Russia Goes to Market, But Will It Sell?

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Russia is feeling pretty. the country struck an arms control agreement with the U.S., formed a strategic alliance with NATO and even won the Miss Universe contest. But in some ways the most momentous prize came when the E.U. crowned Russia a full market economy. The move will make it easier for Russia to contest anti-dumping claims, which President Vladimir Putin says could cost more than $1 billion this year, while allowing the country to benefit from lower tariffs and raising its hopes of joining the World Trade Organization. Europe stands to benefit too.

The Russian economy grew an impressive 8% in 2000 and 5% in 2001, and with trade of $76.3 billion last year, the E.U. is Russia's top partner. But this beauty is largely skin deep. The country's economy depends almost entirely on exporting raw materials, and its recent success owes more to higher oil prices than to market reform — which helps explain why its growth is slowing. Other businesses are propped up by price controls that amount to a $5 billion subsidy. And the whole system, according to a recent report, is lubricated by $33.5 billion a year in bribes. Russia is, after all, a developing economy, and the European Bank for Reconstruction and Development warns that its "recovery is likely to continue to run out of steam." Wearing the tiara of a market economy won't change that, but it might just give Russia the boost it needs to get down to the less glamorous business of serious reform.

DIGITAL VIDEO
A BBC Show That's Hard to Ignore
Since zenith invented remote control in the 1950s, life has often seemed like one big struggle over the TV. Digital video recorders (DVRS) are the ultimate in viewer control, allowing users to skip commercials, pause live programs and watch shows at their own pace, rather than on a broadcaster's schedule. So British subscribers to the TiVo DVR service took it as a personal insult when the BBC comedy Dossa and Joe was automatically recorded on their machines in a format they could not delete. The BBC, which struck a deal with TiVo to promote Dossa and Joe, admits the aggressive tactic was a bad idea. But it raises the bigger question of who dictates what DVR owners watch. One in five never watch commercials, which scares television executives who depend on advertising revenue. A group of media majors like AOL Time Warner have even sued to stop DVRS from automatically skipping commercials. But as the Dossa and Joe fiasco shows, interfering with viewing habits is likely to backfire. After all, the remote's off button is still easy to find.

THE BOURSE
No tears in this beer
It's Miller time for South African Breweries, which will buy the U.S. beer giant for $5.6 billion. The deal creates the world's second-largest brewer.

On the road again
Italian banks agreed to help refinance Fiat's chronic 16.6 billion debt to keep it from junk status. But Fiat's problems continue, and the controlling Agnelli family admitted it may need to sell the auto division.

The Norse force
Norway's largest bank, Den Norske Banke, agreed to buy the country's top insurer, Storebrand, for $1.96 billion in cash and stock. The deal should help fend off foreign predators.

Pump up the margins
France's Michelin will sever ties with the European arm of General Motors in order to focus on higher-margin markets. GM accounts for about 5% of Michelin's worldwide revenue.

INDICATORS
Drink that cigarette
Californians took smoking out of their bars and restaurants, but now they're putting it in their water. California-based Quick Test Five laces its $2 bottles of Nico Water with two cigarettes-worth of nicotine. But does it come in menthol?

Europe? What Europe?
A new study by the European Commission shows that only 29% of E.U. residents think the union's expansion will be good for jobs at home. How informed is that opinion? Well, 60-80% of respondents do not know which countries are candidates for E.U. membership.

A breach too far
Britain's Inland Revenue service suspended its online tax filing system after security breaches allowed users to view other people's information. The problems put a serious dent in plans to make online filing for employers mandatory by 2010.

War on spam
Fresh from his battle with Merrill Lynch, New York State Attorney General Eliot Spitzer is suing companies that send spam, or unsolicited junk e-mail. Going even further in this latest global conflict, the E.U.'s new privacy law bans all firms from sending spam.

BOTTOM LINES
"No one is quite sure of the rules. Sometimes it's not even clear whether we are playing chess or perhaps Monopoly."
Werner Seifert, CEO of Deutsche Börse, on merging Europe's exchanges

"These are excellent results."
Chris Gent, CEO of Vodafone, on the annual report that included a record $19.8 billion loss

"The cult of the guru analyst is less prominent here."
Howard Davies, chairman of Britain's Financial Services Authority, on the difference between European and American investment banking