Outlook: French farce that just gets Messier and Messier for Vivendi

Railway odyssey; Steady, Eddie

The departure of Jean-Marie Messier from the helm of Vivendi Universal was supposed to mark a turning point for investors. Instead, it has proved to be a mere staging post in the accelerating meltdown of this one-time but short-lived media colossus.

Yesterday the shares slid by a further quarter, bringing the decline since the start of the year to 70 per cent. The damage was done by a Moody's junk bond rating on Vivendi's debt and a front-page story in Le Monde claiming that it had attempted to flatter last year's profits by €1.5bn with some smart accountancy footwork.

No matter that the essence of the allegations was old or that Vivendi subsequently issued a statement insisting that the US Securities and Exchange Commission has been happy with its actions, if not the French stock market regulators.

In the febrile, post-WorldCom atmosphere which grips the equity markets today, anything which hints at wider accounting problems is guaranteed to spook investors and so it proved in London.

But for now the immediate problem is what to do with Vivendi. The company was trundling along quite happily as a dull old water utility until Mr Messier took it by the scruff of the neck and transformed it into the world's second biggest media group by acquiring Universal and its roster of rock stars and Hollywood studios.

Today, the business is worth much less on the stock market than the valuation of its component parts – a reflection of the mountain of debt it carries and fears about what may be buried beneath. But would the banks countenance a fire sale of those assets? The most obvious move would be the disposal of its French interests – the television channel Canal+ and its stake in the mobile operator SFR. But selling out to the two most likely buyers – Rupert Murdoch and Vodafone – would be hard to stomach for the French political elite.

Mr Messier is fast becoming a pariah in French business circles but he has left Vivendi in an even bigger mess. No wonder he is hanging out for his €12m pay-off. He needs enough not to work again.

Railway odyssey

A funny thing happened to Alistair Darling yesterday on his way to the Railway Forum. By the time he arrived, the Secretary of State for Transport had quite forgotten how he got there. "Getting On With It" was the theme of the first conference to be addressed by Mr Darling since he stepped up to the footplate and that is precisely what he intends to do. There is no point, he said, in dwelling on the past and how the railway got to be in the parlous state it is today. Particularly when New Labour has been in power for the last five years.

Better, he said, to look to the future and encourage all the different moving parts of the system to work together. He promised "end to end accountability" to ensure there was never another Hatfield or Ladbroke Grove without explaining how this would be achieved when the track and trains remain the responsibility of different companies.

He called for "vigour, flair and imagination" from the train operators when most passengers would happily settle for services which correspond approximately to a published timetable. He pledged a "stable" policy for the railways and then said that if a new approach was merited his department would be happy to discuss it.

Above all, he promised government support and, on this at least, we can now see the colour of Mr Darling's money. The cost of dismantling Railtrack and replacing it with Network Rail, the not-for-profit successor, will be £21bn once all the grants and government guarantees are totted up.

This is a lot of money in anyone's language and at least three times as much as Railtrack was looking for just before Mr Darling's predecessor pulled the rug from under it.

Lest anyone should think that the Government has written a blank cheque to its pet company, the managing director of Network Rail, Iain Coucher, assured everyone that most of the money was needed to make up for Railtrack's past under-investment and failure to cost projects such as the West Coast Mainline properly – £13bn and rising.

Mr Coucher says he can't ever imagine needing all £21bn. For one thing, he cannot understand why it cost Railtrack so much to maintain the railways when the gas pipeline system and the national grid are run so much more efficiently.

He cannot have it both ways – one moment accusing Railtrack of under-investing and the next of being a spendthrift. But this is the brave new world of the railways where a company with access to a near bottomless pit of money will nevertheless somehow manage to operate and improve the network for less than it cost before.

If it fails, then there are no shareholders to penalise. All Mr Darling can do is replace the management with a different one. Now why does that sound familiar?

Steady, Eddie

Ever since the Governor of the Bank of England upset the Newcastle Journal by suggesting that it was worth inflicting pain on manufacturers in the North to curb the excesses of consumers in the South, he has been careful to court the regional press.

Thus it was that Sir Edward George's latest thoughts on the direction of monetary policy appeared in an interview yesterday with the Aberdeen Press and Journal. Taken as read, the Governor's observation that interest rates would have to rise unless domestic demand moderates of its own accord looks like a statement of hawkish intent. For good measure, Sir Edward added that the unsustainable boom in house prices was part of the problem.

We have been here before, most notably in June when the deputy governor David Clementi told the Treasury Select Committee that house price inflation was one of the factors driving consumer demand. As many car dealers would testify right now, a cheap loan financed by the building society and secured against the rising value of bricks and mortar is one of the easiest ways to afford a new motor.

But there are good reasons for believing that the Bank will hold off from an increase in interest rates. Not just tomorrow when the Monetary Policy Committee ends its July meeting but next month as well.

Since the Bank's decision in June to keep rates on hold, the evidence for a pre-emptive increase in the cost of borrowing has, if anything, got weaker.

The manufacturing recovery looks to be running out of steam and buried in the latest GDP figures is a downward revision in household spending. Add to that the parlous state of the stock market and the lowest headline inflation rate since records began and it is hard to see where the pressure for a rate rise is coming from. True, the housing bubble continues to inflate and the weakening of the pound against the euro risks sucking in inflation. But it would take more than a quarter point cut to damp down the property market and sterling's weakness against the euro is its strength against the dollar.

The Press and Journal should be justifiably pleased with its story but its readers are likely to be even happier with the Bank's decision.

m.harrison@independent.co.uk