Bershidsky on Europe: Ruble and Lira Plunge

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website
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Here's today's look at some of the top stories on markets and politics in Europe.

Russian and Turkish currencies take a beating.

The Russian ruble dropped to a 4-year low of 34 to the U.S. dollar on Thursday, and is down 3.49 percent in the last 10 days. The Russian economy is stagnating, and economic policymakers want to boost exports by allowing the national currency to weaken. Analysts predict the trend will hold throughout 2014, and Russians are becoming net buyers of foreign currency, converting their savings into dollars. In Turkey, the central bank is less interested in seeing the value of the lira decline, reflecting continued political instability in the nation: it has intervened heavily to prevent a free-fall. Although it spent as much as $3 billion, the currency was still down 1.7 percent on Thursday, at about 2.3 to the dollar, and declined further this morning. To an outside observer, the tumbling lira and ruble look like part of a global trend: Other emerging market currencies are weakening, too. These two cases are distinct, however, and the weakening is likely to be sustained even if the speculative trend peters out.

Bank of England ignoring unemployment guidance for rates.

Mark Carney, governor of the Bank of England, made it clear that he won't follow through with the forward guidance he set out less than six months ago, linking the next rate move to the unemployment rate. Last August, Carney said rates would only go up after unemployment reached 7 percent. He expected, however, that that would not be the case for three years and the jobless rate has since surprised him by falling to 7.1 percent. Instead of raising rates now or revising the unemployment target, Carney decided to fudge it. "We're trying to get across that it's all about overall conditions in the labor market," he said in Davos, Switzerland. "We wouldn't want to detract from that focus by unnecessarily focusing on one indicator." There is probably no better indicator of the "overall conditions" than the unemployment rate. Carney would do right to stick to earlier guidance and raise rates: Among other things that would stop the country's real estate boom from developing into a bubble.

Ukrainian riots spread into provinces.

Riots against the corrupt regime of Ukrainian President Viktor Yanukovych have spread from the capital, Kiev, to provincial cities, where protesters seized at least six local government buildings on Thursday and Friday and besieged a number of others. Talks between Yanukovych and opposition leaders have broken down, and new barricades are being thrown up in Kiev. In response to the unprecedented police violence of recent days, protests have rapidly radicalized. With police concentrated in Kiev, the attacks in the regions have caught the president unawares, and it is not clear how much longer he can hold out. Beating a throng armed with sticks on a Kiev street is much easier than putting down what appears to be a nationwide rebellion.

Raiffeisen Bank starts massive share sale.

Austria's Raiffeisen Bank International, the second biggest lender in Eastern Europe, has started a $3.9 billion share sale and apparently has enough demand to place the shares. This is the biggest such offering since Deutsche Bank raised the same amount last April. Raiffeisen, whose eastward expansion overextended it so that it had to be bailed out by the government, will use proceeds from the sale to repay the aid and bring its capital to 10 percent of assets. The move has been well-received by the markets and the bank's stock is rising after a 13 percent decline last year. However, the success of chief executive Karl Sevelda's strategy will depend on whether the bank can scale back its unsuccessful Eastern European operations in Hungary, Slovenia and Ukraine. At Raiffeisen Bank Aval in Ukraine, one-third of the loans are non-performing. Selling these businesses will be difficult given the economic situation in all three countries and the growing unrest in Ukraine.

Rouhani grabs center stage at Davos forum.

At each annual World Economic Forum meeting in Davos, a dominant theme emerges, sometimes without prior warning, depending on who comes and with what agendas. This year, the Middle East is the theme, with the leaders of Iran and Israel and diplomats from many of the region's nations present. Talks on ending Syria's civil war are under way in nearby Geneva, so the discussion has spilled over into the business gathering and broadened. Iranian President Hassan Rouhani shone, saying his country would now be more open to the rest of the world. It is clear why businessmen applaud this message: the opening up of Iran's market means new opportunities. Rouhani, however, also said Iran would not destroy any of its 20,000 nuclear centrifuges, which means Iran could at any time resume the nuclear program that resulted in UN sanctions. Davos is a great forum for charm offensives, and Rouhani is on one now, but whether global business should trust his promises and invest is another matter.

(Leonid Bershidsky can be reached at

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