Jason Nissé: Gordon's euro sums are a sterling effort to calculate and confuse

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The Independent Online

Gordon Brown has talked some guff this week – his entrepreneurship initiative is dissected elsewhere on this page, and his competition policy statements only contradict his previous stances and undermine his colleagues. But his description of the Treasury team as "Pro-euro realists" takes the biscuit.

What the Chancellor is doing is effectively blocking any chance of sterling going into the euro without actually saying it. Anyone with any sense knows that the five economic tests are made out of fudge. They are written by people who see economics as an art, not a science, and will be applied with the precision needed to get the result desired.

But there is one economic factor that does have a bearing on whether it makes sense for us to go into the single currency – the exchange rate between sterling and the euro.

And the gap between the level today and the level the euro needs to be for British industry not to be crippled if we join the single currency is widening. And the most crucial factor in this is beyond Gordon's control. The parlous state of the German economy was exposed on Friday when the IFO confidence index fell again. Most experts think Germany is heading for recession.

My views on economists are such that I can only assume Germany will avoid such a fate, but only because Gerhard Schröder will put so much pressure on the ECB to cut interest rates that Wim Duisenberg will not be able to resist.

Given that euro interest rates are already well below those in Britain, this can only widen this gap.

So what's the solution?

To get us into the euro at anything other than a competitive disadvantage, there has to be either a revaluation of the euro (unlikely) or a devaluation of the pound. The latter needs either our economy to go to hell on a handcart (also unlikely, thank God) or for the UK to sharply cut interest rates. This is also unlikely – and for that we should thank, or should I say blame, Gordon.

Now you might think that interest rates are set by the Monetary Policy Committee of the Bank of England. And they are. But only on the strict target of keeping inflation at 2.5 per cent.

If Gordon was serious about getting us into the euro, he'd loosen this target, so allowing the MPC to bring UK rates down nearer euro levels.

And the other effect of loosening this target is that it would give the signal to the City that Gordon really is a "pro-euro realist" rather than a "secret anti-europragmatist".

And every time Gordon says anything that puts back the chances of a euro referendum City traders buy sterling because they see that there is less chance of Gordon doing anything that would devalue the currency.

Gordon's strategy is calculated to confuse. And the longer he is able to keep up the uncertainty, the longer he can keep sterling out of the single currency. Which, I rather fear, is his objective.

Insurance– don't bet your life on it

A couple of years ago I was asked what I thought my areas of expertise were and I answered: "I cover anything in business except insurance."

My allergy to this sector has only been amplified by the demise of Independent Insurance. While incompetence, fraud and poor regulation no doubt had their part to play, the opaque structure of most insurance companies makes it unclear to anyone but the most specialist investor what is going right, never mind what is going wrong.

Those in the know have long argued that Independent was sailing close to the wind. But the rest of us relied on the hope that Michael Bright knew what he was doing and that the professional advisors – actuaries Watson Wyatt and auditors KPMG – would alert us if he didn't.

But experience triumphs over hope. From Maxwell to Barings, Brent Walker to Queens Moat Houses, the failure of our so called professional guardians to protect the interest of investors has been shown again and again. Yet we continue to have faith in people who enter their chosen profession to make money rather than to improve the moral wellbeing of society.

With increasing conglomeration and globalisation, our choice with these advisors becomes more and more limited. So if we are unhappy with KPMG's auditing we go to PwC, and if they fail we go to Andersen, Ernst & Young or Deloitte & Touche and soon we run out of choices. I cannot name a major accounting firm that hasn't given a clean bill of health to someone who later turned out to be cooking the books.

So I'm going to stick to investing in what I understand. It would have kept me away from Independent Insurance.

j.nisse@independent.co.uk

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