Will war on Iraq be good for European business?

While Bush and Blair are happy to unite in a war against Iraq, their inability to straighten out sound business relations with Europe bodes ill. By George Pitcher

It is always invidious to consider the prospect of going to war in terms of the campaign’s effect on business. The anticipation of buoyancy or otherwise in the markets sits uneasily alongside the prospects of vapourised Iraqi families and the solemn reception at home of military body-bags. There is, nevertheless, a sound analysis to be conducted on whether military action will prove to make or break what is a fragile Western economy.

In the UK, there is still a widespread belief that the Falklands war delivered an economic miracle for Margaret Thatcher a little over two decades ago. This is untrue. The UK emerged slowly from a worldwide recession in the early Eighties, but the Tories’ 1983 election victory was delivered by a gung-ho feelgood factor that the UK could still throw its weight around internationally. Today’s prime minister, Tony Blair, may hope that the same principle will apply with Iraq, but there’s no evidence that successful wars kick-start economies – unless you lose one and, like Germany in the last century, enjoy a post-war prosperity founded on foreign aid.

In so far as the global economy is analysed in the context of a war on Iraq, attention is – rightly enough – focused on the potential effects on the oil price and the value of the dollar. The former will depend on the ability of the Western allies, for which read the UK and US with perhaps Australia tagging along, to secure Iraqi oil supplies before they are torched, as they were in the Kuwait engagement of 1991.

If they are not secured, the resultant spike in oil prices could precipitate an extended economic depression – never mind recession – and at least provide politicians with an excuse for market collapse other than their own stewardship of the economy.

As for the dollar, it suits the US to suggest that weakness against foreign currencies is down to its brave enthusiasm for war, but the real cause of the dollar’s limpness is more prosaic – the funding of the gargantuan current-account deficit. With entrenched low interest rates and a protracted period of negative returns on US equities, the dollar is pushed down to offer acceptable returns for foreign investors.

At the micro-economic level, it is worth asking what the UK stands to gain from a war against Iraq. Blair may be focused on a trade-off for his support for the US in the form of American support for a solution for the Palestinians, aid for Africa or acknowledgement of the Kyoto proposals for the environment. But there must be precious little hope that our support of a war with Iraq will deliver at the trade level.

America’s post-9/11 trade disputes with Europe, from steel tariffs to the protectionism of US skies from foreign airlines, would seem to suggest that President George W. Bush is happy to make war with Blair, but considerably less enthusiastic about doing business with him.

In any event, the evidence is that the US considers Europe as a consolidated trading zone, rather than its constituent members. So a war with Iraq is only likely in US-trade terms to be any good for “Yurp”, as Bush calls it, if Blair can deliver France and Germany too.

That doesn’t look very likely. In passing, I would note that a greater argument for a federal Europe is difficult to imagine. The US already instinctively considers Europe as a whole – whatever the British Government’s attempts to dissociate itself from its disrespectful partners – and we might at least have more clout with America, in its self-appointed role as global policeman, if we spoke and acted with singularity.

I would also note in passing that this Iraq business is playing havoc with Western ideals of the burden of proof in law. To take one random piece of recent criminal corporate law, City PR man Tim Blackstone defended the charge against him of insider-dealing in a client’s shares on the basis that the burden of proof on the prosecution was not only to prove that he did it but that he knew he was doing it.

This is the first time to my knowledge that a defence to insider-dealing has been mounted on the basis of being an idiot. Meanwhile, very sensible legal experts keep telling us that if Saddam Hussein does not admit his guilt, then that is adequate proof of that guilt.

I don’t seek to compare Blackstone with Saddam, but we do need to sort out these legal concepts of double-jeopardy or the next Enron will defend itself on the basis of being irredeemably stupid, and dodgy companies will be taken to court for failing voluntarily to admit that they are corrupt.

As I write, the London stock market is in its record-breaking 11th consecutive day of falls. This could mean that cash is king and that an all-cash bid from Philip Green could prevail over the share-offers of his rivals for Safeway. Or it could mean that shares are so artificially depressed – at their cheapest for 36 years – by the prospect of war with Iraq that an all-paper offer for Safeway presents fantastic upside potential.

These are all corporate and commercial paradoxes indirectly created by our leaders as they take us towards war. I would just feel a little more confident about their outcome if I thought that those leaders had considered them for a moment.

George Pitcher is a partner at communications management consultancy Luther Pendragon


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