City knows what is under Blair's big tent --Euro test next spring is highly unlikely
Wednesday June 11, 2003 The Guardian
Two traits have characterised Tony Blair's approach to government. He is a big-picture man and he is a big-tent man. Not especially fluent (or interested)
in economics, he has been happy to leave the nitty-gritty to Gordon Brown. At the same time, the PM likes to find room in the New Labour project for everybody.
For more than five years, the Blairite approach has held together reasonably well. When it came to the euro, however, the prime minister had a choice. If he left it up to his chancellor to decide whether the five tests had been passed, he knew the pro-euro campaigners would leave in a huff, resulting in a nasty gash in his big tent. So he got interested in all the heavy stuff about cyclical convergence and ensured that government policy on the euro bore his stamp.
It has kept the pro-euro campaigners happy, but at a price. The rolling programme of annual Treasury progress reports means it is that much harder for business to plan for the future. Will there be a referendum this year, next year or not for a decade? Should it start to invest in new systems, or not? Had the government said either yes or no on Monday, business would have been able to plan with certainty; as things stand, policy is unclear and risks causing economic instability.
In these matters, businesses would be better off paying attention to the financial markets than their elected representatives. The City has already decided that Brown remains the guardian of the five tests, and that in reality the chancellor is unlikely to say next spring that enough has changed to warrant a fresh assessment. The respective states of the British and eurozone economies suggest that, if anything, they will be less convergent in six or 12 months than they are today, and that therefore the transitional costs of entry - particularly the risk of setting off a fresh boom in house prices - will be too great.
Blair may believe his own rhetoric and imagine that all he has to do is say "trust me" and voters will warm to the euro. But, with all those weapons of mass destruction left unfound, trust is in short supply at the moment. So when the City says the next feasible date for reassessing the tests is the Budget of 2006, with entry in 2008 at the earliest, it is almost certainly right. Assuming Labour wins the next election, that is.
Opec eclipse
The big private oil producers were in celebratory mood last night, toasting the Iraq war. Not gloating over the spoils, of course. That would be indelicate. Instead the producers were keen to highlight the way oil markets had kept the developed world's gasoline flowing during the conflict, ensuring there was not a dry petrol tank in sight.
"No oil consumer faced a lack of availability. There proved to be no need to release [emergency government] oil stocks. In a sense the system works and has now been tested by what can probably be called a normal crisis," explained Peter Davies, BP's chief economist, marking the publication of his company's annual energy review.
All too true - and thanks, largely, to the willingness of the much-criticised Saudis to turn their production taps wide open, making up for a lack of supplies from war-torn Iraq, and strikebound Venezuela and Nigeria.
But the period when the shells were flying was the easy one; building a post-conflict peace in the oil world will prove far tougher. Ministers from the Opec cartel assemble in Qatar today and are unlikely to reduce production levels.
They should be laughing with the price of Brent blend crude bubbling away at the $27.60 a barrel level, right inside its $22-$28 target. But they know there is plenty to fret about. In 1999 a glut of oil in the world sent crude prices crashing to $10 and pushed their oil-dependent economies into a tailspin. Current shortages are keeping prices up, but global economic growth continues to falter and new supplies are gradually coming on stream.
BP figures show that Opec's output fell by 1.87m barrels a day last year while the rest of the world was happily increasing its production by 1.45m barrels. The major private oil firms have been investing furiously in non-Opec fields, such as Russia and Angola. In short, the medium term picture is one of oil prices falling back sharply once more unless Opec continues to cut output to compensate for oversupply. Yet the longer it declines to do this the more non-Opec producers find their higher-cost acreage attractive to western investors. The energy cartel's glory days are surely over.
Leery O'Leary