City & Business: Absurd posturing, maybe, but EMU matters

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The Independent Online
I HAD my EMU experience last week. The earth did not move, nor did the heavens open. But compared to my wife's peak experience of the week - attending a London restaurant opening at which a chanteuse sang My Way in French - my experience was pretty high class.

It happened on Tuesday. The Centre for Economic Policy Research threw a dinner to launch a programme to monitor the European Central Bank. A dozen hacks who follow the dismal science converged on a dolorous back room of Novelli's in London's Clerkenwell Green. The man from The Economist condescended to the man from the Mail on Sunday, while the man from Il Sole 24 Ore, the one distinguished reporter in the room, looked on morosely.

Before the obligatory roasted goat cheese starter, Richard Portes, the CEPR's president, said a few words to the effect that the European Central Bank would soon be one of the most powerful institutions in the continent and yet no one was monitoring it.

"The issue is accountability," Mr Portes said. "Central banking is not a technocratic activity. It's a political activity."

With the wine the conversation warmed up - the latterday equivalent of a minor Benedictine monastery debating the provenance of the Nicaean Creed. There was some wonderfully arcane language, primarily from the younger members of the press among us. "I'm interested in what you're saying in a rather narrow context," said one. "Yes," chimed in another, "it raises a question that the optimal currency literature never asks."

David Begg, the Birkbeck College professor on the steering committee, became wonderfully vehement, while Francesco Giavazzi, from Milan's Universita Bocconi, was archly urbane.

And yet there was something touching about the affair. For all the throttled, displaced emotions, for all the absurd posturing, the dozen men and two women in the room understood they were talking about the rules of the game.

Though he bent over backward to remain dispassionate, Mr Begg could not contain his anger at the thought that the European Central Bank might use high interest rates to gain credibility in the markets at the expense of exacerbating the epidemic of unemployment laying waste to the continent.

But my EMU experience was more complex than this. It suddenly came to me, EMU is not a subject to peel the enamel off your teeth. It matters.

Once the single currency is in force, employers and employees will be able to compare salaries across the continent. What is going to happen when everyone can see that Spanish auto workers earn two-thirds of what German auto workers earn and are just as productive?

The final part of my EMU experience was the mystery of the bewhiskered elderly gentleman sitting opposite. Throughout the evening he riveted a cold, cocked, drooping eye on each speaker in turn. He never uttered a word. I could never figure out if he was taking in everything that was said - engaging in some abstruse mental debate the world should know about - or whether he was watching for a chance to steal an extra pudding.

Bear essential

A FAX from Tokyo's Imperial Hotel arrives from Andrew Smithers, a principal of Smithers & Company and one of the founders of Mercury Asset Management. In response to a question, he offers some predictions about the future of fund management. "Large balanced fund managers will have difficulty in retaining their market share in the face of the switch to indexation," he says.

"After a long period of high performance we will have a long period of bad performance," he adds. The growth in the business will "come from retail products, both unit trusts and defined contribution funds. These are marketing driven rather than performance driven," he notes. "There is no point in risking bad performance, so they will be index type funds. Virgin has the message."

The best way for fund managers seeking to differentiate themselves from their competitors, he suggests, is for them to take a bearish view of the market. "My own view," he concludes, "is that a negative view of equities is likely to pay hands down."

Entente down the tube

I GOT caught with an out-of-date monthly tube pass (zones one and two) on Friday. Mr R Kirby, manning the penalty window at Kings Cross, ordered me to pay my pounds 10 fine. I protested and went to see the station master. He told me I could appeal if I wanted to and pay the pounds 10 only if I lost.

I returned to the penalty window in high dudgeon to find Mr Kirby applying his rubber truncheon to an elegant Frenchman.

The Frenchman explained he had tried to buy a day travel pass but had been thwarted by a broken machine. He had, he said, bought the ticket he thought correct from another machine.

"It's not enough," Mr Kirby said.

"I have an appointment," the Frenchman said. "How may I go?"

"Pay pounds 10," Mr Kirby said.

"Zeez is not fair," the Frenchman said handing over a note. When the Frenchman had gone, I asked Mr Kirby why he had not informed him of his right to appeal. "It's all right here," Mr Kirby said, tapping a notice on his plexiglass window.

When I got to the office, I rang the London Underground press office and described what I had seen. "I'll look into it," a Mr Liversage said.

That afternoon Mr Liversage rang back. He had spoken to Mr Kirby, he said, and Mr Kirby had assured him the Frenchman did not have a valid ticket and, as for the matter of an appeal, had not left his name.

It is clear John Redwood and his campaign to keep Britain out of Europe has the full support of at least two London Underground staff.

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