Intelligence

Cold front moves in over Europe

Times Online - Analysis

By Patience Wheatcroft

WHICH of these two scenarios would you favour: more powers to the EU and protectionism or a lessening of the EU’s powers, free trade and educational reform?
When a question is phrased in those terms, the astonishing thing is not that a majority of business opinion opted for the latter but that any voted for the former. An astonishing 15 per cent of CBI members apparently felt that protectionism was preferable to free trade as did 11 per cent of business generally.

These people have either signed up to the European ideal irrespective of any reality or they have so little faith in their business abilities that they think they cannot compete in an international marketplace.

Surveys that ask such loaded questions do risk being ridiculed. Nevertheless, many of the questions that ICM asked in the first major poll for two years of business opinion on the European Union were straightforward and so are the results they elicited: business has gone distinctly cool on Europe.

Overwhelmingly, the survey found that British business wanted less Europe rather than more. In particular, it wanted less regulation. This is the constant refrain of companies large and small but there is a growing awareness that, while our own Government does its bit, it is Europe that provides much of the impetus with the raw material that the British Government then gold-plates.

Those business voices that used to be loudly raised in favour of closer ties with Europe and a move towards the single currency have been largely silent for some time now. They have not been raised in the furore over whether Britain should sign up to the European constitution. That may have been interpreted as apathy, or a need to get on with running their businesses during tough times. What this new survey shows though is that many of those who were previously euro-enthusiasts have now decided that they see more disadvantages than advantages to be had from plunging more heavily into a community whose problems are becoming ever-more apparent.

In the survey of 1,000 chief executives, a huge majority to have power over trade, employment and civil rights brought back to the British Parliament. Asked if this move would reduce their enthusiasm for investing in Britain, only 3 per cent said they would be less likely.

On the issue of the euro, three quarters of respondents voted that “stable interest rates” were more important than “a fixed exchange rate between the pound and the euro”. Even among supporters of the single currency, 56 per cent were of this view. As business has watched the travails of the EU countries, it has become aware of the problems with a one-size-fits-all interest rate. As the EU states treat the Stability Pact as a joke, the EU itself has begun to look increasingly laughable.

Now, with the accession states about to join, the uncertainties over the future of the European economy are multiplied. By comparison, Britain looks relatively stable. There are undoubted advantages to be had from belonging to a single market, the concept to which we originally signed up. But the single market remains an ambition that has not been realised. The French still manage to engineer situations that see their national champions emerge triumphant: just look at the merger of Sanofi and Aventis and the way that Swiss Novartis was kept at bay.

This survey only confirms what had gradually been seeping into common currency: the single currency is not going to be welcome in Britain.

Not just a matter of convenience

TO THE 1,919 corner shop owners who constitute the shareholders in Londis, the prospect of a cheque for £31,266 could appear very tempting. The directors of the company recommend acceptance of Musgrave’s £60 million bid for the business. But since these are the same directors who not long ago were recommending a £40 million bid from Musgrave, half of which would have gone straight to the pockets of four senior executives, their judgment may not hold too much sway with the shopkeepers.

No doubt KPMG, brought in as adviser to Londis, has weighed up the three firm offers for the business very carefully but shareholders will still have to be persuaded why this bid which, apparently, was not the highest, was nevertheless deemed the most attractive. Valuations at Londis seem to have a certain fluidity. The quartet of executive would-be multi-millionaires were persuaded that their rights, which would have been worth £30 million under the current offer, could be bought out for just £2 million. That is just the sort of discount that would have shoppers queueing up to buy at Londis.

It may be that the company’s finances have much improved since December, when £40 million was judged acceptable, but shareholders will want to take a careful look at the offer documents before deciding what is a fair price. And they will not be the only ones poring over the figures. The data room at Londis was not thrown open to all comers but only those prepared to agree to keep away from direct contact with the group’s shopkeepers. On that basis, the Big Food Group decided that it would stay on the sidelines and heckle.

Since Londis needs 75 per cent of shareholders to approve the deal for it to go through, the heckling might be sufficient to prevent Musgrave winning the day. But will BFG then put in its own bid, as it insists it would like to do, or will it simply try to persuade Londis retailers to change their allegiance and become BFG customers?

Since £31,266 is not enough to fund retirement, the issue for the shopkeepers is not just the cash prize but the trading terms that they are being offered for the future. They increasingly have to compete against the supermarket giants that are muscling in on their convenience store territory so they need to be able to offer wide ranges and keen prices. They may not buy the Musgrave offer as their best future.

US navel-gazing with confidence

WASHINGTON’S message to the world at the weekend meeting of the Group of Seven was that the US recovery was solid and could be relied on. The world, excluding the eurozone, was also on the way back to good times and people should stop navel-gazing and get on with it.

Even at home, however, doubters remain. That may be inevitable in a presidential election year. Until recently there seemed some justification. Output was recovering strongly on the back of ultra-low interest rates and huge uncompensated tax cuts, which stimulated consumer spending and housebuilding.

The fear was that the balloon would deflate as soon as this gas was turned off. Few jobs were being created, few businesses were investing in expansion while there was still plenty of spare capacity to fill and consumer confidence became fragile as people in jobs earning good money came to fear that they would lose those jobs.

Aping Bill Clinton 12 years ago, Democrats seemed on safe ground, centring their attack on today’s President Bush and “the economy, stupid”. Much was made of the jobs issue, tempting John Kerry to join a dangerous protectionist bandwagon.

In the past couple of months, however, most of the questions about the US recovery have suddenly been answered. Investment is recovering and at last jobs are coming through in serious numbers. Yesterday the US Conference Board surprised the markets with a sharp jump, from 88.5 to 92.9, in its April consumer confidence index. This should not really have been a big surprise because confidence was being held back almost entirely by fear of unemployment. Once that fear is allayed, consumers are ready to keep spending. That can only add relish to first- quarter output figures, due tomorrow.

Dubya is shooting Democrat foxes at a rapid rate. Don’t be surprised if adventures in Iraq suddenly move to the top of Mr Kerry’s agenda and the Bush camp focuses on the economy. That will be good news for a world that relies on free trade.

AMVESCAP’S unintentional openness with its numbers cost it millions. The company insisted it should not be construed as a profit forecast. But the forward projection of detailed numbers looked rather like one, no matter that it had only been intended for internal consumption. Ironically, the slip-up came on the day the DTI deliberately released a survey showing that 94 per cent of large companies had an IT security incident in the last year. How many more had an embarrassing, and expensive, IT accident?

April 28, 2004 at 03:15 AM in UK | Permalink | TrackBack (4) | Top of page | Blog Home