Here's today's look at some of the top stories on markets and politics in Europe:
EU states agree on road map for bank failures
Negotiators for EU member states and the European Parliament agreed late on Dec. 11 on a new common mechanism for dealing with bank failures, to go into effect on Jan. 1, 2016, two years earlier than expected. The Banking Recovery and Resolution Directive stresses "bail-ins," forcing senior bondholders and large depositors in a bank to take a haircut before taxpayers' funds are used to save it. Deposits below 100,000 euros ($137,700) will be exempt from any losses, and bigger deposits from individuals and small businesses will receive preferential treatment. Banks will also set up an emergency fund, bringing its size to 1 percent of covered deposits within 10 years. The mechanism, however, envisions using taxpayer money for bailouts in the event of "systemic crisis." That means some banks could still be judged "too big to fail." Telling depositors and bondholders that they will be held responsible for bank managers' mistakes is at least honest: In Cyprus, for example, they were not warned. The new system, however, basically tells the financial world, depositors and bondholders included, that a bank making big mistakes dangerous to entire financial systems is safer than one making small, unimportant mistakes.
ECB to force banks to hold capital against sovereign bonds
According to ECB executive board member Peter Praet, the euro area's central bank is going to use its new function as bank regulator to reduce financial institutions' propensity to invest in sovereign debt. In recent years, banks used cheap ECB funds to buy up government debt rather than increase lending to households and businesses and thus stimulate demand. Praet said the ECB would use its review of the 130 biggest banks, to be conducted next year, to tell bankers that sovereign bonds are not risk-free assets and that capital should be held against them in accordance with the degree of risk they carry. Holding Ukrainian or Argentinian bonds is currently riskier than underwriting mortgages in France or Italy. In today's world, lending to governments may not be as safe as providing resources to private business or individuals.
Sarkozy plans return to politics
According to his close associates, former French President Nicolas Sarkozy is planning to come out of retirement. "It's not a question of knowing whether or not I want to return," he is quoted as saying to a circle of sympathizers. "I cannot but return. I have no choice. It is fate." Sarkozy is still smarting from his electoral defeat by Francois Hollande last year: He even snubbed Hollande's invitation to attend Nelson Mandela's funeral together. According to some polls, however, both the French in general and the center-right voters of Sarkozy's UMP party would like him to run for president in 2017. He is more popular than the other possible center-right candidates, Alain Juppe and Francois Fillon, and clearly has enough of a chance at revenge to come out of his sulk.
Russian government to regulate pay of state-controlled company chiefs
On orders from President Vladimir Putin, the Russian State Property Agency worked out a set of guidelines for paying the top managers of state-controlled companies. It proposes to calculate their pay using two key performance indicators: total shareholder return, a measure that takes into account both dividend payouts and stock price changes, and return on investment or return on assets. If the method is used this year, Igor Sechin, President Vladimir Putin's close friend and head of oil company Rosneft, will not be Russia's best-paid chief executive as he was in 2012. Rosneft stock has depreciated 13 percent so far this year, and another $50 million payday for Sechin would be hard to justify. VTB, the state-controlled bank whose chief executive was paid $35 million last year, according to the Russian edition of Forbes magazine, also saw its shares fall 13 percent. The Property Agency's guidelines are only recommendations, however, and Putin's cronies are likely to keep making tens of millions from government-controlled assets.
Danish premier defends funeral selfie with Obama
Helle Thorning-Schmidt, the prime minister of Denmark, defended her famous selfie with U.S. President Barack Obama and British Prime Minister David Cameron at Nelson Mandela's funeral. "There were plenty of pictures taken that day of Obama," she said, "and I just thought it would be fun. It shows perhaps that when heads of state and government meet, we are also just normal people who can have fun together." Earlier this year, Thorning-Schmidt jumped out of her official car in Copenhagen when she saw actress Sara Jessica Parker talking to fans on the street. "Hi,I'm the Danish prime minister," she said. "Can I have your autograph?" Scandinavian politicians are known for being the opposite of haughty and stuck-up, still Thurning-Schmidt is not particularly popular in her country because of her inability to make a coalition government work and deliver on many of her campaign promises. Behaving like a "normal person" is not enough.
(Leonid Bershidsky can be reached at email@example.com).