Jeremy Warner's Outlook: The euro was never likely to be a casualty of the battle over the European constitution

Six of one, half a dozen of the other - Arthur Andersen is innocent, OK - Don't hold your breath for DTI report
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The Independent Online

Predictions of mayhem in the financial markets should the French vote "non" have proved wide of the mark. These were mostly just wishful thinking by those who hoped a French no would bring the whole edifice of the European project tumbling down. It was never obvious why this should be the case: too much has already been invested in the euro's continued success for it to be to be laid low by the death of the constitution, which is a political, not an economic event. Europe's economic malaise has very little to do with the single currency; rather it's down to entrenched employment and industrial protections. The French no was a vote for the forces of reaction, not economic liberalisation, but the consequences of this are still far from clear. Whatever they might be, breakdown of the euro is the least likely.

Predictions of mayhem in the financial markets should the French vote "non" have proved wide of the mark. These were mostly just wishful thinking by those who hoped a French no would bring the whole edifice of the European project tumbling down. It was never obvious why this should be the case: too much has already been invested in the euro's continued success for it to be to be laid low by the death of the constitution, which is a political, not an economic event. Europe's economic malaise has very little to do with the single currency; rather it's down to entrenched employment and industrial protections. The French no was a vote for the forces of reaction, not economic liberalisation, but the consequences of this are still far from clear. Whatever they might be, breakdown of the euro is the least likely.

Six of one, half a dozen of the other

This European Trade Commissioner stuff plainly isn't as easy as it looks. It was only last November that Peter Mandelson bounced, Tigger like, into the job and in Britain's self-styled role as bridge maker between Europe and the United States, immediately announced that he had persuaded Airbus and Boeing to cease hostilities in their long-running dispute over subsidies and instead seek a negotiated settlement. What diplomacy, what triumph. At last here was a Trade Commissioner who meant business, who could knock heads together and achieve results.

Six months later and he's back where he started with all hope of an agreed deal dead in the water. Mr Mandelson seems meanwhile already to have gone completely native, roundly blaming the Americans for the breakdown in talks yesterday, berating them for the "colossal" subsidies Boeing receives from the US government, and complaining that they were never serious about trying to achieve an even handed settlement in the first place.

Both sides have now revived their complaint with the World Trade Organisation. Eighteen months of hugely costly and probably inconclusive wrangling now looms. Whatever the outcome, neither side is ever going to admit it was wrong; it's war and the world's two biggest trading blocks seem further apart than ever.

As in all these cases, there's right and wrong on both sides. European governments have doled out some $15bn in "launch aid" loans to Airbus since the civil aircraft manufacturer began in 1967 - worth some $40bn in subsidies according to Boeing because of generous repayment terms.

So far at least, all these loans have been repaid in full with handsome royalties paid to participating governments on top. Even so, the risk of designing and building new aircraft has been substantially transferred on to the public sector, and it is undoubtedly true that the same finance would have difficult to impossible to raise on fully commercial terms. Boeing's point is that although such aid might have been justifiable in the early years for Airbus, there comes a time when all companies must stand on their own two feet. Boeing believes that point was reached long ago with Airbus.

Yet Boeing too receives subsidies, both through advantageous tax treatment and through massive military and space spending. Airbus contends that Boeing would not have been able to finance its civil programme without the guarantee of US government spending on military projects. And so on the argument goes on. The latest battleground is proposed launch aid for the A350, a mid-sized, long distance aircraft that would compete directly with Boeing's new 787 "Dreamliner". Europe offered to cut the aid by a third, but nothing less than no aid at all was acceptable to the Americans.

The reality is that neither of these two giants of the civil aircraft market would exist at all but for government support - whether it be direct through launch aid, as in Europe, or via the back door through the military budget, as with Boeing. Virtually all other civil aircraft manufacturers of any size have fallen by the wayside. Boeing, which once had the market largely to itself, complains of unfair European competition, but just think what it's going to be like when the Chinese enter the international market, as inevitably they one day will. It's hard enough even for two to coexist without state subsidy. It's anyone's guess how it will look with three.

Arthur Andersen is innocent, OK

It's a bit late for that now. In what can only be described as a decision of comical irrelevance, the US Supreme Court yesterday overruled Arthur Andersen's conviction for attempting to pervert the course of justice by ordering documents in connection with the collapse of Enron to be destroyed.

Up until the point of conviction, it had still been possible to believe that Andersen might survive the maelstrom of abuse and threatened lawsuits that were hurled against it for one of the biggest accounting scandals in US corporate history. Andersen was, after all, one of the big five worldwide accountancy practices and to be involved from time to time in a major fraud almost comes with the territory.

But to be accused and then convicted of ordering a cover up was something else. This was no longer just negligence, it was dishonesty and as such it went to the heart of the firm's integrity. Andersen's death warrant had been signed. Posthumously now to overturn the execution order must to the 28,000 Andersen employees who lost their jobs in the US, not to mention those elsewhere in the network who also saw their reputations irretrievably damaged, look like a sick joke.

Personally, I never believed Andersen to be guilty as charged. Andersen gambled on the jury taking that view too when it agreed to a "quickie" trial on this single allegation. The evidence that documents continued to be shredded after the firm had received a subpoena from the Securities & Exchange Commission was undeniable. Yet to believe the firm did this deliberately was to think it fundamentally crooked. Negligent and reckless, yes, but from top to bottom crooked? This seemed unlikely.

Still, the government wanted retribution for a scandal that had heaped discredit on American capitalism as a whole. The then Treasury Secretary, Paul O'Neill, talked of stringing up the perpetrators from the nearest tree. Rough justice indeed, but in a crude sort of way, it did help draw a line under the affair. The system failed, the authorities acted and a terrible revenge was exacted - the total destruction of one of the best known names in accountancy. Let that be a lesson to you, even if in the process the judge did manage to misdirect the jury.

Don't hold your breath for DTI report

Oh goody. I can hardly wait. Another Department of Trade and Industry report to look forward to, this one on a dog called Rover. Mind you, if past precedent is followed, we'll have to wait at least three years, typically much longer, to read it, by which time everything that could possibly be known about this very British industrial disaster story will already be known, the law and accounting rules will have been changed, and the villains hung out to dry by their creditors.

Nowadays, DTI inspectors are banned from using their powers for the purpose of a subsequent prosecution, as they did in the Guinness affair. The European courts outlawed it, making these exercises in forensic examination of little more than historical interest by the time they see the light of day. A DTI investigation might have served more purpose had it been ordered when it first emerged that the Phoenix Four were asset stripping the company. Today, it just looks like the Government playing a potentially embarrassing affair off into the long grass.

j.warner@independent.co.uk

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