Bershidsky on Europe: G7 Quits G8
Here's today's look at some of the top stories on markets and politics in Europe.
G7 leaves G8.
Six major developed economies and Japan have suspended their membership in the G8 group, after their first summit as the G7 since 1998, when Russia was accepted into the club of democratic powers. The leaders of the U.S., Japan, the U.K., France, Germany, Italy and Canada issued a joint statement saying their leaders would not attend a G8 summit in Sochi, Russia, in June but will instead meet in Brussels. The G7 threatened Russia with economic sanctions in response for any further military action in Ukraine. For now, though, it looks as though the U.S. and Europe Union have chosen to isolate Russia politically, rather than hurt it with a broad attack on its economy. Moscow isn't too upset about this realignment: It plans to strengthen strategic alliances with China and India. The geopolitical reorientation will take time and a certain economic toll, starting with massive capital flight from Russia, estimated at $70 billion in the first quarter of 2014. There is also the risk that it will not work out, but Russian President Vladimir Putin is now all in.
Russia wants to drop U.S. software and hardware.
Russian communications minister Yuri Nikiforov took the time to read Monday's story in The Wall Street Journal about the U.S. stepping up its spying efforts in the former Soviet Union, especially in Russia. His response in an Instagram post: "The U.S. enforcers are, of their own accord, undermining the further use of software and hardware from the U.S. in the public and semi-public sector in Russia." The daily Vedomosti quotes an official at the communications ministry that U.S. software and equipment won't be accepted for government tenders, because it could be used to spy on Russian government bodies. Right now, 2 million Russian bureaucrats run versions of Windows on their computers. The cost of replacing it with Russian or open source software is estimated at $1 billion, but, like the Soviet Union before it, Putin's Russia is not going to economize on security and ideological purity.
Lufthansa chief warns of Gulf threat.
Cristoph Franz, who is stepping down as chief executive of German flag carrier Lufthansa in April, warned of the growing competitive threat to European airlines that is posed by carriers from the Persian Gulf. According to Franz, they have already undermined the role of Frankfurt as an air traffic hub where cоnnections were made from European cities to Asian destinations. "In the beginning we were talking about a competitive threat on paper - now we are talking about reality in our markets," Franz said. Emirates and Etihad, two airlines from the United Arab Emirates, are the most formidable competitors to the established European players. They are state-backed and they have growing, ultramodern fleets: aircraft producers are now increasingly oriented toward the Middle Eastern market. Franz's solution for Lufthansa included cutting 3,500 jobs and pumping up the airline's low-cost subsidiary Germanwings. In a world of decreasing margins, Lufthansa predicts 40 percent year-on-year profit growth in 2014, but Franz is not optimistic about the future of his industry in Europe, anyway: He is moving to the Swiss pharma group Roche. If the Arab invasion keeps unfolding, Franz won't be staying to watch it up close.
Hollande pushed to replace prime minister.
The abysmal performance of France's ruling Socialist Party in Sunday's municipal elections may require drastic action on the part of President Francois Hollande, unless he wants to give up the country not just to center-right UMP, but to political pariahs from the extreme right National Front. Numerous socialist parliamentarians and even ministers are calling on the president to react to the defeat by firing his unpopular Prime Minister, Jean-Marc Ayrault. It is highly probable that he will go after the second-round votes in a number of French cities, where the National Front stands to win mayoral offices. The replacement of Ayrault will hardly change anything politically, however: It was Hollande that voters wanted to defeat last Sunday. Unless some miracle happens and Hollande suddenly becomes a different man, more resolute and more efficient, National Front leader Marine Le Pen's chances at the presidency in 2017 will only grow.
Italian eyewear maker in Google Glass deal .
Luxottica, the maker of Ray-Ban and Oakley sunglasses, agreed to design, develop and distribute versions of Google's connected eyewear. Google hopes that if the gadget is pretty enough, consumers will stop wondering whether they need it. According to Astro Teller, who oversees the project at Google, "this is a fashion problem as much as it is a technology problem." Luxottica is a great partner for Google for one other reason: It sells glasses in specialized stores. People will be exposed to the Google product where other glasses are sold and may choose Google Glass over "old-fashioned" eyewear, whereas in a gadget store, they will just stare at it and wonder whether wearing a computer on one's face is a good idea. Google is doing the right thing by making deals such as the one with Luxottica long before the product is marketed, but it still needs to explain to consumers why Google Glass will make their lives better. That way, Italian design and specialized distribution will be much less important.
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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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