EURO-TRAIN SUBJECT TO DELAY

. . . and even some bankers don't

think its journey is necessary, reports Christopher Fildes Interlaken THE BANKER enthuses. Europe, he says, is heading for monetary union like an express train. Then a thought strikes him: 'Of course, when an express train comes off the rails. .

Suddenly, the train is lurching. Only last week Lord Jenkins was urging us to take our seats in the dining-car. We should have been just in time for the signalmen's errors in France and the rows on the foot- plate in Germany. It has all happened in front of the world's leading bankers, here for their International Monetary Confer- ence. They had been looking forward to a congenial few days in the Swiss Alps. Now they have to ask where this train is heading and whether they want to be on it.

The row on the footplate was set off by Helmut Kohl's finance minister who, as finance ministers do, found himself short of money — so short that, strictly speak- ing, Germany might not qualify for the sin- gle currency. His eye fell on the gold in the Bundesbank, Germany's independent cen- tral bank. Why not revalue the gold, so he thought, show a profit, and impress the strict examiners? The bank exploded. Hands off our gold, it cried. God save the mark.

The Bundesbank's independence is unique, and I once heard Eddie George explain it, long before he took up govern- ing and tried independence for himself. It was founded, he said, not so much on the words of a statute as on the Germans' bit- ter memories of inflation. So they care about the mark, and about the bank as the currency's guardian — but, he added, if anything came up that they cared more about, the bank would lose.

Then reunification came up. The West German mark was merged with the East German soap coupon, the Bundesbank warned of the dangers, Mr Kohl walked all over it and forced its governor's resigna- tion. Then its warnings were borne out and in its mulish way it has been saving up its kick. Last week it chose its moment.

It chose well, for already we can see the euro looking less like a mark and more like a soap coupon. That is down to the French signalmen's errors. In his Elysian box, Jacques Chirac had hoped that with some deft timing and switching he could give this TGV a clear run through to its appointed terminus. His luck was out. As so often happens in France the cheminots have blocked the tracks and burned the sleepers.

It is not, proclaims Lionel Jospin, their leader, that we don't want this train to get through. Goodness, no. It is only that we want the management to meet our just demands. Come to think of it, we are the management now, so let's have no more privatisation, and plenty of jobs for the lads. Where are the jobs to come from? From the state, of course.

Looking on, it is hard not to feel that the previous management had it coming to them. All those years of pretending that a franc was as good as a mark were bound to take their toll. They have left France with festering unemployment, but that is Europe's problem too, and, as Mr George has pointed out, a single currency can do nothing for it except, here and there, to make it worse.

M. Jospin's promise to borrow and spend and employ and elect had its own populist appeal, even if Tony Blair and Bill Clinton before him were at pains to disavow it. Populist appeal does not get you into exclusive monetary clubs, but M. Jospin does not want the Euro Club to be exclusive. Let them all come, he says. Let Italy join and let Spain. Don't let us stand any nonsense from the staff or the com- mittee.Whose club is this, anyway?

The catch in all this is economic. There is an optimal size for the territory that a single currency can cover. Above that size it becomes less efficient. The distortions it imposes will get worse and the cost of compensating for them will be higher. So the United States works as a single curren- cy zone, but it might have worked better 'The taste reminds me of those little French Madeleine cakes.' without Texas and it certainly does not need Mexico.

The dollar would not be improved by merging it with the Mexican peso. No more would the mark gain from a merger with the lira or the drachma. The more weak currencies go into the melting-pot, the weaker the result is bound to be.

So the bankers' perspectives have changed, for they can now see that the euro may start life as a weak currency, caught in the cross-currents of politics. This is not what they thought they had been sold, and certainly not what the Bundesbank would have been wining to buy. We may have to see whether the Germans will buy it.

Hopping off the footplate, their chancel- lor came to Interlaken this week and did what he could to calm the bankers' nerves. Those gold reserves, he said, would have to be revalued soon — like everything else, it was in the Maastricht rules somewhere — so why not do it now when they would come in handy? Then he went home and patched up the row, on terms that leave hot coals scattered under his feet.

The bankers had listened respectfully. As one chairman put it: 'People who hadn't heard him before were impressed with him.' Another complained of having heard his speech three times: 'It's always the same. He says how terrible the war was, and how he was 15 when it ended, and how he had relations who were killed in it, and how it mustn't happen again. Then he tells you to do what he says.'

Not everyone does so. Here was Herr Kohl in the heart of Europe, in the country that has twice voted to stay out. Switzer- land can sustain three world-league banks, and any number of discreet private bankers tucked away behind their uninformative brass plates, without finding the need to supersede their currency or merge it with anyone else's. The prospect of a weak euro positively worries its bankers. Switzerland, so they say, could do without another wave of funk money.

There are plenty of Continental bankers here to say that no salvation can be found outside the single currency, but Lukas Millilmann of Credit Suisse stood up to disagree with them. For growth, he said, free markets and legal rights and open bor- ders mattered far more than belonging to the appropriate currency club. For attract- ing investment, what mattered was the workforce, and labour relations. The City of London had a string of advantages that would not go away, and it might even become Europe's offshore centre. Interlak- en, I suppose, would be an off-lake-shore centre.

This week's lurchings and bumpings point to the design failure in the euro..It was an economic project designed for polit- ical ends, with all the contradictions that implies, and they are now apparent. Even if it holds the track and conforms to the timetable, that will not guarantee its destination.