Bershidsky on Europe: Belgium Among Top 3 U.S. Creditors

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.

EU approves banking union plan.

The European banking reform plan is now final after four years of fierce debate. The European Parliament voted on Tuesday to approve it. Bank shareholders and bondholders will now be the first to pay for bank bailouts, and taxpayers' money will only be used as a last resort under a common resolution system for the euro zone. The capital markets will also be regulated differently, with new curbs in place for high-frequency traders from 2016. On the face of it, the package looks like the biggest regulatory overhaul Europe has seen since the EU itself was established. The EU bureaucracy has since evolved, however. It is now so complex that no regulation is exactly what it seems. The implementation of the financial package will depend on about 400 new technical standards to be worked out by different regulatory agencies, such as the European Banking Authority and the European Securities and Markets Authority. The documents they will produce in the coming months will define the actual content of the changes and, no matter what the result, the technical rules will be challenged by lobbies within members states. The U.K. is already taking the EU to court over some innovations like a financial transaction tax. Does Europe really need this enormous, complex superstructure on top of all the national regulations on banking and financial markets? In my view, it does not, and EU countries outside the eurozone are better off for being exempt from some parts of the financial reform.

Ukraine uses militaryagainst rebels.

The Ukrainian government finally used the military against pro-Russian rebels in the town of Kramatorsk, retaking the local airport after a shootout in which several people were wounded, and reports of a heavy Ukrainian military presence in Slavyansk, where government buildings in the center of town are held by insurgents. The "anti-terrorist operation" declared by acting president Oleksandr Turchynov is, however, still pretty much a phantom: The seizure of the Kramatorsk airfield, presented as a major victory by the Kiev government, hardly qualifies as such. The Ukrainian authorities have to proceed with caution: They are unsure of their own troops' ability to fight, and, more importantly, of the degree of support the rebels have from Russia. Moscow has called on the UN to condemn the use of force by Ukraine, which the international organization is unlikely to do because Russia is strongly suspected of instigating the riots. No one, however, wants Moscow to send in regular troops. The stalemate is likely to continue ahead of the meeting of U.S., EU, Russian and Ukrainian foreign ministers in Geneva, scheduled for Thursday. All sides count on it to kick off a negotiating process that will make the use of force unnecessary.

Belgium a major holder of U.S. debt.

Since last August, Belgium's holdings of U.S. Treasury debt increased to $484 billion from $160 billion, putting the small country of 11 million in third place after China and Japan among the United States' biggest creditors. It is, of course, not Belgium itself that is buying up U.S. bonds, but traders and economists can only guess at the real sources of the investment. The bonds are held at Euroclear, the market-owned central securities depository located in Brussels, but their actual ownership is non-transparent. Some of them could be Russian: Moscow is apparently moving its assets away from the U.S. to avoid possible sanctions. U.S. Treasurys are also used as collateral for derivatives trades, in which Euroclear is widely used. In any case, it is getting harder for the U.S. to track who owns its $12 trillion debt, a development that should be alarming for Treasury officials because it creates the risk of unexpected sell-offs and other turbulence in U.S. debt markets.

Russian government plans tax amnesty .

Moscow hopes to use the threat of international sanctions against Russia to repatriate some of the capital that has been fleeing the country in recent years. The potential sanctions are the stick; now, the government is about to offer a carrot -- a tax amnesty for repatriated capital. Deputy Prime Minister Igor Shuvalov, himself a wealthy investor, favors an option under which any Russian capital brought back from foreign havens will not be subject to taxes, nor its owners to prosecution. The plan also has strong support in parliament. If the tax amnesty is approved, Russian business with any kind of government ties will be strongly tempted to use it: The West is no longer safe for that kind of Russian money, and if tax trouble can be avoided at home, repatriating capital becomes attractive.

Italian asset management booming .

Last year, the Italian asset management industry attracted net inflows of $66.3 billion, its best result in 14 years, and it keeps swelling. Italians are among the world's biggest savers, putting aside 13 percent of their disposable income, compared to 11 percent for the EU as a whole and just 5 percent in the U.K. Traditionally, they have used banks: In Italy, funds manage the equivalent of 20 percent gross domestic product, compared to 40 percent in the U.K. Interest rates are so low, however, that savers are looking for more profitable opportunities, and banks themselves have been pushing clients toward mutual funds and structured products because they can hardly make money on interest rate spreads. As a result, the asset management industry is now a major growth sector. Anima, one of the country's biggest asset management groups, listed on the Milan exchange this week in an IPO that valued the company at about $1.7 billion. Given the minuscule deposit rates in other European countries, the flight to asset management should be happening there, too. Where, however, will the funds find higher yields? Even junk bonds yield about 4 percent in Europe these days. The swelling European asset management business is ultimately good news for emerging markets, where returns can still be high.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

Leonid Bershidsky writes on Russia, Europe and technology for Bloomberg View. Follow him on Twitter at @Bershidsky.

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