Bershidsky on Europe: Russia Talks Fail

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:

West fails in talks with Russia, offers Ukraine aid package .

Attempts by Western powers to relieve the tension between Russian and Ukraine have so far failed miserably. U.S. Secretary of State John Kerry was unable even to persuade Russian counterpart Sergei Lavrov to meet with the Ukrainian foreign minister. U.S. attempts to punish Russia with global sanctions ran into strong German resistance: Germany was only willing to suspend visa liberalization and trade agreement talks. The EU as a whole is Russia's biggest trading partner and the bigger European countries do not need the economic damage that sanctions will cause. Besides, given the anti-Western mood of the Russian elite, Putin's government could respond by freezing foreign companies' assets in Russia: legislation to that effect is being drafted already. The Organization for Economic Security and Cooperation in Europe sent 35 military observers to Odessa in southern Ukraine, a silly move because there are no Russian troops anywhere close to Odessa. They are all in the Crimea, another Russian region from which U.N. envoy Robert Serry was unceremoniously kicked out on Wednesday. Meanwhile, the EU offered Ukraine an aid package valued at $15 billion, which will come in several tranches with all kinds of strings attached -- a far weaker proposition than Russia's unconditional December package of equivalent size. If this is all the West can do to help Ukraine, Russian President Vladimir Putin can relax and do a little dance while nobody can see him.

EU announces freeze on former Ukrainian leaders' assets.

The EU said it would freeze the assets of deposed Ukrainian president Viktor Yanukovych and 17 other people said to be his accomplices in embezzling state funds. The list includes Yanukovych's son Oleksandr, several former ministers, including ex-prime minister Mykola Azarov, their relatives and one businessman, Sergey Kurchenko. For some reason it does not include Ukrainian oligarchs, such as the country's richest man Rinat Akhmetov, whose companies, along with Alexander Yanukovych's, won most of the government tenders under the fallen regime. The list of beneficiaries of Yanukovych's corrupt rule is far from complete, and the freeze is a feeble symbolic gesture: The targeted individuals have had plenty of time to move their financial assets elsewhere.

Bank of England suspends employee in forex probe.

Private financial institutions are not the only ones hit by the foreign exchange scandal that has forced many banks to increase their contingency provisions and suspend or fire a total of 22 employees. The Bank of England also suspended a staffer and launched an investigation into allegations that its officials condoned forex market manipulation, namely collusion in setting so-called fixes, snapshots of the market according to which contracts were settled. Evidence has been unearthed that the U.K. central bank's own currency traders knew of it as early as 2006. The rot in the forex market seems to have spread all the way through the system, and the only cure is to move most of the currency trading to electronic platforms, as some banks, including UBS, are doing now. There's no excuse in the 21st century for antiquated practices that leave room for corruption and collusion.

Optimistic data relieve pressure on ECB but rate cut still possible.

The EU statistics agency, Eurostat, said eurozone retail sales increased 1.6 percent in January compared to December, the biggest rise since 2001. Analysts from Markit said the Eurozone purchasing managers index rose to 53.3 percent, a 32-month high, in February. The data reduce the probability that the European Central Bank will do anything drastic at its policy meeting on Thursday, but it is still possible that the ECB will go for a small refinancing rate cut and take its overnight deposit rate into negative territory. The International Monetary Fund is calling on the ECB to do just that, pointing out that the Eurozone's low inflation is putting unnecessary pressure on borrowers with large debt burdens, increasing the real interest rates they pay, and making it difficult to lower unemployment. A 0.1 percent cut to the 0.25 refinancing rate might not help much in real terms, but it would show the ECB's willingness to take on these problems.

Vivendi has two offers for SFR mobile operator.

The French conglomerate Vivendi, seeking to divest its French mobile operator SFR as it transforms itself into a digital media company, has received two offers: One from the owners of the cable operator Numericable and the other from SFR's competitor, Bouygues. Numericable owner Altice, the investment vehicle of billionaire Patrice Drahi, is offering $20.6 billion, $4 billion of it in cash and the rest in debt and equity. Bouygues' offer is reportedly bigger, but a larger part of it will need to be borrowed. A deal with Numericable would result in strong synergies, making it unnecessary for SFR to lease cable capacity for its combined mobile-fixed offerings, and a join-up with Bouygues would create the biggest mobile operator in France with 32 million customers. Either deal would set an interesting example for the European telecom market, ripe for consolidation. If Vivendi goes with Bouygues and antitrust authorities approve the deal, reducing the number of operators in other major markets will become a real possibility. If the Numericable option prevails, it will show whether in such link-ups between mobile and cable companies two plus two really equals more than four.

(Leonid Bershidsky writes on Russia, Europe and technology for Bloomberg View. Followhim 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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