When information of a financial nature means that there is no free lunch
The Midland Bank had a lofty boardroom and, at one stage in its decline, a dashing new finance director. He got his turn to speak in order of seniority, and three dozen assorted grandees took precedence. 'Well, Mr Er, Urn,' said the chairman at last, 'do you have anything to contribute?' 'Yes — I thought that in a company of this kind, the board would appreciate some information of a financial nature.' He then brought out thick piles of paper full of figures and scattered them around the room, much to the vexation of his colleagues, who had been looking forward to their lunch. UK plc's finance director, Gordon Brown, has now pulled the same trick. He distributed 1,738page piles of financial information to his colleagues, and kept the Cabinet sitting all afternoon. Imagine. Who would have thought that the Famous Five tests would be so easy to pose and so complicated to answer? How much happier his colleagues would have been to think in terms of strategy, destiny and a free lunch. All the same, a single currency is a financial project, and if it does not work on its own terms is unlikely to work on any other. How strange that it has not, until now, been assessed on those terms. Europe embarked on this project without anything that could be described as an analysis of costs and benefits. So might we have done, if the Chancellor's factotum had not been inspired or prompted to scribble the tests on the back of his envelope. They have kept the Treasury's hand on the levers, and (as Gus O'Donnell, its Permanent Secretary, happily acknowledges) kept its economists in work, thus passing two tests which might be described as internal. This week we got the five answers, in four words: not today. thank you.
Salvation outside
The tests bought time, which can be worth buying. We had been told that there was no salvation outside the euro, but the Chancellor now tells us that we would have been fools to have rushed in. No one preached the hellfire doctrine more loudly than the McKinsey graduates who used to run the CBI, which, under different leadership, is more worried about the blight of regulation. Britain In Europe was the bigbusiness pressure group launched by the Prime Minister and led by the ubiquitous Lord Marshall. Now he looks like a general without an army and has taken to blaming his sponsor. He can hardly blame the euro. but others might. Its magical properties seem to have been oversold, and its rigid structure — one currency, one monetary policy, one rate of exchange and one rate of interest all the way from the Baltic to the Aegean — shows up as a design fault. It has done less than nothing for Europe's biggest economy, Germany. Perhaps, after all, we can manage without it.
Handy hiccup
One side-effect of all this testing is that Gordon Brown has got the hiccups. He is going over to Europe's way of measuring inflation, using the Harmonised Index of
Consumer Prices HICP or Hiccup to its friends. Is this a gesture of solidarity, or is he looking for a target that is easier to hit? Until now he has set the Bank of England to bring inflation out at 211, per cent, as measured by our own dear Retail Prices Index hut leaving mortgage rates out of account. Hiccups do not even count the cost of housing as part of the cost of living, which is patently absurd but would produce a nice low figure and so suit the Chancellor's book. A standing temptation, in management, is to keep on changing benchmarks until you can find one that suits your book, but whoever else this may fool, you can be certain of fooling yourself.
Tim's way out
The most elegant solution to the Five Tests Puzzle comes from Professor Tim Congdon at Lombard Street Research. Gordon Brown, he says, could arrange to keep us out of the euro by borrowing too much money and, on current form, will do so. He has taxed us as hard as he can (the tax take has gone up by a third in five years) and will now have to move on to borrowing. That could bring him up against the Maastricht treaty, which says that member states must not run budget deficits which amount to more than 3 per cent of the total output of goods and services. Some member states finesse the rules, but candidates to join might find that harder: 'If the trend towards a widening deficit in the closing months of the last financial year were to persist into 2003-4' (so Mr Congdon reckons) 'the UK would no longer meet the convergence criteria laid down in the treaty. However the debate on the timing of the referendum is eventually resolved, and whatever the result of the referendum itself (if it is ever held), Mr Brown would have disqualified us' — by spending and borrowing too much. Neat, that.
Wanted: paragon
Situation vacant: Bill McDonough, president of the Federal Reserve Bank of New York and the man who kept the banks open on and after 9/11, stands down this week without a successor in sight. (The hot favourite scratched, or perhaps Alan Greenspan's claws scratched him.) Now his deputy will hold the fort and the job is with headhunters. Even Gordon Brown, who has been known to deal with these appointments at the last minute or later, would not have let such a thing happen. The successful candidate, we are now told, will play a key role in shaping monetary and economic policy, supervise some of the world's largest banking companies, manage a large institution and address critical market issues, often under severe pressure. It sounds the perfect retirement job for Eddie George, except that he is entitled to a break.
Last post
In 1830 (says my railway correspondent, I.K. Gricer, fixing me with his glittering eye) the Superintendent of Mail Coaches of the Post Office met the board of the brandnew Liverpool & Manchester Railway, to discuss terms for carrying the mail. They settled on a penny a mile, and from then on the business was lost to the roads — until the other day, when the railways lost it, apparently for good, or, rather, bad. My correspondent sourly asks what, apart from George Stephenson's Rocket, the Liverpool & Manchester directors had that their successors haven't?
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