and the tax burden and implement a real pension reform instead of the fake one recently approved by President Francois Hollande. French officials should stop hoping against hope that the economy will start growing by itself. It is time to read the OECD report, admit the obvious and go to work.
BoE's Carney hints at earlier rate hike
Bank of England Governor Mark Carney said recovery had "taken hold" in the U.K., predicting the nation's economy would return to the pre-crisis growth rate of 2.8 percent in 2014. Carney also said that if the central bank kept interest rates at the current level, there was a two-in-five chance that unemployment could drop below 7 percent by the end of next year, and a three-in-five chance it would happen by the end of 2015. The 7 percent mark is the trigger for the Bank of England to raise rates, and as recently as August, Carney did not expect the need for that to arise until 2016. Coming so soon after the European Central Bank reduced its rate, the broad hint is a sign that major European monetary authorities are now goingdifferent ways as the euro area is dragged down by its weaker members and the U.K., free from that weight, returns to healthy growth. Germany - whose economy grew 0.3 percent in the third quarter of 2013 - is by contrast trapped. No wonder its ECB board members opposed last week's decision to cut rates.
Belgium exits bailed-out Fortis
The Belgian government has sold its 25 percent stake in the Benelux bank Fortis to the French bank BNP Paribas, completing the bailout of Fortis that began in 2008. The lender was split into a "bad bank" and a healthier business, in which BNP Paribas acquired a majority. The French bankers ruthlessly restructured their part of Fortis, cleaning up the balance sheet and integrating its retail operation into its own network. After the deal with the Belgian government, worth $4.36 billion, BNP Paribas will own 100 percent of the entity now known as BNP Paribas Fortis. Belgium makes a profit of $1.2 billion on the sale, a nice reward for its patience with the bailout and a step toward keeping a promise made to the EU to bring national debt under 100 percent of gross domestic product. The "bad bank" also appears to be doing OK: It has already sold off $1.34 billion worth of assets. Like Lloyd's in the U.K., Fortis provides proof that taxpayers don't necessarily lose money in bank bailouts, in fact, states can even make some if the distressed assets are managed right.
Last hope for EU's Ukraine mission
The EU's monitoring mission, meant to verify Ukraine's compliance with requirements for associate membership, has been extended until the EU's Eastern Partnership summit in Vilnius on Nov. 28. The mission, consisting of former Polish president Aleksander Kwasniewski and former European Parliament president Pat Cox, has submitted a report pointing out that Ukraine has failed to pass two key laws and to free President Viktor Yanukovych's top political opponent, Yulia Tymoshenko, from prison. Kwasniewski and Cox said Ukraine still had a week to comply and it was too early to say it had failed to do so. It is doubtful, however, that Yanukovych will rush to remove the remaining obstacles to signing an association agreement with the EU: He has already held two rounds of secret talks with Russian counterpart Vladimir Putin, who wants to keep Ukraine within Russia's sphere of influence. He is using both the carrot and the stick to stop Yanukovych from signing the EU deal. If the Ukrainian leader yields to Putin's pressure, the association agreement may be put off for another two years, Kwasniewski said on Nov. 13.
$1 billion NATO HQ almost finished
A new headquarters for NATO in Brussels is 80 percent finished, the organization said. The building, with a 32-yard-high entrance, is expected to house 4,000 diplomats and staff, and its cost has been estimated at $1 billion. The European Central Bank is building on a similar scale in Frankfurt: Its new headquarters also costs close to $1 billion, and the ECB's ever-expanding staff will not even fit in it. It is hard for the people of member countries to believe in calls for austerity when the international bureaucracy indulges in gigantic projects like these.
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To contact the author on this story:
Leonid Bershidsky at email@example.com