Germans shock with the unvarnished truth

The currency turmoil following the remarks of German Finance Minister, Theo Waigel, about Italian eligibility for European monetary union testifies to the extreme scepticism that prevails in the markets about achieving EMU by the end of the century. What is, in all essentials, a political project is coming up against hard economic realities.

In practice, Italian eligibility is neither here nor there; the pretence that it is likely to be able to join on time has been kept up only to satisfy sensibilities affronted by the notion that a founder member of the European Community might be blackballed from the club when it makes its next great leap forward to ever closer union. Mr Waigel was telling the unvarnished truth, something finance ministers can rarely afford to do where currencies are concerned. As they say, the greater the truth the greater the libel. Nor does it matter one way or another if smaller countries such as Belgium link their destiny with Germany in a common currency. EMU will fly if the French are able to join and the Germans give the go-ahead; it will be grounded if they don't.

On both fronts, there is ample room for doubt. France's commitment to the franc fort has survived much longer than anyone might have anticipated. Gentleman George Soros, the man who helped get the pound out of the ERM in 1992, even magnanimously announced at one stage that he was not planning to bring down the franc. Until now anybody who punted in the belief that the French would weaken in their resolve has been proved expensively wrong.

But history does not always repeat itself. Jacques Chirac was elected on a platform that made reducing unemployment the key priority. In office, he has persisted with the franc-fort policy, but the underlying conflict between the resulting unduly restrictive monetary and exchange-rate policy and the political requirement to boost jobs remains.

Furthermore, the need to conform with the Maastricht criteria imposes the additional requirement to bring down the French budget deficit, forecast to be 5 per cent of GDP this year. This week's French budget failed to impress international investors who simply do not believe the sums add up. At the same time, the rise in taxes will depress economic activity, so curtailing the reduction in unemployment and increasing the pressure to abandon the franc fort. A further test will come when the German interest rate cycle turns, and the French are faced with reacting to the first of the next series of rises - a possible timetable that, if right, may give a year's breathing space.

Germany, for its part, is still looking for the political quid pro quo to the economic concession of giving up the precious birthright of the mark. While industrialists are increasingly favouring monetary union as a way of mitigating the impact of mark strength, public opinion grows ever more sceptical. If the Inter-Governmental Conference fails to deliver a significant increase in European political integration, Chancellor Kohl will be hard-pressed to deliver his side of the bargain.

The uncertainty about the prospects for EMU could be tailor-made to create periodic upsets in the currency markets. As the odds against EMU lengthen, so there is a flight to the mark. As they shorten, investors go for yields in the weaker currencies.

For Euro-enthusiasts, yo-yoing currencies are the strongest evidence of the need for EMU. Only a single currency will restore financial stability within Europe. For Euro-sceptics, it is the EMU project itself that is responsible for the currency contortions so it is already proving counter- productive. Yet with the timetable already slipping, there is no prospect of any early relief: EMU will continue to cast its shadow as long as these underlying tensions remain unresolved.

Small football clubs discover Catch 22

Who would have bet that Wednesday night's drubbing of mighty Manchester United by York City in the Coca-Cola Cup would be kicked into touch on newspaper sports pages the following morning by a story about an obscure Belgian player called Jean-Marc Bosman.

For the past five years the footballer has laid siege to the European Court of Justice, claiming that his former club, FC Liege, unlawfully prevented him from transferring to another club free when his contract expired. Not only did FC Liege refuse to let him go, but it slapped a for-sale tag of pounds 500,000 on the player and cut his wages by 75 per cent into the bargain.

The football authorities were duly shown the red card on Wednesday by Carl Otto Lenz, advocate-general of the Court of Justice. His interim submission, which is expected to be endorsed by the full court, caused a near riot on the terraces and even led Uefa, the game's governing body in Europe, down the unruly path of dissent.

In football-commentator speak, the boy has done well to get a result against overwhelming odds. The interim submission, assuming it gains full approval, will lead to a redesign of the mechanical workings of the transfer market but it will not have the apocalyptic consequences that some are predicting. It will really only affect players whose contracts have expired, and smaller football clubs whose financial livelihood depends on cashing in on the skills of their best players by selling them to Premier league clubs.

Small clubs will be in a Catch 22. In the wake of every star player they turn out is a lengthy list of average footballers. This means that they cannot afford to let any star's contract expire, and at the same time cannot afford to tie every player to long-term contracts simply because it would be too expensive to let them go when they fail to make the grade. Stars under contract will unquestionably continue to command high transfer fees because of the inherent financial worth to a club in bringing fans through the turnstiles, pulling in television, and pulling in merchandising income.

As for the on-going debate about whether clubs should value players on the balance sheet, the court case makes not a jot of difference. Among the four stock-market-listed clubs, Tottenham does put them on the balance sheet and Manchester United does not. A player can be legitimately treated as a tangible asset and the normal rules of depreciation apply, with a residual value at the end of his contract.

Under the court's findings that value is zero, regardless of whether the player is on the balance sheet or not, because the club no longer has a claim on him.

In either case, it is highly unlikely that any well-run club will ever let a player serve the full term before either renegotiating the contracts or selling the player. You do not start that process when the contract expires, but at the start of the final season. This timing point will probably have the most significant impact of the ruling on the two smaller quoted clubs, Millwall and, on the AIM market, Preston North End.

As the balance of advantage in negotiations shifts towards the star players, creating a more powerful breed of agents, these two clubs will have to be nimble on their feet to prosper.