Monetary union: don't delay the delay

European Monetary Union will be delayed and will not now happen, as had been expected, on 1 January, 1999. That is the only conclusion to be drawn from remarks made by Michel Camdessus, the President of the International Monetary Fund on Friday. Mr Camdessus is not only an important international financial figure, he is also French; and he made his remarks at a German political rally. The thrust of the argument from such an intriguing international Franco-German juxtaposition was that delaying the implementation date did not undermine the EMU concept and in fact was more likely to ensure its longevity.

Mr Camdessus is just the right bearer of such a controversial message. It would be difficult for either the French or German governments to start preparing the ground for a delay to EMU. Mr Camdessus, however, has all the right credentials. He also has the benefit of logic being on his side.

Unless monetary union is delayed a mockery will be made of the convergence criteria laid down by the Maastricht Treaty. Already the criteria have become known as the sick joke of Europe. This is a reflection of the kind of economic planning in some EMU wannabe countries, which is so creative it deserves an Arts Council grant. Spain, Italy, Belgium and even France have all referred to the Impressionist school for guidance when framing economic policies. Their aim is to give the impression that they will meet the convergence criteria in 1997, the benchmark year for EMU entrance, even though the reality is somewhat different.

This economic sleight of hand has already set alarm bells ringing about the longer-term prosperity of EMU if so many countries have merely massaged their way in. One way around this difficulty would be to try and exclude the obvious offenders such as Italy and Spain from early participation in 1999. But now an even more difficult problem has arisen. Germany, the very rock on which EMU is to be built, is showing distinct signs that its economy is in such a pickle that it will not meet the Maastricht criteria. Figures last week suggest that the public-sector deficit reached 3.9 per cent of GDP last year against a Maastricht target of 3 per cent. With unemployment reaching nearly 11 per cent and economic growth expected to remain sluggish in the first quarter, the prospects for Germany becoming a shining example to other EMU founders is rapidly dimming.

It is one thing to have Italy blagging its way into the EMU; it is quite something else to have Germany tinkering with its economy to beat the cut. The Germans are unlikely to want to involve themselves in unseemly subterfuge. The only option is thus to delay EMU's start date.

As Mr Camdessus said on Friday: "We must not be obsessed by a given starting date. The euro should start on an unchallenged basis." Quite so.

The question now is just how quickly the delay is announced. There is little doubt that it must be sooner rather than later. Those countries that are stretching the bounds of credibility in order to meet the Maastricht criteria in 1997 need to adjust, swiftly and significantly, their philosophy. The chances are that a country that hits its targets in 1997 through artificial means will miss them by a mile in 1998. The sooner they know when the new benchmark year is, the sooner they can begin to undo their creativity.

A delay to the start for EMU is the only sensible way forward. Mr Camdessus has begun to soften the market up. Chancellor Helmut Kohl must now grit his teeth and finish the job officially.

Down at heel

AMONG all the vitriol heaped upon Sears chief executive Liam Strong for delivering yet another disappointing profits warning it was hard to find any constructive thought on why anybody else would automatically do a better job. Mr Strong is guilty of only one offence - over-optimism. The frustration that investors understandably feel is born out of five years of promising much but delivering little.

It may satisfy the vindictive to depose Mr Strong - but when the engines fail in mid-air you do not save the plane by changing the pilot. The value gap at Sears will not be filled by a new chief executive or by a break- up bid, unless such changes are accompanied by a clear idea about how to deal with the problems in the shoe business. Shoes are the beginning and the end of Sears' problems. Mr Strong has spent five years, as did others before him, trying to find a solution and has failed so far. Why would a new chief or a bidder do any better?

Sears will know within the next few months if the new management and systems it has introduced are working. If they are not then more drastic action will be introduced.

There is no easy answer to the Sears conundrum. But the assumption that value is automatically created by floating off Selfridges at a premium makes no allowance for the sizeable discount that would still be represented by the shoe business.

Sacking Mr Strong would be the easy bit. Extracting value from the shoe business is more difficult, but more important.

Clear skies

THE move by British Airways and American Airlines to file for approval of their proposed alliance with the US authorities suggests they believe that an end is in sight for this prolonged saga. The US regulatory process is the last to be activated. Washington insiders believe this would only be triggered once BA and American thought they were close to clearing all the regulatory hoops that have been put in their way.

However, that BA and American have yet to put in place any of the regulatory jigsaw pieces they need before the alliance is approved suggests that while the end may be in sight it is still unclear what it will look like.

There is still scope for the OFT to tighten the undertakings BA and American must give in lieu of a reference to the MMC; a new open skies pact between Britain and the US will impact on the alliance; Brussels will want its say and the US regulators will not just nod the deal through.

What is emerging, however, is a sense of common ground between BA/AA and the US carriers as commercial reality replaces colourful rhetoric. The alliance is looking closer to becoming a reality than it has for some time.

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