Bershidsky on Europe: Street War in Ukraine

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.

Ukrainian riots claim first casualties.

At least two protesters against President Viktor Yanukovych's increasingly dictatorial rule were shot to death in Kiev on Wednesday as Ukrainian riot police pushed back against a crowd of militants. A third, who had been wounded and kidnapped from the hospital, froze to death on a forest outside the city. After two months of largely peaceful protest, blood has been spilled and Kiev is rapidly growing radicalized. Parliamentary opposition leaders tried to negotiate an end to the crisis with Yanukovych, demanding an early election and an amnesty for the protesters, but the president's answers were inconclusive and the opposition legislators threatened a counteroffensive in tough speeches before tens of thousands of demonstrators assembled in downtown Kiev. Yanukovych, however, is still in control of the situation because the police and military are not switching sides. A crackdown on the protesters appears to be the most likely scenario, but the situation is changing rapidly and events can take any turn.

Credit Suisse may pay more than $800 million in U.S. settlement.

According to The Wall Street Journal, Credit Swiss may pay about $800 million early this year to settle U.S. authorities' accusations of helping Americans evade taxes. UBS paid $780 million four years ago in a similar deal. Credit Suisse's potentially record-breaking payout will top its provision for the legal issue by more than 100 percent. The U.S. authorities' relentless pursuit of huge settlements has already damaged the Swiss banking industry and forced a few smaller banks to close. In effect, the banks are being punished for activities that were permitted under Swiss laws. The U.S. government ought to go after the tax evaders with all the fury now reserved for the financial institutions, though it may be much harder to do and the payouts are less sure.

German wind farm operator files for bankruptcy , stranding investors.

Just as Chancellor Angela Merkel backed a Social Democrat plan to cut subsidies for renewable energy companies, the large German wind farm operator Prokon filed for bankruptcy. There is nothing unusual about its insolvency as such: even with the current high subsidies, wind and solar energy companies across Europe have been struggling to cover their costs. There is, however, a twist to the Prokon case, in that the company raised $1.9 billion by selling "profit participation certificates" to 75,000 retail investors. The certificates paid 6 to 8 percent annually, much more than Germans could get from banks, and investors snapped up the unconventional paper. Prokon, however, ended up paying out more in interest than it earned and was accused of running a Ponzi scheme. Investors began to withdraw money, and the company's financial scheme collapsed. Now the remaining certificate holders stand to lose their investments if the company is liquidated or taking a haircut if it continues to operate, which is the current plan. It is, of course, the investors' own fault for buying risky wind certificates, but the behavior is understandable in an era of ultra-low interest rates: Germans are traditional savers who are not encouraged to save by the current monetary policy. As for cuts in subsidies, they will complicate Prokon's recovery and kill off a few other such operators.

JP Morgan warns U.K. of fallout from possible EU exit.

JP Morgan, one of the largest foreign financial firms in the U.K., employing 17,000 people there, warned in a submission to the British Treasury that the country would get less acceptable outcomes from trade negotiations if it exited the EU. It also stated that London was only a major financial center because it served as a gateway to the EU for many foreign companies. Prime Minister David Cameron's promise to hold a referendum on the U.K.'s continued EU membership worries London bankers, who believe a split with Brussels would mean the need to move their European offices. They are lobbying the government to think hard about trying to appease the Eurosceptics: Even if it means getting more votes at the next election, the loss of London's role as an international financial hub could outweigh that advantage. The anti-EU forces, however, are not overly fond of bankers, either, so their arguments are lost on the political base Cameron is trying to consolidate. He just needs to decide whether it is important enough for him to justify a split with the City.

Eurozone business activity grows in January.

The research firm Markit reported that its euro area Purchasing Managers' Index rose to 53.3 in January, from 52.1 last month, indicating a healthy increase in business activity. The PMI for manufacturing rose to 53.9, the highest reading in 32 months. If the favorable trend holds up, the euro area may show faster-than-expected economic growth this year. France, however, is the biggest concern: private sector activity there has decreased for the third straight month. President Francois Hollande's marital infidelity, to which many of the French are sympathetic, has somewhat distracted the nation from the fact his government lacks a coherent economic policy, but the scandal's effect will not last long. Hollande's government will have to do something about the economy, or face a further decline in popularity.

(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