Business View: Deutsche Börse has run its course: the LSE bid is a loser

To the Tate Modern, where the Deutsche Börse held its annual reception on Thursday. It was a muted affair (despite good wine and excellent food), partly because the Financial Services Authority chairman, Callum McCarthy, felt he had to pull out, partly because the Börse's advisers had told its executives to be careful what they said, and partly because it had not been a good week for the Börse.

To the Tate Modern, where the Deutsche Börse held its annual reception on Thursday. It was a muted affair (despite good wine and excellent food), partly because the Financial Services Authority chairman, Callum McCarthy, felt he had to pull out, partly because the Börse's advisers had told its executives to be careful what they said, and partly because it had not been a good week for the Börse.

Its attempts to take over the London Stock Exchange had been undermined by its own shareholders, who were angry they had not been consulted before the Börse made its £1.3bn bid approach.

As we get nearer to the moment when the Germans have to firm up this offer, the problems become more critical. Some 13 per cent of the Börse's investors are demanding a vote on whether to go ahead with the bid, with many of them vehemently opposed, and the Börse's supervisory board seems to be divided over whether to give them a vote or not.

The issue of settlement will not go away. One of the few things the Börse's chief executive, Werner Seifert, was allowed to say was that if it got the LSE then users would not be forced to clear and settle their trades via the Börse's Clearstream system, but would have a choice. The question remains, though, for how long this commitment holds. Pressure for Mr Seifert to sell Clearstream will not go away.

In Frankfurt, the mayor, Petra Roth, is getting hot under the collar about any potential loss of jobs or status if the Börse buys the LSE. To make it worth the £1.3bn (or more), the two exchanges will have to integrate their cash and derivatives businesses. There is no logic putting them anywhere but London.

To try to shore things up, Deutsche Bank bought 8 per cent of the Börse's shares late last week. This looked a bit like good old German corporatism, with the country's biggest bank (though, in market value terms, smaller than our own HBOS) helping a German business in its hour of need. But it is even worse, say critics. Isn't Rolf Breuer, the chairman of the supervisory board of Deutsche Bank, also chairman of the supervisory board of the Börse? What is the German for conflict of interest?

Last week, both Mr Seifert and Jean-François Theodore, the chief executive of the Franco-Dutch exchange business Euronext, went to see the LSE. Mr Seifert is understood to have put more flesh on the bones of his takeover bid, though if he is offering more than 530p a share at the moment, he must really think his prospects are weak. Mr Theodore also wants to put in an offer, but he has not said how much Euronext is willing to pay. This silence is putting even more pressure on the Börse.

As I was leaving the party, Mr Seifert jumped into the lift I was taking. Confronted by myself and another journalist, the normally clubbable and garrulous Börse boss froze, scampering out quickly when the doors opened.

"He's acting strangely," commented a German financier who was also in the lift. "I suppose that's how you are when you're losing."

Brown's poisoned chalice

They call economics the dismal science. But so often it is the slave to politics.

Every economist in town is bending my ear just now about the need for tax rises. And we all know they will come after the spring election. The questions are how much Labour needs to raise and how it is going to do it.

Roger Bootle at Deloitte estimates £10bn and sees it coming in a range of different measures. His opposite number at the Ernst & Young Item Club, Peter Spencer, will tomorrow predict a 1 per cent increase in national insurance, which will cost us £7.8bn in 2006-07 and £9.5bn in 2007-08.

The alternative is a cut in Government spending (though there could be a mix of both). But spending has been the engine for the UK economy these past three or four years.

Increasingly, the Chancellor is behaving like a man who knows this won't be his problem for much longer. But, before anyone champions him as the next Prime Minister, and assuming he thinks Labour will win the election, consider what sort of person passes such a problem as the current UK economy on to a colleague?

j.nisse@independent.co.uk