Sorry Rover, but it's not sterling's fault

Like William Hague and the England cricket team, the European Central Bank has developed the unerring ability to set itself low public standards and then contrive to fail to live up to them.

Take last Thursday, when the guardian charged with responsibility for the euro's difficult early years had the chance to reverse the single currency's apparently inexorable decline. Hiking interests rates was a start, but the ECB even managed to make a pig's ear of that fairly straightforward operation.

A dodgy line from Frankfurt gave some news wires the impression rates had gone up by half a percentage point. A City impressed by the ECB's apparent resolution promptly started buying euros, only to discover minutes later that the actual move was a mere quarter.

Cue yet another sell-off of the euro, which, at close of play on Friday, was languishing 19 per cent below the level which was fixed with the dollar in those proud early hours of 1999.

That left a few foreign exchange traders out of pocket, a fact that will win little sympathy with Rover car workers whose uncertain future has been blamed on the relative strength of sterling next to the euro. The argument is beguiling, given that almost half Rover's annual output of 250,000 motors are sold on the Continent.

It is tough enough to make affordable cars in an antiquated West Midlands plant even before the currency speculators have piled on the agony by driving sterling ever higher. Couldn't a government just enriched by almost £23bn thanks to an auction of hot air, spend the money buying euros, so puncturing the pound's rise and inflating the hopes of depressed car makers.

Actually, no. The premise that currencies are fixed by brash City traders barely out of their pin-striped shorts is not only inaccurate but also deeply counter-productive. Sterling has been rising, and the euro falling, largely because real as opposed to speculative money has been leaving euroland and coming to Britain. Not, of course, to invest in old-fashioned industries such as automotives but to back Britain's booming service and hi-tech sectors.

Over time, currency movements tend to reflect the underlying buoyancy of their economies, as the Tories discovered on Black Wednesday in 1992, when the market finally lost patience with an overvalued sterling that failed to reflect the weakness of the domestic economy.

This may demonstrate a callous disregard for the fate of the West Midland's 19,500 workers estimated to depend directly or otherwise on Rover's survival.

But the quick-fix attraction of tampering with the exchange rate is a doomed strategy. The fact is that sterling is at a not unreasonable level as far as the bulk of our economy is concerned.

True, some parts of it, such as Rover, would only be able to survive in their present form if sterling were much weaker. There's also a rather lower level of sterling that would allow a renaissance of Cornish tin mining and the Lake District's lead-extraction industry, but no-one is going that far.

The danger of blaming sterling for the decline of British manufacturing is that it is a defeatist argument. Britain on its own is powerless to effect a long-term devaluation of the currency. The European Central Bank, with $300bn of reserves that could be used in support of the euro, is better equipped.

However, Rover workers would be advised to avoid placing too much faith in an institution apparently unable to tell the difference between a half and a quarter.

A more positive reaction to the soaring pound and its effect on manufacturing would be to embrace the new industries that have made the UK such an attractive place to invest. That, and encourage these businesses to invest in areas such as the West Midlands where the employment they provide is most sorely needed.

Cementing the old?

Blue Circle Industries is another company which has been clobbered by the currency. Shares in the cement mixer fell so low that Lafarge, the French aggregates group, spotted a bargain and launched a Feb- ruary bid of 420p a share. Even Lafarge admitted that Blue Circle was worth more than that, and earlier this month upped the offer to a more generous but nevertheless penny-pinching 450p.

And that should have been that. Yet another British industrial champion put on the ropes by sterling and finally finished off by an opportunistic foreign challenger. Then something strange happened: Blue Circle's investors began to come out against the bid. Schroders' declared support for the management was followed by Standard Life and two other notable investors.

Of course, Lafarge already has bought nigh-on 30 per cent of its prey and may yet prevail. But at the very least, the decision of Schroders and the others has demonstrated a faith not just in Blue Circle's independent strategy but also in the ability of such old-economy stocks to recover their lost stock market ground.

How apt it would be if a cement maker were to provide the first concrete evidence that the "bricks and mortars" are back.