Outlook: Duisenberg rides to the Monetary Policy Committee's rescue

Orange squash; Cadbury incorrect Ê

It is often hard to know who exactly the European Central Bank is meant to be serving, but never mind the rest of Europe, yesterday's half-point cut in rates is just what the doctor ordered for this country. Wim Duisenberg, the ECB president, could hardly have set interest rates to suit Britain more had he suddenly transmogrified into Sir Edward George himself.

On the other hand, it is perhaps just as well that the European rate doesn't yet rule on these shores, for the problem with the UK economy is not domestic demand, which continues to roar away like an out-of-control rocket, but external demand and its natural bedfellow, rock-bottom business confidence.

The correct prescription for the UK right now is lower interest rates abroad and higher interest rates here. With the surprise interest rate cut in the US last month and yesterday's not so surprising cut from the ECB, we are halfway there already.

It would hawkish verging on the reckless for the Bank of England to be coincidentally raising interest rates in Britain given the continued fragility of the world economy, but that's what the soaraway housing market and the still buoyant level of consumer demand perhaps require. Mervyn King, the next Governor of the Bank of England, has made his views on the matter perfectly clear. We are close to the stage where something has to be done about the housing market to avoid a nasty demand shock later, he says.

As for Europe, yesterday's cut is better late than never and better than nothing at all. But whether it is capable of lifting Europe out of its economic gloom is questionable. Germany may already have moved beyond the point where monetary action alone can provide the necessary tonic. Mr Duisenberg has perhaps laboured the point too much, but he is essentially correct in arguing that Europe's problems have little to do with too tight a monetary policy. Rather, they are down to an absence of labour market and structural reform.

There is as little appetite for modernisation and change in Germany as there is in the London Fire Brigade, and until that attitude changes there is no chance at all of a return to decent levels of economic growth in Europe, let alone achieving the EU's target of becoming the world's most competitive economic area by 2010. As for Britain, it is vital that things do begin to pick up in Europe if the Chancellor is to meet the new growth targets for next year and the year after outlined in the pre-Budget report.

Gordon Brown is rightly assuming a marked slowdown in consumer demand, with or without higher UK interest rates, but this to be compensated for by a pick-up in output and business investment. Yesterday's eurozone rates cut will give him cause for hope, but his forecasts still seem to me an impossibly ambitious long shot.

Orange squash

With a lot of help from the tow boats of the French state, Thierry Breton, the new man at the helm of France Telecom, seems be slowly easing his ship off the rocks. In France, the approach is already being dubbed "15 plus 15 plus 15". The first €15bn of debt reduction is to be achieved over three years through investment cutbacks, operational savings and the abolition of the dividend.

The next €15bn comes through a refinancing of debt and then finally there will be a €15bn rights issue when conditions suit. In the meantime, the French government will make a €9bn loan available to France Telecom to tide it over its immediate liquidity problems. This money will eventually go towards taking up the government's share of the rights issue.

The government has so designed the loan so that it doesn't count as part of the public finances, which is just as well because besides the fact that it is very probably illegal state aid, it might also put France in breach of the Maastricht criteria on budget deficits. Even if it wanted to, Britain couldn't reasonably complain, since it is doing much the same thing with Network Rail. With the former Railtrack, the size of the loans underwritten by the Treasury but which the Office for National Statistics has conveniently found not to be government borrowing, is a great deal larger.

There's a bit of pain being taken in the French fixed-line telecoms business, if a six-month hiring freeze can be described as pain. But the bulk of the savings look to be coming from Orange, the group's mobile phones business. Orange is 87 per cent owned by France Telecom, so it can do pretty much what it likes with the business. The planned 3G roll-out is to be put on ice, 1,000 to 2,000 jobs are being chopped and, to all intends and purposes, the company is to be run for cash. The result is that net cash flow from Orange over the next three years will be €5 to €7bn higher than previously forecast, making the company debt free within two to three years.

If you think that doesn't make a great deal of sense for a growth business in a fiercely competitive industry, and that it might disadvantage the 13 per cent publicly held minority in the shares, then you are just not listening to the spin. Actually Orange would be doing all this regardless of France Telecom's wants and needs. The fact that it suits France Telecom too is just a happy coincidence. How come?

Oh, do come on. 3G will eventually happen but because of continuing technical difficulties over handover and interoperability, it is not yet there. By Orange's estimation it might, in any case, be two years before mass market handsets are available in sufficient volume at sufficiently affordable prices to make the service viable. What's more, think of the competitive advantage Orange will have if when it does enter the 3G world it is entirely debt free. Both in terms of potential for acquisition making and investment, it will be uniquely placed.

The argument is well put and convincing made, but the fact of the matter is that the British bit of Orange has achieved its present success by single mindedly investing in its network while everyone else was off milking theirs for all they were worth. That may not have been true of the French half of the business, which is one of the two big mobile incumbents in France. None the less, Orange's competitors will take one look at yesterday's statement and think therein lies an opportunity. While Orange is doing bedside duty with its sick parent, others will be out there stealing a march.

Still, for France Telecom shareholders if not those of Orange, there were lots of positives in yesterday's raft of initiatives. Not least is the admission from Francis Mer, Finance minister, that his predecessors had caused France Telecom's travails by refusing to cede control, which in turn meant that the company had financed its spending spree with debt rather than equity. Government control is no longer sacrosanct, he said, which may mean France Telecom is finally on the way to becoming a properly privatised concern.

Cadbury incorrect

As befits a company with roots deep in Britain's Quaker traditions, Cadbury Schweppes has an unequalled reputation for socially responsible and politically correct behaviour. It is therefore heartening to see the company nipping in quick before the bar comes down by elevating its chief executive, John Sunderland, to the position of chairman. Sir Adrian Cadbury, a former chairman of Cadbury Schweppes, suggested the practice be outlawed in his review of corporate governance a decade ago on the grounds that a former chief executive cannot be fully independent. Derek Higgs, who is conducting a post-Enron government review of the role of non-executive directors, looks set to finish it off once and for all when his report is published next month by recommending an outright ban, which the Government will almost certainly accept. It is all very Cadbury incorrect of Cadbury.

jeremy.warner@independent.co.uk