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Stock exchange merger remains a game of two halves

There is a slightly perverse reason for the reluctant optimism creeping into the Bank of England’s economic forecasts — which prompted Mark Carney to raise his growth projections last week.

Europe is booming. Job growth has hit a nine-year high, with the unemployment rate falling below 10% for the first time in seven years. A series of business surveys published on Friday suggests the eurozone as a whole is growing at its fastest rate since 2011.

Spain is leading the way, notching up growth of 3.2% last year. Terrorist attacks across north Africa have diverted Europe’s tourists back to the Costas; a record 75m foreign visitors went to Spain last year, according to UN figures released last month.

Although France and Italy posted relatively sluggish growth of 1.1% and 0.9% respectively, the German powerhouse continued to chart a respectable 1.9%. Inflation has even returned to the eurozone, hitting 1.8% in January. That’s a mixed blessing, of course, although a sign of relative normality for a region that was threatening to slip into a deflationary spiral only a year ago.

A booming Europe is good news for Britain, due to our extensive trade links — and, of course, the economic rent the City of London extracts from the Continent as its financial centre. Should a German company decide to buy a Spanish one in the next few months, to cash in on the country’s improving prospects, there’s a good chance part of that deal will be handled in London. This is what irritates our European neighbours most about the City.

Nuance is unfashionable these days. When it comes to post-Brexit discussion, both sides of the divide are tainted by prejudice. Everyone is getting it wrong. Carney and the Bank’s forecasters clearly overplayed their gloomy hand before and immediately after the referendum — they deserve to be criticised. (That said, it is hard to underestimate the impact the package of emergency measures Carney announced last summer has had in keeping Britain steady.)

As for the leavers, those who paint Europe as a desolate economic wasteland are also overstating their case. The euro is clearly a flawed project but the countries inside the single currency remain wealthy, productive places in a global context.

As the triggering of article 50 looms, big business is still trying to decode the most likely outcome of Britain’s trading relationships with the Continent. Will German corporations aid the cause of Britain, as the optimists believe? Will politics trump the economic mutual self-interest of finding a sensible deal?

Discussions of this nature often come round to the proposed merger between the London Stock Exchange and its German rival, Deutsche Börse. What is better for Brexit Britain: a London exchange enmeshed in the European infrastructure so as to help guarantee continued co-operation, or a flagship of the City, resolute in its independence? Should the deal be called off?

The steady rise in the LSE share price so far this year implies the market remains confident that any European competition objections will be manageable. Yet the German state of Hesse has already started to turn it into a political football, by insisting that the enlarged group be headquartered in Frankfurt, not London. For the Germans and the French, the exchange deal is the latest excuse to claw back an industry they still resent having lost.

TalkTalk of a divi cut
AS TAKEOVER tales go, few perennials are quite as hardy as TalkTalk. Since it was spun out of Carphone Warehouse, the no-frills broadband supplier has been named as a target for a diverse cast of ravenous predators, from Vodafone to French upstart Iliad. The latest theory has TalkTalk in the sights of O2, which Spanish owner Telefonica wants to float in London in the spring. The tie-up has some merit — on paper at least. Reversing O2 into TalkTalk would remove the hassle of a float and give the company a foothold in broadband. But I wouldn’t wager much on TalkTalk being swallowed up any time soon.

Carphone co-founder Sir Charles Dunstone has a formidable task ahead of him to put some pizzazz back into the company. The tycoon will move from non-executive to executive chairman after the departure of longstanding boss Baroness (Dido) Harding in May. His mission will be to arrest a collapse in the share price, which has carved more than £500m off the value of his stake.

TalkTalk’s woes go deeper than the 2015 cyber-attack that saw the X Factor sponsor hit the headlines for all the wrong reasons. The broadband market is slowing and its share of internet connected homes has been dropping.

Dunstone has to find a way to grow its customer base. In a mature industry, that almost certainly means sharpening prices. His spending splurge will be constrained by an £847m debt pile, just under 2½ times underlying profits. Last year it paid out £140m in dividends.

A hefty cut looks a racing certainty.

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