Cantillon

 

Inside the world of business

Eurobonds just will not go away

EUROBONDS SIMPLY won’t go away. German chancellor Angela Merkel restated her opposition forcefully yesterday, telling a political rally of her Christian Democrat party that euro bonds would “not allow any rights at all to intervene to force discipline on others”.

For his part, French president Nicolas Sarkozy, writing in Le Figaro repeated his argument that introducing eurobonds in any form without further fiscal union could threaten his country’s prized AAA-rating.

But there is clearly no consensus. Belgium’s finance minister Didier Reynders was reported yesterday in the Financial Times as saying the common currency area should issue common euro-denominated bonds .

For all Merkel and Sarkozy’s common purpose, the response of the markets indicate they are more of the Belgian’s view. Having recovered from an uncertain start, markets were thrown again into confusion when Merkel’s comments were reported towards the end of the day.

Elsewhere, comments by European economic and monetary affairs commissioner Olli Rehn in a written reply to a question in the European Parliament that EU regulators may push for joint bond sales by euro-area nations to help contain the debt crisis were reported, without the detail that Rehn’s reply was made last Monday, a day before the Merkel/Sarkozy summit.

Merkel’s spokesman last night denied her latest remarks were directed at Rehn.

“The chancellor wasnt replying to Rehn but giving the reason once again for our rejection of eurobonds,” said Steffen Seibert. “Regardless of what Olli Rehn is working on, without Germany, France and many others, it will amount to nothing.”

The problem is that markets are unsure just what the various parties can actually agree and whether it will be robust enough to do the trick.

HP luring investors

into cloud computing

HEWLETT-PACKARD, the once-venerable engineering powerhouse of Silicon Valley, seems to have developed an unfortunate habit of shooting itself in the foot.

Since the departure of highly regarded chief executive Mark Hurd 12 months ago, the company has looked rudderless and without leadership.

In March, chief executive Leo Apotheker held a media day on the company’s new strategy which raised more questions than it answered. The following month, a memo from Apotheker to senior staff warning of a tough third-quarter was leaked to the press causing the company to bring forward its announcement of the results.

Yesterday, after news broke of HP’s $10.3 billion purchase of British software firm Autonomy, it also announced its intention to spin off its PC unit, drop plans to put the Web OS it acquired though the purchase of Palm on a range of mobile devices, and is dropping its iPad competitor, the TouchPad.

Even amid the global market meltdown, the investor reaction has been stunning.

Yesterday morning in New York, its stock was down by 23 per cent at one point, its biggest intraday decline since 1980.

The irony is that the strategy announced by HP makes a lot of sense in the medium term – even if it is likely to mean short-term pain. It is following the lead of IBM by spinning off its PC business allowing it to concentrate on products and services for business customers. It was a commodity business that never sat comfortably at HP whose founders prided themselves on engineering innovation.

HP also looked like being an also-ran in the tablet market where the iPad dominates but models using Google’s software are rapidly grabbing market share.

Apotheker will now focus on the head-to-head battle with IBM and Oracle in the much more lucrative cloud computing space. Convincing investors to come on that journey is just the first of many hurdles he faces.

NEXT WEEK

The European Central Bank will release details of bond purchases in the week after the Merkel Sarkozy summit