Bershidsky on Europe: Kiev Truce Broken

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:

Ukrainians break truce; West steps up mediation efforts.

After the street fighting on Feb.18 claimed 28 lives, according to fresh Ukrainian health ministry data, President Viktor Yanukovych and the opposition leaders demanding an early election agreed to a truce for further negotiations. The truce is not, however, holding in any real sense. Police and protesters in the capital, Kiev, are still hurling Molotov cocktails at each other, there's thick smoke on the central square, a group of radicals is attacking the parliament, and the subway is still not running to make it harder for people to get to the areas where fighting is taking place. This is what the German, French and Polish foreign ministers coming to Kiev today will see if they make a foray into town. It may be too late for them to talk to Yanukovych and threaten sanctions against his family and cronies: Although the cornered president's days seem numbered, he is desperately looking for a way to hold on to power, and that is something the mediators cannot offer him. This is definitely not the end of the violence and chaos in Ukraine.

Air France restructuring leads to operating profit .

In 2013, the second year of its huge restructuring effort, Air France KLM showed an operating profit of $179 million, compared with a loss of $462 million in 2012. Although its net income was still negative because of a large impairment charge, the company also managed to reduce its stifling debt from $8.1 billion to $7.3 billion. The airline achieved this mainly by cutting costs and laying off 5,000 staff. The restructuring drive, which the company calls Transform 2015, is ruthless, and it proves that a traditional airline -- which is the flag carrier in two countries, France and the Netherlands -- can be an efficient business. It is an example to other struggling carriers, like Alitalia, now expecting a bailout by Etihad, the cash-rich airline from the United Arab Emirates.

French banks return to form in 2013.

All the major French banks -- BNP Paribas, Societe Generale, Credit Agricole and BPCE -- have reported a total of $20.6 billion in profit for 2013, all of them showing solid results. The four financial groups are again as profitable as they were before the 2008 financial crisis. Credit Agricole, which lost $5.2 billion in 2012 because of a writedown of Greek assets, was at the top of the league with a net income of $7 billion. The four banks have all strengthened their capital base and shrunk balance sheets, successfully divesting assets. Regulators should be happy: They have succeeded in turning banks into more conservative, steadier institutions. The underlying economy, however, is full of risky projects. These are increasingly financed outside the banking system, by all kinds of funds or by trading partners. Risk-taking is not out of fashion, it is just less visible to authorities that wanted to turn banks, especially large ones, into shiny shop windows for their policies.

Russia threatened with recession.

Russia's January economic data are so bad they surprised even the pessimists. Investment was down 7 percent compared with a year earlier; retail turnover growth slowed to a four-year low of 2.4 percent; Russians' real incomes dropped 1.5 percent. The Russian Statistics Committee has not yet published a figure for economic output growth, but it is expected to be negative. In fact, Russia may plunge into recession in the first quarter because of the investment collapse and the income drop: Both industrial output and domestic consumption are going to suffer. The ruble's continuing devaluation prompts Russians to hoard foreign cash rather then spend rubles on goods, and some economists liken the situation to the one that preceded the 2008 crisis. As the Olympic upsurge of patriotism recedes, President Vladimir Putin will face a population increasingly worried about its well-being and the course the country is taking.

Deutsche Bank to pay out $1.2 billion for helping media empire go bankrupt.

Deutsche Bank is close to a $1.2 billion settlement with the estate of German media magnate Leo Kirch. The litigation has been going on since Kirch's media group went bankrupt in 2002. Kirch and, after his death in 2011, his estate claimed that Deutsche's then chief executive, Rolf Breuer, helped bring about the insolvency by suggesting in a TV interview that the Kirch Group faced funding difficulties. The bank fought the accusations tooth and nail, but courts have been sympathetic to Kirch's claims, and for good reason: When a major banker says your company is having trouble borrowing money, it quickly becomes a self-fulfilling prophecy. Deutsche has a large backlog of unresolved litigation, for which it constantly has to make multibillion-dollar provisions. The co-chief executives Anshu Jain and Jurgen Fitschen are doing the right thing by trying to clear it up, even if fighting on could have reduced the payout.

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

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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Leonid Bershidsky at

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