Bershidsky on Europe: Ukraine Seeks Compromise

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:

Ukraine, downgraded by S&P, seeks political compromise.

After the worst day in the Ukrainian civil conflict so far, which saw the death toll rise by about 50 to at least 77, President Viktor Yanukovych held all-night talks with the parliamentary opposition, several European foreign ministers and a Russian mediator sent by President Vladimir Putin at Yanukovych's request. The negotiations yielded a one-page document calling for the immediate reinstatement of the 2004 constitution, which limited presidential powers, a constitutional and electoral reform and early presidential elections by the end of the year. Many opposition activists are against any deal with Yanukovych after the deadly street clashes in Kiev. Still, the fighting subsided as Ukrainians waited for news from their politicians. Instead, grim economic news was coming in. The ratings agency Standard & Poor's downgraded Ukraine from triple C plus to triple C, two notches above default grade. Ukraine called off a $2 billion eurobond issue it was supposed to sell to Russia as part of the latter's $15 billion aid package. While politicians argued and protesters fought off police, the country was edging toward economic collapse. No bit of paper signed by any number of leaders can resolve Ukraine's real problems, which include the absence of a functioning state and a viable economy. Any new government will have to take tough measures to revive the country.

RBS plans to cut staff by 30,000.

Royal Bank of Scotland, 81 percent owned by the U.K. government, is about to announce a major restructuring plan that envisages an exit from most investment banking activities and international businesses. After years of struggling to plug the holes left by bad risk management before the 2008 financial crisis, RBS wants to turn itself into a much more compact U.K. commercial bank. "My aspiration is not to run the world's biggest bank," chief executive Ross McEwan said. "My aspiration is to run the best bank in the U.K. -- nothing to do with size." According to McEwan, RBS is not a global group anymore. The bank will focus on British retail customers and corporate borrowers of all sizes. This will entail about 30,000 job cuts at the 120,000-strong organization. McEwan's planned reforms are particularly brutal, perhaps because the bank is expected to have lost at least $11.7 billion in 2013: It is not exactly a going concern yet. They are, however, an exaggerated reflection of the general trend in European finance -- a return to Main Street banking. It remains to be seen whether this new fashion is compatible with the modern economy, which requires bolder and more creative financing than in old-style commercial banking's heyday.

Kering profit down sharply in 2013.

Kering, the number one European fashion retailer and number three global luxury group, reported a net profit of just $68 million for 2013, down from more than $1.3 billion the year before. Much of the decline is attributed to the sporting goods brand Puma, which showed a 13.2 percent sales decline and recorded high restructuring costs, and to retail operations the group is spinning off. Fundamentally, however, Kering is perfectly sound, with a 2013 operating profit of $2.4 billion. Like its major competitor, LVMH Louis Vuitton Moet Hennessy, the group has succeeded in building a balanced portfolio in which one brand's sudden difficulties are always offset with another's success. Last year, for example, Puma suffered but Saint Laurent showed 42 percent sales growth in the fourth quarter.

Greek banks need another $6.9 billion in capital.

A stress test of Greece's four biggest banks showed that they need another $6.9 billion in capital to fix their balance sheets. Last year's $38 billion recapitalization was not sufficient for National Bank, Alpha Bank, Piraeus Bank and Eurobank: Bad loans kept mounting, and the continuing recession in Greece is not helping the banks' financial health. The possible new request for aid will have to be approved by the "troika" of international lenders -- the International Monetary Fund, the European Commission and the European Central Bank. Greece continues to be a bottomless pit for the troika. If in Ireland and Spain international bailouts worked due to the tight discipline adopted by governments, the Greek one has been unable to achieve similar results because its troubles were deeper and political resistance was more heated. With no other solution in sight, Europe and the IMF will have to keep throwing good money after bad.

U.K. retail sales fall in January.

The U.K. Office of National Statistics reported that retail sales including fuel dropped 1.5 percent in January, 2014, compared to the previous month. Analysts expected a 1 percent drop. The data contradicts Bank of England predictions that the U.K. economy will surge this year, driven by domestic demand, which the BoE predicts should increase to more than 3 percent this year from 2.25 percent in 2012. That would require a higher retail sales growth rate than last year's 4.3 percent. In January, however, sales of the most basic goods such as food, clothing and footwear dropped more seriously than expected, and, in the case of clothes and shoes, the most since April 2012. It could well be that the U.K. financial authorities are misreading the optimistic economic growth and employment data they had coming in last year. The growth was, to a large extent, fueled by mounting household debt, which is hardly a sustainable source of good news. It's possible that, after gleefully revising upward its economic projections, the BoE will have to bring them down again soon.

(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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Nisid Hajari at