CITY AND SUBURBAN
Smoke gets in our eyes, and fear gets into the markets
CHRISTOPHER FILDES
Smoke drifts into the theatre, bearing with it a faint, acrid smell. Then the manag- er bounces onstage, full of reassurance. `There is no cause for alarm,' he explains. `This is all in the script, part of the produc- tion. The next episode may be disturbing to those of you with nervous dispositions, but I promise you a happy ending. Kindly remain in your seats.' He bows and goes off, but the markets can smell burning, and have taken fright. They had a momentary respite, a week ago, when the Germans fudged their interest rates. Picture the scene in the Treasury: 'Good news and bad news, Chancellor. The bad news is they've gone up by 3/4 per cent, not by 1/2. The good news is that they put up the rate that doesn't matter.' It mattered. Markets are not built with watertight compartments. In no time at all, the damp had got into the pound, and sterling interest rates started to go up, led by the building societies. Minis- ters twitched. 'Whatever is the matter with them?"Well, Chancellor, they say it's us. Our new savings bond."Yes, I know, I promised it in my Budget, and it's pulling the money in. Just what we need.' But it's pulling it away from the building societies, they say they're having to bid up.' Call their bluff."Chancellor, they say they're calling yours.' All right, then, they win. Take the bond off the market. But where am I to go for honey?' Good question. A Chancellor who budgets to borrow /28 bil- lion (and will need more) has to get money where he can find it, even if that means crowding others out of the market. He sets the printing presses to churn out new Gov- ernment stock, the big shareholders spend billions on it — and cannot then spend those billions on buying new shares. So one big share issue after another has gone down like cold tapioca, and companies are denied the capital they need, or have to struggle on under grinding debts.
No Howe
IT IS NOT the stuff of which recoveries are made, it is not what the Treasury wanted or forecast, but it is what has happened, so it is being written into the script. Those smoke effects, that acrid smell are all said' to be part of the transformation scheme, which will end somewhere over the rain- bow. I have the impression that ministers think they are back in 1981 — when Sir Geoffrey Howe produced a tough Budget at the bottom of a .recession, was savaged by a flock of 364 economists, and survived to enjoy the recovery and see his party sweep home in the election. So, they tell themselves, toughness now will pay divi- dends later. The parallel (as Sir Kit McMa- hon, who watched it from the Bank of Eng- land, reminds us) is false. Sir Geoffrey bud- geted to raise more money in tax and less by borrowing, so as to leave room for inter- est rates to come down. He was a fiscal toughie. No one could say that of today's Chancellor, as he budgets for huge deficits. He is running a restrictive monetary policy and a lax fiscal policy, as though two wrongs made a right. That is cause for alarm.
Seven against Jay?
A BIG HAND for the Lombard Street Seven. (There were nine signatures on the letter from 3 Lombard Street, but the sub- editor on the Times letters page makes his cuts from the bottom.) They have joined the Maastricht argument with a round robin, to say, rightly, that a single market, which they want, does not require a single currency, which may make it harder to get. I gather that they were provoked into action by Peter Jay, who was heard to observe in his genial bien-pensant manner that no one who knew anything about it could oppose the Maastricht deal. They certainly know something about the for- tunes of British business. Three of them John Manser of Robert Fleming, Michael Stoddart of Electra and Andrew Thread- gold of the PosTel pension funds — are just about our most active investors in compa- nies which range from the ambitious to the enormous. Captain of the Seven is Rodney Leach of Jardine Matheson, known to Spec- tator readers as Robert Maxwell's inveter- ate foe. It occurs to me that Peter Jay, before the BBC brought him back into
financial journalism, was Robert Maxwell's chief of staff. Can we be watching the con- tinuation of war by other means?
Currant in the cake
I AM saddened by the death of Sir Patrick Meaney, least portentous of boardroom knights, and most ebullient. He had got to the top without pull — chairman of Rank, director of Imperial Chemical Industries, deputy chairman and occasional powerbro- ker at the Midland Bank — and he stayed there without side. At Thomas Tilling, where he made his name, he took over a company chaired by my father — a deal which left both sides content. 'I liked doing business with him,' Meaney told me, years later. 'He knew, what few people know, that you always leave a currant in the other fellow's slice of cake.' When BTR bid for Tilling, Meaney proved a debonair fighter. I was at the Tilling shareholders' meeting when an anxious old lady asked who these BTR people were who kept sending all these papers to her — what, she wanted to know, did BTR stand for? Pat Meaney bounced to his feet: 'Bust Tilling and Run!'
Shaken, not stirred
THE chairman of the US Federal Reserve, Alan Greenspan, has been telling Congress that the recession is over. I should be even more pleased if I had not been listening to Mr Greenspan in Osaka (of all places) a year ago, when he said the same thing. He also told Congress that the dollar does not need to fall further, and this week he put the Fed's money (and other central banks money) where his mouth was. So near and yet so far, my two-dollar martini. We got within five cents of it on Monday. I can almost taste it.
Return ticket
BETWEEN the City and Westminster I have picked up a new euphemism, applied to ministers — not, of course, the luckless funster — whose future may be thought to be clouded. Until now, it has been said that they might be spending more time with their families. Now the phrase is: he looks as if he's on his way back to Rothschilds.
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