Market falls increase eurozone concerns (HOLD MEIN BIER, THE SEQUEL)

The Daily Telegraph ^ | October 1, 2002 | George Trefgarne

[MadIvan]

Fears that a crisis in the eurozone will add to the problems of the world economy sent shares tumbling yesterday.

In London, the FTSE 100 index of leading shares lost 185.4 points to close at 3721.8, leaving it only 50 points above the lows of last week. But the worst falls were in Germany - where the Dax index slumped 6pc to 2746.09 - and France, where the CAC-40 also dived 6pc to 2777.45.

By the time London closed, the Dow Jones on Wall Street was 146 points lower at 7554.82. It rebounded later to close down 109.52 at 7591.93.

There are mounting fears over the health of the German banking system. Yesterday, Commerzbank, the country's fourth-largest bank, said it would have to increase its bad-debt provisions and this sent the shares into a tailspin. They closed down 9pc at Eu6.66 and have lost nearly three quarters of their value this year.

Over the weekend, Hans Eichel, German finance minister, was reported as threatening to resign unless urgent budget measures were approved. Germany is close to breaching the eurozone's Stability and Growth Pact by running a government deficit that is too large.

Yesterday, Otmar Issing, chief economist of the European Central Bank, said it was "of the highest importance" that the pact was strictly observed.

The ECB is reluctant to bail out Germany by cutting interest rates and yesterday the prospect of a cut receded further after Eurostat said inflation for the single currency area as a whole had risen from 2.1pc in August to 2.2pc in September.

Behold the stupidity of the Euro. In some places the interest rates are too high, in others too low, as different economic and regulatory structures, as well as productivity figures, prevail. Yet monetary policy is a one size fits all proposition - and it doesn't fit very well - Ivan

Last week, the European Commission threw Germany a lifeline by putting off until 2006 the deadline for members of the euro to balance their budgets. But, in the meantime, German government spending may breach a separate 3pc deficit rule laid down in the Stability and Growth Pact.

Mr Eichel has said he may have to draw up a mini-budget to revise his calculations and is planning spending cuts of Eu10 billion.

Once the envy of the world, the German economy is close to recession as it struggles under the weight of high tax and social costs, high unemployment and too much regulation. The Bundesbank hinted it could slash its growth forecast from 0.75pc this year to 0.5pc. Since January, German shares have plunged 45pc, the worst performance of any major stock market.

In Paris, investors were spooked by news that Scor, France's largest reinsurance group, will have to raise Eu400m via a rights issue to shore up its rickety finances. There are also worries about the solvency of life insurers in London and Amvescap was the biggest faller here, losing 10pc to 301p.

Speaking at the Labour Conference, Gordon Brown joined the growing chorus of voices criticising eurozone countries for their failure to embark on essential reforms. "We support economic reform in Europe, so British business and British consumers can benefit from a European market."

The British economy has withstood the global downturn well, said Mr Brown, but he signalled that he may still have to cut his growth forecasts. Productivity is growing at just 0.9pc, National Statistics said - less than half the rate of the US.

Much of Britain's growth is sustained by the huge borrowings of consumers. Yesterday, the Bank of England said consumer borrowing rose by £1.9 billion in August, the second-highest on record.

"The appetite of households for debt is insatiable," said Simon Rubinsohn of Gerrard stockbrokers.

[MadIvan]

Germany seems to be battered by "Hold Mein Bier" problems. The SDP / Green coalition is in no position to deal with this, nor do they have the ideological underpinnings which would enable them to do so. Worse, Schroeder played the anti-American card to the point where Americans are boycotting German goods and causing them to sink further. This is the biggest case of collective economic and political suicide since Japan in the 1990's.

Regards, Ivan

[MadIvan]

Bump!

[DB]

And sadly, I don't feel sorry for them.

[11B3]

To hear the French and German economies falling like a Daisy Cutter does my heart good today.

[MadIvan]

And sadly, I don't feel sorry for them.

Neither do I. I still have my books which said that the German economy was invincible. I have to laugh at them now.

Regards, Ivan

[Diogenesis]

Don't feel sorry for them at all.

[OldPossum]

I am enjoying their discomfort, too. We must remember, that aside from Great Britain, none of the European countries is our friend or supporter; accordingly, there is no reason why we should not avoid buying their products. There are products that are made only in the Orient (try to buy a telephone connector wire made anywhere else), but I cannot think of one single product made in Europe for which there is not an American substitute. (And French wines and German beers are no exceptions, American wines and beers are good, too.)

Lest I was not clear, MadIvan, I continue to buy British products. I have no animus toward your country or its citizens (though I absolutely despise most of your press).