An unlikely pair of lords snuggle up in bed

It is hard to imagine a more unlikely and, on the face of it, unworkable business partnership than that of Lord Stevens and Lord Hollick. True, they do have a common City genesis, but in other respects they are as different as chalk and cheese; not until the two are seen making love in public will anyone believe this get-together is anything other than a defensive marriage of convenience. A combination of Tony Benn and Margaret Thatcher would stand a better chance of achieving harmony, for it is not only in their politics that the two lords are divided.

Lord Stevens is Tory to his roots and as a businessman he is a meddler with a powerful ego. While Lord Hollick practises capitalism, he preaches socialism. He is a delegator as a businessman but he runs Lord Stevens a close second for belief in himself and his ability to change the world. As everyone knows, there is never room for more than one boss in any one organisation. Unfortunately, the terms of the United News and Media/MAI merger create two. Both Lord Stevens and Lord Hollick believe they'll run the show, the one as chairman, the other as chief executive, and it won't work.

By all accounts there is already dissention; the two found it painfully difficult to agree even on the wording of yesterday's press release. Heaven knows what happens when it comes to the important things, like who gets to have the plushest office, distance to the nearest private loo, etc, etc. If both are still there in a year's time, it will be a miracle of the modern world. Age, energy, ambition and sheer Machiavellian drive would favour Lord Hollick but you don't get to survive as many scrapes as Lord Stevens has by being an innocent in the game of boardroom politics.

All this assumes that the deal is actually going to happen, of course, and in that department there are plenty of reasons to doubt. This is a done deal only in so far as directors have agreed terms. As the two companies' share prices were indicating last night, there is a high chance of someone coming in to spoil the party, either by bidding for United or, more likely, for MAI. By striking this deal, the Lords Stevens and Hollick have declared open season in the media sector and in the shakeout that follows their bid for ruler rather than ruled status could well backfire.

That said, it is hard to fault the long-term commercial and strategic logic of this get-together. It lies not so much in the claimed cost benefits - which are probably exaggerated at Lord Hollick's estimate of 10 per cent - or in any supposed synergies between the two's media interests. In truth it will always be hard to achieve much cross-fertilisation of ideas and resources between newspapers and television. No, the real benefit will be in critical mass and size.

Deregulation, technological change, and the coming of the information age have made media an industry rich in opportunity and money-making possibilities. To justify the investment risk on many of the opportunities now presenting themselves you need to be large enough to absorb the cost if it all goes wrong. Polarisation between big and small is a process common to most industries these days. Media is no exception. In international terms most British players are still too small to succeed; they fall into that middle rank of also-rans. United's claim that once the deal goes through it will be the 17th-largest media company in the world might not be much to boast about, but at least it is a start.

Who's next? Pearson, with its trophy assets, must be high on everyone's list. Mirror Group too looks vulnerable. The logic of the process means that it must either acquire or be acquired. As for the remaining independently quoted ITV franchises, they are little more than sitting ducks. What role Carlton plays in all this remains to be seen. In the short term it aims to consolidate its position in television but it is little secret that Michael Green last summer tried to do a similar deal with United to that now proposed by Lord Hollick. We'll see.

Dark tidings from Germany

The rise in German unemployment above 4 million may have been expected but it still hammers home like nothing else the seriousness of Germany's economic difficulties. Europe's locomotive is shunting steadily backwards. Once again Germany faces recession, even though it only started recovering from the last one in 1993.

Received wisdom in the markets is that the political drive to achieve EMU, sustained by Chancellor Kohl's personal commitment to the project, rules out further deployment of budgetary policy to boost the economy. After all, Germany is already set to miss for the second year running the key fiscal condition for eligibility to take part in EMU, a budget deficit ratio of 3 per cent or less.

That leaves the Bundesbank bearing the burden of reversing the slide. Germany's central bank last cut the floor discount rate in December and a further reduction to 2.5 per cent now seems highly likely. That would bring it down to the record post-war low to which it was last cut at the end of 1987. In real terms the rate now is even lower. At the end of 1987, consumer price inflation was running at under 1 per cent compared with a current inflation rate in pan-Germany of just under 2 per cent.

However, easier money will not by itself solve Germany's immediate economic difficulties. The heart of the problem is that Germany has become uncompetitive. The appreciation of the mark has combined with spiralling wage costs to push the exchange rate up in real terms by almost a fifth since 1992.

Some relief has come from the recovery in the dollar, a rally which the Bundesbank has become increasingly overt in encouraging. However, a further appreciation can't be relied upon. Certainly no one can imagine the Bundesbank taking a leaf out of the Bank of Japan's book and intervening without limit in the currency markets to push down the mark.

That leaves Germany caught between a rock and a hard place. In which case, suggests Paul Mortimer-Lee, chief economist at Paribas Markets, maybe that self-denying ordinance on fiscal policy may shift. Already pressure from Chancellor Kohl's FDP coalition partners has forced a reduction, which will start in 1997, of the hated solidarity surcharge to income tax, which pays for the cost of unification. As things stand, this is budget-neutral since the federal government is trying to make the individual states pick up the bill. But they are fighting it so maybe the cut really will end up having the effect of relaxing budgetary policy.

And if the fiscal ground does shift? Then the present timetable for EMU looks even more of a dead duck than it does at present. While there is certainly scope for fudging the deficit criterion in the all-important meeting of the European Council that decides upon participation in early 1998, it isn't unlimited. The odds on postponement are rising all the time - all the more so since the SPD is now explicitly making it a campaign issue in the March state elections.