Bershidsky on Europe: Greece Plans Long Bond

Here's today's look at some of the top stories on markets and politics in Europe.

Here's today's look at some of the top stories on markets and politics in Europe.

EU pressures France on deficit amid government change.

French President Francois Hollande hopes the European Commission will give his new cabinet, headed by Manuel Valls, more latitude on his country's budget deficit. "The government has to convince Europe that France's contribution to competitiveness and growth should be taken into account in terms of its obligations," he said, meaning the EU's demand that France bring its budget deficit under 3 percent by 2015. In response, the EU Commissioner for Economic and Monetary Affairs Olli Rehn reminded France that the deadline has already been moved twice. The question of true austerity will be a litmus test for Valls, known as an economic liberal within the French Socialist party: Will he, like Hollande, see fiscal responsibility versus growth as a zero sum game, or will he try to bring public spending under control and сut the tax burden for business to stimulate growth and employment? Italy's Matteo Renzi gave up on anti-austerity rhetoric as soon as he became prime minister. Valls ought to follow his example.

Fitch estimates banks' exposure to Russia at $242 billion.

The rating agency Fitch said foreign banks had $242 billion in Russia' related assets. European banks, which have large Russian affiliates, are responsible for three-quarters of the exposure. Austria's Raiffeisenbank International alone has $20 billion of outstanding loans to Russian entities, 2.2 times its core capital. French banks have a total of $60 billion in Russian assets. Apart from a heavy dependence on natural gas supplies from Russia, Europe has numerous other ties with its eastern neighbor that make sanctions against Moscow painful even to contemplate. It is a good thing Russian President Vladimir Putin appears to be reluctant to venture further into Ukraine: The European governments can breathe a little easier knowing they will not be forced to punish themselves as they strive to contain Russia.

Greece plans long-term bond issue .

For the first time since it was bailed out by the EU, the International Monetary Fund and the European Central Bank, Greece is about to issue a bond with a maturity of three to five years, hoping to raise $5.5 billion to $6.9 billion by the end of the year. This is a great time for a market test: Spain, Italy and even Portugal enjoy surprisingly low borrowing costs given their debt levels and continuing economic problems. The yield on 10-year Greek bonds is a little over 6 percent, the lowest since March 2010. Greece, however, is a special case: Even after the loss of 25 percent of its gross domestic product in just 6 years and a $331 billion bailout, it still faces negative growth, and true economic liberalization is only just beginning. Investors tend to lump technically similar countries together, but Greece does not yet deserve the same treatment that Spain or Italy. It would be wise to wait at least until the economy starts growing before investing in its new debt.

Eurozone unemployment refuses to budge in February.

Euro area employment remained at 11.9 percent in February, despite another rise in France and a new record, 13 percent, in Italy. Calculating averages for the entire eurozone makes less and less sense. Germany continues moving confidently toward a recovery, while France and the peripheral countries retain the potential for unpleasant surprises: One month they seem to be doing better, another brings bad tidings. The euro project's lesson is that a single currency does nothing to fix a set of very different economic problems, many of them rooted in policy and national traditions. Since the averages look more or less OK, however, the European Central Bank does not see any reason to interfere by bringing rates closer to zero: A "weak recovery," to use the ECB's term, is better than none at all.

Intesa plans sell-off of bad assets.

Italy's second biggest bank, Intesa Sanpaolo, is in talks to sell off $37 billion worth of non-performing loans placed in its internal bad bank. Intesa, which last week announced a $6.3 loss for 2013, will be the latest European bank to offload toxic assets on specialized companies and takeover specialists. Like Italy's number one bank, UniCredit, Intesa is in talks with KKR to give the U.S. company equity stakes in companies whose debts the banks have had to restructure. In recent weeks, Spanish and Irish banks have sold off bad loan portfolios. The trend toward smaller, cleaner banks will soon trigger a wave of corporate takeovers and restructurings.

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