Bershidsky on Europe: U.S. Embarrassed by Phone Tap

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.

Leaked tape highlights U.S. involvement in Ukraine.

An audio clip with Russian subtitles published anonymously on YouTube embarrassed the U.S. by shedding light on the State Department's involvement in the Ukrainian political crisis. In the clip, voices sounding like those of U.S. Assistant Secretary of State Victoria Nuland and U.S. ambassador to Ukraine Geoffrey Pyatt discuss moves in the wake of last month's proposal by Ukrainian President Viktor Yanukovych to give government posts to leading opposition figures. The man and the woman in the audio agree that former central bank governor Arseni Yatsenyuk should accept the prime minister's job but former boxing champion Vitali Klitschko should stay out of government and "do his political homework." They also want more UN mediation of the political crisis. The woman who sounds like Nuland is unhappy with the EU's midwifing efforts, saying at one point, "and you know, f--k the EU." The U.S. did not deny the authenticity of the recording, various spokesmen only pointing out that it must be Russian intelligence services' handiwork. That, however, is less important than what the clip, if genuine, says about U.S. influence in Ukraine. In the end, Yatsenyuk refused the prime minister's job. If U.S. "puppeteers" are so easily ignored by the opposition, there is nothing for Russia to complain about.

Russia says it isn't counting world leaders at Sochi.

Discussing which world leaders decided against coming to the Winter Olympics in Sochi is "stupid", Russian Foreign Minister Sergei Lavrov said ahead of the games' Friday opening. "Nobody has ever counted them," he added. "How many heads of state were there in Vancouver? How many in London? We only started counting because we had silly questions coming in from all over. Now, having counted, we can say we will have 44 heads of state at the opening ceremony and more than 60 in total." Lavrov's count does not include U.S. President Barack Obama (no senior U.S. officials will attend), British Prime Minister David Cameron, German Chancellor Angela Merkel or French President Francois Hollande. Chinese President Xi Jinping will be there, however, as will the leaders of Ukraine and Belarus. It's not the headcount that matters but the personalities. Despite Russian President Vladimir Putin's desire to have the leaders of the world's strongest nations beside him as his pet Olympic project unfolds, Putin's peers show a singular unwillingness to witness his triumph. Putin, known to bears grudges, is not likely to do them any favors, either, while he is still in power.

ECB resists calls for lower rates.

The European Central Bank on Thursday decided to keep its main refinancing rate at 0.25 percent despite the looming threat of deflation in the euro area. In January, consumer prices in the currency zone only rose at the annualized rate of 0.7 percent, well below the ECB's 2 percent target. ECB President Mario Draghi acknowledged that inflation was "lower than generally expected," but not one on the bank's 24-person governing council even suggested a rate drop or some other kind of liquidity injection. Draghi insisted low inflation was not the same as deflation and therefore no decisive action was needed. The ECB's stubbornness is driving up the euro's exchange rate and hurting euro area's exporters. Coupled with the low domestic demand that is causing the near-zero inflation, this could reflect negatively on first-quarter economic growth. Next month, a rate cut is quite likely if inflation doesn't suddenly leap up.

Turkey imposes internet controls.

The Turkish parliament passed a bill allowing the authorities to close down Internet sites without a court order. Prime Minister Recep Tayyip Erdogan's government insists this does not amount to censorship, merely privacy protection for people whose reputations could be damaged by offensive materials published on the web. That line, however, is a tough sell both in Turkey and in Europe, which Erdogan appears again to want to join. A spokesman for EU Commissioner for Enlargement Stefan Fule criticized the new bill, saying Turks deserved "more transparency, not more restrictions." While European criticism is not likely to stop Turkish President Abdullah Gul, a close Erdogan ally, from signing the bill into effect, the Turkish politicians should remember that Ukraine, which recently introduced a similar law, had to repeal it after intense street protests. In his desire to hold on to power by any means, Erdogan is testing his people's patience. It remains to be seen whether Turks end up behaving like Russians, who acquiesced in a spate of illiberal laws passed in the last two years, or like Ukrainians, who got fed up and have come close to overthrowing the government.

Arcelor Mittal reports smaller loss.

ArcelorMittal, the world's largest steel company which controls 6 percent of global production, reported a fourth-quarter loss of $1.23 billion, down from $3.81 billion in the same period of 2012. Much of the loss is attributed to $700 million in restructuring charges, including those for factory closures in Europe. Lakshmi Mittal, who put the giant company together, believes the steel market has bottomed out, and ArcelorMittal predicts demand to rise by up to 4 percent in 2014 after a contraction of 0.5 percent in 2013. If the increase materializes, it is likely to push the company back into the black, vindicating the tough decisions it took in Europe to slim down its structure and get rid of especially unprofitable assets. In the process, the company's management also changed: Now, it is practically all Mittal and no Arcelor. Whatever was European about the company was deemed inefficient during the crisis.

(Leonid Bershidsky writes on Russia, Europe and technology for Bloomberg View. Follow him on Twitter.)

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

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