Bershidsky on Europe: EU Housing Bubble Alert

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website
Read More.
a | A

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

Investment in European real estate rises sharply.

PricewaterhouseCoopers published a report warning of the risk of a new real estate bubble in Europe. According to PwC partner Simon Hardwick, there was a "huge capital push" into this market in 2013, and investors took an interest in risky activities such as development and post-bubble markets such as Spain and Ireland. Investment in European commercial real estate was the highest since the financial crisis, rising 21 percent year-on-year to $210 billion. This is a direct result of lax monetary policies and falling yields on financial instruments: Investors are seeking higher returns in real estate. While the economic growth achieved thanks to low interest rates is shaky, the property market is heating up, creating the possibility of a vicious cycle: If a new bubble swells and bursts, it will be much harder to attempt a similar monetary cure.

European car sales fall for sixth consecutive year.

New car registrations in Europe fell 1.7 percent to 11.9 million, the worst result recorded by the European Car Manufacturers Association since 2003. Yet registrations grew in the fourth quarter, speeding up 13 percent in December. The surge was mainly thanks to budget cars from Renault, Volkswagen and Ford. In 2014, their efforts may lift the European car industry out of its long decline. The global auto industry's performance is largely in line with economic growth patterns, the U.S. and Chinese market posting big gains in 2013 and European sales beginning to reflect the EU's tentative recovery. Europe, however, is bigger than the EU, and that poses a problem for car manufacturers this year, because Russia's stagnation is driving down sales in this important market, until recently thought to be on track to overtake Germany. Russian car sales dropped 5.5 percent in 2013.

Ericsson chief executiveconsidered for top job at Microsoft.

Hans Vestberg, chief executive of Swedish telecommunications equipment producer Ericsson, is on the list of candidates for the job of departing Miscrosoft chief Steve Ballmer. The software company aims to end the search for Ballmer's successor early this year, and Vestberg's surprising presence on the short list of candidates shows how wide-ranging the exercise has been. Once one gets to the idea of a non-American heading one of the most successful U.S. companies, there is a certain logic to the Swede's potential appointment. With the purchase of Nokia, Microsoft is making a big bet in the Nordic countries. Skype, another big Microsoft acquisition, was founded by two Swedes. It would, however, be ironic if an Ericsson graduate took over in Redmond: The Swedish company improved its bottom line by offloading its mobile phone business on Sony in 2011, the opposite of Microsoft's Nokia move.

Euro area inflation fell in December.

Consumer prices in the eurozone, then still comprising 17 countries, rose just 0.3 percent month-on-month and 0.8 percent year-on-year in December, 2013. That pace was even slower than November's already alarming annual inflation rate of 0.9 percent. The European Central Bank has a 2 percent inflation target and should theoretically lower rates if the situation persists, but it has little room for maneuver. ECB chief Mario Draghi has repeated like a mantra that deflation is not a threat yet, but International Monetary Fund Christine Lagarde seems to disagree. As the December inflation data were released, she spoke of the "rising risks of deflation which could prove disastrous for the recovery." Among other things, low inflation makes it harder to service European countries' mountainous debts. The ECB has to respond soon, if not by taking its key interest rate to zero from the current 0.25 percent, then by finding other ways to pump more money into the euro area's economy.

London passes Paris as Europe's top tourist destination.

According to preliminary data, London has overtaken Paris as Europe's most visited city, receiving 16 million visitors in 2013. The year before, Paris boasted 15.9 million visitors, and this year the number is not likely to have increased. London Mayor Boris Johnson attributes his city's rise in popularity to the "Olympic effect": the 2012 summer games improved London's reputation as a tourist destination. The existence of such an effect has been questioned by economists, but if Johnson is right, Russia's $45 billion bet on the 2014 Olympics may also pay off in a limited way for Sochi, which President Vladimir Putin hopes to put on the map as an international resort.

(Leonid Bershidsky can be reached at

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at