European Business News (EBN), 97-04-25

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

Page last updated Fri, April 25 6:45 PM CET

CONTENTS

[01] U.S. court rules tobacco is a 'drug'

[02] Germany reshuffles management of Transrapid as three groups quit

[03] Kohl says Germany will not accept EMU delay

[04] Clinton warns Japan against rise in trade surplus

[05] Allianz probed for stock price irregularities

[06] French markets react to polls ahead of imminent elections

[07] UBS says profit rose considerably in first quarter

[08] Japan shuts down Nissan Mutual Life Insurance

[09] Strikes hit French transport system

[10] UK preliminary GDP rises 3%

[11] Economic and Corporate Briefs

[01] U.S. court rules tobacco is a 'drug'

The ruling by U.S. District Court Judge William Osteen struck down Food and Drug Administration restrictions on tobacco advertising, but ruled the agency has authority for access restrictions and labeling requirements.

The court's decision appeared to be a mixed one for the tobacco industry and anti-smoking forces. The U.S. tobacco industry had challenged new curbs on advertising and marketing of cigarettes imposed by federal regulators as unconstitutional.

The judge ruled Congress has not withheld the FDA's jurisdiction to regulate tobacco products.

However, the ruling barred a number of FDA regulations scheduled to take effect Aug. 28. These include: a ban on outdoor advertising within 1,000 feet of a school or playground; a ban on hats, t-shirts and other promotional products featuring tobacco brand names; and a requirement that ads in youth-oriented publications be limited to black and white text only.

Federal law authorises the FDA to restrict the sale, distribution or use of certain medical devices in order to protect public safety, but the restrictions on advertising fall outside that authorization, U.S. District Court Judge William Osteen said in the ruling.

[02] Germany reshuffles management of Transrapid as three groups quit

German Transportation Minister Hans Wissmann insisted that the Transrapid project will go forward, though he said a final decision won't be made until the middle of next year. He also conceded that the project's earnings and revenue forecasts have been downgraded.

Wissmann also said the proposed Hamburg-Berlin line would require 10% more than the original 9 billion Deutsche mark ($15.3 billion) investment cost and would generate annual revenue of 790 million marks by 2010, down from an earlier estimate of 1.15 billion marks.

If the project does proceed, construction is expected to be completed in the year 2005.

Investment spending on the magnetic railway's suspended track, which will be financed by the federal government, is estimated at 6.1 billion marks. The total project costs are put around 3.7 billion marks, the ministry said.

Wissmann said the restructuring of management will allow for more 'efficient cost management' to be possible, since the new arrangement will permit the consortium to award construction contracts freely.

Wissmann noted that bidding among construction companies cut the cost of building the Rhine-Main high-speed railway to 7.7 billion marks from a forecast 10 billion marks.

The transportation minister said Deutsche Bahn will run and market Transrapid's services, and will be responsible for seeing the track is constructed according to the consortium's plans. It will also modify existing railway stations and servicing facilities.

Wissmann noted the industrial consortium, and not Deutsche Bahn, is responsible for ensuring Transrapid's technical feasibility and the timely start-up.

The Transrapid project has been criticised on two fronts, with observers questioning whether there is sufficient demand for it in Germany and whether it can justify the state funding Bonn plans to offer for it.

Daimler-Benz said the Transrapid offered its Adtranz unit the ideal opportunity to further expand its role in the rail sector. Adtranz is an equally owned joint venture with Swiss-Swedish group Asea-Brown-Boveri.

[03] Kohl says Germany will not accept EMU delay

Because investors fear that the common currency, or euro, will be weaker than the mark, the Germany currency traditionally weakens when market participants count on its punctual start-up.

Referring to Germany's efforts to meet the Maastricht criteria, Kohl said, 'We have to reach the criteria and we have to get ready on time.'

Kohl also stressed that 'it is important that Germany now meets the EMU norms, and gets its own household in order.'

Kohl's remarks implied the German government either will be able to meet the criteria required to join the currency union, or that they may be forced to take advantage of the room for interpretation allowed by the Maastricht Treaty.

Kohl's comments come against the background of repeated calls by some government officials and Deutsche Bundesbank members for a strict and narrow interpretation of the criteria.

In addition, a wide variety of data released this week raised doubts about Germany's ability to meet the criteria.

Earlier this week, an early call for French elections sparked worries that a new French government might not impose sufficient fiscal austerity measures to meet the Maastricht Treaty's economic and fiscal criteria, or that the French commitment to currency union may fade as the election campaign proceeds.

While a European Union Commission report predicted that 13 of the 15 E.U. member countries will fulfill the criteria and qualify to enter the first round of currency union on Jan. 1, 1999, forecasts by the International Monetary Fund (IMF) suggested otherwise.

The IMF report put the German, French and Italian deficits for 1997 at 3.3%. And Germany's six leading think tanks earlier this week predicted that Germany's 1997 deficit will come in at 3.2% of GDP, with a possibility to fall to 3.0% of GDP.

Turning to the outlook for German economic growth, Kohl reiterated that he expects GDP to grow by 2.5% this year. Germany's six leading economic institutes this week lowered their outlook to 2.25%.

'At 2.5%, we will see a significant but not a dramatic economic recovery,' Kohl said.

[04] Clinton warns Japan against rise in trade surplus

'We don't want it (the surplus) to go way up... We've made some progress,' Clinton said.

The President made his remarks at the start of his meeting with Japan's Prime Minister Ryutaro Hashimoto in the Oval Office.

Previously, White House officials confirmed Clinton would bring up the subject of Japan's rising trade surplus with the U.S. as part of their discussion of economic relations.

As part of the discussion over the trade deficit, the two leaders are expected to briefly touch on the subject of the rising strength of the dollar, although administration officials said the talks on foreign- exchange rates wouldn't be detailed.

As part of the U.S.'s efforts to rein in Japan's trade surplus, Clinton is expected to call on Hashimoto to take steps to stimulate Japan's economy. A more vibrant Japanese economy would provide a healthier market place for U.S. exports.

The two leaders will hold about two-and-a-half hours of talks, which will centre on Asian security issues.

[05] Allianz probed for stock price irregularities

'I can confirm there is an investigation into suspicions of price manipulations on Allianz shares,' the spokesman said, but refused to give more details as to which brokers were involved.

Germany's Handelsblatt newspaper said the probe concerned share traders at BHF Bank in Frankfurt who work on the bourse's IBIS electronic share trading system.

Brokers are suspected of forcing Allianz's share price down to 3,096 marks from 3,200 marks on April 15 and then excercising options bought just before on the DTB futures and options exchange, the paper said. BHF confirmed that the bourse authorities had submitted an inquiry on the incident. 'We are in the process of examining the matter,' a spokesman for the bank.

[06] French markets react to polls ahead of imminent elections

According to a Harris poll, 69% of French voters believe there should be a referendum on the single currency, prompting a sell-off in the French franc and the ever-sensitive lire.

Hitherto, the market has been assuming that the centre-right coalition will be returned to power with a mandate to introduce unpopular policies needed to ensure the country meets EMU criteria.

However, the poll has been interpreted as suggesting there is still a risk the government could lose to the Socialists, who are more likely to try and slow the pace of EMU. 'It could all be very nasty,' warned an analyst at Nomura, noting that these fears could soon be reflected in the French franc and help lift the Deutsche mark against the dollar.

Previous political polls show some 58% of French voters want a profound change in the economic policies currently pursued by the government. Despite this, EMU remains the major focus for the ruling conservatives monetary strategy.

Although pollsters and analysts freely acknowledge the polls are far from set in stone, the markets also reacted negatively when an IPSOS poll for the weekly Le Point showed France's governing centre-right ahead by only a wafer-thin margin in the two-round election, with the opposition Socialists within reach of a parliamentary majority.

But there was general scorn from analysts at the markets reaction. 'Trading in the markets on the basis of a single poll shows that people do not learn from their mistakes,' joked Jerome Sainte-Marie of Louis Harris France.

In the IPSOS poll, for example, 31% did not say how they intended to vote, indicating sizeable indecision at the early stages of a short campaign period.

IPSOS projected 292 seats for the centre-right, 256 seats for the Socialists, 28 seats for the Communists and one for the far-right National Front based on a complex statistical model that even IPSOS concedes leaves many questions unanswered.

'Statistically speaking, they (the majority and the Left) are level,' said Pierre Giacometti of IPSOS. 'But what was true yesterday is no longer true today.'

He said the IPSOS projection concluded that 148 seats would be won by five to 10 percentage points and another 182 by fewer than five points if the election were held today.

[07] UBS says profit rose considerably in first quarter

UBS gave no detailed figures, but said the business trend in the first quarter 'was very positive with earnings bolstered by excellent conditions in the markets.'

UBS said its operating profit in the first quarter was 'excellent' and cash flow increased 'considerably.'

The successful start of 1997 bodes well for the rest of the year, UBS said. The bank cautioned, however, that the figures can't be simply extrapolated for the rest of the year, since the impact of the markets on business is difficult to predict.

Provision requirements for bad loans remained high, UBS said. The provisions will be charged to the extraordinary provision created last year.

The positive business trend in the first quarter also pushed personnel costs higher, while general administrative expenses developed in line with expectations, UBS said.

Turning to income, UBS said all three major earnings segments contributed to the good operating results. Strong increases were reported in fee and commission income and trading income. No significant changes were registered in interest income, UBS said.

[08] Japan shuts down Nissan Mutual Life Insurance

At the close, the Nikkei average of 225 selected issues was down 85.21 points at 18,612.86 after a 37.40-point fall yesterday.

The initial fear was that Nissan Life would be a 'forced seller' of its domestic equity holdings - estimated to total some 200 billion yen - because of its closure. That hit shares of Nissan Motor and Hitachi Zosen - two companies in which Nissan Life has significant stakes. Nissan Motor closed at 772 yen, down 8, and Hitachi Zosen shed 12 yen to close at 441.

As details of the closure surfaced during the day, however, investors became more optimistic that heavy selling in the market could be avoided. 'They will find a merger partner to take over the assets or sell them via cross-shareholdings,' said a trader at a U.K. broker.

And although the Nissan Life collapse did remind investors of the weak state of Japan's financial industry, traders noted that the closure of the second-tier insurer wouldn't have a major impact on the financial system.

[09] Strikes hit French transport system

Air France Europe cut flights by 55% as pilots began a two-day strike over reforms of their pay and working conditions in a merger with parent company Air France.

Air Liberte and TAT, French units of British Airways, again cancelled almost half of their flights due to a two-week-old strike by pilots and cabin crew who say a merger of the two airlines will affect their pay and conditions.

Conductors at the state railroad SNCF, who began their strike Wednesday night, caused service cuts of up to two-thirds, the railroad said.

The railroad walkout continued on a lesser scale today, but traffic was still cut by two thirds between Paris, Lyon, Bordeaux and Marseille, and by one third with western France. Eurostar trains between Paris and London were unaffected.

The SNCF agreed to move up its planned round table talks with conductors from May 7 to April 30.

Six trade unions called the strike over wages and working conditions, a new sign of labour unrest and opposition to the government's austerity measures to comply with budget criteria to join the single European currency.

Austerity and the euro are major issues in the current campaign for early elections set for May 25 and June 1.

[10] UK preliminary GDP rises 3%

The Office of National Statistics said that the growth of production industries' output in the first quarter was ''broadly similar'' to that of the latest fourth quarter, due to an increase in manufacturing output.

The UK's leading share index showed little reaction to the first estimate of UK first quarter GDP figures despite the data coming in slightly ahead of expectations.

Traders said the figures were seen as further confirmation that interest rates are likely to rise in the wake of the May 1 election.

The figures for total goods and services output were above Dow Jones median forecasts for a 0.9% rise on the quarter and a 2.9% rise from a year earlier. Yearly GDP growth in the first quarter was the fastest since the first quarter of 1995.

The output of the electricity, gas and water-supply industries declined in the first quarter, the ONS said.

Among the fast-growing services industry, business services continued to show the highest growth, the agency said. The finance, communications, catering and non-motor distribution industries also grew strongly.

A second, more detailed estimate of first-quarter GDP will be released on May 22.

[11] Economic and Corporate Briefs

France's March consumer prices rose 1.1% from a year ago and 0.1% from February, the national statistics institute said. That compares with February's 0.2% rise from January and a 1.6% year-on-year rise. In addition to their traditional figures, European Union members also provide a second set of CPI data each month, using standardized methods to calculate the figures. On this basis as well, the French CPI rose 0.1% in March from February and increased 1.1% on the year. In February, CPI rose 0.3% from January based on the same calculation and was up 1.7% on the year. These standardized CPI figures will be used as the basis of comparison when E.U. leaders meet in 1998 to decide which member states meet the various Maastricht Treaty criteria. Under the Maastricht Treaty, countries wishing to participate in the single currency must have had an average inflation rate over 12 months not more than 1.5 percentage points above the average of the three best performers.

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

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