Bershidsky on Europe: Ukraine's Non-Army
Here's today's look at some of the top stories on markets and politics in Europe.
Ukrainian military unable to fight.
As Russia reiterated its support for a secession referendum in the Crimea, set for March 16, and ousted Ukrainian leader Viktor Yanukovych issued a statement saying he was still president and would come back to his country soon, Ukraine's new defense minister said the country's army lacked combat readiness. According to the minister, Igor Tenyukh, out of the 41,000 ground troops at the disposal of this nation of 46 million, only 6,000 are ready to go into battle. Acting prime minister Arseniy Yatsenyuk added that Russia's air power exceeded Ukraine's by a factor of 98.Ukraine is, literally, a country in ruins after being ruled for two decades by incompetent and corrupt governments, a classic failed state unable to resist an invasion or subsist without massive economic aid. Rebuilding the nation is a mammoth task Russia's interference is not making any easier. Whether or not the West has the guts to face down Russia on the annexation of the Crimea, it will soon be taking on the headache - or ceding all of Ukraine to Russia in one way or another.
U.K. opposition says no to EU in-out referendum.
U.K. Labor Party leader Ed Miliband wrote an opinion piece for Financial Times, saying that if his party wins power, it will not hold the referendum on Britain's EU membership, set by David Cameron's government for 2017. Instead, Miliband wants the referendum to be triggered automatically if new powers are transferred from member states to the EU bureaucracy in Brussels. That is no ringing endorsement for the EU from the opposition leader, though he says he believes his country's future is with the EU: the European Commission is doing its utmost to push for a closer union, and even under Miliband's proposal, the referendum will take place at some point, though probably not before the end of the decade. Under any government, the U.K.'s disengagement is perhaps the biggest institutional threat to the bloc.
VimpelCom discloses Dutch, U.S.
The mobile operator VimpelCom, controlled by Russian billionaire Mikhail Fridman but headquartered in Amsterdam for tax reasons, disclosed that it is under investigation by Dutch prosecutors and U.S. regulators "to clarify matters surrounding its operations in Uzbekistan." The operations are large-scale: last year, the company received $676 million, or about 3 percent of revenue, from the Central Asian state. To establish a presence there, the company allegedly paid kickbacks to Gurnara Karimova, the now-disgraced daughter of dictator Islam Karimov. VimpelCom's strong presence in former Soviet nations is beginning to cost it dearly: Last week, the company reported a $2.66 billion fourth quarter loss, after writing down its Ukrainian assets by $2.1 billion. Worse times are ahead: after the de facto annexation of the Crimea by Russia, companies with strong Moscow ties will be automatically suspect in the West. An economic cold war is coming.
UniCredit posts $20.8 billion loss .
UniCredit, Italy's biggest bank, posted a fourth-quarter loss of $20.8 billion, its largest ever, after increasing its bad debt provision by $12.9 billion and writing down assets by the same amount. The writedown eliminates the goodwill allocated to Italy, Central and Eastern Europe and Austria. It amounts to an admission that the bank's pre-crisis expansion in these areas was a mistake. UniCredit is, in effect, on the same path as the nationalized Royal Bank of Scotland, whose fourth-quarter loss amounted to $13.65 billion, only at a somewhat earlier stage: It is attempting to clean house and turn into a smaller, safer bank. In the next four years, UniCredit will cut 8,500 jobs, about 6 percent of its workforce. The bank still owes $29.8 billion to the European Central Bank, which bailed it out two years ago, and it needs to become more profitable to break free of the debt and the stigma. UniCredit's moves are in line with the current trend: a good bank is an old-fashioned, unambitious, mostly local bank.
Austria and Luxembourg give up banking secrecy.
The EU's finance ministers have convinced Austria and Luxembourg not to block a directive calling for an automatic exchange of information among member states on bank accounts, trusts and foundations used to hide money from taxation. The two countries, known for their traditions of banking secrecy, have fought the directive since 2008. EU tax-related laws require anonymous approval by the bloc's 27 members. Now, Austria and Luxembourg have capitulated in the face of the EU's resolve to force their traditional competitors, such as Switzerland, Liechtenstein, Monaco, Andorra and San Marino to join the information exchange. The tax havens of old Europe are now history, and the funds that have been stashed away in the last remaining ones will now need to be moved to the Pacific and the Caribbean.
(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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