Bershidsky on Europe: Facebook to Make Money Transfers
Here's today's look at some of the top stories on markets and politics in Europe.
Pro-Russian militants seize and hold small towns in east Ukraine.
On Friday and at the weekend, groups of pro-Russian paramilitaries seized government and police buildings in several small and mid-sized towns in eastern Ukraine. According to reports from local bloggers and the few professional reporters who were in the area, some of the militants were -- or appeared to be -- Russian. Though Ukraine's acting interior minister Arsen Avakov declared an "anti-terrorist operation" on Sunday in the city of Slavyansk, it was limited to a shootout on the outskirts of town, in which two people were reportedly killed: one separatist and one Ukrainian special services officer. Russia called a meeting of the U.N. Security Council to tell the world that Ukraine was on the brink of civil war, but heard in response that it should stop destabilizing the situation. A political solution seemed an increasingly remote possibility: No Western power is willing to accept any part of Russia's Ukrainian agenda as legitimate, while Russia shows no sign of backing down in a country where it believes it has legitimate interests. Ukraine, for its part, is utterly unable to defend itself even against the small bands of paramilitaries, who are often aided by local police. Things will have to get worse before they get better.
ECB hints at its quantitative easing plan.
Benoit Coeure, a member of the European Central Bank's executive board who is close to ECB President Mario Draghi, said that the bank planned to buy a wide range of bonds with maturities under 10 years in different eurozone countries. The idea is to lower borrowing costs by similar rates in all the member states. According to Coeure, the asset purchases "would not be about quantity but about price." It is also about quality, however. If the ECB buys sovereign debt, yields on which are already abnormally low for the current debt loads, it will only stimulate government profligacy. The money, as in the past, won't necessarily filter through to the private sector. If, on the other hand, the ECB chooses to buy corporate debt, such as asset-backed securities, it will have difficulty pricing the bonds. The ECB should take the more difficult path, anyway: Lending more money to European governments will do little for banks, firms and consumers, the parties responsible for the low inflation and slow economic growth.
U.K. house prices set new records .
In April, for the second month in a row, U.K. house prices established a new record. The online real estate agency Rightmove said the average asking price for homes rose 2.6 percent in April to $439,144. In the last 12 months, prices have risen 7.3 percent, the biggest annual gain since October 2007. The price growth is no longer limited to London and the other highly desirable areas in the southeast of England. The number of house sales in March was the biggest since February 2008. The closeness to pre-crisis benchmarks is a clear sign that a housing bubble is forming. The Bank of England's reluctance to tighten its monetary policy, while helping maintain pretty economic growth statistics, threatens to bring about another crash like the one that followed the fast growth in house prices in 2007.
Facebook plans to offer financial services in Europe.
Facebook is in the process of obtaining permission from the Irish central bank to become an "e-money" institution. The status will allow it to issue units of stored monetary value valid throughout Europe. Users will be able to use the units to exchange money and to pay for services. Facebook is also looking for a partner among London's online financial services startups. The company's goal is to get into the huge market for migrant remittances, which exists outside the banking system. That would be a natural competence because of Facebook's large user base in emerging markets: It has 100 million users in India alone. The European market for non-bank transfers is heating up: Google already has a license to operate in it, and U.K.-based mobile operator Vodafone has picked Romania for the European debut of its transfer and payment system, which proved phenomenally successful in Africa. This would have been a natural market for banks, but they have been otherwise occupied since the financial crisis, so tech players are rushing into the breach.
Valls the most popular "second prime minister."
A new poll by the Ifop organization in France shows that Prime Minister Manuel Valls, with a 58 percent approval rating, is 40 percentage points more popular than President Francois Hollande. The latter's 18 percent approval rating is a new record low for any French president. Valls, by contrast, is the most popular prime minister among those appointed in the middle of a presidential term. The difference in popularity between them is the biggest since 1958. Valls, who has not done anything yet as prime minister except announce an action plan on the economy in which most of the major measures are to be taken in a couple of years, is getting a big advance from the French public, which should put additional pressure on him. Though his intentions are approved, indecision in putting them into practice will quickly cause Valls' rating to drop to Hollande's level.
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Leonid Bershidsky writes on Russia, Europe and technology for Bloomberg View. Follow him on Twitter at @Bershidsky.
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