European Business News (EBN), 97-10-10

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Page last updated Fri, October 10 6:32 PM CET

CONTENTS

[01] Italy's Far-Left offers to join a 1-year centre-left government

[02] US producer prices jump a surprising 0.5%. nearly double expectations

[03] Galeries Lafayette, Casino buy Prisunic for $272 million

[04] Nomura International gains control of William Hill

[05] FCC grants MCI more time

[06] French current account surplus widens 34%

[07] French jobs conference begins with business and labour far apart

[08] Rhone-Poulenc expects earnings growth

[09] Swedish government proposes bill to stay outside EMU at start

[10] German September consumer prices rise 1.9%

[11] D'Amato slams Total, France over Iran deal

[12] Corporate and Economic Briefs

[01] Italy's Far-Left offers to join a 1-year centre-left government

Bertinotti, who pulled the plug Thursday on the centre-left government of Romano Prodi by refusing to back the 1998 budget draft, warned, however, that he 'wasn't even sure if tomorrow we will talk in such terms.'

He also said a new government would have to be 'able to respond to the issues we raised.'

Bertinotti's Rifondazione Comunista didn't support Prodi because the government didn't back-pedal far enough on planned cuts in pension plans.

Financial markets immediately reacted favourably, with the stock market MIBtel index gaining 1% and the lira strengthening to 983 ITL/DM from around 986 just before Bertinotti's statement.

A bond trader in Milan said he thinks Bertinotti could simply be making friendly noises in order to better position his party, should snap elections be held.

As a result of Prodi's resignation, Italian President Oscar Luigi Scalfaro can either seek to name another prime minister or call snap parliamentary elections.

Bertinotti spoke at the end of his party's meeting ahead of his consultation with Scalfaro on Saturday. Scalfaro is meeting all party leaders through Monday before deciding what to do.

'We won't give up, and we'll propose to make an attempt at a one-year government backed by the majority selected by voters on April 21, 1996,' Bertinotti said.

That parliamentary vote put Prodi at the head of a centre-left coalition government.

The Rifondazione Comunista wasn't a member of the Prodi government, but its 34 votes in the Chamber of Deputies were needed to win a majority. Prodi's coalition had a majority in the Senate.

An RC spokesman said Bertinotti's offer to join a government was 'serious' but declined to comment further.

The spokesman said he doesn't know whether Bertinotti had spoken with leaders of Prodi's Olive Tree coalition, notably leaders of the coalition's main group, the Democratic Party of the Left .

PDS officials weren't immediately available for comment.

Earlier, Prodi warned that Italy's political crisis must not be allowed to destroy its chances of joining European monetary union, and made it clear he won't accept just any coalition in order to keep governing.

Prodi, in Strasbourg, France, for a Council of Europe meeting, didn't hide his anger at Italy's hard-line Communists whose refusal to budge on welfare cuts effectively brought down his 17-month-old government.

[02] US producer prices jump a surprising 0.5%. nearly double expectations

The Bureau of Labor Statistics reported a 0.5% jump in the U.S. producer price index (PPI), well above a median consensus for an increase of 0.2%. The so-called core rate, which excludes food and energy products, also surged a greater than expected 0.4%.

Analysts say the data provide further evidence that the U.S. has already seen the best news on inflation in the current business expansion. They also validate concerns that the Federal Reserve will raise interest rates later in the year, a point emphasised by Fed Chairman Alan Greenspan this week.

But the wholesale prices data failed to provide Fed policy makers with a smoking gun on inflation, analysts stress. That's because the September gain can largely be attributed to a number of unusual - and most likely one- time - increases in categories like passengers cars, light trucks, and tobacco products. Passenger car prices rose 1.4%, while tobacco costs surged 3.2%.

For example, when increases in automobile and tobacco prices are factored out, the PPI rose less than 0.2% in September. And even with those increases, prices at the crude and intermediate stages of the production cycle remain well contained, economists note.

'Certainly the best inflation news is behind us, but these numbers aren't as troubling as they appear on the surface,' notes John Williams, chief economist at Bankers Trust Co.

Indeed, economists are mindful that two days after Greenspan renewed his concerns about tightness in the Labor markets, fresh data reminded investors why the central bank is on edge about inflation. 'Maybe there's a little whiff of producer price inflation in the air,' cautions Stuart Hoffman, chief economist at PNC Bank.

But few analysts are willing to conclude that inflation is somehow heating up based on one report on producer prices. In general, analysts pay considerably more attention to monthly reports on consumer prices.

The data were stronger than analysts expected. A Dow Jones Newswires survey this week resulted in a median increase of 0.2% for the overall report and the core rate.

The rise in September product costs was fuelled primarily by a 1.5% jump in finished energy prices. Within that broader category, gasoline prices were up 2.2%, residential natural gas was up 1.2% and residential electric power was up 1.3%. Meanwhile, heating oil prices fell 8.0%.

Producer prices for August were left unchanged at an increase of 0.3%. The increase in September, meanwhile, was the largest since a 0.5% gain in December 1996.

But while the headline figures suggested trouble on the inflation front, the more important pipeline data on crude and intermediate costs was largely well behaved, analysts say. At the same time, producer prices haven't accelerated over the last 12 months.

For the first nine months of 1997, PPI finished goods declined 1.4% at a seasonally-adjusted annual rate. This compares with a 2.8% increase during all of 1996. In the last 12 months, producer prices were unchanged.

Intermediate goods prices rose 0.3% in September primarily due to price increases in energy goods, foods and feeds, and materials for nondurable manufacturing. The September gain follows a 0.1% rise in August. At the core level, intermediate goods prices were unchanged.

At the crude stages of production, costs rose 0.6% following a 0.7% rise in August. Price increases for crude energy materials more than offset declines for basic industrial materials and for foodstuffs and feedstuffs.

'The report suggests there's little going on in the pipeline,' says Marilyn Schaja, money market economist at Donaldson, Lufkin & Jenrette Securities.

U.S. Treasurys quickly succumbed to the data. The bond market, which has rotten used to benign inflation data, received a rude awakening Friday morning. Explaining the market's reaction, analysts say the market was already in a vulnerable state after Greenspan's hawkish remarks Wednesday before Congress.

The market's reaction also reflects concerns about tightness in the Labor market. On Thursday, the Labor Department reported that the number of applications for state unemployment insurance fell 5,000 in the latest week, extending a recent trend of figures that suggest Labor conditions remain rigid. Claims had been expected to rise slightly.

The Oct. 4 week drop in claims brought the overall level of applications to a seasonally adjusted 304,000. Claims have held below the 310,000 level for four consecutive weeks. The last time the series had a four-week run below 310,000 was in the first quarter of 1989, Labor officials said.

To be sure, claims data are notoriously volatile and sometimes bear little resemblance to broader trends in the employment sector. But with the demand for unemployment benefits steadily diminishing - and Greenspan worried that Labor trends have put the economy on an 'unsustainable track' - analysts are paying close attention.

'We're getting signals that there's continued strength in the Labor market, ' says Mary Dennis, senior economist at Merrill Lynch & Co. _William Pesek Jr.. Dow Jones Newswires, New York_

[03] Galeries Lafayette, Casino buy Prisunic for $272 million

Monoprix, a unit of Galeries Lafayette, will merge with Prisunic, and Casino will hold a 21.4% stake in the new company, which will be one of France's biggest supermarket chains.

Casino said the deal, which will cost 1.19 billion francs, will boost its net profit by an extra 5.0% in 1998 to around 71.8 million francs.

Pinault said the deal will allow it to focus on its core businesses, while elevating Prisunic's position in the highly competitive retail sector.

Casino said it has also completed its purchase of Sofigep, a smaller supermarket chain, included in the total 1.19 billion francs Casino is paying to enlarge its retail operations.

Trading in Galeries Lafayette, Casino and Pinault-Printemps-Redoute shares will resume at 1200 GMT, the French stock exchange operator said.

[04] Nomura International gains control of William Hill

Nomura International said it will gain control of William Hill, Britain's second-largest bookmaker, for £700 million ($1.12 billion).

The Brent Walker Group, a heavily indebted British concern, will sell William Hill, its final significant asset, to The Grand Bookmaking, a group financed and set up by Nomura to make the acquisition.

Nomura itself was unable to buy William Hill as a subsidiary because of the intricacies of Japanese banking laws. But a spokesman said Nomura will control the Grand Bookmaking holding company.

Grand Bookmaking said it expects no job losses as it works to 'create a new independent force in British betting which will stimulate greater competition in the industry.'

William Hill reported a 1996 operating profit of 50.3 million pounds ($80.5 million) on revenues of 1.65 billion pounds ($2.64 billion).

European Commission approval will be required before the deal can close.

Nomura International is a European subsidiary of The Nomura Securities, the huge Japanese investment bank.

Brent Walker will be taken off the London Stock Exchange after William Hill is sold.

[05] FCC grants MCI more time

WorldCom, a phone company that made an unsolicited $30 billion bid for Washington-based MCI, said that at the request of MCI and its proposed marriage partner, British Telecoms, the FCC has extended the public comment on the use of a so-called voting trust.

The delay gives MCI and BT more breathing room before commenting on the structure of the bid, according to observers. Otherwise, according to the FCC, MCI and BT would have had to file an objection to the voting trust by today. But since the board of MCI isn't meeting until today, that would leave MCI's board no time.

A voting trust is a vehicle that allows WorldCom, to acquire the MCI shares into a trust, and shoulder the regulatory risk of FCC and state regulatory approval. Those approvals could take months, but WorldCom and its advisers at Salomon Brothers Inc. and Cravath Swaine & Moore crafted this structure to allow shareholders to receive their stock relatively quickly-no later than the first quarter of 1998.

While WorldCom must first receive antitrust clearance to purchase the shares via a trust, a voting trust would be used to effectively buy the company on the same timetable as the BT deal.

The FCC established a timetable for objections that will continue until three days after the commencement of the WorldCom exchange offer, which is expected within 30 days. But the timetable could also be accelerated, the FCC said.

[06] French current account surplus widens 34%

In unadjusted terms, the current account surplus narrowed slightly to 20.1 billion francs from 20.2 billion francs in June.

For the first seven months, and after consideration for first quarter revisions, the current account was in surplus by a seasonally adjusted 135.81 billion francs, or 138.2 billion francs on a seasonally adjusted basis, more than double the unadjusted 53.4 billion francs recorded in the comparable period in 1996.

The Finance Ministry attributed the gains in the latest month to stronger exports and a stabilization of imports, factors that reversed a narrowing of the current account in June.

The adjusted surplus was wider than expected, with the average of expectations putting the surplus at FF19.2 billion for the month.

Meanwhile, French national statistics institute Insee revised gross domestic product growth for the first quarter to an increase of 0.3% from the fourth quarter of 1996. That's up from the increase of 0.2% it had estimated previously. In the second quarter of this year, GDP growth rose a definitive 1%, unrevised from its provisional estimate, Insee said.

Insee said it now estimates GDP will grow at a rate of 2.3% in 1997. In both the third quarter and fourth quarter it expects GDP to grow at a rate of 0.9%. That compares with the government's official estimate of 2.2% for this year.

Insee said correcting for effects of the calendar, GDP growth was about 0.75% in the second quarter and 0.5% in the first quarter, unchanged from its provisional estimates.

[07] French jobs conference begins with business and labour far apart

Union leaders demanded that Jospin make good on a campaign promise to pass a law mandating a 35-hour work week with the same paycheck, while business organizations predicted disaster if forced to do so.

Shortly before the daylong conference opened, Jospin hoped the talks among 11 trade and union organizations would 'open areas of negotiation around the central objective that the country needs: jobs.'

Joining Jospin were Labour Minister Martine Aubry, Finance Minister Dominique Strauss-Kahn and Budget Minister Christian Sautter.

At the end of the conference, Jospin was expected to describe a proposed law for businesses to cut the work week from 39 hours to 35, and what deadline, if any, it would have. 'We absolutely must come out of this conference with concrete and positive measures,' said Louis Viannet, head of the Communist-led General Labour Confederation.

Business leaders and analysts have argued that the leftist government, which came to power in June parliamentary elections after the conservatives failed to cut the jobless rate, was focusing on the wrong solution.

Instead, they propose a loosening of the country's rigid labour laws and a lightening of their tax load to stimulate US-style job-creation. Those issues are to be examined at a European Union jobs conference in Luxembourg Nov. 20.

Jean Gandois, head of the National Confederation of French Employers, declined comment as he entered. Gandois is hostile to any work week law, with or without a deadline.

'We came essentially to say no to a law, whether it has a deadline or not,' said Lucien Rebuffel, president of the General Confederation of Small and Medium-Sized Businesses.

'The obligation to work only 35 hours is impractical, would raise costs and cause a large number of our businesses to disappear,' he said.

Seeking a common ground, Strauss-Kahn told the conference he expects 3% growth next year that will create 200,000 jobs. The number of jobs could be increased through part-time work and flexible working hours, service activities, Labor Minister Martine Aubry's plan to fund more jobs for youth, as well as a simplification in the creations of new companies, he said.

He didn't specify how many of those 200,000 jobs would be in the private sector and how many in the public sector.

[08] Rhone-Poulenc expects earnings growth

The French chemicals and pharmaceuticals company has also opened a pre- offer for a share and warrant issue designed to raise 6.7 billion French francs in capital to help pay for the 27 billion francs cost of buying out the minority stake of US-based Rhone-Poulenc Rorer it didn't already own.

That tender offer closed Oct. 2, with the company owning 98.6% of Rhone- Poulenc Rorer.

The company said that the offer could be increased to a maximum of 7.7 billion francs if demand warrants.

[09] Swedish government proposes bill to stay outside EMU at start

If the government later finds that Sweden should participate it will submit the question to the Swedish people for consideration.

'It's desirable that such a test be made in a general election, but an extra election or referendum instead cannot altogether be ruled out,' the government said.

A Swedish participation in EMU needs a strong democratic base, which is currently lacking, the government said.

At the moment opinion polls and other indicators clearly show that there is no public support for Sweden to join EMU at the start.

In its proposal the government said that even if it stays outside, Sweden will still maintain stable prices and aim to establish a long-term surplus in the public finances.

[10] German September consumer prices rise 1.9%

That was exactly in line with expectations. A Dow Jones survey of economists had brought a forecast for a 0.3% decline from August and a 1.9% rise on the year.

In August, consumer prices in Germany had risen 0.1% on the month and 2.1% on the year.

The September consumer price index for western Germany was unrevised from a preliminary Statistics Office figure, down 0.3% on the month and up 1.8% on the year.

In eastern Germany, the statistics office said consumer prices fell 0.1% in September from August, and were 2.5% higher than a year earlier.

The decline in prices on the month was largely due to seasonal influences, the office said, citing for example a decrease in the price of seasonal foods.

Consumer prices for services and goods in the restaurant, hotel and travel industries also saw a season-related decline in September.

Price increases were especially noted for postal services in September, where letter and package services rose an average of 7.5% on the month, postage for letters rose 10%, and postage for postcards rose 25%, the office said.

[11] D'Amato slams Total, France over Iran deal

US Senator Alphonse D'Amato also chastised the government of France for cheering Total's action and expressed dismay that the Clinton administration had not imposed sanctions against Total.

Total 'is thumbing its nose at the United States and trying to test our resolve,' D'Amato said in a speech on the Senate floor. 'We must remain strong and resist these efforts to undermine the fight against terrorism.'

He demanded that the French government join the fight against terrorism 'and not applaud' the Total contract. 'I believe our laws must be enforced and strict sanctions must be brought to bear on Total,' D'Amato said.

French Prime Minister Lionel Jospin has welcomed the agreement and said US laws do not apply outside the United States.

D'Amato contended Total's action insults the US Senate, which unanimously approved his law, and to all nations that should be working together to fight international terrorism.

He said this struggle requires 'that we put corporate greed and profits on the back burner.'

The 15-nation European Union has presented a united front in opposing any US interference with the Total contract. Sir Leon Brittan, the group's trade chief, wants the D'Amato law to be changed, as well as a similar US law against doing business with Cuba.

The D'Amato law, known formally as the Iran-Libya Sanctions Act, authorises President Clinton to impose sanctions on any company that invests more than $40 million in Iran and $20 million in Libya. If invoked, it could hamper US bank loans to Total and ban the sale of its products in the United States.

Total signed a contract Sept. 28 with the Iranian government to develop an Iranian offshore natural gas field. Also in the deal are Gazprom, a Russian petroleum company, and Petronas, a Malaysian company.

The Clinton administration has said it will send legal experts to France, Russia and Malaysia to investigate whether the contract violates the D'Amato law.

The United States wants to ensure that any sanctions it might impose against the three foreign companies will stand up to a promised court challenge. State Department spokesman James P. Rubin said Monday that legal scrutiny of the contracts could take time.

Europe has warned that interference by Washington in the Total deal would damage trans-Atlantic ties. The EU's executive agency is studying retaliation if Washington punishes EU companies.

The United States, which says Iran promotes terrorism, has tried to isolate it as much as possible with trade sanctions. For its part, the EU has continued to trade with Iran and has maintained political ties.

[12] Corporate and Economic Briefs

Norway's consumer price index rose 0.4% in September from August, and 2.3% in September on the year, Statistics Norway, the Norwegian national statistics agency, said. The figures were in line with analysts' expectations of an 2.3% annual rise in consumer prices. Higher rents and prices for clothing and shoes following the end of summer sales fueled the rise in the annualized inflation rate, the agency said. Meanwhile, the producer price index fell 0.2% in September from August, taking the annualized increase to 0.9%, Statistics Norway said.

Dutch consumer prices rose 2.6% in September from the same month a year ago and showed a 0.9% increase from August, the Central Bureau for Statistics said. The annual increase is unchanged from August and higher than economists had expected. Economists told Dow Jones earlier they expected an annual increase of 2.4% to 2.5%.

Spanish jobless claims rose to 12.69% of the active population in September from 12.38% in August, the Labor Ministry said in a statement. At the end of September, around 2.04 million people had filed for unemployment insurance, up 51,050 from August, the Labor Ministry said.

Bulgaria's consumer prices rose 3.6% in September from August and 561.8% in the first nine months of 1997 compared with the same period of last year, the National Statistics Institute (NSI) announced. The NSI didn't give a figure for the 12 months through September. Food prices in September rose 2.0% on August, non-food prices were up 4.5% and the cost of services rose 6.4%, the NSI said. September's monthly increase is less than in August, when consumer prices rose 5.5%. Inflation has been slowing since February, when prices rose 242.7% from the previous month in the wake of a political and economic crisis. The NSI said it expects annual inflation in 1997 to range between 600% and 610%. Inflation for the whole of 1996 was 310.8%.

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

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