Michael Harrison's Outlook: Time to say auf wiedersehen, Herr Schrempp

Berlusconi falls out of love with euro; Jousting knights at Royal Bank
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The Independent Online

In truth, it is the car maker's shareholders who owe Herr Schrempp a bigger debt of gratitude for finally agreeing to quit two years before his contract expires. The 10 per cent rise in the share price that greeted the announcement says all that really needs to be said about the market's verdict on the Schrempp era.

Almost from the moment he bulldozed through the value-destroying merger of Mercedes Benz and Chrysler of the US in 1998, the company began to hit trouble. The merger, a monument to both the Schrempp ego and German industrial arrogance, was a disaster from the start. The deal destroyed half the value of the company and within three years drove Daimler into the biggest loss in German corporate history. Herr Schrempp had no one to blame but himself, having thrown out most of the Chrysler top brass within 12 months of the so-called merger of equals. But if he was contrite, he did not show it one bit and hung on with the support of an unholy alliance of his chairman, the unions and Deutsche Bank.

The ill-judged Chrysler merger, was just one mistake. It was followed by a rescue of Japan's Mitsubishi. Daimler reversed out of the deal three years later but not before more pain had been inflicted. The product strategy has proved as poor as the corporate one. The attempt to create a new brand in the shape of the Smart car has resembled a slow motion car crash. Losses stand at €2.5bn and counting. That has not been the only spot of bother under the Daimler bonnet. The A-class, Mercedes' attempt to enter the super-mini segment of the market, failed the Moose test, the M-class proved an ugly and overweight addition to the sports utility sector and early this year the disease reached what was once the banker of the product range with the recall of more than a million E-class saloons. In short, the Mercedes brand has gone from being revered to reviled. The familiar three-pointed star no longer shines as it once did.

Quite why the Daimler supervisory board finally decided that now was the "optimal time" to say goodbye to its chief executive for the past 17 years remains unclear given that he was not due to step down until 2008 and had resisted prior calls to go. The irony of Herr Schrempp's departure is that it coincides with the first bit of good news in a long time. Against the odds, Mercedes reported a small second-quarter profit.But after the damage that has been inflicted in the past eight years, it will take a lot more than one-quarter's improvement to turn the business around. Had this been an Anglo-Saxon business, then Herr Schrempp would have said auf wiedersehen a long time ago.

Berlusconi falls out of love with euro

F*** the lira, Richard Nixon famously once said when told about some crisis or other affecting the Italian currency. Well, now its successor, the euro, has got its own back and "screwed everybody", according at least to the Italian Prime Minister Silvio Berlusconi.

Mr Berlusconi's remark was intended to make political not economic capital since it was directed at his opponent in next year's elections, Romano Prodi, who as Italian leader took the lira into the single currency in the first place. Prodi is comfortably ahead in the polls.

The euro stumbled and then recovered because nobody seriously expects Italy to leave the eurozone any time soon. Indeed, despite his frequent criticisms of the euro, Mr Berlusconi recently said it would be both impossible and inconvenient to revert to the lira.

Nevertheless, in the aftermath of the no votes in France and the Netherlands, his comments have touched a nerve and raised fresh concerns about the long-term stability of European monetary union. The euro may not have quite screwed everyone, but it certainly hasn't helped Italy, which went through a painful adjustment just to gain entry in the first place. The country has now been pushed into its second recession in as many years, partly because Italy finds itself stuck with an interest rate that is too high for domestic circumstances. In the past, a spot of devaluation would have been enough to put Italian industry back on its feet, but that option is long gone.

There are plenty of other reasons for Italy's poor economic performance but Mr Berlusconi plays to the political gallery when he criticises the euro. Nearly half of all Italians, according to the latest polls, blame it for rising prices and the same percentage again are nostalgic for the lira. The Northern League, partners in Mr Berlusconi's centre-right coalition government, are now calling for a referendum on Italian withdrawal from the eurozone and may even get the 500,000 signatures they need.

Italy's bill for reverting to the lira would be fearful in terms of the increased cost of financing the country's debt. But the damage to the reputation of the single currency would be far worse.

Jousting knights at Royal Bank

Radio silence from Royal Bank of Scotland even though it is now an open secret that Sir Tom McKillop is departing AstraZeneca to take over from Sir George Mathewson as chairman. A firm no comment, too, from Sir Tom yesterday after he announced the management succession at Astra and introduced everyone to his successor, David Brennan.

The £580,000 salary for chairing RBS may or may not be enough to buy Sir Tom bragging rights in a Scottish wine bar but if it is he was not boasting about it yesterday.

Why the coyness? The suspicion is that RBS is waiting for next week's results to make the announcement. But surely that would steal the thunder of its chief executive, Sir Fred "The Shred" Goodwin. Well, they did say the bank was looking for a strong chairman to keep its chief executive in his place. Perhaps Sir Tom wants to start as he means to go on.

m.harrison@independent.co.uk

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