By Kathleen Brooks. The opinions expressed are her own.

Who wouldn’t want to have been an early investor in Facebook? The graffiti artist who spray painted the walls of Facebook HQ decided to take stock rather than a paycheck and will be $150 million dollars richer as a result.

Facebook is one of the biggest ever IPOs in the U.S. and at the end of last week it even managed to knock Greece out of the headlines and was credited with boosting market sentiment.

The IPO road-show generated larger than expected demand for FB stock, which was met by willing Facebook employees and investors eager to sell. The hype didn’t end there; the stock price was priced higher than expected at $38 per share, valuing the company at $104bn! No wonder Facebook co-founder Eduardo Saverin has renounced U.S. citizenship to sell his Facebook stake and avoid capital gains tax. But the vast bulk of analysis in the lead up to the sale has been Facebook negative: it doesn’t have a sustainable business model, it doesn’t generate enough cash per user (approx. $5 per year, per user), too many insiders are too eager to sell, the price will crash…

But if there are so many reasons to sell, why are people queuing up to fill their boots with red hot Facebook stock?  I think the reason is Zuckerberg, and investors in Facebook are chasing his next great idea. The first thing he could turn his attention to is marketing and advertising. After saying that advertising isn’t cool (or maybe that was Jesse Eisenberg in the film The Social Network…) it’s wrong to write Zuckerberg off as a sell-out now that ad revenue will most likely be FB’s largest source of cash flow.

Let’s face it – online advertising in its current form is far from a success. Ad’s that pop up and block the view on your screen are not only uncool but boring and annoying. The advertising world hasn’t really got on board with the smartphone, either. Although we spend more of our time online than we do watching TV these days (and probably a lot of that time on Facebook), revenue from online advertising has been extremely slow to grow. It is expected to overtake newspapers as the second largest U.S. advertising medium behind television in 2014, however the growth rate of the internet is far superior to the declining newspaper business, which highlights the problem with online ads: they don’t create enough money.

Compared to TV ads, online ones look like their poor cousins. My favourite TV advert is still the Volkswagen ad with the little kid dressed as Darth Vader, which was first played at the Super Bowl a couple of years ago. It was genius, and I still remember it today. Now that he is an official billionaire (well, on paper anyway) Zuckerberg will no doubt need a new challenge. If he wants ads all over Facebook then he needs to make online advertising “cool”. He changed how we communicate – can he make online marketing more effective? If yes, then he could help other struggling industries like the newspaper business that have found online advertising to be a paltry pay master.

By Kathleen Brooks. The opinions expressed are her own.

Throughout history it has always been difficult to take something away from someone once you have given it to them. Europe is finding that it is extremely difficult to reign in public finances once they start to go out of control. Democracies don’t like to vote for austerity, which is why Sarkozy lost the Presidency in France, why a radical left party came second in the Greek elections and why the Conservatives got a drubbing at last week’s local elections in the UK.

This tells us something about democracy in the western world. Governments have to manage the public finances directly – they have to sell the debt, do the sums and present budgets. However, the people who vote them into (and out of) power are the public, who rightly in most cases, believe they have worked hard, paid  taxes and deserve the services and retirement promises made to them.

So here we have the problem: some governments in the West have unsustainable debt loads and deficit levels and yet they don’t have the popular mandate to try and bring that under control. That isn’t the story all over the west. The Germans and the Dutch agree that the government books should be balanced. But if you asked the rest of Europe if they wanted to reduce public debt levels to make country finances more sustainable at the expense of public services and jobs, the recent election results suggest that you would get a resounding no.

So there isn’t one unified way of thinking about austerity in the West. Some people see it as a virtue, others as a type of hell. So what to do? Europe’s one-type fits all model that is largely designed by Germany could lead to social disorder and radical political parties grabbing the reins of power in Greece. However, the more people fight against austerity the more unlikely it is that their governments can attract enough investors to buy their debt to fund their public spending needs.

So where does this vicious circle end? The answer is that no one knows. Now that the true state of public finances in Europe has been revealed it can’t be brushed under the carpet and the Greeks et al can’t go back to the pre-2007 ways of living and spending. However, the opposite – harsh austerity designed to reign in public finances at half the time it took to amass the debt in the first place – isn’t working either.

A more sensible plan is for Europe to reach some sort of compromise. Germany and Greece (as the two extremes) need to realise there are multiple views about what a democracy should provide and how public finances should be controlled. The next step is to plan a fiscal pact that allows countries to reign in public spending at the same pace as it amassed it in the first place – and fiscal targets should be spread out over 10 years rather than the current demands to bring down deficits to 3 percent of GDP by the next fiscal year. The UK could probably follow suit and realise that the debts took two parliaments to accumulate, thus it should take two parliaments to rein them in.

By Kathleen Brooks. The opinions expressed are her own.

The words ‘tech bubble’ have been bandied about since the Apple share price really started to climb at the end of 2011. Earlier this month, its market capitalisation hit $600 billion dollars, only the second company to see its market cap get that high. So it appears like everyone wants a bite out of the proverbial apple.

There is a dangerous precedent for markets’ believing that tech stocks can only go in one direction. The dotcom bubble back in 2000 caused havoc in the equity markets and also contributed to the Federal Reserve keeping interest rates incredibly low, one of the contributing factors to the housing crisis in 2007.

Added to this, the only other company to have registered a $600 billion market cap was Microsoft at the height of the tech boom. Today Microsoft is worth about a third of that value. So does Apple need to watch out?

We have seen the Apple share price fall quite sharply in recent days, it is down 7 percent since last week. However, it has followed the overall market lower and thus the decline may not be people getting nervous about holding Apple stock, but rather some profit-taking and a normal correction. While we certainly don’t expect Apple to continue to appreciate at the pace it has of late, good profit growth, surging sales and plenty of opportunity to expand its retail operation across the developed and developing world could help prop up the share price even at these levels.

It’s not just Apple’s incredible marketing and product quality that makes us doubt the doomsayers. In my view, the overall market does not look like it is in bubble territory. Although Apple is bigger than some small European countries (it is more than double the size of Portugal’s annual GDP), it is not the only tech stock on the block. Research In Motion (RIM), who makes the Blackberry, has seen its share price fall 77 percent over the past year. Nokia has seen its share price dwindle from $9 per share in April 2011 to below $4 today. So not every company has seen its share price surge nearly 90 percent, like Apple has. Hence the Nasdaq remains more than 30 percent below the peak reached in 2000 before the dotcom house of cards collapsed.

The key difference between then and now is that the market has a better nose for quality, revenue source and longevity. Hence why Apple – with its 50 percent control of the tablet market and dominance in the phone sector – has managed to outperform RIM and Nokia. The tech bubble was characterised by the huge valuations of companies people had barely heard of and who, ultimately, did not have viable business models. LinkedIn, whose IPO last year saw its share price double on its first day trading, has seen its share price trajectory get more volatile since then rather than surge to frothy levels. Also, LinkedIn has a viable business model. Subscribers can pay to get a premium service, which is invaluable for head-hunters, human resource managers and others. LinkedIn is a good example of the free/ subscriber hybrid model that some newspaper companies should have followed years ago.

By Kathleen Brooks. The opinions expressed are her own.

There’s a 250,000 pound prize for the best idea on how to break up the euro zone, but how much would you pay to see the euro zone saved?

There is no denying that the euro zone is in a mess right now, but there are some steps that could help ease the crisis. Essentially the markets hate to be 1) misled and 2) confused. The European authorities have consistently sent mixed messages and reneged on their promises. For example, they said there would be no haircut on Greek debt then when it became obvious Greece had to re-negotiate its massive debt pile the authorities said Greece would be the exception. Now the markets believe there is a good chance that Portugal will have to follow suit.

Thus, the first step to saving the euro zone in its current form is to sort out communication. If debts need to be re-structured in Portugal and Ireland then the European authorities should call an emergency meeting and come up with a broad set of parameters and rules for cutting these weak peripheral states’ debts. These could include; 1) a certain debt to GDP ratio that once surpassed mean that debts have to be re-negotiated; 2) A set percentage of debts to be renegotiated and no more than that; 3) Finally, a timetable for repaying the outstanding debts that is realistic. The debt repayment plan would be based on realistic growth assumptions then penalties could be applied if the schedule is missed.

The Fiscal Pact may be a new stage in the euro zone project, but in its current form it is only going to promote bickering, one-upmanship and the eventual disintegration of the currency bloc. The Fiscal Pact contains some good ideas, but the plan for budget deficits to return to no more than 3 percent of GDP by 2013 is too ambitious.

The euro zone has always been made up of diverse economies, so rather than creating one rule for all the authorities, it  would be better to have scaled fiscal targets. For example, for Spain they would need to take account of weak growth and an enormous unemployment rate to come up with a more realistic fiscal consolidation timetable. The markets are punishing the Spanish bond markets today for missed fiscal targets tomorrow. The markets aren’t reacting to the absolute levels of Spanish debt, instead markets tend to react negatively to missed expectations. Thus, one way to calm markets is to lower expectations and make the bar easier for Spain to get over.

This brings me to another point. Re-adjustment in the euro zone needs to take place, but it can’t happen overnight. It is a multi-year, maybe even decade-long process. Due to this it needs a safety cushion during the intervening period. The cushion could be a beefed up financial firewall to ensure that Spain, Italy etc. have a source of funds to tap if the markets get a bit jittery in the coming weeks and months. The only country who can provide this is Germany. It has the money (and the credit rating) to help beef up funds to the magic 1 trillion euro mark that could placate the markets as Europe’s periphery navigate their way through a harsh austerity era.

By Kathleen Brooks. The opinions expressed are her own.

A new dimension to the currency crisis is upon us. First there was the two-speed growth – with richer, predominantly Northern European economies performing well while the weak south was on the cusp of recession. But in recent months an even more worrying divide has started to emerge in youth unemployment.

In Spain the number of under 24-year-olds out of work is 50 percent, in Italy nearly a third of young people are without a job and in France the figure is a quarter.

However, in Germany youth unemployment is expected to sink to record lows over the coming months and is currently well below 8 percent.

If you are a young person in Germany your prospects for work and the future are brighter than they have been for generations. But for their peers in Spain things have never been worse.

So what is Germany doing right and can Spain learn a few lessons? In an article written for the Centre for European Reform, John Springford lays the problem out clearly. In EU countries where rates of unemployment are high levels of participation in higher education and vocational studies is approximately 40 percent. In Germany, Norway, the Netherlands, Denmark and Finland, where youth unemployment is fairly low, rates are closer to 60 percent in some cases.

Education and training is key to reducing youth unemployment. Not only does it help deal with young people when jobs are not plentiful, but it also boosts skill levels and could increase productivity in the long-term while also avoiding a “lost generation” of young adults who become reliant on benefits.

China’s vice President could have chosen state banquets in Berlin or Paris for his recent trip to Europe. This wasn’t just any visit – it was the introduction of Xi Jinping, the man tipped to become the next Chinese leader, to the world. But instead of either of those venues he chose to tour Croke Park in Dublin indulging in a spot of Gaelic games on the way. After heading to the US, en route to Turkey, Jinping went to Ireland.

The official Chinese itinerary is extremely telling. Beijing chose one of the smallest nations in the currency bloc for Jinping’s visit and this will be followed with a trip by Irish Taoiseach Enda Kenny to China scheduled for next month.

So why did China choose Ireland? The official line is that Ireland and China have a history of friendship and have built up important business and trade links, especially in agriculture where Ireland exports more than EUR 200 million worth of produce to China each year. However, bi-lateral trade between Ireland and China is tiny compared to that between Germany and Beijing. If you read between the lines then the visit may have a subtle subtext.

Interestingly, Ireland could teach China a thing or two. Its low corporate tax rate and stable political climate has attracted some of the world’s largest corporations, many of whom – including Google and Facebook – now base their European operations out of Dublin. Just this week PayPal announced that it was creating 1,000 jobs and establishing a major presence in Ireland in the coming months.

Not even the banking/sovereign debt crisis back in 2010 stopped these companies coming to Ireland; in fact more businesses have moved their headquarters there in the past two years, helping to make use of the excess office space generated by the collapse of some of Ireland’s banking giants.

While some of the world’s most innovative corporate names have been making Dublin their home, China is still viewed with suspicion by the world’s biggest companies, especially in the tech sector. Google and Facebook have limited operations there and while they may desire to tap into the huge demand potential that China offers they are not willing to risk their businesses to patent piracy etc.

So if China’s new leader wants to improve relations with the world’s largest corporations then Ireland is not a bad place to associate himself, especially in light of the strong relationships Dublin has with global business heads.

The pictures from Athens at the weekend showed a city in turmoil: protests turned violent, buildings were alight and an anti-German feeling was clear for all to see. German flags have been burnt as Greek politicians have agreed to yet more austerity, which means reduced pensions, a 20% cut to the minimum wage and mass layoffs in the public sector.

Added to that the EU has demanded that Greek politicians from both sides of the political aisle sign a pledge to implement cuts regardless of the outcome of the general election scheduled for April. Thus, even if the Greek people vote for an alternative to cuts the troika will insist on them.

But while the Greeks protested at this loss of sovereignty the financial markets have been surprisingly calm. While Greek politicians have been in the throes of austerity, negotiations the bond markets in Italy, Spain and Portugal have continued to recover and apart from a slight blip at the end of last week, euro-based risk assets have continued to rally. Added to this, those calling for the end of the euro have been frustrated by the resilience of the single currency.

So does this mean that the markets will have a delayed reaction to what is going on in Athens, or does Greece not matter anymore? I tend to lean towards the latter. That doesn’t mean that no one cares about Greece or her citizens – the pictures at the weekend were truly disturbing – it’s just that in terms of the euro zone crisis, what happens in Athens is not such an important part of the equation anymore.

A trader I know put it this way: rather than spook the markets, the current events in Greece may spur Italy, Portugal and Spain to act to meet fiscal targets and implement structural reform. After all, it shows just how harsh the Troika can be if you repeatedly fail to live up to expectations when it comes to fiscal consolidation.

An Italian tax crackdown has already yielded positive results. A recent article in the New York Times reported that Rome’s tax police swooped on a small workshop near the Vatican that sold religious souvenirs but failed to pay the Italian Revenue its share. Other arrests have been made in ski resorts and high profile nightclubs around the country. The warning is clear: if you live in Italy, drive a Ferrari and report earnings that could hardly pay for a Fiat Punto then the tax police are coming to get you.

Fraud in Italy is said to be worth 255-275 billion euros a year by some estimates. Thus, stories of raids on the rich and famous not only catch the public’s imagination, but are also a way for Italy to score brownie points from Germany.

By Kathleen Brooks. The opinions expressed are her own.

For the last three years talk about the global economy has been decidedly negative. Firstly there was the sub-prime housing crisis in the U.S., then the sovereign debt crisis, now we wonder whether the euro will survive and whether China will suffer a “hard” economic landing.

But amidst all of this doom and gloom, there seems to be a bright spot: Sub-Saharan Africa. For the bulk of the last thirty years the focus has been on famine, civil war or piracy, which has left a decidedly negative impression of the continent. However, in recent weeks there has been a growing number of optimistic reports about Africa, with some even thinking it could continue to grow while the rest of the world stagnates.

So why all the positivity? The media might be behind the curve on this one since Sub-Saharan growth has outperformed the global average for most of the past decade, according to data from the International Monetary Fund (IMF). What is even more astonishing is that it has managed to sustain its growth rates even during periods of crisis. Last year growth averaged more than 5 percent even  though the sovereign debt crisis ravaged Europe and exports stayed high. Now that global food and energy inflation is starting to level, the continent is in a solid position.

The IMF predicts that Sub-Saharan Africa will grow at a faster pace than Brazil – one of the BRIC economies – between 2010 and 2015. So how has the continent managed to divert the narrative from famine and war to growth and prosperity?

There are a few reasons for this: firstly, demographics, secondly, natural resources and thirdly, its lack of exposure to developed world banking sectors. Looking at demographics first, a growing middle class is starting to emerge and now makes up approximately one third of the population of Sub-Saharan Africa. This class of people want to spend money and have helped to lift domestic demand as a share of GDP across the region. Added to this, 70 percent of the middle class is under the age of 40 so have many “spending” years ahead of them.

The Middle Class has been helped by some expedient political decisions in the region, debt relief and peace returning to parts of the continent. This helped to nurture a private sector that has also benefitted from intra-regional trade. A growing middle class brings with it societal benefits: rising education standards and aspirations, which may eventually filter down to poorer parts of society. There is no denying that poverty is a reality in Africa and by 2060 one third of the population is expected to be still living on $1.25 per day, but at the same time more and more people are expected to lift themselves out of poverty.

By Kathleen Brooks. The opinions expressed are her own.

It used to be Greece that was the canary in the coal mine, these days it’s Hungary. The new year got off to a bad start for the Eastern European nation after it experienced a failed bond auction, causing its bond yields to surge.

This caused major jitters across global financial markets and once again a small, relatively unknown economy is dominating the headlines and causing a massive headache for the European authorities.

But while there are many similarities, the reasons for the panic in Hungary’s debt markets are different from Greece’s problems. Athens borrowed too much and public spending spiralled out of control. However, Hungary’s problems were not based on the size of its budget deficit, which was a fairly manageable 4.2 percent of GDP at the end of 2010, but the amount of debt in its public and private sector that was denominated in foreign-currency.

While the post-Communist era in Hungary helped to modernise the state, its capital markets did not keep up to date. Borrowing costs were lower in the euro zone and other parts of Europe where banks were willing to lend relatively cheaply across the Eastern European bloc, especially to Hungary. While the Hungarian forint was strong it was fine to have liabilities in euro and Swiss franc, however, since the start of 2011 the forint has deteriorated at a rapid pace. Since August alone the forint has lost more than 17 percent of its value against the euro.

Here is the problem: when your liabilities are in euro but you earn forint, all of a sudden servicing your debts becomes much more expensive and bad debts start to rise.

That’s where the similarities with Greece start. If bad debts start to rise then Austria and Italy could be on the hook. Austrian banks hold a whopping $40 billion of Hungarian liabilities, while Italian banks have a slightly more manageable $20 billion.

By Kathleen Brooks. The opinions expressed are her own.

Some people assumed that after the debacle over the 2008 mortgage-backed security crisis in the U.S., the credit rating agencies would be discredited. However, here we are three years later and the focus is still on the same rating agencies, waiting with bated breath to see whether they move the ratings of some of the world’s most important economies.

Within the last six months rating agencies have played a big part in shaping the direction of financial markets. First, there was Standard & Poor’s downgrading of the U.S. at the start of August, which caused a wave of risk aversion and turmoil on financial markets. Europe has also been the focus of concern.

Italy has seen its credit rating slashed to the lowest A rating you can have, while new kid on the block rating agency Egan Jones has gone one step further and on Monday cut Italy’s rating to BB from BB+. Belgium has also been cut and rumours are spreading that France isn’t going to keep its coveted triple A status for much longer.

Far from drift into the background, the focus has been on the diminishing number of countries rated triple A in the western world and what this means for borrowing costs. France has also been under the rating agencies’ microscope. It is at risk of losing its triple A credit rating due to its high public sector debt level combined with a sizeable deficit, also Paris has been slow to take steps to try and bring public sector finances under control. A false statement that France had been downgraded by Standard & Poor’s in October caused French bond yields to surge and it also enraged the French government who threatened to take steps to ban the rating agencies from commenting on France again.

But in recent months there has been no smoke without fire and newspaper reports this week suggest that S&P is days away from stripping France of its top rating due to the slowdown in global growth and the impact this will have on French tax receipts. This couldn’t come at a worse time for Europe as France is integral to the European Financial Stability Facility (EFSF) – Europe’s rescue fund, which relies on France and Germany’s triple A status to keep its own top rating. Thus if France is stripped of its triple A this will have ripple effects on the EFSF fund and could make bailing out Europe’s troubled members more expensive, thus aggravating the debt crisis even more.

There were rumours that France was meant to be downgraded last week along with Belgium; however this was scrapped at the last minute. This has set the market rumour mill into over-drive with speculation building that the EU high command could have had something to do with the delay.