ECB reluctant to cross the great divide

Europe's economic policymakers are at each other's throats. The language may be diplomatic but the divide between finance ministers and the European Central Bank is growing by the day.

The immediate problem stems from the ECB's misunderstanding of both the nature and the seriousness of the economic situation facing the eurozone.

It is not about what is happening to money supply numbers (a measure which even the ECB now takes with a pinch of salt); nor even about more broadly based data such as inflation. It is, as US policymakers have quickly grasped, about confidence.

The Federal Reserve has cut interest rates while the White House has cut taxes - a package designed to keep business investing and consumers spending. In stark contrast the ECB has moved more grudgingly on borrowing costs, while at the same time insisting governments stay inside the fiscal straitjacket of the Maastricht treaty.

Little wonder German business confidence is at an eight-year low or that finance ministers are pressing for lower interest rates. Worrying about inflation appears irrelevant in the present circumstances - if not downright perverse.

The spat, serious enough in itself, serves to underline the fault lines inherent in the policy framework created for monetary union - the so-called "bankers Europe" where economic growth comes a poor second to price stability. Such arrangements were acceptable in national capitals when the goal was the huge political prize of monetary union. They appear less desirable when the economy is slowing, unemployment rising and (in Germany and France ) elections are looming.

According to Klaus Liebscher, the governor of the Austrian Central Bank and a member of the ECB's governing council: "Economic policy measures are for politicians not monetary policymakers. They can be supported by monetary policy but never replaced by it."

Given the constraints imposed on politicians by the growth and stability pact, such a lopsided view would be flaky at the best of times. For those within the eurozone who are losing their jobs it must appear bizarre.

The ECB may bow to political pressure and economic reality and cut rates in the next few weeks. That will not be enough to restore confidence in its judgment. Its present policy framework is insufficiently flexible to accommodate serious economic shocks.

Seeking to curb the cycle of boom and bust is a worthy aim - but not if the result is full time bust.

Fancy make up


Bioglan's chairman Terry Sadler has leapt into contention for the Marconi prize for destroying shareholder value, after his ill-conceived attempt to achieve world domination overnight.

Just a couple of months ago, Sadler was Britain's king of skincare. He made millions from soothing itchy rashes, clearing up teenage spots and catching cancerous lesions early.

But a paper wealth of a quarter of a billion pounds was not enough. Sadler tried to double the firm's size by swallowing a rag-bag of underperforming dermatology medicines from Bristol-Myers Squibb.

After a five-fold surge in the shares since flotation, it all seemed too good to be true - and it was. Sadler's audacious move persuaded the City to take a closer look at his enterprise, which turned out to be as solid as a house of cards.

Throughout the good times, a handful of analysts were warning that Bioglan's success was not all it seemed. Much of the money was coming from deals to out-licence products, often at the tail end of accounting periods. These lumpy sums disguised pedestrian underlying sales which were barely sufficient for the business to break even.

Bioglan yesterday conceded that its accounting approach towards these deals had been relaxed, to say the least. A more "conservative" policy has wiped out the firm's growth record at a stroke.

Sadler yesterday conceded that outlicensing deals should be "the icing on the cake, rather than part of the cake itself" in a sustainable business. The bosses of Britain's flakier drug firms should take note of his plight.

Bioglan is confident it can come up with a deal with bankers to ensure its survival. It will be a close-run thing - auditor KPMG was unable to decide whether Bioglan was a "going concern" in time for yesterday's results.

Goldman Sachs appears to have been shocked by the state of the business, after being appointed as financial adviser in August. Some sources were asking yesterday whether Bioglan's previous adviser, ABN Amro, was asleep at the wheel.

Bioglan's dramatic fall from grace is a tragedy for employees and for Sadler himself. It is also a wake-up call for the City, which was seduced by a clear complexion without looking beneath the make-up.