Outlook: Duisenberg is right: low rates won't fix the eurozone's woes

Single ITV; Fiat in a quandary; Arriva/Aviva Â

Wim Duisenberg, president of the European Central Bank, may have been wrong to leave eurozone interest rates unchanged yesterday, but on one thing he is right. Monetary and fiscal policy are not the solution to the eurozone's economic woes.

If the ECB were to cut interest rates, it would in all probability make very little difference to inflation in the core eurozone economies, which are already close to a standstill. It would be unlikely to make much difference to growth either. There is little sense in cutting rates if such action fails to have the effect intended, namely to boost growth. The ECB would come to be seen as impotent and irrelevant.

The eurosceptic cause has seized on Germany's travails as another good reason for not joining the single currency, but the reality is that the euro has little if anything to do with it. Germany is said to be constrained on the one hand by an inappropriately high interest rate, set to address inflationary pressures in the eurozone's peripheral economies, and on the other by the growth and stability pact, which limits its ability to spend or tax cut its way out of recession.

While the absence of such constraints might help a bit, the painful truth is that neither fiscal nor monetary action, by themselves or in combination, would be capable of shaking Germany out of its economic paralysis. Germany's problems go back to unification, and the attempt to absorb a Third World economy into its midst. After an initial boom, the endeavour ground to a halt. More than 10 years after the Berlin Wall came down, Germany is still two economies. The more prosperous and vibrant one is being dragged down by the old Eastern Bloc one.

But Germany's chief problem remains lack of meaningful structural reform, especially in the labour market. This is severely damaging German competitiveness at a time when the world economy is deep in the doldrums. Mr Duisenberg is often mocked in the British press, but he spoke a lot of truth this week when he said that "neither in monetary policy nor even in fiscal policy will you find the answer.... You might find an answer if governments finally embarked on ambitious structural reform programmes across the euro area". Quite so.

Single ITV

They seem to be on again, talks, that is, over a merger between Carlton and Granada. With Gerry Murphy, chief executive of Carlton, about to sign on the dotted line for the CEO's position at Kingfisher, it may be the right moment finally to bring these famously on-off talks to a successful conclusion. Carlton will soon be left without a chief executive. Both parties know they are going to merge eventually, so why not make it now?

Last time around the talks stumbled not on the most obvious of obstacles – the opposition of the advertising industry and other terrestrial broadcasters to the creation of a single ITV – but on valuation. Since then, Carlton's share price has sunk by more than Granada's, so valuation could be less of a problem than it was. Regulatory barriers remain daunting, even after the legislative block on a merger is removed by the new Communications Bill.

Granada reckons any concerns can be addressed by demerging one of the sales houses, thus allowing a certain amount of competition in advertising sales to persist. Mr Murphy was never convinced it would work, and even the most avid supporters of a single ITV concede that it is bound to be seen as cosmetic in some quarters.

Mr Murphy's imminent departure, none the less, removes one of the leading doubters, and we could now see a unified attempt to steer a deal through the Competition Commission. ITV has had a dreadful couple of years, but it is not yet the busted flush it is often portrayed as. Fifteen years into pay TV and four years into the digital era, terrestrial TV still commands 80 per cent of all TV viewing in the UK. Sky has just 6.2 per cent across 20 channels against ITV's 24.4 per cent across just one.

Sky is an aggressively run, well-managed company, but it owes its position almost entirely to the bought-in minority interest programming of sport and film. And yet Sky's programming costs last year were £1.5bn, against a reported ITV budget for 2003 of £825m. On bangs for bucks, there is no doubt who is getting the better value.

Sky eventually plans to attack the free-to-air market too, in direct competition with ITV, but so far its track record in mass entertainment programming has been poor and we don't yet know how capable Dawn Airey might be in improving it. ITV on form is still a formidable beast, even if its biggest programme remains its oldest one, Coronation Street. Remove the corporate infighting and it could yet be pulled back from the brink.

Under Greg Dyke, the BBC has undergone an impressive revival and despite the sniping from some sections of the press, there is a self confidence and sureness of foot there which is sadly lacking at ITV. The advertising slump and the folly of ITV Digital are only part of the explanation. To survive and prosper, ITV needs decent, inspired leadership. It won't get it while two companies remain.

Fiat in a quandary

Designed by computer, built by robots, driven by Italians. The old joke has come true at last. Fiat and its employees have been preparing for a head-on crash for a long time and this week it duly happened. Nobody walks away from the wreckage unhurt. The workforce is being shrunk by a fifth. The Punto plant in Palermo, for long one of the few decent bulwarks in Sicily against the corrosive influence of organised crime, is closing, possibly never to reopen. The shareholders have seen their investment crumble and even the banks may have to take a haircut. Finally, Fiat itself looks as far away as ever from a permanent solution for its troubled auto division, which is heading for a €1.2bn (£760m) loss this year.

The company has put itself at the mercy of Silvio Berlusconi by pleading for "crisis status" – a move that would allow the Italian government to keep Fiat on an emergency drip feed in the hope that sooner or later the car market will pick up. But faced with his own burgeoning budget deficit and one of the highest inflation rates in the eurozone, Mr Berlusconi, is not obvious saviour material.

Fiat may still be capable of saving itself but it depends crucially on product success. After a succession of uninspired models, an awful lot is riding on the launch next year of two new cars – a new Panda to be built in Poland and a mini MPV-style vehicle based on the Punto. The neat solution would be for General Motors to buy out the remainder of the Fiat car division, even though the patriarch of the Fiat famiglia, Giovanni Agnelli, is apparently dead set against this.

GM already owns 20 per cent of Fiat Auto and Fiat has an option to make it purchase the other 80 per cent, but not until 2004, which may be too late. GM is already reconciled to writing off most of the value of its 20 per cent stake in Fiat, so it is hard to see why Rick Wagoner would be in a hurry to buy the rest, particularly when GM's Opel division has its own problems to sort out in Europe. Even if a deal could be struck, there would be competition problems. Fiat and GM occupy much common ground in the mass car market. GM would need to dress the deal up as a rescue. What Fiat really needs is a miracle.

Arriva/Aviva

A reader phones to point out that I twice referred to Aviva as Arriva in yesterday's column, the first of these companies being a life assurer, the second a bus operator. More fool CGNU for rechristening itself Arriva is what I say. Or should that be Aviva?

jeremy.warner@independent.co.uk