Consider two countries. In one, economic growth falling, retail sales are down, industrial production is declining and unemployment is soaring. In the other country economic growth is buoyant retail sales are on the increase, industrial production is rising and unemployment is falling, albeit slowly. The two countries are Germany and Ireland but it is Germany which is faced with the stagnant economy; Europe's economic engine is merely ticking over and needs all the help it can get. Yesterday's reduction in interest rates by the Bundesbank, the German central bank, is designed primarily to boost the home economy but the reduction will not be welcomed at the Central Bank of Ireland.
Lower German interest rates will produce lower Irish rates whether the Central Bank wants it or not, and at this buoyant point in our economic cycle, the bank would probably prefer to leave things alone. An economy running at full speed can, if it is further stimulated, easily produce inflation.
The one half of one per cent reduction announced by the Bundesbank, even if all of it is passed though to Irish retail rates, may not have a significant inflationary effect but the risk exists. With borrowing rates; already greatly reduced, the banks and building societies have experienced a heavy demand for funds. At the same time deposit rates have fallen so low that for many the incentive to save has greatly diminished; these are bleak times indeed for people depending on deposit interest. Fortunately, much of the money flushing through the economy, so far, has been invested rather than spent on consumer goods. But cheap money can and does drive up demand and prices - the housing market is a good example.
The German Chancellor, Dr Kohl, is facing an uphill struggle. Always the driving force behind European Monetary Union, he is (temporarily, one hopes) in the embarrassing position of having an economy which is ineligible for membership because of a budget deficit which is running at 3.5 per cent of GDP where the Maastricht criteria stipulates three per cent. He has an even bigger problem with unemployment which is now running at over four million. He is committed to halving it within four years; a very tall order. Dr Kohl needs wage restraint and also welfare reform, at least as far as employers' costs are concerned. But he also needs Germans to buy more and he needs to encourage other European nations to buy more German goods. Lower German interest rates means lower rates in other European countries. The Bundesbank has done Dr Kohl a favour.
The Bundesbank however has also done European monetary union a favour as well. Low German rates take pressure off the deutschmark and force investors to think of other currencies. And, in the same way, they encourage investors to look forward to the `Euro' currency as the anchor replacement of the deutschmark. Six months ago EMU postponement seemed almost inevitable but yesterday's announcement is another indication that the target date will be met. The enormous political momentum in favour of EMU seems set to push aside all but the most serious economic complications. The Maastricht criteria will, be open to flexible interpretation even for Germany.
with most new personal computers and generates a slightly higher royalty per unit than the previous version of Windows, analysts said.
Sales of its operating systems to PC makers hit a record in the third fiscal quarter, said Mr Joachim Kempin, senior vice president.