Are European Companies Ready for Life Without Draghi?

Are European Companies Ready for Life Without Draghi? from Wolf Street

Not going to be easy, especially for “zombie” companies.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

An unusually fierce spat broke out this week between two of Europe’s biggest utilities companies, Spain’s Iberdrola and Italy’s Enel, both of which are locked in a bidding war for the Brazilian electricity company Eletropaulo. The Spanish firm accused its Italian rival, almost a quarter of which is owned by the Italian State, of unfair competition due to its access to cheaper debt.

“With the obvious support of the State, Enel clearly benefits from a privileged regulatory situation in Italy, which makes access to the capital markets both cheaper and easier,” complained Iberdrola’s CEO Ignacio Sánchez Galán in a scathing letter to the European Commission. He called for a debate on the privileges certain state-owned companies continue to enjoy despite EU competition laws on illegal state aid.

Sánchez Galán raises an important point: in the EU, partly or majority state-owned companies like Enel and Électricité de France (EdF) clearly enjoy funding benefits over their rivals, especially with the Eurozone’s sovereign bond market still being propped up by the ECB.

But he also omits an inconvenient fact: his own company, Iberdrola, is one of the biggest beneficiaries of the ECB’s corporate bond buying program. As a result, it has been able to pay next to no interest on new debt for the last two years.

State-owned companies like Enel and EDF have benefited two-fold from the ECB’s largesse, first from its corporate bond buying, and secondly from its sovereign bond buying. At one point the central bank was buying €80 billion of sovereign and corporate debt per month, which helped push yields into the negative for many securities. This helped push down the funding costs of Member States’ national debts while giving a select group of European companies and subsidiaries a massive funding advantage over smaller rivals.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.