Irrelevant arguments against the stability pact

COMMENT: `To bury our heads in the sand and refuse to have anything to do with something that still looks highly likely to happen, with or without us, would be a gross irresponsibility'

Nothing could be more irrelevant than the present furore among MPs over the European stability pact to govern the economies of countries that become part of European Monetary Union. Labour MPs can hardly be blamed for trying to exploit the Government's discomfort over Europe, but that the Government's own backbenchers should be doing the same on the eve of today's last chance saloon Budget, is, to put it mildly, a pretty odd spectacle.

The first irrelevance is that all this was agreed three years ago at the time of Maastricht. To the extent that the present negotiations sign away sovereignty over economic policy, they were rights ceded with the treaty, a process with which some of those who rail against EMU were then actively involved. But consistency never was a strong point among Eurosceptics.

The second irrelevance is that by participating in negotiations over the pact, and presumably eventually agreeing its terms, the Government gives away nothing. Rather the reverse. It participates in and influences something which in or out of EMU, is of vital importance to Britain's economic future. True, the Government commits itself to a system of fines, deposits and other disciplines the country will have to abide by should it join EMU, but how can attempting to influence the rules of a club we might join be judged against our interests? If on the other hand we do not join, the rules have no jurisdiction except as a yardstick by which to judge our performance against the "ins". Britain's interest in ensuring continuing convergence among member states is equally vital even if we are out. Make no mistake about it, once EMU gets under way, its collapse would be in nobody's interests; the economic consequences for the whole of Europe, in or out, would be disastrous. To bury our heads in the sand and refuse to have anything to do with something that still looks highly likely to happen, with or without us, would be a gross irresponsibility.

The third irrelevance is the most obvious one - that nobody, least of all the right wing of the Conservative Party, could have any objection to the convergence criteria the stability pact is being set up to police and enforce. Even Ken Livingstone apparently agrees with the need to reduce government borrowing and national debt to levels which fall within the Maastricht limits. Misguided or not, fiscal and monetary rectitude is the economic mantra of the age. To enforce it across member states is only a logical extension and development of the single market, as indeed is a single currency, since it prevents nations gaining short-term competitive advantage by unfair means. Should some other, hardly guessed at, form of economic management eventually gain the ascendancy, the rules would presumably be changed accordingly.

Those who argue against active involvement in stability pact negotiations are actually arguing against membership of the European Union. But you won't catch many admitting it, not in public anyway.

Blood flows in the alcopop sector

The vision of a nation paying through the nose for brightly coloured gunk with a charmless name like Thickhead is an uninspiring one. But it is also largely wrong. The sound and fury the so-called alcopops have generated is way out of proportion to their real social or economic significance.

The tide of misinformation started with Matthew Clark, the Taunton and Gaymer cider maker, which attempted, with some initial success, to pin the blame for its own management and marketing shortcomings on the new drinks. Because the arrival of Two Dogs from Australia and Bass's quick response in the form of Hooper's Hooch seemed to have been such a storming success, investors were prepared to swallow Clark's dubious claim that they had knocked the bottom clean out of the premium cider market.

The flaws in that argument began to show during the summer when Clark's arch-rival Bulmer, stung by its derating in sympathy with its hapless rival, told investors that the cider market was in fine fettle thank you very much. Clark's real problem, Bulmer implied, lay in its reluctance to shell out on advertising, arguably the lifeblood of any drinks company. Interim profits figures yesterday from Merrydown further complicated an already murky picture when the Sussex cider maker made the eccentric claim that the dramatic success of alcoholic soft drinks, a market in which it was a dominant player, had led not to a rise in profits but a rather startling collapse. The cost of maintaining share in a market that had attracted 90 rivals in a little over a year, the company said, was bleeding it dry.

This over-hyped sector will remain centre stage this afternoon if, as forecast, Kenneth Clarke attempts to win a few easy votes by clamping down on alcopops in the same way that he singled out high-strength ciders last year. It will be a pointless exercise in fiscal terms because, at pounds 300m, the whole sticky sector accounts for rather less than a third of the cider market, which itself is tiny in the context of beer or spirits sales. The tax take will make no difference to the public finances, but nobody is going to worry too much if Mr Clarke helps bring about the demise of these sickly concoctions.

Markets think twice about Eurotunnel

Reaction in financial markets to last week's fire in the Channel Tunnel always looked a little complacent. Now that the extent of the damage, the length of time repairs will take and the impact on revenues are becoming better known, nervousness is beginning to take hold. It is easy to see why the markets initially took the fire in their stride. Set in the context of Eurotunnel's debts (pounds 8.7bn) and its forecast losses (pounds 720m this year), even an additional shortfall in revenue of as much as pounds 150m seems small beer. Since this is a venture which won't pay its own way until well into the next millennium, why not just add the losses to the bill?

But those who believe that the financial consequences begin and end there may be in for a rude shock. First Eurotunnel has the no small task of steering its debt restructuring package past shareholders and banks. The fire cannot have helped that. Even if its debt restructuring is approved it will still have pounds 4bn of junior debt to pay which it can only service by issuing bits of paper called stabilisation notes. It has pounds 1.8bn worth of this funny money - but the revenues lost owing to the fire could mop up nearly 10 per cent of that alone. The bigger question for Eurotunnel is what the fire will do to long-term prospects. That people will stop using the tunnel can probably be discounted. Two spectacular plane crashes in as many weeks have not dented our appetite for air travel. More important is whether the fire changes the economics,. It would only take the Channel Tunnel Safety Authority to insist on a design modification here and an extra safeguard there and it could wreck the fragile margins on which the tunnel operates. The new mood of nervousness is appropriate.