If approved by regulators and shareholders, the $8.3 billion deal would also create the biggest pay-TV business in Europe, with 20 million customers and annual revenues of $19 billion.

Fox FOX is raising money wherever it can, against a background of rising speculation that it will make another approach for Time Warner TWX . An earlier offer of $80 billion was rebuffed by Time Warner’s management.

U.K.-based BSkyB BSYBF , itself 39.1% owned by Fox, will pay 2.45 billion pounds ($4.16 billion) for all of Sky Italia, of which GBP2.07 billion will be in cash and the remaining GBP382 million through the transfer of its 21% stake in National Geographic Channel International.

It will also pay GBP2.9 billion in cash for Fox’s 57.4% stake in Sky Deutschland, valuing it at 6.75 a share, roughly in line with its current market valuation. It will also extend the same offer to minority shareholders. Depending on how many of them accept the offer, the total bill for BSkyB could rise to GBP7.0 billion.

BSkyB will raise around a quarter of the money needed by selling 156.1 million new shares, worth around GBP1.4 billion at current prices. The rest will come from existing cash and new debt. Fox has already committed to subscribe to the share issue, but net debt will still rise to around three times current earnings before interest, taxes, depreciation and amortisation. That multiple could rise to four, depending how much cash it needs to buy out Sky Deutschland’s shareholders.

BSkyB said the deal would add to earnings per share within two years, with an increasingly positive effect after that. Its shares fell 2.6% on the news in early trading in London.

The offer values the sister companies’ subscribers at $1,489 each, compared to a valuation of $1,582 per subscriber at DirecTV.

Earnings season is also in fill swing – the highlights are below.

Daimler AG DDAIY shares rose 1.1% after it said underlying operating profit rose 12% to 2.46 billion, thanks mainly to strong demand for its luxury S-class Mercedes sedans, which helped lift operating margins at the car division to an impressive 35%. Sales of Mercedes in Russia, a key export market, defied the collapse in economic confidence there since the start of the Ukraine crisis, rising 20% on the year. Profitability also rose at the group’s trucks and buses division.

French engineering company Alstom SA AOMFF said new orders doubled to 8.2 billion in the first three months of its fiscal year ending June 2015, although sales fell 1% to 4.3 billion, due to weak order flow in previous quarters. As with other French-based companies Publicis SA and Airbus NV EADSF , Alstom also blamed the euro’s strength, saying foreign exchange had trimmed sales by 3%. The figures illustrated why the company has been keen to offload its power operations to General Electric Corp. and focus on rail transport: organic growth in transport sales hit 17%, while sales in the thermal and renewable power divisions were down 10% and grid sales fell 5%. The shares in Paris rose 0.8%.

Problems in power engineering were also in evidence at Swiss-Swedish company ABB Ltd. ABB , where net profit fell 17% on the quarter to $636 million, missing consensus forecasts by 10%. The group’s power systems division swung to a basic operating loss of $24 million from a year-earlier profit of $159 million due to problems with solar and offshore wind power projects. The shares fell 1.7%

GlaxoSmithKline Plc GSK said core earnings per share fell nearly 10% from the first quarter, and said it now expects full-year EPS to be flat on the year, having previously forecast a rise of between 4% and 8%. The ongoing investigation into its sales practises in China, along with other supply chain-related problems, depressed sales in one of the group’s key markets. Overall sales were down 1%, with an 11% rise in revenue from Emerging Markets didn’t quite offset declines in the U.S. (10%) and Japan (7%). The shares fell 2.5%.

Russia’s biggest foot retailer OAO Magnit defied a sharp economic slowdown to post a 34% year-on-year increase in net profit to $356 million. The shares in London rose 4.5%. Magnit, which has been a stock-market darling since listing, said its basic operating margin rose to 11.7%, beating consensus forecasts of 10.7%. In the company’s press release, chief executive Sergei Galitsky restricted his comments on the quarter to a single word: “Enjoy.”

By mid-morning, the Dow Jones industrial average and the benchmark Standard & Poor’s 500-stock index had both seen their largest declines since May 20 and May 15, respectively, according to Bloomberg data. At the morning’s low, at about 10 a.m. ET, the Dow was down 180 points.

The S&P financial sector fell 0.7% to its lowest level since May 15.

Shares of Portugal’s Banco Esprito Santo plunged in Europe as the country’sstock market regulator suspended trading pending a statement from the bank. Fears about the banks stabilitysent shockwaves through the European markets.

Portugal was the third eurozone country after Greece and Ireland to require a financial rescue. Since then the country has enacted harsh austerity measures to get the economy back on track, such as cutting spending and economic reforms.

The mid-May market slidewas a reaction toweakeuro-zone GDP growth and mixed U.S.reportsthat revealedan improving job market amid falteringhousing demand and industrial production.

With the second -quarter earnings season about,market participants have been unnerved recently by warnings that the global economy isn’t performing well enough to justify the skyrocketing prices of most financial assets. Many have started to fear that corporate profits, in particular, won’t live up to the expectations now priced into shares.

By midday in Europe, the DJ Euro Stoxx 600 was down 0.6% at 342.86, while the U.K.’s FTSE 100 index was down 0.5% at 6788.64.

Markets had opened weaker after Korea’sSamsung Electronics Co. SSNLF said it probably missed consensus forecasts for its second-quarter earnings by 13%, due largely to slow sales of smartphones.

In Europe, meanwhile, bank shares have fallen in response to a New York Times report that Germany’s Commerzbank AG will pay over $500 million to settle claims it violated U.S. sanctions on five separate countries. Although investigations into a number of banks have been public information for years,the scale of the penalty exacted from BNP Paribas BNPQY last week has provoked fears that more banks will be paying out much more than initially expected. Commerzbank was down 3.9% at midday in Europe, while Deutsche Bank AG DB and France’s Societe Generale SA BNPQY were both down 1.3%

The real economy didn’t have much to shout about either. Franco-Dutch Airline group Air France-KLM [ AFLYY fell 4.9% after saying its profits this year would be 12% lower than its previous forecast,due to sector overcapacity hurting profits on its long-haul flights.

Competition from lower-cost competitors in South-East Asia and the Persian Gulf has hurt European airlines badly this year, and Air France-KLM is the second major airline after Deutsche Lufthansa AG to warn about profits in recent weeks. The read-acrossalso pushed International Consolidated Airlines Group, the parent of British Airways and Iberia, down by 4.6%.

The U.K. market, meanwhile, took a broad hit as new data showed an unexpected 1.3% fall in manufacturing output in May, the first drop in six months and the biggest in a year. The U.K. has been churning out only good numbers recently, prompting a rally that has left the market ripe for profit-taking.

The trend was illustrated by housebuilder Bovis Homes Group BVS , whose shares fell 1.4% after it reported new home completions up 54% on a year earlier. Bovis shares more than doubled between the middle of 2012 and the start of this year as the U.K. gained momentum, but they’re over 16% off their February peak.

The development suggests that Europe’s antitrust watchdogs are already expanding the scope of an investigation they launched in June to find out whether the arrangement offered by certain countries to multinational companies constituted a form of illegal state aid.

At the time, the E.U. Commission’s Competition directorate had opened three specific investigations into the tax arrangements of Apple Inc. AAPL in Ireland, Starbucks Corp. SBUX in the Netherlands and Italian carmaker Fiat SpA FIATY in Luxembourg.

“We’re looking into what kind of arrangement Luxembourg has with Amazon,” the newspaper quoted an E.U. official as saying.

Amazon generated over$18 billion in sales in the 28-country E.U. last year, and channeled them primarily through a Luxembourg-based subsidiary, Amazon E.U. S.a.r.l. That has riled other countries such as France and the U.K., who feel they are missing out on much-needed tax revenue. Amazon paid only 4.2 million pounds ($7 million) of tax in the U.K. on 4.3 billion pounds of revenue from U.K.-based customers last year.

A spokesman for outgoing Competition Commissioner Joaquin Almunia said it was “entirely premature” to speculate on new investigations, but repeated that the Commission “continues to gather information about certain tax practises in several member states, in order to assess the situation from the point of view of E.U. state aid rules.

Amazon didn’t respond immediately to a request for comment. Luxembourg said in June that it “has not granted corporations any illegal state aid”.

Tax policy is historically a matter for member states, rather than for Brussels, and Luxembourg and Ireland have been particularly feisty in the past about E.U. attempts to abolish one of the few competitive advantages they have within Europe.

Luxembourg had initially refused to comply with the Commission’s request for information on its arrangements with Fiat, saying it had no jurisdiction.

Last year, La Roca Village attracted 3.3 million shoppers, mostly foreigners, which makes it the most visited tourist attraction in Barcelonasuperseding even Catalan architect Antoni Gauds epic and internationally famous Sagrada Familia cathedral.

Travelers have always shopped, for handicrafts, unfamiliar foods, or silly t-shirts. But in recent years, as citizens of BRICS nations and other developing countries have begun to travel, vacation shopping has changed. For many newbie travelers, buying brand-name goods has become a central point of tourism, a way to participate in developed world consumerism and show the folks back home theyve indeed been abroad.

The boom has been most notable among Chinese travelers, whove celebrated their new ability to globetrot with sights-and-malls bus trips across the U.S. and shopping-heavy versions of the old Grand Tour of Europe. Next year, Chinese travelers are expected to buy more luxury goods abroad than tourists from all other countries combined.

But shopping tourism is far from a Chinese phenomenon, and Spain in generaland Barcelona in particular offers an object lesson in how visitor flows from developing countries have changed the face of tourism.

Spain ranked second in the world in 2012 for revenue from tourism spending, according to a new report from the UNs World Tourism Organization, with $1.1 billion spent on shopping in the country by visitors from outside the E.U. And Madrid and Barcelona were tied for second, behind London, in a shopping index ranking of European cities put together by the Economist Intelligence Unit and Global Blue, a tourism shopping tax refund company.

While only 250,000 Chinese people visited Spain last year, 1.6 million Russians did, an increase of 31.6% over 2012.

Because brands are so global and because emerging markets are emerging, there are aspirational factors, says Michael Goldenberg, the New York-born head of the Spanish operations of Value Retail, which owns the La Roca mall and eight others in Europe. Why are they all coming to Europe on vacation? To see where culture and sophistication come from. And they want to live like Europeans. Part of that is fulfilled by buying brands.

Goldenberg was working in real estate investment banking at Bankers Trust when the firm invested in Value Retails first shopping village, Bicester Village in the U.K., and he joined the company in 1996, at age 27.

As we walk down the central avenue of the mall, the lanky Goldenberg points out the architectural details that mimic small-town Catalonia.

We start our tour in the central plaza surrounded by government-style buildings (a Loewe outlet sits on the ground floor of the town hall), then pass through a comfortable bourgeois neighborhood and into a very tidy version of a factory zone. The streets are covered in cobble or large paving stones, the roofs are tiled, the colors tend toward the creams, and the plazas between the blocks feature sculptures in the style of Antoni Gaud.

This architectural recreation offers the sensation of a local cultural experience, which may be key for visitors who are passing a sizable chunk of their vacation at the mall. Sixty percent of the shoppers are tourists and they spend an average of four hours here, Goldenberg says. Value Retails others malls also simulate the local culture: the English mall near the Cotsworlds, outside Oxford, mimics a village in southeastern England, while one near Parma, Italy is based on Verdis operas.

Its supposed to be comfortable. Its vacation. When you relax, you have fun, Goldenberg tells me.

The mall is also designed as luxury-on-training-wheels to make developing country tourists feel comfortable among high-end brands whose stores might normally intimidate them.

We try to democratize luxury, Goldenberg tells me as we walk through the industrial section of the town. Notice all the doors are open? At a luxury store on Passeig de Gracia [Barcelonas equivalent of Manhattans Fifth Avenue], the doorman sort of looks you over before he opens the door.

Value Retail identifies major cities with sophisticated locals and plenty of tourists, and then builds a mall far enough outside of town so as not to compete with the brands full-price city stores. In Barcelona, the mall is 25 miles outside the city; in London, its 75 miles.

When it opened, many expected La Roca Village to fail. It was in the middle of nowhere and outlets were an unproven concept. The first years were indeed slow; 270,000 people came during the six months it was open in 1998, less than 10% of the number that visited in 2013.

But as outlets caught on in Europe and tourism in Barcelona boomed7.6 million visitors stayed in the city last year, up from 2.5 million in 1993so did the mall.

The portion of La Rocas shoppers who are tourists increased from 38% in 2007 to 60% today, and in 2009, the mall launched a bus service from downtown Barcelona. It now offers ten 20-euro round trips a day. A just-opened 30 million euro expansion led to the addition of 40 new stores at the mall. A recent job fair offering 300 jobs at the center attracted 1,500 aspirants. And Chinese tourists are beginning to come en masse: Barcelona got about 150,000 Chinese visitors last year, Goldenberg says, and 100,000 of them came to La Roca Village.

Goldenberg would not break out the Spanish malls sales, but he said the combined revenues in all Value Retail malls was 1.9 billion euros in 2013.

The parent company is now taking its shopping experience to the developing nations that supply so many of its customers. In May, Value Retail opened its first mall in China, in Suzhou. In keeping with its tenets of local design and European aspirations, the architecture blends Chinese artisanship with a touch of Italian style.

NN NVsold 1.54 billion ($2.1 billion) of stock to investors Tuesday, bumping up the size of its offer by 10% to accommodate solid investor demand. That gave it an equity value of 7 billion.

But NN is no no Alibaba or GoPro, wooing investors with the excitement of limitless growth in China, or the excitement of fancy new technology: it’s the insurance arm of Dutch financial services giant ING Group NV (fortune-stock symbol=”ING”], which was ordered by the E.U. to sell NN by the end of 2016 as a condition for receiving a bailout from the Dutch state after its business model blew up the financial crisis.

In that respect, it’s a lot like Lloyds Banking Group PLC’s LYG IPO of TSB, in June, which raised around 500 million pounds ($850 million). Lloyds, too, had to be rescued by its government in 2008, and has to sell all of TSB by the end of 2015.

It’s also a bit like the 51% sale of trade credit insurance company Coface by the French bank Natixis last week for 832 million–although Natixis’ move was a voluntary effort to streamline its corporate structure in a response to escape increasingly complex regulation.

The best that can be said about these deals is that they reflect progress in cleaning up the mess that was Europe’s financialsector in the immediate aftermath of the crisis. If the IPO market is a barometer of market sentiment, then this reflects at least the hope that the worst is finally over.

By the same token, Germany’s largest deal this year was an exit by the private equity companies from a maker of roof tiles that they took over in a 2009 debt restructuring. Hardly a “sky’s-the-limit” growth play.

Sellers have needed to leave plenty on the table for investors to get their stock shifted.Lloyds sold the TSB shares at nearly 20% below their book value,meaning that the first reward investors could hope for is that the assets would actually turn out to be worth what Lloyds said they were worth.

In NN’s case, the discount is even bigger: the 7 billion valuation is less than halfthebook value in the company’s 2013 accounts.

There’s a reason for this–both disposals are being staggered to make it easier for the market to digest them, and both Lloyds and INGwill find it easier to sell subsequent tranches of shares if the first round of investors can be seen to do well out of them.

In fairness, there’s no point in pretending that Europeanfinanceis high-growth any more, with trainloads of heavier regulation coming down the track. Both TSB and NN have been sold as income plays rather than growth plays: NN’s dividend yield will be around 5%–more than twice the payout on a 10-year Dutch government bond.

Real growth IPOs, by contrast, are still struggling in Europe. Budget airline Wizzair and U.K. retailer Fat Face both pulled IPOs earlier this spring, and Shelf Drilling, a supplier of offshore oil drilling equipment and services, also postponed a planned $500 million offering Wednesday, citing “challenging public market conditions”.

The survey, by consultants Ernst & Young, lays bare what officials and bankers have been privately acknowledging all year: six years after the financial crisis exploded, many of Europe’s banks are still relying onoptimistic internal accounting and indulgent supervision from their national regulators.

All that is due to end in the fourth quarter of this year, when the European Central Bank is due to take responsibility for supervising the euro zone’s largest banks.

Aware that this is its last chance to uncover unexploded bombs still hidden on eurozone banks’ balance sheets, the ECB is now halfway through an “Asset Quality Review”to find out where banks are still using local loopholes to pretend that loans aren’t in arrears or default.

Once it’s finished correcting asset valuations, the ECB will join non-eurozone supervisors in carrying out a new-look stress-test that they hope will put to rest doubts about the solvency of Europe’s major banks.

There have been plenty of signs that banks are trying to put their houses in order before being named and shamed by the ECB. Banks such as Italy’s Unicredit SpA UNCFY and Intesa SanPaolo SpA ISNPY have written down over $27 billion in goodwill this year, largely to acknowledge that the value of their investments in eastern Europe had slumped since the crisis.

Meanwhile, issuance of new equity has been on a tear, notablyfrom banks in those countries worst hit by the crisis. According to data from Dealogic, European banks raised $18.8 billion from the capital markets between January and June, over two thirds of its from banks in Greece and Portugal. The figure rises to nearly $30 billion when Deutsche Bank AG’s DB $11.6 billion capital increase at the start of Juneis included.

The markets are in a reasonably benign situation and there is liquidity ready to be invested in banks, in equity or funding, if the markets are convinced by the transparency exercise that we are undertaking, Reuters cited Daniele Nouy, chair of the Supervisory Board of the ECB, as saying Monday.

EY said that across the 294 banks it surveyed, 8% “fully expect” to have to raise further capital after the AQR, while another 20% think they might have to.

As so often with the eurozone, there are huge discrepancies from country to country. Only 4% of German banks think they might need more funds, whereas 35% of Spain’s banks do.

Spain’s banks are also more inclined to think they’ll have to raise provisions against future losses. By contrast, the solid economic growth being seen outside the eurozone means that UK and Scandinavian banks think they’ll be able to release reserves that they made in the past, boosting their bottom lines.

As if the above didnt make it obvious already, its also in need of a strong leader.

In theory, Europe has a spot at the top in which a real leader might sit and wield some gavel of authority, clarity, and resolute powerand that is the high office of President of the European Commission.

In reality, Europe has nothing of the kind. Which would explain why few but his immediate family and a handful of bureaucrats in Brussels know precisely who the current holder of that office is. (For the record, its Jose-Manuel Barroso, a former Prime Minister of Portugal, law professor, and one-time student at Georgetown.)

All of which brings us to Christine Lagarde, Managing Director of the International Monetary Fund (IMF) and No. 13 on Fortunes 2014 list of the 50 Worlds Greatest Leaders. There are some who now hope that Lagarde will emerge as a candidate for the European Commission presidencywhose role is to oversee the body that proposes and enforces EU lawswhen the current office-holders second five-year term ends later this year.

One such booster, apparently, is Angela Merkel, Germanys well-regarded Chancellor (and No. 2 on Fortunes Worlds Greatest Leader list), who reportedly pressed Lagarde to run for the job.

The path to the position is hardly straightforward. Merkel raised the matter with French President Francois Hollande, who generally speaking would be the one to put Lagarde forward as a candidatesomething Hollande, who is loathe to lose a compatriot at the powerful IMF, is unlikely to do. So, technically, for Lagarde to be considered, she would likely have to be nominated by one or another pan-European political parties.

Later this month, European leaders will choose from such candidates. As per the EUs purportedly more democratic rules, they must factor into their decisions the results of Mays parliamentary election. The emergent nominee must then win majority approval of the European parliament.

Mays election results suggest that the favorite may well be Jean-Claude Juncker, a former prime minister of Luxembourg and an old-school European federalist, who Merkel initially backed. The United Kingdoms David Cameron, however, has been openly opposed to Juncker. Hence, the backroom negotiations that led to the conversation between Merkel and Hollande, according to reports.

Getting involved in all that politicking merely to join ranks with a mlange of underweight Eurocrats, may sound like a step back for Lagarde, whose star has been rising on the international stage ever since she replaced the disgraced Dominique Strauss-Kahn as the Worlds Banker in 2011. And, well, it probably is.

Indeed, Lagarde has said she is not interested in the presidency. Her current job, after all, affords her a platform from which she wields considerable influence in a global conversation on the worlds most pressing issuesfrom rising income inequality to banking reforms to climate change.

Still, one cant blame Merkel for trying. The German Chancellor and many other top European leaders have no doubt been spooked by the dramatic gains made by anti-EU parties in late Mays elections. Lagarde, meanwhile, is regarded as a consensus-builder who can contend with the increasing dissatisfaction among EU member statesin three years Britain plans to hold a referendum on its membershipand bring positive change to the organization.

If for some reason the EU Presidency doesnt work out, of course, theres always the role of President of the European Council. Or President of the European Parliament. Chances are you dont know who holds these grand offices either. But hey, well give you a hint: One of them used to be a Prime Minister of Belgium.

In Japan, the Nikkei 225 index raced 1.6% higher to 15361.16 on hopes that a strong U.S. recovery would continue to suck in imports from across the Pacific. One of the biggest risers was electrical appliance-maker Sharp SHCAY , which announced new technology that will allow it to make displays in unconventional shapes such as ellipses.

Elsewhere, the Australian S&P/ASX index rose 1.5%, its best daily performance this year. Chinese stocks lagged, however, after Premier Li Keqiangsaidthe Chinese economy would avoid a ‘hard landing’. Market participants took that to mean there’ll be no more stimulus measures from the central bank.

European stocks were higher across the broad, with rises of between 0.7% and 0.9% in the main national markets. UK aero engine maker Rolls Royce RYCEY was among the biggest gainers after announcing a $1.7 billion share buyback.

“With the promise to keep liquidity plentiful, (Fed board chairman) Janet Yellen is following in the best tradition of her predecessors Greenspan and Bernanke by pumping markets higher,” said Keith Wade, chief economist with UK fund manager Schroders in London.

The Fed did fractionally raise its outlook for where it expects interest rates to be over the next two years, but it chose not to react in the near term to signs of higher inflation. U.S. consumer prices had risen at a rate of 2.0% in the year to May, the fastest rate this year. That had prompted fears that the Fed would wind downits purchases of bonds faster than previously signalled, but instead it kept to trimming them $10 billion at a time. Wednesday’s announcement brings monthly purchases down to $35 billion.

Consequently, traders are betting that easy central bank policy will put a floor under stocks for the foreseeable future.The Chicago Board Options Exchange VIX Volatility Index, Wall Street’s “fear gauge”, is now at its lowest level since 2007.

“If Ms Yellen’s main aim was to make it easy for market participants to watch the World Cup in peace and quiet then she probably succeeded last night,” said Deutsche Bank strategist Jim Reid.

The complaint contends that Google is using its dominance in Android operating systems for mobile phones to control the App Stores market, which consultants ABI value at $23 billion a year. According to research from Kantar, nearly three out of every four smartphones in the European Union.

Aptoide is the worlds largest independent App Store for Android phones, but we are struggling to grow, even to survive, in the face of Google systematically setting up obstacles for users to install third-party App Stores in the Android platform and blocking competition in their Google Play store, Paulo Trezentos, co-founder and Aptoide chief executive, said in a statement.

The complaint alleges illegal bundling as Google couples Google Play, the dominant Android App Store, with its application programming interfaces, or APIs, which determine how software components interact with each other.

Aptoide accused Google of suspending it regularly from appearing on Google Play, thereby denying it access toconsumers and vice versa.

We are only asking the Commission to restore fair competition in the market, so we can compete on our own merits, stressed lvaro Pinto, co-founder and Aptoide’s chief operating officer.

Aptoide’s complaint comes on top of the European Commission’s probe into suspected abuse by Google of its dominant position in the European search market, where it has a market share of over 90%. That probe has been going on for four years already.

Google didn’t immediately respond to an e-mailed request for comment.

The two sides said in Seoul Monday they had agreed to work together to establish a global definition of 5G and to cooperate in research. The agreement covers governments, researchand educationalinstitutes and private companies, and aims to forge a consensus on key functionalities for the new standard by the end of next year.

Work on 5G will be driven by the need to deliver another huge increase in network capacity to satisfy ever-growing future demand not only from smartphones and video streaming applications, but also from the “internet of things”–a shorthand for the increasing interconnection of everything from domestic appliances to vehicles and even livestock. Industry experts expect the number of internet-connected devices to double to around 50 billion in the five years between 2015 and 2020. The UK’s telecom regulator, Ofcom, estimates that data demand by 2030 could be 80 times higher than it was in 2012.

For Europe, the deal represents an effort to make up for ground it has lost to U.S. and Asian competitors, notably China. European operators had led the world in developing the GSM standard for mobile communications in the 1990s, but are now badly lagging China in particular in the roll-out of 4G wireless technology.

“The two sides recognised the great importance of timely developing (sic) the next generation of mobile communication networks (5G), because the communications infrastructure will be the backbone of the future digital economy,” European Commissioner Neelie Kroes said in a statement.

The deal opens the door to possible cooperation between Europe’s mobile network giants such as Ericsson, Nokia Siemens and France’s Alcatel-Lucent SA ALU and Korea’s Samsung Electronics Co. SSNLF ,Apple Inc.’s AAPL biggest rival in the global market for smartphones and other mobile devices.

Just over a year ago, Samsung said it had made a major breakthrough in developing 5G technology, having found a way to increase the speed with which large amounts of data can be transmitted. It still reckons that 5G won’t be widely available for another six years at least.

The power adapters that were recalled, which were also sold as a standalone accessory, came with the iPhone 3GS, iPhone 4, and iPhone 4S models and were shipped from October 2009 to September 2012. The recall affected 37 countries, mostly in Europe.

“Apple has determined that, in rare cases, the Apple 5W European USB power adapter may overheat and pose a safety risk,” the company said in a prepared statement.

The company said it would exchange each affected power adaptor for a new, redesigned adapter. “We encourage customers to exchange any affected adapter for a new one as soon as possible,” Apple AAPL said. The company also said it would consider refunds if a customer believed they paid for a replacement charger due to the overheating issue.

The gadgets giant didn’t say how many chargers were affected by the recall, though dozens ofmarkets were affected, and due to the wide scoop, millions of chargers are being recalled.

The European Court of Justice, the EU’s equivalent of the Supreme Court, said Thursday it had rejected Intel’s appeal against the fine, which was levied for using sweet deals with PC makers a majorretailer to squeeze its rival, Advanced Micro Devices Inc. AMD out of a global market now worth around $40 billion a year.

The ruling seals Intel’s most expensive defeat yet in a series of antitrust investigations against it in the US, Europe, Japan and South Korea. The fine–the biggest ever handed down for market abuse by the EU–dwarfs the $25 million penalty that Intel got from South Korea. The US Fair Trade Commission, which had sued Intel in 2009, had settled its case with the company without any fine at all. It did, however, force Intel to agree to major changes in its sales practices.

The EU’s case dates back to 2009, andcovers the time between 2002 and 2007, when Intel was coming under increasing pressure from AMD. At the time, it had a 70% market share for microprocessors in the EU market. It still dominates a global market for chips worth over $40 billion, according to consultants IDC.

The Court ruled that Intel had offered PC makers Dell, Lenovo, Hewlett-Packard HP rebates on the price they paid Intel for chips, on the condition that they would only buy from Intel. It also paid HP, Acer and Lenovo to postpone or cancel the launch of products that used AMD’s technology.

It also offered discounts to Media-Saturn Holding GmbH, owner of the Saturn and Media Markt chains of electronics shops which themselves are dominant in the German, Swiss and central European markets.

The Court said that the fine amounts to 4.15% of Intel’s annual revenue, less than half of the maximum 10% fine that it has the power to levy. Intel had tried to argue that the size of the fine was excessive.

Intel didn’t immediately respond to an e-mailed request for comment.

Competition Commissioner Joaquin Almunia told a press briefing Wednesday that the European Commission, the EU’s executive arm, has opened a formal investigation into three cases where it suspected the tax treatment of individual companies as being equivalent to illegal state aid: Ireland’s treatment of AppleInc AAPL , the Netherlands’ treatment of Starbucks SBUX and Luxembourg’s treatment of Italian automaker Fiat SpA FIATY .

“In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes,” Almunia said.

The probe will concentrate on these three instances for the time being, but could widen out to include other companies and governments if they can establish a precedent of illegal aid. Almunia said it was his aim to root out and eliminate “the norms and decisions” in national tax rulings that made any illegal aid possible.

If the Commission determines that the arrangements constitute illegal state aid, it can order companies to pay the money back.

The investigation comes a year after the U.S. Senate found that Apple had used a loophole in Irish tax law to avoid paying corporate tax on over $74 billion of revenue over a four-year period. It concluded, however, that the company hasn’t acted illegally.

The Commission’s probe takes up a theme that has been doing the rounds at summits of the G8 and G20 for the last few years: how to stop multinationals shopping around jurisdictions to reduce their tax bill. It’s a theme that’s been popular with voters pretty much everywhere in a post-crisis Europefull of budget cuts and tax hikes.

One of the most recent outbreaks of outrage came last month, when it was revealed that Amazon.com Inc, AMZN , which trades in the EU through a Luxembourg-based subsidiary Amazon EU S.a.r.l., had only paid 4.2 million pounds ($7 million) of tax in the UK on 4.3 billion pounds of revenue last year.

But the probe announced Wednesday conspicuously left out internet giants such as Amazon and Google Inc. GOOG . The EU has a separate line of inquiry going on as to how best to tax digital commerce in future.

The EU operates a single market that aims to allow any company based there to sell its goods anywhere in the 28-country bloc. However, ithas few powers over national tax regimes.Countries eager to create jobs have therefore often used low tax rates to persuade multinationals to concentrate as big a part of their European revenues and profits as possible in their jurisdictions.

Ireland, in particular, has for years used a low corporate tax rate to encourage U.S. companies to set up their European HQs there, to the frustration of other countries such as France and Germany. Both countries unsuccessfully tried to pressure Ireland into raising its corporate tax rate as a condition for the country’s bail-out in 2010.

The Irish Finance Ministry said in a statement it’s “confident that there is no state aid rule breach in this case and we will defend all aspects vigorously.”

“We have received no selective treatment from Irish officials,” Apple said in response to the probe. “Apple is subject to the same taxlaws as scores of other international companies doing business in Ireland.”

It added that Apple “pays every euro of every tax that we owe.”

Starbucks and the Dutch government likewise protested they had done nothing wrong.

“We comply with all relevant tax rules, laws and OECD guidelines and we’re studying the Commission’s announcement,” a Starbucks spokeswoman said.

In Spains national league, every El Clsico match between archrivals Barcelona and Real Madrid draws a larger worldwide audience than the 110 million fans who watch the NFL Super Bowl, notes John Vrooman, a Vanderbilt University sports economist. And only 10% of Barcelona and Real Madrid fans actually live in Spain.

But as internationally popular as the sport may be, it has a home. After the World Cup wraps up, some 70% of the 736 players involved–including most of the players on South American powerhouse teams Brazil and Argentina–will head back to day jobs at professional teams in one place: Europe.

Europe employs over two-thirds of the best soccer players in the world. So, what is this industry cluster–this Silicon Valley of soccer–like?

It pays until it hurts

With a limited number of buyers in the market (one 32-team league) and a salary cap in place, many NFL players are likely underpaid, according to Rob Simmons, a professor of economics at the Lancaster University Management School.

But with leagues in multiple neighboring countries competing for player services and no salary cap to put on the breaks, European soccer is a different beast altogether. Players receive over 70% of team revenues in the top five European soccer leagues, says Vrooman, compared to less than half in the NFL.

That setup is great for players checkbooks. But its a road to insolvency for all but the top teams in places like Spain. Because of bad management and salary overspending, 19 of the 42 teams in Spains top two leagues have declared bankruptcy in the last decade. And professional teams owe the Spanish government 670 million euros ($910 million) in back taxes.

It doesnt believe in parity

European soccer is what a mathematician might call a deterministic system. That is, there is very little randomness in the league. You generally know who will win from the seasons first day.

A 2013 study published by the European Commission found that between 2000 and 2012 the same three teams won 100% of the league titles in Spain, 92% in Italy and England, and 83% in Germany.

Without an NFL-style shared revenue system, most of the money flows to a few top teams, who buy all the star players and leave everyone else with the talent and revenue crumbs.

The best financial analogy would be like comparing the NFL as a well-diversified S&P index portfolio with an all-or-nothing NASDAQ roulette wheel, says Vanderbilts Vrooman. European football, particularly in La Liga (Spain) and Serie A (Italy) is make-it-or-break-it unless you are one of the top three or four clubs.

But its helping to make international soccermore equal

In economics, convergence theory holds that poor countries will see their per-capita GDP increase faster than that of rich countries, bringing the wealth of nations closer together over time.

That is whats happening in soccer, as more players from developing countries go to play on top teams in Europe and then bring the skills they learn back to their national clubs, in turn making them more competitive in international play.

Weaker nations [teams] are getting stronger, says Stefan Szymanski, a sports management professor at the University of Michigan. Particularly against European and South American countries, weve seen countries from other regions have better results in recent years.

In a 2012 research paper, three economists at the University of Leuven in Belgium found that every player a developing country sent to play in Englands Premier League translated into 21.6 extra points in the rankings from the international soccer body FIFA.

To put that into perspective, an extra 21.6 points would allow Slovenia to jump from No. 29 to No. 24 place in the rankings, leapfrogging Ecuador, Algeria, Sweden, Bosnia and Herzegovina, and Egypt.

Of course, international soccer hasnt reached perfect convergence yet

I dont think youll have an African team winning or getting to the final at least for the next 10 years, says Jeroen Schokkaert, one of the authors of the paper. I would love to see it. Its part of globalization. But the countries first need solid economic development before that is possible.

Driving this home, the Leuven professors note that developing countries could also get a 21.6 jump in FIFA points by increasing per capita GDP by $7,272.

In this case, the non-sports economy could learn something from the World Cup. Comparing soccer skills to technological development, the University of Leuven economists suggest that developing countries could improve their economic development by implementing policies to bring back emigrants to teach.

Systematic return of migrants, even temporary, is important, the authors write. Policy makers could design programs that facilitate the return of skilled migrants for short periods of time in order to share the skills and technology acquired abroad with their home countries peers.

In the end, thats probably more important than 21.6 additional FIFA points.

The most positive surprise came from Italy, where productionrose a stronger-than-expected 0.7% in April in seasonally adjusted terms, beating consensus forecasts–as measured by Reuters–of 0.4%. In year-on-year terms, output was 1.6% above its level of a year ago.

Elsewhere, output in France rose by 0.3%, just short of the 0.4% expected, but national statistics institute INSEE also said that output in March had fallen by less than it first reported–by 0.4% instead of 0.7%. Outside the eurozone, the U.K. reported a 0.4% increase, leaving production up 3.0% from a year earlier.

France and Italy are the second- and third-largest economies in the 18-member eurozone, and account for over a third of its output. They’ve badly lagged the performance of Germany, the region’s largest economy, in the last fiveyears, hobbled by weak banks in Italy’s case and a bloated state sector in France’s. They’re also starting to look bad by comparison with the countries worst-affected by the financial crisis such as Ireland, Spain, and Portugal, where painful austerity packages appear to be starting to bear fruit.

The French and Italian data are largely in line with earlier surveys showing that the recovery continued at a modest pace in a month overshadowed by the crisis in Ukraine, which has raised the threat that sanctions on Russia could lead to a disruption in Europe’s energy supplies. Germany, which is Russia’s largest European trading partner, had reported last week thatindustrial output had only risen 0.2% in April, although new orders to manufacturers rose 3.1%.

Policymakers remain worried by the lack of momentum in the eurozone, despite support fromultra-loose monetary policy across the world’s major economies. The European Central Bank cut its official interest rate to a new record low last week in an attempt to give the eurozone some more pep, at the same time revising down its growth forecast for this year to a paltry 1%.

Even Jens Weidmann, president of the ultra-conservative German central bank, had voted for the rate cut and a package of other measures designed to stop the eurozone falling into a deflationary spiral. The measures weredescribed by German bank associations as “an expropriation of savers,” but in an interview published Tuesday in the German newspaper Boersen-Zeitung, Weidmann saidthe ECB had to do more to ensure that its expansive policy fed through into the real economy.

It’s an unspoken rule on Wall Street. First of all, it pads your numbers. Banks regularly credit themselves for their own deals in Wall Street’s ranking of top deal makers, even if the deals weren’t really up for grabs. Perhaps more importantly,hiring another bank to do your own deal just looks bad.

But then this happens: On Thursday, Deutsche Bank DB sold nearly 300 million of its own shares for $30.64 (22.50). The problem is asof Wednesday night Deutsche’s stock was trading at $40.45. That’s what the market thoughtDeutsche’s stock wasworth. And yet, Deutsche’s crack stock sales team was only able to get $30.64. We can convince investors your company is worth 24% less than they think is not a great sales pitch.

Of course, that wasn’t the spin Deutsche put on it. Instead, it said its bankers were able to sell more shares than they originally thought. But why is that notable? When you sell something for less than it’s worth, you typically have a lot of takers. I mean, it’s free money. Why wouldanyone turn them down?

Part of the problem, of course, is with what the Deutsche investment bankers had to sell. Deutsche is a European bank and Europe is still looking weak these days. On Thursday morning, European Central BankPresidentMario Draghi for the first time ever cutthe rate it pays on bank deposits to a negative 0.10% on fears that Europe could soon be hit with deflation. If that happens, a European bank will not be a great place to be.

A number of other European banks including Commerzbank and Barclays have sold shares in similarsecondary offerings lately. And many of those deals have been at bigger discounts than Deutsche. But Deutsche, as Germany’s largestbank, is in much better shape than rival European banks.

Deutsche has been spending the last year or so trying to convince people of that. At the same time, it has gone around trying to raise a bunch of money. The bank says it doesn’t really need the extra cash to shore up its finances. It’s just adding capital to make nice with the regulators, particularly the Americans, which everyone knows has it out for European banks. After this last offering, Deutsche says it will have a capital ratio of 12%, which would rank it higher than most other banks, including the large U.S. ones.

If that was true, selling Deutsche’s shares would be easy to do. The issue is that many regulators and investors questionDeutsche’s numbers. The 12% capital ratio is not based on all of Deutsche’s assets. Including all of its loans and investmentsand Deutsche’s capital ratio drops to around 3%. The 12% figure is based on a ranking of its assets by riskiness. Regulators have traditionally preferred this measure, but some have recently questioned it because it excludes a lot of assets deemed not risky and the banks haven’t proved to be so good at knowing what assets will be risky, and which won’t, which all banks do. But Deutsche’s math tricks seem shadier than others banks. For instance, a little over a year ago Deutsche had a quarter where it lost $2 billion. Capital is mostly retained earnings. So a loss of $2 billion should cause your capital ratio to go down. It didn’t. Instead, Deutsche’swent up, mostly becausesome risky assets magically disappeared.

“There is a question in a lot of people’s minds whether Deutsche is getting to its capital ratios dishonestly,” says Erin Davis, a European bank analyst at Morningstar. “It’s very difficult to verify their numbers.”

Capital is not the only problem Deutsche is having. As part of the offering, Deutsche said it may have to pay fines for misdeeds in foreign exchange market and elsewhere. Another problem:Deutsche saysrevenue at its investment bank continues to slide. And when your bankers are being forced to do your own deals at 24% less than they are worth that problem probably isn’t going away anytime soon.

Taken together, the measures amount to a modest stimulus to the economy now, with the promise of a gradually larger one over the next two years. Financial markets’ initial reaction to the news was enthusiastic, but faded as it became clear how much of the stimulus was post-dated. The euro ended the day in Europe over half a cent above its opening level against the dollar at $1.365. Stocks on both sides of the Atlantic rallied.

TheECBcut the main rate at which banks borrow from it by 0.10 percentage points to 0.15% and, in a more radical move, cut the rate on its overnight deposit facility to -0.10% from zero. That means the ECB will essentially be charging they park excesscash there, aiming to force them to put their money to work more effectively in the real economy. Although smaller countries, such as Denmark and Sweden, have experimented with negative interest rates, this is the first time that one of the world’s acknowledged major central banks has resorted to such an extreme step.

At his monthly press conference later, ECB President Mario Draghi announced an injection of around 164 billion ($223 billion) of extra liquidity into the banking system by scrapping a weekly auction of deposits, a move that should lower money-market rates and, in turn, the euro’s exchange rate. He also laid out plans to offer banks up to 400 billion in cheap long-term fundingat two long-term credit tenders in September and December, plus additional operations every quarter for18 monthsafter that. Access to the funds will be tied to banks’ lending to businesses and households. Home loans, which were the biggest factor behind the financial crisis in Spain and Ireland six years ago, won’t be eligible for the scheme, nor will banks’ holdings of government bonds.

But Draghi stopped short of announcing a major program of bond purchases akin to the ‘quantitative easing’ programs of the Federal Reserve, Bank of Japan and and Bank of England. He said nothing about buying government debt and said the ECB’s plan to buy large amounts of asset-backed securities from banks was still a work in progress.

That’s nowhere near enough what some economists think is needed to jolt the eurozone out of its funk, the way that the Bank of Japan has done in the last year. Kim Schoenholtz. a professor at NYU Stern School of Business, said that, to make a real difference, the ECB would have to buy around 1 trillion in assets, but said that would involve buying all manner of low-quality debt and would trigger yet another political storm.

“Unfortunately, it’s very difficult for them to have a substantial impact without breaking glass,” Schoenholtz said.

Draghi said that more measures would come if necessary, but said that the ECB probably wouldn’t cut interest rates any lower.

“For all practical purposes, we are already at the lower bound,” Draghi said.

He admitted that the measures on their own wouldn’t be enough to turn the euro zone’s fortunes round, calling again on governments to cut taxes and finish other structural reforms to encourage growth. Although it emerged from recession over a year ago, the eurozone’s economy has failed to gain traction, crawling along at a miserable 0.2% in the first quarter of this year. The ECBcut its forecast for growth this year to a meager 1.0% Thursday, and said inflation would continue to undershoot its 2% target for the next two and a half years.Preliminary figures from Eurostat earlier this week showed prices rose only 0.5% in the year to May.

The ECB’s move was welcomed by the International Monetary Fund and by French President Francois Hollande, but was lambasted in Germany.

“This is a desperate attempt, with ever cheaper money and penalty rates on deposits, to divert capital flows to southern Europe,” said Prof. Hans-Werner Sinn, an economist with the ifo research institute in Munich.

The ECB cut the main rate at which banks borrow from it from 0.25% to 0.1%, a new record low, and in a more radical move, cut the rate on its overnight deposit facility to -0.10% from zero, essentially charging banks whenever they park funds with it, instead of putting themto work in the economy.

Such moves have been tried before by smaller countries such as Sweden and Denmark-with mixed results-but never by a central bank with global clout.

At his regular press conference later, ECB President Mario Draghialso announced a raft of other, “unconventional” measures to bolster the effect of the rate cuts. Taken together, the steps add up to a small amount of stimulus now, with the possibility of something more powerful later, analysts said. Financial markets initially reacted enthusiastically to the news, but later pared their gains as they realized howlittle of the stimulus would be immediate.

The euro, which fell sharply as Draghi announced his measures, rebounded to hit a new high for the day within an hour after he finished speaking.

Stock markets in southern Europe, where the measures will have the greatest effect, rose, but the German DAX index quickly fell into negative territory on fears that the measures would hurt the profits of banks and insurers.

Hans-Werner Sinn, a professor at the Munich-based ifo institute, called the measures “a desperate attempt to divert capital flows to southern Europe with even cheaper money and penalty interest rates on deposits.”

Draghi himself warrned that the measures were no substitute for the structural reforms and lower taxes that the eurozone needed to restore its economy to health, and which still seem as far away as ever in some of the euro zone’s 18 countries.

To ensure that the cuts in interest rates bite, Draghi also announced a measure that will inject around 100 billion ($136 billion) to the banking system.

This increase in liquidity, the nearest the ECB came to Fed-style “quantitative easing”, will allow banks to borrow euros more cheaply from each other. Among other things, that encourages the use of euros to fund so-called ‘carry trades’-borrowing low-yielding currencies in order to buy other, higher-yielding ones. If enough banks do that, it could finally drive the euro down, making life easier for exporters, and raising inflation, which at 0.5% in May, is too far below its targeted level of just under 2%.

The ECB had hoped that, with the U.S. growing and the Federal Reserve starting to wind down its stimulus program, the dollar would start to rise against the euro, but that failed to happen as bad weather actually led to the U.S. economy contracting in the first quarter. By late 1215 EDT, it was at an intraday high of $1.3627.

In addition to the rate cuts, Draghi said the ECB would offer a series of auctions of long-term liquidity for banks over the next two years, starting in September- provided they use it to refinance loans to companies and consumers. Mortgage loans, which caused Spain and Ireland so many headaches, won’t be eligible for the scheme, nor will bonds or loans to governments.

Draghi also promised that banks would be able to borrow as much as they want from the ECB at least until the end of 2016, which will hold euro rates down well past the timeby which markets expect the Federal Reserve to be raising them. But as far as bond purchases were concerned, he said nothing about buying government debt and he said that the ECB’s plan to buy asset-backed securities was still being developed.

But economist say it’s unlikely that the ECB can put together a bond-buying program big enough to make a difference. Kim Schoenholtz, a professor at NYU Stern School of Business, said it would need a program of around 1 trillion to have a “meaningful impact” on the markets and the economy. Doing that would mean buying all manner of low-quality assets off banks and creating a political storm.

Perhaps sensing that his measures were, yet again, more bark than bite, Draghi stressed that there could still be more to come if the economy failed to react.

“It’s a significant package, but we aren’t finished,” Draghi said, although he did indicate that the bank wouldn’t cut interest rates any further. “For all practical purposes, we are at the lower bound,” he said.

Laying out a “European Reassurance Initiative” in Warsaw at the start of a four-day visit to Europe, Obama said the security of Europe was “the cornerstone of our own security, and it is sacrosanct.”

The fund he proposed will need approval from Congress, and would finance an expanded U.S. military presence in eastern Europe. It will go some way to answering calls in recent months for greater protection from NATO’s newest members, such as Poland and the Baltic states of Latvia, Lithuania, and Estonia.

Those countries have been alarmed by the crisis in Ukraine and fear that a resurgent Russia will try to pull them back into its sphere of influence. They’ve also been disappointed by the weak response from western Europe to Russia’s seizure of the Ukrainian region of Crimea. The EU has imposed only limited sanctions on Russia,fearful that broader ones could hit the struggling eurozone economy hard.

“As threats emerged, we see who our real friends are,” Lithuanian President Dalia Grybauskaite said last month, when the U.S. deployed 150 paratroopers to her country.

Poland has also been pushing the U.S. for more boots on the ground, but Obama has not committed to any permanent presence there. Russia has warned repeatedly against any increased NATO presence in eastern Europeand took particular offense at President George W. Bush’s plans to base missile defense systems in Poland.

Obama will meet with leaders from across Central and eastern Europe later Tuesday before moving on to Belgium, where he will meet with Ukraine’s new president-elect Petro Poroshenko and take part in a summit of the G7.

From there he will go on to Normandy, France, to observethe 70th anniversary of the D-Day landings in 1944. Russian President Vladimir Putin has also been invited to the ceremonies there, but there is no one-on-one meeting scheduled between the two.

Quite the opposite, in fact. The Associated Press reported that France’s PresidentFranois Hollande will have two separate dinners on Thursday night — one with Obama and the other with Putin, “a digestive and logistical challenge, but the safest diplomatic solution for the French president to keep apart two leaders who are at odds.”

The Stoxx Europe 600 index hit a new six-year high of 344.74, before falling back later, while the Nikkei closed at 14,636.52, up 0.2% on the day and its fourth successive gain.

Talk of a bid for InterContinental Hotels Group PLC IHG , the operator of such chains as Holiday Inn and Crowne Plaza, has encouraged a fresh wave of M&A related optimism, despite the collapse of Pfizer’s bid for U.K.-Swedish pharma giant AstraZeneca PLC AZN . French hotel operator Accor SA ACRFF also said it would buy back some hotels that it had sold previously.

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In Europe, the clear victory for Petro Poroshenko in Ukraine’s presidential elections on Sunday has also boosted hopes of a speedy end to the crisis there — despite intense fighting over the last couple of days around Donetsk airport in which over 40 people have been killed, according to media reports.

The Social Democrats of Prime Minister Matteo Renzi emerged as clear winners of the poll in Italy with a thumping 34.5% of the vote, while the Five Stars protest movement of ex-comedian Beppe Grillo managed only 25.5%, well short of expectations. The Italian MIB index was up 0.1% by 9:00 AM EDT, after rising 3.6% on Monday.

Markets are also still enjoying some support from the strong showing of government parties in Germany and, crucially, Italy in elections to the European parliament. The Italian result is important because Italy, which accounts for 17% of the eurozones economy, remains one of its most obvious weak spots, with high government debt, record unemployment, and chronic political instability. Recent data showed that the economy contracted again in the first quarter after emerging from recession at the end of last year.

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In Germany, meanwhile, although the anti-euro Alternative fuer Deutschland party won seats in the parliament with 7% of the vote, it was the Christian Democrats of Chancellor Angela Merkel who emerged as the clear winner with 35.3%. Merkel has been the driving force behind the policy of conditional aid for stressed eurozone countries that has just about kept the 18-country currency zone together over the last four years.

Markets have given less attention to the surge in support for anti-EU parties in the U.K. and France, although the French benchmark index has limped behind the rest of the continent since the weekend, losing 0.1% Tuesday morning in Europe.

France is the reform laggard in Europe. Its mainstream parties were certainly not rewarded for their past refusal to bite the bullet of unpopular reforms, said Holger Schmieding, chief economist with Berenberg Bank in London.

Research firm Markit said its Purchasing Managers’ Index for the euro zone fell marginally to 53.9 in May from a three-year high of 54.0, indicating that the region is growing at an annualized pace of between 1.5%-2.0%, according to analysts at Bank of America Merrill Lynch. A number above 50 denotes expansion.

The euro zone exited recession last year, but the recovery has struggled to build any momentum, with unemployment still near record highs in some countries, and banks still more concerned with strengthening their balance sheets rather than extending new loans to businesses and consumers.

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Markit’s surveys track responses from some 5,000 companies around the euro zone, and are seen as a good indicator of current economic conditions. If confirmed by ‘hard’ data on output and sales, the latest PMIs would represent an improvement from a sluggish first quarter, but they still continue to hide a number of important weak spots: for example, the composite index for France, the region’s second-largest economy, slipped back below 50, indicating that activity actually fell during the month. In addition, the manufacturing component of the regional index fell to a six-month low of 52.5, suggesting that the strength of the euro is causing problems for at least some of the region’s exporters. That may increase the pressure on the European Central Bank to ease policy when its governing council meets next week. BAML analysts expect the ECB to cut its key refinancing rate to 0.10% from 0.25%. Even if the region isn’t currently experiencing outright deflation, inflation is so close to zero that pressure has been building on the ECB to do something for months.

There was more clearly positive news from the UK, where the Confederation of British Industry’s latest survey found a big majority of companies reporting higher output in there three months to May, and another big majority expecting output to rise further in the coming quarter. Whereas the ECB is still more likely to loosen its monetary policy, the Bank of England appears to be edging closer to first measures to tighten it. Markets expect the BoE to raise its key interest rate as early as the first quarter of next year.

Elsewhere, it’s been a good day for data in Asia too, with HSBC’s estimate of manufacturing conditions in China hitting its highest level in five months and a similar survey in Japan suggesting that industry has digested a big increase in the domestic sales tax, an event that many saw as one of the biggest risks to the radical plans of Prime Minister Abe to get the economy going again. The Nikkei index of Japanese stocks ended up 2.1% on the day, while Hong Kong’s Hang Seng index gained 0.5%

The streaming video provider will launch in Germany, Austria, Switzerland, Luxembourg, Belgium and France later this year, although the company did not specify a start date for the expansion.

Netflix will be going up against more established rivals in those countries, including local outlets, as well as Amazon’s streaming service.

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Over the past two years, Netflix has made a go in the European market and is now in 40 countries worldwide with over 48 million members. The California-based Internet television network, as it bills itself, already operates in the U.K. and Ireland, Denmark, Finland, Norway, Sweden, and the Netherlands.

Netflix has not said what it would charge in the new countries, but said it would provide further details on fees and programming “at a later date.”

The move allows energy Gazprom OGZPY , and Russia in general, to expand its trade with Asia, a hugely symbolic move that breaks with its long tradition of sending its gas westwards to Europe. As such, itcould reduce Russia’s vulnerability to EU moves to reduce its own dependence on Moscow in the wake of the crisis in Ukraine. Gazprom currently supplies 30% of Europe’s gas, according to the Journal report, half of which flows through Ukraine. The recent crisis in that country has led to fears of a disruption in gas flow to the Continent.

After a decade of negotiations, Russia and China finally signed an agreement Tuesday forGazpromto pump 38 billion cubic meters of gasinto China per year, according to a report in theWall Street Journal. That’s about a quarter of what China currently consumes in a year, but itsgas demand is growing so fast that the Russian deal only represent a much smallerfractionof future consumption.

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There’s no arguing over the size of the deal, but it is far from clear who will make how much money from it. Russian news agencies quoted Gazprom CEO Alexei Miller as putting a $400 billion tag on the overall value of the contract, which will run for 30 years. However, he said thepricing of the deal “is a commercial secret.” A rough calculation dividing $400 billion over 30 years of supplies would give a price of around $350 per 1,000 cubic meters, fractionally below the $360 that Europe paid on average last year, according to the newspaper Vedomosti. However, the big difference is that Gazprom will first have to build a new pipeline from its fields in eastern Siberia, which Vedomosti said could cost $30 billion.

Russia and China have haggled for years over price, and even lateTuesday, the Financial Times was quoting an official from Chinese energy company Petrochina as saying that the company is already losing money on imported gas because of low prices at home. Mr. Miller said the sides envisaged a “preferential” tax regime for the gas exports, suggesting that Russia will have limited room to use the contract to fill its own treasury. Most of Russia’s budget revenuesstill come from oil and gas exports.

Indeed, Ireland and Portugal recently returned to the debt markets with well-received offerings, and the Greek government claims it will soon be in a position to issue bonds. Yields on sovereign debt remain remarkably low and stable. Its indisputable that a mood of tranquility has returned to the eurozone.

But tranquility is not the same thing as progress, as the GDP figures released on May 15 by the Statistical Office of The European Union (Eurostat) alarmingly demonstrate. The 18-nation eurozone expanded by just 0.2% in the first quarter of 2014, half the figure economists were projecting.

Germany, as usual, was the leader, posting a gain of 0.8%. The problem spots are precisely the places where the comeback is supposedly underway: the beleaguered nations of Europes southern tier, as well as that tamed tiger, Ireland.

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The latest figures confirm that most of these countries arent improving at all. Italys economy shrank by 0.1% in the first three months of 2014, matching the average of the three previous quarters. After expanding 0.6% in Q2 2013, France recorded zero growth. Portugal shrank 0.7%, following positive numbers in the preceding nine months. While figures werent available for Greece and Ireland in Q1, neither country is showing progress. Greek GDP dropped 2.5% in the final three months of last year, and Ireland limped ahead at 0.2%.

The lone nation demonstrating a sustained upward trend, however modest, is Spain. It grew at 0.4% in the first quarter of 2014 after pretty much flatlining for the last nine months of 2013.

Harald Uhlig, a German-born and educated economist at the University of Chicago, provides a balanced view of the current risks to the eurozone. For Uhlig, its crucial to understand the divergent courses taken by Germany and the southern nations since the euros introduction in 1999, and how those policies have led to the disparate economic outcomes in these nations today. Inflation had always been a big problem in southern Europe, he says. Rates were high, and they also carried a big risk premium because you couldnt be sure that the separate central banks wouldnt do something crazy, causing more inflation.

The institution of a single currency in Europe led to the creation of a Bundesbank-like European Central Bank that then and now sets monetary policy in a rigorous, predictable fashion. Rates dropped, and government and consumer spending exploded, driving high growth rates, says Uhlig. Whats often overlooked, he notes, is that Germany didnt join the party. Germany was the sick man of Europe. It suffered when the euro was introduced, in contrast to the southern countries. Germany posted miserable GDP numbers in the early 2000s, while Ireland, Greece, and Spain all roared ahead.

Then, Germany made a turn that, in retrospect, seems astounding. Chancellor Gerhard Schrder(who served from 1998 to 2005) championed reforms designed to create a far more flexible labor market. His model was the U.S., says Uhlig. Before that, I kept hearing from leaders in Germany who didnt want to reform, [saying] what you hear now in southern Europe: If we only have more growth in the next five years, well get rid of the unemployment problem. But growth never came.

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Schrderdecisively lowered pension costs and unemployment compensation, and he gave companies more flexibility with hiring and layoffs. Schrderpaid a heavy price for securing the most dramatic labor market reforms in modern European history. He should have been rewarded, but he was brutally punished, says Uhlig.

Schrderlost the chancellorship to Angela Merkel in 2005. The fruits of his reforms didnt surface until around 2006, when the German economy emerged as the strongest player in Europe, as demonstrated by its resurgence from the financial crisis.

Big spending inflated wages in southern Europe, and productivity gains couldnt keep up, meaning labor costs in Spain and France for each unit of autos or steel produced grew at a faster rate than in Germany or the U.S. The crash exposed the competitiveness gap in southern Europe and Ireland. Global customers bought less and less of pricey exports from southern Europe.

So, what can these nations do now? It can be solved in one of two ways, says Uhlig. One is exiting the euro so that costs decline in the new currency compared to costs in other nations. The other is a combination of productivity gains and labor cost reductions. That would be the far better course.

The issue, he says, is that the troubled nations have done little to unshackle labor markets along the lines of Schrder’s reforms of a decade ago.

Uhlig is especially concerned about the deterioration in France. Europe used to have two great stabilizers, France and Germany. Now it has one. In France, the retirement age is too low, and companies are often run by former government figures and are too politically connected, so that its difficult for entrepreneurs to challenge entrenched companies. He worries that the future of the eurozone is increasingly on the shoulders of just one stabilizer, Germany.

The severe recession and high jobless rates have not done nearly enough to lower labor costs. I keep hearing from colleagues that labor costs have come way down in Spain, he says. But theyre still too high. The southern countries havent solved the problem of letting wage costs run far ahead of gains in productivity.

Uhlig also notes that Europes period of economic calm hasnt been put to good use. It hasnt been used for the types of reforms that are needed, says Uhlig. The attitude is, the euro-crisis is over, yields are still fairly low, and we dont have to do anything.

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Uhlig is particularly concerned with potential triggers that might undermine confidence in the credit markets. If Greece defaults, it could set off a contagion that would raise rates for the other nations, causing more defaults and a possible exit from the euro. Uhlig would much prefer that the euro stay in place, and the problem be addressed by the Schrdermethod. Unfortunately, he says, the Schrderexperience haunts Europes current leaders. They fear theyll end up like Schrderand the Social Democrats, he says.

Southern Europe may have missed its chance. The best time to reform was when times were flush in the mid-2000s. Its far more difficult to undo regulations and restrictions imposed over decades when economies are stalled and budgets are stretched to the limit, making a fiscal spending jolt highly risky.

Europes leaders keep careening from one solution to another, fixating on the German elections, then on asset quality reviews for banks, then on huge monetary stimulus programs to prevent potential deflation. Theyre missing what really needs to be done. If Europe doesnt make some tough decisions, the market will make choices for them. That would deliver a giant, cracking sound heard round the world.

The highest court in the EU, based in Brussels, has ruled that individuals can now ask Google to remove links that come up when their name is searched, according to a report in the Wall Street Journal. The ruling doesnt mean the original article or website has to be removed, or altered, the Journal noted. Only search results would be affected.

Google called the ruling disappointing and said it would take time to analyze its potential repercussions, the paper said.

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The case which led to the decision involved a Spanish man asking for links to a story about his owing social security debts a situation which has since been resolved to be removed from the search engines results.

“If, following a search made on the basis of a person’s name, the list of results displays a link to a Web page which contains information on the person in question, that data subject may approach the operator directly,” to ask for the material to be removed, the court said.

The EU ruling doesn’t mean that search-engine operators have to obey every request to stop linking to certain information online, but if they fail to comply, individuals can ask their countrys data-protection authorities to order that the links be deleted, the paper said.

BSkyB BSYBY said on Monday that it is in preliminary talks with 21^st Century Fox FOX to acquire its pay-TV assets in Germany and Italy. If successful, the deal would create a broadcasting behemoth with about 20 million subscribers, nearly doubling BSkyBs 10.5 million customers.

BSkyB wants to acquire Foxs 57% stake in Sky Deutschland, worth about $4.4 billion based on the companys closing share price last week, as well as the whole of Sky Italia. Murdoch owns stakes in both Sky Deutchland and Sky Italia, and has long wanted to unite them under the BSkyB banner. An acquisition by BSkyB would continue a trend of consolidation in Europe’s media sector.

Maybe it thinks it has to bulk up in the face of that, said Oliver Ralph, deputy head of Lex at the Financial Times.

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Murdoch’s Fox currently owns a 39% stake in BSkyB. Whether or not Fox would want to acquire more shares of a bulked-up BSkyB is open to question, said Ralph. Murdoch tried to acquire the part of the British broadcaster that he did not already own in 2011 but gave up amid allegations of misconduct at News Corp.s UK newspapers.

A bigger BSkyB could generate cost savings in product development and have more clout when bidding for sports or movie contracts. But only Germany would promise much growth: The number of Italian pay-TV subscribers has declined over the past three years.

Now the worlds most successful mobile wallet technology is expanding beyond Africa to Europe, starting with Romania. In what may be a historical first, the move involves the export of a technology from the developing to the developed world, reversing a centuries-old trend.

So far, M-Pesa has found success in similar markets that have relatively low smartphone adoption, less access to financial services and credit cards, and that are predominantly prepaid, says Jack Kent, a mobile analyst for IHS Technology in London. In Central and Eastern Europe, he says, credit card penetration is below 20 percent and prepaid mobile plans are used by 70 percent of subscribers.

M-Pesa, based on a simple text messaging technology developed by Vodafone at Kenyas biggest mobile network operator Safaricom, will allow Vodafone Romanias customers to make cash deposits and withdrawals from participating agents, pay utility bills and purchase everyday items such as newspapers, coffee and flowers.

The majority of people in Romania have at least one mobile device, but more than one third of the population do not have access to conventional banking, Michael Joseph, Vodafones director of mobile money, said in explaining his companys decision to launch in that country.

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London-based Vodafone has not disclosed where in Europe it plans to introduce M-Pesa after Romania, where initially the service became available to about six million people. However the global telecoms giant, which has operations in 30 countries and partners with networks in over 50 others, has a footprint that covers most of the European continent.

It makes sense that Vodafone would bring M-Pesa to countries in Central and Eastern Europe, says Kent at IHS Technology. Should the Romanian launch prove successful, Id expect Vodafone to expand in territories such as Albania and Turkey.

Vodafone also has divisions in the Czech Republic and Hungary, and with partners it operates in countries such as Serbia, Poland, Ukraine, and Russia.

But it remains to be seen if Vodafones M-Pesa can repeat in Europe the stellar success it has experienced on its home turf of Kenya. The mobile money platform accounted for nearly $22 billion in transaction, or about 60 percent of Kenyas gross domestic product, in 2013.

M-Pesa certainly hit a home run the first time at bat in Kenya, says Will Hahn, a telecommunications and media analyst for Gartner. Subsequent implementations have been successful, but not on that level.

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For example, Vodafone entered into a partnership with South Africa’s Nedbank in 2010 to bring M-Pesa to some 13 million people who are economically active but lack a bank account. Vodafone planned to sign up 10 million users in the first three years; after almost two years, it has only slightly more than 100,000 subscribers.

The reason for such slow adoption, analysts say, is that a stricter and more litigious regulatory environment in South Africa did not allow M-Pesa to take flight in the same way it has in East Africa.

The former Soviet states, Russia, and Eastern Europe mainly fall in the zone between a Kenya and a South Africa, Gartner’s Hahn says.

As for Western Europe, most analysts are skeptical about M-Pesas chances of grabbing market share in countries such as the U.K., Germany and France. Despite the fact that M-Pesa is more advanced than comparable offerings, consumers in these countries already have access to a wide range of mature financial services.

Still, M-Pesa might find an important niche in Western Europe among the millions of expatriates and immigrants from sub-Saharan African who want to send money home quickly and cheaply. The opportunity is especially important in countries like the U.K. and France where there are many immigrants from Africa, says Omar Maher, an analyst for the Cairo-based investment bank EFG-Hermes. The first test of that hypothesis comes in Romania.

Investors betting on a strong economic recovery in Europe may need to rethink their strategy.

Steep and surprising declines in industrial production, along with continued high unemployment, show that the continents economy is still stuck in the mud. Bad policy and a lack of leadership on both the national and EU level, continues to harm the continents ability to get back up on its feet. Europes troubles are existential in nature and require bold and sweeping changes at all levels of government to ensure a strong and lasting economic recovery. Until Europes leaders are willing to make the tough changes necessary to get things back up and running properly, the continents economy will continue to degrade.

There has been a sharp change of sentiment on Wall Street and in the City of London towards Europe. Ever since the continent showed a smidgen of positive economic growth in the second quarter of the year, money managers have been pouring billions of dollars, pounds and euros into European investments on the hopes of cashing in on what some believe could be a major economic turnaround.

Indeed, investors in the U.S., led by major pension and mutual funds, have invested some $65 billion in European equities during the first half of the year, the highest such dollar amount in 36 years, according to research from Goldman Sachs.

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To be sure, not all that money has flowed into Europe because investors are keen on the continents growth prospects. Some of it has come from managers who have been frantically pulling their cash out of emerging market investments, which havent done so hot this year, and dumping it in more mature markets.

Nevertheless, a great deal of that cash has moved into Europe intentionally on the belief that the markets there are set for a major rally. Many portfolio managers are still kicking themselves for missing the sharp recovery in U.S. equities that took place just six months after the collapse of Lehman Brothers five years ago this month. Those funds that took the risk and bet big on U.S. financial stocks during those dark days reaped massive returns over the next two years as the U.S. government shoveled tons of cash into its banking system. The U.S. economy recovered far faster than many had anticipated and outpaced traditional economic indicators that remained sour well after companies started pumping out strong profits.

It is tough missing out on a major rally because of fear. After all, as the saying goes, fortune favors the bold, right? Given the amount of money that has flowed into the continent this year one would think that it was a sure bet — but, of course, it isnt. Indeed, the economic recovery that some believe is taking place across the 17-member eurozone is looking more and more like a sham.

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Last week, European markets collectively gasped in horror when it was revealed that industrial production across the eurozone for July fell 1.5% compared to the previous month. The consensus was for a flat number, meaning that the consensus was off — way off.

This sort of error in consensus isnt supposed to happen to such a massive degree. Academics were caught off guard and couldnt truly explain why the number was so low and so off. There was an immediate knee-jerk sell-off in European equities but the sentiment on most trading desks was that of confusion, which has carried over into Fridays trading.

So how did this happen? A deeper look into the numbers shows that Germany, the eurozones largest member, posted a terrible 2.3% decline for the month. Being the eurozones largest economy, its sharp decline contributed greatly to the overall negative number. But euro boosters claim that Germany is supposedly leading the continent out of recession. This, at least at the moment, appears not to be the case.

There is another camp that believes that the real growth will come from those countries that were beaten down, the so-called peripheral eurozone nations. But Ireland, which has been held up by the EU and investors as the inspirational turnaround story of the crisis, saw its industrial production fall a mind-blowing 8.7%. That was followed by Portugal, which experienced the strongest growth in GDP among all 17 members of the eurozone during the second quarter, posting a 3.2% decline.

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It gets worse. Of all the five categories of industrial production surveyed, the one that experienced the largest decrease was capital goods, down 2.2% across the zone. This decline shows that businesses arent as confident in the future as investors seem to be as they arent investing in the tools necessary to increase economic output. European bulls took this information particularly hard as they had relied on a firming of the purchasing managers index (PMI) to justify their belief that confidence among businesses in the eurozone was going up.

It is tempting to disregard this report and continue up the happy mountain with the rest of the herd, but to do so would be a mistake. These industrial production numbers arent a fluke, they are indicative of the confusion and the political and economic disarray that continues to haunt the continent in the wake of the sovereign debt crisis. The underlying causes of that crisis, namely, high sovereign debt and weak economic output, remain in full force today. Indeed, sovereign debt levels remain off the scale and unemployment continues to inch upward across the board. Several eurozone nations, including France and Italy, continue to run budget deficits well in excess of 3%. That means they are adding to already massive debt loads, thus making them a riskier bet. That would be understandable if their governments were doing something to reverse this trend but they arent. Indeed, both are making things worse.

It is tempting to bet on the eurozone. The recent 0.3% bump in GDP during the second quarter was the first such increase after six depressing quarters of negative growth. But the subsequent rally in the European markets have gone too far with new highs based solely on speculation, not economic fact.

Europe is still very sick and there is plenty of data proving it. The decrease in industrial production shows that the continents structural issues continue to hold it back from the brink. Europe may very well solve its economic and political problems and emerge stronger than ever but its hard to see that happening anytime soon.

The Bankia share sale wasn’t supposed to go so terribly wrong — indeed, the government, which ordered the move, thought it would evoke confidence in the badly-damaged Spanish banking system. Instead, the Bankia bungle has raised new questions on Wall Street as to the true state of the Spanish banking system, as well as Spain’s overall economic trajectory.

Thought to be bottoming out from a terrible recession, Spain may actually be in far worse shape than the market believed. So much so, in fact, that investors and analysts have started to openly question the validity of economic data issued by the Spanish government. If it’s discovered that the banks or the government have been fudging the numbers in any way, then whatever confidence the market once had in Spanish sovereign debt and that of other troubled European nations would be totally wiped away, potentially setting off another destructive round of attacks against European sovereign debt— one that might ultimately prove fatal to the euro.

Spain has enjoyed a bit of a holiday of sorts from the tumultuous and seemingly never-ending European debt crisis. This year the markets have been mostly concerned with Cyprus and its failed banking system and Italy with its dysfunctional political system. During that time Spain was able to issue enough long-term debt at relatively low interest rates, with the Spanish 10-year bond dipping below 4% in May for the first time since 2010, thus allowing the government to continue borrowing sufficient cash at low rates to support its mounting debt load.

The nation’s conservative government, led by Mariano Rajoy, has tried to curb spending in an attempt to balance the nation’s budget. The government has told the public that it has been able to cut the nation’s budget deficit to just 7% of GDP — down from 11.2% in 2009. It has eliminated nearly 400,000 government jobs and brought labor costs down to where they were in 2005. Spain also posted a current and capital account surplus for the first time in 15 years and an overall trade surplus for the first time in 40 years. And while the government reported last quarter the nation’s GDP was still contracting, falling 0.5% from the prior quarter, it wasn’t seen by the markets as being terribly bad.

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Given the relatively positive economic outlook relayed by the Spanish government it is odd that the Bankia share sale would go so horribly wrong. It is possible that Bankia is a unique exception and is therefore not a great reflection of Spain’s overall economic recovery. But that’s hard to believe given its size, encompassing 10% of the nation’s deposits and 10% of its mortgages.

A more plausible explanation for the busted offering is that Spain’s economy isnt performing as well as Spains government is saying.

Banks are notorious for underreporting loan losses tied with bad bets in an attempt to look healthier to investors. For example, Spanish banks maintained that their net loan losses averaged just 3% from 2008 to 2012, even as unemployment in the nation during that time rose from 10% to 25%. That simply made no sense given the positive correlation of bank loan losses with unemployment. Eventually, the Spanish banks were forced to come clean and admit they were sitting on a bunch of non-performing assets, leading to last year’s bailout.

Has the Spanish government taken a page out of the banks’ playbook and started fudging their numbers to try and fool the markets into believing that Spain is on the road to recovery? Some on Wall Street have started to openly question the validity of Madrid’s rosy economic indicators. Michael Cembalest, the chief investment officer of J.P. Morgan JPM , posited in a recent note as to whether or not it was wise for the markets to accept Spanish GDP data at face value. Cembalest, who was one of the only bank investment officers whorefused to put his clients’ money infunds run byPonzi master Bernard Madoff, noted a number of strange economic indicators based on Spanish GDP numbers — indicators that seem to show that the GDP numbers coming out of Madrid arent to be trusted.

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Cembalest isn’t the only one on Wall Street with doubts. Traders who deal in sovereign debt have told Fortune that they are beginning to take a closer look at Spanish economic data from other sources, such as the OECD, which came out with a pretty grim report on the state of the Spanish economy on Wednesday. Itprojects the unemployment rate in Spainwill continue rising in 2013, peaking next year at 28%, and that Spanish GDP will contract 1.7% this year, four times as much as it did last year.

Sovereign debt investors count on governments to report the truth. Those countries with transparent and solid economic statistics attract more capital and pay lower interest rates than those that play games with investors. Bankia’s terrible share sale has investors wondering if the Spanish government is playing fast and loose with their economic data. If true, this doesnt bode well for the EU and its hopes of putting the sovereign debt crisis to bed. If investors no longer trust what one EU government says, they may decide to stop listening to all of them. That could spell disaster for the euro as governments again find it difficult to borrow from the markets.

The Spanish government can either step up and make the tough changes needed to tame the recessionary beast, or they can play games with the markets and buy some time.

Martin Varsavsky is one of Europe’s leading technology entrepreneurs. He recently spoke to Fortune about startup trends in the UK and Europe, his take on Facebook FB , David Camerons startup initiative, US venture capital and other tech business. Varsavsky started Jazztel, Spains second-largest telecom firm and Ya.com, now a division of France Telecom. He is currently the CEO of FON, a company which he founded. Investors include Google GOOG , BT, Index Ventures, Atomico, and Sequioa.

Martin, how vibrant is the startup tech scene in Europe? Where are the bright spots and what are the challenges? Quite a number of European tech startups are expanding globally including Spotify, Rovio, Hailo, Fon, Oanda and others, following in the footsteps of Skype.
Young people in Europe have traditionally opted for lifetime government or corporate jobs. The European crisis, however, is changing all that. Governments are maxed out in debt and corporate payrolls are shrinking. The three hottest startup cities in Europe right now are London, Berlin and Stockholm but there is startup activity all over the map.

The challenge is that there is no Sand Hill Road in Europe. We need to have a critical mass of venture firms to build a more robust startup ecosystem. Some American venture firms are coming to London, firms such as Accel but we need more homegrown funds such as Index and Atomico in Europe to finance startups.

In fact, it seems that more top US venture firms have a presence in Israel than in the UK and Europe.
Yes, we need to attract more of them to the opportunities here. Israel has a very vibrant startup scene, but things are also heating up in Europe and can use capital and startup expertise.

The second challenge in growing the startup ecosystem in Europe is cultural. Europeans must accept that success in the tech startup world comes through trial and error. Europeans prefer great plans that dont fail. But that is not how Google, Facebook, Amazon, Apple were born.

What kinds of startups do you see in Europe?
There is a lot more to tech than social media apps and especially in Europe. Europe is a continent of engineers more than marketeers. Look at Germany now, a pretty successful economy with relatively low unemployment, mostly sustained on high quality engineering in fields that go way beyond cars. Germany has many more engineers per capita than USA, and it shows.

Many of startups in Europe are deep-technology based and require an extremely knowledgeable investor base. If you look at the technology clusters around Oxford and Cambridge universities you will see startups that are working on issues that take hours before a well-educated person can understand the technology plan. Examples include: innovative delivery systems for medications, new display technologies, chip design, companies that consumers do not see but that enable many products that are essential for modern life.

Are there many superangels who help get these companies going? In silicon valley we have dozens of people who fund 50+ startups.
This week I was at the Superangel summit organized by 10 Downing Street at the initiative of David Cameron. It was impressive to see that there are quite a few European superangels and I was happy to be part of the group. There are European success stories, such as Skype or the companies that I built, Jazztel and Ya.com in Spain in which wealth is distributed among employees and once they sell their stock options employees become angel investors.

On the negative side there are several challenges to starting a company in the UK and Europe:

1. The first issue how taxes are collected. In Europe a lot of taxes are collected via employment. This is fine for large corporate but social charges for large corporates and angel backed ventures are the same. As a result it is better to fund a startup in USA because most of the money goes into the venture at its most risky time. Instead an angel investment in Europe may lose about a third of its funds in social charges for jobs that are part of this trial and error effort. USA angel backed ventures have more runway.

2. Furthermore, Europe has a forced severance pay system that fails to recognize the high risk environment in which startups operate. It is hard to provision for forced severance payments but if you dont you can end up indebted to the government for the rest of your life. What Europe needs is a special regime for angel backed companies. I propose that all companies with less than 10 employees, that are not profitable and that are younger than 3 years, do not pay employment taxes nor forced severance pay.

3. Finally, there should truly be no personal liability for the entrepreneurs of these companies and an ability to declare personal bankruptcy as there is in USA.

Facebook just opened its first non-US engineering office and they did so in London. Google just opened a startup incubator in East London hosting four different incubators including TechHub who in turn will host dozens of startups. Is London rising to the startup challenge more than other cities?

The Cameron administration so far has not cracked the growth and employment situation at the macro level and UK is hurting as an economy. But 10 Downing is doing an amazing job at attracting top tech companies to set up shop in the UK. I have been invited to quite a few events in which George Osborne the Chancellor, David Cameron the PM and even Prince Andrew personally entertained and addressed global entrepreneurs to convince them to invest in the UK.

At this point I would say that London is the best city in Europe to start a new company. On the negative there are the high costs with London being a very expensive city.

While the UK offers an entrepreneur visa in which non EU entrepreneurs can quickly move to the UK to start a business there is no easy visa system for the remainder of the employees. So a US-based entrepreneur can move to London easily but cant easily bring her top managers to the UK.

You interact with both Silicon Valley firms and Wall Street banks — how do you see this dynamic unfolding right now? In particular, given the recent downturn in many of the recent IPOs?
Recently, at the Allen and Company conference in Sun Valley I had a chance to observe on a first hand basis the disconnect that exists between Silicon Valley and Wall Street and recent tech valuations demonstrate this. For people like Marc Andreessen, Reid Hoffman, Mark Zuckerberg, Sergey Brin, Tim Cook and other top SV entrepreneurs present in Sun Valley there is a sense that people in Wall Street just dont get tech.

Silicon valley leaders are frustrated that companies such as Apple and Google are trading at historical low P/E especially when you strip these companies of cash which they accumulate at astonishing rates. A case in point Apple with its $100 billion in cash. Why should companies that grow earnings at 20% a year be given P/E ratios of 11 when interest rates are close to 0? This makes no sense to the SV entrepreneurs. And they have a point.

At the same time, the heads of the largest investment firms in the world, mostly based in NYC, also present in Sun Valley seem to be from another planet. Its as if Silicon Valley entrepreneurs are from Mars and Wall Street investors are from Venus. Wall Street investors reaction is that tech is a fad and who knows for how long Apple and Google will sustain their earnings growth. They look at Facebook and they wonder who will MySpace them next. While SV entrepreneurs believe they are there to change the world for good, Wall Street looks at them and say, today is you, tomorrow is the next star: we are not giving you a high P/E Apple, tomorrow somebody will turn you into the next Nokia, your margins will shrink, your innovation spirit will disappear. Wall Street may be right.

Many entrepreneurs focus on social media startups — yet there are grand challenges that get less attention — will this continue in this way?
The attraction of social media is that it is a huge growing business with very low barriers to entry. Think of the investment that took Yahoo YHOO to get started, that took Google to get started, that even took Youtube to get started and compare that to the tiny amount of money that took Instagram to get started. So the dream is that the next 12 guys with an app can build a company in a few years and sell for a billion. But the problem is, there are a million guys with the same dream and only 12 can win the prize.

Can many new billion dollar businesses build as apps for iPhone and Android? Probably not. I agree that a lot of talent is being wasted this way. The field of social media apps is overcrowded and there will be a lot of write-offs.

Do you see more startup activity in big data?
The world’s technological per-capita capacity to store information has roughly doubled every 40 months since the 1980s; as of 2012, every day 2.5 quintillion (2.51018) bytes of data were created. This has led to a whole new field which deals with how do we store, process, mine, analyze, and make use of so much data. Personally I see big data as an area in which a lot of innovation is needed.

Interestingly one of the most significant contributions of Facebook to the world, other than learning that your friends pet just died and other shocking social news, is the ability of Facebook as a company to process big data and the contributions that Facebook has made for the world by open sourcing all the big data technologies it uses. Companies like Fon, now the largest WiFi network in the world, can piggyback on these investments and be all open source.

Open source is a cooperative idea and mostly European invention that the whole world has tagged along and now most of the back offices of the largest social media companies in the world are run with open source software. And it makes sense, if your database is proprietary, if you are the only one with the key to your users and customers. Why not open source all the technology that makes it all work? But while open source is cooperative idea, the implementations of open source are very capitalist in nature. Investors like my partners at Index Ventures and many others have had significant exits on big data companies like MySQL.

Big data combined with an open source approach will lead to significant innovations and massive value creation.

Finally, Facebook now has deep coverage in Europe and is growing in Asia as well. What are your thoughts on it business model and its ability to scale? Growth seems to be slowing and some advertisers say that FB ads are not as effective as search ads.
FB is now where Google was in 2004, profitable but not yet hugely profitable. FB needs to tweak its advertising model which so far is pretty rudimentary, not bad, but an early stage. I don’t think it’s time yet to buy FB shares because of the tremendous amount of insider selling that has been taking place. But soon the time will come. I don’t think Facebook is a passing fad. Mark Zuckerberg is one of the genius CEOs of this era and FB is here to stay. Zuckerberg will crack the next piece of the puzzle which is how to monetize mobile platforms.

Jack Hidary is a startup investor and co-founder and former CEO of Dice.com (

DHX

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@jackhidary

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By John Cassidy, contributor

FORTUNE — Who will be the most important person in economics in 2012? President Obama? Mitt Romney? Ben Bernanke? My candidate is Mario Draghi (a.k.a. Super Mario), who took over as chairman of the European Central Bank. Though virtually unknown to Americans, the dapper Italian technocrat could emerge as a savior of the world financial system or as its unwitting assassin.

As unemployment falls and confidence returns, one thing that could derail the U.S. recovery is a blowup in Europe that ensnares Wall Street banks and sends markets reeling. Draghi will be key to preventing such a calamity. Like Bernanke in the subprime crisis of 2008-09, his job is to prop up the system, providing it with enough liquidity to prevent a self-fulfilling run on vulnerable entities, and giving Angela Merkel, the German Chancellor and de facto leader of Europe, more time to tackle the debt problem. Can the euro be saved without more active engagement from the ECB? David Riley, sovereign ratings chief at Fitch, warned last week. We think no.

In announcing last month that it would provide Europes stricken banks with unlimited loans of up to three years duration, Draghi has already defused the funding crisis that many financial institutions were facing. Together, the banks took out more than 500 billion euros in loans; many are now sitting on more liquidity than they know what to do with. The ECB also relaxed the terms on which it accepts financial assets as collateral. That allows heavily exposed institutions, such as Commerzbank and Socit Gnrale, to park some of their junkier assets, including the debts of vulnerable sovereigns, on the balance sheet of the central bank, getting cash in return.

The ECB is doing its job as the lender of last resort to the European financial system. But will Draghi provide a similar backstop for embattled European governments, such as those in Madrid and Rome? His official position is he wont, but my advice is this: Watch what he does, not what he says.

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In the summer of 2008, about a month before Lehman Brothers went down, I saw Draghi, then the head of the Italian central bank, speak at a Fed conference, and I was impressed. He demonstrated a command of economics, financial markets, and the importance of prompt central-bank action. He is also an astute political operator, who spent six years at the World Bank and 10 years at the Italian Treasury. Right now he is playing a game of chicken with the big European governments, the French especially, over who will pick up the tab for further sovereign debt restructurings, which are practically inevitable.

European politicians would like the ECB to bear some of the cost, thereby disguising it from an angry public — and that would happen if the central bank purchased bonds that were subsequently restructured. Draghi and his colleagues on the ECB board would prefer to pass the buck to a new bailout fund, the European Stability Mechanism, which the politicians will control. The problem is that the fund isnt big enough — its borrowing power has been capped at 500 billion euros — and it doesnt go into operation until the summer.

Can a compromise be found that reassures markets? Part is in place. Thanks to the ECBs three-year loan auctions, banks can borrow money from Frankfurt at a very low rate and use it to buy sovereign bonds that pay higher coupons. Since the new loans were announced, yields on short-term government bonds in Italy, Spain, and even Belgium have fallen sharply. On top of indirectly funding the purchase of sovereign bonds, I think the ECB will soon purchase them directly. It officially wont be described as a bailout. With Europe heading into a crunching recession, it will form part of a policy of quantitative easing, in which the ECB mimics the action of its counterparts in the U.S., Britain, and Japan. Having questioned the efficacy of QE, Draghi would have to explain such a turnaround. But following changes on the ECBs board, he has some freedom of movement. And with the deepening slump affecting the mighty Germany, the good burghers of Saxony and Bavaria may temper their complaints about an Italian debasing the currency.

We in the States are merely interested observers. Anything Draghi does to prevent a repeat of 2008 would be welcome.

This article is from the February 6, 2012 issue of Fortune.

As Europe stumbles and markets quaver, Victor Khosla sees a rare opportunity. The founder of Strategic Value Partners, which has $4 billion in assets in its distressed-debt and turnaround funds, Khosla, 53, is a veteran of distressed investing at Citibank C , Merrill Lynch, and Cerberus Capital Management. Since he founded SVP in 2002, its flagship Strategic Value Restructuring Fund has averaged 11% annual returns through Sept. 30, according to HSBC Hedge Weekly. We sat down with him in his Greenwich, Conn., offices for a rare interview to talk about the faltering Continent, European banks’ massive asset sales, and where he’s buying.

What’s your take on the European crisis?

This is distressed-debt cycle No. 1 in Europe. Europe discovered leveraged buyouts in 2002 or so, and as a result there were almost $1 trillion of high-yield bonds and loans issued in Europe, mostly between 2002 and 2007. So there is now product in Europe in the corporate distressed side where there never had been. You’ve also got a recession in Europe, which creates distressed debt. And, finally, the European banks have all these pressures and have been selling. When you add these things together, you’ve got size, scale, and sales. We have invested $6 billion in Europe over the past 10 years, buying senior distressed debt, and in the first 10 months of 2011 we invested $1.4 billion, about 65% in Europe. We’re buying from the European banks, and our average purchase price is about 60% of face value. Europe today is like J.F.K. airport at rush hour, and all the commercial banks are lined up to sell their debt.

What does it take for sovereign risk to come off the table? Are European policymakers doing the right thing?

In a slow, creeping, and sometimes backdoor way, there is a socialization of the European debt problem taking place. At this point, you can’t just go this slowly for the next 12 months or 18 months. Things come to a head — they’ve already come to a head. And we think you’ve got to make some decisions over the next three or four months. You’ll see support for Italy and Spain, and you’ll see systemic risk come off the table. Anytime you try to get 17 people to do things, there’s always a nutty chance, a tail chance, that there’s an accident. But our central case is, essentially, the Germans and the French, and maybe the IMF, and maybe the U.S. and China, writing checks to have systemic risk come off the table. An Italian default would shudder through and devastate the financial system, and avoiding it, I think, is not just a European issue, but a global issue.

Europe comprises many different countries, with a variety of risks and regulations. Where are you buying?

Our focus has been Britain, Germany, Scandinavia, Switzerland, and northwestern Europe. That accounts for about $700 billion of Europe’s $1 trillion high-yield market, and it’s a world where there’s the right set of bankruptcy laws and restructuring codes. In 2010 we did a debt-equity restructuring of Oerlikon, which is like a small GE GE of Switzerland, in four months. In the right jurisdictions in Europe, you can do these restructurings. That’s not true for France or Italy, or in the peripheral countries where the economies are really damaged.

Are you seeing opportunities outside of Europe too?

It’s not as extreme as ’08, but we have seen prices crash globally in the last six months: High-yield bonds are at the same level as during the Asian crisis in 1998. With distressed debt, we think the price moves are so steep that it’s down to 2002 levels. While Europe is really interesting, the game in the United States has also changed.

Where are you buying in the U.S.?

We’re looking at infrastructure, the business of ports and toll roads. We’ve invested in distressed debt in the Port of Newark and the Port of Baltimore. And at Boston Logan Airport, we bought a significant amount of debt. These are quasi-monopolistic assets with somewhat predictable cash flows over long periods. We like old-economy businesses with a lot of hard assets. Infrastructure is clearly one of those businesses; power is a second one. A third sector has just emerged, and that is airplanes and airlines. We don’t particularly like airlines, but we like airplanes, and with American Airlines now in bankruptcy, we think there’s a very interesting opportunity to buy distressed debt on airplanes or on the slots at the gates at airports.

3 funds for bad times

This article is from the January 16, 2012 issue of Fortune.

FORTUNE — Warren Buffett once famously described credit default swaps as “financial weapons of mass destruction.” Now these complex insurance policies are once again posing a menace to America’s too-big-to-fail banks. The last time around, CDS on U.S. subprime mortgage bonds nearly brought down insurer AIG AIG , requiring an $85 billion bailout from the U.S. Treasury. This time, the problem is European sovereign debt.

America’s banks have rightly pointed out that they are only minimally exposed to European government debt. But they have been buying and selling default protection on those bonds, doing deals mainly with investors in the eurozone. Exactly how much is not known, because CDS are held off-balance-sheet.

Some recently released European data, however, make a ballpark estimate possible. Exposure by six major American banks to CDS on Italian debt alone, for example, may be as high as $200 billion. Overall, U.S. banks may hold two-thirds of the total euro-debt CDS outstanding.

Presumably, most big banks have learned the painful lessons of 2008 and no longer take either a long or short derivatives position but hedge their exposure, making their net risk close to zero. But the real concern is: How solid are the trading partners of the U.S. banks?

Hot emerging markets for investors

It turns out some of the largest sellers of protection are banks in Europe. French bank BNP Paribas has sold $4 billion in protection on French government debt, 12% of the global total. Similarly, Italy’s Banca Monte dei Paschi di Siena has sold $3 billion worth of protection on Italian government debt. If Italy, say, defaults on its debt, these banks might not be able to pay their American trading partners. “It’s the ultimate moral-hazard trade,” says Peter Tchir, CEO of hedge fund TF Market Advisors. “If a country defaults on its debts, these European banks domiciled in the same country will also default on their debts and won’t pay out, so why not write the protection now and make lots of money?”

No wonder hedge funds holding big positions in CDS based on European debt have started bolting for the exits. Greenlight Capital Re, an insurance company run by hedge fund legend David Einhorn, sold half its $600 million of CDS on sovereign debt in the third quarter, according to SEC filings. Gary Swiman, who heads the asset manager division at consulting firm ICS Risk Advisers, says several other hedge funds and financial institutions that he works for have followed suit. They have been spooked by the debt deal reached between Greece and its international bankers, which requires Greece’s creditors to take a 50% loss on their Greek bonds. Because the deal was labeled “voluntary,” the banks don’t have to pay up on their insurance policies. “Saying they are not going to pay has essentially ruined CDS as a form of insurance and hurts an investor’s ability to hedge,” says Bob Gelfond, CEO of the hedge fund MQS Asset Management.

Yet the day may come when Italy, Portugal, or Spain will be forced into a real default that triggers CDS. What then happens to all those pieces of paper American banks have bought from their friends in Europe?

This article is from the January 16, 2012 issue of Fortune.

EU policymakers recognize the importance of preserving a highly integrated European economy. They are, however, making the same mistake that led to the euro mess in the first place: pretending that Europe can be integrated through administrative measures alone. Remember that the euro was adopted despite worries that the fiscal and political differences across the eurozone would be too large to make it what economists call an optimal currency area. Those differences are still being overlooked. In a recent speech at Jackson Hole by Jean-Claude Trichet, the former head of the European Central Bank, declared that the EU was like the U.S. minus a fiscal union.

Well, perhaps not. Short-term measures to fix or contain the present financial mess are indeed necessary, but in the long run Europeans must change culturally and politically if they are to achieve the balanced integration needed to make the euro a success. This is more crucial than ever because recent setbacks have weakened the case for integration in many peoples minds.

Gains can be achieved by promoting trade among European nations and, more broadly, by increasing trust among the Continents citizens.

Geographically, most modes of transport still cost much more within the EU than in the U.S., a factor that hampers trade. EU leaders need to overcome preferences shown to national champions and find better ways to coordinate Europes transport, communications, and energy infrastructure across national borders.

Economically, the discrepancy in productivity, and thus average income, is much greater across European nations than across U.S. states. Despite these differences, labor migration rates are much lower in Europe.

Culturally, surveys suggest that almost half of Europeans trust citizens of their own country a lot, but only 20% express the same level of faith in Europeans from other countries. This distrust manifests itself in such episodes as Germans leaping to blame Spanish farmers for selling them killer cucumbers, even though the problem originated at home. And this trait has been exacerbated by the recent financial mess.

While cultural change is bound to be challenging, much can be done. Research shows that higher education generally reduces suspicion of outsiders. Of course, education that highlights European interdependence might have an even more powerful effect. The Erasmus educational exchange program for students has already built significant bridges across Europe and — even at a time of budgetary stringency — is worth expanding. Participation in regional economic networks is another idea deserving more attention as technology enables richer communication and broader reach.

While none of this is guaranteed to work, there is no alternative to trying. Because without such integration, Europe will amount to a lot less.

–Pankaj Ghemawat, a professor at IESE Business School in Barcelona, is author of World 3.0 (Harvard Business, 2011).

This article is from the December 26, 2011 issue of Fortune.