Bershidsky on Europe: Germany Grew Just 0.4% in 2013

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.

German growth tiny in 2013.

Though Germany, with its low unemployment rate and strong export-oriented companies, is often assumed to be immune to the euro area's economic problems, that is not the case. The German economy, Europe's growth locomotive, expanded only 0.4 percent in 2013, the least since 2009. The U.S. Treasury has criticized Germany for policies stressing export growth rather than domestic consumption, but in 2013, consumer spending grew 0.9 percent, compared to 0.6 percent for exports. The latter number is the result of an investment slowdown: In 2012, exports increased by 3.2 percent. Even in such tough times, Germany's strength lies in its responsible fiscal policy: the consolidated budget deficit stood at a mere 0.1 percent gross domestic product.

Hollande promises big payroll tax cut.

French President Francois Hollande promised all the right things at a major press conference in Paris, talking about structural reform, curtailing bureaucracy, cutting public spending and reducing the tax burden for businesses. The actual impact of the measures he proposed, however, was overstated. Hollande pledged, by 2017, to shave more than $40 billion off the social contributions paid by French companies. The amount, however, includes a $27 billion tax credit already extended to businesses, reducing the impact of the proposed cut. The French employers' federation, Medef, asked for $68 billion in cuts, promising in return 1 million new jobs. Hollande, declaring that jobs were his main concern, did not even meet the employers halfway. He also stopped short of offering more public spending reductions than the $20 billion already agreed for this year, meaning France will remain the country with the second highest level of government spending in Europe, after Norway. Hollande's press conference was a feat of hollow rhetoric. He might as well have talked about his affair with actress Julie Gayet, which he declined to do, saying only that he and his partner, Valerie Trierweiler, were "going through a difficult time." That, at least, was an understatement.

EU sets new rules for trading in financial instruments.

After 3 ½ years of negotiations, the 28 EU states finally agreed on the base text for the so-called Markets in Financial Instruments Directive. It includes limits on stock trading in so-called dark pools, speculation in agricultural and energy derivatives and high-frequency trading. The final version is not yet available, but it is already clear that the curbs imposed on all kinds of creative financial operations will not be as tough as some regulators, notably the EU's Internal Market and Services Commissioner Michel Barnier, want. For instance, dark pools (financial companies' proprietary trading platforms) will be allowed to trade in derivatives and bonds, though not stocks. For the traders, that does not make much difference: they will just switch to equity derivatives.

Russia will lend $13.7 billion to Hungary.

Russia has agreed to lend Hungary $13.7 billion to install two Russian-made reactors at its only nuclear power plant. Despite the threat of zero economic growth, or worse, in 2014, President Vladimir Putin is giving away billions of dollars to buy influence in Eastern Europe. The Hungarian deal comes after Russia constructed a $15 billion aid package for Ukraine. Hungary's government, like Ukraine's, has always spoken of the need to reduce dependence on Russia, but neither is able to afford it. In Hungary, high energy bills are killing consumers' spending power and hindering growth. The nuclear project may help Hungary reduce imports of natural gas, which, incidentally, also come from Russia. Putin has plenty of strings to pull on Europe's eastern periphery, but his methods only work while Russia is flush with oil money, which may not be the case for long.

Burberry reportsdouble-digit growth.

The luxury goods producer Burberry reported a 14 percent rise in retail revenues, to $868 million, in the three months to end-December, and a 12 percent increase in comparable sales from stores open a year or more. Much of the increase comes from China, where other luxury groups are reporting a slowdown caused by the Communist Party's campaign against expensive gifts for officials. Burberry's strength is in its retail expertise: 70 percent of the company's sales come from its own stores and e-commerce, buoyed by successful social media marketing. The Chinese have not given up on expensive Western brands, they are just taking their money to the ones that make the biggest and smartest effort to sell to them.

(Leonid Bershidsky can be reached at

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