26 SEPTEMBER 1998, Page 7

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Not long ago it was orthodoxy in the Labour party that the City of London was a parasitic organism, sucking the life-blood of the real economy and run, as Frank Dob- son, now Health Secretary, once felicitously put it, by 'stinking, lousy, thieving, incompe- tent scum'. Nowadays, of course, Mr Blair's New Model Labour party has succumbed to its own prawn-cocktail offensive and sees the financial services sector as one of the jewels in Britannia's economic crown.

Which is a pity, because those unrecon- structed socialists, although misguided, understood a fundamental truth: the stock market and its antics bear only a faint rela- tionship to activity in the rest of the econo- my. The giddy bull market in shares on both sides of the Atlantic in recent years was whipped up by hope of gain, not economic fundamentals, and the current downturn is driven by an equally irrational fear. As Franklin Roosevelt put it in his first inaugu- ral, in the midst of the Depression, 'The only thing we have to fear is fear itself.' Markets around the world have fallen, with some British blue-chips halving in value within a few months. The crisis began in Asia, where trouble in volatile stock mar- kets spilled over into falling currencies and, as a result, companies defaulted on loans made by Western banks in dollars. Interna- tional confidence in Asian emerging mar- kets evaporated and investors in other fledgling capitalist economies, such as Rus- sia, panicked. A rolling contagion then spread round the world.

These overseas financial shocks came at a time when the British and American economies, which have been doing well for some years, were facing a slowdown. Indus- try promptly called on the Bank of England to cut interest rates and on the government to co-ordinate an international package of rate cuts, to prevent the world slipping into a deflationary depression. In Britain, com- panies pointed out that high interest rates also meant a strong pound, making export- ing more difficult.

So far, no interest rate cuts have been forthcoming, but are the Cassandras right to warn of meltdown? The falling stock mar- kets in Britain and America will not affect the real economy unless consumers, watch- ing their theoretical wealth shrink, stop

spending. British unemployment, although now expected to rise somewhat, is at an 18- year low. Complaints about the strength of the pound ignore the success that German exporters enjoyed for many years despite having one of the world's strongest curren- cies. The global economy has become more interdependent, but a substantial majority of Britain's trade is with the European Union and the United States, both of which remain economically healthy. If things deteriorate then interest rates can be cut, but there seems no immediate cause for alarm.

The real concern is that we will talk our- selves into a recession, allowing fear on the stock market to spill over into panic in the high street, and cold feet in the boardroom. Roosevelt's public spending programmes did not do much good for America in the 1930s, but the confidence he displayed in his country and its future played an impor- tant role in lifting the world out of reces- sion. Mr Blair and Mr Clinton, who both seem to enjoy rushing around the world for crisis talks, might be better off inspiring us — perhaps with the occasional fireside chat — like the FDR of old.

The monarchy would appear at the moment to be caught on the prongs of Morton's Fork. After the death of Diana, Princess of Wales, the Queen was attacked for her lack of 'feeling' and for an excess of of formality — shocking to the Blair era. This week, however, the monarch was denounced for moving too far in the other direction. After she signed a football, the newspapers demanded: is this a common touch too far?

Although we have expressed serious doubts about attempts to reform the monar- chy, chiefly those which would deprive it of a proper role in our nation's life, we believe that the Queen's autograph session was entirely appropriate. The point about the monarchy is that it should be, at one and the the same time, distant and approachable.

People forget that touchy-feeliness in our kings and queens existed long before the arrival of Diana. Historically the monarch has adopted a pose of formality and mys- tery during occasions of state, but when `among the people' has displayed a very dif- ferent manner.

Edward IV would go as far as to ride among the population personally thanking them for taxes they had paid and bestowing kisses upon the women and children — cus- toms which raised no eyebrows. George III dressed with extreme informality in the countryside, chatting to the locals as if he were an itinerant pedlar. The ancient cere- mony of 'touching' exemplified this joining of the lofty and the common in the head of state, when those suffering from scrofula, known as the King's Evil, were brought from all over the country to be touched by the monarch. That the Queen touched a football with her signature should not be regarded as so very different.