COMMENT : Does New Labour have an old view on RECs?

There's just a possibility, if only a remote one, that the decision on whether to refer the latest American bid for a regional electricity company to the Monopolies and Mergers Commission will fall to a Labour government. If it does, it will be an interesting test, for when the first of these bids came rolling across the Atlantic a little under two years ago, Labour's knee-jerk reaction was to say that the thing must be referred at all costs.

Very Old Labour. These days and with power now within its grasp, attitudes seem to be a little more sanguine. "It seems a bit stupid to refer this bid as there are hardly any RECs left. The time for referral was when all this process started," says John Battle, energy spokesman. So what if Labour did have to decide? What would it do? If the bid comes from the US, the policy seems to be clear. "We are not opposed in principle to foreign takeovers," reiterates Mr Battle.

As well he might, for the Americans were positively falling over themselves yesterday to say that Labour's windfall profit tax presented no kind of obstacle and had been fully factored into the bid calculations. Gordon Brown may have trouble demonstrating the legality of the tax in Westminster or Brussels, but successive posses of Americans with bulging wallets have comprehensively demolished the myth that the utilities cannot afford it.

AEP and PS Colorado brushed the issue aside like a fly bothering a horse in the Ohio sun. As proposed - a one-off levy of pounds 3-5bn widely spread among the utilities - would not be a problem, they said. This is a bit of an embarrassment for Labour, for the Americans seem a good deal more relaxed about the tax than the Brits, whose position Labour's policy of referral would have protected.

Still, never mind. It looks as if timing will spare Labour the discomfort of having to make the decision. With every possibility that Southern Electric will have been snapped up by the time of the election too, Labour's scope for doing much with this industry beyond the windfall profits tax and tampering with price regulation looks severely limited. As for a clear statement of policy on mergers, we are still waiting...

Defence rivals are missing an opportunity

That long-mooted merger between GEC and British Aerospace is the longest on again and off again story in British industry. What was billed in a Sunday paper at the weekend as a new round of talks about to begin turns out to have been an old round on the point of failure. The market yawned and the two share prices hardly moved.

All the same, this is a serious issue that will not go away. The rapid consolidation in the US aerospace and avionics industry is bound to put heavy pressure on European rivals with the Americans turning increasingly to export markets for relief from vicious home-market cutbacks.

It so happens that the UK has not done too badly as a defence exporter, to a great extent as the result of its successes in Saudi Arabia and elsewhere in the Middle East. Exports of helicopters and aircraft to Germany and America are also generating substantial income. As a result, the UK was the second-largest defence exporter in the world last year with approximately a quarter of the global arms markets.

Whether a merger of GEC and British Aerospace, or perhaps of the defence avionics businesses of the two companies, would make much difference to this record is an interesting question. There would certainly be cost cutting, which would be reflected quickly in jobs and profits. But there might also be upward pressure on prices charged to the Ministry of Defence by a single dominant supplier. Nor on present form is it obvious that a reduction in competition would improve the performance of the British defence industry overseas.

Gobbling up national competitors should not be the main priority of this industry. The chief issue remains the insular, fragmented and national nature of the defence market in Europe, an enormous defence market which is excluded from the provisions of the European Union single market. Individual governments still treat their defence companies like nationalised industries. As the power of the American giants grows, an enormous opportunity is being missed.

Look at the way the French are battling to produce a new national champion through a merger of Aerospatiale and Dassault and how they are determined to keep the privatisation of Thomson CSF in French hands. Common sense says that integration in the European defence industry should be cross- border to make real gains, giving companies access to the wider European market. That is the target GEC and British Aerospace should aim at. A domestic merger within the UK is a sideshow and a distraction from the more important agenda.

Just a bout of Euro-pessimism

Anybody who follows closely the ebb and flow of debate over European monetary union will have known of Wilhelm Nolling's views long before he graced a British Sunday newspaper with an account of his plan to use Germany's constitutional court to block the country's membership of the single currency. Not only had newswires and continental newspapers been running stories about the threat all week, but Mr Nolling, a former Bundesbank council member turned academic, is also a known Eurosceptic.

Not surprisingly, some Germans - and he is one - are opposed to the single currency. Every time one opens his mouth, the predominantly Eurosceptic British press seizes on it with evident glee. Why even the Germans think it's crazy, it can be said, and so the impression deepens that the whole thing is in trouble and probably won't happen.

That may be the ultimate outcome, but for the time being it would be foolish to bet on it. Every day brings a raft of speeches and statements about the single currency, few of which advance the sum of human knowledge very much. Each one is nonetheless used by financial markets as another trading opportunity.

So there is a new mood in the markets this week, partly because of the Nolling effect, partly because of rumours that the Bundesbank has had a row with a leading candidate to run the European Central Bank, Wim Duisenberg. After a bout of euphoria about prospects for the single currency going ahead on time, the markets are having a bout of Euro-pessimism. Traders will for the moment believe any old rumour about in-fighting and obstacles.

In truth, it is far too early to say what is going to happen one way or the other. It is more than a year before the decision on whether to postpone the start of the single currency needs to be taken. No politician has ever taken a tough decision 12 months ahead of schedule.

The financial markets will probably go through the cycle of over-optimism and over-pessimism at least once or twice more before spring 1998. By then, the outlook might be very different; the French and German economies could be expanding fast and unemployment falling.