Bershidsky on Europe: $1 Billion Bonus Pool as RBS Bleeds
Here's today's look at some of the top stories on markets and politics in Europe.
Crimea parliament seized by unknown armed group.
In the early hours of Thursday, a group of about 30 armed people seized Crimea's regional parliament and government, sending the police guard on its way without a shot. At the time of this writing, they still held the buildings. Locals say the camouflage-clad group is part of the Russian self-defense forces that are forming on the Ukrainian peninsula. Local Russians, an ethnic majority here, are unwilling to recognize the nationalist revolution in Ukraine's capital, Kiev. On the other hand, indigenous Crimean Tartars have been demonstrating in support of the new Kiev government, which, as of tomorrow, is likely to be headed by populist Arseniy Yatsenyuk. Coupled with a major Russian military exercise, the disturbances in the Crimea begin to look like part of a sinister Kremlin plan to annex a pro-Russian Ukrainian territory. That, however, would mean enormous international complications for Moscow, and Russian President Vladimir Putin is likely to opt for a different scenario, influencing the new Kiev government by non-military means: Western aid will take months to arrive, and Ukraine urgently needs money which Moscow can provide at short notice.
EU antitrust officials attack German mobile consolidation.
Spain's Telefonica faces a major hurdle as it tries to acquire German mobile operator E-Plus from Dutch operator KPN for $9.3 billion. The European Commission is about to issue a formal objection to the deal, saying it would lead to a 30 percent rate hike for some customers, and the average price of a mobile phone plan would go up 13 to 17 percent. Telefonica will challenge the objection, but if this is the EC's attitude, other European mergers reducing the number of mobile operators will face even tougher opposition. Germany is different from other markets because of the unusual prominence of virtual operators offering relatively cheap plans, but even there the EU clearly feels reduced competition among conventional mobile providers will be bad for consumers. The Brussels bureaucracy would be acting out of character if it did not interfere in the telecom consolidation that is brewing throughout the EU. It is still inevitable, but tribute will have to be paid to the zealous regulators.
Rome on the verge of bankruptcy .
On his first day as Italy's prime minister, Matteo Renzi withdrew his predecessor Enrico Letta's bill that would have helped the city of Rome bridge its $1.17 billion budget deficit. The parliamentary opposition signaled with a filibuster that the bill would not pass. For Renzi, this is a major defeat: Instead of going ahead with his multi-pronged action plan, he will have to figure out how to prevent the sprawling capital city of 2.6 million from going the way of Detroit. Unless a solution is found, Rome will either have to cut public services or default on debts to investors and suppliers. A bankruptcy would mean a sell-off of city assets, including utilities. The city's mayor, Ignazio Marino, insists that the Italian government owes his city a major budget transfer to compensate for the expenses it has to bear as the capital, the seat of the Vatican and Italy's public face. Legislators representing other areas of Italy understandably believe that demand is unfair. Renzi's cabinet will soon become entangled in the same half-anticipated problems that have brought down every other Italian government in recent years: Sweeping reforms are more of a pipe dream in Italy than they are in most other European countries.
German neo-Nazis get a shot at European Parliament seats.
Germany's Federal Constitutional Court ruled in favor if 19 fringe parties, including the neo-Nazi National Democrats, which sued to remove the 3-percent barrier for political forces seeking seats in the European parliament. Presiding judge Andreas Vosskuhle said each vote was as good as another, so establishing a cutoff line for parties was undemocratic. This will mean that the NPD, which won 1.3 percent of the vote in last year's general election, will probably win representation in the European Parliament, in which Germany has 96 members. The next election, to be held in May, is already certain to bring more rightists and extreme nationalists to the European legislature, creating the possibility that the parliament will wage war on the EU instead of working to strengthen it. One or two German neo-Nazis will not make much of a difference, but they will definitely add color to the unusually anti-European assembly.
RBS sets aside $960 million for bonuses despite huge loss.
The Royal Bank of Scotland, 81 percent owned by the U.K. government, reported a $13.7 pre-tax operating loss and put aside $960 million for staff bonuses. Ross McEwan, the bank's chief executive since October, has called the bank's performance "sobering" - a world-class example of British understatement. McEwan's plan to turn RBS into a much smaller, safer bank does require a lot of efforts from well-compensated professionals, but the size of the loss makes it impossible not to consider the alternative - killing RBS altogether and selling off its viable assets to put an end to both the losses and the bonuses. The British government should carefully consider its options at this point: turning RBS around may be too lengthy and costly a process.
(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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