DG comp vs DG market a sideshow to the main event

And so to Deutsche Börse's annual reception at Whitehall Palace in London last night (a similar event had been held in Frankfurt on 24 January) to find out whether the exchange's executives were holding out any last hope for their proposed merger with NYSE Euronext on the basis of European single market commissioner Michel Barnier's apparent willingness to take a more global perspective on the deal than his colleagues at the directorate-general for competition. One source of relief for all concerned is that Barnier's intervention will not cause further delay to the decision-making process: having launched their anti-trust investigation last April, the European Commission seems certain to make its final decision on 1 February. But despite insisting that 2011 would not be considered a wasted year if the Commission does block the deal, the representatives of Deutsche Börse seemed resigned to their likely fate. Indeed there can be no group of Germans more willing to talk about Greek debt (we can't stand by and let default lead to social chaos) or the financial transaction tax (popular and political opinion is right behind it), or any other topic that will take their minds off the impending deadline.

Perhaps cognisant of his hosts' preoccupations, keynote speaker Dennis Turner, chief economist at HSBC, put the bourse's problems in perspective. First with jokes aimed at economists ("created by God to make astrologers look credible"), Vince Cable ("never trust a man whose hobby is ballroom dancing") and - inevitably - the euro ("trading robustly today against the Esso World Cup commemorative coin"), then with passionately delivered arguments, Turner left no one in any doubt that the problems faced by policy makers in Europe and around the world were of the most serious possible nature.

Keenly aware of his profession’s failure to predict the depth of the problems in the global economy ("econometrics has only allowed economist to get things wrong with more accuracy"), Turner’s core message may not have been original – essentially, we can't go on like this – but it was no less forceful for that. The social model constructed in various European nations since the second world war was simply too expensive now that the demographics had changed: those in work would have to put more money aside for the future if they wanted to have one worth living. The alternative would leave the next generation with a tax burden that would make them terminally competitive in the global economy. Perhaps the one thing that shouldn’t change is the direction toward ever more globalisation. Since the second world war, growth in trade had consistently led to growth in GDP, said Turner, adding that the Wall Street Crash did not cause the great depression, but the cutting off of supply lines as countries retreated into recession.

The challenge, concluded Turner, was to continue to adapt to globalisation. Politicians had to redefine their role, he insisted, as globalisation had stolen from them the ability to influence domestic supply and demand to suit the electoral calendar. The shift of global power from west to east would bring opportunities as China’s producers, for example, became consumers. But both Europe and the UK needed to change radically to be in a position to take advantage of such future trends. Noting the 11% contribution to UK GDP of financial services, Turner acknowledged that it would be foolhardy to rapidly downsize such revenue generator, but he also called for a rebalancing of the UK economy that recognised that the era of the greatest output from UK manufacturing was not so long ago. 2007 to be precise.

As facilitators of the growth of Germany’s Mittelstand that now want to build a global business, Deutsche Börse’s executives, understandably, looked deep in thought.