European Business News (EBN), 97-01-09

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From: The European Business News Server at <http://www.ebn.co.uk/>

Page last updated January 9 1300 CET

CONTENTS

[01] Germany's Waigel raises issue of EMU failure

[02] Germany develops economic headache

[03] Yeltsin returns to hospital

[04] Paribas may sell Credit du Nord

[05] Valeo sales rise 14.4%

[01] Germany's Waigel raises issue of EMU failure

Addressing a meeting of his Christian Social Union party, Waigel suggested that a failure of European monetary union could plunge Germany into economic crisis. Meanwhile, Clarke cast doubt on Germany's ability to even qualify in time for the single currency's deadline on January 1 1999.

Party sources reported that Waigel said EMU failure after it begins in January 1999 would threaten Germany with market chaos and an economic crisis. But they also said that domestically he aims to reform Germany's basic budgetary laws to increase flexibility and transparency. He circulated models of the proposed budget reforms at the meeting on Wednesday.

And his U.K. counterpart, Kenneth Clarke, would seem to be in complete agreement, at least on the need for Germany to readjust its economy if it is to meet EMU requirements.

Speaking in Tokyo, Clarke said it was possible that Germany and France would not meet the Maastricht Treaty criteria in time. However, he was more confident about the U.K's prospects of making the deadline, claiming Britain was on course to reach its convergence targets.

But when asked about the likelihood of the U.K. joining EMU, Clarke said the U.K. is 'most likely' to qualify for the convergence criteria, but won't make the final decision until 'the last sensible moment.'

He added it is yet uncertain whether the European monetary union will take place in January 1999 as believed. 'By no means is it certain either the Germans or the French will be able to hit the strict convergence criteria we set for ourselves in time,' he said.

[02] Germany develops economic headache

And jobless figures failed to improve the picture, when the Federal Labour Office reported that unemployment during December surged to a post-war high. Nor is the short or long term prognosis healthy. The Federal Statistics Office said German economic growth was not enough to significantly halt the rise in unemployment.

'Our real growth in 1996 was 1.4%, that was below productivity growth of 2.5 percent,' said the office's president Johann Hahlen. 'From our point of view, that cannot have a positive impact on the labour market. We need real growth exceeding productivity growth, then we can expect the labour market to benefit,' he added.

Bernhard Jagoda, chief of the German Federal Labour Office, endorsed the view, saying he could foresee German unemployment rising to 4.5 million over the coming months.

In another troubling sign, Germany is struggling with an expanding budget deficit. Its 1996 deficit, a critical criterion for membership of EMU scheduled for 1999, was 3.9% of Gross Domestic Product compared to 3.5% in 1995.

The European Union has agreed on a 1997 target of 3.0% for countries that want to join the single currency by 1999.

[03] Yeltsin returns to hospital

The seriousness of the Russian President's illness is indicated by the likelihood that Chernomyrdin will abandon a planned holiday, said Russia's NTV commercial television. Under the constitution, Chernomyrdin would stand in for up to three months before an election if Yeltsin was unable to govern. He stood in for a day when Yeltsin had his heart bypass operation on November 5.

Yeltsin, 65, suffered a heavy cold on Monday, two weeks after his return to the Kremlin following the heart surgery. But by Wednesday evening his condition had worsened, and the Kremlin said doctors had detected the first signs of pneumonia when they examined the President.

'In connection with this, in order to make a better diagnosis and to conduct appropriate treatment, a decision has been taken to take him to the Central Clinical Hospital (in Moscow) for several days,' said a Kremlin statement.

A presidential spokesman said Yeltsin entered the hospital at about 1800 GMT yesterday. No reference was made to the trigger which controls Russia's nuclear arsenal but it usually accompanies Yeltsin at all times.

Michael DeBakey, the U.S. heart surgeon who acted as consultant to the Russian doctors who carried out the heart operation on Yeltsin, said he thought the President would recover quickly from what he said was probably a case of flu. Even so, the bout of influenza, coming so soon after the President's heart-op, has raised the spectre of former national security adviser, General Alexander Lebed.

Sacked by Yeltsin last October for openly holding Presidential ambitions, Lebed wasted no time in calling for Yeltsin to relinquish power.

'Our country is headed by a very sick and elderly man. He needs to retire since he can neither govern due to the state of his health nor lead a normal life,' said Lebed.

Lebed has a point. Since Yeltisn's health worries turned serious, certain economic problems have mushroomed during his absences. Tax evasion in particular has become rife and nearly left state coffers bare, leading to long delays in payments of wages and pensions.

[04] Paribas may sell Credit du Nord

The transaction would take place in two phases, Paribas and Societe Generale said in a news release. During the first phase, Societe Generale would acquire a controlling interest in Credit du Nord and would make a commitment to acquire the remainder of the company's equity within the next three years.

As a part of the initial acquisition of a controlling share in Credit du Nord, Societe Generale will inject 2.5 billion francs in capital into Credit du Nord, the banks said.

The capital increase would bring the tier-one Cooke ratio of Credit du Nord 'in line with Societe Generale's standards,' the banks added. The transaction would enable Paribas to divest its retail banking activities in France in order to strengthen its focus on international investment, merchant banking and specialized financial services.

For Societe Generale, the deal would allow the bank to expand retail operations in France. The banks said that Societe Generale should see 'continued positive trends' in its 1996 financial ratios, including Cooke ratio, return on equity and net earnings per share, following its acquisition of Credit du Nord.

Under the plan, Credit du Nord and Societe Generale would remain separate entities.

[05] Valeo sales rise 14.4%

International sales rose 23%, Valeo said, accounting for 68% of the group's consolidated sales, compared to 63% in 1995.

The company said that sales rose in all of its key international markets in 1996. Excluding France, sales increased by 25% in Europe, 23% in North America and 16% in Asia and South America, Valeo said.

In France, sales excluding activities disposed of during the year grew slightly, the company said. The French government's car buying incentive program during the first nine months of the year helped Valeo's equipment activity.

From the European Business News (EBN) Server at http://www.ebn.co.uk/

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