European Business News (EBN), 97-06-02

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

Page last updated Mon, June 02 7:10 PM CET

CONTENTS

[01] Chirac asks Jospin to form government, as Socialists seek alliance of all leftist parties

[02] European markets hit by French Left's election victory

[03] German wrangling, French election result put pressure on EMU launch

[04] UK manufacturing activity rises 1% but consumer credit growth is much lower than expected

[05] Halifax shares start at 775 pence

[06] Lockheed announces joint venture with Intersputnik

[07] EMAP full-year pretax profit leaps 54%

[08] Hanbo founder handed 15-year jail sentence

[09] Corporate and Economic Briefs

[10] World News Briefs

[01] Chirac asks Jospin to form government, as Socialists seek alliance of all leftist parties

Socialist spokesman Francois Hollande made the comment to reporters after Jospin and Socialist leaders discussed the formation of a broad left administration.

Jospin has promised to form his government 'very rapidly', and attention in financial circles has turned to a key appointment: finance minister.

Though surprises are always possible, most observers expect Jospin to name senior Socialist Party strategist and former Industry Minister Dominique Strauss-Kahn to the post.

Strauss-Kahn, a former economics professor, would initially be well received by markets, which generally view him as aware of France's economic constraints.

'I think Strauss-Kahn would be very pragmatic. He would have to comfort the left wing of the coalition, but the Socialists are much more modernised than has largely been reported,' said Philippe Brossard, head of research at AMB-Amro in Paris.

Brossard added that Strauss-Kahn's credentials lend him some credibility within financial markets. 'His industry ministry post means he would be perceived as being reasonably well trained for a top economic policy post.'

But Strauss-Kahn made very little impression in his last posting, with some economists struggling to remember any noteworthy decisions he made.

'He's actually not very well known by markets, particularly international markets,' said Michala Marcussen, senior economist at Societe Generale in Paris. 'He's going to be a new personality for markets to analyse.'

Marcussen added that French financial markets Monday reacted more positively than had been expected to the left's win, and she expected the same dynamic to hold if Strauss-Kahn gets the finance portfolio.

[02] European markets hit by French Left's election victory

French stocks closed higher, bouncing back from early losses as investors reassessed Sunday's election of Socialists and Communists to the National Assembly.

The CAC 40 index of most actively traded French stocks closed at 2601.45 points, up 17.51 points, or 0.68%.

The franc, however, remained stable as the financial world took a wait-and- see attitude toward what Jospin would do with France's drive to qualify for the euro, Europe's single currency planned for 1999. It requires France to cut its budget deficit. French government bonds also clawed their way higher after initial falls.

In other currency news, the dollar was up two pfennigs against the mark in late dealings as the shock left-wing victory in the French parliamentary elections sent players scurrying into safe-haven currencies.

Elsewhere in Europe, Frankfurt stocks closed up nearly 2% with the export sector boosted by the stronger dollar but London shares finished well down, unsettled by fresh worries over interest rates.

Bank of France intervention to prevent the franc falling too far from its central Exchange Rate Mechanism parity of 3.35386 per mark will help to keep volatility in check, analysts said.

'I think there will be high volumes in mark/Paris but not necessarily high volatility,' said Robert Prior-Wandesforde, an economist at HSBC Markets.

'If there is any pressure on the franc, and a danger of a move to 3.39 or 3.40, we will see intervention straight away.'

The mark has kept within 1% of its central ERM parity rate against the franc so far this year, despite a decline to 3.3860 per mark on Monday, its weakest since December 11, 1995.

Shares in French companies slated for privatisation plunged after the election victory of the Socialist-led left cast doubt over the outgoing government's sale plans.

The Socialists refused to comment on Monday morning on the planned sale of a stake in France Telecom , which had the highest profile of the outgoing government's privatisation projects.

'I am not saying no comment and I am not denying anything,' a party spokesman said when asked about a rumour that the newly-elected left had cancelled the privatisation. 'There is no government, so there is no decision,' he added.

[03] German wrangling, French election result put pressure on EMU launch

Meanwhile, in France the resounding win for the combined forces of the left brought forth yet more questions about the single currency's prospects.

German Finance Minister Theo Waigel said the government and the Bundesbank will continue to discuss the timing of the controversial proposed revaluation of the country's gold reserves.

German Chancellor Helmut Kohl added that the planned revaluation of Bundesbank gold and currency reserves in no way infringes upon the independence of the German central bank. He also insisted that the revaluation was not a one-off measure to make EMU budget criteria.

Kohl said the European economic and monetary union is the central part of building a true free-trade zone within Europe and advancing European integration. 'We are approaching the moment of truth,' he said, adding that Germany's position is very clear. 'We each must do our own homework (on meeting Maastricht Treaty criteria), especially Germany,' he said.

But he added that Germany will do everything in its power to meet the criteria for currency union and launch the Euro on time. Asked if economic and monetary union could go forward as planned if Germany failed to meet the Maastricht fiscal criteria this year, he replied: 'It would be hard to imagine EMU without Germany.'

Edgar Meister, a board member of Germany's powerful Bundesbank, said the voyage towards economic and monetary union may enter 'rougher waters' in the weeks and months ahead.

'Since yesterday the constellation has been altered so that we might know in the next few weeks, not in 1998, whether the euro will be a stable currency,' Meister said.

If currency union is to be postponed, deputy chief of the German socialist SPD party, Heidemarie Wieczorek-Zeul said, 'then the responsibility will lie with German Finance Minister Theo Waigel, who first of all interpreted the convergence criteria of the Maastricht Treaty restrictively, and contrary to their meaning.'

She added that Waigel now 'reveals himself to be a trickster when it comes to fulfilling the the deficit criteria which he, himself, interpreted particularly restrictively.'

Meanwhile, German Foreign Minister Klaus Kinkel said that he did not believe the new French government would allow doubts to arise over whether it is firm in its intention of meeting the entry criteria for European monetary union.

'France will not adopt a policy which allows doubts to arise on whether it will reach the debt criteria,' Kinkel said during a meeting of European Union foreign ministers.

The Socialists generally favour the planned single currency, the euro, but will rely for their parliamentary majority on Communists who oppose it.

Jospin has also ruled out further austerity to meet qualifying targets for the euro, including ceilings on the budget deficit, inflation and public debt.

[04] UK manufacturing activity rises 1% but consumer credit growth is much lower than expected

The purchasing managers index and consumer credit data, support arguments on both sides.

The U.K. purchasing manager's index was reported at a seasonally adjusted 54.6% in May, up from 53.6% in April and at its highest level since April 1995. This suggests manufacturers have been less hurt by sterling's strength than was previously thought, and the Bank of England might raise rates without too much fear from the strong pound.

Monetary data, however, showed net lending to consumers at £691 million ($1.1 billion) in April, much weaker than the £1 billion forecast, while annual growth in the M0 narrow money aggregate in May was 6.1%, slower than the 6.3% expected. Together, the monetary figures give 'few signs of a runaway boom in the consumer sector,' said Jonathan Loynes, U.K. economist with HSBC Markets.

Loynes said the central bank should stand pat on Friday. Part of the problem in interpreting the data is the different parts of the economy highlighted. Ian Amstad, senior U.K. Economist at Bankers Trust, said the PMI figures add to the arguments for raising rates because manufacturing growth 'is, if anything, picking up.'

But Robert Barry, head of economics at Barclays Bank's BZW investment- banking arm, doesn't believe manufacturing strength is any reason to raise rates. He would hold rates unchanged, but agrees with Amstad that it's a close call.

'I'm not sure manufacturing strength is a problem, or that it will last,' Barry said. 'The only thing that would worry me would be if consumer lending had accelerated.'

[05] Halifax shares start at 775 pence

A lot of people went into this highly overweight of banks and financials and now all that froth is being blown off.''

Halifax shares debuted at 775 pence per share, but quickly eased back to stand at around 745 pence, as small shareholders rushed to cash in easy profits. The price compares with Halifax's estimates in February for an initial price of between 390 pence and 450 pence and last week's unofficial dealings of around 720 pence. The average price of the 568 million shares auctioned to institutions after the closing bell Friday was 732.5 pence.

Also in focus are Abbey National and National Westminster after weekend press reports that the two could be looking to merge in a £25 billion deal. However, Abbey's chairman denied the reports, adding that the bank is not in discussions with anyone.

Abbey shares are 22 pence lower at 859 pence, while NatWest shares are 19 pence adrift at 726 pence.

Also suffering in the banking stocks cull are Lloyds TSB, down 23 pence at 591 pence; Barclays, down 47.5 pence at 1,139.5 pence; and Bank of Scotland, down 11 pence at 373.5 pence.

[06] Lockheed announces joint venture with Intersputnik

U.S.-based Lockheed Martin will be the majority shareholder in a joint venture, Lockheed Martin Intersputnik, to be based in London with a sales office in Moscow. The Russians acknowledged that Lockheed was able to clinch the deal by coming to the table with cash - but neither side would say how much.

Intersputnik, a consortium of Russia and 21 other nations, holds rights to certain unused positions for satellites in earth orbit. The joint venture will use 15 of these these slots initially to provide broadcast, fixed telecommunications and Very Small Aperture Terminal services in developing regions such as Eastern Europe and the former Soviet Union.

The first of four planned satellites will be launched on a Proton rocket in late 1998 and positioned over the Ural Mountains. That prime location in space will let Lockheed Martin Intersputnik provide telecommunications services throughout Eastern Europe, the former Soviet Union and into Asia.

After three more satellites are launched, one in 1999 and two in 2000, the venture will increase its reach, with projected revenues of between $300 million and $500 million a year.

Up to 15 satellites could eventually be launched as Lockheed Martin and Intersputnik try to capture a bigger share of a global market estimated at $3 billion to $4 billion and growing by about 15% a year, executives from both companies said.

[07] EMAP full-year pretax profit leaps 54%

EMAP said the acquisitions in the previous year of French television listings guide publisher Tele Star and U.K.-based commercial radio group Metro Radio, contributed £12.8 million to the group's pretax profits, net of financing costs.

EMAP spent £30 million on bolt-on acquisitions in the year ended March 31, but the group said their timing of acquisitions had 'little impact on overall profits last year.' Total acquisition costs were £95 million, compared with £170.1 million in the previous year.

EMAP's pretax profit after the disposal last June of its regional newspaper and printing businesses to Johnston Press for £113.5 million was £234.6 million in the year to March 31, up from £86.5 million in 1996.

Underlying revenue grew 9.0% to £768.2 million and net debt was reduced to £89 million from £350 million a year earlier.

Adjusted earnings per share were 38.9 pence, up 42% on the previous year.

The final dividend was 8.7 pence to March 31, bringing the full year total dividend to 13 pence a share, compared with 11.2 pence a share a year ago.

[08] Hanbo founder handed 15-year jail sentence

Chung Tae-soo was one of 10 people handed stiff prison sentences by a Seoul court in a loans-for-kickbacks scandal involving Hanbo's failed steelmaking flagship.

Hong In Kil, a former aide to President Kim Young Sam, received a seven- year jail term for influence peddling, and Kim Woo Suk, a former cabinet minister, got a four-year sentence for receiving bribes. All but one of the 11 politicians and businessmen indicted received jail terms.

The corruption scandal was uncovered when Mr. Chung's Hanbo Steel Industry Co. filed for court receivership in late January after amassing five trillion won ($5.6 billion) in debt while completing a steel mill. Mr. Chung was accused of bribing bank officials and politicians in return for help getting new loans from commercial banks.

The scandal has been an embarrassment for President Kim, who had made ending Korea's persistent corruption a main pillar of his presidency. Last month, Mr. Kim's own son, Kim Hyun Chul, was arrested on bribery and tax- evasion charges.

[09] Corporate and Economic Briefs

The European Union, the world's biggest agricultural producer, must learn to export without the aid of subsidies if it is to share in expanding world markets, EU Farm Commissioner Franz Fischler has stated. 'In the long run, this will only be possible if we continue to wean exports away from export subsidies,' Fischler told a conference organised by the European Parliament's Land Use and Food Policy Intergroup. But the EU is currently taxing wheat exports as a precautionary move to prevent prices overheating and ensure adequate supplies for domestic consumers.

Germany's Westdeutsche Landesbank Girozentrale has the first option on the 45% stake in Bank Austria which is now held by the Anteilsverwaltungs Zentralsparkasse. Bank Austria spokesman Heimo Hackel has said that the German bank, which now holds a stake of 10% in Austria's largest bank, had the option to buy the AVZ stake. The city's coalition government of social democrats and conservatives said Friday that the AVZ, which is controlled by the city of Vienna, should sell its stake over the next six years. Nobody at WestLB was not immediately available for comment.

[10] World News Briefs

Nigerian gunboats have invaded Sierra Leone and have been shelling Freetown in an effort to force out mutinous troops who overthrew Sierra Leone's civilian government last week.

A former military dictator who promises to fight poverty emerged the victor in Bolivia's presidential elections. But with no candidate receiving a majority, Congress will end up picking the country's next leader.

In Jerusalem Prime Minister Benjamin Netanyahu has said that Yasser Arafat's government has encouraged the killing of Arabs who sold land to Jews and warns that such attacks threaten the peace process.

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

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