It's actually the single market, stupid

City & Business
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The Independent Online
I was intrigued by reports that Richard Sykes, one of Britain's richest businessmen, had offered financial support to Tory candidates in the forthcoming election if they were prepared to make clear in their personal manifestoes their opposition to a single currency. I have no idea whether this is what Mr Sykes has done, but the notion raises an important issue about the European debate. Recently the entire focus appears to have been on a single currency. Will it start on time? If it does, will Britain be involved? Is monetary union a good or a bad thing? These are questions that have a degree of significance for those interested in politics but to the thoughtful international businessman are something of a sideshow.

There is little doubt that for those companies with active interests across Europe the key question is not a single currency but the single market. It is the creation of a trading zone free from artificial tariffs and barriers, which is properly administered and regulated, that has the greatest appeal to British businesses with an overseas perspective.

If there are grumbles about Europe, it is not about monetary union but about the incompleteness of the single market. Barriers to free trade exist and managers are not yet free to manage by applying common standards and practices. The stories of difficulties in European-based operations are legion, particularly when it comes to the question of rationalisation and plant closures.

There are signs of improvement, most notably in Germany where the dire economic outlook has forced trade unions to take a more pragmatic look at social legislation. When the choice is between job losses or complete closure, there are now signs that the former is preferred to the latter. British-style management can be imposed, provided the issue is handled with sensitivity and in a spirit of partnership. This vision has not yet filtered through to France, which remains stubbornly committed to uneconomic job protection. This stance has to be supported by trade protectionism, which is entirely against the spirit and the laws of a single market.

British businesses are therefore convinced that we must continue to have a voice in Europe in order to press more vigorously for completion of a genuine single market. The fears, now becoming less private, are that the politics of a single currency might lead to a withdrawal from Europe.

I was talking recently to a very large British-based international company, which estimated that the single market represented by the US added up to five percentage points to profit margins. That gives some indication of the benefits which could ultimately be available from a true European single market. Competitiveness would improve dramatically.

Once you have a single market then the question about a single currency becomes entirely academic. As sure as night follows day, a single currency follows a single market. Witness again the US, which led the way with a single market and single currency, albeit many years ago.

Unfortunately this argument is not particularly appealing to politicians, who thrive on division and rhetoric. We hear very little from the Pro- Single Market Party.

If financial inducements were to be offered to parliamentary candidates, it should be to those who were prepared to understand the implications of the single market and explain them to their constituents. That would be a genuine public service, which would allow the European debate to be conducted at a level that had practical rather than political consequences.

Economic motor

ANYONE interested in the Avis Europe flotation must have their application in by 5pm this Friday, 21 March. It is an interesting offer because of its subtle combination of the known and unknown. The company is no stranger to the London market, having had a listing between 1986 and 1989, when it was the subject of a leveraged buy out. Old investors will remember it served them well in the late 1980s. The company was capitalised at pounds 270m on flotation and was bought out three years later valued at pounds 903m. That is impressive but of itself does not guarantee investors will be served well again in the late 1990s.

When it returns to the market this month the capitalisation is expected to be up to pounds 733m. This does not imply a fall in value. In 1993, Avis sold its leasing business for around $1bn (pounds 617m). So the underlying business has continued to deliver increased value. The question is how well it will do in the future.

The recent trading record has been impressive, but it is a business that is inextricably linked with the general health of the economy. The company accepts that GDP and airline passenger traffic are the key drivers of the business. The company has a good record at outperforming those drivers, but as it discovered in 1994 it can be vulnerable to a sustained downturn in the overall economic climate.

There is no doubt that in Alun Cathcart, Avis Europe is blessed with an able, talented chairman and chief executive. He knows the industry extremely well. He has maintained Avis as the number one car rental company in Europe since 1973. From next month, the company will be granted the Avis franchises for 27 Asian countries including Japan and China, providing an exciting opportunity for growth.

The company should also be assisted by the restructuring of the global car rental industry, which has seen the car manufacturers loosen their involvement with the rental business. This may not provide the opportunity for easy hikes in rates since the industry remains extremely competitive. But with so many companies seeking listings in the coming year, it will heighten international investor awareness and allow Avis Europe to demonstrate its credentials more clearly.

Investors should subscribe with a view to moderate outperformance but with the caveat that any sign of an impending economic downturn should be read as a clear sell signal.

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