If you missed Tornado Down the first time around, this thought-provoking documentary is back tonight on C4 at 9.00. Flight Lieutenants John Peters and John Nichol were shot down on the first day of Operation Desert Storm and subsequently paraded on Iraqi TV - not perhaps one of Saddam Hussein's more astute propaganda moves. The two airmen describe their captivity at the hands of the secret police and the experience of breaking down under torture.

The Name of the Room on BBC2 at 7.20, sets out to trace the evolution of the British dwelling from the mead-halls of Beowulf's era to the modern semi. A good idea, although a mere four programmes looks a little short for such a complex subject and one so rich in social snobbery. Tonight's programme starts with rooms intended for public show - parlour, lounge, drawing-room, depending who you are . . .

Horizon's Awakening of the Frozen Addicts (BBC2 at 8.00) looks at Swedish research into a cure for Parkinson's Disease using transplants of foetal tissue. It follows scientists along a complicated research trail opened up a decade ago.

In an ominous start to what could be a difficult year for arts sponsorship, Royal Insurance has announced that it will not be renewing its support for the Royal Shakespeare Company worth Pounds 2.1m over three years when the contract expires at the end of 1993.

The decision surprises nobody. Royal Insurance has been with the RSC for six years, investing Pounds 3.5m in the Company. It renewed the connection once, increasing its annual aid from Pounds 465,000 to Pounds 700,000 a year. This length of support is quite impressive in arts sponsorship: if there is such a thing as an average relationship, it would be for three years with a year's grace to enable the arts organisation to find a replacement. The RSC has this 12 months' leeway.

Heralded at the time as the biggest arts sponsorship ever, the link has undoubtedly helped both parties, but especially RI, which has raised its profile and had marvellous entertainment opportunities. It promoted Ian Rushton, group chief executive of RI when the deal was sealed and its main internal supporter, to the role of spokesman for all UK corporate sponsors. He warned the government that business would not pick up the cheque if arts subsidy was cut.

The RSC benefited from an assured extra income during some seasons when box office revenue failed to meet its target.

The recession, and its impact on profits, is the main factor behind RI's decision to withdraw, but the difficulty in injecting new excitement into a sponsorship after six years is as important.

The RSC is well aware of the difficulties in making good the Pounds 700,000 in the current climate. It may well settle for a number of smaller sponsorships. It has been successful in recent months in finding companies willing to pay up to Pounds 10,000 to be associated with certain performances.

It has also forged an imaginative link with Unilever which, through its brands Persil, Comfort and Flora, is backing the current productions at the Barbican to the tune of Pounds 50,000.

Fortunately for the RSC its new Hamlet at the Barbican is a box office winner, with advance bookings of Pounds 1.2m. Box office takings in London and Stratford in November and December were above target. A good critical reputation will be the RSC's best advertisement in its search for new corporate friends.

* * *

It is a sad irony for the RSC that the UK's biggest arts sponsor, British Telecom, with a Pounds 1.6m budget, has been looking for an important theatre company to back, to add a third prong to its substantial sponsorships of dance, through Northern Ballet Theatre, and art, through the National Touring Exhibition. Its choice has fallen on the English Shakespeare Company and a deal will be announced this week.

The RSC was never in the frame. BT had supported its annual tour to small venues but the relationship ended, with some acrimony, a year ago.

* * *

RI's six years with the RSC is as nothing compared with Texaco's support for the Metropolitan Opera in New York. This is now starting its 53rd year and in that time Texaco has contributed Dollars 100m to the Met. The oil company has concentrated its help on underwriting the Met's Saturday afternoon matinee performances which are transmitted to over 300 radio stations throughout North America. It is generally agreed that the sponsorship has done more to popularise opera in North America than any other project. Since 1990 the UK has been covered by the broadcasts and every Saturday until April the Met opera can be heard live on Radio 3, with a complete Ring cycle scheduled for March.

* * *

Fashion houses are not famous for their sponsorship of the arts but on January 24 an exhibition of structures by the American minimalist artist Sol Lewitt opens at the Museum of Modern Art in Oxford, thanks to Nina Ricci.

As is so often the case the impetus behind the link comes from the fact that the president of Nina Ricci, Gilles Fuchs, is an important collector of modern art, including the work of Lewitt. He recently commissioned the artist to design the packaging for its new fragrance for men, Ricci-Club.

* * *

It seems extraordinary that, given the recession and the announced cuts in sponsorship by leading banks, oil firms, and insurance companies, Colin Tweedy, director general of the Association for Business Sponsorship of the Arts, can still forecast a rise in arts sponsorship, albeit a small one, in 1993.

His optimism is based on the potential expenditure of new sponsors, especially small- and medium-sized companies. As administrator of the Business Sponsorship Incentive Scheme, ABSA is well placed to monitor the emergence of such sponsors. The Government funds the BSIS with Pounds 4.5m (the sum remains unchanged for 1993-94), which is geared to draw in new arts sponsors with matching grants. There has been no falling away in demand for this top-up money in recent months, suggesting that the sponsorship bandwagon is still rolling.

The BSIS also throws light on changes in sponsorship fashions. A feature of the past year has been the growth of interest in supporting film - there has been a threefold increase in BSIS grants in this field, from six to 19. Film received Pounds 444,600 in sponsorship and top-up grants, as against Pounds 121,000 in the previous year.

Sponsors have at last woken up to the fact that film is enjoying a revival of interest, with cinema admissions booming. Film is flexible, international, and appeals to young audiences. Perhaps not surprisingly Piper Heidseick's sponsorship of the British Film Institute's Classic Film Collection won it the best first-time sponsor award at last month's ABSA prize giving.

Other successful film sponsorships in recent months have included the IRN-BRU backing for the pop video exhibition at the Museum of the Moving Image; MacPherson Paints support for the Film Foundation's educational pack of the film Macbeth; and Panavision's sponsorship of the First Film Foundation New European Filmmaker's Short Film Festival. The attraction of film is that helping it can be very cheap, which appeals to small businesses. A local restaurant, The Ubiquitous Chip, sponsors the Glasgow Film Theatre.

Andrew Napier, corporate affairs director of Ford of Europe, is taking on the formidable task of improving the public relations of the International Olympic Committee.

Napier, 45, plays down the difficulty of his new job and says that in some ways it is more of a homecoming. Before joining Ford's European headquarters in Essex eight years ago, he had been public affairs manager for Philip Morris' European head office in Lausanne, only a few minutes away from the IOC's headquarters.

Napier will be in charge of a new department covering media relations, information and publications and will report direct to Juan Antonio Samaranch, the IOC's 72-year-old president.

Although the last couple of Olympic games, in Seoul and Barcelona, have been great commercial successes, the Olympic movement, and in particular its president, have often been the subject of controversy.

A recent book, The Lord of the Rings, alleged that there had been manipulation of the Olympic ideals for financial gain.

However, Napier says he has no qualms about working for such a powerful figure as Samaranch who has dominated the Olympic movement for the past 12 years and comes up for re-election next year. He believes that Samaranch's critics fail to give the president sufficient credit for the positive contribution he has made in areas such as ridding sport of apartheid and negotiating with Russia's President Boris Yeltsin to ensure that former Soviet athletes were able to participate fully in this year's Barcelona Olympics.

There was a time when being a Scot sometimes seemed to be almost a condition of promotion to the upper echelons of the Hongkong and Shanghai Banking Corporation. However, the appointment of Indian-born Aman Mehta (above) as the top man in the Americas for HSBC Holdings, the new London-based holding company for Midland Bank as well as Marine Midland in the US and Hongkong Bank, is a sign that those days are long gone.

Mehta, 46, trained in the HongKong Bank's London office, but started his career in its Bombay office. After a stint in charge of the bank's corporate planning in Hong Kong he moved to Riyadh in 1988 as managing director of the group's Saudi British Bank affiliate.

Last February he was made a group general manager and has been responsible for helping sort out the problems of the group's troubled Concord Leasing business.

Mehta's new job is the most senior of a string of announcements of the management team which will run Britain's biggest banking group from the beginning of this month. David Beath, 54, has been made general manager and group audit controller, and Richard Hennessy, 39, group chief accountant.

HSBC, which will be headquartered in Midland Montagu's old offices in Lower Thames Street, is keen to maintain its reputation for having a lean top management team. In addition to John Bond, 51, the new group chief executive who has just been appointed to the Midland board, HSBC will have three executive directors - Bernard Asher, 56, (investment banking), John Strickland, 53, (services), and Richard Delbridge, 50, (finance). Asher will report direct to Sir William Purves, HSBC's chairman, while Strickland and Delbridge will report to Bond.

Mehta, who will be based in New York, is one of three group general managers of HSBC. Tim O'Brien, 45, in charge of private banking and trustee work, will be based in Geneva, and John French, responsible for credit and risk management for the whole group, will be based in London.

------------------------------------------------------------------------ 20 THINGS YOU DIDN'T KNOW ------------------------------------------------------------------------ 1. Infamous newspaper hoaxer Rocky Ryan (catchphrase 'Look, trust me') claims to have pulled the wool over the eyes of every national newspaper in Britain except the FT. 2. In 1991 the FT reported the sensational discovery of the earliest surviving text of sayings ascribed to Jesus. Source of the story was the previously unknown Egyptologist Batson D. Sealing. 3. The mystery of how the FT's Lex column got its name died with Hargreaves Parkinson, the man who started it. But some believe it comes from the Latin De minimus non curat lex ('The law is not concerned with trifles). 4. The FT normally gets 80 per cent of its revenues from advertising, with only 20 per cent coming from the 60p cover price. 5. The price of a full-page advertisment in the FT ranges from pounds 28,224 to pounds 32,500, depending on position. For full colour, the range is pounds 35,500 to pounds 41,000 6. Famous people who have worked for the FT include Lord (once, plain Nigel) Lawson, a former Chancellor, who was a Lex columnist and features editor; and Lord (once, plain Norman) Tebbit, a former Tory party chairman. He worked in the prices room, as did pop star turned actor Gary Kemp. 7. One former FT chairman, Horatio Bottomley, was imprisoned for fraud in 1922. A visitor who found him stitching mail-bags in the prison workshop exclaimed: 'Sewing, Bottomley?' 'No, reaping,' he replied. 8. The FT moved its editorial offices to a new building on the south side of Southwark Bridge in 1989 after selling Bracken House, its old home in the City, for pounds 143 million at the height of the property boom. 9. The FT's new printing plant at East India Dock in London's Docklands, winner of a string of architectural awards, also prints the Observer and the European edition of Nihon Keizei Shimbun - the latter in Japanese. 10. The FT is printed in four other countries as well as Britain. The other places are Frankfurt in Germany, Roubaix in France, New Jersey in the US and Tokyo, Japan.

11. The FT now sells in 150 countries, and its rapidly-rising overseas circulation accounts for 40 per cent of the total. 12. Because of the international time difference, FT subscribers in Tokyo get their papers at 9am local time while it is still midnight the night before in Britain. 13. Contrary to popular misconception, there are no links between the FT and the Times, nor have there ever been - though the two held merger talks in 1966, when the troubled Times was looking for a suitor. 14. Once-a-week readers dipping into the FT at weekends make the Saturday paper immensley popular; it outsells the Monday-Friday edition by about 15 per cent. 15. The FT share price indices, a valuable promotional tool for the newspaper, date back to 1935 when the first of them was created to monitor the rate of recovery from the slump of the early 1930s. 16. The FT has more foreign correspondents than almost any newspaper in the world, with 35 full-time staff correspondents, nine more correspondents working mainly for the FT and about 80 other stringers. 17. The FT was named Newspaper of the Year last year. Readers agreed, saying it made excellent cat litter. Homes and Gardens magazine recommended using it as gift wrap. 18. Of respondents to a recent UK readership questionnaire in the FT: 89 per cent were male, the average age was 45 and the average salary pounds 68,000 a year. 19. The white parts of colour pictures in the FT are an optical illusion. What readers really see is the absence of any other colour - in other words, the pinkness of the paper underneath. 20. The FT's pink paper used to be cheaper than ordinary newsprint because it cost less to dye poor-quality paper than it did to bleach it. Now, the pink paper costs more - but old traditions die hard. ------------------------------------------------------------------------

JANUARY 2 1893, when the Financial Times first blushed pink, marked the newspaper's arrival at the second great milestone in the evolution of Britain's financial press.

The first had been the transition from papers which consisted purely of price lists towards those that also supplied the news behind the markets. The earliest financial papers were those such as Lloyd's News, created in 1696 by Edward Lloyd, a coffee house owner, to serve the growing anthill of London's financial district.

In the US these early business papers were known as price currents and formed the basis of today's trade press - providing specialist services to tightly defined business groups from tobacco growers to railroad men. In 1869 George Houghton, successful editor of the The Hub, a carriage business paper, published a list of do's and don'ts, of which the cornerstone was: 'Stick to your speciality] You will want soon to publish a story that has no connection with carriage-making, or will be tempted to use some reading matter of a general character. Don't do it. If you do you will kill your paper.'

The FT was able to outgrow this stern advice because the growth of financial markets in the 19th century and the emergence of a substantial investor class created an appetite for information about all sectors of business. This information boom underpinned the maturing of a modern economy based on international trade.

It also created opportunities for unscrupulous stock promoters and fraudsters. Even as early as 1720 The South Sea Bubble could not have happened on the scale it did without a rudimentary and nationwide financial news system to pump it up. By 1893 it could not be claimed that the press had developed robust ethical standards to chart them through these turbulent waters.

Horatio Bottomley, who became chairman of the FT in 1888 at the age of 28, had a taste for champagne, chorus girls and horseracing. He went on to run the viciously rightwing John Bull newspaper, which printed details from Ramsay MacDonald's birth certificate and so revealed something of which the Labour party leader was himself ignorant, namely his illegit-imacy.

In the 1890s Bottomley floated a string of suspect companies but it was not until 1922 that he was convicted of fraud for his leading role in the sale of wartime Victory Bonds.

In the ensuing years several more sober and enduring figures in the FT's history were to be exposed as recipients of substantial payments from dubious City figures whose stocks the paper had pushed. This may have been normal for financial journalists of the time, who attacked enemies and defended friends with fulminating vigour. The FT had yet to discover that honesty and impartiality could provide a sound base for its business.

If the honesty of some of the early leading figures in financial journalism was questionable there was, however, hard work in evidence.

An early history of the Financial News, with which the FT was to merge in 1945, records the following day in the life of one FA Hanson who 'was reputed to return home for sleep only at the weekends'. He 'would call at the office at eleven each morning to be assigned to a company meeting. This engagement fulfilled, and his copy transcribed, he would write up the produce markets - no light task in those days of easy space - before going down to his real night's duty at five in the afternoon. Having seen the paper to bed in the small hours of the morning, he would snatch a few hours' sleep in a chair, take breakfast at a restaurant in which he was wickedly reputed to have some financial interest, and begin the routine again.'

ALTHOUGH there are pink sections in newspapers of a general and sporting nature the FT salmon livery has become synonymous with quality financial reporting, Raymond Snoddy writes.

When Al Alam Al Youm, the Arab world's first financial daily was established, most of its pages were pink. The Economic Times, 'India's Business Newspaper' is not only pink but even looks a lot like the FT.

It is not easy to find newsprint mills making pink paper. The New Delhi-based newspaper had to go to Tamil Nadu in the far south to find a supplier of the right quality of paper.

The only English mill producing paper for the FT is Bridgewater's plant at Ellesmere Port although pink paper is also imported from Finland and Sweden.

Pink paper is made from standard newspaper pulp. Samples of the pulp are chemically tested to determine the concentration of dye that is needed to achieve the right colour and an even consistancy. Monitored amounts of colouring are then pumped into the pulp.

Adding pink to the newsprint for the FT costs about Pounds 25 extra a tonne out of a price of about Pounds 400 a tonne.

Tinted papers seemed to be fading away but are now on the increase particularly to make special sections stand out.

The pink legions also include the Finanza & Mercato section of 24 ORE in Italy and Le Fig-Eco, the economic section of Le Figaro. Then there are papers in which the FT has an interest such as Expansion and Izvestia's new financial section.

READERS of the Financial Times only got six pages back in 1893 but they did pay a lot less than they would have done for today's paper.

The FT cost just one penny in 1893. That is the equivalent of 18.6 pence today after decimalisation of the pound in the 1970s and a century of inflation.

Put another way, today's 60 pence issue would have cost 3.22 pennies if it had been put on the news stands in 1893.

ONE HUNDRED years ago, Britain had its own single market. It was called the world.

Accounting for 35 per cent of international trade in manufactured goods, the UK in 1893 ruled the waves of global commerce. A large deficit in merchandise trade was habitually more than offset by a healthy surplus in 'invisibles' - exports of services, and remittances from assets abroad.

Between the battle of Waterloo in 1815 and the outbreak of the first world war, it chalked up a current account surplus - normally of the order of Pounds 50m to Pounds 100m - in every year except 1827, 1840 and 1847.

In 1892, when Britain registered a visible trade deficit of Pounds 95m (and a current account surplus of Pounds 57m), roughly 40 per cent of British exports and imports represented transactions with the rest of Europe.

During the last 100 years (particularly since EC membership in 1973), trade has shifted strongly towards Europe. In the first nine months of 1992, Britain ran a trade deficit of Pounds 14.5bn. Last year 56 per cent of British exports, and 52 per cent of imports, were transacted with the rest of the EC. Counting countries outside the EC, western Europe accounted for about 63 per cent of both imports and exports last year.

What a difference a century makes] In 1892 Britain's trade with India exceeded that with Germany by about 10 per cent. Last year, British exports to Germany were 15 times those to India, while imports from Germany were 23 times larger than Indian ones.

Nearly half of all Britain's imports in 1892 were foodstuffs and livestock. The trade returns for that year read like a colonial warehouse catalogue: grain and flour, sugar, tea, meat, butter and margarine were among the main items purchased from abroad. Britain bought 4.4m cwt of wheat from Russia, worth Pounds 1.47m; 392,679 cwt of oxen from the US, worth Pounds 7.5m, and 671,882 cwt of bacon from Denmark, costing Pounds 1.9m.

Australia had already started its marketing campaign for wines: the UK bought 461,007 gallons, valued at Pounds 80,551. But the 1892 drinks trade was then, as now, dominated by the Continent. The British purchased 4.2m gallons of French red wines (Pounds 989,859) and 1.6m gallons of higher-value French whites (Pounds 1.9m).

Raw materials and non-manufactured goods made up most remaining imports. Apart from raw cotton, timber, wool, tobacco and hides, Britain bought in large quantities of more exotic items. On the import list for 1892 were 11.5 cwt of ivory, worth Pounds 559,073, and 27.8 tonnes of guano manure, setting back the nation Pounds 189,433.

Victorian industrial power is summed up in the figure for imports of machinery in the 1892 trade figures: nil. On the export side, cotton goods made up about one quarter of all sales, followed by woollen goods, iron and steel, coal, machinery and chemicals.

At the beginning of 1893, Britain's trading performance looked strong. Yet there were still complaints. 'There is not very much that can be called satisfactory in a review of the trade of the past year,' moaned The Economist in its issue of January 14 1893, recording that in many categories exports and imports had shown declines in the year just passed. If not exactly an annus horribilis, 1892 turned out to have been a year of recession, with modern estimates putting the decline in gross domestic product at about 2.6 per cent.

Britain was the world's sole mercantile superpower. Hindsight has confirmed what should, even then, have been obvious. The UK faced only one direction: gradually, though remorselessly, towards 100 years of relative economic decline.

THERE is a scene in Funny Face, Stanley Donen's 1950s musical, where Miss Prescott, the indomitable editor of Quality magazine, is searching for a new theme. Suddenly she finds it. 'Here it is,' she exclaims. 'Here's our theme. Here's our answer - pink.'

Pink according to Miss Prescott, is a panacea, not only for the editorial problems of Quality magazine but for 'women everywhere'. 'Banish the black,' she trills. 'Burn the blue and bury the beige. From now on girls, think pink.'

And she is not alone in her Panglossian view of pink. It almost always conjures up positive images. Anyone who is 'in the pink', is at the peak of health. A 'rose-tinted' view is invariably optimistic. The French call happiness la vie en rose. 'Pink is a joyful colour,' says Christian Lacroix, the Paris fashion designer who has used it in several collections.

It is these connotations that some companies have tried to harness. Lacroix packaged his perfume C'Est La Vie] in pink to evoke 'a zest for life'.

Ten years ago James Dyson, the British industrial designer plumped for pink as the colour of his new product - a vacuum cleaner. 'Pink had shock value,' he says. 'At the time no one had used pastel shades or Hollywood colours for electronic products. My vacuum cleaner was a heavy piece of technology. I liked the idea of juxtaposing the serious aspects of the machine with a friendly, feminine colour.'

Cadillac adopted the same strategy when marketing its pink models as symbols of all-American success in the 1950s. The pink Cadillac became the essential accessory for blue-collar boys-made-good. Elvis Presley even gave a 1955 pink Cadillac Sedan de Ville to his mother, Gladys. Sugar Ray Robinson travelled across the country in his favourite flamingo pink Cadillac complete with his valet, barber, golf partner, midget jester and at least 50 pieces of luggage.

But, as even its devotees agree, pink is not a serious shade. It is the colour of the baby doll nighties that Hollywood starlets wore in the 1950s.

In cartoons it is often used to convey frivolity. Although Lady Penelope and FAB 1, her pink Rolls-Royce, rode to the rescue of the Thunderbirds pilots, they often had to wait nail-biting minutes while she fumbled with her lipstick, or her pink powder-puff although the elegant and urbane Pink Panther did give a certain coolness to his colour.

Pink has, after all, always been embroiled in the louche side of life. The chorus girls in fin de siecle music halls sipped pink champagne from their satin slippers. The cads in 1930s detective novels often downed pink gin.

Pink also has links with the sex industry from the 'pink films' that swamped Japan's pornographic cinemas in the 1970s, to the Minitel-Rose sex-lines on France's interactive computer network today.

Even the fickle fashion industry sees pink in a frivolous light. The designer who is most closely associated with pink, Elsa Schiaparelli, is also renowned for her gift for gimmicks. Schiaparelli was an Italian couturier working in Paris during the 1930s who invented the wide-shouldered look that dominated women's wear until the late 1940s and peppered her collections with a string of oddities including a shoe-shaped hat, edible cinnamon buttons and fabric woven with cellophane and straw.

Schiaparelli also pioneered the use of shocking pink, which became her signature shade. She even called her perfume, Shocking, and asked Salvador Dali to design the bottle for it. He produced a body-shaped bottle modelled on a dress Schiaparelli made for Mae West.

Perhaps it is this ephemeral air which means that pink never seems to last for long in the business world. Schiaparelli closed her fashion house in 1954, after her square shouldered pinks had been ousted by the softer shapes and sober tones of Christian Dior's New Look. Cadillac stopped producing pink cars.

Gladys Presley's Sedan de Ville is now on display at the motor museum in Gracelands, her son's old home. Even the pink film has perished, killed off by the adurato, adult videos now popular among those who used to flock to Japanese porn cinemas.

C'est La Vie], the pink-packaged perfume, never took off and has lost Pounds 18m in the three years since its launch. Lacroix's latest collections have moved from pink to more muted colours. 'I still love pinks, particularly fuchsia and very pale pastels, but it's less important in my work,' he says. 'It doesn't feel right any more.'

James Dyson has also changed his choice of colour. His pink vacuum cleaner is still available in Japan, where it sells as a collector's item for Pounds 1,200. 'But I wouldn't work in pink today,' he says. 'It would be too roue.' This month he is introducing another new vacuum cleaner - in silver and yellow.

Perhaps the most sobering story of all is that of pink champagne. Originally all champagnes were pink. Most of the grapes growing in the Champagne region are red, after all. But in 1682 the cellar master at Hautvillers Abbey, one of the largest in the area, invented a gentler form of pressing which produced white champagne from the local crop.

The cellar master was Dom Perignon. His white champagnes were so successful that he transformed the finances of the Champagne region and laid the foundations for the champagne industry of today. Moet & Chandon, one of the largest champagne houses, celebrated the 250th anniversary of his invention in 1932 by naming a new and exclusive champagne after him.

White champagne easily outsells pink, with the latter representing less than 3 per cent of champagne sales in France and 4 per cent in the UK, although some pinks are still sought after by champagne buffs. One of the most coveted is Dom Perignon Rose, which is made in very small quantities and sells for FFr1,000 (Pounds 119) a bottle, more than twice as much as the white champagne with which the cellar master made his name.

Pink champagne, like so many other pink products, has floundered in the business world. The Financial Times is an exception in having stuck successfully to pink for so long. The Sporting Times, the original 'Pink 'un', has disappeared from the news stands.

Miss Prescott got it right in Funny Face. As soon as she starts singing 'Think Pink', all the other characters in the movie change into carefully co-ordinated pink clothes. But Miss Prescott has much too much sense to swallow her own editorial advice. She stays in a sedate grey and white.

KIDNAPPED by time bandits and transported back 100 years, an FT reader would at least find a little comfort and some reminders of home in the pages of the newspaper.

Familiar names such as Lloyds Bank, Guinness, Coats and Vickers were listed companies, although they and their sectors tended to be buried by information about the money, foreign, rails and mining markets.

In some ways, the FT turned pink in a calm news period. Caution reigned after such alarms as the near demise of Barings merchant bank; the bursting of foreign mining bubbles; and the premature excitement over electricity which led to another collapse.

Even the good news was less exciting than in the late 1880s when several brewers took heart from the debut of Guinness and came to the market to raise money to build and buy public houses. 'It was very expensive to build a gin palace in those days,' according to one market analyst.

Guinness, it should be noted, was an exception as its expansion was already linked to the worldwide distribution of its brand - lubricated by the demand of Irish emigrees.

Then, as now, a cautious mood among investors was good news for some sectors: 'The public has preferred sound stocks to speculative or gambling counters.'

Not surprisingly it was a good year for gilts or 'consols'. After some year-end profit-taking, they ended close to their 12-month high.

Home rails had settled down as nice little yielders and stock prices had shown stability, if not excitement.

Several of the banks offered a very good return. As the table shows, dividend rates were running at 9 to 20 per cent. Investors were benefiting indirectly from industrial expansion, which had so far been funded largely without recourse to the stock market.

The role played by the stock market in funding British industrial growth has provoked some debate among scholars, providing an academic equivalent of current arguments about the relationship between the City and industry.

The paucity of quoted industrial stocks is taken by some as evidence of laggardliness on the part of the City. But later in the 1890s and early 1900s, there was a wave of corporate activity.

One aspect was a number of mega-mergers. Another was company flotations.

But before that, the market was to be awoken from its deep sleep by a more familiar round of speculation: gold mining in South Africa.

SCOTLAND YARD detectives this week extended their search for Jabez Spencer Balfour, the disgraced financier who disappeared on December 18 following the arrest of two of his associates. Sources in the Square Mile suggest that he may have fled to South America.

The downfall of Balfour and his business enterprises must rank as one of the great financial scandals of the nineteenth century. The Liberator Building Society, which collapsed in the autumn, was easily the biggest such society in Britain. Preliminary indications suggest the total loss to shareholders and depositors of the Liberator and seven associated companies may exceed the extraordinary sum of Pounds 8m.

What makes the news all the more shocking is that Mr Balfour has long been regarded as a pillar of the business establishment. Only last summer, he was re-elected as Liberal member of parliament for Burnley. He has served on the board of many sound City companies, and has been associated with the construction of such magnificent London landmarks as Whitehall Court, the Hyde Park Hotel, the Liberal Club and the Hotel Cecil. He is regarded as a benefactor by the tenants of his Oxfordshire estate.

Moreover, he is a man who has made much of non-conformist and Temperance Society connections.

The early success of the Liberator under his leadership owed much to these associations. The society advertised that loans were available not only for homes but also for the building of chapels. Mr Balfour established a large agency organisation among ministers and laymen, who in return for a small commission encouraged their flock to deposit savings with the Liberator.

The broad outlines of the disaster are clear. Founded in 1868, the Liberator's early years were distinguished by rapid growth, but the society appears to have first operated along conventional lines. In the past decade or so, however, its character seems to have changed markedly.

Over that period, Mr Balfour established or acquired a number of construction, property development and surveying businesses - in effect, an integrated property investment group, for which the Liberator became the main source of finance. At the time of its collapse, nearly all the society's assets had been advanced to Mr Balfour's companies, on what turns out to have been very questionable security. A favourite device appears to have been for Mr Balfour to obtain an option on an estate, and then sell it on at an inflated price to one of the four connected property companies with the full purchase money being borrowed from the Liberator. He would then pocket the profit.

An obvious question is why such enterprises were not checked by Mr Balfour's respectable colleagues. Part of the answer lies in his forceful personality. His style is described as 'very aggressive; it was all done at red hot speed and he talked all the time.' What this meant in practice is shown in a board resolution at one of his companies which gave him unlimited powers to invest in any company he thought fit. Had the directors not allowed themselves to be bemused by the overwhelming magnetism, optimism and energy of their leader - who took no more than four hours sleep a night - the outcome might have been very different.

Three public policy issues follow from this affair. First, urgent steps must be taken to provide compensation for the thousands of depositors who now face a bleak new year. Second, legislation is required to establish a sound framework for the nation's building societies.

Third, and perhaps most important, serious consideration must be given to the governance of important business enterprises. Never again must a single dominating individual have the power to shift the savings of ordinary citizens into his private business activities, thereby causing ruin and despair.

Balfour was extradited from Argentina in 1895 and sentenced to a total of 14 years imprisonment. He was a model prisoner at Parkhurst, where he served both as librarian and organist, and was released with full remission for good conduct in 1906. He died in 1916.

The Liberator collapse led to the Building Societies Act of 1894. A relief fund was established which helped more than 3,000 depositors over the following two decades. The problem of corporate governance remains unresolved.

HIS NAME was Maxwell and he was dragged out of the sea after deciding to commit suicide. The date was January 2 1893, the report a tiny item in the Financial Times. Why Joseph Maxwell threw himself into what the FT described as Glasgow harbour is not clear, but in the event it availed his rescuers little, for the report ends: 'He afterwards jumped from a bedroom window and was killed.'

Indeed, it is not just this tale, in the autumn of Queen Victoria's reign, that provokes a feeling of deja vu. There was also recession, endemic unemployment, home rule demands for Ireland, a Channel tunnel plan and Uruguay talks on trade. The issue's review of the year strikes a familiar note. 'It has been a year of death in life for the moneyed classes who have suffered very severely from the paralysis of commercial confidence, and from the general depression in trade.'

Familiar too was the note that 'the Uruguay settlement' on trade with Argentina 'has pursued its course quietly in spite of all sinister prognostications'.

But the first Monday in 1893 was memorable for another reason: it was when, overnight, a white newspaper transformed itself into a pink-tinted one - though not yet the bold salmon pink of modern times.

Why the change? The brief answer is the fledgling FT, five years old, was struggling in the shadow of its older rival, the Financial News: and that it was almost certainly a last desperate gamble, an attempt to stand out on all those railway station news stands of late-Victorian London.

No more than a line recognised the colour change in that first pink copy but there was a column entitled 'ourselves' which acknowledged that the paper had discovered a world outside the City of London.

It said: 'A City man cannot afford to ignore political events when he attempts to gauge the markets, and even such apparently trifling matters such as a snowstorm or landslip are often of high significance to particular stocks.'

The intention was to give 'all the news which can be of interest financially or otherwise to the intelligent business man.' But it insisted: 'We shall not attempt to compete with the ordinary newspaper in tales of sea serpents, or in discovering what to do with our girls. That sort of old maid's gossip has nothing of interest for business men.'

Prurient Victorian interest in death and disaster proved irresistible however. On page three a one-line story said: 'Mrs (Lilly) Langtry is reported to be out of danger.'

Another report said: 'In cleaning his revolver a journalist on the staff of an Edinburgh newspaper pulled the trigger, not thinking any of the chambers were loaded and shot his mother, who died from her injuries.'

It was not a buoyant City that now abandoned dreary monochrome. Barely two years earlier, in November 1890, the Baring Crisis had all but seen the demise of its most august merchant bank, following over-involvement in the Argentine, and since then the foreign loans market had virtually dried up. Financial crises were brewing in Australia and the US, and there was not even help at hand from the volatile, highly speculative world of South African gold mining. which had hit technical problems not overcome until the development in the mid-1890s of deep-level mining.

The City knew who was to blame: namely, the Liberal government headed by the octogenarian Gladstone, with the rumbustious, uncompromising Sir William Harcourt at his side as chancellor.

The 'GOM' (Grand Old Man) had long enjoyed an uneasy relationship with the ever more rightwards-inclining City; but by now, in his fourth term of office, he was positively reviled, not least because of his plan to introduce Home Rule for Ireland. At one point, when Gladstone's resignation was rumoured, business came to a halt on the Stock Exchange as members cheered loudly. In fact, the City's darkest hour was before the dawn. In 1894 there began the 20-year period that is now viewed as the Square Mile's golden age, until its complacent assumptions were shattered in 1914 by the guns of August.

These were the years in which the volume of world trade increased rapidly, the City was to the fore in servicing that trade, sterling reigned supreme, and a host of foreign banks, entrepreneures and outright adventurers all made their way to the undisputed international financial centre of the world.

Inhabiting the City on the day the FT went pink were about a quarter of a million male clerks. The lady typist was still a fabled creature awaiting the new century. One young clerk at the Bank of England, was Herbert de Fraine, and years later he pictured the army of clerkdom to which he was proud to belong: 'What did we look like, outside the walls of the Old Lady? We wore the inevitable silk hat, with a strip of dull cloth, three inches wide, covering the silk band.'

De Fraine's ultimate boss in January 1893, an acknowledged head of the City as a whole, was David Powell, governor of the Bank of England. Powell was a merchant, a reminder of the City's strongly commercial as well as financial character - and was one of five governors in the course of the 1890s, the office passing strictly by rota among the Bank's directors. The Bank was dictator of British monetary policy, with little or no interference from the government, but it was still run in an amateurish way.

It was perhaps a shock rather than a surprise when the chief cashier, Frank May, was found guilty later in the year of having, in Powell's regretful words, 'engaged in Stock Exchange speculations which had placed him in serious pecuniary difficulties'.

No-one denied the importance of the Old Lady, but increasingly the true City elite was to be found in the parlours of the best merchant banks Rothschilds was still a name to be reckoned with under the capable if overly cautious leadership of Lord 'Natty' Rothschild, Barings was bravely re-emerging from its trauma, and JS Morgan & Co (soon to become Morgan Grenfell) was the top Anglo-American house.

One merchant bank moving up rapidly on the outside was J. Henry Schroder & Co, whose white hope for the future was Bruno Schroder, a 25-year-old from Hamburg, and nephew of the senior partner.

The City was a world of its own, a Victorian public school writ large, with of nicknames, practical jokes and inviolable but unspoken codes. 'Beetles' were Colorado United Mining shares.

'Cream-jugs' were Charkov-Krementschug Railway bonds, 'Pots' were North Staffordshire Railway ordinary stock, and 'Sarah's Boots' were (of course) Sierra Buttes Gold Mine shares. A 'squirt' was someone who hung about the market with a paltry order, not dealing fairly, while to 'shoot' was to make a man a close price in a stock without knowing if there would be a profit or loss on the bargain; and to hear the cry 'Fourteen hundred' was to know that a stranger had been spotted in the House, invariable leading to a vigorous, even bruising 'rat-hunt'.

By 1893 there were over 3,000 members of the Stock Exchange, or 'Gorgonzola Hall' as it was known to its inhabitants, on account of its distinctly veined walls and pillars.

The markets were driven by rumours and counter-rumours creating a febrile atmosphere. One piece of news that darkened the mood was when King Alexander of Servia seized power in April though he was only 17. Markets slumped, and one member was quoted as saying 'when the bit burst comes for the European war, it will begin in just such a pottering way'.

That eastern storm lay ahead but for the workaday brokers and jobbers of the Stock Exchange, the immediate problem was how to keep afloat until confidence was restored and, above all, prosperity returned to the 'Kaffir Circus' the name usually given to the South African mining market.

One such member was Hugh E M Stutfield, author at about this time of an article entitled 'Celibacy and the Struggle to get on'.

Temperamentally, though, the City has always been a bull rather than a bear; and at the end of 1893 the Financial News ran an anecdote attesting to that incorrigibly optimistic streak, a story that might even have prompted a smile from the editor of the FN's upstart pink rival: 'Overheard outside the Stock Exchange. Hungry Broker (scenting a possible Pounds 12 10s): 'Do you want to make a bit over the new year? Buy yourself 500 Milwaukees.' Client: 'But I was just thinking of selling 500'. Hungry Broker (eagerly): 'Well, not so bad either]'.'

At this time of year, we normally offer our readers a selection of stocks which might prosper in the next 12 months. This year, prompted by a period of holiday reflection, we hazard some general thoughts on how the markets might develop in the longer run. Peering into the 20th century, we believe that as methods of manufacture improve and market activity increases, the joint stock company is bound to occupy a larger place in the nation's economy. It also seems to us that the fashion for amalgamation, which has already swept together some of the most venerable names in British commerce, has further to run.

Thus, it is difficult to believe that the brewing industry will long remain in so many hands. The most celebrated, such as Guinness, Bass and Whitbread, have a long history. But the nation can scarcely support them all. It would seem sensible for the two Scotch brewers, McEwan and Younger, to form common cause. They could even combine with their southern neighbour, Newcastle Breweries. As for local brewers such as Boddingtons, their continued independence is scarcely to be hoped for.

Among the banks, there seems less scope for combination. It is hard to imagine proud institutions like London & Midland or London & Westminster submitting to a change of name. As with the brewers, though, there might be a case for Scotch banks combining. There seems little point in the small Caledonian population maintaining a Bank of Scotland and a Royal Bank of Scotland.

This brings us to most daring of our speculations: that there might be amalgamation among railway stocks. Such is their importance to the markets that it is hard to conceive of losing famous names like the Hull & Barnsley or the North Staffordshire. But a degree of merger may prove advantageous. It might even be possible to merge the Brighton with the Chatham & Dover, or the Lancashire & Yorkshire with the Sheffield.

But one prediction may be ventured with some confidence. Great industrial enterprises such as Babcock or Vickers, J & P Coats or Nettlefold may come and go. One can even picture life without P & O Navigation or the Savoy Hotel. But whatever happens, the railways will remain the commercial backbone of the country and the safest repository for the prudent investor's savings. With that thought, a happy and prosperous New Year to all our readers.

At one of Russia's first private primary schools, children sing in English and receive miniature dollar bills as a reward for good behaviour. At the state kindergarten from which it leases its premises, teachers provide no-frills education for a fifth of the salary paid their 'capitalist' counterparts.

As Russia has lurched towards a market economy over the past year, open inequality has begun replacing the hidden privileges of the old elite. Some of the trappings of capitalism - as depicted by Communist propaganda - have also been introduced. Half-naked women dance in cages at one of Moscow's new nightclubs, while old people impoverished by price liberalisation can be seen fishing through rubbish bins.

The main beneficiaries of the reforms, which have made goods and services available to anybody who can afford them, are Russia's new rich. Their hallmarks are expensive foreign cars, frequent foreign travel and several garishly furnished homes. Thanks to legislation and a change in public attitudes towards private business, members of this exclusive club, who have made fortunes over the past few years trading everything from raw materials to consumer goods, are now in the public eye.

Despite the advantages of wealth, the new rich say life remains tough. Mr Kakha Bendukidze, a roly-poly Georgian who runs everything from an oil investment fund to the largest private merchant fleet in the former Soviet Union, admits he is still embarrassed by his wealth - and loath to spend it on himself.

'When I spend one dollar on myself, it is just one dollar. When I invest it, it becomes two dollars,' says this former molecular biologist, sitting in a chaotic office graced only by a small bronze sculpture. Wearing a light-green cashmere sweater, beige trousers and Hush-Puppies, he resembles his wealthy peers in the west.

Another member of Russia's new rich is Mr Pavel Dudnikov, a 'child of the street' who made his fortune from a sprawling network of slot machines and video games and now has the General Motors distributorship to sell Cadillacs across the country. He says he has not even had time to move his family out of a two-room apartment.

'All my life is work because of the circumstances we are doing everything in. There's no normal legislation, no normal infrastructure and no banks worthy of the name,' says this gold-toothed former worker as he toys with a lighter and puffs American cigarettes.

He is delighted, however, by Russia's appetite for Cadillacs. He claims hundreds of cars, including a few Dollars 300,000 limousines of the variety which ferry around US presidents, have been sold since he started up Trinity Motors with a US partner last May.

Other new rich, who also plead a taxing schedule, have less trouble spending their money. When his wife gave birth at an exclusive London hospital, Mr Vladimir Gusinsky, head of the Most (Bridge) Group which makes most of its money from Moscow real estate deals, booked airline tickets every weekend for five months so that he could visit her. Now he faces the dilemma of deciding whether or not to send his eldest son to school abroad, perhaps in England.

While his favourite car is a BMW, he has a dozen cars to choose from, a flat in Chelsea, a house in Portugal, and a few homes scattered around Russia (like most Russian rich seeking to minimise their tax bill, all the property he has access to is registered as belonging to his company). The family doctor is in Harley Street.

But what he fears most are 'hooligans': a team of 18 bodyguards takes turns protecting him and his family around the clock. A private security force of 450 men guards the building site and offices of his company, whose annual turnover he puts at Rbs100bn (Pounds 155m).

Nobody knows how many rich there are in Russia or where the dividing line between crime and business lies. Mr Bendukidze breaks them into three categories: 'Bureaucrats who live off their jobs by taking bribes, entrepreneurs who live off their wits, and criminals who live off violence.' He has no doubts his own entrepreneurial category is the most worthwhile.

'I would not hire most directors of state-owned enterprises to wipe the floor,' he says. He says the only solution to the country's economic woes is the total privatisation of the state-owned economy to make room for new managers - in short 'the Georgian money-bags' so feared by the old-style 'bureaucrats' who run most Russian businesses.

Although they felt insulted by the new prime minister, Mr Viktor Chernomyrdin, when he announced that Russia should have a market and not a bazaar, the new rich believe they are now strong enough to withstand any attempt to crush Russia's nascent capitalism. (In case of a state backlash, most have money in foreign bank accounts.)

'Being wealthy gives you the power to say no to bureaucrats,' says the 40-year-old Gusinsky, who graduated as a theatre director but whose only production has been a dazzling financial empire which, like most Russian businesses, is closed to the scrutiny of outsiders.

Mr Konstantin Borovoi, who spearheaded the development of Russia's commodity exchanges, has set up his own Economic Freedom party to defend entrepreneurial interests. 'I don't get pleasure out of this party. I set it up because we need it,' says this former mathematician who, with typical extravagance, says he would shoot himself if the Communists returned to power.

Others, like Gusinsky, prefer to influence events from behind the scenes. He suggested, for instance, that he would be providing cash to finance support for President Boris Yeltsin's April 11 referendum on a new constitution - including the crucial issue of private land ownership.

But his greatest concern is the number of his colleagues who have no trust in the future. Many of them are taking their money and settling abroad. 'Every time a man who can make money leaves Russia, it is a tragedy for the country.'

President-elect Bill Clinton is an unswerving advocate of voluntary national service. He says he feels 'passionate' about the idea and recently told congressional leaders it would rank alongside deficit reduction and healthcare reform as one of the top legislative priorities of his first term.

The phrase national service may cause confusion in Britain. Rest assured, Mr Clinton is not a soulmate of the blimpish retired colonels who favour conscription as a means of 'knocking sense' into unruly teenagers. The service Mr Clinton has in mind would be civilian and voluntary. He wants to give young people an opportunity to finance higher education by doing community work.

As such, national service would be an amalgam of two of the US's most admired social programmes: the GI bill which put a generation of second world war veterans through college, in the process creating one of the world's best-educated workforces; and John F Kennedy's Peace Corps, which fired the idealism of a subsequent generation of college graduates by encouraging many to do voluntary service in the third world.

The scheme is appealing because it offers some hope of alleviating several intractable problems. The financial strain of putting children through college is one of the biggest anxieties of the middle-income families who supported Mr Clinton in November. Few students from such families qualify for federal subsidies which anyway now fall well short of the spiralling cost of college tuition. National service offers a novel means of paying for college - or vocational training - without getting horribly into debt. And, like the original GI bill, such an easing of access to post-secondary education would raise the quality of the future workforce and hence improve US competitiveness.

Equally important for enthusiasts, it is a way of fighting urban decay and tackling acute social problems. Imagine the effect of mobilising hundreds of thousands of energetic school leavers to rebuild slums, clear refuse, feed and house the homeless, provide care for the elderly, serve as assistants to nurses, police officers and social workers and so forth. If 500,000 youngsters a year enrolled in this kind of 'citizens corps' - a not unreasonable number - a transformation of inner-city life might become feasible. The young could literally help rebuild America.

But the potential benefits do not stop here. In its recent book Mandate for Change, the Progressive Policy Institute (a thinktank close to Mr Clinton) advocates national service as a 'democratising and integrating force in an increasingly Balkanised nation'. It envisages a citizens corps as a 'common civic endeavour for youths of all backgrounds, who would meet on terms of strict civic equality'. It would be a way of emphasising that the rights of citizenship carry reciprocal responsibilities and thus of forging a new and more productive relationship between government and the individual. It would also allow youngsters to mature physically and emotionally and thus derive greater benefits from higher or technical education.

Finally a citizens corps could serve a useful role in cushioning the military 'downsizing' following the end of the cold war. It is widely recognised that the US armed services have done a better job of training young people and overcoming racial tensions than most private employers. Yet military recruitment is set to fall by more than a third in coming years. Why allow all this expertise to go to waste? Much of the talent in the armed forces could surely be redirected to train youngsters to tackle US domestic problems.

As with any innovative idea, there are potential snags. The most obvious is the cost. Enrollees would receive a subsistence income (say Dollars 5,000 a year) plus vouchers towards the cost of college. To be worthwhile, the vouchers would have to cover most of the tuition costs at a public university, which is currently about Dollars 20,000 over four years. If enrollees earned Dollars 10,000 in vouchers for each year of national service, the per capita cost would be Dollars 15,000 a year without allowing for the costs of running the projects. The annual cost of a 500,000-strong citizens corps could easily run to Dollars 15bn, three times the Dollars 5bn annual cost of the current loan programme which caters for 3.7m borrowers. However, this would still be just 5 per cent of the annual defence budget.

It would not be easy to design demanding national service programmes for talented school leavers nor to ensure that enrollees came from all social classes. Indeed unless colleges were given a financial incentive to seek national service graduates, the poor and minorities would be over-represented, as they are in the armed forces. The entry into the labour force of large numbers of young volunteers on subsistence wages could also be disruptive, upsetting established workers who might feel their worth had been diminished. There are also philosophical doubts: should the young be made to feel they have an obligation to 'serve' the state?

Such objections have to be taken seriously and will probably ensure that a national service corps is built up far more slowly than Mr Clinton would wish. But national service seems to be an idea whose time has come. It could prove one of the defining achievements of Mr Clinton's presidency.

We Germans have particular reason to be thankful for European integration. Our experience provides us with a powerful incentive for the future. After the ending of the cold war and the reunification of Germany, we remain resolutely committed to continuing the process of European unification.

We have more neighbours than any other country in Europe. So we have a fundamental national interest in creating a European Union to which, one day, all our neighbours will belong.

Within western Europe, the European Community has played a decisive role in helping overcome traditional rivalries and policies of national egoism.

In this part of the continent, war has become impossible. We are now enjoying the longest period of peace since the mid-19th century. The second world war broke out 21 years after the first; and this came 43 years after the Franco-Prussian war and the foundation of the German Reich. We are now in the 48th continuous year of peace, in the certain knowledge that this state of affairs will continue. We share with all Europeans the fundamental concern that national interests should never again spark off armed conflict.

Despite all these reasons for optimism, I doubt whether the evil spirits of the past, which have brought us Europeans so much suffering this century, have really been banished for good.

No one should be under the illusion that the spectre of European nationalism has been finally laid to rest, or that this ugly apparition is confined only to the Balkans. In many parts of the east of our continent, we are starting to see a return of nationalist thinking, of intolerance and even chauvinism.

Even western Europe is not immune to such temptations. I feel myself carried back to an ill-fated past when I hear some people stirring up public sentiment with the argument that Germany has become too large and too powerful, and therefore needs to be 'contained' by means of coalitions. It is a cruel irony that this kind of talk plays into the hands of precisely those forces, not least in Germany, which propagate old-style nationalism.

However, the lessons of the past, and Germany's particular geographical position, represent simply one side of the story. We all need European Union to master the great challenges of today and tomorrow.

Only if Europe pools its energies and speaks with one voice can it bring its weight to bear in a fitting manner. Europe can hold its own in worldwide competition with Japan and North America only if it acts as one. Particularly for great export nations like Germany and Britain, this is of the utmost importance.

Following the end of the east-west conflict, Germany and the rest of Europe are facing fresh challenges. The upheaval in central, eastern and south-eastern Europe has brought great risks and uncertainties.

Because of this, Europe as a whole, more than ever before, needs a firm and secure anchor. Only a strong European Community can fulfil this role. The Maastricht treaty represents, not least, our combined answer to the new situation in Europe. With it, we are facing up to our responsibilities for the future of the entire continent.

I know that the far-reaching changes in Europe during the past few years have unsettled many people, in Germany and elsewhere. They wonder whether the pace of change has been too fast; whether the Maastricht treaty came too soon, and in too ambitious a form.

My answer to these doubters is this: can we afford to go more slowly? We Germans have already seen, in reunifying our country, the crucial importance of seizing a unique opportunity with energy and enterprise. The same spirit must guide us now in the task of achieving European unity.

That was why it was so important that at the recent Edinburgh summit, under the presidency of UK Prime Minister John Major, the leaders of the European Community expressed their sympathy for Denmark's special reservations, but decided not to change the Maastricht treaty. Reopening negotiations was not, and is not, on our agenda.

In Edinburgh we therefore could go no further than to clarify the relevant treaty clauses to respond to the main Danish concerns. This purely declaratory 'decision' neither changes nor complements the treaty, and therefore does not require ratification by member states.

I believe that, as a result, the way is now clear for the Danes to hold a new referendum this spring. We all want the EC to develop further as a Community of the 12. I am against the idea of a two- or three-speed Europe. But I would add just as clearly that, in view of the importance of European Union for us Germans, we cannot accept that the speed of European integration will be dictated by the slowest ship in the convoy.

From time to time, we hear objections that the Maastricht treaty does not give a clear enough picture of what tomorrow's Europe should actually look like.

This was not, however, the aim of the treaty, nor could it be. Maastricht was an interim step, albeit an important one, on the road to European Union.

The parts of the treaty dealing with political union are just as important as those concerning economic and monetary union. Everyone in Europe must realise that we can preserve all our economic achievements only if we also secure them politically. An economic union will survive only if it is based on a political union.

The Maastricht treaty is not only fundamentally important for the EC itself. It also sends a signal of hope beyond the borders of today's Community. On the basis of Maastricht, the EC at Edinburgh decided to start entry negotiations with Austria, Sweden and Finland at the beginning of this year. With Norway, talks are expected to get under way in March. Our aim is to complete these talks as quickly as possible, so that these countries can join the EC in 1995.

However, the Poles and Hungarians, the Czechs and Slovaks, and many other peoples and nations in central, eastern and south-eastern Europe, place their hopes in the European Community. We must not disappoint them. Beyond this, another important task is to forge close and trusting relations between the European Community and the states of the former Soviet Union.

We must do all we can to shape European policy in such a manner that people can identify with it more easily. They must be able to sense that we are building a Europe not of bureaucrats and technocrats, removed from the people, but one which is working in the people's interests.

This must also be a key principle for the single market, which took effect on January 1. In Edinburgh we adopted guidelines and criteria for applying the principle of subsidiarity - making decisions as close as possible to the people. And we also took concrete steps to review existing regulations, and to revoke those which clearly contradict the subsidiarity principle.

For this purpose the Commission has drawn up an initial list, by no means exhaustive, which is included in the European Council's conclusions. Dealing with this list will be a prime task for the Commission and Council in the first half of 1993.

We have thus made a start in reversing what is popularly seen as the EC's 'regulatory mania'. Of course, the fault does not lie only with 'Brussels'.

National governments and authorities must accept their duty to become more responsive to their citizens' needs, and not simply to pass on unpleasant matters to the Community. Much public irritation is caused by European regulations which are really the result of national initiatives - often for economic reasons, to protect national interests.

Here we must recognise that errors have been made in the past, and make the necessary adjustments. Cases such as these, where in accord with the principle of subsidiarity Community action is not necessary, can offer some overall lessons for our journey towards a Europe which will be stronger, more prosperous and more stable for all of us - in the east and the west.

FOREIGN EXCHANGE and money market dealing will pick up today after the Christmas and New Year break, and many dealers are wondering whether the much-heralded speculative attack on the Irish punt and French franc will take place, writes James Blitz.

The pressure on both currencies comes mainly from the D-Mark's high short-term interest rates. Compounding this are fears that both currencies must be devalued if French and Irish exporters are not to lose out from the competitive devaluations last year of sterling, the lira, the peseta and escudo.

Political difficulties in both Paris and Dublin add to the pressures. However, over the Christmas period, the slide of both currencies inside the Exchange Rate Mechanism was checked, because of renewed expectations that the Bundesbank might cut interest rates soon.

The franc has spent much of the last 10 days above the FFr3.40 level against the D-Mark. Cash rates in the Irish punt market dropped down to around 14 per cent on New Year's eve, although the currency remained near the bottom of its ERM band against the Belgian franc.

The market's main focus this week will therefore be on the Bundesbank's weekly securities repurchase tender on Wednesday, and the council meeting the following day.

Miss Alison Cottrell, an economist at Midland Global Markets in London, believes that any expectations of an easing in money market or official rates this week are sure to be dashed. German call money ended the year well above the 8.75 percent repo rate, making an easing unlikely there.

She also believes that the Bundesbank will await the outcome of the German public sector wage talks in which public sector employers will aim to keep wage rises to between 3.0 and 3.25 per cent.

Miss Cottrell believes that the Bundesbank meeting of February 18th is the one to watch.

TRAFALGAR HOUSE WATER PROJECTS announces the award of a Pounds 14.3m water treatment project for Severn Trent Water at its Trimpley Works in Worcestershire.

This improvement and extension project has been awarded to John Brown Engineering, a member of the engineering division of Trafalgar House, and Trafalgar House Construction.

John Brown will design and install the advanced water treatment equipment and the associated mechanical/electrical and control equipment. Trafalgar House Construction will carry out the design and construction of the building and civil engineering works.

The treatment works is set in an area of scenic beauty and therefore has to be compact and recognise strict planning requirements.

French officials have earmarked at least FFr64m (Pounds 7.6m) for a dance centre in Montmartre where students and young dance companies can train or perform. Work is expected to start in May.

CEMINDIA, part of Trafalgar House Construction, has won four new contracts including a Pounds 20m joint venture - the biggest order secured in the company's 30-year history.

The company will lead this wholly-owned Indian joint venture in constructing an 800 metre long berth and a backup area for the Kakinada Port Trust as part of the development of a deep water port.

Cemindia will be responsible for specialist work involving diaphragm walls, piles and the installation of band drains while the other partners, Gayatri Engineering of Hyderabad and Essar Projects of Bombay, will carry out work on the superstructure, platform and back up area.

Cemindia has also won three smaller contracts worth Pounds 2.5m in and around Bombay and the state of Gujarat for a diaphragm wall, stone columns and ground improvement work, and the construction of a jetty.

WITH the Japanese economy in a weak state, the Bank of Japan is expected to allow a further easing in interest rates early in 1993.

However, with the government's Y10,700bn fiscal package and the possibility of a package later in the year, economists expect a moderate recovery during 1993. The combination of renewed growth and heavy corporate bond issuance could help to drive Japanese government bond yields higher by the year-end.

Many economic forecasters expect a steepening of the Japanese yield curve, with the shorter end of the market out-performing the long end.

UBS Phillips & Drew warns that the rally in long-dated Japanese government bonds is ending, and that the time has arrived to take profits and concentrate holdings at the short end of the market.

'Ten-year yields are at their cyclical bottom and will now trend upwards,' said the firm. It is forecasting an annual rate of return of 3.2 per cent for two-year bonds to June 1993, whereas it predicts a decline in return of 4.3 per cent for 10-year bonds.

UBS Phillips & Drew ranks as one of the more bearish securities houses when it comes to the prospects for the Japanese government bond market. At the opposite

The bond yield curves for France, Germany, Japan, the UK and the US have been compiled from several sources.

The existing bond yields curves were supplied by S. G. Warburg Securities. The forecast yield curves are based on the average of forecasts supplied by the following houses: BZW, Deutsche Bank, DKB International, Goldman Sachs, Midland Montagu, Nomura Research Institute, S. G. Warburg Securities and UBS Phillips & Drew.

extreme is DKB International, which expects further falls in Japanese rates and in bond yields over the next year.

The combination of concern about the weak state of the economy, the fragile stock market, falling inflation and the decline in confidence, has prompted a steady easing in interest rates by the Bank of Japan over the last 18 months.

Since the middle of 1991, the overnight call rate has dropped from 8.25 per cent to 3.9 per cent, while the official discount rate has been steadily cut from 6 per cent to its current level of 3.25 per cent.

Although the bond market has discounted a lot of the poor economic news, as well as another interest rate cut, some economists point out that the domestic background remains favourable for bonds, given the weak growth prospects and continued fall in inflation. Consumer demand remains weak and the stock market continues to look vulnerable.

DKB International expects the overnight call rate to fall even lower - reaching 3.5 per cent in the first quarter and 3.0 per cent in the second quarter. It forecasts two more cuts in the official discount rate - to 2.75 per cent in the first quarter and to 2.25 per cent in the second quarter, the level at which it is expected to remain in the second half of the year.

Mr Gerard Lyons, chief economist at DKB International, said this scenario favours the shorter end but added that long bond yields should continue to fall, reaching their low point in the middle of 1993.

INFLATION will be the key indicator for the gilt market over the next 12 months.

While there is a range of views about how prices will change in the UK economy during 1993, the consensus is that inflation will emerge as a bigger problem than last year and may push up gilt yields.

Another worry for gilt investors will be the large volume of issues from the Bank of England in the 1993-94 financial year, a factor likely to hold back price rises. The prospects for gilts are tied to the degree to which the UK economy picks up from its longest recession since the 1930s.

Any expansion which is more than languid would re-ignite inflationary pressures - which are subdued - reducing the prospects for further cuts in interest rates, and depressing gilt prices.

Most economists envisage a slow upturn in 1993, with growth of about 1 per cent. However, this judgment is clouded by uncertainty, especially as this time last year many expected a sharp recovery in 1992, not the fall in GDP that took place.

During 1992, many gilt investors saw substantial gains. Price rises were particularly marked at the short end of the yield curve, partly due to weak inflation. Another factor was the 3 percentage point cut in base rates between sterling's devaluation on September 16 and the end of November.

From nearly 10 per cent at the start of the year, yields for five-year gilts fell to just over 7 per cent by the end of December. This fall of nearly 300 basis points brought a corresponding increase in prices. But it was only partly replicated at the long end of the yield curve. Here yields for 20-year bonds fell from about 9.5 per cent to under 9 per cent.

The overall rise in gilt prices during the year - which saw the yield curve change dramatically from being downward sloping in January to upward sloping in December - was helped by investors switching more funds away from recession-hit equities and into government bonds.

Price changes in the economy, as measured by the year-on-year change in the retail prices index, stood at just 3 per cent in November, the lowest figure for six years. According to a Financial Times survey of 38 forecasting groups published just before Christmas, inflationary forces are likely to grow significantly by the end of 1993. The consensus was that RPI inflation by the final quarter would work out at 4.1 per cent.

However, there remains considerable disagreement about the outlook for inflation. Mr John Shepperd, of S. G. Warburg Securities, is among the pessimists. He predicts that rising inflationary forces will limit reductions in base rates to just one further cut of 1 percentage point - bringing base rates to 6 per cent - by the time of the March Budget.

Mr Shepperd believes that as a result long-dated gilt yields will climb during the year to about 9.75 per cent, with little change in yields for short-dated securities.

Mr Roger Bootle of Greenwell Montagu is much more sanguine. He forecasts that RPI inflation will be just 1.75 per cent by the end of the year. Consequently, he believes long-dated gilt yields will continue to come down, to below 8 per cent by December, while yields for short-maturing bonds will drop below 6 per cent.

Whatever happens to the economy during 1993, the PSBR is almost certain to increase. That will happen as growth in tax income remains subdued, and social security and unemployment payments stay high. According to the FT survey of forecasts, the PSBR in 1993-94 is likely to reach Pounds 46.9bn, up from an expected Pounds 38.2bn in 1992-93. This would require about Pounds 50bn of gilt issues during 1993-94 - or some Pounds 1bn a week.

ON THE face of it, 1993 looks as though it could be a tough year for the US bond market, a year of rising interest rates, revived inflation and a widening federal budget deficit.

This is the pessimists' view. Recent figures suggest that the anaemic economic recovery may finally be picking up pace, something which could quickly feed through into higher interest rates and higher inflation.

Moreover, a Democrat is heading for the White House, a Democrat who has promised to cut middle-class taxes and increase government spending, while offering little in the way of a credible policy to reduce the government deficit.

If all this is true, then why are some of Wall Street's most respected economists predicting that bond market prices will rise and long-term yields fall this year?

Although there is no real consensus among economists about what will happen to the economy in 1993, on balance economists seem more confident predicting that long rates will stay at or drop lower than their current levels of 7.3 per cent, than they do about warning of higher rates.

Those forecasting lower rates - the most bullish predicts the yield on the long bond will drop to 6.5 per cent by the middle of next year - are pinning their hopes on sluggish economic growth in the first half.

They believe the rise in economic activity seen since the third quarter of 1992 will be a bout of unsustainable post-election euphoria. They point out that incomes remain depressed, that the labour market has shown few signs of recovering from the recession, and that consumers remain debt-averse, all of which should act as a drag on economic growth. Recessionary conditions in overseas economies are expected to hold back US growth.

The optimists believe that inflation, the long bond's greatest enemy, looks soundly beaten, for now. Nothing in the most recent prices data suggested that the long-established disinflationary trend would be reversed soon.

Commodity and oil prices are likely to remain low. Productivity will continue to improve, which with the lack of real job and income growth, will depress the rate of price rises.

The final piece in the puzzle is politics. In the latter stages of last year's election campaign, bond prices dropped sharply and yields jumped on fears that President Clinton would introduce an aggressive fiscal stimulus package that would widen the deficit and lead to an overheated, inflation-plagued economy.

However, since his victory, Mr Clinton has softened the tone of his growth-oriented campaign policy pledges, partly because he has faced up to the political realities of a large budget deficit, and partly because he has been encouraged by the improvement in economic conditions.

If growth does remain weak, inflation and domestic interest rates low, and President Clinton introduces only modestly stimulative fiscal policies, and especially if German interest rates finally begin to come down, then the forecast of long-term bond yields at or below 7 per cent does not look overly optimistic.

However, for every bull, there is a bear, and economists do not have to be especially bearish to warn that rates could begin to pick up in the second half of this year. On the economic front, growth could improve if the labour market responds to fiscal stimuli aimed at creating jobs - which Mr Clinton insists remains his biggest priority.

As Mr Robert Brusca, chief economist with Nikko Securities in New York, said: 'Somehow, somewhere there's going to be stronger growth, and that flies in the face of expectations that interest rates will go down a lot more.'

Whoever is right or wrong, the bond market is unlikely to do anything spectacular this year. Economic growth in 1992 will probably end at about 3 per cent, and a recent survey of Wall Street forecasts for 1993 showed that economists expect growth this year to be between 2.7 per cent and 3.2 per cent. Hardly the recipe for bond market madness.

EVEN champions of the European currency unit are sounding a diffident note in their claims for the Ecu bond market in 1993.

Above all, the market needs some proof that the process of European monetary union is back on track, according to Mr David Ovenden, Ecu product manager at J. P. Morgan Securities in London.

While most traders are expecting an improvement on last year, few are nursing hopes that the market will regain the impetus of recent years, when its potential status as Europe's main bond market and the promise of seemingly limitless liquidity, attracted a large flow of institutional investment.

It is widely agreed that the sweeping assumptions made about the likelihood of European monetary union pushed the market too far ahead of events, while competition for market share among financial intermediaries created an artificially high level of liquidity.

The market's adjustment to Denmark's rejection of the Maastricht treaty last June and the subsequent turmoil within the exchange rate mechanism, caused heavy losses for investors and market participants, and a decline in liquidity, from which the market has not recovered.

There are a number of issues of political concern to be settled, chief among them the need to accommodate Denmark following its rejection of the treaty and the failure of Denmark and the UK to ratify the treaty. If the treaty had been ratified by all 12 countries, the Ecu would have been frozen. Without that, there is a risk of recomposition in September 1994. Without ratification, many analysts believe that some form of monetary union will go ahead. 'I would still hang on to the belief that a group of currencies will move closer together . . . and that will require a currency other than the D-Mark,' said Mr Kit Juckes, an international economist at S. G. Warburg. Given this outlook, the Ecu market does offer 'an option on European unity, but it's not yet a desperately cheap one'.

Other analysts take a more positive view. According to Credit Lyonnais, at current yield levels, 'Ecu bonds do not discount the possibility of the Ecu becoming the single European currency in any future monetary union. A problematic, delayed ratification process for the UK and Denmark is already discounted'. While the probability of two-speed monetary union has increased, this need not be negative for the Ecu, says Credit Lyonnais.

While the crux of the market's problems lies on the demand side, the supply side is a cause for concern. The market's success in attracting institutional investors has been due in large part to the enthusiastic sponsorship of a number of European governments, which have set up programmes for issuing Ecu paper, even when terms were not always favourable.

Last year's political problems over the ratification of the Maastricht treaty have caused a number of European governments to tone down their commitment to the Ecu. However, with many European governments facing growing financing needs as a result of the economic slowdown, they could welcome the chance to return to the Ecu market.

Dealers are hoping that medium-sized deals for the likes of the UK, France, the European Investment Bank and the European Bank for Reconstruction and Development in the early part of the year may help to stir investor interest.

The change in the structure of the market is unlikely to be reversed, at least in the short-term. The market was vaunted as offering similar or better liquidity than Europe's largest government bond markets. The largest Ecu bonds were among the most actively traded bonds, and the commissions charged were lower than in many other markets.

However, after the market's meltdown it became evident that much of that liquidity had been created not by investors but by traders.

Mr Ovenden argues that investors in the large, high-quality bonds are still being serviced, although liquidity in smaller bonds for weaker credits has suffered. However, without the aggressive speculative activity by investment banks and securities houses trading on their own accounts, which is believed to have made up as much as 70 per cent of the market's turnover, the level of liquidity is likely to remain poor.

At a meeting last month of ISMA's Ecu sub-committee, it was decided that it was too early to revert to a traditional style of marketmaking with compulsory bid/offer spreads.

Without more confidence in the market's long-term liquidity, institutional investors, having been badly burnt, are unlikely to rush back to the market.

Dealers say there are signs that some institutional investors are returning to the market, but Ecu bonds are viewed as a specialised investment, rather than an alternative to government bonds.

THIS year promises to be a relatively favourable one for world bond markets, given the likelihood that it will see continued weak economic growth, subdued inflationary pressures and the prospect of low or falling interest rates in many of the world economies.

Last year saw a continued fall in interest rates in the US, Japan, and the UK - particularly once sterling broke free of the constraints of the European exchange rate mechanism - while German interest rates remained stubbornly high, forcing other European economies to keep their domestic interest rates at relatively high levels.

However, most economists expect to see an easing in German interest rates this year once its inflation shows some sign of coming under control, and this should pave the way for rate cuts across much of continental Europe.

The D-Mark bloc bond markets were among the top performers in 1992 in local currency terms. With Denmark's rejection of the Maastricht treaty in its referendum on June 2 1992, investors feared the No vote had spelt an end to European economic and monetary union and to the convergence of inflation rates and interest rates across Europe.

The weaker members of the ERM came under intense speculative pressure. Some buckled under the strain, with Spain choosing to devalue within the mechanism. Others were forced to float freely - namely sterling and the Italian lira, both of which remain outside the ERM. On the outskirts of Europe, countries such as Finland, Sweden and Norway - which are not ERM members but had pegged their currencies to the Ecu - found the strain too severe and were forced to sever the links.

Investors stampeded out of the higher-yielding bond markets such as Spain and Italy, and into the safe haven of the D-Mark bloc where they hoped to benefit eventually from falling interest rates. As a result of strong buying of the D-Mark bloc, returns from these bond markets were high in local currency terms. Dutch government bonds gave a return of 15.7 per cent, according to J. P. Morgan, while Belgian bonds gained 13.87 per cent and German bunds rose 13.01 per cent in 1992.

Following the reunification of Germany, the Bundesbank was forced to tighten monetary policy to try to curb rising inflation. German rates have reached historically high levels: the discount rate peaked at 8.75 per cent while the Lombard rate reached 9.75 per cent.

However, while the Bundesbank allowed a small easing - with the discount rate cut half a point to 8.25 per cent and the Lombard rate snipped 25 basis points to 9.50 per cent in September 1992 - the German central bank has repeatedly stressed its commitment to conquering inflation before further cuts can be allowed.

'Despite clear evidence of a recession, the Bundesbank remains concerned about domestic inflationary pressures,' said Mr Gerard Lyons, chief economist at DKB International. He forecast a 0.9 per cent fall in German GNP in 1993. 'Although west German inflation is stubbornly high, the Bundesbank has been remarkably successful at containing the inflationary cost of unification. The Bundesbank is unlikely to lower rates prematurely; instead it will remain cautious and lower rates only when it believes inflation has fallen,' he said.

As a result, the prospects for the long end of the bund market remain attractive, 'primarily because the anti-inflationary credibility of the Bundesbank more than offsets any negative impact from the persistent budget deficit and stubbornly high consumer prices,' claims DKB International.

The Bundesbank raised its money supply target for 1993 to 4.5 per cent to 6.5 per cent, compared with 3.5 per cent to 5.5 per cent in 1992, at the end of last year. Money supply growth has overshot the bank's target range with the speculative attacks within the ERM helping to distort M3 growth towards the end of 1992.

Mr Stefan Schneider, an economist with Nomura Research Institute, pointed out that 'although the 1992 M3 target (of 4.5 per cent to 6.5 per cent) will offer it some additional leeway, the Bundesbank will wait for further moderation in the growth of bank lending which could materialise in the first quarter as a result of weaker activity'.

Most of the economists polled by the Financial Times expect to see a fall in German government bond yields by the end of 1993 as the Bundesbank allows an easing in interest rates during the year. However, they do not all agree.

Goldman Sachs provides the most bearish forecasts, predicting two-year and five-year bond yields of 7.2 per cent, and 10-year bund yields of 7.5 per cent, while Nomura expects bund yields to be at the 7 per cent level in the five-year and 10-year maturities.

Among the more optimistic forecasters are DKB International, Midland Montagu and UBS Phillips & Drew. Midland Montagu sees two-year yields at 6 per cent by year-end, but forecasts 10-year yields of 7 per cent - just above the average of the forecasts. UBS Phillips & Drew predicts that German yields will be 6.2 per cent for two-year notes, 6.3 per cent for five-year paper, and 6.4 per cent for 10-year bonds.

Any easing by the Bundesbank should relieve some of the tensions within the ERM and allow members to cut their domestic interest rates. Attention is likely to focus on the French government bond market in particular. The French franc managed to survive the intense speculative pressure seen during the second half of 1992, and the government has repeatedly stressed its commitment to closer monetary ties with Germany.

Many economists expect the franc to come under renewed pressure at the start of this year, and views appear mixed on whether it can survive as a member of the ERM without a devaluation. Some economists point out that France enjoys such favourable economic fundamentals, with low inflation and a trade surplus, that it could cut interest rates independently of the Bundesbank.

'However, fears of a devaluation suggest that investors will continue to demand a premium on the franc. As a result, the Bank of France is unlikely to act prematurely as it could undermine credibility and weaken the franc,' said DKB International.

Nevertheless, economists do expect to see a drop in French government bond yields by the end of 1993, with two-year bond yields ranging between 6.5 per cent (according to Midland Montagu) and 7.4 per cent (Nomura Research Institute), while 30-year yields are expected to be between 7.2 per cent (UBS Phillips & Drew) and 8.05 per cent (Deutsche Bank).

BID and deal activity in the US showed some modest signs of reviving during the final quarter of 1992, although value of transactions for the year declined from already-depressed 1991 levels.

According to Securities Data, the financial information company, there were 5,353 deals last year with a value of Dollars 123.9bn. This reflected a 10 per cent fall in value from Dollars 137.3m-worth of transactions during 1991. The number of deals increased slightly, having stood at 5,182 in 1991.

Activity rallied in the final three months of the year, when there were 1,377 deals with a value of Dollars 36.9bn - a 27 per cent improvement in value terms over the third-quarter figure.

BURDENED by debt and the worst retail conditions in 60 years, Peoples Jewellers, a Canadian jewellery store chain, has entered bankruptcy protection.

Peoples, 73 years old and operating 268 jewellery stores across the country, was granted protection from creditors until March 31 by the Ontario Court. It must work out a restructuring programme with creditors by that date.

Peoples' problems go back to the 1986 debt-financed acquisition of Zale Corp, the largest US jewellery chain, in partnership with Switzerland's Swarovski family for USDollars 650m. Zale operates under US Chapter 11 bankruptcy protection.

Peoples has written-off its Zale investment. Last week, Peoples missed a CDollars 1.2m debenture interest payment. In the six months ended September 30, it lost CDollars 15.2m, or CDollars 1.24 a share.

----------------------------------------------------------------------- CROSS BORDER M&A DEALS ----------------------------------------------------------------------- BIDDER/INVESTOR TARGET SECTOR VALUE COMMENT ----------------------------------------------------------------------- Credit Lyonnais BfG (Germany) Banking Pounds 491m AMB gives its (France) approval ----------------------------------------------------------------------- Unilever Cica (Brazil) Food Pounds 187m Continues (UK/Netherlands) South American growth ----------------------------------------------------------------------- AMR (US) Canadian Air- Airlines Pounds 127m Part of lines (Canada) restructure package ----------------------------------------------------------------------- Sun Chemical (US) Usher-Walker Inks Pounds 14.8m Acceptances (US) near 80% ----------------------------------------------------------------------- Winterthur Churchill Insurance Pounds 11m Further capital (Switzerland) Insurance injection (UK) ----------------------------------------------------------------------- ING (Netherlands) Sviluppo Financial n/a Buying out- (Italy) standing 40% -----------------------------------------------------------------------

Consortium (Intl) Dai-Hung Oil and gas n/a Second field (Vietnam) production venture ----------------------------------------------------------------------- Lockheed (US)/ LKI (JV) Aerospace n/a Proton launch Khrunichev Ent marketing (Russia) venture ----------------------------------------------------------------------- Zurich Insurance Municipal Insurance n/a Agreement in (Switzerland) Mutual principle Insurance (UK) ----------------------------------------------------------------------- Toyo Ink (Japan) Francolour Inks n/a ICI completes Pigments sale (France) -----------------------------------------------------------------------

THE RECEIVERS handling the sale of a 4.3 per cent share in the Savoy Hotel group said yesterday that they had been approached by several interested parties and expected to resume negotiations this week.

The sale of the shares, which belonged to the St Anselm Development Company, has added further spice to the future ownership of the Savoy group. Just over a month ago, the death of Sir Hugh Wontner, the group's president, sent Savoy shares sharply higher as speculation that the bitter courtship by the Forte group could be resumed. Sir Hugh had been vociferous in defence of a Forte takeover.

Forte holds 69 per cent of Savoy's equity and 42.5 per cent of its voting shares. Under a 1989 peace accord, Forte agreed not to purchase any more shares until the end of 1994, and has repeatedly said it intends to stand by the deal, despite Sir Hugh's death and the St Anselm receiver-ship.

A spokesman for Cork Gully, who were appointed receivers on Christmas Eve, said: 'We can confirm that the stake is available at the right price and that several parties have already expressed an interest.' At current market prices, the share package would fetch around Pounds 11m.

Mr Giles Shepard, the Savoy's managing director, denied yesterday that he had been approached by any of the prospective purchasers.

Weekend press speculation suggested contact had been made with the private financiers David and Frederick Barclay.

But Mr Shepard said: 'The last time we spoke to them was 11 years ago when they offered to sell us the Howard hotel.' He added that he would be contacting the receivers this week to discuss the fate of the St Anselm stake.

Sources close to the negotiations suggested that the National Westminster Bank, which holds the shares as security against loans made to St Anselm, may wish to sit on its stake in the hope of making money from any bid by Forte after 1994.

HAMMERSON, Britain's third biggest property group, confirmed yesterday that both its chairman and managing director are to retire in the next 18 months, but denied this was a change in company policy, writes Christopher Price.

Mr Sydney Mason, 72, the Hammerson chairman, is thought likely to retire this year after 44 years with the group. More surprising is the planned retirement of Mr John Parry, 58, the managing director, who had been widely tipped to succeed Mr Mason as chairman.

However, weekend press reports that the retirements had been demanded by institutional investors as a result of the company's recent performance were denied. 'It is normal for directors to retire at 60,' the spokesman said, adding that Mr Mason's position was recognised as a unique one and that the age factor did not count.

In October, the group announced plans to cut the final dividend from 17p to 6.5p. Pre-tax profits fell from Pounds 31.1m to Pounds 23.3m in the six months to June 30.

However, market observers suggested that pressure had come from Hammerson's largest investor, Standard Life, which holds 31 per cent of the ordinary shares and 21 per cent of the lower-class 'A' shares. In 1989, Standard helped Hammerson fight off a takeover from Rodamco, the Dutch property group.

Sources close to the company have also hinted that pressure has been applied from Hammerson's non-executive directors, equally unhappy at the group's performance.

Hammerson's shares have mirrored the dramatic decline in property values in the last three years. The ordinary shares, which 13 months ago stood at 660p, closed at 293p on New Year's Eve.

EDS, the General Motors subsidiary which is one of the world's largest computing services organisations, has strengthened its European presence with the purchase of MBP Software and Systems, a Dortmund-based information technology company. The price is not being disclosed.

MBP, said to be Germany's oldest computing services company, is a subsidiary of the Hoesch chemicals group. In its last financial year it turned over DM129.4m (Dollars 82m). It has 570 employees. EDS operates in more than 30 countries and employs over 70,000 people.

The acquisition is the first in Germany for EDS. It is a significant size in the UK through the purchase of Unilever Computer Services and SDS-Scicon. It has also made acquisitions in France.

MBP specialises in systems integration in market sectors such as steel, chemicals, manufacturing and energy as well as public authorities.

THE WORLD gets back to serious business today after a prolonged Christmas and New Year break in most industrial countries. Policy questions will be at the forefront in Germany and the UK.

The Bundesbank's central council gathers in Frankfurt on Thursday and is expected to leave interest rates unchanged in spite of a rapid deterioration in the main indicators of economic activity in Germany.

The annual wage round in Germany is entering a crucial stage with talks starting between the government and the public sector trade unions on Friday. With the Bundesbank determined to bear down on wage inflation, its policy- making council has no incentive to ease monetary conditions this week.

Also on Friday, Mr Norman Lamont, the UK chancellor, starts to plan his March budget with senior officials at a two-day house party in the Kent countryside.

It is uncertain whether the Bundesbank and UK Treasury will be able deliberate in peace. Tensions are expected to return to the European exchange rate mechanism with the French franc, Irish punt and Danish krone are likely to suffer speculative attack.

Attention in the US will focus on the December National Association of Purchasing Managers' index today and labour market data on Friday to determine whether recent signs of economic recovery are strongly based.

The main economic events and figures published this week follow. The market consensus figures in brackets have been supplied by IBJ International of London.

Today: US, December NAPM (56.5 per cent), November construction spending (up 0.5 per cent on month).

Tomorrow: UK, underlying official reserves in December (down Dollars 500m); provisional December M0 (up 0.7 per cent on month, 3.4 per cent on year); final November monetary statistics; BBA analysis of major banks' lending in quarter to November. Canada, November industrial producer prices index (up 0.4 per cent on month); October leading indicator, employment earnings.

Wednesday: UK, October overseas travel and tourism; November advance energy statistics. Canada, December foreign reserves.

Thursday: Germany, Bundesbank council meets; December seasonally adjusted unemployment (up 30,000). UK, November new vehicle registrations. US, jobless claims week ending December 26.

Friday: UK, chancellor Norman Lamont starts two-day planning meeting on March budget, with senior Treasury officials at Chevening in Kent, first estimate November cyclical indicators, November housing starts and completions; third quarter house renovations, December Halifax house price index. US, December non-farm payrolls (up 120,000), December unemployment rate (7.3 per cent), hourly earnings, average work week. Canada, December unemployment (11.7 per cent). Germany, wage bargaining starts between government and OTV public sector union.

During the week: GATT talks resume. Germany, November industrial production (down 0.4 per cent on month), manufacturing output (down 0.5 per cent on month), trade balance (unadjusted DM4.5bn surplus), current account (unadjusted DM1.5bn deficit), manufacturing orders (down 0.5 per cent on month). France November M3 (up 0.3 per cent on month). Italy, December consumer prices (up 0.1 per cent on month, 4.6 per cent on year)

UK COMPANIES

TODAY

BOARD MEETING:

Interim:

Neepsend

TOMORROW

COMPANY MEETINGS:

Bibby (J), Founders Court, Lothbury, EC, 12.00

BBB Design, 25, Luke Street, EC, 11.00

WEDNESDAY JAN 6

BOARD MEETINGS:

Final:

Irish Contl.

Interims:

Banks (Sidney C)

Banner Homes

Bespak

Fleming Intl. High Inc. Inv.

Flextech

Hollas

THURSDAY JAN 7

COMPANY MEETINGS:

Fenner, Royal York Hotal, Station Road, York, 12.30

Perpetual, Phylis Court, Henley-on-Thames, Oxfordshire, 12.00

BOARD MEETINGS:

Interims:

Abbey

Druck Hldgs.

Savills

FRIDAY JAN 8

COMPANY MEETINGS:

MMT Computing, 14, Angel Gate, City Road, EC, 2.00

Western Selection, Honourable Artillery Company, Armoury House, City Road, EC, 10.00, 10.00

BOARD MEETING:

Interim:

Grosvenor Inns

Company meetings are annual general unless otherwise stated.

DIVIDEND & INTEREST PAYMENTS TODAY

Alexon 3p

Allied Lon. Props. 2.455p

Amersham Intl. 4p

Anglian Water 5 1/8 % IL Ln. 2008 Pounds 3.0122

Appleby Westward 3.2p

Baxter Intl. Dollars 0.215

Betterware 0.5p

BM Cnv. Red. Prf. 2.3p

Booker 7.5p

Boots 9% Bds. 1997 Dollars 450

Bridon 6% (4.2% net) Prf. 1.05p

Brit. Empire Secs. & Gen. Tst. 0.64p

Calor 6p

Carlton Comms. Cnv Prf 3.25p

Cater Allen 7p

Chester Waterworks 8% Red. Prf. 1992 Pounds 4

Do. 7 1/2 % Red. Deb '91/93 Pounds 3.75

Do. 8% Red. Deb. 1992/94 Pounds 4

Do. 11 3/8 % Red. Deb. 1988/2000 Pounds 5.6875

CI 0.825p

Claremont Garments 3.3p

Coats Viyella 3p

Computer People 0.65p

Crown Eyeglass 2.5p

Dalgety 12p

De La Rue 3.85p

Denmark (Kingdom of) 3 1/2 % Ln. 1901 Pounds 0.485275

Electrocomponents 2p

Ferry Pickering 3.4p

FII 8.5p

Fisons 3.3p

Fortnum & Mason 12p

General Accident 9.7p

Do. 8 7/8 % Irrd. Prf. 2.771918p

Govett Strategic Inv. 4.1p

Greece (Kingdom of) 5% (now 2 1/2 %) Ln 1881 25p

Do. 5% (now 2 1/2 %) Ln. 1881 Stlg.

Fd. Bds. of 1965 62.5p

Do. 5% (now 2 1/2 %) Ln 1884 25p

Do. 5% (now 2 1/2 %) Ln. 1884 Stlg. Fd. Bds. of 1965 62.5p

Do. 4% (now 2%) Monopoly Ln. 1887 20p

Do. 4% (now 2%) Monopoly Ln. Stlg. Fd. Bds. of 1965 50p

Do. 5% (now 2 1/2 %) Fd. Ln. 1893 (Br. Lns.) 25p

Do. 5% (now 2 1/2 %) Fd. Ln. 1893 (Br. Bds.) 62.5p

Do. 4% (now 2%) Ln 1902 20p

Do. 4% (now 2%) Ln. 1902 Stlg. Fd. Bds. of 1965 50p

Guardian Royal Exchange 2.5p

Hazlewood Foods 7 1/2 % (5.25% net) Ptg. Prf. 2.625p

Hughes (TJ) 0.75p

IAWS 8% Sub. Cnv. Uns. Ln. Nts. IR4.0329

Inchcape 5.4p

Jardine Euro. Motors 6.852p

Kleinwort High Inc. 1.875p

Ladbroke 4.92p

Leeds & Holbeck Bldg. Soc. Sub. Fltg. Rate Nts. 2001 Pounds 56666.301

Leo 1 Class A1 Mtg. Bkd. Fltg. Rate Nts. 2035 Pounds 2410.79

Do. Class A2 Mtg. Bkd. Fltg. Rate Nts. 2035 Pounds 2537.67

Locker (Thomas) 0.35p

Do. A NV 0.35p

Martin Intl. 1.7p

Montenegro 5% Govt Ln 1909 50p

Mucklow (A. & J) 3.103p

Natl. Home Loans Corp. Secd. Fltg. Rate Nts. 1995 Dollars 3.79

New South Wales Treasury Corp. 11 1/2 % Gtd. Exch. Bds. 1995 ADollars 575

Next 0.5p

Northern Eng. Inds. 7% Uns. Ln. 2000/05 3.5pc.

Peek 10.5p

Pittard Garnar 0.5p

Platignum 0.25p

Portugal (Rep. of) 3% Ext. Dbt. Sers. 1 30p

Do. 3% Ext. Dbt. Sers. 2 29.85p

Do. 3% Ext. Dbt. Sers. 3 9.5p

Ralston Inv. Tst. 0.725p

Ranks Hovis McDougall 9.54p

RTZ Corp. 3.325% A Prf. 1.6625p

Do. 3 1/2 % B Prf. 1.75p

Rubicon 6% (4.2% net) Prf. 1.05p

Silentnight 2.25p

Simon Eng. 5p

Do. 4% Red. Prf. 1984/96 2p

Do. 5.4% Prf. 2.7p

Do. 6% (4.2% net) Prf. 2.1p

Do. 6.35% Red Prf '91/96 3.175p

Do. 7 3/4 % Red Prf '92/97 3.875p

Slingsby (H. C) 2p

South Staffordshire Water 15p

Temple Bar Inv. Tst. 2.1p

TMC PIMBS Second Fin. Pounds 12956.3

Town Centre Securities 2.1p

TR Far Eastern Inc. Tst. 1.2p

TSB 12% Sub. Bds. 2011 Pounds 1200

Usborne 0.2p

Vinten 1.9p

Willis Corroon 3.3p

TOMORROW

Airflow Streamlines 1p

Bankers Inv 4% Perp Deb Pounds 2

Beckman (A) 3.15p

Black Arrow 1p

Boustead 0.35p

Croydon Corp. 3 1/2 % Pounds 1.75

Etam 1.65p

Finlay (James) 2p

Fleming High Inc. Inv. 1.45p

McInerney Estates 9.675% Gtd. Red. Prf. 4.8375p

Metropolitan Water Board Staines Reservoirs Joint Committee 3% Gtd. Deb. Pounds 1.5

Natl. Westminster Bank 12 1/2 % Sub. Uns. Ln. 2004 Pounds 6.25

Rand Mines R2.15

Rand Mines Props. R0.55

Scot. American Inv. 1.09p

Sims Food 3p

Smith & Nephew Fin. NV 8 3/4 % Gtd. Red. Cnv. Prf. 2004 Pounds 87.5

Staveley Inds. 2.3p

TIP Europe 0.76p

Utd. Biscuits 5.5p

Utd. Kingdom 2 1/2 % Anns. Pounds 0.625

Do. 2 3/4 % Anns. Pounds 0.6875

Do. 2 1/2 % Cons. Pounds 0.625

Vtech (London Reg.) Dollars 0.01

Do. (Bermuda Reg.) Dollars 0.01

Yule Catto 11 1/2 % Red. Prf. 1998/ 2003 5.75p

WEDNESDAY JANUARY 6

ACT 1.75p

Baird (William) 3.55p

Blue Circle Inds. 6 1/4 % Uns. Ln. (1975 or after) Pounds 3.125

Bradford Prop. Tst. 2.4p

British Syphon Inds. 2p

Clayform Hldgs. 11% 1st Mtg. Deb. 2016 Pounds 5.5

Colman (E. Alec.) Invs. 8% Uns. Ln. 1991/96 Pounds 4

Cook (William) 1.5p

Courtaulds 3 1/2 % 1st Prf. 1.75p

Do. 5 1/2 % Uns Ln '94/96 Pounds 2.75

Dixons (Capital) 6 3/4 % Cnv. Gtd. Bds. 2002 Pounds 337.5

E-Systems Dollars 0.25

European Motor 1.5p

Frost 5.5p

I & S Smaller Co's Tst. 1p

Jourdan Thomas 0.5p

Lon. & Provincial Shop Centres 10% 1st Mtg. Deb. 2026 Pounds 5

Low (Wm.) & Co. 5.7p

Morgan Crucible 5.75p

Do. Cnv. Red. Prf. 3.75p

Do. 9 1/2 % Deb '95/2000 Pounds 4.75

New Frontiers Dev. Tst. 0.25p

Smith (WH) 5 1/4 % Red. Uns. Ln. Pounds 2.5625

Do. 7 3/4 % Red. Uns. Ln. 1988/93 Pounds 3.875

Smiths Inds. 7.15p

Unigate 5.7p

Value & Inc. Tst. 1.8p

Whitbread 7 3/4 % Uns. Ln. 1996/2000 Pounds 3.875

Do. 10 1/2 % Uns Ln '00/05 Pounds 5.25

THURSDAY JANUARY 7

Adam & Harvey 5p

Bibby (J) 6.9p

British Assets Tst. 1.07p

Brown (N) 1.95p

Browning-Ferris Inds. Dollars 0.17

Centex Corp. Dollars 0.05

Cradley Group 1.05p

Friendly Hotels 2.2p

Furukawa 5.55% Nts. 2000 Y138750

Guaranteed Export Fin. Corp. 9 3/4 % Gtd. Ln. 2010 Pounds 487.5

Heath (C. E) 5p

Hicking Pentecost 1.35p

Queens Moat Houses 7% Cnv. Red. Prf. 3.5p

Reckitt & Colman 5.95p

River & Mercantile Tst. 2.25p

Sainsbury (J) 10 7/8 % Nts. 1993 Pounds 543.75

Sapporo Breweries 5.9% Bds. 2003 Y155694

Scottish Natl. Tst. 3.05p

Stoddard Sekers Intl. 0.75p

Wardle Storeys 12p

Waste Management Dollars 0.13

Westbury 1.75p

FRIDAY JANUARY 8

Albert Fisher 1.9p

Armour Tst. 1.1735p

Ben Bailey Const. 0.25p

Barclays Bank Und. Fltg. Rate Prim. Cap Nts. Dollars 201.25

Bridgend 0.2p

Bridon 1.25p

Burmah Castrol 8.75p

City Merchants High Yield 1.3p

Eleco 1p

EMAP 2.075p

General Motors Acceptance Corp. 9 3/4 % Nts. 1993 Dollars 487.5

Inter-American Dev. Bank 12 1/2 % Ln. 2003 Pounds 6.25

Jessups 3p

Jos Hldgs. 2.875p

Macdonald Martin Dists A 2.2p

Do. B 1.1p

Majedie Invs. 7p

Mansfield Brewery 4.4p

Metropolitan Est. & Prop. Intl. NV Fltg. Rate Gtd. Nts. 1995 Y233194

M & G 2nd Dual Tst. 13.19

Mid-States 0.75p

NKK Corp. 7% Nts. 1997 Y696111

Powell Duffryn 6.6p

Premark Intl. Dollars 0.25

Reed Intl. 5.5p

Schlumberger Dollars 0.3

Takashimaya 5.6% Bds. 2001 Y140

Time Prods. 2.75p

Warburg (SG) Capital BV Fltg. Rate Nts. 2006 Dollars 201.25

Whitbread Inv. 4.6p

Whitbread A 4.75p

Do. B 4.75p

Wilkes (James) 3.25p

SATURDAY JANUARY 9

Eksportfinans AS 10% Nts. 1996 Dollars 500

JANUARY

Europe:

Start of single European market and European Free Trade Area

Denmark takes over EC presidency

Czechoslovakia splits

Reed/Elsevier merger comes into effect

EC directive on freedom of access to environmental information comes into effect.

EC adopts regulation granting up to five years' extra patent protection for drugs.

Portugal lifts all remaining controls on capital movements

Presidential elections in Cyprus

First full session of European Parliament of 1993 (18-22)

German Green Party annual congress (16-17)

International:

Association of South East Asian Nations cut internal tariffs in first step towards Asean free trade area.

Inauguration of the fourth republic, Ghana (7)

Burmese junta holds constitutional convention (9th)

Bangladesh likely to host two-day South Asian Association for Regional Cooperation (SAARC) summit (9-14) (religious violence in Indian subcontinent forced summit due on Dec 12-13 to be postponed).

President Clinton inaugurated (20).

Elections in Aruba, Niger and Monaco

Second round Congo's parliamentary elections

Inauguration of national defence and security council and civilian-led transition council designed to lead Nigeria to civilian rule on August 27.

Start of Ramadan (23)

Chinese New Year (24)

International Coffee Organisation reconvenes in last-ditch bid to get an accord (25).

UK:

Commons discussion of the Maastricht bill resumes (13)

Last complete monthly UK trade and current account figures until June or July.

Construction of Jubilee line due to start

New ITV franchises on air

Select committee on trade and industry publishes coal report

London boat show (7-17)

Public consultation period on British Nuclear Fuel's Thorp plant at Sellafield ends (11)

The final Guinness trial, of American lawyer Mr Thomas Ward, on theft and false accounting charges, expected to start (11)

Sports:

Rugby Union - England v France, Scotland v Ireland (16)

US Football Superbowl (31st)

Cricket - India v England test series starts, Calcutta (29)

FEBRUARY

Europe:

Presidential elections in Lithuania (14)

International:

World economic forum, Davos

Opec meeting, Vienna (13)

Elections in Cyprus, Senegal, Tonga and Solomon Islands

Organisation of African Unity Council of Ministers

Graf3 12/14 Feb

meets, Ethiopia

Presidential inauguration, Republic of Korea (25th)

UK:

Government white paper on coal due to be published

Sports:

Rugby Union - Wales v England, France v Scotland (6)

Rugby Union - Ireland v France, Scotland v Wales (20)

Formula One - South African Grand Prix

MARCH

Europe:

Two rounds of parliamentary elections in France (21, 28)

CSCE Economic Forum, Prague

International:

US administration's 'fast track' authority to win congressional approval of Gatt deal expires (1st)

UN peace talks on Cyprus due to resume

Presidential and vice-presidential elections in Indonesia

InterAmerican Development Bank annual meeting, Hamburg (29-31)

UK:

Last of the traditional UK revenue raising Spring budgets.

Two former directors of Nissan UK due to stand trial on corporation tax fraud charges

Asil Nadir, former chairman of Polly Peck International, faces theft and false accounting charges at the Old Bailey

Sports:

Rugby Union:

Wales v Ireland,

England v Scotland (6)

Rugby Union:

France v Wales,

Ireland v England (20)

University Boat Race (27)

Formula One - Brazilian Grand Prix

Cricket - Sri Lanka v England test match, Colombo (13-18)

APRIL

Europe:

Annual meeting of European Bank for Reconstruction and Development in London (25-26)

Referendum on Russia's new constitution (11)

International:

Spring meetings of International Monetary Fund and World Bank in Washington, including IMF policy making Interim Committee. (29-May 1)

Sino British Joint Liaison Committee meets, Hong Kong

Elections in Kenya, Cameroon, Yemen and Iraq

UK:

Responsibility for old and disabled shifted to local authorities

Council tax comes into effect

National tests for 14-year-olds

Sports:

Baseball season opens

The Grand National

Golf - US Masters (8-11)

London marathon

Formula One - San Marino Grand Prix; Asian Grand Prix, Japan

MAY

Europe:

Second Danish referendum on Maastricht treaty expected

Cannes film festival

MAY

International:

Elections in Bolivia and Cambodia (UN supervised)

Paraguay presidential election

Asian Development Bank annual meeting, Manila

UK:

Local elections

Sports:

Soccer - UK FA cup final, Wembley (15)

Tennis - French Open (25)

Soccer - European Cup Final (26)

East Asian Games, Shanghai

Formula One - Spanish and Monaco Grand Prix

Badminton horse trials (6-9)

JUNE

Europe:

EC heads summit, Copenhagen

International:

UN conference on human rights, Vienna

Annual ministerial meeting of Organisation for Economic Cooperation and Development (OECD) in Paris (2-3)

International Monetary Conference (US bankers' meeting) in Stockholm (6-9).

Annual meeting of Bank for International Settlements in Basle (12-14).

Opec meeting, Vienna (8)

Nato foreign ministers meet, Athens.

Arthur Dunkel steps down as head of GATT

International Whaling Commission annual meeting. Norway will have started commercial whaling by then.

Paris air show

Last opportunity for Australian general election

Organisation of African Unity heads of state summit, Cairo

Presidential election in Bolivia

UK:

Robin Leigh-Pemberton retires from Bank of England

Chancellor's Mansion House speech on monetary policy (brought forward from October in to avoid clash with pre-Budget purdah) (15).

Central Statistical Office publishes first UK current account estimates for first quarter.

Birthday Honours (12)

Sports:

The Derby, Epsom (2)

Royal Ascot (15-18)

Tennis - Wimbledon (21)

Henley regatta (30-July 4)

England v Australia cricket test series starts (3)

JULY

Europe:

Belgium takes over EC presidency

International:

Elections for lower house of Japanese Diet

Group of Seven economic summit meeting, Tokyo (7-9)

Asean foreign ministers meet, Singapore

Presidential elections in Iran

Caribbean Economic Community summit

UK:

New Bank of England governor takes office (1)

Publication of UK monthly trade figures expected to resume.

Royal Commission on criminal justice due to make its final report

Monopolies and Mergers Commission inquiry into British Gas due to end

UK's three largest public service unions merge to form new union, Unison.

London promenade concert season (16-September 11)

Welsh National Eisteddfod, Builth Wells

Sports:

Tour de France (3-25).

Wimbledon Men's Final (4)

Golf - British Open, Royal St George's

Formula One

- British and German

Grand Prix

AUGUST

Europe:

Russian troops withdraw from Lithuania

International:

Election in Paraguay

Nigerian transition to civilian rule due to be completed (27)

UK:

Edinburgh International Festival (15-Sept 4)

Sports:

Golf - US PGA

Tennis - US Open starts, Flushing Meadow

Formula One - Belgian and Hungarian Grand Prix

SEPTEMBER

Europe:

Schlesinger steps down as head of Bundesbank. Tietmeyer takes over

Elections in Netherlands

Last date for elections in Norway

Frankfurt Motor Show

Germany's ruling Christian Democrats annual party congress (12-14)

International:

UN general assembly

Annual meeting of World Bank and IMF board of governors, Washington (28-30)

Opec oil ministers meet

Japanese Prime Minister Kiichi Miyazawa's term of office ends

Nobel prize for literature winner announced

Host city for Olympic Games 2000 chosen

Francophone heads of government summit

International Summit of non-governmental environmental organisations to take Earth Summit principles forward, Manchester

Jewish new year (16)

UK:

Roger Levitt, chairman of the collapsed Levitt Group, together with three other Levitt Group executives, to be tried on fraud charges

John Morgan, chief executive of Imro, due to retire

TUC (6-10, Brighton), Liberal Democrat (19-23, Torquay) and Labour Party (26-1 October, Brighton) conferences

Sports:

Golf - Ryder Cup: Europe v USA

Formula One - Italian and Portuguese Grand Prix

OCTOBER

Europe:

Last opportunity for general election in Spain

Frankfurt book fair

International:

Nobel prize winners announced

Last opportunity for general election in New Zealand

Latin American presidential summit, Chile

UK:

Conservative Party conference (5-8, Blackpool)

Sports:

Baseball - World Series

Formula One - Japanese Grand Prix

NOVEMBER

Europe:

EC-USA summit expected

International:

Opec oil ministers meet in Vienna

G15 developing countries summit

Election in Honduras

Last opportunity for elections in Canada

US municipal elections

UK:

CBI conference

City of London Lord Mayor's Day (13)

Sports:

New York Marathon

Formula One - Australian Grand Prix

DECEMBER

Europe:

EC heads of government summit, Brussels

CSCE foreign ministers meet

Channel Tunnel due to open

International:

Annual summit of Gulf Cooperation Council alliance, Bahrain

Presidential and congressional elections in Chile and Venezuela

North Sea Conference on Marine Environment to regulate sea pollution

Summit of the South Asian Association for Regional Co-operation

From tomorrow, the North American Free Trade Area goes into operation

UK:

First of unified UK budgets, including public spending and revenue raising plans.

UK plans to have ratified both treaties agreed at the Rio Earth Summit - Climate Change Convention and the Biodiversity Convention - by end 1993.

ITV companies can be taken over via the stock exchange.

Sports:

Varsity rugby match

Chinese astrological years occur every twelfth year.

Roosters are said to be natural leaders, impatient, protective, creative, talented and do not like being bossed around.

Hong Kong astrologer Paul Lam says that 1993 will be better than 1992. The US economy will prosper. China and Britain will mend their fences. The colony's markets will prosper. European markets will remain volatile. But don't bet on it.

After 12 months of setback and disappointment, most people in the industrialised world will be hoping that 1993 will be a year of economic recovery and prosperity after slowdown and recession in 1991 and 1992.

Many millions more outside that relatively small group of most favoured nations will have their sights set lower - on mere survival and an end to conflict.

The new year begins with some favourable aspects. With luck, the start of the European single market and the inauguration of president Bill Clinton later this month may boost business confidence in Europe and the US and so help restore growth.

But the uncertainties are daunting and cover the globe. Many industrial countries are still shackled by high real interest rates. Further tensions are likely in the European exchange rate mechanism, threatening the EC's ambitious plans for economic and monetary union. Germany, supposedly Europe's economic powerhouse, has difficulty finding the right mix of budget and wages policy to tame inflation. Japan is held back by debt deflation. Constitutional problems beset Canada.

Little wonder, therefore, that late in 1992 the International Monetary Fund revised down its forecast for industrial country growth this year to 2 per cent from the 3 per cent forecast less than three months before. Such growth will not stop further increases in unemployment.

Problems abound elsewhere. 1993 will see a continued struggle to bring economic reform to Russia and the other republics of the former Soviet Union. But eastern Europe's experience since communism's collapse holds out little hope that victory for reform will swiftly bring prosperity. Large parts of Africa face further economic decline. It is unlikely that harrowing pictures of famine will be banished from the television screens of the developed world. Where prosperity beckons, as in China, political freedoms often remain chained.

Yet there are glimmers of hope. A rush of upbeat statistics and confidence indicators at the end of last year could signal a clear recovery phase for the US economy after many false dawns. The UK, now freed of the need to hold its interest rates at German levels, stands a good chance of escaping from its longest recession since the second world war. But both countries will need strong political leadership if they are to reduce their swollen budget deficits and make recovery a prospect for the long term.

The world will still face difficulties adjusting to the end of the cold war: both the industrialised democracies and the former communist powers have yet to convert their military-industrial complexes to peaceful uses. But local wars apart, the globe is becoming a safer place.

Nuclear disarmament continues apace. Elections will be frequent in 1993, testifying to the strength of democracy and its growing importance in the third world. If the IMF is to be believed, developing countries as a whole will grow by a creditable 5.75 per cent, largely because some countries, notably in Latin America, have adopted the free market policies and principles that their industrialised competitors are spurning at their peril.

But this year, like 1991 and 1992, will be one in which world leaders find they are at the mercy of unpredictable developments. In so far as foreseeable events affect their lives and ours, the important ones are listed below.

HE IS fed up. As chairman of National Breakdown, a British roadside recovery company, Ernest Smith does not doubt the wisdom of expanding on the Continent. But he is sick of the paperwork - and executive time is money.

He calculated it would cost Pounds 4m to Pounds 5m over four years to build a continental operation. With more than Pounds 2.5m already spent, he thinks the figure will be nearer Pounds 7m.

So far his company's continental venture, Green Flag, has recruited 6,500 independent garages to provide repair and recovery services and his biggest headache during the two weeks a month he spends at Green Flag's Strasbourg headquarters is VAT.

'Suppose a German-owned truck breaks down in Italy, the Italian garage charges VAT to us in France. The Italian authorities have said we can claim it back - but they have also told us they will never pay. We, however, have to charge VAT to the German truck owner, which he pays in France and reclaims in Germany. But there are different VAT rates all over Europe and, sometimes, several in the same country.

'It's an absolute bureaucratic nightmare and far worse than anything I expected. It's taking up half my time.

'The only advantage I can see so far is that I can bring back 100 bottles of wine every time I fly home to Leeds.'

SALMON RUN

ONE IS 29, Belgian, speaks several languages and moved to Shetland four years ago. The other is French and has lived on the island for a year. Now, from a telesales room overlooking Lerwick harbour, Marijke Stallaert and Alix Cailleaux are helping to mastermind Scotland's penetration of the continental market for salmon.

They work for Framgord, which markets about half the 10,000 tonnes of salmon produced in Shetland each year and language skills make them vital to the export operation.

They find buyers, agree prices and organise the transport of Shetland salmon to wholesalers and smokeries in France, Spain, Belgium, the Netherlands, Italy and elsewhere. In France, for instance, the words saumon ecossais and saumon fume ecossais are becoming common on restaurant menus.

FASHION FOLLOWING

'THE abolition of European border controls is a blessing,' says Achille Maramotti, founder of Italy's Max Mara fashion group.

Lorry-loads of merchandise will no longer get stuck at national borders for customs clearance.

Swift and reliable delivery is essential for a company which sells in more than 40 countries, and operates in a sector where missed photo calls at fashion shows can turn into missed contracts.

Nearly 40 per cent of its turnover goes abroad. Max Mara already produces clothes in the same sizes for all EC countries and so is ready for harmonised standards.

AS THE midnight bells tolled on December 31, the pharmaceuticals industry found little to celebrate in the creation of a European single market.

In few other industries has the promise of a single market been so poorly rewarded. The important changes sought by the industry, such as a single licensing authority or uniform prices throughout the EC, have not yet been addressed.

Admittedly, by some legal quirk, a directive on pharmaceuticals patents came into force, extending patents to compensate for the difficult and costly regulatory hurdles facing medicines. But the measure will affect only a handful of products each year. And since the extensions only come into force at the end of the drugs' patent-lives, pharmaceuticals groups will only start benefiting in the next century.

The EC has been forced, at least for the time being, to sacrifice its ambitions for the harmonisation of drugs prices on the rock of subsidiarity.

At present, prices are set individually by national governments. Every health ministry in the EC is desperate to control its spending on drugs. Some - such as the UK - do so by allowing relatively high prices but controlling volume, while others control costs by keeping prices low.

This means that in countries such as Portugal, France and Spain, prices are often half those in Denmark, Germany and the Netherlands.

The result is that best-selling drugs, such as Glaxo's anti-ulcer treatment Zantac, are exported from the UK to Greece, for example, and can then be imported back again.

Sir Leon Brittan, the out-going commissioner responsible for competition, reckons this is a nonsense.

'With such disparate forms of pricing regulation, markets remain resolutely national and consumers are not able to reap the benefits of a free market,' he says.

However, last monthSir Leon admitted that plans to harmonise prices had had to be shelved. Few countries were willing to let the EC decide how much drugs should cost. If prices were set too high, health ministries could see their drugs budgets spiralling out of control. If too low, others could see their pharmaceuticals groups suffering.

MR SILVIO Berlusconi is a media, supermarkets and property millionaire. He also loves football. His ownership of Europe's dominant football club, AC Milan, through his family holding company Fininvest, satisfies both needs.

Soccer is one television product that transcends Europe's national and linguistic boundaries and Mr Berlusconi uses AC Milan to feed other interests in his media empire.

The club has provided him with a lever which he has applied to win greater audience shares for his Italian television stations. He successfully lobbied UEFA, European football's governing body, to redesign the European Cup tournament along lines which not only increase Milan's chances of winning, but also maximise the number of matches - and hence income - for both the club and the television stations.

The expansion of Mr Berlusconi's television empire into other European countries makes more sense if he can find broadcasting material that straddles these markets: soccer is perfect for that.

'I am not just a television financier. I create television - or at least I try to,' he says.

Through Fininvest, which bought AC Milan in 1986, he has lavished a fortune on the club. Since then it has won the Italian league championship four times and the European Cup twice.

He transformed the debt-laden club with a huge injection of cash and astute changes of coaching staff. He did not just want to win. He decreed that 'lovely football' should be played, a sentiment bound to endear him to fans from the touchline to the armchair.

This year he introduced pay-television on his sports channel Tele-Plus 2. Subscriptions cost Pounds 75 a month and the fare has included the Wimbledon tennis tournament and the British Formula 1 Grand Prix. As Milan's owner, he controls television rights to all their non-league matches. The European Cup games are broadcast on his RTI network, some friendlies are on Canal Plus 2.

In the European Cup, the old knock-out contest has given way to a group system for the last eight. Even if Milan does not reach the final, it will have played 10 glamorous matches - and Mr Berlusconi's television station had first refusal on all of them.

All this football puts a strain on players. To ensure that it has the best, not only on the field but in reserve too, Milan has spent a fortune. In 1987 it paid a then world record Pounds 5.7m for Ruud Gullit. It rapidly added two more Dutch stars, Marco Van Basten and Frank Rijkaard. These players led Milan to the Italian championship in 1988 and the European Cup in 1989 and 1990.

Far from resting on its laurels, Milan has upped its spending. Estimates of last summer's spree vary enormously. No one at Milan is likely to object to exaggeration, especially if it shows Mr Berlusconi exhibiting more financial machismo than his great rival Mr Gianni Agnelli, the Fiat boss and owner of Juventus of Turin.

The sums talked about are between Pounds 9m and Pounds 13m for Gianluigi Lentini - the higher figure would make him the world's costliest player; between Pounds 5.5m and Pounds 9m for Jean-Pierre Papin, the 1991 European player of the year; at least Pounds 4.5m for the Croat Dejan Savicevic; Pounds 5.5m for Stefano Eranio; Pounds 3m for Fernado De Napoli. Whatever the real figures, they tot up to more than any other club in the world has spent, outstripping not only Juventus but also the Spanish plutocrats Barcelona.

Then there are the salaries. Traditional caginess reaches its zenith in Italy, where accurate figures are especially not given to the tax man. Some estimates put Lentini's signing-on bonus at about Pounds 2.5m and his guaranteed salary at Pounds 7.5m over four years. He could add substantially to that. Milan paid its players bonuses of Pounds 170,000 each for winning the Italian championship. They will get more if they win the European Cup.

The club has substantial revenues. It plays in the 82,000 capacity San Siro stadium which it shares with Inter Milan. It has 73,000 season ticket holders who pay between Pounds 95 and Pounds 950. Tickets for individual matches cost between Pounds 12 and Pounds 105 and average gates are between 78,000 and 80,000. It earns about Pounds 1.5m a year from its sponsors Motta. Further income comes from perimeter advertising and kit suppliers, as well as from television contracts.

In order to keep delivering success while playing more matches, Mr Berlusconi has talked of having enough players for two teams: Milan I and Milan II. 'We intend to play twice a week - some 80 to 90 matches in the national league competitions, the European Cup, plus lucrative friendly matches which will be beamed live on TV.'

His idea of keeping fans glued to their sets has a single-market flavour. 'I look forward to a Europe where AC Milan supporters would be found in Reykavik as well as St Petersburg. They would be able to watch their favourite team's matches at the switch of a TV set, alongside the supporters of, say, Marseilles, Real Madrid or Tottenham Hotspur.'

AC Milan, seen in the stripes entering the San Siro stadium with opponents Ancona, is an international team. It has signed six foreigners - from the Netherlands, France, Croatia and Serbia - even though it is allowed to field only three in competitive fixtures.

According to Mr Silvio Berlusconi, who controls the club: 'Restrictions affecting the hiring of talent outside home nations are outdated and should be dropped. More should be done to organise Europe-wide tournaments in which the best teams would compete against one another regularly.'

This would help Milan to exploit its far-flung fan club, which has 1,460 branches all over the world: six in Belgium, five in Australia and four each in Russia and Venezuela. The network extends to Iraq, Indonesia and the US.

EUROPE'S two largest trailer and truck rental companies have a double vision of the single market.

Central Trailer Rentco, a subsidiary of Tiphook, the British transport group, has visions of a unitary Europe, where its trailers can be picked up or dropped off in any country to suit customer needs.

TIP Europe, another British company, sees Europe as a collection of separate markets which must be addressed individually.

The difference in outlook stems mainly from each company's customer base.

CTR serves a few large transport groups, such as Frans Maas, while TIP works with smaller, local customers in 10 separate countries.

Despite their alternative strategies, both companies agree that the Single European Act has removed some important barriers. Equally, they say problems remain which could take years to solve.

'We will see steady progress,' says Mr Robert Montague, chairman of Tiphook. 'But I think it's going to take at least five years for us materially to see the change.'

Trailer rental is most developed in the UK, where there is more of a tendency for companies to contract out distribution and less inclination to own trucks. About 15 per cent of trailers in the UK are owned by trailer rental companies, compared with less than 10 per cent in Germany.

Road haulage permits, which were needed to cross some national boundaries, were abolished on January 1. Vehicles no longer require customs documentation for their loads, which in turn no longer need to be bonded. This should save time and paperwork for trailers making cross border journeys.

However, the benefits will only be fully felt if vehicles are making return journeys to their place of origin.

Because of a number of structural problems, the free movement of vehicles remains elusive. Once a border has been crossed, it will still be difficult, or sometimes impossible, for vehicles to make onward journeys after unloading. French hauliers, for instance, find it very hard to transport goods between two points in Germany.

This restriction on hauliers operating in countries other than their own is imposed by a system of cabotage permits. It is one of the reasons why trailers are empty for about 30 per cent of journeys.

Cabotage is due to be phased out over the next five years, although some observers say it will take longer. Even when it is abolished, other factors will prevent the truly free movement of vehicles.

For example, vehicles have to be registered with national licensing authorities, each of which imposes different requirements. Some countries, such as Germany and Denmark, require a vehicle's brakes to be tested twice a year. This means the trucks returning to their place of registration - often at great cost - for the tests. Only two countries, Belgium and the Netherlands, recognise each other's annual road worthiness tests.

Mr Grant Findlay, finance director of TIP, says the registration problem is holding back cross-border rentals.

'If we have surplus fleet in the UK, it is very difficult to move them to Germany, for example, if we have demand there. Because of these differences between the countries, we still prefer to look at them as separate territories.'

Price differentials also exist between markets. Germany's preference for heavy loads to be carried by rail rather than road has led to average road taxes for articulated lorries being almost twice levels in the UK.

UK rental rates are 30 per cent below continental rates, partly because of competition and partly because UK fleets tend to be older.

These remaining barriers within the EC could take years to erase. In the US, similar problems have only recently been ironed out - 10 years after deregulation.

A unified market of 344m people is now within reach of European business. What are chief executives' main hopes and fears about this milestone in European integration? What has been the impact of recent exchange rate unrest? What government measures do business people favour to help stimulate the European economy? Do companies still see the necessity for a single European currency? Is the Maastricht treaty - the focus of so much controversy in 1992 - still relevant? The FT asked 18 heads of European companies, including offshoots of US and Japanese groups, to give their views.

Sir Denys Henderson, ICI (chemicals, UK):

'The single market will create a larger, more dynamic, integrated and faster growing market. We will use the opportunity to increase efficiency and lower costs. The greater scale of operations will give European companies a competitive advantage.

'Rapid Gatt agreement is the most important action to improve the business climate. The EC also needs to agree lower interest rates.

'There is a strong practical link between the Maastricht treaty and prospects for the single market. British companies risk being left behind if there is a two-speed Europe.

'The goal of a single currency remains critical to Europe's competitiveness. Recent exchange rate volatility has complicated trading, but I welcome the current more realistic sterling rate, as the pound was clearly overvalued when it entered the ERM.'

Sixto Jimenez, Viscofan (cellulose casings, Spain).

'Anything that opens borders and markets is good. Not having to suffer customs checks and, one day, being able to enjoy a single currency and a single banking system will make us stronger and more efficient. The richness and cultural variety of Europe will keep markets diversified.

'If there is any common sense among Europeans, monetary union will prevail. The political elite in Europe must show leadership. If not, short-term niggardliness will block progress, and Europe will become a club of proud 'old glories', losing ground to the US, Japan and Asia.'

Pieter Bouw, KLM (airline, Netherlands):

'Airlines like KLM can now establish a genuine European market with the whole of Europe as its home base. More competition will benefit the customer.

'Although liberalisation offers great opportunities, we should not underestimate the physical, financial and fiscal constraints. We must ensure that national deregulation is not superseded by fresh Community regulations.

'The EC should set limits to state aid. It is not only contrary to the treaty, but damages the whole idea of the free internal market.'

Peppino Fumagalli, Candy (white goods, Italy):

'The single market will boost technological innovation and allow more efficient distribution. We have created a special company for after-sales service, operating across Europe. Over half our top managers are non-Italian. In 1992, Candy launched its first European advertising campaign with an investment of L150bn.

'For the household appliances sector, the single market will spur management integration and product standardisation. Appliances like clothes driers, now mainly produced for export, will become more commonplace in Italy.

'We have to recognise that, for Italy to be competitive, it must meet European standards for transport, communications, the civil service, education, taxation, flexible work practices and research.'

Gerard van Schaik, Heineken (drinks, Netherlands):

'We aim eventually to pitch our main brands - Heineken, Amstel and Buckler - at the market as a whole, rather than operating differently in different countries.

'We believe the EMS will evolve into Emu, because over the long term this is in the interest of national economies. The EC should fight the tendency for regional or traditional products to be given protection within the Community.'

Jack Schmuckli, Sony Europe, (electronics, Japan):

'Tax administrations are not ready for the 1993 initiative since the temporary VAT system, which the Commission will enforce by 1997, will not be able to cope with the changes within four years. This will cause great inconvenience for global companies operating in Europe.

'The Maastricht treaty demonstrates the national authorities' willingness to see Europe as a single entity - in line with Sony's business policy.'

Pierre Suard, Alcatel Alsthom (engineering, France):

'Because European markets remain heterogeneous, European companies are subject to an extra R&D and manufacturing charge of at least 10 per cent compared with our main competitors in North America and Japan, which enjoy a harmonised domestic market. Reducing this gap would be a major contribution.

'The most positive aspect of the Maastricht treaty was the prospect of economic and monetary union (Emu). Otherwise, the treaty does not give the Community the political power to carry out a balanced dialogue with those two regions.

'The most important action the EC should take is to shift from idealism to realism, for instance, by setting up an industrial strategy paralleling those of the US and Japan.'

Daniel Janssen, Solvay (chemicals, Belgium):

'The single market coincides with recession, when Europe lacks competitiveness vis-a-vis the US as a result of the high value of the D-Mark. So we will see a lot of restructuring and closures. We will emerge from all this with greater productivity and lower prices.

'Everyone talks about deregulation, but in environmental policy we see regulation. It is absurd that France has decided to block the import of waste. One man's waste is another man's raw material.

'For eastern Europe, the common market is their only hope. We must proceed step by step to extend links with these countries. By 2005, the EC could have 25 members. In the meantime, competition from eastern Europe is a serious problem in both steel and chemicals.'

Jose Dedeurwaerder, Interbrew (drinks, Belgium):

'Anything which produces fewer barriers to business is welcome. There will be an increasing tendency for business to concentrate and rationalise activities.

'EC member governments must focus on producing currency stability, on improving communication, and on closing the gap between themselves and individual businesses and citizens.'

Sir Owen Green, BTR (industrial conglomerate, UK):

'The most important action for EC governments would be to achieve lower interest rates in 1993. The EC should urge the German government and the Bundesbank to agree and publish a common policy for their post-unification economy.

'The Maastricht treaty does not appear very relevant to us - but then, we are only businessmen. We do not think the EMS structure will 'evolve'. Rather, it may 'revolve' - by going round in circles and not getting anywhere.'

Heinrich von Pierer, Siemens (engineering, Germany):

'We anticipate a major milestone when new guidelines take effect in the previously exempted sectors of transport, telecommunications and power generation. This will improve our chance of winning orders in other EC countries.

'Competitors from outside the Community will also play a major role. Therefore, European companies should be given reciprocal access to important non-EC markets.

'We welcome, in particular, that the Maastricht treaty does not support direct industrial subsidies and measures that could distort competition.

'By hedging currency dealings, Siemens was able to avoid larger losses from recent devaluations. Hedging costs, however, have reduced our earnings.'

Martin Kallen, Monsanto Europe (chemicals, US):

'We have already benefited by improving our cash management across member states, and in logistics. We can now ship chemicals from Wales to Italy in an enormously less complicated way.

'The Maastricht treaty brings no specific cost benefit for businesses, therefore it has been less enthusiastically greeted. The Maastricht timetable is, however, exaggeratedly ambitious compared with the pace of economic convergence. We will get to Emu, but not this century.

'We see an undesirable shift in the European regulatory process towards categorising new products as harmful unless they are proved risk-free, regardless of their benefits. This inhibits progress. Already, for instance, biotechnology research is growing several times faster in the US and Japan than in Europe.'

Jacques Raiman, GSI (computer services, France):

We stand to benefit from any change in EC legislation which obliges our clients to change their software and service requirements, such as on payroll packages.

'The important thing for unregulated sectors like ours is that entrepreneurs should be free to live and breathe. If there is one thing we fear from the Europe of the future, it is the weight of national and European bureaucracies.'

Loraine Krell, Replica Food (food displays, UK):

'The single market will allow us to offer the smaller foreign customer the same service as we offer to the domestic market. It will be as simple for us to send items to Milan as to Edinburgh. We will benefit from a reduced lead time for our own purchases - allowing us to reduce stock levels and improve cash flows.

'The most important step governments could take to improve the business climate would be to conclude and implement a Gatt deal.'

Poul Svanholm, Carlsberg (drinks, Denmark):

'We believe the single market will lead to higher living standards, and so benefit producers like ourselves.

'Currency instability is an irritant. The Danish krone's appreciation has reduced our foreign earnings. In spite of Denmark's reservations about Maastricht, I hope the EMS will eventually develop into Emu, and Denmark will be a full member.'

Gerry Murphy, Greencore (food, Ireland):

'Since there is already free trade within the Common Agricultural Policy, the single market will not have any immediate direct impact on our business. However, the market is creating greater awareness of markets for products in other member states.

'Financial transfers to the poorer states are essential to correct regional imbalances.'

Fabiano Fabiani, Finmeccanica (engineering, Italy):

'We have been preparing for this new phase through rationalisation, acquisitions and technological collaboration with other groups.

'Finmeccanica favours the broad lines of monetary union since this provides a framework for currency stability. This is preferable to competitive devaluations. It also forces the politicians and trades unions to overcome the idea of easy deficit spending.'

Sir David Lees, GKN (engineering, UK):

'The single market will spur trade and competition. This will benefit consumers, but place an increasing premium on companies being 'the best'.

'There will be still greater emphasis on investment in plant and equipment, product development and training. Get this right, and the single market offers much more opportunity than threat.

'The two actions which would best improve the business outlook are success in the Gatt round and a cut in German interest rates.

'A return to currency stability, whether or not through the EMS, is highly desirable. What matters is steady progress towards European economic convergence.'

A NEW wave of corporate activity could be about to break as companies face up to the competitive pressures of the single market.

The removal of trade barriers coincides with a trend for recession-hit groups to define their core activities more rigorously. Companies looking to make acquisitions may well find opportunities among the non-core divisions put up for sale by debt-laden concerns.

The recessions spreading across Europe have helped to bring down the prices of target companies to more affordable levels. Lower interest rates are increasing the attraction of debt-financed deals, although banks have become more selective in their lending.

This will lead to a greater emphasis being placed on the industrial logic of an acquisition. To limit the cash outlay, deals may well take the form of mergers or joint ventures.

Mr Mark Nicholls, a director at SG Warburg, says: 'The UK might be a beneficiary if there were a new wave of buying by companies based in countries with harder currencies.' The relatively low ratings of some quality UK companies and the country's recovery prospects increases the attraction.

The single market was already a force behind mergers and acquisitions in the late 1980s.

Figures from the M&A database of KPMG Peat Marwick, the accountancy firm, show that cross-border deals involving EC companies from 1988 to 1992 peaked in 1989 at Dollars 53.5bn, before slipping to less than half that level in 1991. Preliminary figures for last year show activity recovering to Dollars 41bn.

Financial services saw the largest amount of money changing hands, with deals adding up to Dollars 32bn over the five years.

Hongkong & Shanghai's purchase of Midland Bank represented the largest cross-border acquisition in this category. However, in this case, 1997 was probably a more important date than 1992.

Food, drink and tobacco was the second busiest sector with deals worth Dollars 28bn, while the electrical and electronics sector totted up Dollars 20bn.

However, 'you have to be careful about ascribing deals to one motivation,' says Mr Guy Dawson, head of corporate finance at Morgan Grenfell. 'There has been a significant move towards cross-border expansion in Europe that would have taken place irrespective of the single market.'

Nor will its advent cure all problems with mergers. Mr Douglas Brown, a director at Baring Brothers, says: 'There is some opportunity for more M&A activity, but as an industry becomes more consolidated the opportunity for competition problems to emerge increases.'

BESNIER, the acquisitive French cheese group, has been building a stake in Bel, the maker of one of France's best known soft cheeses, fuelling speculation that it might eventually try to take control of the company.

The French cheese industry is in the throes of restructuring chiefly due to the expansion of Besnier, a family firm led by Mr Michel Besnier which recently bought les Caves de Roquefort after the Perrier takeover saga, and Bongrain, its chief competitor.

These companies have been steadily increasing their interests by buying up the smaller cheese makers that are finding it increasingly difficult to compete in the European market, now dominated by multinational groups, notably Nestle and the hypermarket groups.

Besnier, which now makes annualised sales of FFr22bn (Dollars 4bn), disclosed this week that it has bought 8.1 per cent of Bel including 5 per cent of the voting stock. Bel is a publicly quoted company but controlled by the Fievet family. However Mr Robert Fievet, chairman, is 84. Rumours of his retirement have fuelled speculation about the future ownership of Bel.

CROSS-Channel ferry operators, notably Stena Sealink, are already carrying extra travellers eager to buy cheap drink in France, writes Stuart Marshall. From yesterday, weight and space are the only practical limits on what a motorist can bring back, local duty paid, from France.

No longer will you have to trouble your conscience by tucking an illicit extra bottle under the seat. Customs' guidelines allow for 90 litres of wine, 10 litres of spirits, and 110 litres of beer. All you need do is convince them you are going to drink it all yourself.

Even duty-free allowances are to be doubled - you can bring in what you buy on both outward and return voyages. The pity is that with Ffr8 to the pound, not Ffr10, hypermarket wines are not the bargains they were. But lager (under Pounds 5 for two dozen 25cl bottles) is still cheap.

Stena Sealink, which offers day trip fares starting from Pounds 70 return for a car with five people, is featuring the Champagne-Ardennes region in its 1993 short break programme. Two nights' bed and breakfast in Reims will be about Pounds 80 a person in a two-star hotel and Pounds 120 for a four-star relais du silence, ferry crossings included.

For a small supplement, visits to champagne cellars, with a tasting, are included. Reims is a relaxed 2 1/2 -hour (and Ffr170) drive on the uncrowded A26 autoroute starting in Calais docks.

Edmund Penning-Rowsell writes: In Alice King's book A Bootful of Wine (Mandarin/Mitchell Beazley, Pounds 4.99, 192 pages) the wine-buying operation is planned in detail. Be sure to work out the car's payload and capacity, and how to pack the wine. A VW Golf hatchback with the back seat down takes 20 cases, a Ford Sierra 10 in the boot.

King lists and describes 230 wines likely to be found in French supermarkets and provides recommended growers' names to be found on the label.

Biggest savings are on sparkling wines: Pounds 1.83 a bottle on duty and VAT, compared with Pounds 1.11 table wines. Each wine listed is given the grape variety, its phonetic spelling and price band: inexpensive below Ffr20, medium-priced Ffr20-70 and expensive more than Ffr70. Buyers at cellars in wine districts must ensure that the green capsule conge is on the bottle top, as this alone shows that TVA (VAT) has been paid.

When the curtains swung to a close at the end of Messiaen's St Francis of Assisi at the Opera Bastille in Paris on Tuesday, it marked the end of a traumatic year at France's lavish new opera house.

The trouble started this summer when a set collapsed during a touring production of Otello in Seville, killing one singer and injuring 36 others. The tragedy aggravated the tension among the Bastille management. Mr Philippe Belaval resigned as chief executive in August, together with six senior colleagues. Then there was a furore over the new contract of his former foe, Mr Myung-Whun Chung, now one of the highest-paid artistic directors in international opera.

The new management is beginning a critical year: it must heal the scars of Seville and establish the Bastille as a centre of excellence in international opera. It may also confront a less sympathetic political climate if, as the opinion polls suggest, the ruling Socialists, who founded the Opera Bastille, lose the March general elections and the right returns to power.

The litany of trials and tribulations is very different from the picture painted by President Francois Mitterrand in 1982 when he unfurled his plans for a new 'people's opera'. Paris opera was in the doldrums. The old Opera Garnier was run down. The president envisaged a brand new opera house with cheap seats, state-of-the-art acoustics and magnificent music.

The government spent almost FFr3bn (Pounds 365m) to build the 2,700-seat house at place de la Bastille. It is run as part of the Opera de Paris together with the Garnier, now used for dance, and the smaller Opera Comique. It has an annual budget of FFr800m, of which the state provides 65 per cent. President Mitterrand in 1988 appointed Mr Pierre Berge, one of his staunchest supporters and dubbed Pierre le Panthere for his ruthless style in running the Yves Saint-Laurent fashion house, as chairman of Opera de Paris.

But the melodrama began even before the Bastille's opening. A string of resignations culminated in early 1989 with that of Mr Daniel Barenboim, the conductor, who stormed out as artistic director after a row with Mr Berge. Mr Chung, then a comparatively obscure Korean conductor, succeeded him. The Opera Bastille opened its first full opera, Les Troyens by Berlioz, in March 1990 to mixed reviews.

The reviews have remained mixed ever since. The Bastille is almost always full, with an audience of 392,290 last year. It has also had some success in fulfilling its populist mandate. Almost a third of its audience are first-time opera goers. But it has been haunted by complaints about the building, a lacklustre response from the critics and more management problems.

'I'm French and I'm an opera buff, I want it to work,' said Mr Alain Lompech, opera critic of the daily newspaper, Le Monde. 'But there has only been one production good enough to launch Paris opera on the international arena - Shostakovich's Lady Macbeth, directed by Chung.'

One obstacle is the glacial, modernist building, designed by Carlos Ott, which has been criticised on architectural and musical grounds. 'It was a wonderful idea to build a new opera house, but the acoustics are not great and the theatre is a disaster,' said Mr Max Loppert, the FT's opera critic. 'The scale of the stage makes it difficult to put on anything other than the very biggest operas.'

The Bastille is now mooting plans for a Petite Salle with 1,100 seats for smaller productions. However, its hopes of securing the state's financial support could be scuppered if the Conservatives win the March elections. Last time the right was in power, in the mid-1980s, it tried to scrap the Bastille project by calling a halt to the building work. A future Conservative government might be less generous to the new opera house than the sympathetic Socialists.

Meanwhile, there is little the Bastille can do about its labyrinthine lay-out. 'It's impossible to find your way around,' said Mr Lompech. 'I've been there dozens of times but I'm still so confused that, whenever I leave my seat, I can't find my way back.'

The Bastille has also been hounded by the strikes and stoppages that dogged the Garnier. The French government baulked at adding a battle with the opera unions to its other difficulties before the opening, so the new house retains the old union agreements, which have lumbered it with a high wage bill and rigid working practices. The 'people's opera' is also burdened by high prices: tickets range from FFr50 to FFr560, but two-thirds cost more than FFr200.

Mr Belaval spent his 20 months as chief executive in intricate negotiations, trying to thrash out a new union agreement. But this summer Mr Berge intervened, and bowed to union pressure by extending the deadline for the negotiations from August to November. Mr Belaval, already fuming after rows with Mr Chung over who was to blame for the Seville disaster, resigned. The November deadline has passed, but the negotiations are still going on.

The union problems, combined with frequent management changes - Mr Belaval was the fourth chief executive to resign in as many years - have made it difficult for the Bastille to fulfil its creative potential. Mr Loppert's view is that it has 'not lived up to expectations'. Even Mr Chung admitted to Le Monde this autumn that he was unhappy with the quality of output and that, in three years, he had only been satisfied with one production, Lady Macbeth.

The Bastille desperately needs a period of stability to recover from the trauma of the Seville tour. So far only half the injured singers have returned to work. Mr Chung must then get to grips with its music, while the management, under Mr Jean-Paul Cluzel, the new chief executive, tackles the unions.

There are some positive signs. Mr Chung's new contract not only increases his financial package - which will rise from FFr3.3m next year to FFr8m at the end of his six-year term - but also considerably extends his power. 'Until now he hasn't really had the chance to be anything other than a good conductor,' said one critic. He now has complete control over programming and artistic policy, and will be consulted on some administrative issues.

Mr Cluzel, meanwhile, is a high-flying bureaucrat, who has headed the Socialists' arts administration reforms but who also has the advantage of close contacts with the right, having worked for a Conservative minister in the mid-1980s. His ability to straddle both sides of the French political arena could prove invaluable to the opera house after the elections.

But if there is a change of government this spring, it seems doubtful that even Mr Cluzel will be able to prevent the Opera Bastille from being embroiled in a repetition of the mid-1980s power struggle between President Mitterrand and the Conservatives, particularly as Mr Berge is so close to the president. The Opera Bastille seems set for another melodramatic year.

KENYA's political crisis deepened last night as the three main opposition parties rejected election results and alleged 'massive rigging'. President Daniel arap Moi said they were pushing the country towards civil war.

The move by the united opposition, pledging to prevent Mr Moi from exercising power and dem-anding fresh elections, immediately raised the prospect of conflict in the country. Provisional results last night showed the 68-year-old president and his ruling party Kanu had won the presidential and parliamentary polls.

President Moi told reporters at State House that he denied the allegations and said the opposition leaders were 'liars' pushing Kenya towards civil war.

In what was taken as an imminent crackdown, Mr Moi said he had tolerated much abuse from the opposition. 'This will now cease,' he said. He appealed to western governments to recognise his victory and resume aid suspended last year pending pol-itical pluralism and economic re-form. 'Kenya has taken a giant step forward, not without great risk and potential pitfalls,' he said. 'I call on the world . . . to recognise our achievement.'

The opposition demands coincided with a statement by the Commonwealth group of observers, further undermining Mr Moi's credibility. 'It was evident to us from the start that some aspects of the election were not fair,' the group said. It qualified its criticism, saying the election 'constitutes a giant step on the road to multi-party democracy'. Chief Emeka Anyaoku, the secretary-general of the Commonwealth, was last night poised to break off a holiday in Gambia for a crisis mission to Kenya.

A joint statement by Mr Ken-neth Matiba, of Ford-Asili, Mr Mwai Kibaki, of the Democratic party and Mr Jaramogi Oginga Odinga of Ford-Kenya, the three opposition leaders, accused Mr Moi and Kanu of 'hijacking democracy' and bringing the country to the brink of a crisis.

Among the electoral abuses they alleged against Kanu were widespread intimidation, massive fraud in counting and tallying votes, introduction of illegal ballot boxes stuffed with Kanu votes and the counting of opposition votes for Kanu candidates.

It was clear that the opposition coalition was trying to hold back a possible eruption of violence. However, although the parties refused to spell out their strategy, they were threatening to mobilise massive protest if their demands were not met.

'If we had not acted, the people of Kenya would already be in the streets,' said Mr Matiba.

Results from 167 of the 188 constituencies announced by last night showed that Mr Moi had won the presidential race with 1,796,233 votes. Mr Matiba, with 1,228,870 votes, was in second place ahead of Mr Odinga and Mr Kibaki. In the parliamentary poll, out of 156 results declared Kanu had won 85 seats to the opposition's 71, lead by Ford-Asili and Ford-Kenya with 25 MPs each. Kanu must win 89 seats to give it a working majority.

Opposition officials pointed out that, even in what they said was a rigged poll, Mr Moi had only won 36 per cent of the presidential poll. In the parliamentary election, 15 of his cabinet ministers were defeated, including two of his most important 'political barons', Mr Elijah Mwangale, former agriculture minister, and Mr Joseph Kamotho, the Kanu secretary.

Mr Moi and Kanu had also been trounced in the heartland of Kenya's two biggest tribes, the Kikuyu and the Luo.

Matiba profile, Page 3

Jury out on Kenyan experiment, Page 7

THE International Committee of the Red Cross said yesterday it was trying to arrange for 10 Palestinians, wrongly expelled into Lebanese territory by Israel more than two weeks ago, to return home tomorrow, Reuter reports from Lebanon.

The move came as Israeli Prime Minister Yitzhak Rabin offered to let all 415 deported Palestinians return early if the Palestinian intifada or uprising in the occupied territories was halted. But his offer was rejected by Palestinian spokeswoman Hanan Ashrawi as 'a non-starter'.

Israel has conceded it deported ten of the men by mistake, though nine of them face jail if they go along with moves to repatriate them.

All the deportees were still stranded in an icy tent camp in a no-man's land, blocked by Lebanese soldiers on one side and Israeli troops on the other.

Israel expelled the Palestinians for periods of up to two years after a wave of killings blamed on a Moslem fundamentalist group opposed to the Middle East peace talks.

Rejecting the idea of halting the intifada, Mrs Ashrawi said: 'All along the Palestinian position has been that the intifada is not a bargaining chip. The intifada will remain as long as the occupation remains.'

Mr Rabin himself discounted the possibility of the intifada being halted, saying: 'I know this is almost a pipe dream.'

Confusion reigned in Mexico yesterday as Mexicans were confronted with a new peso shorn of three zeros, Reuter reports from Mexico City.

Merchants said people were largely unprepared for the currency change, which was announced last June and took effect at midnight. New coins and bills reflecting the change are not yet in circulation.

TWO PEOPLE were killed and one was seriously injured in a New Year's Day fire at a hostel for asylum-seekers near Stuttgart in southern Germany, writes Quentin Peel in Bonn. Police ruled out arson.

The blaze was in a prefabricated wooden building, part of a complex where up to 95 asylum-seekers have lived temporarily.

Yesterday saw another huge German demonstration against racism, when an estimated 300,000 people turned out on a freezing evening in the city of Essen, in the industrial Ruhr region, to form a 'chain of light', with lanterns and candles, to condemn right-wing violence. Similar demonstrations of up to 500,000 people at a time have been held in other cities.

A woman was killed and 30 other people were injured in a pile-up involving up to 50 vehicles on a stretch of the A2 near Northfleet, Kent, which became suddenly fog-bound.

WHEN A man makes so much money that he can afford to give away Dollars 250m it is no surprise to learn he has a theory about life.

George Soros, the Hungarian fund manager who broke the Bank of England in September and gave the Bosnian Muslims a Dollars 50m (Pounds 32.8m) Christmas present, is rather different. Not only is he one of the most successful financial speculators in history but in his case the theory came before, not after, the moneymaking.

Soros is a frustrated intellectual who once fancied himself a new Keynes or Einstein. As a youth in Nazi - and then Communist - Budapest, he was plagued by the philosophical problem of the subjectivity of human perceptions. He tried, and failed, to resolve the problem in a treatise called 'The Burden of Consciousness'.

Even before arriving in England at the age of 17 to study under him at the London School of Economics, Soros had felt the influence of Sir Karl Popper, the Viennese philosopher of science whose Open Society and its Enemies denounced Plato, Hegel, Marx and all historical determinism.

After an undistinguished merchant banking apprenticeship in the City and Wall Street, Soros found himself in charge of an investment portfolio and began to apply his ideas on human subjectivity to the market, anticipating the unexpected, betting against the conventional wisdom. At the same time, through making (and losing) money, he began to understand his own ideas better.

In 1969 he set up a private mutual fund, registered offshore in Curacao in the Lesser Antilles, which he later called 'Quantum' in apparent homage to the Indeterminacy Principle of quantum mechanics formulated by Heisenberg.

Soros admits that his philosophy is more of an approach than a scientific hypothesis, let alone a general theory. But he says it provides the connection between the way he makes money and the way he disburses it.

In human relations - in social science, economics - objectivity is a mirage and disequilibrium the natural state, he argues. Markets cannot properly discount the future because ideas about the future are biased. The value of collateral is changed by the fact of the loan against it. In other words, beliefs alter facts. This perception, Soros says, helps him both to make money and to target his donations in a way that will influence history in eastern Europe and Russia.

'My financial and philanthropic activities are based on the same philosophical idea about the relationship between participants' thinking and the situation in which they participate,' he explained.

Soros predicted the 1987 stock market crash but lost Dollars 800m, a third of the fund's then value, by wrongly calculating that the crash would start in Japan. Last September he netted perhaps Dollars 2bn when he bet massively against the European exchange rate mechanism. Since 1979 he has spent some Dollars 100m to create his Open Society Fund, Soros Foundations and Central European University throughout the former Communist bloc. Another Dollars 100m went recently to support Russian science.

I asked him: is it harder to get rid of money than it is to make it?

'In my case it is.'

Why is that?

'It seems to take more time and more energy. In making money you have a bottom line which gives you a pretty firm measure of success. But when you are trying to influence the shape of society you don't have a bottom line; and given that all actions have unintended consequences you certainly cannot measure success by the amount of money you give away - because that money can easily be wasted.'

So what yardstick do you use?

'When I was confronted with closed societies the goal was simply to foster pluralism, to enable people to do things which were not centrally determined but autonomous and spontaneous. So we made small grants over a broad range. 'The idea was very simple: that if you expose a dogma to alternatives, it will crumble, because it will be seen to be false once you have something to compare it with. That was the first phase.

'Then came the hard part. Because when the Communist system collapsed you then had to engage in a much more laborious and in many ways boring process. You had to select key areas: the emphasis has been on education, institution-building and the media, though there are arts programmes and other things.'

So you won't buy into bus factories?

'Not at all - no investments. In fact, I consider it a conflict of interest.'

This was the philosophy, but it did not fully explain the motivation. George Soros agreed that he did not set out to make millions in order to do good works. The careers were consecutive: he went through a sort of crisis which ended with him delegating the fund management.

'By the end of the 1970s I was beginning to make more money than I thought I had a use for in my personal life. So I started thinking about what to do with it. I thought pretty hard and decided that what I cared about was this open society.

'It was a complicated psychological development. For me making money is not easy. To me it's always been a very painful process, very painful, involving great suffering, actually.'

Painful in what way?

'Because if you lose money it's very painful and you can't make it without the threat of losing it. It's by avoiding losing money that you make it, you see. For me, investment has always been a process of pain avoidance. Pain is at the core of the process. And in fact I am not willing to take the pain.

'I was disqualified by my success. I went through a kind of internal crisis around 1979-82, where I had to re-evaluate what I was doing.'

You felt your life was hollow?

'No. It was a very simple quandary: am I the slave of my own success or am I the master of my own destiny? It really was a struggle between me as a person and my fund as an organisation. It was a struggle that I won and that my fund actually lost - and it was translated into a physical loss in 1981.'

Although Soros is of Jewish descent - his father survived the Russian civil war as a prisoner in Siberia - his philanthropy does not 'foster the tribal links'. I asked if he saw himself as a sort of Robin Hood, taxing the rich West to give to the poor East.

'Generally speaking, I am a critic. I am a critic of the processes. I am not an entrepreneur who builds businesses, I am an investor who judges them. My function in the financial markets is that of a critic and my critical judgments are expressed by my decisions to buy and sell. Taxation, levying, doesn't come into it.'

Then are you paying a debt to society which has allowed you to take so much money from it?

'No, not in the least. I don't feel that at all. I do it because I am in a position to do it. I have the freedom and the means. I do it because I think it makes sense. I don't have any sense of guilt at all.'

You have said you don't regard speculation as immoral.

'No, not at all. It's a profession - in America very highly respected, here less so. But it is a strictly professional activity.'

Do you see it as gambling?

'Not at all.'

You wouldn't call it hedging, though, would you?

'Also not, no. It's genuine speculation, speculative investment. It's seeking a high return on capital.'

Is it a necessary function of an open society to have people like you in it?

'I think it's a necessary function for financial markets. Basically, all investors are doing what I am doing. I'm doing it more aggressively and more to the point, more clearly recognising what the objectives are, which is to make money with money.'

Do you spend money on yourself? You have four houses, I believe.

'I used to collect but actually I don't have great material needs. I like my comfort. But, really, I am a very abstract person.'

EVERY New Year brings with it a curse, and it is always the same one: the curse of New Year forecasts.

The nation's stage army of pundits forms a queue to tell us what will happen to the stock market, which world leaders will be up, and which down, where house prices will be a year from now, and all the other matters beyond our control. It is dross, from first to last. The only advantage is that we do not have to read any of it, and can save dramatically the amount of time we spend reading newspapers.

We can be sure of one other thing: the forecasts will be over-optimistic. Last year not one of our leading economic forecasters predicted that the British economy in 1992 would continue to shrink. While the Treasury's own predictions were notably hubristic, independent pundits scarcely covered themselves in glory. This, at least, was entirely predictable: human nature is optimistic, and in the 20th century this has been translated into a passionate conviction that every succeeding year must bring progress, that our civilisation can only wax, never wane.

It is in any case an artifice to assume that the affairs of man move in yearly cycles - the only objective difference between December 31 and January 1 is that one is a bank holiday and the other is not. More particularly, the Gregorian calendar bears no particular relation to the earth's cycle. Our New Year comes in the middle of winter, when nature is still deep in hibernation. Since the Church of England has broken conclusively with the world-wide Catholic Church by declaring that women shall be priests, it might as well go the whole rationalist hog and break with Pope Gregory's calendar. Then we could celebrate the new year on an agreed first day of Spring, along with the birds and the bees.

This is not, I hasten to add, an appeal to move to a calendar based on the astrologers' system of planetary and solar influences. I am at least at one with the Pope in his anathematising of astrology, if not his declaration that to follow those spurious charts is a mortal sin.

In the tide of forecasts that wash over us each new year, the astrologers' predictions represent the scummiest flotsam and jetsam, horoscopical detritus. I find it depressing that the Daily Mail, probably the most influential newspaper in Britain, should have devoted its centre pages for most of the past week to promoting the claims of a bald, bearding astrologer called Jonathan Cainer, who says he has developed something called 'Astroanalysis - a unique new way of seeing what the stars hold'.

Cainer previously predicted the futures of the 1m or so readers of Today newspaper, now tells the considerably more numerous readers of the Daily Mail that '1993 is the year that will change your life.' This is because 1993 will see 'Neptune and Uranus meet in the sky for the first time in nearly 200 years - a rare and important conjunction which has the potential to change our world dramatically.'

I am particularly interested in his predictions for Capricorn (December 23 to January 20): 'So much has changed in your home life you no longer feel sure where your personality ends - and where your need to be all things to all people begins.'

My daughter was born a week and half ago, on December 23, and unlike Cainer, I have no idea what her character is. Had she been born a day earlier, she would have been a Sagittarian, just like her dad, another Sagittarian. It is just as well we didn't have her induced.

It would be wrong to think that astrology columns are the province solely of the tabloid newspapers. Superior glossy magazines, such as Vogue and Harpers and Queen have them. So too does the supposedly serious Sunday Times. Indeed, recently I received a letter from the Sunday Times' astrologer, offering to explain to me the higher points of her art. Apparently 'something' had told her that I was about to publish in The Spectator the sort of article about astrology which might have brought her 'profession' into disrepute. On this occasion, I am afraid, her charts have let her down.

I have one question for her. Why do astrologers base their charts on the moment of birth, rather than the moment of conception? After all, that is when the earth is really supposed to move.

Dominic Lawson is Editor of The Spectator.

MISS LEE, my executive assistant, was in fine form on New Year's eve. We put on paper hats, lit the pink candles, and had partridge and raspberries. Then we repaired to the sitting room, to await the chimes of midnight. To pass the time, I fossicked through a book about multiple universes. Apparently there is an infinity of universes. They pop out of nothing.

While I was wrestling with all this, Miss Lee had picked up a copy of The Journalist's Handbook which was lying around, and was flicking through it impatiently. She was looking particularly beautiful: a smart type of frock, Pounds 400 shoes, hair nicely twirled, endearing crimson lipstick.

She started to laugh throatily. I asked about the cause.

Miss Lee said: 'I am reading an article by this creature Peter Fiddick which poses the question: 'Can a 24-hour rolling news service on the BBC be justified? Is there enough news?' Fiddick has his doubts. Regales us with them lumpenly. In the limpest way imaginable, he wonders whether there is enough news to sustain listeners' interest on a round-the-clock basis.

'What this creature doesn't realise is that most of humanity's problems can be ascribed to an excess of media. There are far too many journalists, all of them battening leech-like on what is a finite supply of news. It is my opinion, Michael, that most of our problems in 1992 were exacerbated by the media - not exactly caused by them but fanned and enflamed out of all proportion.

'Take John Major and Norman Lamont. Perfectly decent men who have been ridiculed for doing their best to wrestle with problems not of their making. How can Major and Lamont be held responsible for German foolhardiness or the global debt splurge?

'Or take the royal family. Look how the Queen and her hapless children were singled out in 1992 for remorseless persecution. All families have their problems. That is only human nature. But when Windsor Castle burned to the ground, the media gloated - virtually suggested she rebuild it herself. When the Queen offered to pay income tax, the media speculated on the scale of her liabilities. When her children's marriages encountered minor difficulties, the media snooped and eavesdropped and hounded them unforgivably.

'If you examine the world's problems in 1992, you will see that most of them were local difficulties that would have blown over if the media hadn't latched on to them. When real news dries up, they feast on each another. Look at the attention paid this week to Britain's commercial television network. Who cares a matchstick for ITV? It is a haven for minor talent. It is there to sell dog food. End of story.

'Or take the tabloid press. Anyone with four brain cells knows that the tabloids are written and commissioned by menopausal men with severe sexual hang-ups and chips on their shoulders. So let them get on with it. If the quality newspapers would deny the tabloids the oxygen of publicity, the tabloids would soon be read only by inmates of prisons and people in the Navy. There are far too many newspapers. Britain could easily get by with one pink broadsheet and one white broadsheet.'

'But which white broadsheet?' I asked.

'Certainly not The Times. I used to be fond of it. Its last editor had knocked it into shape. But then along comes this Peter Stothard creature. Swans in from nowhere. Fires two dozen journalists. Tosses the whole thing in the air and rearranges it so that none of us can find our favourite columnists or features. There is an interview in here' - she brandished The Journalist's Handbook - 'in which this creature seeks to justify his actions, but he doesn't fool me. What could be his problem?'

'Insecurity,' I said. 'You must remember, Miss Lee, that Stothard is a Murdoch editor. Can you imagine what hoops of ice constricted his brain and heart when Murdoch rang him from LA and appointed him editor? Must have been a nightmare. He deserves our deepest sympathy.' Suddenly I felt maudlin. The clock was close to midnight. 'This is a weary, wracked planet, Miss Lee. We must learn to hold our tongues, learn to stay our hands. Our planet is bleeding. It is crying for our sympathy. We are alone in the universe. We must love one another. Let us start with this Stothard creature and take it from there.'

THE WORLD of art-critical jargon today resembles one of those surreal lumber rooms in a Giorgio Di Chirico painting. Across the floor weird constructs like 'deconstruction' gaze at sinister compounds like 'post-modernism.' In a corner, obscure once-meaningful diagrams gather dust. On a chair sits a tailor's dummy, bereft of the tailor's creations that once gave it life and purpose.

But occasionally in a Di Chirico painting something real or organic peeps through - a flower, a human hand - to bestow a telling irony: to remind us that there are still traces of life as we know it. Just so, the prolix usually co-exists with the real and simple - however much it tries to camouflage them.

Post-modernism in the cinema has now become camouflaging crit-speak for a very simple concept: narcissism. Back in the 1970s and '80s movies such as David Lynch's Blue Velvet or Brian De Palma's Dressed To Kill in America, or Fassbinder's films in Europe, might have been justly graced with terms from the post-modern lexicon like 'ludic', 'eclectic,' 'self-reflexive.' They gazed in the mirror of popular culture past and present - not just cinema but novels, pop art, TV - and subtly, sardonically plucked meaning from reflection and allusion.

But the habit has now spread from semi-fringe film-makers to mega-budget directors such as Tim Burton (Batman, Batman Returns) and Francis Coppola (the new Dracula). The art of subtle invocation has turned into the art of show-off quotesmanship. The Batman movies, especially, are megaliths of compressed cultural bricolage: plundering their invocations from old movie styles (James Whale), Gothic Edwardiana (Edward Gorey), Saturday matinee serials and the revamped Batman comics themselves. Originality begins to die a slow death on the altar of hommage: which is, as we know, a French word for plagiarism.

Today the cultural pay-off is becoming clear. Too often the consequence of gazing too long in the mirror is a hopeless infatuation with one's own image.

This year we have had movies recycling bygone film noir styles: from Light Sleeper to Alien 3, with The Public Eye and Night And The City due in the new year. We have had films about film-making (Barton Fink, Bugsy, The Player, Chaplin). We have had European films holding tribunal on the century's audio-visual culture, from old movie styles to recent movie/video developments (Europa, Until The End Of The World). And for British filmmakers like Terence Davies (The Long Day Closes), Derek Jarman (Edward II) and Peter Greenaway (Prospero's Books), no film is complete without a built-in concordance of references to cinema and/or its companion arts.

Not all these works are bad. Indeed some are good. But the trend's spreading dominion disturbs. We could dismiss it as fin de siecle stock-taking: a century's natural instinct as it closes down to count the bills and mark the ledgers. (For changing millennia, multiply this by ten). But first: who wants another eight years of aesthetic auto-erotism at the movies? And second: how do we know that the cinema, once hung up on its own image, will get un-hung as soon as we reach 2000?

There are two main kinds of narcissism practised today: active and passive. The active is marginally less perilous because at least it knows what it is up to. Taking past movie styles, it either processes them into multi-referential camp - Lynch's Wild At Heart (cruder than Blue Velvet but at least self-aware), Baz Luhrmann's Strictly Ballroom, Tom DiCillo's Johnny Suede - or uses them as overt commentary on a modern story (The Long Day Closes).

Then there is passive narcissism. Thriving in the commercial sector, this is the short-memory self-love that produces, almost without thought, lazier and lazier theme-and-variations packages. The motto of these films is: Close down mental enterprise and lull the senses with familiar signals. From the makers of Lethal Weapon and Batman here come LW3 and B2. From the makers of Aliens 1 and 2, here is Old Scaly Claws in space again. From the makers of Home Alone, here is another date with the kid who keeps losing his parents.

The audience approves of this studio laziness because it too likes a lazy time. You do not have to dress up so much on a second date, and all the introductory small talk was got over on the first one.

But then with narcissistic romances you do not really have to dress up at all. Modern cinema is in danger of becoming a hall of mirrors in which filmgoers and filmmakers alike can gaze into an endless vista of self-gratifying, self-imaging sameness. An art for which the mirror, in great cinematic hands, was once an eerie leitmotif that deceived, distorted or seduced - in Welles, in Losey, in Lang, in Cocteau's Orphee - now shows signs of falling headlong into its reflective, oblivion-inducing depths.

ENGLISH theatre is still a terrain remarkably innocent of intellectual parlance. The word 'deconstructionist' is applied far less often than in opera; the words 'post-modern' and 'post-modernist' less often than in dance. In fact, the dominant buzzword of the day is 'accessible' - a word anti-intellectual in its implications.

This reflects the amount of popular entertainment - and unsubsidised theatre - around. (Our public is less worried by whether a show is new-wave, academically hip or politically correct than by whether it is just a good show, and in that sense our public it has its heart in the right place.) But it also reflects the traditionalism, even insularity, of the English. More Pinero than Brecht is still being played. The many excellent features of British theatre are almost all traditional virtues. But can there be post-modernism on terrain where modernism has hardly taken root?

To some extent. People have tried slapping the label 'post-modern' on West End shows such as Phantom of the Opera and Miss Saigon - 'post-modern' in their Trump Tower mixture of lavish production values and populist entertainment - but it does not really stick, mainly because to apply academic talk to such trash gets nobody anywhere. 'Post-modernism' is exemplified not by trash (however appealing) but by works that ecletically incorporate some features of trash - boutique art, glitz design, democratic accessibility - into a conscious (often historically conscious) work of art.

An obvious example is Tony Harrison's The Trackers of Oxyrrynchus (National Theatre, 1989). This was a highly knowing work, using the old satyr plays of the Greeks as a platform on which to discuss the importance of popular entertainment within high art. The satyrs were Priapic (with huge phalluses beaming up from their loins) and pop (they tap-danced heavily) and they made a point about the way that modern theatre has been divorcing low culture from high culture. As with so many post-modern works, there was something of an art-history lecture about it. I would say that to the extent one was made conscious of this, Trackers failed as art; but thereby hangs a debate too big for this space.

'Post-structuralism' occurs where the unquestioned premises (usually sociological) of one tale are questioned or revealed in another, or where an existing work of art, or art form, is framed and examined within another. A simple instance is Tom Stoppard's Rosenkrantz and Guildenstern are Dead. A remarkable work of theatre in itself, its basis is that the story of Hamlet is occurring, mainly to other characters, just around the corner; and so it leads you to re-examine issues that, in making Hamlet, Shakespeare took for granted.

An increasing number of plays today are about missing characters in famous works of art (Helen Cooper's Mrs Vershinin), real artists and their critics (Alan Bennett's Kafka's Dick, the other people involved in the creation of art (the TS Eliot play Tom and Viv), or the whole culture surrounding the creation of art (Timberlake Wertenbaker's Three Birds Alighting on a Field). All of these qualify as post-modern; all of them involve some measure of both structuralism and deconstructionism; and most of them are rooted in feminism - the most widely influential 'new' factor in the creation of art today.

*****

Is there deconstructionism without tears? Yes - and in dance. Just watch The Hard Nut - the choreographer's Mark Morris's version of (of all things) The Nutcracker (1991 - soon on TV). Everyone thinks of The Nutcracker as a ballet, and everyone thinks of ballet as a basically Eurocentric and hierarchical form of entertainment - a wedding-cake rising in tiers to the ultra-white prima ballerina: who is in The Nutcracker the Sugar Plum Fairy. But Morris (now aged 36) is an artist with an essentially 1960s sensibility. He sets The Hard Nut in the American '60s, and what he deconstructs is ballet itself.

In The Hard Nut men may dance on point too; but here pointwork gives superiority to no one. The dancers are of all colours; and the traditional virtuoso steps of ballet are given not to the stars but to the ensemble. There is no Sugar Plum; and the heroine, Marie, is barefoot.

The Hard Nut is also a post-modern work in the way it commutes between high art and popular culture, and in its way of commenting on, or framing, another work of art. It retells Hoffmann's original Nutcracker story in a 1960s setting. It moves from kids watching the Hard Nut story on black-and-white TV, through a party where adults do all kinds of groovy '60s dances, take drugs, quarrel and upset their kids, and finally (like The Wizard of Oz) enters a world of colour and magic. And its message (all you need is love) illustrates Sixties utopianism.

There are other labels that can be slapped on The Hard Nut and on Morris's choreography in general. Most of his work, in the core of its dance style, is multiculturalist - with elements of flamenco, Indian, ballet, modern and much more co-existing. His 1987 trilogy Mythologies - a dance illustration of the sociological deconstructionism of Roland Barthes's Mythologies - was about popular culture: its three parts were Soap Powders and Detergents, Striptease and Championship Wrestling.

If The Hard Nut were only a piece of deconstructionism or post-modernism, it would not be a work of art - merely an intellectual construct. There are some other artists who similarly illustrate the complexities of our culture. But I attend at some length to Morris because no one else is doing so on such a scale of consequence.

or 'grosses legumes', as the French say - on the Paris stage are a Briton rewriting a French opera, an Egyptian making a film show on the sacred boards of the Comedie Francaise, and an American directing German actors in a language they have never spoken before.

Peter Brook's Impressions of Pelleas, Yossif Chahine's Caligula and Bob Wilson's Dr Faustus are stamped with the vision of three of Europe's greatest directors. In all, multi-cultural strangeness and splendour intoxicates, hints at shifting perspectives, changing realities. In Faustus, three actors simultaneously play the hero; Pelleas has different actresses - Chinese, Japanese, Korean - as the heroine on consecutive nights. It is drama as haphazardly personal, fluid, unfixed. It is also highly stylised, presenting a deliberately unreal imaginative world.

Here is the director as star: after 30 seconds you see at once Wilson's hallmark - cold artifice - or Brook's mix of the exotic and intimately simple. Drama, with its demand that the director realise his own view of a play, has always been a deconstructionist's paradise. But among Europe's theatre pioneers, we now see a late 20th century trend which parallels post-modern developments in other arts.

One feature is a move away from the straight play to a collage of devices - mime, acrobatics, dance, rock, film. Mostly these imposed stylisations - the pleasure lies in the aesthetic pattern, unity of music, movement, design, not in story or naturalistic character. A director such as Chahine makes political points this way; others, such as Wilson, are aesthetes offering no meaning beyond the stage. All are part of a post-modern trend in which language is no longer the main route to meaning; dramatic impetus is not verbal but visual, physical, spiritual.

Multi-culturalism is at the core of this phenomenon in Europe. It embodies relativity of meaning, and it liberates directors from traditional texts and conventional staging. It is no chance that the explorers are multi-lingual: Brook, Wilson, Chahine, Ruth Berghaus, Peter Zadek, Luc Bondy may work in French, German, English. The most exciting shows in Europe are translations, radical revisions - Brook chops Debussy's opera in half and plays it with just a piano - or works which barely have a text. All reflects a sense of fragmentation throughout politics and culture.

Brook's Paris Tempest, with magic, acrobatics, an Indian Prospero, a black Ariel, showed how translation turned Shakespeare 'into something rich and strange'. For Pelleas the cavernous Bouffes du Nord venue is a fin-de-siecle bourgeois interior with Persian carpets, Chinese vases and Japanese screens. Fixing the oppressive mood of Maeterlinck's play the oriental actresses playing Melisande are women from another milieu; the acting, trembling, precise, understated, recalls the Tempest; gestures, eyes looking away suggest souls - Prospero, Pelleas - lost in themselves. The essential is unexpressed but subtly evoked - perfect for Maeterlinck's symbolist theatre of silence, and for Brook's vision of intimacy and foreboding.

Where Brook has exoticism, Wilson has an abstract finesse at once sophisticated and naive. His surrealism owes a debt to Tadeusz Kantor, whose apocalyptic view of history as a cacophony of mass terror is enacted by black and white ghost-figures miming or jerking into action as in early movies to the jangle of guns, machines or folk music; there is no text. Kantor's great Krakow show, Today's My Birthday, still tours Europe. It echoes in Wilson's masterpiece, The Black Rider and in the weaker Dr Faustus.

Wilson's figures, chalky faced, eyes blackened, move in irregular jumps. The motif is cold angularity - crooked chairs six feet high, trees as scissor cut-outs, costumes with jagged edges, a red stiletto heel jutting from a slit in a box. Music, mime, dance, starts and stops abruptly. But it is also an enticing nursery rhyme world: pink neon, a big pulpy moon; the devil in Faustus, the lovers in The Black Rider, float upstage on swings.

The limit of language is Wilson's obsession. In the 'spoken opera' Faustus, a German cast who first had to learn English, chant monosyllabic verse as parrot grammar, maddeningly meaningless. In Wilson's new show, a musical Alice in Wonderland, 'a word means just what I choose it to mean'. For The Black Rider William Burroughs' banal German-English ballads match the fairground kitsch of Tom Waits' tunes. It is art for art's sake, but Wilson's brittle-cruel-romantic collages work because they dramatise love, death, in a brilliantly realised, unified imagery.

Only Ruth Berghaus equals Wilson's intense abstraction. Her Hamburg Jungle of Cities is a Brecht collectors item, a mechanised choreographic nightmare where words hardly matter. A criss-cross of railway lines is backed by a silhouette of skyscrapers; people enter via windows, fall into pits, as a huge tent moves menacingly across the stage to devour all: a surreal updating of Brecht's alienation effect.

The cityscape is the theatrical image of our time. Most influential has been Peter Zadek's in his Vienna Merchant of Venice, relocated to Wall Street as a satire on yuppies and a parable of survival in a brash society. The set parodies post-modern architecture - a Richard Rodgers dream bank of steel tubes, glass frames, mirrored panels rises to the loft of the stage - and has sent deconstructionist echoes through many productions. The giant lift-mirror in Bondy's Berlin Final Chorus, for example, reflects both the mad looking glass world of bourgeois society and the audiences reaction to it.

Chahine's Caligula is the pinnacle of this style. A huge tower block is also a screen projecting a modern city, moving crowds, Caligula magnified as a crazed dictator. At the end, this terrific structure disintegrates in flames, casting out changing images, different in each part of the auditorium. It suggests how random is our vision - sideshows range from Arab tambourinists to punk acrobats - and how we distance terror as it is stylised by televisual repetition.

Caligula wittily and vibrantly uses non-traditional theatre forms to deconstruct our culture; the set is an emblem of the theme. It pinpoints a new visual, physical drama which should spread further this decade. Since European theatre thrives on cultural exchange, and language is of secondary importance, it is to be hoped that more such pieces - only Pelleas is planned for Glasgow - will visit Britain.

The first part of the State of the Art series was on December 24

CLERIHEW-composing can easily become an addictive occupation, as many competitors confessed. 'Once one has started,' said Christopher Mylne, 'it is difficult to stop thinking up silly rhymes to fit - though I admit to being defeated by Tchaikovsky. . .'

The task, you will recall, was to make up new clerihews about composers and musicians. Mr C. Thwaites reminded me of 'an oldie but goodie' - Jules Massenet/ Never wrote /A Mass/ In A. And Mary Holtby remembered from childhood another vintage item - Palestrina/ Wrote a concerto for the concertina/ Which Monteverdi/ Orchestrated for the hurdy-gurdy.

No one thought of including any of my music critic friends on the lines of this one, c1930: 'Next week', said Ernest Newman,/ 'It will be Schumann'./ But when next week came/ It was Wagner just the same.

I had to stop counting the number of times conductors such as Henry Wood or Andre Previn or George Solti (another difficult rhyme) sat on/ the baton; or the occasions when Maria Callas/ sang in Dallas; or when some poor composer could not hold a candle/ to Handel. Pavarotti was frequently grotty, and quite often dotty, and there were unkind observations as to the size of his botty. Nigel Kennedy was more often than not discovered playing a threnody with the aggressive termination from Freda Smithson of an over-ripe tomato/ interrupting his pizzicato.

Johann Sebastian Bach/ always got up with the lark (Dian Shervinton), or if not, he sat in the dark (W. Roll) but that - as more than one entry pointed out - did not curtail his procreative prowess. In contrast, Mahler sat in the parlour (E Gifford) whereas Bizet/ sat on a bidet (Garbis Haddad), Scriabin/ made an awful din (Graham Green), Souza was/ a bit of a boozer (Andrew Stark) and Liszt was frequently hissed (B. Miller) and often, of course, kissed, and on at least one occasion pissed (Ranald Boyle).

No cookie was shrewder, rhymed Eve Turner neatly, than Buxtehude. Sir Arnold Bax Had no FAX (Brian Capon) (they had not been invented); Placido Domingo, was said by Henry Moxon, to be always lucky at bingo, but, added Anthony Brown, of that game Kiri/ Is weary. Hugo Wolf/ played golf (Peter J Andrews), Humperdinck/ had rum to drink (Robin Fuller) and Schumann was only human (Bernard McGinley).

Over fondness for pasta seemed to be the main affliction of Italian musicians. Donizetti was addicted to spaghetti (OVS Heath), Boccherini to fetuccini and tortellini (James Robertson) and Stefan Grapelli to tagliatelli (Steven Berry). Puccini, however, suffered from baby marrows and threw away his zucchini (Simon Hubbard-Ford).

Duke Ellington's penchant was somewhat implausibly for wellingtons (Catherine Presswood), but Shirley Bassey had, more realistically, an eloquent chassis (Sylvia Trump) and one that is classy (Eric Pearce).

Several people had James Galway either leaving or not leaving his flute in the hallway. D. Rhys-Williams envisaged Neil Kinnock in a dispute over Early Music with Trevor Pinnock. And Isobel Baillie/ Raised high notes gaily (WID Scott).

It was Peter Read who, when he switched on the Beeb/, ingeniously listened to the strains of Delibes. George Formby, we are assured by John Adams, once passed through the village of Quarmby.

No one found a convincing rhyme for Kanawa. Nor for Rameau, who was learnedly celebrated by William and Jo Godfree (though this year is not, as they seemed to think, the 300th anniversary of his birth in 1683). Brahms appeared to be a favourite with the Thane of Glamis and also to have qualms/ When Joachim/ offered to have a go at him (Sir Toby Weaver).

Monica G Ribon voiced a universal dilemma when she asked Does Turandot/ Rhyme with 'forgot'/ Or is it Turandot/ As in 'I don't know'? Chopin was hopin' (ouch]) to play with one hand/ on George Sand (Katie Mallett) and Tristan told Isolde/ 'You don't look a day older' . . . (David Hussey). Both Eve Turner and Prudence Raper had musicians taking Valium before embarking on Spem in Alium.

The problem in many cases was the second couplet. So often a brilliant beginning had crashed into bathos by line four. It is much more difficult to compose a memorable clerihew than it looks. Perhaps the trick is not to try too hard for your punch-line but just let it come naturally of its own accord. Anyway, Pounds 30 each to all those whose clerihews are printed below. They are the joint winners.

CLERIHEWS CON BRIO

Pergolesi

Doesn't send me crazy

But he's a better composer

Than Cimarosa.

(Ambrose Streatfeild

Harriet with icy look

Told Berlioz to sling his hook.

He then composed the Symphonie Fantastique

In utter pique.

(Rick Watson)

Benjamin Britten

Liked to have his ears bitten

By Peter Pears.

Poor old dears.

(B I Straton-Ferrier)

The future of jazz got darker

With Charlie Parker.

It finally sunk

With Thelonius Monk.

(Philip Skelsey)

Beniamono Gigli

If he were feeling cigli

Sometimes went a bit wobile

When singing La donna e mobile.

(Mrs Jean Platt)

Elton John

Goes on and on

He's not so funny,

But oh] the money.

(Donald Lloyd)

Maria Callas

First signed for Crystal Palace

But they let her go

To Milano.

(Ken Turner)

Peter Cornelius

Was only a three quarters genius,

But his Barber of Bagdad

Wasn't half bad.

(Garfield Black)

de Sylva, Brown and Henderson

With only their suspenders on

Danced in the street for joy

At writing Sonny Boy.

(Peter Marks)

Julian Bream

Dreamed a dream . . .

Lute stolen in Cuba

Replaced by a tuba.

(Alastair Norton)

FOR our second competition you were asked to send an extract from the obituary of any fictional character. The deadpan style of the obituarist - often skating on some pretty thin ice - is not difficult to mimic. Many of the many attempts managed it all too convincingly.

Subjects for burial began with legendary and biblical figures such as the Devil, Methusaleh (' . . . born into one of the oldest families on record . . . was just at the peak of his career' - Marius Szafianski) Achilles, Jonah, Grendel's Mother, the Ancient Mariner (' . . . although suffering from a withered arm, his eyes never lost their glittering power' - J E Smith).

King Arthur, Ulysses, Don Quixote, Brunnhilde ('Following her husband's tragic death in a mugging incident, her name was romantically linked to that of Gunther the Gibichung.' - Anthony Lyman-Dixon), Gandalf, The Pied Piper ('In an inspired career move, he became a pest control officer for the Weser valley' - Mrs H. C Lee), The Wife of Bath ('It is heartening to think that our sister's long battle with the Orthodontists is now over' - J McCormick), were popular obituarees.

There were contemporaries such as Adrian Mole ('Although only in his 14th year, Mole's perceptive analyses of family life and the strains implicit in modern marriage, minutely chronicled as part of his daily observations, will be immensely valued by future researchers' - D A Prince), Horace Rumpole and Lord Dixon of Bushy Park ('Populary known as 'Lucky Jim' he made a significant contribution to the dissemination of higher education' - Peter Knight).

Characters from crime fiction were also popular candidates with Sherlock Holmes, hotly pursued gravewards by Moriarty, Miss Marple, Poirot, Peter Wimsey, and several James Bonds.

Shakespeare was a prime source. Lady Macbeth 'was a legendary hostess. Dinner parties at Forres, begun with a sonorous knocking on the South Chamber door, were eagerly attended by luminaries from every shade of the political spectrum' (Guy Thomas).

Evelyn I Stark told us that: 'Financial circles were shocked to learn yesterday of the murder of Polonius in what appears to have been a case of mistaken identity. His 'Neither a borrower nor a lender be' speech, known as the 'Elsinore Document' . . . has recently been adopted by many treasury officials and advocates tight control of the money supply.'

S L Valdez chronicled the last days of King Lear: 'After fierce arguments with his daughters, the king declared himself homeless and applied to Berkshire County Council for assistance on the grounds of former residence in Windsor. When this was turned down, the king joined fellow subjects in Windsor Great Park's 'cardboard city' during the worst of the winter storms and later collapsed'.

Dickens also inspired some brave efforts - Oliver Twist, for example: 'From the earliest he scandalised devoted carers by his excessive gluttony; then in his first employment, not only bullied his fellow workers, but left without heeding statutory notice requirements' - Ken Turner.

There were several shots at Heathcliff with a noble attempt at his family tree from John Rosselli. Then we had Bloom; Stephen Dedalus - ' . . . blown up and killed by a terrorist bomb which he was about to plant in the lobby of the Gresham Hotel in Dublin' - Shedden Alexander; Goldfinger; Anna Karenina; Mr Collins ' . . . distinguished by his opposition to women's ordination' - Mrs Patricia C Atkinson; both Dr and Mrs Proudie; Albertine in one massive Proustian sentence (Alan Leslie) and many Bertie Woosters and Billy Bunters (see the example below).

Even more persistent were figures from nursery rhyme and children's literature with the death of Cock Robin way ahead at the top followed by Snow White, Peter Pan, Peter Rabbit, BB Wolf, Miss Piggy, Noddy, Humpty Dumpty - 'he was a good egg' (passim).

In fact, there was such a wealth of talent that the task of choosing the eventual winners was even more fraught than usual. However here goes - Pounds 50 each to those whose entries are printed below. They are joint-winners, and thanks to everyone for a splendid record-breaking entry.

R I P

SHYLOCK Shylock was perhaps the most innovative financier of his time, and his influence put Venetian capital markets on a more regulated footing. In an era of speculative excess, when venture capital was frequently provided on an 'old boy' basis, Shylock, a relative outsider, introduced loan financing by way of the fixed-interest bond. His creative flair, however, was seen to most effect in his novel penalty clauses, which gave the bond-holder an exceptionally strong incentive to redeem the bond at the due date. These instruments became known as 'funk bonds'.

His career ended controversially, in the so-called 'Balthazar Affair' (named after the famous disappearing barrister), when Shylock's commercial logic proved stronger meat than the business community of the day could stomach. There are many, however, who believe that his trial verdict was unsafe.

(Noel Petty) CAPULET / MONTAGUE The dangers of drug abuse have been highlighted this week by the tragic deaths of teenagers Juliet Capulet and Romeo Montague. Fourteen-year-old Juliet had apparently undegone a form of marriage to Montague against her father's wishes and she went into a coma as a result of a strong barbiturate, taken deliberately to feign death. Young Montague was unaware of her action and took an overdose. Upon waking from the coma Juliet took her own life. The role of the church in this sorry affair is somewhat dubious as it seem the drugs were supplied by churchmen. The Vatican has promised a full inquiry.

(Mrs A D Woodhouse) MR DORIAN GRAY The death has been reported of Mr Dorian Gray of Mayfair, the well-known bon vivant and patron of the arts. He was discovered by servants at home, apparently having suffered fatal injuries whilst attempting to repair a previously unknown portrait of a young man, possibly a relative. Although Mr Gray was well known in his role of aficionado of the theatre, opera and the art world, little was known about his background. Even his age was closely guarded secret.

(C E Hurst) SIR WILLIAM BUNTER, KBE, MP The death of the former Chancellor, Sir William Bunter, has shocked everyone, especially a surprising number who enjoyed a friendship going back to Oxford and even Greyfriars.

Throughout his comparatively short life he remained irrepressibly optimistic, whether over an expected postal order or the green shoots of economic recovery.

Sir William's career was not without controversy, both trivial, involving tuck-shops and off-licenses, and of more moment concerning the acquisition of public funds for private use, for example, when his probity was questioned, but always he contrived to extricate himself from a situation that might well, to a lesser mortal, have spelt disgrace.

(RG Snoxell) CHRISTIAN Our neighbour Christian will come no more amongst us. Owing to a burden on his back, he had some frenzy-distemper which drove him to seek a Kingdom where he would have a Crown of Glory and be clothed with Immortality.

We saw him afar fall into a slough, but he dragged himself out and passed through a wicket-gate. There were lions in the path, a foul fiend, Apollyon, a Fair wherein were many vain persons, and he in danger of execution, Death's shadowy Vale and Giant Despair's Doubting Castle . . .

After so vile a journey he crossed a deep river and thence came to a city filled with Trumpets and Harps and Streets of Gold. But he that hath told us of the Pilgrimage hath lately confessed ''Twas but a dream'. Christian is surely lying beneath those waters whither we have no stomach to follow him.

(KP Hopkinson) MR S. GRUNDY The premature death of Solomon Grundy was widely mourned by his many relatives and friends. His rapid and brilliant maturation was due to diet - a lesson to us all.

He was born on Monday, christened on Tuesday and remained a life-long Anglican. At an unusually early age, he was married on Wednesday. This was an enduringly happy union, despite adverse comment from some sections of the press.

An obscure disease overtook him on Thursday. His condition worsened on Friday. Every effort was made to save him, but he died on Saturday. Full of honours, he was buried on Sunday.

He is survived by his childless widow.

Beatification is in progress.

(A G Cheston)

THIS WINTER has seen the launch of two new series of decorative arts books, impressive in quite different ways. A massive 30-volume survey of the arts of Islam opens with three opulent volumes on Qur'ans, The Abbasid Tradition, The Master Scribes and After Timur, intelligently produced and sumptuously illustrated (Azimuth Editions in association with Oxford University Press, Pounds 135 each). This exceptionally ambitious, and heavily subsidised, series catalogues the entire 20,000-piece collection of Dr Nasser D. Khalili - at a cost of Pounds 5m.

At the other end of the financial scale is Walker Books' delightful new Decorative Arts Library. Bevis Hillier offers an entertaining romp through Early English Porcelain, unable to resist including the tale of the Blake family who ordered a dinner service from China decorated with their coat of arms. When the porcelain arrived they discovered that on every piece their family motto, Think and Thank, had been painstakingly rendered Stink and Stank.

Laurence Whistler contributes Point Engraving on Glass, Emma Tennant Rag Rugs of England and America, and Alan Powers Modern Block Printed Textiles. These attractive small books cost Pounds 9.99 each,

Anna Maria Massinelli and Filipp Tuena have achieved on paper what would be seventh heaven in an exhibition. Treasures of the Medici (Thames & Hudson, Pounds 24.95) re-unites the fabulous jewels and objets d'art amassed over 300 years by 10 generations of Medici, bankers who were the unoffical royal family of Florence. For Lorenzo the Magnificent, the 5th centenary of whose death this superbly illustrated book commemorates, his antique cameos and sardonyxes were of incomparably greater value than any painting by Fra Angelico or Botticelli.

Monique Riccardi-Cubitt's compendious The Art of the Cabinet (Thames and Hudson, Pounds 36) offers a history of the cupboard or cabinet in which such precious curios were housed. Furniture plays an important role in Alexander von Vegesack's illuminating Czech Cubism (Laurence King Publishing, Pounds 40). This fascinating journey into hitherto unchartered waters reveals how a group of avant-garde architects in Prague translated the art of Braque and Picasso into a new - almost angrily animate - formal language of architecture and the applied arts, characterised by sharp angles, cut-off corners and boldly sloping planes.

Five books on the 19th century focus on the forgotten and the familiar. Poul Vad presents a welcome biography, the first in English, of one of the most remarkable and individual painters of the 19th century. Vilhelm Hammershoi and Danish Art at the Turn of the Century (Yale University Press, Pounds 45) is a sensitive and scrupulously researched book, ill-served by a lamentable translation. The author has uncovered a great deal about the life of this most private of painters but perhaps devotes too much space to lengthy analyses of individual works.

Janis A. Tomlinson's Goya in the Twilight of Enlightenment (Yale Pounds 29.95) is a complex and sophisticated book that attempts to cut through the Goya myths and to examine afresh a great painter's achievement against the historical background that so profoundly affected it. Far more straightforward is the handsome Degas Pastels by Jean Sutherland Boggs and Anne Maheux (Thames & Hudson, Pounds 45).

Degas also takes a bow in Beyond Impressionism - the Naturalist Impulse in European Art 1860-1905 by Gabriel P Weisberg (Thames & Hudson, Pounds 38) but he plays only a bit part in this truly international resurrection of dead reputations. This is a glimpse through the looking-glass into a world where Bastien-Lepage - not Manet, Monet or Cezanne - is king. A long overdue alternative history of 19th century European art.

Charlotte Gere's Nineteenth Century Interiors: An Album of Watercolours Watercolours (Thames & Hudson, Pounds 28) is a record of what must have been a delightful show at the Frick Collection, presenting over 60 faithful view of European interiors, from the grandest to the most humble.

Now that annus horribilis has drawn to a close, the present owner may well console herself by curling up with Christopher Lloyd's The Royal Collection (Sinclair-Stevenson, Pounds 25), a fuller-bodied version of what has proved to be an admirably lucid and ungimmicky television series.

THE translated English (by Imre Goldstein) of George Konrad's A Feast in the Garden (Faber and Faber Pounds 14.99, 395 pages) is rich and lively. This work is copious in every way, a magnum opus by one of Hungary's leading authors here, as he puts it on his second page, 'sentenced to examine myself. To dissect myself in the morgue of my own conscience.' The analysis is complex and difficult, full of vigorous reflections on fiction and morality, and takes the form of a kind of phantasmagoric symposium in which the author and the central figures of his world gather at a feast in his Budapest garden re-live, each in his or her own person, their lives as affected by the Nazi occupation of Hungary. Much of it is harrowing, yet the overall mood is life-affirming, and Konrad is able to luxuriate in his book's ingenious and prismatic structure.

HERE is the complete list of FT Children's Books of the Month for 1992.

January - The Future Telling Lady by James Berry (Hamish Hamilton, Pounds 8.99). A delightful collection of stories set in Jamaica by a distinguished Caribbean poet.

February - Swan Sister by Annie Dalton (Methuen, Pounds 8.99). A fantasy about a childs's abduction by swans set on the Suffolk coast.

March - Charlotte Sometimes by Penelope Farmer (The Bodley Head, Pounds 8). A school story in which Charlotte, a new girl at her boarding school, is projected back in time and finds an unexpected soul-mate.

April - I Saw Esau edited by Iona and Peter Opie (Walker Books, Pounds 9.99). A collection of school rhymes, some dating back many centuries, illustrated with gusto by Sendak.

May - Burning Issy by Melvin Burgess (Andersen Press, Pounds 6.99) Witches threaten the stability of a local community in 17th-century Lancashire.

June - A Bone from a Dry Sea by Peter Dickinson, (Gollancz, Pounds 10). An intellectually challenging mingling of past and present: an archaeological dig in present-day Africa; the dawning of consciousness of a tribe of humanoids . . .

July - So Far From Skye by Judith O'Neill (Hamish Hamilton, Pounds 8.99). A historical novel, set in the 19th century, that describes the forced emigration of Gaelic-speakilng families from Scotland to Australia.

August - The Magnificent Callisto by Gerard Benson, (Blackie, Pounds 5.99). An excellent first collection of children's verse: urban poems; puns; animal verse; Lear-like nonsense.

September - The Invaders by John Rowe Townsend, (Oxford, Pounds 8.95) A small, isolated island community is under threat from terrors of the present.

October - The Great Elephant Chase by Gillian Cross (Oxford, Pounds 8.99). A hectic journey across America with a circus elephant.

November - JM Barrie's Peter Pan presented by Eleanor Graham and Edward Ardizzone (Hodder and Stoughton, Pounds 12.99) Peter Pan re-told in novel form for children of six and above.

December - The Arabian Nights by Brian Alderson, illustrated by Michael Foreman (Gollancz, Pounds 14.99) Timeless tales of magic and wizzardry in a freshly accessible form.

AN ENCLAVE of 46 properties is being built above Vero Beach on the north east Florida coast - and the accents are more likely to be Scottish than American. For this is St Andrews Village, 12 acres of land between the coast and the inland waterway. The site was found by Len Sculthorp who, with his son Brian, is a partner in Edinburgh-based St Andrews Properties, which is developing the village.

The Sculthorp family plans to keep a corner for its own holiday home and build houses and apartments for sale on the rest of the land.

The first properties are just coming on the market and have been attracting the attention of Scots, although all buyers are welcome.

Both Sculthorps are chartered accountants - the son has also become a qualified real estate agent in Florida.

Until now the company has been converting and renting holiday properties in three complexes of farm buildings in Scotland.

Drawing on this experience, it is developing its first overseas project and the first in which it will sell the holiday homes.

The family's group of companies in Scotland, which includes a travel agency and a selling and rental agency, is able to assist buyers.

The site, in Brevard county, is 90 minutes' drive from Orlando's international airport and has an attractive range of entertainment attractions, headed by Disney World.

Vero Beach does not have an obvious tourist image. It is a waterside district of expensive homes screened from broad grass-verged roads by banks of shrubs and palms.

Residents, in appropriate transport, cruise along the 55-mile limit roads or the waterways running parallel with the coast. You rarely see anyone walking.

There are boutiques, hypermarkets and the Windsor polo club. The development company claims a year-round season, with European visitors in summer and north American visitors avoiding the harsh weather in winter.

The village is to have a choice of property types.

There will be a row of garden homes - pairs of single storey three-bedroom, two-bathroom houses, with multi-level roofs. They are designed so that each pair looks like a single detached house. Front doors are on different sides, so that no property overlooks the other's entrance.

With construction going ahead, they are now being offered on the market. They have large living rooms with vaulted ceilings, sizeable kitchens behind breakfast bars. Florida's favourite room, the gauze-walled lanai, that keeps off insects and the strongest of the sun's rays, forms an extension of living areas. There are integral garages.

Later, across the winding road running through the estate, there will be two-storey detached family houses.

But before that the Carriage homes will be available.

These are also an ingenious design by the Evans Group, an architectural practice whose ability to create interest through variations in ceiling heights and roof shapes has become a trademark.

These properties are two, two-storey pitched-roof blocks, each with eight apartments.

They have two or three bedrooms and two bathrooms, living room and lanai. Each has its own separate entrance and garage within the block.

Each apartment looks on to the Indian river waterway, getting the full benefit of sunsets.

In keeping with today's environment consciousness, the company uses aluminium studs in the construction, which it says saves timber.

Some of the area available for development includes land used as a breeding ground by sea turtles. That part of the cabbage-palm and scrub-oak covered land is being left untouched.

The estate will have a lake, communal swimming pool, boat dock and fishing pier. An adjoining larger development has a tennis club that St Andrews residents can join.

There are golf courses within easy reach. The estate will be gated and have on-site management.

St Andrews Properties will handle renting for owners if this is required. Property prices range from about Pounds 75,000 to Pounds 100,000, depending on the exchange rate. Related expenses will average about Pounds 300 a month.

Foreigners cannot normally spend more than six months of a year in the US.

The company suggests that this rule, where it applies to the retired, may be eased in four or five years, but other people are not quite as optimistic.

Assuming a buyer took a 70 per cent mortgage, which should be possible, and allowing for costs including a furniture package, total funds required initially could be from Pounds 32,000, according to the company's estimates.

It suggests other financing options, including shared or company ownership.

St Andrews Properties is prepared to market rentals through its connections in Florida, Canada and estimates owners could break-even on finance and property costs from about 50 per cent rental occupancy.

Further information from St Andrews Village, Florida, tel 407 952 5298, or in the UK from St Andrews Properties, Edinburgh, 031-552-0666.

A large choice of developments are offered as holiday home-cum-investment dealsin Florida and there is a lot you should know before you buy. Some areas have restrictions on short-term letting - although not Brevard county - and the competition is intense.

Lindsay Cameron, director of the trade and investment division of Florida Department of Commerce, in London, says Florida is not quite as aggressive as California in that respect.

But people who take a Florida holiday and decide they want to buy and let, should not rush into anything.

Certainly they should not plan to build themselves, without information about the zoning and planning laws.

These aspects are becoming a lot tougher, says Cameron. It could prove very costly and time-consuming putting right a wrong choice.

Too many people in holiday mood do not do the sort of checking they would if buying a property at home. Talk to knowledgeable people in the district, before you make a decision, advises Cameron.

There are local chambers of commerce in all areas. They will recommend a responsible broker, or property lawyer, to guide you.

THE 22-year-old American, Jim Courier, narrowly, and the remarkable 18-year-old Monica Seles outstandingly, were the best players of 1992. They head my annual rankings which have been unusually difficult to compile, particularly for the men.

A year ago Stefan Edberg was the best male performer and his tussle with Courier for the No. 1 ranking on the ATP tour computer has been one of the features of the year. The computer, though, does not tell the whole story. Only a player's best 14 results are taken into account. Furthermore, there is too small a differential between the four Grand Slam Championships and the other events. Nor does it include the Olympic Games - a serious omission. Judgement must be brought to bear on the worth of each particular performance, depending on the stature of the tournament and strength of the field.

Courier's two Grand Slam successes in Australia and France were not matched by anyone else, and his dominance during the early part of the year - when he won three other titles - kept him ahead of Edberg. But the Swede had a fine year. He retained his US Open crown with an amazing performance of physical and mental resilience, was a finalist at the Australian Open and won two other titles.

Andre Agassi's dramatic victory at Wimbledon, his first Grand Slam success, was the season's outstanding performance. Taken with his wins in Atlanta and Toronto, plus his contribution to the winning Davis Cup effort by the US, put him in third place.

It was difficult to separate Goran Ivanisevic, a left-handed Croatian who served 1,066 aces during the year, and the powerful American Pete Sampras, another 20-year old. Ivanisevic was a finalist at Wimbledon, Sampras at the US Open - both reached the semi-finals at the two season-ending extravaganzas, the ATP Tour Championships and the Compaq Grand Slam Cup. Sampras reached the last four at Wimbledon but Ivanisevic did the same at the Olympics where Sampras only reached the third round.

Boris Becker won five tournaments and although he failed at the Olympic Games, his late-season charge at the ATP Tour Championship in Frankfurt was of such quality that I place the 25-year-old German ahead of the Olympic champion Marc Rosset.

He crushed Ferreira; he annihilated Courier, supposedly the world's best clay court player, he beat Emilio Sanchez in his home town before ending the brave run of an exhausted Ivanisevic. In the final Rosset fought back to beat the local hero Jordi Arrese in five sets.

Michael Chang won three early tournaments and, after failing to impress in three Grand Slams and the Olympics, produced some remarkable tennis to surge to the semi-finals of the US Open. There he pushed Edberg to the limits in one of the year's best matches.

In the women's game it was Monica Seles first, the rest nowhere. She won 10 tournaments and in the year's great events was defeated only at Wimbledon. There it was as much the grunting issue as Steffi Graf's superb play that led to her defeat. It is hard to believe that this remarkably mature double-hander is still 18.

Graf, also the finalist in Paris, was a clear second. Her defeat in the Olympic final at the hands of Jennifer Capriati was a terrible blow to her confidence and may have contributed to a dismal end to the year. She fell to Sanchez-Vicario in the quarters at the US Open and to Lori McNeil in the first round of the Virginia Slims.

Sanchez was a worthy third by virtue of her insatiable appetite for work (she played a record 167 matches in 1992) and her consistency. Arantxa won two tournaments and was the finalist at the US Open. She reached the last four at the Australian and French Opens. She beat Graf at the US Open. Her victory over Seles was at the minor Canadian Open.

The Olympic win by Jennifer Capriati over Graf, plus her defeat of Seles in the quarter-finals of the Lipton in March, lifted the 16-year-old to fourth. It was the manner of those wins that was so impressive - a fearless search for the lines with raking drives, plus the odd excursion to the net behind some intelligent serving.

Gabriela Sabatini had a disappointing year with three semi- finals the sum of her Grand Prix efforts. The prospect of her building on her 1990 US Open win seems more and more unlikely as the pack of younger players closes in.

JOHN BARRETT'S WORLD RANKINGS FOR 1992

(last year in brackets) MEN: 1 Courier (2), 2 Edberg (1) 3 Agassi (7) 4 Ivanisevic (-),5 Sampras (8), 6 Becker (3), 7 Rosset (-), 8 Chang (-), 9 Petr Korda (-), 10= Ivan Lendl (5) & Wayne Ferreira (-).

WOMEN: 1 Seles (1), 2 Graf (2), 3 Vicario (5), 4 Capriati (7), 5 Sabatini (3), 6 Mary Joe Fernandez (6), 7 Manuela Maleeva-Fragniere (10), 8 Martina Navratilova (4), 9 Conchita Martinez (9), 10 Natalia Zvereva (-)

JUST BEFORE the snows came in Switzerland's picturesque Grisons region, the farmers of Davos and Klosters brought their herds of cattle down from the Alpine pastures in a ceremony known locally as die Schwiegermutter begraben - 'burying the mother-in-law'. The mother-in-law, in this slightly uncomfortable analogy, is the symbol of the barren and empty alp.

The arrival of snow changes the whole personality of a ski resort. Most skiers rarely worry about what lies beneath the snow they are skiing on. But it is often useful for high-mountain guides to 'walk' off-piste terrain during the summer or early autumn months to complement the understanding of snow conditions, depths and hidden hazards they may encounter with skiers during the winter. It is especially useful in glacier regions to gauge the extent and drift of crevasses.

Seeing a ski resort without snow can be a fascinating experience. The universally-feared Streiff run on Kitzbuhel's Hahnenkamm looks almost idyllic without the layer of sheet-ice deliberately engineered to prevent racers breaking through and catching a potentially-disastrous edge. Zermatt's steep slopes are awash with colour as wild flowers delight the eye and scent the breeze.

Like a steep-sided meadow, the dreaded Gotschnawang area in Klosters - where five years ago an avalanche killed Major Hugh Lindsay and came close to engulfing his friend, the Prince of Wales - looked extraordinarily bland and innocent as the late afternoon sun lingered lazily on its leafy banks. It is dangerous because it is prone to avalanche rather than because it is technically difficult.

We walked up and over the great Grisons alps between Davos and Arosa, a tour undertaken over a century ago by Sir Arthur Conan Doyle, the first Briton to accomplish this route on skis. His wife was being treated for tuberculosis at a clinic in Davos, a town that acquired a name as a centre where TB sufferers could convalesce.

In Conan Doyle's day, Davos was just beginning to earn its reputation as one of Europe's classic winter sports regions, a natural progression from its earlier fame as a health resort.

The walk is long and arduous but the scenery, wild flowers and plants are sufficiently stirring to compensate. Occasionally we glimpsed giant ski-lift pylons in the distance which seemed out of place without snow on the ground.

Conan Doyle made light of his epic tour in an article he wrote for Strand Magazine 100 years ago. 'You adjust your body for a rapid slide', he wrote, 'but your 'ski' stick motionless and over you go upon your face. Or you stop for an instant to tell a group how well you are getting on and they suddenly find that their congratulations are addressed to the soles of your 'ski' tied tightly round your neck]'

His ski tour de force was only one of many 'firsts' at Europe's highest town (5,118ft) and Switzerland's largest ski resort. The first English ski club was formed here in 1903 and the world's first tow bar was built by a young German engineer, Gerhard Mueller, with the help of some old motor cycle parts.

In 1931, the first funicular railway specifically for skiers was installed up to the Weissfluhjoch and three years later Erich Constam installed the world's first 'proper' drag lift. Some of Europe's first recreational skis were tried out here, too.

A pair found their way to Davos from Norway and the village carpenter set out to try to make duplicates.

Some of the local youths tried them out and struggled manfully to control them, in spite of their vast length and lack of edges.

Although it is famous principally for its Parsenn mountain (skiing up to 9,300 ft), the long run down to Kublis and beyond (14 km) and the exhilarating Derby run down to Kublis or Klosters, Davos has a wealth of skiing spread in almost all directions. There are five main ski areas - Parsenn, Jakobshorn, Rinerhorn, Schatzalp/Strelpass and Pischa, with almost 90 runs between them totalling 320 kilometres of pistes.

The Madrissa side of Klosters provides gentler skiing and an opportunity to make moderately easy tours into Austria's Silvretta region.

The Parsenn/Weissfluh slopes provide the heart of the Davos skiing, linking with Strela above Davos Platz and the Gotschna area above Klosters. There are long, picturesque and not particularly difficult runs fanning out in almost all directions.

Some of the north-facing runs down to Klosters are testing, particularly Drostobel. And, of course, there is always the Wang. If it is open, ski it. If it is closed, stay well away.

As for the tour to Arosa, it is doubtless easier, cheaper and safer in summer than winter. After all, climbing on skins is much more difficult than bounding up in decent walking boots.

Arnold Wilson travelled up and down the mountains between Davos and Arosa on skis in winter and on foot in summer as a guest of the Swiss Travel Service, Bridge House, Ware, Hertfordshire SG12 9DE. Telephone: 0920-463971.

THE SPORTING year was dominated by Juan Antonio Samaranch's little joke. In 1992 he took the Olympics to his home town, Barcelona, in the high summer weeks known locally as the canicula - the dog days. These are the hottest and most humid time of the year. In 1992 they were hotter and more humid than normal, the worst weather for athletes, the vast bulk staying in the unairconditioned Olympic village. It was merely uncomfortable for everyone else.

Yet everybody left praising the event. This was largely because of the hosts' efforts. They missed no detail and spared no expense. But the crowning moment of Samaranch's Olympic presidency has left his home city, his home region and his home country with debts no-one can yet bring themselves to count.

The run up to the Olympics was dominated by unpleasantness away from the track about politics, drugs and money. Most worrying were the drug scandals involving sprinters Katrina Krabbe of Germany and Butch Reynolds of the US and attendant litigation.

Yet in Barcelona all these nasty odours evaporated. The biggest drugs bust of the Games, three Britons caught by testing at home before the games, was largely ignored by the world's press. The only way to catch steroid users is with expensive and sophisticated out-of-competition testing. This is beyond the means of most developing nations and beyond the will of some of the richer ones, notably the US.

Without doubt medals at Barcelona were won by drug cheats. The choice lay between suspecting everyone and giving competitors the benefit of the doubt. Trust won the day.

The atmosphere at the games was improved by the hosts astonished pleasure at their own success. Spain had won four gold medals in all the previous summer Olympics. In Barcelona it won 13. One of the most memorable was Fermin Cacho's charge through the field in the 1,500m gold accompanied by the swelling roar of the 70,000 Montjuich crowd.

The fans in Spain were not simply partisan. They roared every jump by US athletes Mike Powell and Carl Lewis in the long jump final. Lewis won by 3cm.

Sergey Bubka's fall from the pole vault firmament was greeted with embarrassed murmuring as the spectators politely pretended they were watching something else.

Paraskeve Patoulidou surged across the line in a tumble of bodies in the women's 100m hurdles final and then did a slow, delicious double-take as the replay showed that she had won. It was the first ever athletics gold by a Greek woman. Before 1992 white South Africans had claimed all three athletics medals won by African women. Now there were golds for Hassiba Boulmerka of Algeria in the 800m and Deratu Tutu of Ethiopia, who beat Elana Meyer of South Africa in an emotional 10,000m, and bronze for the Nigerians in the 100m relay.

Quincy Watts and Kevin Young of the US, floated round the track as if borne by angels as they broke records and won golds in the 400m and 400m hurdles respectively.

Some were memorable in defeat: Derek Redmond of Great Britain limping round the track on a torn hamstring, in the 400m heats. Brave 32-year-old Johnny Gray of the US, went for broke in his last Olympics only to be caught at the last by William Tanui and Nixon Kiptrotich at the end of an exhilarating 800m final. The warmth and generousity of his post-race press conference provided a welcome vital sign for the Olympic ideal.

Britain's two triumphs on the track were achieved in overpowering style. Linford Christie ran away from the field in the men's 100m and Sally Gunnell did the same in the women's 400m hurdles.

Away from Montjuich, the games were dominated by the Dream Team, a group of US professional basketball stars who were there for all the wrong reasons, welcomed in the hope that some of the fame and wealth might rub off on their rivals. Maybe it will. The Dreams worked as hard at PR as they did on the court, won the gold at a stroll and allowed two of the games great stars, Earvin Magic Johnson and Larry Bird, to take final bows of their careers on the world's largest stage.

The British discovered cycling when Chris Boardman ripped to the 4,000m pursuit gold medal on his high-tech Lotus bicycle. The cycle was largely the work of Rudi Thomann, a French engineer: never mind, it still revived Britain's dimming faith in its technological wizardry.

Technological superiority lay behind Nigel Mansell's Formula 1 world championship. If Mansell had been with any other team his Williams car, which possesses far more charisma than him, would probably have won anyway. Mansell felt unappreciated and plans to race in the US. Frank Williams, the team proprietor, sent him on his way with the words: 'He thinks he is a superstar. In fact, he is just a lot richer and a bit quicker than he was four years ago when he joined us.'

Mansell was one of a trio of dour, awkward, men who dominated British sport in 1992. The second rather let his mask slip. Nick Faldo burst into tears after winning his fifth major, the Open at Muirfield. 'I'm just an emotional little petal,' he said.

The spiritual leader of this threesome is Graham Gooch, patron saint of Essex men. Gooch led his county to the championship, again, took England to the World Cup final. Gooch resisted stubbornly against Pakistan's pace pair of Waqar Younis and Wazim Akram in the tests. But England lost a thrilling series. Afterwards, Gooch dropped David Gower, hero of the last test and embodiment of the English sporting ideal of diffident public school boy, from the party to India. His place is taken by the archetypal pugnacious state school lad: Mike Gatting.

Gooch knows when to grind and when to unfurl his undoubted flair. The same could not always be said of England's other two national teams - although both showed signs of a developing sense adventure. England's rugby union team added a little flair to the physical grind on their way to another five nations championship and then dispatched South Africa on their return to Twickenham.

Meanwhile, Australia beat everyone in the southern hemisphere before popping over to Ireland and Wales for yet another triumphant tour, entertaining themselves with with a little sniping at England. They were popular tourists with everyone except Will Carling, the England captain, and Neath rugby club, whose allegedly below-the-belt tactics led Wallaby coach Bob Dwyer to dub it 'the bag-snatching capital of Wales.'

England's increasingly neurotic soccer team trudged to the European championships where it was the dullest and dourest of a collection of dull and dour teams. The only sunshine came from Scotland, who had the courage to play expansive soccer but lacked the nerve to score goals.

The final was a fairy tale of sorts. The Danes late replacements for Yugoslavia, beat Germany, the world champions in a style more Brothers Grimm than Hans Christian Andersen. The Germans tried to win with organisation and work rate, which the Danes had by the bucket load, rather than imagination and flair. Fittingly, the crucial goal was scored by Danish midfield clogger John Jensen.

The grand old ladies of soccer, the English Football Association, fooled by blandishments from 22 soccer chairmen, dropped its petticoats. The unwelcome offspring was the new Premier League, child of greed. However, if Norwich City, Blackburn Rovers or Ipswich Town break the long rule of the wealthy big city teams and win the inaugural title, the whole sordid affair will have had one good result.

The only beacon of hope in the European soccer year has been the Italian league. AC Milan demonstrate that you can win playing stylishly and Paul Gascoigne, who raises the England team above the cynically mundane, is treated with more care than he could expect in his overworked home league. With any luck the Italians will buy the Welsh teenage prodigy Ryan Giggs before he is destroyed by too much overly-physical English soccer.

As the year ended the drug scandals re-emrged. In Reynolds' dispute with Primo Nebiolo, Nabob of the International Amateur (sic) Athletic Federation, an Ohio court awarded the runner Dollars 27.3m. Nebiolo refused to contest the case, arguing that civil courts have no right to rule on its drug suspensions. He has a point. There are many nations in which the courts could not be relied on to find against national sporting heroes, regardless of the merits of the case. But the Ohio court did not object to the principle that the IAAF should ban athletes, it objected to the high-handed way Nebiolo had dealt with the case. If 1992 has demonstrated one thing it is that a spot of purse snatching concentrates administrators' minds. If the US court forces the IAAF's corporate sponsors to hand over the Dollars 27.3m, the year's last laugh will be against Samaranch's most powerful courtier, the unappetising Nebiolo.

SIX snapshots from St Lucia:

First snap, 9.30am: I am sitting on the veranda of my cottage at Jalousie Plantation, listening to the birds, listening for the rain, and watching the rainforest stir and resettle. There are butterflies flickering. It is early December.

Jalousie Plantation is the latest word in luxury hideaway Caribbean resorts, so I am flicking through the PR bumf, comparing what it says with what I see around me. For once, the PR hooligans and harridans have met their match. They cannot be gainsayed. In the calm of this beautiful morning their superlatives seem gnat-sized in comparison with the scene laid before me.

According to the bumf: 'Situated on 320 acres of a former sugar and copra plantation, in its own private estate set against the waters of the Caribbean Sea, Jalousie Plantation is a site spectacular, even for the Caribbean.

'Framed between the symbols of St Lucia, the Petit Piton and Gros Piton mountains, which rise 2,619ft and 2,461ft respectively, the creators of this new resort have painstakingly disguised it to blend in with Mother Nature.'

That is all extremely true. To my left and right are Gros and Petit Piton - dramatic volcanic upthrustings, arrowhead-shaped. When it rains, the pitons shed instant cataracts, like a young bride's tears. Yesterday, a woman was injured while climbing the Petit Piton. She should not have been on it. Illegally, guides take tourists up for about Dollars 20. The woman had to be rescued: soldiers, a helicopter, really quite a flap.

The sea is in front of me, lapping the beach at Jalousie Cove where some fishermen are located. This is an all-inclusive resort. One price covers everything: accommodation, meals, drinks, sports, spas, supervision of children, airport transfers, taxes and service charges. Apparently, I can ask one of these fishermen for the catch of the day and have it charcoal-grilled at the Bayside Bar and Grill, one of the resort's four restaurants, before my very eyes.

Behind me is a dense rainforest ridge from which the plantation and its tropical flora cascade to the cove. Part of the estate is regarded as a bird sanctuary, to help attract the green Jacquot parrot, St Lucia's national bird, which is said to be endangered, no doubt due to foolishness. Jalousie's efforts at plant and birdlife conservation have won the approval of Dr Josephine Rickards, chairman of the St Lucia Naturalists' Society.

The rain has not come. I bin the PR bumf. Shall I swim in my private plunge-pool or go in search of the elephant?

Second snap, 9.30pm. I am having dinner with Colin Tennant - Lord Glenconner - who is an investor in Jalousie, and Robert Stewart, general manager. Some of the antiques in Jalousie's Great House have come from Glenconner's homes in Mustique, Scotland and England. He lives in a house high above the cove, at the foot of Gros Piton. The house is murder to get to though the view is sensational. Glenconner is a scrupulously courteous man, and inexhaustibly knowledgeable about the Windward Islands and their ways. He has lived in St Lucia since 1979.

Between courses, I tell him about my theory that travel writing should be judged not on what it includes but on what it leaves out.

'Such as?'

'Well, wodges of historical stuff chucked in as padding.'

'I see. Much of it is wrong, you know. Someone gets the history wrong and then it is repeated, handed on down. I feel sorry for tourists, you know. They don't see very much. All they see is an extremely small part of things - not how people live, how they really are.

'And inaccuracies abound. For example, all the guides and guidebooks say St Lucia has a 'drive-in volcano,' but it is neither volcano nor drive-in. If you ask me, the volcano was out here' - he gestures towards Jalousie cove - 'between the pitons. What the tourists are shown are merely sulphur springs associated with volcanic activity. I could be wrong, however.'

'How about that parrot? Is it really endangered?'

'I don't believe it is. Someone I know sees one nearly every day.'

'And how about your elephant? Is she generally around?'

'Ah, Bupa the elephant. She's in the bush right now, but certainly she's about. A very good elephant. She would answer my call from anywhere on the plantation.' Bupa is a 16-year-old African elephant that Glenconner purchased in Dublin and shipped to St Lucia. 'She's very kind at heart, and very fond of pigs. She doesn't sleep at night. Do you know what she does? She cracks open coconuts and puts them in a line for when the pigs wake up.'

Third snap, 10am the next day. I am pottering round the volcanic springs, south of Soufriere: about an acre, grey and brown mudpools, a gentle hissing of steam. Really rather tedious. An eruption is not predicted. After that I drive into Soufriere, which is tatty and poor, but not without charm, and demonstrates the extreme vulnerability of many old Caribbean towns to storms and hurricanes. Some of Soufriere's shanties could be demolished with a cough. The people are nice, though: as slim as sticks of sugar cane, and not at all hustly.

Fourth snap, 12.45pm. I am riding with Glenconner, heading for his house along a track of unbelievable ruggedness. He chatters on cheerfully. 'The mangoes here are very fine, you know. I believe there must be 20 to 30 species, though it is almost impossible to find anything about them in books. Do you see that one? That is mango morte. I tried it once. Its taste is said to be reminiscent of human flesh. Rather a fine tree.'

Fifth snap, 4pm. I am back at Jalousie, sitting near the beach, pondering the state of marriage, of which I have no experience. Was it diffidence, I wonder, the curse of the English, that stopped me getting married, or am I one of Nature's swingers, born to be single? What is prompting these musings is the press of honeymooning flesh parked by the swimming pool: bronzed pecs and breasts basted and sauteing.

Perhaps, it occurs to me, a marriage inaugurated and consummated at Jalousie would not die with a whimper. I snatch up a description of Jalousie's rates and packages. The Jalousie wedding, it says, is something never to be forgotten.

It says that couples that get hitched at Jalousie will receive, at no extra charge, 'upgraded accommodations (depending on availability), a wedding ceremony (with surcharge for the attendance of officials, the rate depending on denomination), bouquet, dress (an extravagant wedding gown, created in St Lucia, is available, free of charge), decorated wedding site, cake (three-tier), cocktail reception with hors d'oeuvres, gala dinner and a bottle of French champagne. Other services available for a surcharge include: professional photographer, video services and special dance band.'

The Jalousie honeymoon also sounds auspicious: 'At the dawn of each day, the couple can request a special breakfast in the privacy of their own patio by the plunge-pool. A candlit dinner for two on the night of their choice also awaits, as does a private day on a deserted beach with an exotic picnic lunch . . . Each night, as the sun sets into the Caribbean, a personalised Good Night Treat will be in the room.' Again, there is no extra charge for the 'honeymoon programme.'

I wander up to the reception desk. I am more than half tempted to ask to view the indigenous wedding gown, to see if it would fit anyone I know. But my courage evaporates; diffidence reasserts itself. They would think me frivolous, my inquiry half-baked. I shrink away silently, a violet in the rainforest.

Sixth snap, 5.50pm. The sun, an orb of palest gold, is propped on the horizon, about to disappear. The sea is pewter coloured. An hour ago I scrambled through the bush in search of Bupa the elephant. An extremely kind elephant. A lover of bananas. Remarkably long eyelashes. No sign of her pigs.

It has been a perfect day. I realise that I am sitting in the best spot in the best location of what many people regard - scenerywise, peoplewise and otherwise - as the Caribbean's most attractive island. I am reading Travels With My Trombone: A Caribbean Journey, by Englishman Henry Shukman, who tells of travelling by cement boat from Dominica to Trinidad. As they pass an ink stain above the horizon which he guesses is Martinique, a crewman approaches him and asks: 'Checking de island? That Mattnick.'

'Mattnick?'

'Yeah. Martinique. Dey is French.' The crewman rests his elbows alongside Shukman's. 'I don't like Martinique,' he says.

'Why not?' asks Shukman.

'De people is very stick to deyself.'

'Which island do you like?'

'Saint Lucy,' replies the crewman. 'Saint Lucy sweet, man.'

Michael Thompson-Noel was a guest of Jalousie Plantation, and travelled c/o British Airways. Until April 11, rates at Jalousie vary from Dollars 240-Dollars 460 per person per night in a double suite or cottage; after that: Dollars 215-Dollars 375 per person per night per couple. Children under 12 are free if staying with parents. Children 12-15: add Dollars 70 per night per child.

Jalousie is managed by Premier Resorts & Hotels of Miami, reservations (US and Canada): (800)-877-3643; all other countries: (305)-856-5405. In the UK, Premier's agent is Supereps, tel: 071-242-9964. The resort is also listed with various UK tour operators, including Caribbean Connection, Elite Vacations, Harlequin Holidays and Happiness Islands. Jalousie Plantation's address: PO Box 251, Soufriere, St Lucia, West Indies, tel: (809)-459-7666.

Jalousie is an hour by road or boat from Hewanorra airport; apart from BA, Hewanorra is served by Air Canada, American Airlines, BWIA and LIAT. There is a smaller airport, Vigie, at the other end of the island, near the capital, Castries. The temperature on St Lucia is said to vary only between 77oF-82oF year-round.

Travels With My Trombone, by Henry Shukman: HarperCollins, Pounds 14.99.

EVEN IN our democratic age the nobility has a way of selling things. It was not so long ago that a biscuit company engaged the services of a ducal pair to sell its products: 'Mmmm, orangey,' said her grace, as she nibbled away.

The use of noblemen and women in television advertisements panders to snobbery, but the attachment of aristocratic names to dishes has a more interesting history: partly based on the tradition of patronage and, in France at least, on a certain notion of gastro-erotica at the time of Louis XV.

It was rarely, if ever, noblewomen themselves who were behind the dishes which bore their names. The Marechale de Soubise never sullied her delicate hands with onions any more than the Duchesse de Mailly spent her time experimenting with baby-rabbit fillets. These dishes were the inventions of cordons bleus. Their purpose was to tickle the palate of His Gourmand Majesty. Any female courtier who came up with something special might well be considered next in line for the royal bed.

As we all know, the British do not have sex. There is nothing in the least bit sexy about a sandwich, even if the noble earl of that name did lay down the law as to how it should be made. Boeuf Wellington might have a more aphrodisiac effect, but the origins of the dish almost certainly predate the Iron Duke's time. When we come down to it, most people in Britain would rather have a cup of tea.

As it so happens, our most famous tea also bears a noble patent; that of the second Earl Grey. This particular Earl Grey was a busy man, a Whig grandee who introduced the Great Reform Bill in 1832 which began the process which ended with the democratisation of these islands. Did he then have the time to nip off to China in order to put together the blend of black teas and oil of bergamot which bears his name?

Tony Wild, of the East India Company, says definitely not. He and his researcher, Robert Baldwin, have been through the Grey papers at Durham University and found no evidence that the noble lord had anything to do with the Earl Grey blend.

In a lecture delivered to an invited audience at the Victoria & Albert Museum last autumn, Wild poured scorn on the many legends which have grown up surrounding the tea: there was no truth in the story of Grey even visiting China, let alone saving the life of a Mandarin who, in gratitude, taught him his recipe for tea with the oils of bitter oranges.

Wild advances his own theory as to the origins of the blend. He traces the tea back to the circle of Sir Joseph Banks, the natural scientist, who edited the official account of the McCartney Mission to China in 1792.

The account contains a good deal of information on tea growing including the promiscuous planting of tea bushes and orange trees. Banks was also known to be passionate about tea.

One of Banks' friends was Sir George Staunton, whose father, another George, was part of the McCartney mission. Wild has uncovered some circumstantial evidence to show that Staunton might have dreamed up the famous blend, and has consequently marketed a new Earl Grey tea called 'East India Company Staunton Earl Grey'.

Rather more likely, however, is that Jacksons of Piccadilly simply asked the famous reformist Earl Grey for permission to attach his name to their new creation. Grey was after all, something a hero for the newly enfranchised middle classes: the tea was bound to sell.

Wild believes he may have caused a storm in a teacup by these revelations but the sixth Earl Grey seemed fairly apathetic when I spoke to him: 'He's just trying to launch his new brand, and good luck to him,' he said charitably.

The noble lord, who appends his signature to the Twinings brand, admits that the second earl - to whom he refers quaintly as his 'predecessor' - 'never went to China' thereby refuting the version of the story written on the Twinings' packet.

Lord Grey seemed most struck by Wild's claim that he was earning a fortune from Twinings for 'legitimising' the brand. As for the rest he simply was not going to rise to the bait: squabbles of this sort are simply too infra dig.

GINGER IS said to bring good luck. Will the eating of it early in 1993 lessen the chances of another annus horribilis, I wonder? In the hope that it will, I am planning to eat a good deal of it on Twelfth Night. This sheds new light on the notion of going gingerly into the new year.

The easiest way to guard against bad luck might simply be to crack open a porcelain jar of stem ginger in syrup and treat it like a fondue: give everyone a fork for spearing the nuggets and offer bowls of whipped cream or creme fraiche for dipping, and squares of best bitter chocolate (Black & Green's) to nibble on the side.

I also like the idea of making an Italianate ginger trifle - using panettone instead of sponge cake, Marsala as the booze, and a mixture of sliced stem ginger, segments of clementine and well toasted hazelnuts under billowing layers of custard and cream.

Already a festive favourite in this household is a ginger cake made along lines traditional in Cumberland, Westmorland and Yorkshire.

In those areas celebratory dishes are often laced with such ingredients as rum, molasses and all manner of spices. These recipes are a link to the flourishing trade in times past with the West Indies and Far East, and they serve as a reminder that Whitehaven was once one of the most important ports in Britain.

Old cake recipes like the one which follows are often known as pepper cake, rather than ginger cake. This may be because freshly ground black peppercorns are sometimes included for extra aroma and heat.

It is more likely, I think, to stem from the more frequent inclusion of Jamaica pepper. This is the small brown berry native to Jamaica, a little larger than than a peppercorn and not actually a true pepper at all, better known today as allspice.

Its name derives from the fact that it is thought to have something in its aroma of cloves, cinnamon and nutmeg combined.

A cake like this will only taste as good as it should if allowed to mature for four or five days between baking and eating. So there is no time to lose. Make it today and serve it on Twelfth Night for a lucky 1993.

Serve it for tea, sliced just as it is or spread with butter. Or, for a delicious pudding, top fingers of the cake with whipped cream or creme fraiche and serve them alongside a dish of Cox's Orange Pippins or Kidd's Orange Reds cut into crescent moon slices and fried in butter until gilded and sizzling hot.

YORKSHIRE PEPPER CAKE Heat the oven to 325oF (170oC) gas mark 3. Butter a deep 8 in sq cake tin and line the base with buttered greaseproof paper.

Stir together in a large bowl 6 oz plain flour, 2 oz rye flour (or wholemeal in the absence of rye flour), 1 1/2 teaspoons bicarbonate of soda, 1 tablespoon ground ginger, 1 1/2 teaspoons of ground cinnamon, 1 teaspoon ground Jamaican pepper (in other words allspice) and 1/2 teaspoon freshly ground black pepper. Make a well in the centre.

Mix together in a separate small bowl some stem ginger chopped into small pieces and some sultanas or dates, 7 oz in all, say 4 oz ginger and 3 oz sultanas or dates. Sultanas add juicy sweetness. Dates, which should be stoned and chopped, give the cake a delicious fudgey quality.

Dice 4 oz butter into a saucepan. Drizzle over the fat 6 oz each strong dark honey, such as heather, and black treacle. (If preferred the 12 oz of sweetener can be made up of equal weights of unrefined brown sugar, honey and black treacle.)

Warm gently over low heat, stirring now and again, until the butter has melted and the ingredients are blended.

Set the pan aside to cool the contents a little while you break 2 eggs into a cup and mix into them with a fork 2 tablespoons milk.

Then pour the warm butter and treacle mixture into the bowl of spiced flour, and beat with a wooden spoon until smooth and glossy, gradually adding in the beaten eggs.

Stir in the chopped ginger and sultanas or dates. Turn the mixture into the prepared tin and bake for about 70 minutes.

Cool on a rack and wrap tightly as soon as cold in fresh greaseproof paper and foil. Store for four days before eating.

in the kitchens of Istanbul. Old cookery books are being scoured in search of lost kebabs and forgotten pilaffs. Restaurants are opening dedicated to the cuisine of the palace and the pashas rather than the food of the bazaar.

Even for the most jaded palate, Ottoman food is an adventure. Among its delights are sour dried plum, tripe soup with garlic vinegar and chicken pudding.

In a domed and arcaded courtyard beside the Suleymaniye Mosque, built by Suleyman the Magnificent in the 1550s, the Sultan established a soup-kitchen where the poor and the pious were fed at his expense. Last year a superb Ottoman restaurant, called Daruzziyafe, opened in the courtyard and the adjacent halls.

Among the best dishes in the long and elaborate menu are red lentil soup (Suleymaniye Corbasi), artichokes stuffed with minced meat, a special kofte (minced meat) of lamb, chicken and pistachios wrapped in wafer-pastry (Yufkali Daruzziyafe koftesi) and asure, a Ramadan pudding made of nuts and fruit. Since the restaurant site is still part of the Suleymaniye Mosque complex, alcohol is not served. Who needs wine, when sherbet of grapes, strawberries or the hips of wild roses are automatically brought to your table?

In a traditional part of Istanbul, south of the Golden Horn, the Daruzziyafe has a faintly austere atmosphere: it is especially popular during Ramadan, with the congregation of the Suleymaniye mosque. The Tugra restaurant, on the other hand, is in a different world: a 19th century sultan's palace on the banks of the Bosphorus, which has been transformed, in the last two years, into the Ciragan Palace Hotel, the most sumptuous in Istanbul. Vedat Basaran, the restaurant manager, trained in London, and spent two years researching Ottoman food, teaching himself Ottoman script in order to read old cookery books. The son of a palace chef, Karamehmet Zennegolu, provided him with another link with the lost world of Ottoman food.

Ottoman cuisine, a mixture of Central Asian, Middle Eastern and Mediterranean influences, has always been sophisticated, some dishes requiring days of preparation.

In every self-respecting pasha's household two sets of vegetables were served at meals: cold vegetables in oil and hot vegetables cooked in butter. In the Tugra restaurant, lavishly redecorated in the style called 'Saudi Hollywood', the food is prepared with a devotion to detail worthy of the palace kitchens.

Fish is grilled on wood cut from a fresh bay tree, so that the heat blends the flavours. Quails are cooked inside giant aubergines, and lamb is grilled with peeled root of aubergine, in order to absorb the flavour of what Ottoman cooks considered the 'king of vegetables'.

Among the puddings Hunkar muhallebi, milk pudding with wild strawberries and pistachios, is delicious. I hope the famous Ottoman pudding called tavuk gogsu, available in many local shops, will soon appear on the menu. Made of chicken meat beaten to a smooth pulp and then cooked with milk, sugar and cinnamon, it was frequently served to foreign guests:

In the late 19th century the deposed Sultan Murat V was immured in Ciragan Palace for 28 years, by his brother Sultan Abdulhamit II. The best French brandy and champagne helped console him for the loss of his throne and his freedom.

Guests in the Tugra restaurant can follow the Sultan's example, but they should try some Turkish wine. The Kavaklidere company produces good products.

In spite of the grandeur of these two restaurants, and the excellent service, on some evenings, overwhelmed by crowds, the food can be bland. Just as enjoyable was the Asithane Restaurant, in a simple district of Istanbul beside the Byzantine splendour of the Kariye Camii. The chef Rasit Ozdemir is from Bolu, a province famed for its cooks. His fava (broad bean paste) and Visneli Ekmek Tatlisi, bread soaked in sour cherry syrup - a distant Turkish cousin of summer pudding - were especially good. Pilaff or pilav is a speciality of Turkish cooking: the crack troops of the Ottoman army, the Janissaries, loved it so much that they used rice cauldrons on regimental banners. In all three restaurants the pilaff was excellent and the Asithane restaurant served a variety new to me and my Turkish hosts: Kadirga Pilav (rice with almonds, pistachios and herbs served au gratin).

All three restaurants provide a reinterpretation, rather than a revival, of Ottoman cuisine. The energetic young manager of Daruzziyafe, Alper Okutan, admits: 'Sometimes you have to modernise something. You don't have the exact material.'

Vedat Basaran is determined to introduce what he calls 'a new concept of Ottoman cuisine', adapted to the demands of the modern restaurant, and the need for attractive presentation on the plate. He says: 'We are trying to bring out the old recipes according to new methods.' Instead of whole chickens, stuffed with pistachios, oriental rice and spinach, visitors to the Tugra restaurant are served stuffed breast of chicken, which used to be served to Ottoman dignitaries. The deadening influence of nouvelle cuisine is apparent: a few mixed vegetables on the side of a plate often replace the traditional platefuls of the same vegetable. The iceberg lettuce has ousted local varieties. Some members of the Turkish Food Lovers' Association say that they are happiest in the simple restaurants behind the fish market in Beyoglu.

The revival of Ottoman cuisine is part of the wider reappraisal of their position in the world, being undertaken by a minority among the new generation of educated Turks. They combine knowledge of the latest management techniques with a desire to rediscover traditions which they have lostsince Kemal Ataturk replaced the Ottoman Empire with the Turkish Republic in 1923.

All three restaurants had musicians singing or playing soothing traditional Turkish music.

Since the Ottoman Empire was a multinational state, this new interest in the past is far from nationalistic. Dishes with Azeri, Albanian and even Greek names are on the menu.

Vedat Basaran, originally from Yugoslavia, says: 'Ottoman was not only Turkish, it was part of a huge food culture.' Older generations, brought up in veneration of the Ataturkist republic, are bewildered. Information: Daruzziyafe, Sifahane Cad. 6, 34440 Suleymaniye. Tel: 5118414. Fax 5261891. About Pounds 20 a head. Tugra Restaurant, Ciragan Palace Hotel Kempinski, Ciragan Caddesi 84, 80700 Istanbul. Tel: 2583377. Fax 2596687. About Pounds 30 a head. Asithane Restaurant, Kariye Hotel, Kariye Camii Sokak, Edirnekapi. Tel: 5348414. About Pounds 10 a head.

Philip Mansel is author of Sultans in Splendour: the Last Years of the Ottoman World (Andre Deutsch 1988, Pounds 17.95). He is writing a history of Istanbul under the Ottoman sultans.

THE FIRST restaurant I rang, where dinner would have cost Pounds 50 a head, did not seem concerned that it could not give me a table. There was no offer of an alternative time nor was my name and number taken in case of a cancellation. It showed little desire to welcome me.

The second restaurant could not have been more different - even though it was part of the same group, Forte. The receptionist explained the new menu; told me about its jazz trio and made me feel most welcome. Dinner was very reasonably priced.

Efficient but friendly receptionists are invaluable to any restaurant because first impressions are so crucial. Receptionists are also a restaurant's last line of defence. Any criticism of the food or service which the customer felt too intimidated to pass to the manager often comes out as the coats go on. A receptionist worth her salt should be able to overhear and make some attempt at salvaging the situation.

Christmas and new year test a receptionist's talents to the full. Perhaps he or she will be grappling with 20 similar overcoats and black umbrellas from a group arriving for an office party. Maybe the receptionist will be propping up his or her eyelids until the early hours when the last guest leaves. Often a receptionist will be dealing with clients who are slightly the worse for drink.

But there will be financial compensations. Receptionists are paid a bread and butter rate by the restaurant, approximately Pounds 25 for a shift that may last from 5.30pm until 1.30 am. The cream is the tips. Until the Inland Revenue and the recession intervened, tips could amount to Pounds 40 to Pounds 50 in cash on a busy night. Today, the receptionist will invariably be last in the gratuities queue as customers curb spending and tips are pooled with the rest of the staff and taxed.

So what is the appeal of the job? For the answer I turned to Sian Cox, a woman who was the finest receptionist I employed in my previous career as a restaurateur. On paper, she was vastly over-qualified - an attractive fulltime schoolteacher and a mother of three. But she had the two basic qualities any good receptionist needs - old-fashioned good manners and a genuine interest in the public. Sian Cox modestly described herself as 'a people junkie.'

Armed with Sian's qualities a good receptionist should be able to cope with the other demands of the job: to put themselves out, whatever the time; to be able to prioritise when dealing with the arrival and departure of guests; answering the incessant call of the telephone and handling irate taxi drivers who have been given only a client's first name.

The final attraction of the job for Sian was that it gave her the opportunity for nights out in a completely different environment. Made-up and smartly dressed, she would leave her children with her husband and join a bustling, adult world which was a complete contrast to her day in the classroom. The receptionist's world may not be as intellectually stimulating as a teacher's but it can be more financially rewarding.

The most attractive bonus for any receptionist must, however, be that of Kurt Wachtveitl's, general manager of the Oriental, in Bangkok. Every New Year's Eve he opens itsfamous Bamboo Bar and closes when the last guest has left at about 6am. Then, armed with a large Bloody Mary, he heads off for a peaceful journeyalong the klongs (canals) of Bangkok.

Sadly,this is a perk not available to even the finest restaurant receptionist in London.

AS I peered into the bottom of the Waterford tumbler that serves as my crystal ball, what did I see for motoring in 1993? A brighter prospect than last year's - and I do not think my optimism had anything to do with a warming dram of Islay malt.

It is going to be a bumper year for new models. Without wishing to sound like a government minister trying to keep up his spirits, car registrations did soar unexpectedly in December and the flood of new models is bound to stir the market.

Among the most important of 1993's new model crop is Ford's front-wheel driven Sierra replacement, the Mondeo. It takes its bow at the Geneva show in March. So will a deadly rival, the Citroen Xantia.

A month before that, the Peugeot 309's replacement will have been unveiled at the Amsterdam show.

Earlier still, British buyers of small cars and multi-purpose vehicles (MPVs) will have been tempted into showrooms by two new Nissans. They are the British-built Micra (European Car of the Year 1993) and the Spanish-built, though in many cases British engined, Serena.

I used both cars as transport over the holiday and was impressed; more of them in this column soon. Prices will be announced next week.

The Toyota Carina E saloons and hatchbacks rolling off the assembly line at Burnaston, Derbyshire, are powered by engines made in north Wales. The Carina E has been criticised (not by me) for offering so much silence, efficiency and promised reliability as to be tedious. That kind of boredom appeals to real-world buyers, if not to writers in magazines which persist in treating everyday motoring as a sporting activity.

Mercedes-Benz sales, higher in the UK last year than in 1991, will be boosted by the arrival of the new 190 (another Geneva debutante). Quality car sales have been generally healthy in Britain in recent months. There may be fields full of unsold Mercedes in Germany, where the recession is only just staring to bite, but there are none in the UK.

Honda's British-made Accord (and Montego-replacing Rover 600 version) will sharpen competition in the middle-management business car sector. Fiat, a marque I suspect will at last be coming in from the cold in Britain in 1993, will put its dinkily attractive Cinquecento before buyers here in late spring. Towards the end of the year, the replacement for the best-selling Uno is expected.

Hot hatchback sales will be further depressed in 1993 as they become harder and yet more costly to insure. Frustrated hot hatch drivers will continue to switch to recreational four-wheel drives. There will be a major upset in this recession-resistant sector with the arrival of Chrysler Jeeps later this month.

Jeep Wranglers will appeal to the young; family men will go for the Cherokee. This very civilised five-seat estate car takes to the road like a Volvo, and goes across country like, well, a real Jeep. At a little more than Pounds 20,000 with a four-litre, six-cylinder engine, automatic transmission, leather seats, wood veneer trim, air conditioning, ABS brakes, cruise control, power windows and six-speaker stereo, it makes nearly all its competitors look expensive.

Diesels made up 16 per cent of registrations at the end of 1992 compared with only one per cent a decade ago. (Modesty alone prevents my saying I told you so.) Their popularity will grow and by the end of 1993, one new British-registered car in five could well be a diesel.

Seeing no reason to break the habit of 14 years, I am driving into 1993 in yet another diesel - a Citroen XMtd estate with automatic transmission. I shall shortly be reporting on our first few thousand miles together.

Headlines this year will continue to blame multiple motorway pile-ups on fog, frost and snow instead of on mindless and inattentive drivers failing to maintain sensible speeds and observe proper braking distances.

Footpaths will be used as parking places by car and commercial vehicle drivers, too idle to walk a few yards and who do not give a damn for the safety and convenience of pedestrians, especially the old and the blind.

Tougher MoT tests should result in old, rusting heaps going to the knackers yard where they belong. But with an estimated up to 10 per cent of all cars being neither taxed nor insured, I am not optimistic that all unsafe old bangers will be caught in the MoT net.

WHEN Koji Tatsuno was at school in Tokyo, he wore the same military uniform as every other Japanese schoolboy. From the outside, he looked like his classmates, but inside he had embroidered a red dragon on his jacket lining.

Tatsuno now has a broader canvas to draw on. The boy who customised his school uniform in 1970s' Tokyo has become one of the most inventive fashion designers in Europe today.

Tatsuno treats fashion as fantasy. His clothes are extraordinary creations of fabulous fabrics, pleated silk jackets and waistcoats in Victorian-style tapestry, finished with shell buttons or tiny pearls.

This winter's collection oozes opulence with silks and velvets. For summer, he has used materials on hand - pieces of cloth left over in his studio, leaves from the garden, even strips of salmon skin.

The effect is exquisite and individualistic. The designs are not conceived as part of co-ordinated collections, but as particular pieces to be worn by different people. The cast list of his customers - from ascetic art collector Doris Saatchi to entertainer Diana Ross - reflects this. But all his clients will wear, and re-wear, their Tatsuno for years.

'If something is made properly, it should age,' he says. 'I would hate to think of people buying my clothes to wear them for a year and to throw them away. Clothes have lives of their own. The shape of a garment and the feel of the fabric change. Anything I make today should look completely different in five or six years time.'

Tatsuno, 29, is a slight man with long, silky black hair, wearing not one, but two, polo-necks and a chunky corduroy jacket against the chill of a drizzly London day. He has lived in London since 1982 when he arrived from Japan, with no money and no English.

Born in a Tokyo suburb, his father was an air traffic controller and his mother left home when he was very young. His father remarried and he did not get on with his stepmother. At 14 he ran away to fend for himself in Tokyo.

Education is everything in Japan. A high school drop-out is an illiterate outcast with little or no hope of finding work. Tatsuno scraped along until he was sent to London to buy English antiques for a Tokyo dealer. The dust and dirt disgusted him after the spruce streets of Japan. With little money, he made his own clothes from fabrics he found at antique markets.

His break came when a buyer from Browns, the designer store, stopped him on the street and asked about the shirt he was wearing. Tatsuno started selling to Browns, beginning his own business, Culture Shock, which enjoyed a cult following before collapsing in 1986 with cashflow problems.

A shop on Mount Street followed, backed by Yohji Yamamoto, the Tokyo designer. Finally, in 1990, Tatsuno opened his own label.

He now operates from a shambolic studio on All Saints Road, in the heart of Notting Hill. Tatsuno and his partner, Yvonne Sporre, do all the designs and fabric development with a team of five. He has no formal training and designs by instinct - 'I try not to think too much about it beforehand' - draping his fabrics around mannequins.

The core of his collection is still couture, but he has also introduced ready-to-wear made by an Italian sub-contractor. Ready-to-wear is a watered-down version of the couture and is also far cheaper. Joseph in London sells his ready-to-wear jackets for Pounds 350 and the couture versions for Pounds 2,000.

He shows at the Paris pret-a-porter, which has given him an entree into the international marketplace. His clothes are sold by Barney's in New York and L'Eclaireur in Paris, where he also has his own shop in Saint Germain. But his business is still small by international standards, with Pounds 1m turnover this year.

Tatsuno plans to stay in London. 'I am a private person, still very Japanese in some ways. I always keep part of myself hidden and it is easier to do that here. In Milan or Paris, I would be sucked into the fashion system.'

So far the system has been good to him. Christian Lacroix and Azzedine Alaia, the Paris designers, both encouraged him when he was launching his label.

Didier Grumbach, chairman of Thierry Mugler, has given financial advice. Grumbach's sister, Sylvie, now helps Tatsuno to organise his Paris shows, just as she has helped Vivienne Westwood.

Tatsuno finds affinity with traditional Japanese aesthetics. 'There is a simplicity and sense of balance that is very close to my vision. As an outsider, I now see aspects of Japan that I did not appreciate before.' He also shares the Japanese obsession for exploring the extraordinary side of ordinary objects.

'I try to recognise ordinary things that can be turned into something special.' Just as a simple stone is treated as an object of beauty in a formal Zen garden, so Tatsuno makes a stunning silver tunic from 3,000 safety pins or sews strips of salmon skin on to his jackets.

Koji Tatsuno, 28b All Saints Road, London W11. Telephone: 071 221 7481.

NEW YEAR is a gardener's time for plans, reflections and memories. My plans are obvious: do better; kill more weeds; spray earlier against black spot and replant that supreme luxury, a wide, newly-manured border, emptied of its previous jungle and creeping buttercups.

It looks as though single white Japanese anemones will have a large part to play. They have been one of my plants of 1992, refuting the notion that they prefer a dry year in dry soil. They will grow almost anywhere, but sometimes they need a few years to establish themselves. During the 1990s, they will have their chance to spread beneath a background of holly and a light canopy of sycamores on the problematic fringes of my garden.

As for reflections, mine run in a particular direction. I keep thinking of the principle which we all cite, but never fully obey: whenever you start a new garden or a new design, plant the permanencies and big features first. Time races by, until the seven-year wait for the first flowers on a Winter Sweet or the white buds on a Magnolia Grandiflora seem like a tiny interruption in the long road of a gardener's lifetime.

But whatever your time of life, the principle still applies. Think long term and do not make the inevitable mistake of being half-hearted. I never succeed in thinking out the long-lasting framework for an entire garden as a first move and I am always diverted in places by an anxious wish for immediate colour.

Although seven years seem an eternity when we first set out, ignore the prospect and always choose the best for the future, a Magnolia Wilsonii, not a Ribes, a hedge of clipped box rather than laurel. Always begin by planting as many of the trees, large shrubs and hedges as you can.

As for the memories, they are less grandiose - 1992 turned out to be a remarkable year. The spring was very dry and early and, by mid-June, it seemed that everything in the garden would be over at once. After a mad acceleration of the season, it began to rain, gaining momentum in July and starting a welcome overture which has led up to the recent torrential winter, unparalleled in my memory. At the same time, the air remained unusually mild, giving us a vintage year for winter jasmine, magnolias and winter-flowering cherry, until these recent frosts.

If I could plant only one tree for the longer term, it would still be a winter cherry, of which the best form is the best-known, Prunus Subhirtella Autumnalis. Between the early drought and the later floods, evergreens and trees grew heroically. In the recent dry summers, survivors have been putting down deep roots: this year, they confirmed the old wisdom, that plants puzzle beginners by growing downwards for the first two or three years and then race upwards thereafter. Never single out a shrub as a slow performer on the sole evidence of early height.

In 1992, young yews, box and the admirable evergreen Osmanthus started to grow rapidly upwards, after four years of sending deep roots down for water. As a postscript, berries then appeared by the thousand on all sorts of trees, making one of the best autumns for fruiting in my memory.

Since September, it has been the year of the Sorbus and I doubt if the Far Eastern forms have ever been finer in Britain. Readers with Plantfinders might share my enthusiasm for Adenophora Tashiroi, which comes from Japan and covers itself in pale grey-blue flowers like small lampshades. It is only a foot-high when in flower and, despite the books, appears to be completely happy in full sun and a stony soil.

Beside it, I had a group of the various Parahebes in white and pale milk-blue flowers. Again, these small evergreen shrubs make marvellous edging for any low border and seem to flower throughout the summer. The frost has not hurt them and I cannot imagine why gardeners grow them so seldom.

Before the black spot, roses had an admirable fling in that extraordinary June where everything was running at least two weeks early. I have started to notice the qualities of some of the more delicate roses which were bred in the early 1950s and are now beginning to seem old-fashioned: I strongly recommend a quiet evening's research in Peter Beales' admirable reference book Classic Roses, in which he does proper justice to forgotten roses, bred in this era and kept in the trade by his nursery list, and often by no other.

Elsewhere, many climbers were magnificent, although they flowered absurdly early. For the first time, maturity showed me the full loveliness of climbing Madame Paul Lede. It flowers only once, but the huge double heads are a unique shade of dusky apricot pink, like the silk of a fine Edwardian dress.

My most lasting memory is not a rose nor, indeed, a flower of any kind: rather, 1992 was the Year of the Slug. In the wet weather, these non-human companions became fat, bloated and abominably slimy. They played hell with the hostas, but I am also pleased to be armed with an excellent modern antidote. Called Growing Success, it is pet-friendly, plant-friendly and slug-hostile. Slugs, I suppose, cannot help it, but they do have atrocious appetites: Growing Success removes them by the dozen, efficiently, cleanly and as victors can always afford to be magnanimous, I hope that the dozens who died in 1992 died, in their non-linguistic world, without any real pain.

SHOPPING in the sales can be exhausting as you lug heavy carrier bags from one overheated store to another. Desperate for something to eat and drink, you end up in the basement of a large department store, eating under-cooked and overpriced microwaved jacket potatoes. But you do not have to suffer: here are some suggestions on where to find the best snacks.

In Oxford Street, the best in-store cafeterias are Selfridges and John Lewis's The Place to Eat. But it is often quicker and more pleasant to step outside. James Street, just north of Selfridges and round the corner from Nicole Farhi and Buckle My Shoe in St Christopher's Place has several cafes, including Cafe Rouge and Cafe Creperie.

Five minutes' walk north of Selfridges is Maison Sagne, 105 Marylebone High Street. This is an old-fashioned, continental patisserie and is ideal for a late breakfast of strong, coffee and brioche, croissant, a fruit tart baked downstairs, or lunchtime omelette. A pot of filter coffee is Pounds 1.25, a croissant Pounds 1.10. It is open 9am to 5pm weekdays and to 1pm on Saturday.

Close to the Loewe end of Bond Street is the Granary Restaurant, 39 Albermarle Street. If you are hungry this is the place to go, either for a huge salad, hot dishes with imaginatively cooked vegetables or old-fashioned puddings. Avocado stuffed with spinach and cheese or paella with chicken and mushrooms is Pounds 6.90. Staff are helpful, the self-service queue is short and children are welcome. A meal for one, with a glass of wine, desert and coffee is Pounds 11-Pounds 12. Open from 11.30 am to around 8pm on weekdays; Saturday to 4.30pm.

On the edge of Knightsbridge is The Conservatory in the Lanesborough Hotel on Hyde Park Corner. It is not cheap but is worth a visit if just to see the lavish neo-Gothic design. The hotel staff are friendly, courteous and helpful and unsnooty. A large cup of cappuccino is Pounds 2.50; Caesar salad with is duckling Pounds 7.50. From 3-6 pm a pianist accompanies afternoon tea; scones, crumpets and clotted cream Pounds 5.00; full afternoon tea Pounds 13.50. It is open from 7am to 12 pm.

A short walk away in Harvey Nicholls' basement is Joe's restaurant bar which does a tasty selection of light meals. The decor is black and grey, the clientele trendy, but less so than in Joe's on Draycott Avenue. Service is quick. The mushroom soup is good but is almost the cheapest item on the menu at Pounds 3.95. The sultana bread, provided free, is excellent and makes up for the Pounds 1 cover charge levied during lunch.

Filling club sandwiches are Pounds 7.50; appetising salads start from Pounds 7.50. The restaurant is open for lunch noon Monday to Saturday (11am to 3.30pm Sunday) and dinner from 7pm, Monday to Saturday.

Emporio Armani Express, 191 Brompton Road, does a tasty crostini - toasted bread with chicken livers, tomato and mozzarella, Parma ham and artichoke for Pounds 4. Cappuccino is good and creamy, but at Pounds 2 a cup it should be. Lunch includes Italian dishes and salads. Main dishes are Pounds 8 - Pounds 10.00. There are interestingly dressed people to stare at if you are eating alone. Open 10.00 am to 5.30 pm; lunch from 12-3.30.

There is no shortage of choice in the Brompton Cross area. Near Beauchamp Place, Patisserie Valerie, 215 Brompton Road, offers a good breakfast until 11.30. At lunchtime, there are more substantial dishes, such as croque monsieur for Pounds 2.80, but the pastries and deserts should not be missed. Tarte aux pommes is Pounds 1.50; good capuccino Pounds 1.20. The tables at the back get busy but there is usually room at the counter. Service is quick and efficient. It is open 7.30am to 7pm Monday to Friday; to 7pm on Saturday and 9am to 6pm on Sunday.

A favourite among shoppers is La Brasserie, 272 Brompton Road. Hot food is served all day including croque monsieur Pounds 2.50, spinach salad with feta cheese Pounds 4.80. A small pot of coffee for two is Pounds 1.60. It is open Monday to Saturday 8am to 12 pm and from 10 am on Sunday.

For Sloane Square and the King's Road, Cafe de Blank in the basement and conservatory of the General Trading Company 144 Sloane Street is hard to beat.

Breakfast includes kedgeree and omelette with herbs, or you can choose from a tempting selection of pastries and healthy-sounding cakes. At lunchtime, salmon cakes and dill sauce cost Pounds 6.95; home-made soup with cheese and onion bread Pounds 3.25, perhaps followed by Greek yoghurt, honey and almonds for Pounds 2.75. The staff are friendly and quick, the conservatory overlooking the small garden is light and pleasant. Open from 9am to 6pm.

Serious shoppers often skip lunch and take tea instead. Brown's Hotel 30-34 Albermarle Street serves tea from 3-6pm every day. The lounge is warm, quiet, comfortable and highly soporific. I spotted two immaculately behaved toddlers among the predominantly American clientele. Customers may have to wait. Tea - a huge selection of cakes, scones and sandwiches is Pounds 12.95; high tea with a supper dish is also available. Gentlemen must wear jacket and tie.

Tea is an equally well-established institution at The Hyde Park Hotel where the sounds of the pianist tinkle across the elegant Park Room Restaurant, which overlooks Rotten Row. Tea, sandwiches, scones and cream and cakes are Pounds 10.50 per person. There is a cloakroom where visitors can leave shopping. It is advisable to book. Tea is served daily from 4pm to 6pm.

UNLIKE his counterparts in the bird kingdom, the British male is usually drab. There might be a flash of colour at the throat or on the chest, but he shies away from primary or secondary colours, assuming he knows what they are.

There is, however, change afoot and, like magpies, our British male is being attracted to 'brights'. It could be a reaction to the grey weather, or a long-delayed decision to make a visible display to attract the opposite sex.

Whatever the reason, sartorial life looks as if it is going to be more colourful in 1993.

Once colour was the preserve of the Italians, the French, and even the Americans (remember all those bright tuxedos?). Now the British male is also being tempted to buy clothing which is not grey, black or navy.

You will not see the migrating flock of grey suits on London Bridge turn overnight into an exotic and colourful flight, but you will begin to see red jackets appearing on the street, at parties and in restaurants. Red is no longer the exclusive domain of huntsmen, guardsmen or Butlin's redcoats.

There are those who think that colour does not become the British complexion. But this is a fallacy; in the 18th and 19th centuries, the male was a peacock and it is only during this century that colour has become associated with vulgarity, eccentricity and effeminacy.

But greys, blacks, browns and dark blues have now become the colours of the male plumage, with the occasional chance to wear some bright tweed in the country or a pastel blazer in the summer at some jolly boating event.

Now the British male has the opportunity to invest in colour for his wardrobe. In most menswear shops, from the easily accessible Oakland and Next to Jones with its emphasis on top-class international designers, colours across the spectrum are being introduced on to the rails.

And Paul Smith proves that English designers are not afraid of colour, offering not only clothing but also belts and shoes in various colours.

In Savile Row, a cuckoo has appeared among the distinguished ranks - Richard Jones offers beautifully cut 'traditional' clothes made from wonderful cloth in marvellous hues.

Colour is not about vanity - we all perhaps remember too well the Aesop fable in which the crows gathers feathers from other birds so as to be able to rival the peacock, only to be humiliated because of his presumption.

Instead, it is about having the confidence to pluck out just a handful of grey feathers and replacing them with some brighter ones.

WE BOUGHT the house in which we live, with a garden, six years ago. This year we received planning permission for a house on the rear part of the garden.

1) Can we avoid capital gains if we sell the land with planning permission before we sell our house, using that land as part of the garden right up to its sale?

2) The land with planning permission is separately registered. It was added to the original garden nearly 50 years ago (we bought the house and the whole garden as a single transaction). We are about to remortgage our property if we exclude that land from the mortgage, could this affect the capital gains position?

1) Yes, in principle, provided that the tax inspector is (or the Appeal Commissioners are) satisfied that you did not buy the house 'partly for the purpose of realising a gain from the disposal of it' and that no expenditure after the purchase was 'incurred wholly or partly for the purpose of realising a gain from the disposal'. The words in quotation marks are from section 224(3) of the Taxation of Chargeable Gains Act 1992. Ask your tax office for the free pamphlet CGT4 (owner-occupied houses).

2) No (subject to the same proviso).

The solicitors who act for you in the remortgage - and the prospective sale - will be able to guide you through the CGT pitfalls etcetera, of course.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All inquiries will be answered by post as soon as possible.

AFTER THE first year of independent taxation for married couples, my wife made a claim to the Inland Revenue in respect of tax overpaid on her income from investments, then largely in equities. The claim was met, and she was sent another tax repayment claim form for the subsequent year.

She has not used the form because she has since arranged matters so that the nil-rate tax band is covered by income from investments not taxed at source. She plans to continue this process, as nearly as possible and in balance over the years.

The Revenue has taken no further interest in her affairs, and meanwhile the tax vouchers, contract notes, and other records are piling up. How long should they be kept in case of future approaches from the Revenue?

Even if your wife has been skilful (or lucky) enough to arrange that her untaxed income of 1991-92 amounted precisely to Pounds 3,005, we recommend that she submit a tax return / claim. Even if you are both a long way from your 65th birthdays, and your wife does not wish to claim any part of the married couple's allowance, it will be simpler in the long run if she continues to submit tax returns.

You may like to ask your tax office for the free pamphlets IR80(1992) (Income tax and married couples) and IR84(1992) (Have you anything to declare?).

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All inquiries will be answered by post as soon as possible.

FROM 1985 I lived with a woman as common law man and wife. She died recently intestate. There are no blood relatives alive. Should a step sibling materialise what is my legal position as regards the disposal of her house and possessions?

If the deceased left no relatives of the whole blood, the rules of intestacy specified in the Administration of Estates Act 1925 and the Intestates' Estates act 1952 allow brothers and sisters of the half blood or, failing them, uncles and aunts of the half blood to inherit. If anyone in either class were found, they would (together with all others in the same class) inherit all the estate, equally between them if there is more than one.

If diligent enquiry produces no one in either class, the Crown will take the estate, but you can make a claim to an ex gratia provision for yourself from the Treasury Solicitors' Bona Vacantia department, it is usually sympathetic.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All inquiries will be answered by post as soon as possible.

CORNER shops are businesses. They are one of the simplest forms of enterprise allowing owners to be their 'own man.' They also account for a substantial chunk in the long litany of recent small company collapses.

Sometimes, it is a case of too many newsagents in one neighbourhood, or a village where economic life has been deadened by weekenders. In others, it is a personal failure to grasp the basics of buying and selling and controlling costs.

The short history of Yacht Parts, a marine chandlery actually housed in a larger-than-average corner shop in London, shows many of the serious difficulties afflicting small shop-based operations.

The owner, Adrian Burks, remains confident about the company's future, but he can reflect on a series of crises since he started up in 1984. Opening another site in East Anglia nearly three years ago wrecked the company's cash flow and nearly broke it. Switches in customer demand have been awkward to deal with, and a computer system difficult to set up and run.

Lower profit margins have dogged the business. In its first full year, Yacht Parts broke even on a turnover of Pounds 90,000. In 1991, it squeezed a profit of Pounds 6,000 on Pounds 345,000 turnover. In the year to September 1992, it rolled up a loss of Pounds 13,000 on Pounds 254,000.

So, it is hardly surprising that 36-year-old Burks says: 'It has become clear, as a result of analysing both costs and sales, that a big marketing effort is needed to increase turnover to cover costs. In the past, we have been drowning in our own mess. We have cut costs and I feel we can increase turnover by a quarter over the next 12 months.'

Now, Burks is accelerating the process of transforming Yacht Parts from a chandlery serving the recession-hit boating fraternity to a broader supplier of products, from outdoor clothing to rigging for the interior design industry.

With his brother, Burks inherited a yacht-chartering business before joining one of the handful of chandleries in London. In 1984, the brothers set up their own business in the same premises Burks still uses in Fulham. 'We had Pounds 5,000 of our own money, Pounds 5,000 from an investor friend and a Pounds 10,000 overdraft from Lloyd's bank.' Rent was then Pounds 5,000 a year but, with rates, has risen to more than Pounds 18,000.

The shop still caters for boat-owners living in London. But, two-and-a-half years ago, Burks made the mistake of opening another arm at Shotley, Norfolk. 'It's at the end of a peninsula served by a small marina road. The only captive market was the boats in the marina and the promise of a larger marina development never materialised.

'We were there for a year. We didn't take a direct loss but we bought in a lot of stock, some of which we had to sell at below cost. It gave us terrible cash flow problems from which we are only beginning to pull out.'

Burks is most concerned now with is the need to move the business further away from its roots. The Fulham shop is still packed with stuff for messing about in boats, from dinghy splash suits and compasses to floating winch handles and miniature electronic navigation systems. But he is fleeing from some of the products on which the company was built.

Chandlery, which accounted for 60 per cent of business four years ago, now makes up less than a third of sales and is likely to fall to 20 per cent or so. Burks explains: 'That is partly because margins are so low due to the recession and the difficulties of managing hardware. Holding chandlery stocks can be a nightmare.' He cites the 500 types of stainless steel screws used in boats, and the chandlery supplier with a 300-page catalogue covering thousands of products.

Second-hand equipment, from navigation lights to portable toilets, has dropped from a quarter of Yacht Parts' business to just a few per cent. 'People are keeping hold of things much longer,' he says. Sales of electronic equipment are also much less important. 'There are specialist mail order companies doing this. What's the point of making Pounds 5 on a Pounds 200 item?'

To compensate, he is counting on clothing and rigging. A much wider range of outdoor clothing and shoes now makes up more than a third of sales, and Yacht Parts has negotiated a couple of exclusive distribution arrangements with British clothing suppliers.

Burks says rigging accounts for a quarter of sales and this is growing, particularly for building work and interior design. One of his contracts - which includes installation - is a design feature at a London suburban railway station.

Yacht Parts has some heavy overheads. Burks' modest yearly salary is Pounds 14,000, wages are Pounds 21,000 a year; transport Pounds 7,000 and a stand at the London Boat Show, and preparations for it, Pounds 8,000. 'We tried to do without advertising, but that was a mistake and we are spending about Pounds 13,000 a year on that.'

Burks still faces big problems with turnover and lack of profit. He plans to try to raise prices by 10-15 per cent and use much more direct marketing. That includes direct mail promotions for the firm's rigging service to theatres, exhibition halls and sports facilities, and direct mail to yacht charter operators and yacht clubs.

Yacht Parts has started offering deals to businesses in west London, allowing their staff discount prices on its goods.

To help control stocks, potential customers can now sit in an office and choose chandlery items from a battery of catalogues. Burks will order the goods as one-off items.

The company also took 18 months to get its Pounds 1,200 computer system running properly. 'A friend eventually acted as consultant,' says Burks, who has never taken a business course. He admits: 'I would have benefited from one. A friend of mine has an MBA and he has lit up a lot of things, even with a simple question like: 'How much is that photo-copier really costing you?' I had no idea.'

Burks says the business was in real trouble in the spring. 'I had cash flow and stock control problems. The pick-up in trade did not take place. I felt very low. I was looking at a black hole.' But two new investors have injected Pounds 20,000 between them.

'That picked me up and I now have more people to offer advice,' says Burks. He recognises, though, that a lot of work, carefully thought-out decisions and a bit of luck will be necessary to put the business on a more secure footing.

Yacht Parts (London), 99 Fulham Palace Road, London W6 8JA. Tel: 081-741-9803.

I POPPED over to Brussels for the New Year to see my Luxembourg friend, Jean-Peter Martini. He is still at the European Commission, running the new Language Harmonisation Programme.

I showed my alarm when I heard about it but he said that I need not worry. 'It isn't one of those 'intrusive' programmes that you British go on about it's just to clear things up at the edges. To gain uniformity in common usages.'

He slapped a Dutch newspaper in front of me. A headline read, De zonnebloem zake. 'You see that was about the oilseed row with the US. It is a joke, but incomprehensible to the British.'

'Dutch jokes normally pass us by.'

'That is not the point,' said Jean-Peter heatedly. 'It means 'The sunflower case' - a reference to the Tintin books. The character you call Professor Calculus is Professor Sunflower.'

In my amazement, or apathy, I emitted an expletive.

'That is another problem - differential swearing. Do you know that in 1992 two German-speaking correspondents in London could not translate the simple English word 'bugger', which was essential to their articles? Bernhard Heimrich of the Frankfurter Allgemeine did a piece on the British honours system and how the initials were vulgarised - KCMG stands for 'Knight Commander of St Michael and St George' and becomes 'kindly call me God' and so on. Well, when he got to Order of the British Empire, or whatever OBE stands for, he wrote, 'Other buggers' efforts', which can't be correctly translated into high German.' Charles Ritterband in the Neue Zurcher Zeitung quoted George V's dying words 'Bugger Bognor' and has to render them as 'To hell with Bognor'.'

I agreed that was a problem.

'But we are making progress in other areas,' said Jean-Peter. 'We are trying to establish a fixed system of cliche exchange that would enable politicians to be immediately understood. People often take each other literally and the misunderstandings are dreadful. You must come to 'Eurocliche '93' in Essen in March. It's going to sort these things out. Britain is making a huge contribution.'

He pointed to a board on which was written, 'You can't kick start the economy by moving the goalposts on a level playing field.'

'As it stands that sentence is quite incomprehensible, except in Greek. It gives our interpreters enormous problems.'

Elsewhere I saw other country's contributions. The French offered Nous n'allons pas nous noyer dans la morosite du bouc-emissaire a la derive.

'Hmm.' I said, ''We aren't going to drown in the gloom of the rudderless scapegoat.' Not bad.'

'But what does it mean?' shouted Jean-Peter. 'Look at this - Wir sehen im Fass ohne Boden die Reflexion des wiederaufgebauten Hunnen-Schreckenbildes.'

'That's okay. 'We see the reflection of the reconstructed Hun shock-picture in the bottomless barrel.' It's about the new Nazis in Germany.'

Jean-Peter tore it up, not wanting to waste time on anything sensible. His plan is to compile a list of phrases in each language which could be appropriately adapted - 'words which can move across national frontiers as easily as a 40-ton truck.'

'But the trouble then,' I mused, 'is that you will end up with things like 'We must implement appropriate computer software management modalities.' All familiar and all in English.'

'If we stopped there you might be right. That phrase is no good - it should incorporate actually existing reality.'

'I say, that's not bad. 'Actually, exist . . .'

'. . . ing reality. Precisely. I used the phrase advisedly. We have developed, 'The leitmotiv of actually existing reality is to be seen in the sine qua non of the acquis communautaire.' That refers, of course, to the evolution of the post-Maastricht ratification process of widening and deepening the Community.' Jean-Peter paused a moment, gave a faint leer and said, 'A thirsty teetotaller prefers a pastis to a pickled herring.'

'I beg your pardon.'

'That's one of our new cross-border proverbs and sayings. Delors is going to use it next week. I hope you won't break the embargo on it. Perhaps you can help, on a freelance basis. We pay for new sayings.'

'I'll have a go.'

'And don't waste time like a Spanish waffle-maker or turn it all into a Pomeranian paella, these things are as rare as a Brandenburg olive . . .'

'I won't fail - I'll wager all Lombard Street to a China orange on it.'

'Hey, that's good. I'll add it to the list.'

James Morgan is economics correspondent of the BBC World Service.

YORKSHIRE Building Society is offering a second version of its guaranteed stock market account, Stock Index Plus. The account has a five-year term, but is slightly unusual in that it allows investors to benefit from a partial guarantee in the intermediate years.

After one year, investors will receive their money back or 50 per cent of the rise in the FT-SE 100 Index (whichever is the higher); after two years, 105 per cent of their original investment, or 60 per cent of Footsie's rise, and so on, building up to the five year guarantee of 125 per cent of the original investment, or 100 per cent of the Footsie's rise.

There are two caveats, however - gains will be taxed as income, so taxpayers who have not used up their Capital Gains Tax allowance would do better to choose an indexed unit trust. The investor benefits only from the capital rise in the Footsie, not from any dividend yield.

The minimum investment is Pounds 5,000 and the issue is open for investment between January 2 and February 25.

WITH THE market reaching new highs, it is not surprising that the number of sales is far outweighing the number of purchases. Nevertheless, there are more purchases this year than there were at the same time last year.

At the end of October, three main board directors of Babcock International, the heavy engineering concern, were buying their own shares below 30p. This latest purchase by Jeffrey Whaller, the deputy chairman, is altogether larger and more convincing. Investor sentiment may be negative over the short term, but a pattern of support from the boardroom is clearly emerging.

Another company with an uncertain future is Amstrad, the consumer electronics group. Alan Sugar's proposed buyout has failed, raising questions about his long-term commitment to the company's future.

The sales by Malcolm Miller and Robert Watkins of 714,000 and 563,500 shares at just over 23p do little to change investor perception of the company, particularly when these sales represent their entire holdings.

John Munro, managing director of Fairway Group, which supplies computer stationery for the freight industry, developed a keen appetite for his own stock last year.

He bought a total of 590,000 shares the most recent batch of 375,000 at 37.5p. The first purchases, made in February and March, were executed at prices between 44p and 48p.

When Henlys Group fought off an unwanted bid from rival motor dealer T Cowie, one might have expected its share price to have gone into reverse. On the contrary, two features have combined to reassure investors: firstly sales of cars and commercial vehicles have improved sharply, against market expectations.

Secondly, the company was forced to cut costs aggressively making it a more attractive recovery prospect.

With the share price back at 73p, Robert Wood, chief executive, has bought 35,000 shares, taking his holding up to 168,000.

----------------------------------------------------------------------- DIRECTORS' SHARE TRANSACTIONS IN THEIR OWN COMPANIES (LISTED & USM) ----------------------------------------------------------------------- No of Company Sector Shares Value directors ----------------------------------------------------------------------- SALES ----------------------------------------------------------------------- Airsprung Furniture Misc 36,060 153 2* Amstrad Elns 1,277,500 295 2 Applied Holograph Misc 22,000 22 1 Argyll FdRe 114,050 477 2* BM Group EngG 30,000 26 1 Body Shop Stor 50,000 97 1 Bowthorpe Elns 230,000 616 1 Daily Mail & Gen A Med 6,000 442 1 Electronics Data Pr Elns 5,000 25 1 Grand Metropolitan Brew 167,534 776 1 Haemocell Hlth 1,130,000 1,921 2 Ladbroke Hotl 25,000 45 1 Persimmon C&C 13,375 28 1 Protean EngG 200,000 260 1 Psion Elns 25,000 25 2 Reed International Med 187,600 1,210 2* Sainsbury (J) FdRe 7,000 37 1 Salvesen (Chr'n) BuSe 201,394 703 2* Sherwood Computers BuSe 310,000 735 2* Sleepy Kids Hotl 132,000 38 3 Smith & Nephew Hlth 100,000 165 1 Smiths Industries EngA 204,741 704 1* Staveley OthI 32,976 74 2 Tesco FdRe 211,341 546 1* Thorn EMI Hotl 45,332 389 1* Titon Holdings BdMa 154,500 231 2 United Newspapers Med 172,000 887 3* Whatman Hlth 7,220 31 1 ----------------------------------------------------------------------- PURCHASES ----------------------------------------------------------------------- Babcock Int'l EngG 120,000 38 1 BNB Resources BuSe 120,000 48 1 Fairway Group Misc 375,000 141 1 Forte Hotl 190,000 342 1 Henlys Group Motr 35,000 26 1 Iceland Frozen Food FdRe 56,000 346 2 Joseph (Leopold) Merc 130,000 325 2 Kleen-e-Zee Stor 695,959 466 4 Sycamore Metl 486,859 41 1 ----------------------------------------------------------------------- Value expressed in Pounds 000s. Companies must notify the Stock Exchange within 5 working days of a share transaction by a director. This list contains all transactions, including the exercise of options (*) if 100% subsequently sold, with a value over Pounds 10,000. Information released by the Stock Exchange 14-24 December 1992. ----------------------------------------------------------------------- Source: Directus Ltd, Edinburgh -----------------------------------------------------------------------

TECHNOLOGY for sending money to people overseas is still in its infancy. If you are carrying a plastic card while travelling, cash services available are endless. The past year's turmoil on the foreign exchange markets has demonstrated how easy it is for large companies and financial groups to transmit money across national boundaries.

But for individuals sending small amounts overseas to friends or family, money transfer is disquietingly expensive.

The Consumers' Association experimented last year by sending 160 payments of around Pounds 100 each between banks in 11 European countries, using both telex and mail transfers. They were so alarmed by the results that they called on the European Commission to intervene on consumers' behalf.

Charges were excessive at an average of Pounds 13, with a maximum of Pounds 35 representing up more than a third of the money being sent. Average transfer time was eight days, and three transfers were lost altogether. According to the CA: 'Six months after they were sent (and paid for), the banks still say they can't find them. As the law stands they don't have to pay us any compensation.'

Transfers are charged on complicated sliding scales, and banks may make different charges according to the currency you are using.

Several banks are developing international networks, which go a long way to solving the problems. But these are still small, and cannot offer the comprehensive service available via credit cards for those making payments.

Banks which have worked on this include the Co-operative, which charges a flat Pounds 5 fee (even to those who do not have an account with the banks) to use its Tipa-net system.

This is a collaboration between co-operative banks in France, Belgium, Germany, Italy and Canada - it does not cover any other countries. The number of working days to process the transaction can be guaranteed in advance if both you and the recipient have accounts with the banks involved. However, the system can be used at the same cost, but with the possibility of longer delays, if neither has a Co-op account. Payment in cash is recommended.

Girobank offers transfers into girobank accounts in 16 other countries for a flat fee of Pounds 2, and can also provide foreign bank cheques for a flat Pounds 5.

Royal Bank of Scotland offers IBOS (Inter-Bank Online System) with Banco Santander in Spain and BCI in Portugal. This guarantees a 'same-day' transfer, for a minimum charge of Pounds 6 and a maximum of Pounds 12). You need to direct the money to an account with the recipient bank in Spain or Portugal for the system to work. The system hopes to expand into France.

Other ambitious 'same-day' services come from American Express and Western Union. The Amex 'MoneyGram' is not restricted to its cardholders and allows you to send up to Dollars 10,000 to an American Express service centre in another country. The funds can be picked up by the recipient in cash, or travellers' cheques. If you and the recipient are near Amex service centres (of which there are 12,000) this is one of the most convenient ways of sending money in an emergency.

However, it is expensive. For amounts between Dollars 100 and Dollars 300, the fee is Dollars 35. For figures above there is a sliding scale, with a maximum of Dollars 200 for sums between Dollars 7500 and Dollars 9800.

Western Union offers a similar same-day service. If you want to send money, telephone their toll-free number (0800-833833). This will give you the address of your nearest agent, where you go to deposit your money (either cash, bankers' draft or building society cashiers' cheque).

The money can then be made available to anyone producing the necessary identification at any of 20,000 WU agents across the world. Again, the service has a heavy price. Transfers up to Pounds 25 will cost Pounds 8. A sliding scale leads to a maximum charge of Pounds 105 for transfers between Pounds 2,500 and Pounds 3,000.

Eurocheques offer good value for small payments within Europe, according to the Consumers' Association. The Eurocheque can be sent by post and the recipient then pays it into their bank account. Charges are around Pounds 2 for a payment of Pounds 100 and the account will normally cost about Pounds 5 to open.

Other methods include currency drafts or mail transfer. If you opt for the currency draft, you post it to the recipient yourself, who then can encash it. International Money Orders, usually available only in sterling or US dollars, work in the same way and tend to be slightly cheaper.

Mail transfers are done by the bank. For greater safety, and expense, you can use a telex transmission. For this you will need full details of the destination bank account.

Charges for standard drafts from high street banks are:

Barclays offers Barclaydraft in 21 currencies to its own customers, and is available for amounts up to Pounds 5,000. There is a flat rate charge of Pounds 11. Others can have International Money Orders in dollars or sterling only up to Pounds 5,000, for a cost of Pounds 7 up to Pounds 1,000, and Pounds 11 for amounts above this.

Lloyds has a minimum charge of Pounds 15 and a maximum of Pounds 50 for currency drafts. The basic fee within these limits is 0.3 per cent of the amount sent.

Midland charges a flat Pounds 6 for drafts up to Pounds 100, and then 0.5 per cent, with a minimum of Pounds 10 and a maximum of Pounds 32 for larger figures.

National Westminster charges a minimum of Pounds 7.50 and a maximum of Pounds 50 for foreign currency drafts.

LOOKING back at the end of a year is a useful exercise in highlighting the errors and successes of the previous 12 months in the hope that they can be avoided or repeated.

As a private investor, I found 1992 rather dull. My trading in shares was very limited compared with, say, the 1980s, when I would trade very actively, sometimes selling shares in certain companies within months, or even weeks, of buying them. Of course, I also bought some shares then for the longer term but, in those years, there seemed much more excitement in the market, with more takeovers, more small companies having share prices that rocketed almost overnight before, perhaps, taking some months or years to collapse.

To me, profits seemed fairly easy to make, especially as I had taken evasive action before the 1987 crash and then taken advantage of lower prices afterwards to build my portfolio.

Other decisions I made in the 1980s also proved to be helpful in safeguarding myself in the 1990s. For example, I sold my last property share in 1989 and so did not suffer from seeing shares in some property companies rendered valueless when the companies went into liquidation in 1992. I also resisted the blandishments, made on several occasions in the early and mid-1980s, to become a Lloyd's Name. I was not prepared to risk the amount of money expected of a Name without having much more direct control over the investment.

Bitter experience has taught me never to trust anyone in business - if I cannot 'get out quick' and promptly cut losses, I am only prepared to risk comparatively modest sums.

However, this year's disasters include not 'getting out quick', even when the opportunity was available. Over the years, I have made some useful profits via my personal pension scheme by buying and selling the capital shares of Scottish National Trust. I appreciated that, due to the structure of the various classes of shares in this investment trust, the share price of the capital shares tended to be highly volatile, but I did not keep a close enough watch on the share price and the performance of the company. The share price fell rapidly this year from 42p to 12.5p, before perking up to 18p and I should have cut my losses much sooner. Fortunately, my holding had been very modest.

The same is true of my other investment trust disaster - 1,500 shares in Gresham House. An earlier article described how I made this awful boob, but this was compounded by keeping the shares rather than dumping them when they first started to go into freefall last year - and even retaining them in 1992 when I could have sold them for around 18p to 25p each. I took the view that a holding worth only Pounds 270 was not worth the effort of further research and so held on in the hope of a miracle. I should have sold. The shares are now quoted at 2p each.

My wife proved more astute when she sold her last Liberty voting shares for 575p in August while my personal pension fund hung on in the hope that Brian Myerson's approach, via Concerto, to 'ginger up' the company would result in a longer term appreciation of the underlying value of Liberty. Sadly, this did not happen - by the time I sold, I received 550p a share.

I still made a useful profit and the voting shares have now fallen to less than 500p. However, I will continue to follow Liberty's progress in case there are signs that renewed buying could prove profitable.

Another disaster was HC Slingsby, where my personal pension scheme has, over the years, been steadily reducing its holding, but not fast enough. I could have sold Slingsby for around 150p to 170p in February, but again held on in the hope that this small company, which makes ladders and trucks, would be the subject of a takeover bid. By the time I sold, in April, the price was down to 110p.

Looking back, it would seem that takeover hopes have caused me to hold on to shares in a year that has been noteable for its decline in takeover activity. It is never going to be possible to pinpoint exactly when a share may rise on rumours of a takeover approach, and I have been prepared to hold shares for years in the hope of such an approach - especially when my confidence is boosted by such events as the February takeover of sweetmaker Taveners by a Danish chocolate and confectionery group which paid 165p a share. I had bought Taveners in 1987 for 58p each.

During 1992, I sold more shares than I bought, taking advantage of rising prices to make profit in a market which I thought was generally approaching overvaluation. The companies whose shares I did buy, such as The Investment Company, and increased holdings in Treatt and Photo-Me, were bought with the long term in mind - rather like laying down wine to mature.

My best investments, however, were achieved as a result of Black Wednesday in September, when the pound was devalued. In 1991, I bought shares in Nestle for my pension scheme because I thought the company was well-run and undervalued. With its worldwide spread of investments, and being based in Switzerland, its shares offered some protection against a falling pound. The shares cost the equivalent of Pounds 319 each in March 1991. They are now worth more than Pounds 500 each, having risen sharply after Black Wednesday.

As 1992 progressed, I became more and more concerned about the overvalued pound and felt that a sharp correction was long overdue. On September 4, I put a large part of my pension scheme's surplus cash into Swiss francs at a rate of 2.4665 to the pound. The rate is now around SFr2.196, which means that every Pounds 10,000 invested in September is now worth about Pounds 11,232 - plus interest. I shall certainly be considering further currency transactions in 1993.

My sole theatrical investment, Return To The Forbidden Planet, continued its successful run in the West End and, since originally making that investment in 1989, every Pounds 1,000 invested has paid out Pounds 1,080 of profit, with the promise of more to come. During 1993, the show will embark on (I hope) a successful tour of the UK.

Unfortunately, I also invested in the US version of the show. The show closed and I lost my entire investment in it. But then, I did enter it with my eyes wide open, appreciating the high risks of theatrical investment.

Premium bonds in 1992 continued to be a disappointment, although I think Ernie should really be re-christened Ernestine, as in the period 1987 to 1992 inclusive, in every year except one, my wife has won more money than I have. This year the sexist computer still preferred my wife. We each have the maximum Pounds 10,000 holding - she won a total of Pounds 750 (15 Pounds 50 prizes), while my total winnings were a pathetic Pounds 400. My eldest daughter did much better. She only had Pounds 100 of bonds and won Pounds 50. With reductions in the size of the prize fund, I am seriously considering reducing our bond holdings.

THE Consumers Association this week added its voice to the calls for the creation of a single regulator for pensions and a compensation fund for occupational schemes.

The financial services industry has been putting forward its views on pensions over the last few weeks, in submissions to the Pension Law Review Committee, under the chairmanship of Professor Roy Goode.

The Goode committee was established in the wake of a report from the Commons select committee on social security, which recommended changes to the trust law which has been the basis of pension fund operation since the 1920s.

Debate has centred around the issue of compensation. The National Association of Pension Funds originally proposed a compulsory scheme which would refund a shortfall no matter how it had occurred. This was fiercely attacked by the Electricity Supply Pension Scheme, the UK's second biggest, which threatened to resign from the NAPF over the issue.

The association made a partial climbdown in its final submission to the Goode committee, and recommended that schemes should cover fraud, theft and negligence only. This view is backed by the CA which said that: 'A sensible plan for compensating beneficiaries who lose out because of regulatory failure must be established.'

'This would cover losses as a result of fraud,' says the CA, 'and as a result of professional negligence where, for whatever reason, the members cannot claim compensation from the professional concerned.'

The CA added that such a scheme should be funded through insurance, so that poorly-administered schemes were not subsidised by well-run schemes. However, if the insurance industry was not prepared to meet the risk, the CA backed a compulsory levy on occupational schemes.

The electricity supply pension fund wanted any compensation scheme to be funded by a combination of professional indemnity insurance, the Investors Compensation Scheme (run under the Financial Services Act) and the government. The liability of occupational pension schemes would be strictly limited.

Over the question of regulation, the CA joins other organisations, such as the Prudential and the Confederation of British Industry, in favouring a single authority.

'A single statutory regulator, reporting direct to a single government department, should be established to take responsibility for ensuring investor protection and fair play in the occupational pensions sector.'

In addition, the CA called for

pension rights to be protected in an employee's contract of employment

trustees to be qualified, with one being given the responsibility of ensuring the scheme's assets are safe.

professional advisers to have a repsonsibility to report suspicions of fraud or maladministration.

members to be sent an annual statement of benefits and summary of accounts.

The Goode committee has received over 1,000 submissions in response to a list of 81 questions it sent out in September. The committee is scheduled to produce its report in the summer of 1993.

Meanwhile, the CA gave the government the dubious honour of its Captive Consumer Award for its handling of the late Robert Maxwell's frauds.

'Official failure to regulate strongly and effectively culminated in Maxwell pensioners being captive consumers' said Derek Prentice, CA assistant director. 'They are prisoners of a pensions scandal for the rest of their lives.'

BRITISH tax law is littered with arbitrary distinctions between employees and the self-employed. The tax treatment of permanent health insurance (PHI) is a case in point. As a rule - provided you stay healthy - you will be better off in employment, but should you ever claim against the policy, then self-employed status will prove more tax-efficient.

Plans to protect income against long-term disability have enjoyed growing popularity in recent years, becoming an almost invariable feature of executive remuneration packages. Until 1981, PHI was a taxable benefit for directors and other higher-paid staff, although not for other employees. But the 1981 Finance Act introduced a blanket exemption and PHI remains to this day one of the dwindling band of tax-free perks.

Paying PHI premiums for staff gives an employer the best of both tax worlds. Not only can he confer a tax-free benefit on his workers but also the cost of so doing will be a deductible item for corporation tax purposes.

But while the taxman has a positive attitude to PHI for employees, his approach is quite different if the insured is self-employed. Premiums paid by the self-employed - whether sole proprietors or business partners - cannot be deducted from their taxable profits. So if bosses are insuring themselves and their staff, it will be worth their while asking the insurance company to 'load' the premiums as far as possible on to the staff policies.

The Inland Revenue's pro-employee bias is abruptly reversed in the event that illness or accident leads to a claim for PHI benefit.

Some policies provide for lump-sum payments and these will normally be tax-free, irrespective of the status of the recipient. But in the more usual case of ongoing periodic benefits, employees draw the short straw.

This is because such benefits are taxed in precisely the same way as the salary they are replacing. So income tax will be deducted through the pay-as-you-earn system (even though the taxpayer is no longer in a position to 'earn' anything) and national insurance contributions will also be due.

Although the self-employed are also subject to income tax, they can take advantage of an Inland Revenue concession which affords them a significant tax 'holiday'. The concession - that applies in the rare case of an employee who has made his own PHI arrangements - stops the tax clock from running until the unfortunate individual has been receiving PHI for one complete fiscal year.

The length of the tax-free period will therefore be maximised if the insured person can arrange to start drawing benefit immediately after April 6, the first day of each tax year.

Take the case of Oscar, a Treasury mandarin who suffered a nervous breakdown on Black Wednesday. Oscar had prudently arranged his own PHI policy which, like many such policies, requires him to wait 26 weeks before claiming benefit. He will therefore be able to draw his first monthly cheque on April 1, 1993. But if he does, his tax exemption will end on April 6, 1994, because by then he will have been in receipt of benefit for a full tax year. If, instead, he defers his first claim until May 1993, he will extend his tax holiday until April 5, 1995. The sacrifice of a single monthly instalment will be more than compensated by the extra 11 months of tax immunity.

If, for example, Oscar's monthly benefit is Pounds 2,000, he will receive an additional Pounds 22,000 of tax-free income. That means a saving - at the basic rate - of Pounds 5,500.

Oscar's timing was relatively fortuitous. Obviously, for somebody whose benefit entitlement is triggered nearer to the middle of a tax year, there will come a point at which the cost of deferring benefits outweighs the tax advantage.

Although the ability to receive up to two years' tax-free income is unique to the self-employed, with no equivalent for employees, the position is quite different where the individual concerned is an expatriate.

By a quirk of UK tax legislation, PHI payments to self-employed expatriates are fully taxable in this country, after the expiry of the initial tax-free period. By contrast, benefits paid to non-resident employees should escape the Inland Revenue's clutches.

David Cohen is a partner in City law firm, Paisner & Co.

NIGEL LAWSON, the former chancellor, did not introduce a new type of personal pension scheme when he unveiled Self-Invested Personal Pensions (Sipps) in his 1989 Budget. He merely reinvented a concept which has been available in various forms since the 1980s.

But while Sipps (and their pre-1989 variants) are unlikely to be cost effective for the man in the street, they can produce substantial cost savings for groups of individuals, such as partners in the same firm.

The cost efficiency of Sipps compared with conventional policies is illustrated in the table* which shows the impact of charges using a Reduction in Premium (RIP) comparison. The RIP expresses the total charges as a percentage reduction in every premium paid.

A large part of the charging structure of a conventional policy is related to the commission paid to the salesman and the RIP has therefore been calculated both on 'normal' policy terms and on nil-commission terms, using for illustration the charging structure of Standard Life's retirement annuity pension contract, ie their pre-July 1, 1988 policy.

The RIP also has an impact on maturity proceeds. For example, a policy with a RIP of 14 per cent will have a maturity value of only 86 per cent of the maximum notional fund available at the selected retirement age, ie the fund which would be available if the policy was entirely free of charges.

Let us suppose that partners A, B and C all effect 20 year pension policies on the same date for an annual contribution of Pounds 20,000. Partner A effects his policy with Standard Life via his insurance broker on normal commission terms, Partner B effects the same policy via a firm of consulting actuaries on nil-commission terms and Partner C effects a policy linked to his partnership Sipp.

If each partner's policy achieves a rate of return before charges of 13 per cent per annum, Partner A's policy will be worth Pounds 1,612,000 and Partner C's Pounds 1,785,000. Partner C's policy has the highest value because it suffers the lowest charges.

Many people will rightly suspect that one key feature of this analysis is the impact of commission on maturity proceeds. For example, the difference between the value of Partner A's policy and Partner B's is Pounds 156,000. This difference is the direct result of the commission structure.

Surprisingly, the difference between Partner B's policy and Partner C's, Pounds 173,000, is even larger, indicating the substantial additional costs borne by Partners A and B as the result of the insurer's own expenses. Commission is, therefore, not the only handicap on the maturity of proceeds of conventional policies.

Many pension advisers and investment managers dismiss the importance of charges and point instead to the superior investment performance of the product they are selling. This argument is realistic only when comparing 'like with like', for example, a Standard Life policy set up on normal terms compared with a Scottish Widows' policy established on the same basis. In such a case the difference in charges is likely to be slight and relatively modest differences in investment performance will tend to 'lose' these differences over time.

However, the argument for ignoring charges loses weight when comparing the charges of conventional policies with Sipps. For example, in order for Partners A and B to achieve the same (or better) policy maturity proceeds than Partner C their policies must outperform Partner C's by around 1 1/2 per cent per annum and 1 per cent per annum, respectively. Over a 20-year period this is very unlikely.

It is also possible to turn the outperformance argument on its head. One of the advantages of a Sipp is that it does not necessarily have to produce the best investment performance to outperform other policies. For example, in the case set out above, Partner C's policy could underperform by 1 1/2 per cent per annum and his policy's maturity proceeds would still be the same as Partner A's.

Finally, on the subject of cost-efficiency, there are only two factors which will influence the return achieved on a partner's pension contributions; the rate of investment return and the level of charges incurred. Only the last of these can be predicted with any certainty and every effort should be made to keep them as low as possible.

Apart from the cost, the other great advantage of a Sipp is that the partners appoint and control the investment manager. If the manager fails to perform satisfactorily he can be sacked and replaced without penalty.

Contrast this to the position if partners hold conventional policies. If the performance is poor, partners will have little sanction but to direct their future contributions to another policy. They might also try to transfer out of the poor performing policy but this is unlikely to be achieved without a high penalty.

So why do relatively few partnerships have Sipps (or one of the pre-1989 variants)? The answer lies in a combination of the following points.

Most pension advisers are remunerated by commission. The best self-administered schemes are set up on nil-commission terms so recommending them is not usually in the interests of the adviser.

Sipps require partners to act collectively. This is hard to achieve in practice and represents a 'difficult sale'. Most advisers will take the line of least resistance and recommend conventional policies.

Partners tend to treat their financial affairs as private and separate from those of their partners. Unfortunately, this unavoidably moves them towards conventional, individual policies.

Setting up a Sipp requires skills which are not usually associated with the commission end of the pensions industry.

Sipp skills tend only to be found in those advisers whose principal activity is advising occupational group schemes. Such advisers only operate on a fee paying basis and their services may only prove worthwhile if they are appointed by the firm as a whole rather than individual partners.

Therefore, if more partners are to benefit from the type of policy arranged for Partner C their firms need to recognise the need for fee-paying professional advice.

Until then, sadly, most partners in professional firms will continue, quite unnecessarily, to lose substantial parts of the pension funds in the form of commissions and other expenses.

*Figures in the table are calculated assuming annual contributions of Pounds 20,000 and an annual rate of investment return of 13 per cent. It is assumed that 15 partners participate in the Sipp, each contributing Pounds 20,000 per annum.

Andrew Warwick-Thompson is head of the partnership pensions section at consulting actuaries Bacon & Woodrow.

----------------------------------------------------------------------- PENSION COSTS Percentage reduction in premium (RIP) ----------------------------------------------------------------------- Policy type 10 yrs 20 yrs 30 yrs ----------------------------------------------------------------------- Normal policy terms (Standard Life) 14 20 27 Nil-commission terms (Standard Life) 6 12 18 SIPP 1 2 4 -----------------------------------------------------------------------

MORTGAGE lenders are making tentative predictions of a gradual recovery in the property market. Halifax, Nationwide and Leeds Permanent building societies all said this week they expected house prices to stabilise this year, but none predicted a rapid recovery.

Halifax, the largest society which lends to just under a fifth of mortgage holders, said it expected prices to stabilise by the spring. They have been falling by 0.5 to 0.7 per cent a month and are expected to continue dropping over the winter.

The Halifax house price index showed a fall of just under eight per cent in the year to November 1992. The society is reluctant to predict the extent of recovery for this year, perhaps because it was too optimistic in its predictions for last, when it forecast a rise in house prices in line with an inflation rate of about four per cent.

In its review of the housing market in 1992, the society does, however, forecast an important increase in the level of activity in 1993 - a prerequisite for the market's recovery. Last year there were just 1.1m housing transactions nationwide, representing about half the level of activity in 1988. Halifax says it expects this number to rise by 15 per cent in 1993.

It finds the main barrier to recovery is a lack of confidence among buyers rather than an inability to afford property. Halifax says mortgage payments now account for 25 per cent of earnings in the south east - the area worst affected by the housing decline - compared with more than 60 per cent in 1989.

The Halifax says further measures could promote a more robust housing market recovery, and suggests a number of moves the government could introduce. These include reforming mortgage interest tax relief to increase benefits for first-time buyers, and introducing a mortgage benefit scheme to assist low-income homeowners.

By contrast, Mike Blackburn, chief executive of Leeds Permanent, eschews 'pill-popping policies which tend to give you a hangover'. The temporary abolition of stamp duty on homes worth under Pounds 250,000, which was lifted in August, is one measure he believes hindered, rather than helped, the housing market.

'We believe house prices generally have stabilised and will show some signs of an upturn, accompanied by increased market activity,' he said. 'But these 'green shoots' will only really take hold if they are rooted in the right climate, and that means we need to see evidence of some global warming in the industrial and commercial sectors.'

Tim Melville-Ross, chief executive of Nationwide, the second largest lender, said the government's plans to enable housing associations to buy around 20,000 empty houses would help reduce the overhang of unsold properties. 'There is undoubtedly pent up demand from would-be house buyers, particularly first-time buyers, who have put their decisions to purchase on hold over the past two years,' he said.

'However, this is counterbalanced by the continuing overhang of unsold homes and there will have to be a significant increase in turnover before we see any increase in prices.'

The National Association of Estate Agents reported this week that December had been the busiest month in the past three years for agents. Michael Jones, president, said: 'Although we anticipate there will be regional variations, we suspect the market has already turned the corner and that it could revive much quicker than even the Halifax is predicting.'

But bursts of activity have been seized on as evidence of a full recovery too often in the past and cautious optimism is now the catchword of the big building societies. 'Fears about job security and the economy as a whole are the main factors affecting the housing market. Changes in confidence could mean the recovery could be delayed or could be much stronger than now seems possible,' said Melville-Ross.

THE 1993 Business Expansion Scheme season seems to have started in 1992.

BESSA Plus (Second Series), launched last week, is a scheme sponsored by Close Brothers and backed by TSB Bank, which will buy repossessed properties from Hill Samuel Mortgage Services and let them for five years.

Its crucial extra ingredient, on top of the guarantee from a high street bank, is the 'non-recourse loan'. This allows top-rate taxpayers effectively to realise their investment after only six months - note that it is not worthwhile for basic rate payers.

For every Pounds 1 invested (60p after tax for top-rate payers), Hill Samuel will lend 72p to investors after six months. Investors can choose to continue for five years, but Hill Samuel is obliged to make the loans available.

The loans are 'non-recourse', which means they are secured only against the BES shares themselves - Hill Samuel has no right to pursue investors for any other part of their assets.

Similar schemes linked to the Bank of Scotland and the Bank of Ireland sold out within a week of becoming available, and it looks as though it will be difficult for those not already on Close Brothers' mailing list to invest in the current offer - total capacity is Pounds 8.5m, and Pounds 3.5m had been taken by New Year's Eve, when the offer had only been open for two days.

A similar scheme sponsored by Capital Ventures in conjunction with Cambridge University also seems likely to be fully subscribed soon.

Would these schemes be worth holding on to for the full five years? Falling base rates have cut sharply into the returns on offer, and TSB is offering only Pounds 1.08 after five years for every Pounds 1 before tax spent now. In 1991, offers of Pounds 1.35 for every Pounds 1.00 were common, although they did not have the security of bank backing.

Anthony Yadgaroff, of Allenbridge Group, says current offers should be taken up only by those who want to take advantage of six-month loans. This will allow them to reinvest in the BES before the scheme is abolished at the end of the year.

The budget, due in March, must put some question marks over the future of this type of scheme, as the low risks and high returns available to top-rate taxpayers seem out of line with the government's original intentions. However, the crop of schemes is taking repossessed housing out of the property market, removing a downward pressure on prices, so sponsors are hopeful that the schemes will survive.

Banks and building societies - which are yet to get heavily involved with the BES - benefit by removing large amounts of bad debt from their balance sheets, so supply is likely to continue. Several sponsors are working on issues to fund university accommodation, which lack bank guarantees and loans, but may offer a higher return over five years.

EXPATRIATES are generally viewed as people who earn more and save more than their stay-at-home compatriots. And that is often true.

But expatriates tend to work hard as well. Perhaps one result of this is that some fail to give sufficient time to their own finances. Whatever the reason, expatriate finance specialists regularly see evidence of the same mistakes being repeated.

For a prosperous 1993 - and beyond - check that you are avoiding the following slips:

Overlooking the different residence status of spouses. For example: wives often become UK tax residents by visiting the country when accommodation is available for their occupation (unless they have full-time jobs in which all the duties are performed overseas). Such a status could result in UK tax liability on overseas income and gains (including half shares of joint holdings). But it can give rise to opportunities too, for example the ability to invest in personal equity plans.

Failing to appreciate that accepting a UK directorship can give rise to similar results, even in the case of those who are in full time work. However, liability to tax on an overseas salary is prevented by the operation of the 'foreign earnings deduction'. Aircrew, couriers and others who perform 'duties of substance' in the UK are similarly at risk.

Assuming that UK interest paid to you without deduction of tax is tax exempt. Payment gross is an administrative procedure which does not apply in broken tax years, those of departure or return to the UK.

Ceasing to pay UK National Insurance contributions on going overseas. In most cases, this is a mistake. Voluntary Class 3 contributions, costing Pounds 263 per annum, can give rise to an effectively index-linked pension of Pounds 2,815 per year plus, in the case of a married man, a further Pounds 1,962 pa for his non-contributing wife.

Supposing that inheritance tax does not apply to assets earned and situated overseas? This treatment is only available to those who are not domiciled in the countries which make up the UK, as a result of having left Britain permanently.

Overlooking local testamentary considerations when acquiring real estate abroad. Often it will be desirable to make a will in the country concerned. Even more importantly, you may find that local laws restrict your freedom to decide the disposition of assets on your death.

Assuming that a UK property acquired after the date of your original departure from the UK, will qualify as your principal private residence for CGT purposes, purely because it is the only property you own. For there to be any possibility of such qualification, you or your spouse would need to live in it for, say, three months after acquisition and also to resume residence there when your period overseas has ended.

Convincing yourself that 'no-one will know' is a suitable basis for tax planning. Skeletons in cupboards have a habit of rattling at awkward moments.

Assuming that complex solutions are inevitably superior to straightforward ones. Before investing in insurance-linked arrangements, ask yourself whether a direct investment will suffice. Before effecting a trust, ask if it is essential. Both types of vehicle have important parts to play in the field of tax planning. But both are frequently unnecessary. Remember that 'complex' is usually synonymous with 'expensive'.

Entering into long-term investment arrangements against a background of future uncertainty. How many people would answer in the affirmative the question, 'Is it a good idea to take on a ten year investment commitment when you have job security for only three years?' But expatriates frequently do it.

Attaching undue weight to the taxation treatment of any investment plan. Taxation is important. But the most brilliant tax shelter ever devised can be of little value if the investment fails to perform. The watchwords should be, investment performance first, taxation treatment second.

Overlooking the inflexibility inherent in the surrender penalties attaching to some investment arrangements. If initial charges are replaced by early surrender penalties, well and good. But such penalties sometimes last for five to seven years or longer. If, even with the lower initial charges, your investment fails to perform, you may find yourself effectively 'locked in'.

Failing to plan your return to the UK in good time. Happily, after years of urging by expatriate commentators - myself among them - this is much less in evidence. However, cases still arise of expatriates who spend 25 years abroad but leave themselves only 25 days to organise their return.

Donald Elkin is a Director of Wilfred T. Fry Limited of Worthing, West Sussex.

THE QUEEN'S annus horribilis was shared by many last year, not least by investors who found their options narrowing as the year progressed. The drop in base rates, changes to National Savings and the sluggish performance of equities made investment hard work.

It does not look any easier this year. But this is why New Year resolutions should be made and adhered to. We asked a number of financial advisers which resolutions would top their list for the New Year.

Wills and Inheritance Tax

Just in case this is your last year, Mark Bolland, of fee-based advisers Chamberlain de Broe, urges those without a will to write one: 'From this starting point individuals and couples can go on to wider areas of estate and inheritance tax planning. Clearly, given the state of the economy at the moment and the level of the PSBR, the government is likely to raise taxes. I would have thought it rather unlikely therefore, that IHT - comparatively small though the receipts may be - will be significantly reduced.'

People should also resolve to do something about their IHT liability, says David Harris, of Chantrey Financial Services, by making use of the annual Pounds 3,000 exemption and using the small gifts exemption - up to Pounds 250 to as many people as you like.

Money on Deposit

David Harris says savers should resolve this year not to keep all their investments on bank or building society deposits now that interest rates have dropped substantially, but should check alternatives. They should take advantage of the maximum investment allowable into the current National Savings issues and pay their next instalment - Pounds 1,800 - to their tax exempt special savings account in the New Year.

Colin Jackson, of Baronworth investment services, advises those in a 90-day bank or building society account to give notice and get out. 'The advantage of a 90-day account (interest-wise) is now fairly minimal,' he says. 'I anticipate that in the coming year there will be some new investment products being launched. Those people who have their money tied up in a 90-day account will either have to miss out on an investment opportunity or lose interest by withdrawing their money without giving the appropriate notice.'

Personal Equity Plans

Resolve to look at the performance of your Pep if you have one says Harris, and look also at the level of charges, administration and strength of the company, adds Jackson: 'Peps are often sold to people who really do not need them as their tax position is such that the tax free benefits of a Pep would not apply. For those people there is no reason why they should pay the higher charges incurred by investing through a Pep.' He reminds those who need a Pep to take one out before the end of the tax year on April 5.

Investment Strategies

Robert Noble-Warren, of fee based advisers Murray Noble, says those with cash should be open minded about investment strategies. Instead of considering UK equities only, 'an alternative strategy is to have higher holdings of cash and fixed interest, to invest much less than one would normally in UK shares and take a small highly speculative holding in emerging markets such as South China and Mexico,' says Noble.

Life Insurance

Most people in the UK are underinsured and Harris says people should resolve to check to see whether their life insurance arrangements are adequate. He says investors should keep their wits about them and resolve 'to differentiate between life insurance for protection and other products that purport to be investment plans but are life assurance by any other name.'

Retirement and pensions

All advisers urge readers to make a resolution that they will no longer put off retirement planning. Harris and Jackson remind those in an occupational pension scheme to maximise their contributions for the year (up to 15 per cent of net relevant earnings subject to the pensions cap). Harris says policy holders should check the value of their pension arrangements and, if the policy holder is contracted out of Serps, to see whether proper rebates have been applied to a personal pension plan.

Jackson thinks those who are contracted out should reconsider their decision, particularly if they are men over the age of 45 or women over 40. He reminds higher rate taxpayers to consider picking up unused pension relief for the past six years and paying a single premium before April 5. 'The tax inspector will give you relief in the current year initially at your highest rate of tax. However, you can put in an election (not later than July 5 1993) to carry back the relief to the year ended April 5 1992, if this is more tax efficient,' he says.

Retirement may become a more risky business, warns Noble. Employers are moving to money purchase schemes since these are cheaper than final salary schemes. The reduction in interest rates means that a smaller pension will be bought with the accumulated pension fund than in recent years, state pension benefits are likely to be reduced and pension funds can expect lower growth from equities than they experienced in the 1970s and 80s. Pension contracts are being sold on growth rates allowed by Lautro, the regulator for the insurance industry, but Noble believes these estimates are too optimistic. He says, therefore, it is important to take impartial advice.

Mortgages

Harris would like homeowners to check whether their lender has dropped its rate in line with others and consider whether a fixed rate might not be more suitable while interest rates are still historically low.

Guaranteed Bonds

Jackson believes investors should steer clear of guaranteed bonds for the time being as rates are low. He also warns investors there are a number of products on the market promising 'guaranteed' returns while the small print reveals they do no such thing.

Business Expansion Scheme

The BES - which allows investors tax relief at their highest rate on up to Pounds 40,000 invested in a qualifying scheme - will be abolished at the end of the year. Chamberlain de Broe's Alan Greening reminds investors who have not subscribed in the 1992-93 tax year they have an allowance of Pounds 80,000 to invest - Pounds 40,000 before April 5 and another Pounds 40,000 after that date.

'Many advisers who would in the past have been wary about using BES investments for anything other than a small part of someone's portfolio, are now using them as the basis for secure growth (over 10 per cent compound for five years), allowing other more speculative investments to be chosen alongside to provide the high levels of income no longer seen in building society or fixed interest investments,' said Greening, who believes the majority of current BES issues have become secure investments.

Last year a new type of scheme - 'non-status, non recourse loan' emerged and have added flexibility to the tax-efficiency of BES investments for higher rate taxpayers, according to Greening. These schemes grant tax relief about six months after the original investment is made. The investor is then offered a non-recourse loan of between 72 per cent and 76 per cent of their original gross investment. 'It is now possible to secure Pounds 8,480 tax relief from one Pounds 10,000 investment, by taking one investment for Pounds 10,000 now, taking a loan-back after six months (Pounds 11,200 including Pounds 4,000 tax relief), and reinvesting the proceeds in a BES for five years - thereby securing another Pounds 4,480 worth of tax relief,' said Greening.

While the BES is now much safer than it used to be, Chantrey's Harris advises potential investors to take advice before committing themselves. He also warns that since a great deal of demand is expected of these schemes, potential investors need to be prepared to act quickly to take advantage of any offers.

Financial Advice

Jackson says people should ask their financial adviser how much commission they are earning and whether they will share it with them. Bolland and Noble, both fee-based advisers, urge people to move to fee-based advice for impartial financial planning.

A new service is being provided by Boyton Financial Services. Fund Watch is a fortnigthly publication which will detail charges, discounts and commission on new unit trusts, investment trusts, pensions, Peps and other investments. The service costs Pounds 90 per annum, and is available by post or fax from: Boyton Financial Services, PO Box 14, Halstead, Essex. CO9 4BY. Tel: 0787-61919.

'A year of frustration and disappointment' is how analyst John Houilhan of Hoare Govett describes 1992, after small company shares underperformed for the fourth consecutive year. However, at least, small capitalisation stocks rallied over Christmas. The Hoare Govett index (capital gains version) rose 5.3 per cent from 1147.06 to 1208.87 between December 17 and December 30, while the County index climbed 5.5 per cent from 884.2 to 932.86 over the same period.

Mercury Asset Management is offering a 1 per cent discount on investments in two of its unit trusts - Income and British Blue Chip - which it has selected as core Personal Equity Plans for the 1992-93 tax year. Those who invest the full Pounds 6,000 in one of the Peps will receive 600 free Air Miles. Initial charge on the Peps is 4 per cent and the annual charge is 1.5 per cent.

Brazilian shares moved up in the week that beleaguered president Fernando Collor de Mello resigned. Politics has bedevilled the stock market which began its slide in May when Collor's brother accused him of corruption. The political crisis continued with a parliamentary inquiry and an impeachment debate. The market has lost nearly half its dollar value since its peak in April, according to emerging markets data provided by the IFC, part of the World Bank.

The political crisis brought to an end a bullish run which saw the market more than quadruple between January 1991 and April 1992. Share prices had been pushed higher as foreign institutions were allowed to operate directly in the market and other positive steps, such as tax reform and privatisation, occurred.

Unit trust funds under management rose to an all-time high at Pounds 61.95bn in November, according to the Unit Trust Association. Net inflow, at Pounds 258m, was the highest for any single month since September 1991 - and it scarcely seems coincidental that the Building Societies Association reported a net outflow of Pounds 184m for the same month. Lower interest rates are forcing savers to look around for the best rates.

Cash and fixed interest unit trusts, not traditionally high sellers, accounted for most of the inflow of funds. These attracted a gross Pounds 820m and accounted for half of total net sales in the 11 months to the end of November. Growth in funds under management in fixed interest sectors has been startling - according to the UTA, money market funds under management rose by 47.5 per cent, international fixed interest by 71 per cent, and UK gilts and fixed interest by 23 per cent in the year to November.

PENTOS shares plunged to a seven-year low this week after Terry Maher's specialist retail and office furniture group broke with tradition and delivered a profits warning instead of a seasonal message of good cheer.

In the last two decades, Maher has transformed Pentos into an aggressive high street retailer whose outlets include the booksellers Dillons and Hatchards, Ryman the stationers, Wilding office equipment and Athena Galleries, which sells posters and prints.

Although Pentos is perhaps best known for its opposition to the price controls of the Net Book Agreement, the source of shareholder grief this week had little to do with the group's rapid expansion, or book pricing policy.

Dillons, including Hatchards, which was acquired two years ago, accounts for around 60 per cent of group operating profits, and remains the pride of the Pentos group.

Its branches have been equipped with modern electronics and it now ranks as the second largest bookseller in the UK with a 12 per cent market share and a target of 15 per cent by 1994.

In contrast, Ryman has been a relatively disappointing performer since its acquisition in 1987. Turnover in 1991 was Pounds 27.8m and sales in 1992 are expected to show meagre one per cent growth.

Overall, Pentos' pre-tax profits for the year which ended on Thursday are set to drop by two-thirds to about Pounds 5m because of poor Christmas sales at Athena, a fourth-quarter slump in office furniture orders, and a clutch of exceptional costs.

Sales at Athena are particularly disappointing. The business is highly seasonal, and its relatively high fixed costs and gross margins make it more than usually sensitive to changes in sales volumes.

Sales have been hit at both ends of the product range. High-margin framed print sales have fallen because of the slump in house sales while sales of posters and other products, mainly targeted at the 14 to 24 year-olds, have suffered because of demographic changes and unemployment which has hit this group particularly hard.

Similarly, the office furniture division has struggled with a 25 per cent contraction in overall market size over the past 12 months.

Pentos is reducing overheads by Pounds 2m a year in the furniture business and by Pounds 1m a year at Athena. However, Pounds 2m in reoganisation and other 'cleaning-up' costs imposed by Clive Gregory, who returned to Pentos in October as finance director after a 10-year break, and a Pounds 1.5m provision to cover surplus property costs at Hatchards, will be treated as exceptional items.

The share price has fallen from a peak of 170p in October 1991 to 55p at the close on Thursday. Arguably, Pentos was a recovery stock bid up too soon, but the price may also be reflecting other anxieties. In particular, the group has adopted a curious approach towards reverse premiums - the up-front sweeteners given when taking up a lease. The 1990 profits were restated (downwards) as a result of a change in the group's accounting methods for these premiums, which are now spread over two accounting periods instead of the old method of one year.

Another worry is that year-end net borrowings are likely to show a Pounds 28m increase to about Pounds 48m, producing uncomfortably high gearing of 50 per cent. However, capital expenditure and investment should both be lower in 1993 and Pentos should generate cash for the first time in three years.

At some stage, it might also make sense for Pentos to offload the office furniture business. This would enable the group to focus exclusively on specialist retailing - particularly important if a booksellers' price war ever breaks out.

Pentos has invested aggressively to build market share while reducing its cost base. If consumer spending were to increase, it would produce a rapid and substantial increase in profitability. Even without an economic upturn, the group's underlying performance should be improved by the latest round of cost cutting. The stock may well have been oversold.

THE CHART alongside may hold the key to the stock market's performance in 1993. It shows the ratio of M4, the broadest measure of the money supply, to GDP.

Over most of the past 12 years, the ratio has been rising steadily. For every pound of GDP, people have been holding an ever-higher amount of money in M4's cash, bank and building society accounts. The upward trend has levelled off over the last couple of years, but the UK is still awash with liquidity.

The Treasury argues that the steady upward trend simply reflects the rising wealth of UK households. The flattening in the ratio over the past two years echoes the damage done to wealth by the recession. Once that is past, the upward trend will continue.

If that is so, there is little implication for the stock market. But consider what might happen if the public's holdings of liquid funds represent not merely a side-effect of increasing wealth but also a judgment about relative rates of return.

For much of the past decade, nominal interest rates on pass-book accounts have been comfortingly high. For the past few years, indeed, the funds that make up the bulk of M4 have produced extremely attractive real rates of return.

Since Britain left the ERM in September, interest rates have fallen sharply. They are likely to fall further in the new year.

What will savers do with their money as building society accounts no longer look so attractive? A similar - though deeper - cut in interest rates in the US led to a flood of retail investors' money into the stock market, helping to push it to new heights.

UK interest rates are unlikely to drop as far as those in the US. And Britain does not have the same number of aggressive independent stock-market investors. But it does have a large and imaginative collective investment industry, skilled at channelling the public's savings into the most appropriate market.

A strong start to the year for equities, building on the 129-point rise in the FT-SE 100 index since mid-December, might make this task easier, rekindling public enthusiasm for shares for the first time since the 1987 Crash.

Even if retail investors still steer clear of equities, however, a shift in their portfolios might influence the stock market in a less direct way.

The post-September steepness of the yield curve - which rises from roughly 5 per cent interest rates on short-term retail deposits to an 8 1/2 per cent yield on long-term gilts - allows individual investors to obtain higher returns by moving along the curve.

If they do so in large numbers - either by buying gilts themselves or, more plausibly, by buying insurance industry products backed by gilts - the huge scale of the government's borrowing requirement for next year will become much less threatening, to the equity market's benefit.

Such financial considerations apart, the equity market in the New Year is likely to be dominated by the outlook for the economy. The current level of share prices - with the FT-Actuaries industrials selling at 17 times reported earnings - reflects the consensus that a slow, stuttering, recovery from recession is under way.

In the last couple of weeks of 1992, however, hopes have spread that the recovery may prove brisker than expected. The strong performance of the new FT-SE Mid 250 index, which contains the mid-sized companies that rank just below the FT-SE 100, reflects this view.

Typical Mid 250 companies are more focused on UK domestic markets than their larger cousins; and the index also contains many companies from the capital goods and construction supplies industries.

The Mid 250 index as a whole outperformed the FT-SE 100 by 6 1/2 per cent in December, thanks to strong performances by such companies as Tiphook (up 30 per cent on the month); Shanks & McEwan and T&N (both up 25 per cent); BICC (up 24 per cent) and Marley (up 23 per cent).

The optimism these movements reflect was reinforced by consumers' enthusiastic shopping in the days just before and just after Christmas. Share prices of stores rose six per cent in the last two weeks of the year, putting them on a p/e ratio of 21, a figure that is clearly already discounting good sales in 1993.

As the old year ended, it was left to the stores' more glamorous cousins, the food retailers, to underline that the recovery will not simply be a return to pre-recession business-as-usual.

During the three years or so of depressed economic activity, the world has not stood still. Cost structures have been altered, new capacity has been brought into use, competitive relationships have changed.

This is most obviously true for those companies faced with overseas competition, for whom the EC's single market ushers in new challenges. But it is also true for the gilded giants of food retailing, despite their relative immunity to rivals from abroad.

The stock market's growing unease about how long the supermarkets will be able to combine rapid growth and high margins showed up in a - perhaps exaggerated - reaction to some small-scale price cuts by the big chains, pulling the sector down 3.6 per cent on Wednesday.

At the end of the year's trading, the market was valuing supermarkets - on a dividend yield of 3.12 per cent - less generously than stores (3.11 per cent), something that has happened on only two other days in the past five years. In this and other ways, the recovery is likely to be no respecter of formerly comfortable certainties.

A SMALL hole recently opened in the space-time continuum and a sheaf of letters dropped from the future into the FT's files.

Our crack team of reporters are not quite sure who the letters are from, but careful analysis may provide some clues about the economic prospects for 1993.

Dear Bill

Glad you've forgiven me about the passport thing. I'm sure we can re-establish that special relationship. Given your time at Oxford, I'm certain, like me, you have developed a passion for cricket and Happy Eaters. And we're both quite considerably fond of Chelsea (joke). Indeed now that we've cut interest rates to 3 per cent and the pound is worth one dollar, it's almost as if we're one country again.

Hope to see to you soon and you're welcome to look in our files on Dan Quayle any time (only kidding).

Yours, John

Dear Helmut,

Will you please pass on to Herr Schlesinger our grateful thanks for the one-eighth of a percentage point cut in interest rates which the Bundesbank announced last week? I'm sure it will be invaluable in stimulating our economy, and a great help when it comes to our Parliamentary elections in May. Not] (as the stars of Wayne's World would say).

Yours, Francois

PS Sorry about our farmers setting fire to the Frankfurter and beer trucks.

Dear Francois,

Schlesinger Schmesinger. All that guy thinks about is the money supply.

Maybe if you sent some of your farmers to blockade Frankfurt, he might see sense. Instead he keeps droning on about the cost of reunification. You don't know anyone who wants to buy a small, former Communist country on the cheap, do you?

Yours, Helmut

Dear (insert name of foreign leader),

Thanks very much for your congratulations on my election. I am afraid I will not be able to visit your country until I need to look statesmanlike/ the US economy recovers/1997. But in the meantime, I hope to arrange a high level delegation led by Al Gore/Hillary/Socks the Cat. If you really want to help, we would be very grateful if you cut your interest rates/cut your tariffs/bought some GM cars. As a gesture of goodwill, I therefore include tickets to Disneyland/tickets to my next saxophone concert/a grits recipe.

Yours, Bill

NB. Could the State Department delete where applicable?

Dear M Delors,

Good news about the Maastricht vote. Parliament approved everything, subject to a few more minor opt-out clauses. Like the Common Agricultural Policy (just kidding).

Yours, John

PS Have you tried Bill's grits recipe? Tastes considerably good with chips and peas.

Dear Bill,

Sorry about the mistake with Hillary. My eyesight is fading these days and I thought she was . . . anyway, tell her she has an even better right hook than Edith Cresson.

In any case, now the Bundesbank has lowered its interest rates at last, the strains on the ERM might lift. It's a pity there's only two currencies left in it.

Yours, Francois

PS Also sorry about what the farmers did to Eurodisney. Apparently, it can be fumigated in a few weeks.

Dear Norman,

Sorry about the cabinet reshuffle. It was time for a change and I wanted to move in some new faces. I am sure you will rise to the challenges of the Northern Ireland office.

Yours, John

Dear M Mitterrand,

We have an old saying in Arkansas: 'Don't enter the pigsty unless you're ready to trade pork bellies.' We had a good laugh when we heard about what your farmers did to Eurodisney and an even bigger laugh when Congress passed the 'Goods from France (Large Tariffs) Act'. Enjoy your recession.

Yours, Bill

Dear Helmut

Oh dear] Now that the trade war with the US and the lingering effects of the Bundesbank's policies last year have sent the whole of Europe into recession, it seems that the Anglo-Saxon economies are the only ones which will grow this year. If you need any tips on how to run a successful economic policy, don't hesitate to call.

But I am really writing to put your mind at rest. I can categorically deny the reports in the British press which claim that we will be leaving the European Community and applying for England, Scotland and Wales to be the 51st, 52nd and 53rd states of the union. Oh no.

Yours, John

Dear Bill

All the terms seem OK with us. But can you remind me what comes after: 'Oh say, can you see, by the dawn's early light'?

Yours, John

BY THURSDAY tea-time, with several hours of the old year left, Manhattan's Times Square was already resounding to the blare of trumpets and gaudy rattles: 1993, it seemed, could not come fast enough.

Wall Street investors know the feeling well. For much of 1992, their sights have been fixed firmly on what the next 12 months may bring. There is, of course, nothing unusual about stockmarkets anticipating the future. But, the presidential election, dominated by its cries of change and transition, and the turning-point reached in the domestic economic cycle, have given investors a fixation with tomorrow's joys, obscuring the drearier realities of today.

The final week of the year ran true to form. On the positive side, a raft of year-end economic indicators provided further hints that the economy may be pulling out of recession with some alacrity. The consumer confidence index published by the New York-based Conference Board climbed 12.7 points during December to 78.3, for example. This follows an 11-point gain in November, and represents the highest level scored for one and a half years. (The benchmark 100-point level was set in 1985, and a strong economy tends to register a figure in the upper 80s).

Sales of existing homes were also shown to have reached their highest monthly level for six years in November. This was quickly interpreted as a signal that consumers are more optimistic about future prosperity and job security - although, apparently, also worried that interest rates are set to rise. Meanwhile, the main yardstick of future economic activity - the Commerce Department's index of leading economic indicators - showed a 0.8 per cent rise for November, the biggest monthly advance since last January.

Glimpses into the future, however, were not universally positive. This spate of encouraging economic data failed to translate into a traditional year-end rally on Wall Street, largely because investors were also trying to anticipate the tax changes which may take effect in 1993. The Clinton administration, runs the thinking, will almost certainly increase the income tax burden on high-earning individuals. Accordingly, such investors had every incentive to lock into stockmarket profits before 1992 ended.

Tax-centred concerns have already led to the early payments of bonuses by some Wall Street investment firms. Last week, these told on share prices, as dealers reported confusing 'cross-currents' in trading activity. Some investment clients, they suggested, were still buying on the economic news, but others were busily selling on tax fears.

The two trends seemed to balance out and the Dow Jones Industrial Average yo-yoed to the year's end - down a little at the start of the week, up a little on Wednesday and Thursday, and then down sharply in 1992's final half-hour of trading as computerised programme selling engulfed an otherwise moribund market.

Still, even if short-term influences were mixed, the extent to which US investors have been pinning their hopes - and their dollars - on 1993 were evident when figures for mutual fund investment were published mid-week. These showed a massive Dollars 9.9bn flowing into share-based funds in November, way in excess of the previous monthly record of Dollars 7.5bn. As a result, equity- oriented mutual funds have now pulled in a staggering Dollars 68.6bn from investors in the first 11 months of 1992, almost double the figure seen in the same period of 1991.

In one respect at least, investors' taste for equities and mounting optimism over the economy, is irrefutably beneficial. Quite simply, it has helped soak up equally unprecedented outflows from the corporate sector. Corporate share and debt-related issues also rose to unprecedented levels last year - over Dollars 800bn-worth of underwritten issues in the domestic market, according to one calculation - as companies restructured their balance sheets and took advantage of low interest rates.

But will the reality of 1993 live up to the hopes ? As analysts at S G Warburg have pointed out, some of the more superficial portents are not good. For a start, the year ends in a three - and statistically, over the past 100 years, this ranks eighth out of the 10 choices. Secondly, a new president will be in the White House, and post-election years have a tendency to produce uninspiring stockmarket performance.

But down in Times Square, such qualms were speedily being put to rest. 'Happy New Year,' yelled a partying crowd, with a message which was simple and would have cheered Wall Street's heart. Let the good times roll.

----------------------------- Monday 3333.26 +7.02 Tuesday 3310.84 -22.42 Wednesday 3321.1 +10.26 Thursday 3301.11 -19.99 Friday Market closed -----------------------------

SAVAGELY, Rathbone stamped his feet. The night was cold, growing colder. High above the Brandenburg Gate, the moon glowed hazily, casting an eggshell sheen across the clouds, as if a cosmic decorator had splattered a tin of white paint around the Berlin sky.

The second day of January was a crazy time to call a board meeting of the European Central Bank, Rathbone reflected fiercely. But then 2002 had been a crazy year. And crazy men were running European money these days. They talked of unity. Didn't they know everything was falling apart?

Rathbone gazed across the floodlit Reichstag square to the hulk of the bank headquarters. Central, the staff called it. Their chairman, Mercator von Stabil, had summoned the representatives of the 33 states making up European monetary union to Berlin.

Impatiently crushing his cigarette, Rathbone pondered the events of the past 12 months. As the Bank of England's accredited observer at Central, he had suffered a nerve-wracking time following the birth of the EuroMark at the Potsdam Convention. Central had moved into the old Reichsbank building. The Germans had chosen the shareholders. England was not among them. The Germans were, after all, paying most of the bills. And the costs were mounting.

Forging monetary union among the 'Europe of 33' - stretching to Ukraine and Konigsberg, down to Bulgaria across to Wallonia and Flanders, and then south to Piedmont and Lombardy - had proved more onerous than expected.

Scotland, lured by the offer of Robert Burns's head on the smaller denomination notes, had decided to join, not long after the 1999 Act of Disunion. England had its consolation prize: observer status at Central, thanks to its presidency of the Zweitesonderleistungsuntergruppe, the Zslugs, which consisted of other peripheral nations such as Wales, Albania, Moldova, Macedonia and Mezzogiorno.

Rathbone had moved to Berlin a year ago. In London, the Bank of England, now independent, was shedding staff. Better a hard currency posting on Berlin Station than fresh uncertainty in the City, his wife had said. A few weeks later, she had left him for the Citibank options merchant with the liquid crystal signet ring. With a spasm of anger, Rathbone recalled her parting jibe. 'Once a field man, always a field man.'

Rathbone scanned his miniaturised range-forward directory. At Threadneedle Academy, he had learned his trade well. Stealth. Intrigue. The long years in Signals and Targeting; the cover-up techniques in Supervision.

He gripped his official pass, allowing him through the Central guardpost. He had access to the Data Rooms. He could even attend lower-grade meetings, where von Stabil and the others regarded him with the amused condescension the English used to reserve for their butlers.

Rathbone's chief adversary was Gustav d'Exchange, the French managing director, who dyed his hair and dropped puns from the corner of his mouth.

He did not need their sympathy. He had his wire taps. The infra-red sensors, linked to the high-powered battery in his Jag. The network of microfilm drops in no-man's-land. And then there was Sum. Rathbone's mouth moistened at the thought of her.

The governor of the Bank of Estonia, a member of the Central board. He had once asked Control, should he call her governess? Sum Fluuctuatin had won acclaim for her currency model work at Tallinn. She liked Englishmen. Especially, thin ones with a wounded look in their eyes. Who used to admire the deft and elegant way she would slip into a more comfortable parity.

Sum's office on Central's executive suite shared a connecting door with von Stabil's. Rathbone smiled mirthlessly. His secret - and hers. Control knew more about what went on at Central than its own shareholders. It was almost as if England had opted for monetary union after all.

Dawn crawled through the city's snow-covered towers and rooftops. Rathbone watched the fleet of Mercedes drawing up outside Central. He counted to 33. Then he moved fast, sheltered between the lumbering Diskontsatz, the governor of the Bank of Slovakia, and old O'Flynn from the Vatican Bank. The delegations jostled through the portals up to the sixth floor boardroom. A huge chamber like a brightly-lit car park, hung with coloured blodges of modern painting. Rathbone squeezed into one of the individually-tiled marble lavatories, where governors were often closetted.

Rathbone gasped. Into the boardroom strolled a figure never before indicated on Sum's computer lists: Rodney Slyde, the chief executive of the Bank of England] Dimly, Rathbone could recall the old pre-independence governors: noble characters of lordly bearing.

Turn to Page XVI

Tinker, tailor, soldier, currency speculator continued from page I

Slyde was not like them. He had a face like a young crocodile, and a nose for business.

Slyde had made his name in privatisation. English banknotes, with the new dragon motif, were now printed in Hong Kong. What in the name of Montagu Norman was Slyde doing here?

On his ultra-sound intercept, Rathbone strained to pick up the conversation. Von Stabil's accented words sent fear jangling through him. 'We are so pleased, Mr Slyde, that you agree our little plan. We sell all our English government bonds. The Commonwealth join us. Sterling sinks. We offer a conversion rate. 1 Mark for 35 English pounds. You will have a seat on the board] At last, true Europeans you will become] Your interest we have it, in our hearts]'

Von Stabil's eyes glistened, a sea of cunning; his words took on a pantomimic ring: 'The time, Mr Slyde, we must fix. I opine: January 6]'

Rathbone reeled. That day, the markets would be preoccupied by the Wise Men's annual report. Central planned to take over the pound] To force England into monetary union] To think that Slyde would descend to this treachery]

Suddenly, a whiff of camphor told Rathbone he was no longer alone. D'Exchange appeared in the doorway, flanked by Sellem Lowe, central's chief trader, hired from the City's vilest currency pits.

'My dear Rathone,' intoned D'Exchange, 'You are well beyond your limits. At this stage, intervention is obligatory]'

Rathbone winced at d'Exchange's nasal drawl. 'Lowe, deal with him]'

Grinning, Sellem drew his concealed hedging instrument. Crude. But highly effective. Rathbone was aware of mist descending, as suddenly as the stop of a heartbeat.

The throbbing became less insistent. He was in Swapp's Bar] His old haunt, run by Karl Swapp, an ex-Polski Bank man, whose corpulent frame Rathbone could now discern, oozing like a flow of lava from a battered armchair.

Sum must have dragged him here with the aid of Marginali, the southern bank chief with a reputation for instability. Rathbone recognised the usual crowd. There was Vendor, the out-of-work Belgian bond salesman. Bleache, the sallow money laundering expert. Window, the Nederlandsche Bank functionary whose all-too-open discounting facilities had caused such trouble]

Swapp rolled over. 'You haf problems, Mr Rathbone?' he inquired. 'I know zese central bankers, zey all same. Since zey left gold standard, zey drifting.'

Swapp spat: 'Zey want to get you down] To discredit you] Zey want to crush your value]'

Weakly, Rathbone tried to realign his thoughts. He could try to make the Embassy at Karlshorst, but the road would be under multilateral surveillance. He could call up the old allies in Washington, but, of late, Reserve had turned to reluctance. He must get on to Slyde] But a stifled scream from Sum told him: again, too late]

'You always were a fool, Rathbone,' the chief executive purred, striding into the dive, flanked by pink-coated henchmen. 'Of course, we do not act alone. I am no more independent than the rest of them here. I was on the phone to the government at Blenheim Palace this morning. Do not believe the wording in the treaty. We all take instructions]'

Rathbone's brain flicked through all the training manuals he had ever read. If there was a time for a U-turn, this was it] He pictured Sum beside him at the Bank's safe house at Roehampton. All thought of rebellion ebbed away. He took the girl's hand, and led her from the bar. No-one intervened.

Outside, the traffic stilled. The countdown had already started. At least, they would never have to worry about exchange rates, any more.

WE BEGIN 1993 with the bull market in UK equities now at a fairly mature stage. Since the end of September 1990, when prices bottomed amid Gulf war gloom and just ahead of the temporary euphoria of Britain's entry to the European exchange rate mechanism, the All-Share index has climbed by 42 per cent.

In the meanwhile, company profits have fallen and the British economy has shrunk by about three per cent. Now the global economy is in trouble too, especially in continental Europe where the internal problems of Germany are spilling over to the rest of the European Community and beyond.

There is nothing surprising about this euphoria amid the gloom. It is the way the cycle works. I can vividly remember the fuss 20 years ago on the day that the stock market hit a new high and unemployment simultaneously reached 1m. One day early this year, the same could easily happen except that the jobless figure will be 3m. But investors should be aware that by the time serious economic recovery begins, the fun will probably be over for quite a long time.

Pension funds have been able to rule off 1992 with their portfolios - mostly of UK and overseas equities - showing an overall rate of return (capital growth plus income) of some 19 per cent for the year. Given a rise in their pay-linked liabilities of only five or six per cent, they have emerged surprisingly well from a traumatic year.

However, the investment performance has been notably fragile, and has depended entirely upon the resurgence since the end of August when the markets began to anticipate the ERM capitulation. In four months, the All-Share index has jumped by a quarter.

A second point to bear in mind is that pension fund actuaries do not take much notice of market values. They look at dividends, which actually fell by one per cent over 1992. The yield on the All-Share has declined to 4.3 per cent against a long-run average of about five per cent. On this basis, the pension funds are not doing particularly well. Nor is there any chance at all that dividends will grow vigorously in 1993, because although company profits should recover somewhat, first priority will be given to restoring balance sheets and rebuilding dividend cover.

Conditions have been unusually favourable for equities in the UK during the past few months. Short-term interest rates have come down sharply, and long-term rates have eased too, partly because pressure from government gilt-edged sales has been temporarily reduced as a side-effect of the support for sterling in the run-up to Black Wednesday.

Despite soaring share prices, there has been almost no supply of shares through new issues. Pension fund managers have consequently been able to dive back into a limited pool of equities and push prices up, which helps their performance and their fees but which, as I have pointed out, does not necessarily benefit the pension schemes themselves. There is scope here for a dangerous overvaluation of the UK equity market which arguably has begun to happen, with industrials selling on 17 times 1992 earnings, and might go further in the early part of 1993.

A new year will bring new realities, however. Surely a great many companies will seek to take advantage of the bull market by launching rights issues: the banking and insurance sectors alone could soak up billions if they can pluck up the nerve to ask their shareholders to pay for past blunders.

More importantly, the government's budget deficit looms above everything, with requirements for gross gilt sales likely to reach Pounds 1bn a week during 1993, and probably no less during 1994. Institutional cash flow runs at about Pounds 40bn, so there are obvious gaps, presumably to be filled by private investors or by foreigners.

There is little doubt that life insurance companies will divert most of their cash flow of Pounds 25bn a year to UK government securities. This had already started to happen by the third quarter of last year, when life offices bought Pounds 4.3bn of gilts. But pension funds bought hardly any, and indeed they now have such a weak cash flow that they have little capacity to absorb gilts unless they make room in their Pounds 350bn portfolios by selling existing holdings of equities.

As a first step, they can sell overseas equities, which may be one reason why the UK market is becoming expensive by international standards. Later on, the fear of an eventual funding crunch could increasingly overhang the UK stock market, although any actual crisis is more likely to happen in 1994 rather than during the coming year.

To some extent, this general pattern was evident in the US in 1992, leading, in fact, to an almost complete stalemate in which bullish and bearish forces were just about perfectly balanced on Wall Street. But that was something of a freak which is unlikely to be repeated in the UK. My central expectation is that share prices in London will hit a high point early in 1993 and then be subject to increasing pressures, although it may still be possible to make money in recovery stocks and second-liners.

The problems will centre on one or two nasty moments as the Bank of England seeks to price its gilt-edged auctions. In the 1970s, in similar circumstances, the authorities resorted to interest rate manipulations in order to tempt investor to buy gilts at supposedly unrepeatable interest rates. This time around, the Grand Old Duke of York could possibly conduct his main manoeuvres in the foreign exchange market as the Bank of England endeavours to lure international investors into UK bonds, which they have shunned since sterling was pulled out of the ERM.

A lot depends, of course, on the vigour of the British economy. A year ago, I thought most of the forecasters were too optimistic; this year, I am inclined to believe that, if anything, the short-term gloom is overdone, although that is not the same as saying that I am optimistic.

There has been a substantial monetary stimulus, and money market interest rates may well be cut to six per cent by the spring. But a simple consumer-led recovery would quickly run into a brick wall in the foreign exchange market. Back in the early 1980s, we could spend and borrow our way out of the recession because there was a balance of payments surplus and the private sector carried no more than an average debt burden. This time, we are in a much deeper hole, and the recovery must be led by manufacturing or it will not be sustainable.

For the time being, the French and the Germans are doing the UK a favour by rendering their manufacturing sectors uncompetitive, and the renewed strength of the dollar is helping, too. But for this kind of UK recovery to happen, there needs to be a sharp rise in the domestic prices of manufactured goods.

Even in a deep recession, there are powerful inflationary forces in the British economy. Without inflation, it is hard to see any way out of the crisis in the housing market and, without inflation, it will be hugely expensive for the government to finance its borrowing binge. The temptation for the government to engineer another sterling depreciation will grow. But in those circumstances, investors might prefer to buy hard currency bonds instead of gilts.

We can get out of the ERM but we cannot avoid exchange rate disciplines. So do not expect an easy ride in the securities markets in 1993.

ABOUT 1,500 National Westminster Bank staff have been recruited for the bank's new life insurance sales subsidiary after undergoing personality tests as part of the selection process.

Recruitment to NatWest Life, which is expected to become one of the 20 largest life insurers in Britain in its first year, has involved some of the broadest uses of psychometric testing of employees yet seen in high street banking.

Psychometric testing requires job applicants to answer questions designed to test motivation and personality. Several banks, including Barclays and Lloyds, are considering using the tests to select employees who are suited to selling financial products. The banking code of practice introduced this year places some restrictions on such selling.

Traditional bank recruitment has relied on clerical staff and managers having obtained basic academic qualifications. Personality tests have been thought irrelevant because bank staff have performed a mixture of office tasks.

But NatWest Life, which is being launched this month with capital of Pounds 105m, has used psychometric tests and interviews to select its sales force. About 1,500 have been recruited from the bank's branch network.

Mr Lawrence Churchill, chief executive of NatWest Life, said the subsidiary had 'stronger requirements on personal qualities than for the average member of branch staff'. It needed employees who were self-starting and sociable.

NatWest Life, 92.5 per owned by the bank, is a joint venture with Clerical Medical. It is NatWest's first venture into offering tied insurance rather than independent intermediary advice through NatWest Insurance Services.

The subsidiary will sell its own insurance products through 2,700 NatWest branches. Its sales force will be divided into about 1,500 advisers selling insurance, and 200 financial planning managers who will give other investment advice.

The bank hopes NatWest Life will emulate the success of other clearing bank subsidiaries selling tied insurance, including Lloyds Bank's Black Horse Financial Services subsidiary, which sells Lloyds Abbey Life products.

Mr Churchill said it hoped to sell 200,000 policies in its first year. He said NatWest believed insurance sales could eventually form 'a significant proportion of profits'.

Most of the 1,500 sales staff have transferred from NatWest Insurance Services.

THE WARLORDS and political masters of the rival forces in the former Yugoslavia prepared for a new round of peace talks in Geneva today as international opinion hardened against Serbia.

Mr John Major, the prime minister, speaking in London, warned the Serbs that the west was running out of patience with the lack of progress towards a settlement.

There was sporadic small arms fire around the Bosnian capital Sarajevo yesterday and there are indications that Bosnian Moslem forces are preparing counter-attacks to dislodge Serb forces from their more exposed positions in the hills south of the city.

Under pressure from Moslem forces, the Bosnian Serbs were again reported to have defied UN no-fly rules to re-supply troops.

This was implicitly admitted by Mr Radovan Karadzic, the Bosnian Serb leader, who said he had issued orders to ground all fixed-wing aircraft but wanted to continue using helicopters to ferry wounded from battle areas.

General Philippe Morillon, commander of the UN protection Forces (Unprofor) in Bosnia, told a French radio station yesterday that he feared fighting could flare up in Sarajevo in an attempt to undermine the Geneva talks. He again called for a winter truce around the capital, which has been besieged for months by Serb forces.

Speaking on BBC radio, Mr Major said sanctions might have to be both tightened and stepped up dramatically, and that the 'complete and total diplomatic isolation of Serbia' might also have to be considered.

'Serbia should understand very plainly the increasing impatience and despair felt in the west at the way they have been behaving,' he said.

'Everyone to a certain extent is to blame for the present conflict but the primary blame beyond a doubt in our mind, lies with the Serbs.

'They are the principal cause of the present conflict and people are getting very impatient with that, not just us - the European Community collectively, the US and others as well. I do not believe they should push that impatience too far,' he warned.

Faction leaders gather, Page 2

CABINET papers released yesterday show a sharp contrast between the attitude to pit closures of the Macmillan administration 30 years ago and the closure programme announced by the government in October.

The Conservative leadership of 1962, which included one-nation Tories such as Rab Butler and Iain Macleod, gave only qualified support to a plan to close uneconomic pits. It urged the National Coal Board to consider fully the social implications of closures.

In contrast, Mr Michael Hesel-tine, trade and industry secretary, said on October 13 last year that 31 of Britain's 50 pits were to close with the loss of 30,000 jobs. His announcement led to widespread claims of insensitivity and a failure to grasp the human dimensions of the recession.

On July 5 1962, the cabinet discussed a memorandum by the chancellor of the exchequer, Mr Selwyn Lloyd - now released under the 30-year rule - which disclosed a plan by the NCB to break even over the five-year period 1963-67. Demand for coal was estimated at 190m tons a year for several years ahead, and the closure of uneconomic pits would have been necessary to meet financial targets. In the previous year the board had maintained 162 collieries classed as 'gross losers' in the sense that their operating costs exceeded the income from coal produced.

According to the chancellor, this strategy was 'economically sound, though it would give rise to some social and political difficulties'. After a long debate which showed widespread concern for the impact of pit closures on mining communities, the cabinet agreed that the board's policy on closures should receive qualified support.

It was proposed that in indicating the government's general approval, Richard Wood, minister of power, should inform the NCB of ministers' assumption 'that the board would, so far as possible, time their closures to minimise the social difficulties which would result from them'.

It was added that the NCB's attention should be drawn to parts of the country where these difficulties would be most acute.

The cabinet decided to maintain the policy of not allowing imports of US coal. It agreed that any protests from the US administration over inconsistencies between this policy and the General Agreement on Tariffs and Trade could be met by an assurance that the policy would be re-examined a year later.

Ministers embarrassed, Page 4

What does seem a reasonably safe assumption is that by next summer the UK's position relative to the rest of Europe will look very different. A recovery of sorts should be under way and interest rates should have bottomed out. There may even be expectations of a modest rise in rates which will underpin sterling in the exchange markets. The combination of recovery and currency stability may attract overseas money into UK equities and gilts, especially if the Bundesbank is grudging in its rate cuts and the continent remains mired in recession.

Even so, it would be foolish to assume that the government's funding requirement will not restrain the equity market next year. The thought also occurs that, in the absence of a vigorous recovery, the UK could easily follow the pattern set by Wall Street, which showed its strongest gains while interest rates were actually falling in late 1991. It has gained only modestly since.

If that points to only small gains for equities as a whole this year, the mood may swing violently at times, especially once the funding programme gets under way in earnest in the spring. The best returns may accrue to those nimble enough to move in and out of the market - and who, by luck or judgment, enjoy an impeccable sense of timing.

By the time of the budget, attention may focus more strongly on the government finances. Not only may tax increases seem by then inevitable. The equity market will have to confront its greatest test of 1993: its ability to compete against a gilt market in which the government will be raising Pounds 1bn a week. The received wisdom is that, since government borrowing needs exceed institutional cash-flow, gilt yields will have to rise to the point where domestic investors switch out of equities on a large-scale.

The theory is so neat and so beguiling that it must to some degree be suspect. Perhaps the government will, after all, decide to allow gilt sales to banks to be counted as funding the PSBR. Perhaps it will borrow foreign currencies abroad. Small savers may come to the rescue by switching out of building society accounts and into equity and gilt-linked investments. The recovery may be more robust than expected and the PSBR correspondingly smaller.

None of these can count as sure predictions, but they are close enough to the realm of the possible to serve as a reminder that the funding problem need not turn out as dire as appears. Gilts and equity markets have been aware of the 1993-94 funding requirement since the Autumn Statement. Both have blithely ignored it so far.

The Treasury's expected growth rate is feeble for an economy emerging from recession. It is only about half that achieved by the US last year in a recovery that was far too weak to save President Bush from electoral defeat. The equity market is thus taking a lot on trust. All the more so, since the FT-SE index has risen by 33 per cent over the past two recessionary years while reported industrial earnings have fallen by some 18 per cent.

That leaves the market on a historic multiple of over 17, a range not seen since the run up to the 1987 crash. Arguably such a rating is justified on the grounds that inflationary expectations have fallen. Low inflation enhances the quality of earnings, enabling shares to trade on a higher rating even though prospects for nominal earnings growth have diminished.

Yet there can be little mileage left in this argument. Any further advance will need to be justified by actual earnings growth. This is notoriously hard to predict. The devaluation should boost the income of companies which derive most of their earnings from abroad. Those which are active in the US may benefit additionally from recovery there - as well as further dollar appreciation. But expectations of an anaemic UK recovery suggest earnings growth may be confined to around 10 to 15 per cent this year.

Besides, low dividend cover will limit the beneficial impact of any earnings rise. And the earnings trend will be unusually hard to pin down, given the accounting changes now entering into force. The market may thus find itself relying heavily on trading statements accompanying annual results to sustain any new year rally.

The trouble is that there are plenty of other factors which could kill the advance. If the chancellor means what he says, there is unlikely to be another cut in rates in the first quarter, although base rates of 6 per cent are probably factored into equity prices. Further deterioration of the European economy - largely ignored by UK equities so far - will not help, though it might hasten interest rate cuts in Germany. Another concern is that the market's higher levels could provoke a spate of rights issues. This would add to worries about institutional cash-flow. Rights issues last year amounted to only Pounds 4bn against Pounds 10.3bn in 1991.

This time last year the dominant question for UK investors was whether equities could continue to outperform bonds. The prospect of low inflation and sluggish growth in the straitjacket of the ERM made it appear as though gilts, for once, had the more sparkling future.

Since the UK's departure from the ERM in September, the debate has seemed academic. Until then equities had enjoyed a total return of under 6 per cent compared with 10 per cent for UK bonds. But the devaluation turned that on its head. According to the WM Company, equities returned 20.6 per cent in 1992 as a whole, bonds only 15.5 per cent. Since devaluation paved the way for economic recovery, equities should outperform again in 1993. There is a danger, though, in overestimating the degree.

In theory the UK is now free to focus its economic policy on growth, while the gilts market is likely to be weighed down with problems of oversupply. The Treasury, however, is forecasting growth of only 1 per cent this year and even the most optimistic City forecasts do not go much above 1.5 per cent. As price pressures remain relatively muted, the UK is perhaps not quite as far removed from the low growth, low inflation environment as might have been expected after its dramatic exit from the ERM.

Wall Street

TRADING ended 1992 in quiet fashion, with a handful of economic statistics giving little direction to the market, writes Nikki Tait in New York.

For most of Thursday the Dow Jones Industrial Average posted very modest advances, having opened with a three-point gain and, aside from a brief setback midday, holding on to this for most of the session. However, in the last half-hour of trading, an unexpected spate of computer-guided program selling developed and the index ended the session with a loss of 19.99 at 3301.11.

The more broadly-based Standard & Poor's 500 also ended the day with decline, 3.10 to 435.72, although the American Stock Exchange rose 3.48 to 399.23. The Nasdaq composite increased by 5.10 to 676.95. Dealing volumes, however, remained light on all markets, with the New York Stock Exchange registering some 166.7m shares traded. Advances outweighed declines by approximately two to one.

In early trading, the market's main focus was on further data suggesting that the economy is recovering and that confidence is beginning to return. The initial unemployment claims report for the week ended December 19 showed an unexpectedly sharp fall of 28,000 to 332,000 - news which pushed down bond prices but generally heartened the stock market. Later in the day, the National Association of Purchasing Management's index for December - accidently released four days early - also indicated further expansion in the manufacturing economy.

There was a virtual dearth of corporate news, and even the mostly actively traded stocks showed only narrow gains or losses. IBM, for example, added Dollars 1/4 to Dollars 50 3/8 , while Citicorp, the largest commercial banking group, gained Dollars 5/8 at Dollars 22 3/8 . On the consumer front, RJR Nabisco, the tobacco and food group, rose Dollars 1/8 to Dollars 8 5/8 , Philip Morris eased back by Dollars 7/8 to Dollars 77, and Coca-Cola lost Dollars 7/8 at Dollars 41 7/8 . Amongst industrials, Westinghouse was one of the more actively traded stocks, adding Dollars 1/2 at Dollars 13 3/8 .

Some retail shares continued to climb, on thoughts that the holiday season has been encouraging for US stores and that any revival in consumer confidence will boost prospects further. J C Penney, for example, gained Dollars 3/8 at Dollars 77 3/4 , Dayton Hudson added Dollars 5/8 at Dollars 75 3/4

In the transportation sector, only one of the three big airline stocks ended the year on a positive note; AMR gained Dollars 3/4 at Dollars 67 1/2 , but UAL slipped Dollars 1/8 to Dollars 126 1/8 while Delta Air Lines nudged Dollars 1/8 lower at Dollars 50 7/8 .

Canada

TORONTO climbed in thin dealings on some year-end position-squaring and short-covering, the TSE-300 index closing 23.6 higher at 3,350.4 in volume of 26.1m shares valued at CDollars 182.7m, compared to 30m shares on Wednesday.

The market ended 1992 some 4.6 per cent lower than a year ago. The TSE's media and metals groups led gains.

EUROPE was mixed, after Pacific Rim markets ended the year on a positive note.

PARIS saw arbitrage activity and block trading swell volume to some FFr3bn in the last session of the year as the CAC-40 index closed just 0.99 lower at 1,857.78. Among the actives were St Gobain, down FFr10 at FFr510, and Paribas, losing FFr13.50 to FFr345.50.

Chargeurs and L'Oreal went against the trend with rises of FFr52 and FFr16 to FFr1,294 and FFr1,067 respectively.

MILAN moved privatisation stocks yet again, BCI rising L70 to L4,740 and Credito Italiano L210 to L3,210 on the kerb after Wednesday's falls. The general tone was more sombre as the Comit index declined 4.85 to 446.37.

MADRID saw weakness in construction as the general index eased 0.87 to 214.25. Dragados lost Pta 90 to Pta 1,220.

ISTANBUL, boosted by a new tax incentive measure, advanced 48.65 to 4,004.18 in turnover of some TL168bn.

TEL AVIV ended the year 96 per cent higher than it began, the market index adding 1.79 at 195.97 on Thursday.

HONG KONG was firmer on year-end window dressing in quiet half-day trading. The Hang Seng index gained 44.50 at 5,512.39 in turnover of HKDollars 1.14bn. SINGAPORE's Straits Times Industrial index rose 11.94 to 1,524.40 in volume of 46.6m shares. Among the actives, SIA Foreign climbed 60 cents to SDollars 18.50, Singapore Press Foreign put on 40 cents at SDollars 15.90 and F & N gained 20 cents at SDollars 11.40.

MANILA was encouraged by PLDT's strong performance in New York and the composite index moved up 15.21 to 1,256.22 in turnover of 409m pesos. PLDT rose 25 pesos to 870 and Philippine National Bank closed 5 pesos up at 230.

KUALA LUMPUR rose on interest in speculative stocks as the composite index gained 1.30 at 643.96. Turnover was estimated at MDollars 135m.

AUSTRALIA closed at a three-month high but in low volume. The All Ordinaries index added 11.8 at 1,549.9.

As a foretaste of what to expect this year, the events of 1992 were totally unhelpful. Twelve months ago, I argued that currency stability and economic convergence within Europe necessitated a radical re-think of portfolio management. I argued that, in order to achieve efficient diversification, investors based in Europe needed to decrease, rather than increase, their exposure to EC stock markets.

The theory still holds. The problem, however, is that there is now an even bigger question mark over the extent to which currency stability and economic convergence can be achieved within the EC. The events of 1992 will have served to rule these out as automatic, long-term assumptions in the minds of investors.

Ironically, it is currency instability, both within and without Europe, which will have sorted out the winners from the losers last year.

The French market, for example, gave only a modest return (6 per cent). UK investors in that market never-theless enjoyed a 24 per cent sterling return, thanks to the relative strength of the franc.

The reverse holds, of course. French investors in the UK market earned less than 3 per cent, in contrast to the 20 per cent earned by UK investors in their own market.

It was the strength of the US dollar against most major currencies which really transformed international equity returns in 1992. And, while the assumptions underlying my diversification theory may have collapsed, European investors who did increase their stake in Wall Street would have benefited substantially. The return on the US market itself (9 per cent) may have been modest, but the dollar return earned overall would have far surpassed this.

All this is already history. A fresh start can be made on Monday morning, although decision-making is going to be no easier in 1993, especially taking into account the strains and stresses within the European Community.

Nor is the general economic outlook for Europe any reason for optimism. The fall in sterling and interest rates should fuel some modest growth in the UK this year; elsewhere, however, the news becomes gloomier by the month, particularly in Germany.

Further abroad, anyone reading Emiko Terazono's recent article (Financial Times, December 29) can only have been drawn to the conclusion that another painful and volatile year also lies ahead in Japan.

The Tokyo stock market may have found a bottom, thanks to government support, but it would be only realistic to assume that pent-up selling pressure will continue to delay the very long haul back to peak 1989 levels.

Cheerier news is emerging from the US, where the economy appears to be gaining momentum at last. But, even there, considerable uncertainties prevail, not least as to how the incoming administration intends to sustain recovery, while being seen to tackle structural deficit and debt problems.

The bottom line is that we are still in an economic mess. And the cleaning-up process will be far from easy. There is also a considerable danger that quick fixes will be found instead of long-term solu-tions, given political pressures worldwide.

The only safe prediction to make for 1993, it seems, is that the volatility of currency and equity markets will remain exceptionally high.

It also seems that UK-based investors will have more to cope with than many of their international counterparts. While I am sure Mr Lamont will have consulted his Wise Men over the festive period, it is difficult to believe that the U-turns and bumblings which were such features of 1992 will suddenly stop.

This view may be far too parochial, now that we have all become European citizens. On the other hand, that may not happen effectively until the UK has ratified the Treaty.

Footnote: All 1992 stock market statistics have been cal- culated to Christmas Eve. Adrian FitzGerald is Director, Equity Research at County NatWest WoodMac.

--------------------------------------------------------- TOTAL RETURNS (%) 1992 --------------------------------------------------------- Local Market US Market European Market --------------------------------------------------------- US 9 9 -4 UK 20 33 18 France 6 14 1 Germany -4 14 1 Italy -5 35 20 Netherlands 10 14 1 Australia -6 20 6 Hong Kong 25 8 -4 Japan -19 8 -5 ---------------------------------------------------------

--------------------------------------------------------------------- FT-SE ACTUARIES SHARE INDICES --------------------------------------------------------------------- December 31 THE EUROPEAN SERIES --------------------------------------------------------------------- Hourly changes* Open 10.30 11.00 12.00 --------------------------------------------------------------------- FT-SE Eurotrack 100 1082.72 1083.49 1082.85 1083.24 FT-SE Eurotrack 200 1169.14 1166.98 1168.25 1167.67 --------------------------------------------------------------------- Hourly changes* 13.00 14.00 15.00 Close --------------------------------------------------------------------- FT-SE Eurotrack 100 - - - 1083.35 FT-SE Eurotrack 200 - - - 1169.11 --------------------------------------------------------------------- Dec 30 Dec 29 Dec 24 Dec 23 Dec 22 --------------------------------------------------------------------- FT-SE Eurotrack 100 1084.02 1086.47 1078.93 1073.60 1072.92 FT-SE Eurotrack 200 1166.76 1167.59 1160.29 1154.31 1157.60 --------------------------------------------------------------------- Base value 1000 (26/10/90) High/day: 100 - 1083.85 ; 200 - 1169.47 Low/day: 100 - 1082.05 200 - 1164.82 * Partial. ---------------------------------------------------------------------

THE US authorities on Thursday delivered a year-end boost to the pharmaceutical sector, granting approval to four products from UK companies and sending shares in the recipient groups leaping smartly forward.

Of these, Fisons shares responded with the biggest percentage advance after the US Food and Drug Administration (FDA) announced that it had approved the group's Tilade asthma product.

Fisons said it intended selling the drug probably by the middle of 1993. The market was also cheered by the company's announcement that it had agreed a marketing arrangement for Tilade in the US with Rhone-Poulenc Rorer. Fisons, which will also co-promote Azmacort, RPR's steroid asthma treatment, in the US, said the two drugs play a complementary role in contributing to the successful treatment of asthma. The stock jumped 15 to 245p.

However, analysts cautioned against expecting any short-term benefit for Fisons' earnings, arguing that the asthma treatment market was conservative and that the marketing costs were likely to be high. But they also added that the drug, one of the brightest hopes in Fisons' armoury, should help turn round sentiment in the stock, which has suffered several setbacks in the past year.

Boots received approval from the FDA for its Manoplax heart failure treatment and the shares climbed 12 to 561p. Observers warned that, while this was positive news, the drug's effect could be limited by the fact that it was likely to be used in conjunction with other drugs, and not just on its own. Manoplax received official blessings from UK authorities in August.

The third recipient of FDA approval was SmithKline Beecham, which won consent for its Paxil anti-depressant treatment. The drug is seen as one of the most important developments for the group.

Mr Andrew Porter, pharmaceuticals analyst at Nikko Europe, said: 'Since the merger of the two companies and the consequent short-term benefits, the market has been looking for something which would give the combined group organic growth. Paxil is the one which will provide a basis for that.'

Analysts also added that Paxil was likely to be marketed at a discount to rival Prozac in the US. Prozac, the market leader in anti-depressants, manufactured by Eli Lilly, had sales of Dollars 550m in 1992 and was expected to have sales of Dollars 600m in 1993.

SmithKline forged ahead 20 on the announcement before retreating to close at 496p, a rise of 12 on the day.

Amersham also received the FDA blessing for its Indiclor cancer treatment and the stock advanced 17 to 619p.

Elsewhere in the sector, Glaxo, which gained FDA approval for its Imigran drug on Tuesday, added 8 at 793p, while Wellcome moved forward 5 to 967p.

Worries continued over a price war between Britain's supermarkets. J. Sainsbury had announced on Wednesday that it would cut prices on selected items to combat similarly planned price promotions from the rival Tesco and Argyll - which owns Safeway - chains. After tumbling heavily that day, downward pressure continued on most of the stocks on Thursday, although volumes were predictably thin.

Argyll slipped 5 to 393p, Kwik Save weakened 11 to 773p and Tesco softened 2 to 249p. After an initial decline, Sainsbury rallied to close 3 ahead on balance at 564p.

Food manufacturers, which had suffered on the back of the Sainsbury move on Wednesday, recovered some ground. United Biscuits improved 3 to 355p and Tate & Lyle 2 to 403p, while Associated British Foods appreciated 6 to 509p and Cadbury-Schweppes ended 5 better at 444p.

Buttressed by Wall Street's firmness the previous night, leading oil issues maintained the solid improvement of recent sessions, although business was thin.

British Petroleum, 3 ahead at 247p, continued to benefit from hopes that both the US dollar and global crude oil prices would rise in the new year. But BP has been included in the market's list of probable rights issuers in 1993 and buying was muted.

Shell Transport fully sustained its status as one of the market's most favoured stocks, although in the thin holiday trading conditions the shares could manage to gain only 3 at 562p.

North Sea stocks had a quiet half-day session, with Enterprise Oil unable to move from the overnight quotation of 441p. Enterprise has also found favour in the stock market and is expected to respond readily to any signs of increased activity in global economies, which would help crude oil prices.

Granada Group, one of the stocks tipped for a recovery buy in 1993, continued its recent surge, appreciating 13 to 376p. Thorn EMI joined in the recovery story, leaping 21 to 881p.

Holiday groups, heartened all week by reports of buoyant bookings, moved higher. Owners Abroad put on 2 1/2 at 96 1/2 p, while Eurocamp gained 4 at 312p.

House builders continued to respond to reports that estate agents' business had picked up in December. Bilton climbed 6 to 396p, Bellway 7 to 318p, Bryant Group 4 to 108p, Persimmon 6 to 221p and Wilson Bowden 12 to 396p.

Selected stores shares again benefited from the reports of firm high street sales. Austin Reed 'A' added 3 at 111p, Kingfisher 2 at 591p and Marks and Spencer 1 1/2 at 329 1/2 p.

Others, however, ran into a bout of profit-taking. Ratners retreated 2 3/4 to 12 3/4 p, Storehouse 4 to 202p and Dixons Group 4 to 259p.

NEW HIGHS AND LOWS FOR 1992 NEW HIGHS (139).

AMERICANS (7) American Express, BankAmerica, Citicorp, Dana, Ford Motor, Sun Co., Tenneco, BANKS (1) Lloyds, BREWERS (1) Holt (J), BUILDING MATERIALS (1) Kalon, BUSINESS SERVICES (2) Johnson Cleaners, Wills, CHEMICALS (3) Allied Colloids, Evode, Porvair, CONGLOMERATES (2) Hanson 9 1/2 pc Bd., Wassall, CONTRACTING & CONSTRUCTION (2) Bellway, Sheriff, ELECTRICITY (7) East Midlands, Eastern, Norweb, Scottish Hydro-Electric, Scottish Power, Seeboard, Southern, ELECTRONICS (7) Blick, Domino Printing Sciences, Learmonth & Burchett, Linx Printing, Micro Focus, Ptarmigan, Tunstall, ENGINEERING AEROSPACE (1) Westland, ENGINEERING GENERAL (6) Barry Wehmiller, Benson, Calco, Concentric, Rotork, Weir, FOOD MANUFACTURING (2) Kakuzi, Usborne, FOOD RETAILING (3) Brake Bros., Park Food, Shoprite, HEALTH & HOUSEHOLD (3) ML Laboratories, Seton Healthcare, United Drug, HOTELS & LEISURE (2) Granada, Do. 7 1/2 pc Pref., INSURANCE BROKERS (1) Berry Birch & Noble, INSURANCE COMPOSITE (2) Trade Indemnity, Travelers, INSURANCE LIFE (1) Torchmark, INVESTMENT TRUSTS (39) Abtrust New Dawn, Do. Warrants, Baring Stratton, Beta Global Emerging Markets, British Assets, Do. IL 2005, Dunedin Worldwide, EFM Dragon Warrants 2005, Fleming High Income, Foreign & Colonial Ent., For. & Col. Pac., For. & Col. High Income, Greenfriar, Investors Capital, Keystone, Kleinwort Endowment Policy, Law Debenture, London American Venture, Do. Warrants, Lowland, Mezzanine, Monks, Morgan Grenfell Equity Inc., Murray International B, Murray Smaller Markets B, Overseas Warrants, Pantheon International Parts., Scot. Warrants, Second Alliance, Selective Assets, TR City of Lon. Dfd., TR Far East Inc., TR Tech. Stpd. Pref., Templeton Emerging Markets, Trust of Prop., USDC, Value & Inc., Witan, Do. Warrants, MEDIA (5) CIA, City of London PR, Headline Book Publishing, Johnston Press, Ulster Television, MISCELLANEOUS (6) Airsprung Furniture, Birkby, Danka Business Systems, Great Southern, Lincat, Plantsbrook, MOTORS (1) T & N, OIL & GAS (4) British Gas, Pittencrieff, Shell Transport, Sidlaw, OTHER FINANCIAL (6) Henderson Administration, Jupiter Tyndall, London Scottish Bank, Mercury Asset Management, Provident Financial, Rathbone Bros., OTHER INDUSTRIAL MATERIALS (1) Staveley, PACKAGING, PAPER & PRINTING (3) API, Capital Industries, Ferguson International, PROPERTIES (2) INOCO, Savills, STORES (5) Boots, Country Casuals, Courts, Kingfisher, Do. 8 1/2 pc Ln. 2000, TELEPHONE NETWORKS (1) Securicor, TEXTILES (4) Claremont Garments, Dawson, Forminster, Leeds, TRANSPORT (4) Dawsongroup, Forth Ports, Mersey Docks, Tibbett & Britten, WATER (2) East Surrey, Northumbrian, MINES (2) Mount Burgess, RTZ.

NEW LOWS (9).

BUSINESS SERVICES (1) Lep, CONTRACTING & CONSTRUCTION (1) Jarvis, INVESTMENT TRUSTS (4) Continental Assets Warrants, JF Pacific Warrant Co., London & Strathclyde, Mezzanine, PROPERTIES (3) Derwent Valley, Molyneux Estates, Warnford Investments.

INTEREST IN the London derivatives markets was very thin on New Year's Eve but stock index futures continued to hold a good premium against the cash market, writes Terry Byland.

Traders said optimism for economic recovery in the new year remained solid, encouraged by favourable comments from Mr Norman Lamont, the UK chancellor of the exchequer, and from the British business community.

At the close of the half-day trading session, the March contract on the FT-SE Index showed a premium of 20 against the cash market - a premium of about eight above fair value, the calculation which allows for dividend and financing flows on the underlying blue chip stocks.

Earlier, the future ran to a premium of 30 against cash, but both institutional and independent traders were unwilling to chase the future any higher ahead of the holiday weekend. Trading volume was a mere 1,688 contracts.

In traded options, similar holiday factors prevailed. Business dropped to 8,691 lots from Wednesday's 21,718, with the FT-SE contract trading only 2,767, against a previous 8,801. The active stocks list was headed by BP (805 contracts), and US regulatory moves encouraged Glaxo (521) and Fisons (445). BTR, on 771 lots, also attracted interest.

THE LONDON stock market moved confidently to the close of trading for 1992, as optimistic messages from British industry lifted the FT-SE Index on New Year's Eve to within a couple of points of the year's high. Share volume for the half-day session was modest but business picked up in the final hour of trading when equity prices moved ahead.

The final reading showed the Footsie at 2,846.5 for a gain of 14 points on the overnight figure. The final Seaq total of 228.9m shares for the half-session compared favourably with normal trading experience. On Wednesday, retail equity business was worth only Pounds 797.4m. Over 1992, the FT-SE Index has gained around 14.2 per cent, with the final quarter bringing a dramatic response to the untimely departure of sterling from the European exchange rate mechanism.

Equities opened firmly behind the previous night's Wall Street strength, but the day's peak of 2,846.7 was soon lost in the absence of institutional interest. However, an important batch of drug approvals by the US regulatory authorities kindled interest in leading pharmaceutical issues and provided the final boost.

There was little further progress among the retail shares, where confirmation of the apparent buoyancy of the Christmas trading period was keenly awaited. The price-cutting round inspired among food retailers by supermarket group J. Sainsbury depressed some high street names.

UK business organisations - including the Confederation of British Industry - and also Mr Norman Lamont, the UK chancellor of the exchequer, expressed optimism for the UK economy in the new single market in the EC.

By New Year's Eve, retail business in equities had begun to recover from pre-Christmas sloth as some funds anticipated a further advance.

THE 1992 period will probably go down as one of the most volatile years of currency trading since the Bretton Woods system of fixed exchange rates collapsed in the early 1970s, writes James Blitz.

In spite of the quiet trading of recent weeks, however, there is no reason to suppose that 1993 will bring a sustained period of calm.

For most of the last 12 months, dealers in foreign exchange markets have been obsessed with two burning questions: is the US set for a sustained economic recovery? And will the Bundesbank seriously ease German monetary policy?

The first question is finding answers. Every new day brings evidence that the US economy is set to grow this year. This week, the US consumer confidence index rose to 78.3 per cent in December from 65.6 per cent the previous month. The leading indicators jumped to 0.8 per cent in November from October's 0.5 per cent.

But the market is as divided over the Bundesbank's intentions as ever. The case for expecting an early easing in monetary policy - and a weakening of the D-Mark - is strong. According to the Ifo institute, Germany is set for a 0.5 per cent fall in GDP this year. In these circumstances, the Bundesbank has strong reasons to cut interest rates early in the 1993 first quarter.

'Failure to do so will intensify the extent of the economic slump in Germany, as well as breaking the current parity structure in the exchange rate mechanism,' said Mr Neil MacKinnon, chief economist at Citibank in London.

The spectre of inflation and high monetary growth, however, still hangs over the German central bank. In the spring, few economists would have believed that a 1/4 percentage-point cut in the Lombard rate was all that the Bundesbank would yield by New Year's Day. And even now, it can be argued that monetary easing is as far off as ever.

The market was excited by the Bundesbank president's pre-Christmas comment that long-term interest rates could fall to 6 per cent by the end of 1993. But one European central banker said this week that bond dealers would only trade lower long-term rates if they believed the central bank had definitely cracked the inflationary spiral - which may only happen if Germany's short-term rates remain high.

He added: 'This Bundesbank president does not want to go down in history as the one who prematurely succumbed to pressure to relax the reins on monetary supply.'

As in the case of 1992, the 1993 year may be all about guessing how - and when - the Bundesbank will turn.

IN RECENT weeks, sterling dealers have been bullish about the prospect for another cut in UK base rates, but the market finished 1992 in an uncertain mood, writes James Blitz.

For the first half of the past week, dealers were convinced that another easing of monetary policy before the spring was certain.

Reports of large numbers of people rushing to the shops to get end-of-year bargains suggested that the pressure might have come off the government to ease policy in order to stimulate the economy. So, too, did signs of increased business confidence in the last days of the year.

The evidence, however, was ignored. The March short sterling contract peaked at 93.52 on Wednesday night.

This suggested that three-month money in the spring will be as low as 6.48 per cent, a level compatible with 6 per cent base rates.

Thursday saw a sharp reversal of sentiment in the futures market. In part, this was due to a feeling that the March contract had been oversold.

One clearing bank dealer talked of how most of the buying on the floor of LIFFE over the Christmas period had been done by one broker. 'We have started to think that he may be talking the futures up too much,' he said.

Another factor was a newspaper interview given to The Times by the UK chancellor of the exchequer, in which he appeared to rule out the possibility of base rate reductions.

According to the text of the interview, the chancellor gave an emphatic 'no' in response to a question about whether there could be any expectation of a change in interest rates if the Treasury's forecast of a 1 per cent recovery next year became reality.

The report of these remarks helped to push March short sterling down 10 basis points on New Year's Eve to a close of 93.42.

However, the reversal in futures may not have been justified. Treasury officials pointed out on the day of publication of the interview that output and growth are not being targeted as the sole indicator of economic performance, as was implied.

The Treasury says it will not judge the effect of its policies until they have worked through the economy. Other indicators, apart from growth, will also be watched.

Most markets were dull because of the Christmas recess and price levels were more or less unchanged, reports Man Producten. Nearby positions in the cassia and cinnamom market were tight with demand light. Indonesian ka/va cassia sticks were Dollars 2,240 a tonne for spot delivery, seychelles shipment supplies were Dollars 1,450 a tonne, unchanged to weaker, with ka/va at Dollars 2,000 a tonne. Seychelles spot nutmeg prices were unchanged, with shipment prices weak. Cochin new crop ginger for January shipment was weaker, harvest expected to be less than last year's.

RECESSION and continued turbulence in the former Soviet Union have left commodity prices little changed at the end of the year from those seen last January. But that bald statement belies the level of activity in the markets.

On the London Metal Exchange the flood of imports from the former Soviet Union pushed nickel prices sharply down and kept a firm lid on the aluminium market, where warehouse stocks now stand above 1.5m tonnes. The zinc market suffered a classic squeeze. Copper, still traded in sterling, appears to have risen sharply until the figures are converted to dollars - around Dollars 1 a lb looks set to be the going rate this January as last.

Gold has fallen further, hit by an almost total lack of interest from investors. Both platinum and silver have continued to settle into their relatively new roles as industrial metals.

Cocoa and coffee prices have touched their lowest levels for 20 years or more before recovering. The lack of activity in the sugar market has left London with virtually no futures trading.

Gold fell to a six-year low in late March as it crashed through what many traders had seen as the last line of defence - Dollars 342 a troy ounce. Persistent selling, some of it thought to be on behalf of an eastern European central bank, coincided with Ramadan, the Islamic fast, which kept most Middle Eastern operators away from the market.

By Easter gold was at a fresh low of Dollars 336.80 a troy ounce, with dealers predicting that the price was bottoming out. They were proved right for a time as the market started to climb, brushing aside an announcement by the Belgian central bank that it had sold 202 tonnes from its reserves.

Platinum was also rising as South African unrest made users reluctant to go short in case of a miners' strike. In July the platinum price hit the year's high of just over Dollars 390 a troy ounce. But some analysts pointed out that the market was ignoring weak demand from Japan and continuing recession in the US.

Gold reached its peak for the year of just under Dollars 360 a troyounce a few days after platinum - and then both markets slid steeply, leaving one analyst just two weeks later describing Dollars 355 for gold as 'like the Matterhorn'. On one mid-August day gold fell by more than Dollars 8 and platinum by Dollars 16 a troy ounce.

The withdrawal of US investment funds sparked the gold fall, which was exacerbated by more news of central bank selling - this time from Uruguay, which unloaded 50,000 troy ounces in July in order to buy fixed term deposits denominated in US dollars and D-marks. Platinum slid along with the Japanese equity market.

The European currency market jitters of September gave some support to gold, but South African and Australian producers were able to lock in profits in their own currencies through forward selling. Gold has not had a good year; Middle East sales in November finished the battering from central bank sales and the total lack of investor interest and took the market to a 7-year low of Dollars 329.30. It has not made much headway since, closing at Dollars 333.05 a troy ounce on Thursday, down about Dollars 20 on the year.

Platinum ended the year at Dollars 355.25 a troy ounce, some Dollars 20 above its price at the beginning of the year. Optimism about a recovery in Japanese demand and positive charts point to further gains, analysts believe.

Silver hit an 18-month low of 364.75 cents at the end of August and closed at 367.5 on Thursday, 20 cents down on the year. The biggest excitement of the year was the Saudi sale via the National Commercial Bank of Jeddah of Dollars 160m-worth of silver - equivalent to more than 10 per cent of world demand - in just two hours early in July, knocking more than 20 cents off the price.

Like most of the base metals copper began the year in a fairly hopeful mood. Chilean strike fears and technical factors had helped to lift prices to 2 1/2 -month highs by mid-February, before some of the gains were relinquished in response to reports that Russia, hungry for hard curency, was planning to cut export duties on the metal. In the spring talk of Chinese buying was partly counteracted by concern about the effects of a possible strike in Germany, one of the biggest importers of copper, but as London Metal Exchange warehouse stocks began to be reduced and US recovery hopes started to grow prices climbed to 12-month highs by mid-June.

Bullish sentiment continued - fuelled by concern about supply tightness, Polish labour tension, bad weather in Chilean producing areas and expected demand growth - and a month later copper prices stood at the highest level for 18 months.

From that point the picture becomes blurred by sterling's extreme weakness against the US dollar, in which base metals are traded worldwide. The effect of the pound's decline, most of which was concentrated in the dramatic mid-September devaluation, on copper prices is illustrated by the fact that the two-year sterling high reached in early November equated to a nine-month dollar low. And that factor has continued to dominate the market.

The three months copper price closed on Thursday at Pounds 1,538 a tonne, Pounds 350 up on the year. But once the currency disportion is stripped out the 12-month advance comes down to a much less impressive Pounds 78 a tonne.

For lead, the LME's other sterling-denominated contract, the devaluation effect is even more pronounced, turning what would have been a Pounds 60 fall into an apparent Pounds 8 rise on the year, at Pounds 308.75 a tonne for three months metal.

After a flat start to the year, depressed by sluggish car battery sales, the LME lead market found support in production problems, notably in Italy and Yugolslavia, followed by signs of a technical squeeze on nearby supplies and reports of Chinese buying. Between them, and helped by the pound's weakness, these factors lifted the lead market to a 12-month peak in July. And that was exceeded in the September as a direct result of sterling's plunge. By the end of November, however, the market's fundamental weakness had been reasserted and prices were back to five-month lows.

Another LME market to feel the effects of a squeeze this year was zinc. Signs of the coming technical suppy tightness were apparent from the start of the year, though they tended to be obscured by the effects of production problems in Italy, Peru, Canada, Mexico and the US, among others. Hopes of a US retail upturn were also cited as zinc prices reached 15-month highs in March.

But from then on the squeeze was the undoubted dominant factor. The normal 'contango' situation, with the cash price at a discount to forward positions, was reversed in late March and the 'backwardation', as a cash premium is known, widened inexorably until it reached an extraordinary Dollars 189 a tonne in the middle of June.

In normal circumstances a backwardation would suggest a shortage of metal available for delivery, but that hardly fitted in with this year's sustained rise in LME warehouse stocks of zinc, which, by the time the cash premium appeared, had grown from 152,000 tonnes at the start of the year to 221,000 tonnes. It was clear, therefore, that some sort of distortion (not to say manipulation) was afoot. The exchange responded by imposing a descending ceiling on the one-day backwardation - ie on the cost of carrying forward a short position for one day. The backwardation had disappeared by the end of July, though it made frequent reappearances before the squeeze, suspected to be the work of a group of producers, could confidently be said to be over in early October.

With fundamental considerations taking over direction of the market and the rise in LME stocks continuing the ensuing price slide saw the three months price retreat some Dollars 300 from its summer level to end the year at Dollars 1,079.50 a tonne, down Dollars 35.50 on balance.

The aluminium market had been weighed down in 1991 by the unprecedented growth of the stockpile in LME warehouses, which began 1992 by passing the unwelcome milestone of 1m tonnes. There were hopes that the flood of metal from the former Soviet Union that had been largely responsible for swelling LME stocks would soon abate, especially in view of the inefficiency of smelters in the newly independent republics and their much-vaunted espousal of market economics. But the republics' hunger for hard currency proved greater than their commitment to industrial efficiency and with CIS exports remaining very high the LME stockpile grew by another 500,000 tonnes.

Perhaps surprisingly, the market took this pretty much in its stride and the three months LME price ended the year Dollars 110 to the good at Dollars 1,260.50 a tonne.

Gains early in the year were mostly lost in the summer as hopes of economic recovery faded and the gloomy truth about CIS export prospects became apparent. But in the latter part of the year the market was encouraged by the announcement of production cuts.

The biggest loser on the LME last year was nickel. The mood was bright enough early on as traders looked forward to big production cuts in response to the low price level and, as with aluminium, a slackening of CIS exports. The former came too late, however, and the latter came not at all, and the six-month highs seen in February proved to be the year's peak.

By the time Inco of Canada instituted a round of output cuts in October nickel prices had fallen to two-year lows and LME stocks of the metal had risen by 300 per cent on the year so far to nearly 50,000 tonnes. In those circumstances the market was looking for an upturn in demand, especially in the stainless steel sector, to give it the necessary shot in the arm, not simply a reduction in output. Further production cuts were subsequently announced by Falconbridge of Canada, Cuba's state-run producer and Western Mining of Australia - amounting in all to nearly 38,00 tonnes in a full year - but the price slide continued and LME three months nickel closed on Thursday at Dollars 6,023 a tonne, down Dollars 1,192 on the year.

By comparison, the tin market had a good year. LME stocks rose by only 7.4 per cent to 14,710 tonnes and the three months price ended 1992 up Dollars 240 at Dollars 5,845 a tonne.

A life-of-contract low of Dollars 5,485 had been registered at the beginning of the year but by mid-February the market was at a six-month high, reflecting concern about shipment delays from Brazil and Malaysia, the two biggest suppliers. The bullish mood continued throughout the first half, lifting the price to a 25-month high of Dollars 6,950 a tonne, before a reaction was caused by Brazilian and Chinese selling and bearish technical factors. But the market was moving higher again before the new year, encouraged by buying in Kuala Lumpur and activity in the options market.

For the oil market in general 1992 proved a disappointing year and for members of the Organisation of Petroleum Exporting Countries a worrying one. Having started at the low level of about Dollars 17 a barrel the Brent crude price was buoyed in the spring by optimism about the prospects for demand when the expected industrial recovery began. And the price moved above Dollars 20 a barrel for the first time in six months when Opec ministers agreed unexpectedly in May to roll over its second quarter production ceiling of 22.98m b/d into the third quarter, rather than anticipate the rise in demand.

But by November, in the absence of the expected demand boost, the market was looking for Opec ministers to agree substantial production cuts at their meeting in Vienna. When this did not happen prices fell sharply and it took the political turmoil in Russia, the world's biggest producer, to lift Brent crude back above Dollars 18 a barrel last month.

Of the softs, cocoa began the year in the most optimistic mood as the market looked forward eagerly to the first annual supply deficit for eight years. But, with collapsing demand from the former Soviet Union, hopes of higher prices proved to be a pipe dream, with the market failing to regain the 1991 peak of Pounds 829 a tonne.

The second postion contract on London Fox opened the year at Pounds 745 a tonne. The market continued an almost unbroken decline for the next six months. The nadir came at the end of June, when the second position contract fell to Pounds 509 a tonne, the lowest level for more than 16 years. At these levels countries of origin, including the Ivory Coast, were reluctant to sell, and were also pinning some hope on the outcome of Geneva talks on a new international agreement.

The market began a slow climb back to more than Pounds 750 a tonne in early November, given a boost by sterling's devaluation and an Ivory Coast decision to ban the sale of small beans. But London prices have ended close to Pounds 700 a tonne, and it is worth noting that the nearby New York contract which began the year at Dollars 1,245 a tonne, closed it at Dollars 936.

The Economist Intelligence Unit is predicting a small deficit of 43,000 tonnes for 1992-93, while the US Agriculture Department estimates production and supply in balance at 2.35m tonnes. The EIU expects the next round of talks on a cocoa pact in February to end with a purely administrative pact, and is predicting prices to average about the same as in 1991 at 55 cents a lb.

Coffee prices, like cocoa, went into a steep slide from the beginning of the year. The London robusta market fell by more than Dollars 300 to hit 22-year lows at the beginning of May. The high level of consumer stocks - 19m bags (60 kg each) - left producers with little option but to sell for what they could get.

Throughout the summer the market edged higher, keeping an eye on the International Coffee Organisation's interminable negotiations on a new international agreement. The different supply and demand picture for robustas and arabicas kept London steady while New York arabicas went below 50 cents a lb in September.

But by the end of October both markets were rallying strongly as traders enjoyed a total change in sentiment, mainly on perceptions of a smaller 1992-93 crop in Brazil, the biggest producer, and Colombia. In December, London's second position robusta contract broke through the Dollars 1,000 a tonne level for the first time since January 8.

The EIU believes the recent rise has been overdone. Consumer stocks are still high and this month's ICO talks are likely to be inconclusive, pushing a new coffee agreement back to 1994.

The centre of gravity for world sugar prices has moved decisively from London to New York, where speculative money provides liquidity. The second position New York raw sugar futures contract has ranged between 8 and 10 cents a lb throughout the year - another market with more than enough production to satisfy demand. For much of the last few months the market has been stuck between 8.5 and 9 cents - a narrow range with depressingly low traded volumes, according to ED & F. Man's latest sugar report. But this contrasted with increased volumes of freely traded sugar following the dissolution of the Cuban trading arrangements with Comecon, Man pointed out.

A November report from the UN Food and Agricultural Organisation predicted trade expansion for sugar, but believed that by the turn of the century prices would still be about 10 cents a lb in 1990 terms.

TODAY: Start of two-day summit meeting between Mr George Bush, US president, and Mr Boris Yeltsin, Russian president, in Sochi to sign Start 2 arms reduction treaty. Mr Alija Izetbegovic, Bosnian president, Mr Radovan Karadzic, Bosnian Serb leader, and Mr Mate Boban, Bosnian Croat leader, due to arrive in Geneva for face-to-face talks on the Bosnian crisis. Inauguration of national defence and security council and civilian-led transition council designed to lead Nigeria to civilian rule on August 27.

MONDAY: US construction spending (November). First day of trading after Portugal lifted all remaining controls on capital movement, allowing foreigners into short-term public debt market for the first time and abolishing the present barrier between the domestic and offshore money markets. General Agreement on Tariffs and Trade negotiators are expected to resume efforts to wrap up Uruguay Round of world trade talks.

TUESDAY: UK official reserves (December). Major British banking groups' quarterly analysis of lending (September - November). London sterling certificates of deposit (November). Monetary statistics (including bank and building society balance sheets) (November). Bill turnover statistics (November). Sterling commercial paper (November). Money market statistics (November).

WEDNESDAY: Overseas travel and tourism (October). Advance energy statistics (November). New European Commission holds first formal meeting in Brussels. Indonesian budget.

THURSDAY: New vehicle registrations (November).

FRIDAY: Cyclical indicators for the UK economy (November - first estimate). Housing starts and completions (November). House renovations (third quarter). US unemployment (non-farms) (December); consumer credit (November).

BANQUE INDOSUEZ, the French investment bank which has been one of the most prominent casualties of the Paris property crisis, has concluded a FFr600m (Dollars 109m) sale and leaseback deal for its headquarters with an unnamed French bank.

The leaseback deal, which should produce a profit of almost FFr600m, follows shortly after Suez, the French industrial and financial group that owns Indosuez, announced that it was pumping FFr900m into the bank in a recapitalisation package intended to compensate for the losses on its property portfolio.

The precarious state of the Paris property sector emerged as a serious problem last year for a number of French financial institutions. Paris property has been in the doldrums for three years, during which average rentals have fallen by 20 per cent.

As a result many of the banks and insurance companies, which are the main investors in the market, have taken significant losses on their property holdings.

Indoseuz alone saw its net profits for the first half of 1992 fall to just FFr82m from FFr517m in the same part of 1991 after it was forced to treble its provisions to FFr1.39bn.

Mr Antoine Jeancourt-Galignani, chairman of Indosuez, said at the time that he hoped to avoid making a loss for the full year. The proceeds of the leaseback of the bank's grandiose head office on Boulevard Haussmann should eradicate that risk.

The transaction will also bolster Suez, which has been hit by the property problems of Banque La Henin, another subsidiary. The deal comes while Suez is under pressure from Union des Assurances de Paris, the largest French insurer which is one of its biggest shareholders, over the latter's unsuccessful attempts to acquire control of Colonia, one of Suez's German subsidiaries.

A number of French companies have recently negotiated sale and leaseback deals as part of capital-raising exercises.

ARNOTTS, the Australian biscuit maker fighting a hostile takeover bid from Campbell Soup, the US food group, said it would appeal against a court ruling invalidating a 1985 shareholding agreement.

The judgment, delivered by the New South Wales supreme court on Thursday, clears the way for Campbell to pursue its ADollars 8.80 a share offer, which values Arnotts at ADollars 1.2bn (Dollars 827m).

Campbell, which already owns 32.9 per cent of Arnotts, is seeking a further 17.2 per cent for majority control, but has offered to buy all the 67.1 per cent of the shares it does not own.

Arnotts argued that the agreement between the companies prevented Campbell from voting more than 14.5 per cent of the stock or appointing a majority of directors unless it acquired more than 85 per cent of the shares.

However, Justice Windeyer ruled that the agreement was valid only while Campbell's shareholding remained below 40 per cent, freeing Campbell to seek control of Arnotts.

The agreement was drawn up in 1985 when Campbell took a friendly shareholding in Arnotts as part of its defence against an unwelcome takeover bid by Mr Alan Bond.

The judge said the agreement was intended to prevent Campbell from seizing control of Arnotts without paying for it. He said the agreement had no bearing on a full takeover offer.

Campbell delayed the closing date for its offer by two weeks in response to the ruling. The offer, which is with shareholders, will now expire on January 28.

Analysts say Campbell may have to raise its bid, following suggestions by the two largest institutional shareholders that the offer price was too low. An independent report commissioned by Arnotts valued the group at a minimum of ADollars 10.78 a share. The shares closed at ADollars 9.20 on the Australian Stock Exchange on Thursday.

FRENCH insurers have been the most active in European cross-border expansion while Italy has been the country most frequently targeted, according to a survey by Tillinghast, the management consultants and actuaries.

The survey lists 201 cross-border initiatives between 1987 and 1991, of which French companies were responsible for 54.

The favoured targets of the initiating companies were the developing markets of Italy (48) and Spain (25), while 29 of the new initiatives favoured France.

British companies were responsible for 45 initiatives, although only 14 have taken place in 1990 and 1991, and several of the earlier initiatives, such as those taken by Guardian Royal Exchange in Italy in 1989, have already unwound.

Swiss companies took 31 initiatives, Italian companies 17 and German companies 15.

The technique most favoured in cross-border initiatives was acquisition - either outright or by building up a stake.

Genuine co-operative agreements such as the merger between Amev of the Netherlands and Groupe AG of Belgium, were rare.

PINAULT-Printemps, the French retailing group, has sold Mobis Expansion, a chain of kitchen furniture shops, to the Guy Elmarak furniture company as part of its ongoing programme of raising capital to reduce its debts.

Mobis, a chain of 41 shops across France, belonged to Conforama, the group of furniture stores bought for FFr4.4bn (Dollars 800m) by Pinault in 1991. The Conforama deal was one of the first stages of the transformation of Pinault, originally an obscure timber group based in Brittany, from an industrial concern into a broadly-based retailing group.

However Pinault has been burdened by heavy debts since late 1991 when it made a FFr5.3bn partial bid for the Au Printemps stores and mail order group. As a result it has for the past year been selling peripheral businesses to try to bring down its borrowings.

Initially Pinault concentrated on selling its original manufacturing and timber interests. More recently it has been looking for other ways of reducing its debt and in the autumn secured an injection of FFr1bn from Credit Lyonnais, the French bank which is one of its main lenders. Mr Francois Pinault, chairman, is now reported to be negotiating to buy part of Credit Lyonnais' junk bond portfolio.

Mobis fits into Pinault's new strategy while Pinault said the disposal would enable Conforama to concentrate on its core chain of furniture stores.

THREE PRODUCTS from British drug companies have received approval for sale in the US. The move could bring in combined revenues of Dollars 1.5bn (Pounds 980m) a year by 1998.

In a year-end spate of approvals, the US Food and Drug Administration gave the go-ahead for Paxil, an antidepressant made by SmithKline Beecham, Manoplax, a heart drug from Boots, and Tilade, an asthma treatment developed by Fisons.

Paxil, branded as Seroxat in Europe, should be the biggest seller of the three. Analysts believe it could become one of only a handful of 'blockbuster' drugs with sales of eventually of more than Dollars 1bn a year throughout the world.

Sales in the US should begin in the next few weeks. SmithKline Beecham shares rose 12p to 496p on New Year's Eve.

The approval of Fisons' Tilade ends a long period of uncertainty for the company. The drug, upon which Fisons has pinned hopes for rapid growth in the 1990s, has been awaiting US approval for almost six years.

In a departure from the company's usual practice, it will co-promote Tilade with Rhone-Poulenc Rorer, the US-based pharmaceuticals subsidiary of Rhone-Poulenc, the french chemicals group. In return, Fisons will co-promote Azmacort, RPR's asthma treatment, which works by a different mechanism. Tilade will not be launched in the US until the second quarter of 1993, but its shares advanced 15p to 245p on New Year's Eve.

Fisons also announced that it was abandoning attempts to revamp production of one of the suspended drugs, Iron Dextran, a blood product, to meet FDA requirements.

Boots was given a bigger boost than it expected by the terms of the approval of Manoplax. The FDA's advisory committee had recommended approval only for heart patients who could not tolerate the class of treatments called ACE inhibitors. The ruling allows Manoplax to be given to any heart patient not responding to other treatments.

Analysts forecast sales rising to Dollars 250m a year by 1998, and Boots shares responded with a gain of 12p to 561p.

The FDA approved a fourth UK product, Indiclor, an imaging agent used in the treatment of cancer and made by Amersham International. Although sales are likely to be small in relation to the size of the company, Amersham shares rose 17p to 619p.

Drug shares lifted, Page 13

THE FDA'S new year gifts to the UK pharmaceutical industry give the three companies concerned a flying start to the rest of the decade. The drugs approved are already selling well in markets outside the US, but approval in the world's biggest single market is central to their fortunes.

SmithKline Beecham's antidepressant Paxil could be the company's biggest selling product by the end of the century, replacing the venerable Tagamet, the ulcer treatment that lost out to Glazo's Zantac in the 1980s.

Paxil has only two significant competitors, Lilly's Prozac and Pfizer's Zoloft, but is cheaper than either. The low price will appeal to budget-conscious healthcare managers when it is launched in the next few weeks.

Fisons and Boots are even more dependent on the success of their new products. Approval for Tilade comes just nine months before the main patents run out on Fisons' existing asthma treatment Intal, and the company has no other significant products ready for submission to the FDA.

Approval is a watershed for Fisons. During most of the six years since the drug's submission, the company's relations with the FDA have deteriorated. FDA investigations led to licence suspensions on other products, and the company had to made 91 amendments to the Tilade submission.

Fisons shares fell sharply last year, which also saw the departure of several senior executives including Mr John Kerridge, the chairman and driving force during the 1980s.

Even now, the company's troubles are not completely behind it. The terms of the FDA approval mean that Tilade is unlikely to live up to the promise it once had. Clinical trials show that Intal is better than Tilade in several respects. Fisons has recognised that Tilade will not replace Intal in many markets. Intal is used mostly by children and Fisons intends to market Tilade primarily to adult asthma suffers, limiting its potential market.

For Boots, better known for its retail chain of pharmacies, Manoplax promises a break into the pharmaceutical big time. Congestive heart failure is estimated by the American Heart Association to affect as many as three million people in the US with 400,000 new cases being reported every year, says Boots.

Although analysts forecast sales of up to Dollars 250m (Pounds 165m) a year eventually, this is largely a stab in the dark. Survey figures on whether and how much Manoplax prolongs the lives of those who take it have yet to be compiled. If they show that patients live longer, as well as having symptoms relieved, the sales potential is far higher.

A FIVE-YEAR news contract for Independent Television News, worth a total of Pounds 268m, was finally signed on New Year's Eve after a year of negotiation.

Two of the new ITV broadcasters, Meridian and Westcountry, held out for better terms almost to the last moment. Lord Hollick's Meridian Broadcasting, which has replaced TVS as the ITV company for the south and south-east of England, was last to sign late on Thursday afternoon.

If Meridian had not signed a new supply agreement before midnight, it would technically have been in breach of its licence because it could not have provided a quality national and international news service.

ITN was determined to supply a news service only to those companies which had signed the five-year agreement before the new year.

The brinkmanship arose because of the suspicion among ITV companies which will not be ITN shareholders, that the Pounds 53.6m per annum deal might lead to large profits for the seven companies which will own ITN in future.

Five companies will each have 18 per cent; they are Carlton Communications, London Weekend Television, Central Television, Granada and Reuters, the international information group.

Scottish Television and Anglia Television will each have 5 per cent.

A group of rebels including HTV, Yorkshire-Counties, Westcountry and Meridian wanted an open-ended review of the contract after two years, in case costs were dramatically cut at the news organisation and ITN was making large profits for its new shareholders.

The Carlton-led negotiators opposed this on the grounds that it would have amounted to a break in the contract and a renegotiation. Instead stiff conditions have been set before a review is triggered involving a precise definition of excessive profits on capital employed.

A review is now only likely if there is a fundamental change in ITN's costs and the way it does its job. The final signing of the agreement means that the reconstruction of ITN and the move to a tighter group of owners will now go ahead.

Mr Michael Green, chairman of Carlton, is expected to become the new chairman of ITN in succession to Mr Richard Dunn, chief executive of Thames Television which gave way to Carlton Television as the London weekday ITV company at midnight on New Year's eve.

One of the first problems the new ITN shareholders will have to solve is a potential annual deficit of Pounds 5m on its lease costs because of unlet space in the company's London headquarters.

BRITANNIA GROUP has sold its freehold interest in 296 High Street, Cheltenham, for Pounds 440,000. The building is let on a long lease with a rental income of Pounds 45,000 per annum.

*****

DRAYTON CONSOLIDATED Trust: Liquidators announce that a distribution of Pounds 32.67m, equivalent to 95.5p per share, been paid to shareholders. A total of Pounds 2.31m, or 6.7p a share, is being held or is receivable by the liquidators, part of which will be required to meet the expenses of the liquidators. ICI has completed the sale of its anionic surfactants business to Hickson International for Pounds 5.5m.

*****

TRANSPORT DEVELOPMENT Group, which sold Willig Freight Lines to its senior management, has agreed to a delay in the final payment of Dollars 16.3m (Pounds 10.7m) until early 1993 as the process of a bond issue to fund the payment is taking longer than anticip-ated.

*****

WASSALL: Rights issue of 64.7m underwritten stock units has received acceptances for 62.7m (96.8 per cent). When added to 5.7m non-underwritten units which Hanson has taken up pursuant to its irrevocable undertaking, total acceptances were 68.4m stock units (97.03 per cent).

Aran Energy, the Dublin-based oil and gas exploration company, has acquired through its US subsidiary Aran Energy Corporation, an additional producing interest in the north half of South Pass Block 37 in the Gulf of Mexico.

The consideration of Dollars 1.8m raises Aran's ownership from 1.25 per cent to 37.5 per cent and the Dublin company will operate the oil and gas field on behalf of Amoco, Chieftan International and Denny Offshore Exploration.

Sir Derek Hornby has been appointed non-executive director at Sedgwick Group, the insurance broker, with effect from yesterday. He is 62 and is chairman of the British Overseas Trade Board; he headed Rank-Xerox from 1984 to 1990.

Mr Hugh Collum, finance director of SmithKline Beecham, a non-executive director since 1987, and Mr Rupert Hambro, managing director of JO Hambro and chairman of JO Hambro Magan, are both retiring.

Mr John Gunn, former chief executive of British and Commonwealth Holdings - the financial services group that collapsed two years ago - has resigned from the board of the stockbroker Smith New Court, after six years as a non-executive director.

AAH Holdings has acquired four retail pharmacies in Norfolk from J & AL King for an initial consideration of Pounds 2.35m, satisfied by the issue of 465,000 shares. The shares will be retained by the vendors for not less than 12 months. A further sum not exceeding Pounds 450,000 will be payable in cash on ascertainment of the aggregate net asset values.

MMI, which sponsors and markets financial products, announced further losses in the six months to August 31, mainly because of continued lack of turnover in its core BES business.

Losses for the period amounted to Pounds 282,466 on turnover of Pounds 483,495. This compared with Pounds 382,824 for the previous 14 months period to February 28 1992, and with a deficit of Pounds 48,510 on turnover of Pounds 475,539 for the same period of 1991.

Mr Arthur Morton, chairman, said the group had made a significant reduction in costs which would be reflected in the second half of the year.

In November, the company agreed to purchase Moxon, Dolphin and Kerby, one of the largest and longest established UK recruitment advertising companies. Details of the purchase will be sent to shareholders shortly together with the terms of a rights issue to provide funds for additional working capital for MDK. The group raised Pounds 300,000 gross through a placing and open offer last October following which, Mr Morton joined the board as chairman.

The is no interim dividend (0.25p). Losses per share were 3.26p (0.42p).

IF 1992 was a disappointing year for Lord Hanson, the chairman of Britain's biggest conglomerate, it was something of a vintage year for the group's former acquisition chiefs who have gone on to run their own companies.

One after another, the Hanson alumni took to the takeover trail in a manner reminiscent of their former mentor.

Mr Greg Hutchings, chief executive of Tomkins (who 'graduated' from Hanson in 1983) outbid Hanson to buy Ranks Hovis McDougall. Mr John Newman, chief executive of TT Group, (class of 77) acquired Magnetic Materials and made an agreed bid for AB Electronics. Mr Chris Miller and Mr Philip Turner, chief executive and strategy director respectively of Wassall, (class of 87) launched their biggest bid to date for Evode, the chemicals and plastic group.

Lord Hanson, whose year was conspicuous for not pulling off a big deal, is delighted with the success of his former employees. 'We like to think we are spreading our philosophy around' he said.

All members of the Hanson old boys club extol the virtues of working for their old boss. 'It's the can-do, will-do attitude which is so laudable' says Mr Hutchings. 'Hanson teaches you that you can get things done; there is no red tape'. Mr Miller says Hanson fosters an entrepreneurial culture which is infectious.

Yet is there anything particularly unusual in Hanson's grooming of future chief executives? As Mr Hutchings puts it: 'When you think that thousands of people have been through Hanson it is not that exceptional that some have done well'.

If that is the case, argues one conglomerate analyst, why are there no chief executives of new companies who worked at Imperial Chemical Industries?

Lord Hanson likes to think that the difference between his group and other FT-SE 100 top companies is that he allows his executives at head office greater autonomy.

In giving them that freedom he believes he helped clarify their own ambitions. If you are expected to come up with new ideas and initiatives it is not that surprising, argues Lord Hanson, that some decide to take a risk and do their own thing.

If there is a leitmotiv that runs through the three conglomerates headed by former Hanson executives it is in their choice of targets. These tend to be lowish technology manufacturing businesses, which are not capital intensive.

However, all three, with varying degrees of emphasis, would take umbrage at being called copy-cats. TT Group and Tomkins, believe they are more focused than Hanson.

TT, which developed a reputation as an acquisitive industrial mini-conglomerate, has effectively transformed itself into an electronics product group through the purchase of Crystalate in 1990, the electronic components maker, and last year's takeover of Magnetic Materials, a USM-quoted maker of magnetic components, and now AB Electronics.

Tomkins, notwithstanding its decision to go into bread making, argues that its mixtures of businesses, from guns to lawnmowers, is less diverse than those acquired by Hanson.

Furthermore, both TT and Tomkins are generally not sellers of businesses. TT has only ever sold two divisions of companies it acquired and then only because it was offered 'large sums of money' for them. While Mr Hutchings says he is not in the business of selling and buying companies since he is not as good at it as Hanson.

Wassall believes its decision to earmark Dollars 20m of capital expenditure at DAP, a US supplier of construction products and filling compounds, to replace old machinery over the next two years underlines its commitment to expanding and growing businesses - which is not what Hanson was best known for in the past.

Wassall's senior managers are closest to Lord Hanson, not least because Hanson backed them from the beginning by taking a stake in their company.

Mr Hutchings believes there are both pros and cons to having Hanson as a shareholder. 'It is great to have it but then they have an influence. You have to consider both the upside and the downside.'

Mr Miller strongly disagrees. 'They do not have any influence at all, we benefit from the relationship. We are able to ring up Lord Hanson from time to time and receive free advice.'

Lord Hanson says his conglomerate took a stake in Wassall because it was asked to do so. 'If Greg Hutchings had asked us we would have done it.' Mr Hutchings says it was not in his nature to do so. While Mr Newman, believing the cost of shell companies to be prohibitively high, was not in a position to ask Lord Hanson to invest in a public company. Instead, he ran private companies for 10 years after leaving Hanson, before reversing one of them into Tyzack Turner, later renamed TT.

Wassall's ex-Hanson men are, however, aware of one possible downside of their close relationship with their former boss. They fear that they could face a public relations problem if Hanson was to sell his stake. It has already been diluted from 15 to 8 per cent. And, although Hanson has decided to take up its rights in Wassall's cash call to pay for Evode, Mr Miller believes that it may be in the best interests of both companies if Hanson slowly dilutes its stake further.

All of Hanson's former executives are aware that the bigger they get the greater the problem in finding the next target. Size maybe less of a concern to TT, the smallest and most lowly rated of the conglomerates run by former Hanson executives. But all three share Hanson's need to continue to make further acquisitions, to maintain their momentum.

Mr Hutchings received a nasty shock when Tomkins' shares fell sharply on news of his recommended bid for RHM, although they have recently recovered. Since Hanson's paper is less rated than Tomkins, it could not top Tomkins' Pounds 935m agreed bid for RHM without dipping deep into its cash reserves.

Lord Hanson says it was of no concern to him that he lost RHM since he was happy to let Tomkins take 'the greater risk at a higher price'. He remains confident that this year he will break out of the shadow of his former colleagues by going back on to the acquisition trail.

McMASTER Stores, a chain of Scottish department stores bought out from the House of Fraser retail group in 1989, has gone into receivership.

The chain of seven stores, in towns such as Ayr, Irvine and Stirling, employs a total of 300 people. The receivers, Mr Iain Bennet and Mr Alan Jamieson of Price Waterhouse, hope to sell the stores soon, either separately or as a whole, to save their jobs.

McMaster acquired the medium - sized stores in a management buy-out from the al - Fayeds worth Pounds 6m, when House of Fraser decided to concentrate on outlets with more than 100,000 sq ft of floor space.

Charterhouse invested Pounds 1m in the buy-out, which carried a heavy level of debt. Although turnover was maintained through the recession, the chain incurred losses in the last two years. It has debts in excess of Pounds 4m, most of which is owed to Clydesdale Bank.

The independent directors on the board of St Andrew Trust, the smaller companies investment trust, have said that the offer from the Ecclesiastical Insurance Office 'merits careful consideration' but are not recommending acceptance.

The offer is a technical one being made to comply with new European Community regulations; EIO, which currently has a 40.3 per cent stake in St Andrew, needs to have a majority holding in the trust for capital adequacy purposes. However, it does not wish to acquire more than a 75 per cent stake, and thereby lose St Andrew's investment trust status.

HANSON Industries, the US arm of the British conglomerate, has won a preliminary injunction in the Missouri courts preventing Costain, the UK construction company, from selling its Australian coal mining business to Altus Finance, part of the French Credit Lyonnais banking group.

The court set a trial date for obtaining a permanent injunction for January 19. Costain, however, has filed an appeal over the ruling and requested expedited consideration.

Costain had originally agreed to sell the coal mining assets to a Hanson subsidiary, but subsequently announced that it had accepted a higher offer of Dollars 245m (Pounds 160m) from Altus. In early November, Hanson filed a suit in the US courts, seeking to have its Dollars 200m deal enforced and alleging that Costain had given the Hanson subsidiary exclusive negotiating rights.

President Daniel arap Moi may come to look back on December 29 as the day he won an election but lost the authority to govern Kenya.

Yesterday the ruling party's manipulation of the country's first multi-party election for 26 years achieved what once seemed impossible. The country's three main opposition leaders announced the formation of a united front and vowed not to let Mr Moi assume power again.

Against the incongruous backdrop of new-year tinsel and bunting at a Nairobi hotel, they pledged to set aside past differences of personality and tribe to oust Mr Moi from the absolute power he has wielded for 14 years.

It is more easily said than done, and last night the opposition refused to reveal its hand. But it is clear that Kenya will never be the same again and now faces its most critical moment in history since independence from Britain in 1964.

The future is uncertain - the country is precariously balanced between further change and upheaval. At best Kenya will settle into a period of fragile stability as the three party leaders attempt to wrest power from an authoritarian president, or at least persuade him to share power in what would be a government of national unity. At worst, the nation will be thrown into civil strife.

Much will depend on whether Mr Moi, a reluctant democrat, can learn to live in an era which requires a degree of tolerance, compromise and transparency that he has lacked in 14 years of near unbridled power. Equally important will be the opposition's capacity to contain the passions of its supporters.

Whatever the outcome, Tuesday's polls have set Kenya irreversibly on the path of change.

Much is at stake, for Africa and the west. A successful transition from autocracy to democracy would revive hopes for the recovery of a rare African example of stability and growth. For the west it would mark the successful culmination of the policy of linkage between aid and good government: the imposition of a freeze on donor funds in November 1991 spurred Mr Moi to drop the ban on opposition parties a month later.

Failure would not only prove devastating for Kenya's 26m people. It would reverberate through a region scarred by tribalism, war and economic mismanagement, and act as a body blow to hopes for resuscitation of the continent as a whole, leaving western government reassessing the merits of pushing authoritarian states down the road of pluralism.

For Mr Moi the election has been a painful, even humiliating, experience. Hours after he cast his vote in a mountain retreat deep in the Rift Valley, the 68-year-old president lashed out at his tormentors - western governments which twisted his arm, forcing him to introduce multi-party politics by 'starving Kenya'.

Few African leaders have proved as resistant to the continent's new wind of change as Mr Moi. For nearly a quarter century the country had been an African role model and a leading recipient of western aid. Real growth in gross domestic product narrowly outpaced an annual population increase of 3.5-4 per cent. But from the mid-1980s Kenya's reputation became ever more tarnished by human rights abuses, economic mismanagement and corruption that ate away at reform attempts.

A year ago, the country became a test case: could international donors, by linking aid to good government, nudge an unwilling autocrat down the road towards democracy and economic transparency? And could democracy take root in a tribally based African nation after more than a quarter century of rotten one-party statism? For the moment, the jury is still out on the Kenya experiment.

Provisional results from 167 of the 188 constituencies showed last night that, technically, Mr Moi and the ruling party Kanu are back in power, but the veteran leader has been badly mauled.

He has won the presidency against stiff competition from Mr Kenneth Matiba, but with only 36 per cent of the presidential poll against Mr Matiba's 27 per cent. In the parliamentary election Kanu was last night headed for a narrow majority, but only if the 12 MPs which can be nominated by the president are included in the total. Several of Mr Moi's most important heavyweight supporters, such as Mr Ndolo Ayah, the foreign minister, and Mr Elijah Mwangale, the agriculture minister, were defeated in an election that claimed 14 cabinet ministers.

However, the opposition yesterday said that it did not accept the results of an election which, it claims, was 'blatantly rigged' and marked by widespread intimidation, massive fraud and introduction of illegal ballot boxes.

Any electoral abuses, however, did not protect Mr Moi from the humiliating exposure of the depth of his unpopularity among the Kikuyus and Luos, Kenya's two largest tribes. Kanu failed to secure a single seat of 25 constituencies in the Kikuyu homeland of Central Province and won only one seat in the Luo-dominated Nyanza Province. In the presidential poll Mr Moi won a mere 2.5 per cent of the vote in Central Province.

Should he try to govern in defiance of the opposition parties, he will be unable to include members of Kenya's most powerful and politically active tribes in his cabinet. Many political observers believe this will make it almost impossible for him to rule.

At a hasty meeting the three main opposition parties - Ford-Asili led by Mr Matiba, Ford-Kenya led by Mr Jaramogi Oginga Odinga and the Democratic party led by Mr Mwai Kibaki - said they were forming a united opposition front to 'avert the imminent crisis in the country'. They demanded fresh elections and said they were determined to prevent Mr Moi from assuming office. Behind these demands lies the considerable threat of violence which the opposition could initiate to bring the country to its knees.

As politicians, in government and in opposition, grope to come to terms with the new post-electoral reality, the role of western governments remains critical. Having initiated the process of change by freezing aid worth USDollars 350m-Dollars 400m a year, they now have to keep pace with developments.

Like the Commonwealth and other observer groups, they have been reluctant to condemn the poll as 'unfree and unfair', and inclined to argue in favour of a 'second best' solution - in which Kenya is seen as having taken a 'first step on the road to democracy' and Mr Moi remains in power, but faces the checks and balances provided by a powerful parliamentary opposition.

The US, Britain and other donors have to walk a delicate path between legitimising Mr Moi and recognising the power of the opposition. The performance of the opposition to date has not been distinguished, however, and its capacity to act as an effective coalition has yet to be proved.

The patient queues of voters were eloquent testimony to the belief of Kenyans in the ballot box, but the result showed that democracy in Kenya remains dominated by tribalism. Thirty years after independence, ethnic loyalties and rivalries, not ideology, determine voter allegiances.

In the weeks ahead, Mr Moi will surely continue to exploit these differences and seek to buy off opposition by persuasion, intimidation or patronage. In the meantime the opposition lacks the machinery to organise extra-parliamentary action such as a general strike. The trade union movement is weak and poorly led and it is unlikely that it could co-ordinate a strike or other protest. However, the ability of the opposition to call out tens of thousands of demonstrators on to the streets of Kenya is formidable, even if it cannot control the outcome.

Meanwhile, the political machinations under way are certain to distract attention from the most severe economic crisis Kenya has faced since independence, exacerbated by massive extra-budgetary funding of Kanu's election campaign.

Symptoms of the crisis include a rate of inflation now exceeding 40 per cent a year, money supply growth well above a target of 10 per cent, a soaring budget deficit and a continuing foreign exchange squeeze.

The population of 26m is set to double by 2010 and hunger for land is increasing in a country two-thirds arid or semi-arid and with no known mineral resources. The country's largest foreign exchange earner, tourism, has already been badly hit by fears of instability and violence.

Unless a political accommodation is reached, the economic decline will become irreversible and, as the economy falters and unemployment rises, the prospects for strife grow ominously greater.

Sir, A central fund (Letters, December 24) is no answer at all to pensions protection. There can be no substitute for trustees ensuring there are adequate funds to secure at competitive insurance company rates the defined deferred benefits which fall to be preserved on winding-up on a guaranteed basis. It may be that some funds are so large that no UK insurance company is capable of accepting the risk and, in these circumstances, the substitution of money purchase benefits may be inevitable. Indeed, it should be available as an option to members of all wound-up schemes.

However, such options are no reason to permit the discharge of obligations by transfer payments to a discontinuance fund or other arrangements of lesser value than the insurance market cost of securing the defined benefits for each member. To substitute transfer values based on high assumed investment returns from equities is to substitute hope value for guaranteed benefits. Potential benefits, as a euphemism for expected benefits stripped of their guarantee, are not an acceptable substitute. The fact that, after completion of winding-up, a scheme no longer enjoys the financial support of the employer is an important factor which cannot simply be ignored.

Mr Cockbain's proposed discontinuance fund would be a solution if he and his partners personally guaranteed the deferred benefits to which members are entitled under preservation legislation. If they did, I suspect the 'appropriate transfer payments' would be very much larger than they have in mind at present and that they would alter the proposed investment strategy radically away from equities and towards fixed-interest or index-linked securities which provide a much closer match to the liabilities to be met.

T S Shucksmith,

Shucksmith & Co,

consulting actuaries,

Lincoln House,

Nutley Lane,

Reigate,

Surrey RH2 9HP

Sir, Re Raymond Snoddy's article, 'Broadcasting newcomer promises cost-effective TV' (December 21), on the new approach to television which TSW is adopting in the West Country, we at the BBC have not been slow off the mark to adopt low-cost solutions when building new TV stations.

For the BBC World Service TV network, our engineers took the project from concept to reality in less than three months, creating a fully automated three-camera studio, editing and transmission suites, and a newsroom for a fraction of the cost of TSW's bid.

Following our fact-finding mission to Europe, a big saving for this 24-hour network was the use of fluorescent studio lights which removed the need for additional air conditioning. This was all completed in 1991 and the network has been operating to an increasing worldwide audience ever since. Gordon D Lean,

chief engineer,

news & current affairs,

BBC,

Television Centre,

Wood Lane, London W12 7RJ

Sir, The Q & A Briefcase item, 'How to work out that CGT bill' (December 19), highlights the onerous burden that this tax imposes. I had rather similar calculations to perform earlier this year when I sold some accumulation units; each tax voucher since March 1982 had to be indexed. I reached retirement age more than eight years ago but fortunately I am still sufficiently numerate to cope.

Monthly savings schemes and accumulation funds are, by their nature, most likely to be cashed in by elderly persons who had prudently been using them to make extra provision for their old age. Many might find the calculations daunting if not altogether beyond them.

Pensioners ought not to find themselves obliged to incur accountants' fees in order to satisfy the Inland Revenue: a very poor reward for thrift.

The sums involved are unlikely to be large and a budget concession absolving the elderly from CGT liability on savings schemes of these sorts would be most welcome. Something for the chancellor to think about when he has a moment to spare.

R LeGrove,

9 Manor Gardens,

Saxmundham,

Suffolk IP17 1ET

Sir, Congratulations on producing a page III at last ('Fashion: Undercover guide on what to buy her', December 24). I am sure the use of Roman numerals will prevent any drift down-market.

Adrian Hewitt,

16 Framfield Road,

London N5 1UU

Sir, Re Alan Smallbone's letter (December 30), I believe adequacy of pensions is more significant than security. Deferred members of defined benefits schemes subsidise schemes, via inflation, to provide promised benefits for the few who reach retirement with the same company.

You have reported a well-known insurance company as calculating the shortfall for early leavers to be equivalent to a 70 per cent increase in combined contributions to company schemes. I calculate that, nationally, the loss caused by inflation is about Pounds 20bn a year for early leavers.

Many deferred pensioners joined schemes as a condition of service. One can draw one's own conclusions on the ethics of such schemes and government reluctance to act decisively to end completely the anomaly created by inflation.

Hugh Long,

67 Dartmouth Park Road,

London NW5 1SL

Sir, I would like to point out your erroneous word usage in relation to the exile of 400 Palestinians. In most articles you use 'deport', 'deportee', and 'deportation' ('Court rejects appeal to reverse Israeli expulsion of Palestinians', December 23). According to my dictionary, deportation is the 'banishment of an undesirable alien to his native country'. 'Deportation' would imply the Palestinians are 'aliens', 'undesirable' and that this practice by the Israeli government is lawful and within the right of any country.

The correct terminology should be either 'exile' or 'banishment'. The term 'expulsion' is preferable to 'deportation'.

J P de Rooy,

20 Copenhagen Gardens,

Southfield Road,

Chiswick, London W4 5NN

'TRY NOVELTIES for salesman's bait,' wrote Goethe. 'For novelties win everyone.' Europe's single market, which officially started yesterday, is a welcome novelty, and not just for political and commercial salesmen seeking a winning slogan in a bleak winter. It comes into force at an unpropitious moment, with west and east Europeans beset by recession and upheaval. Yet hope sometimes finds its firmest footing in a time of gloom. Opening up closed industrial, service and financial sectors to more competition may cause short-term pain, but it is the best recipe for growth. Provided companies, individuals and governments grasp the opportunities, the single market offers Europe its best chance of prosperity.

Acrimony and fragmentation have characterised European politics in the past 12 months. But the Community deserves congratulation for enacting on time virtually all of a complex legislative programme, first outlined in 1985, allowing free movement of persons, goods, capital and services. Despite the impediments and imperfections remaining, the EC has pulled off an impressive feat.

Placing the measures on the statute book was onerous. Making them work will be still harder. The EC faces four challenges. First, member countries will have to apply the rules firmly and equitably. The EC's new insistence on subsidiarity must not impede effective enforcement. Second, governments should seek ways of countering the currency instability, seen by many chief executives as undermining the single market's prospects of success.

Increased access

Third, the new market must be outward rather than inward-looking. This is crucial for relations with North America and Japan, and also for allowing increased access for exports from central and eastern Europe - all the more important in view of the EC's plans for enlargement. Fourth, the single market must be made attractive and inspiring to Europe's citizens - at a time when 16m people in the EC are without jobs, and economic growth is the lowest since 1981-82.

If the EC now faces difficulties, the story of the single market shows how such tests can be surmounted. Following 12 years of debilitation after the 1973 oil shock, the single market was conceived as a means of bringing the Community back to life. The relaunch was accomplished through amendments to the Treaty of Rome which came into force with the Single European Act in 1987. The act was relatively uncontroversial, yet it encompassed far-reaching steps towards a supranational Europe. Along with the aim of establishing 'an area without internal frontiers', the act brought in qualified majority voting as well as the objective of economic and monetary union.

Investment surge

In some senses, the single market existed before it was born. An investment surge by companies anticipating abolition of borders, combined with the effect of German reunification, made 1986-90 a buoyant period. During that time the Community registered annual average growth of 3.2 per cent, three times the OECD's forecast for this year's performance. Without this helpful background, the single market may well have run into the type of opposition that has befallen the Maastricht treaty.

As it is, the single market starts life punctually, but in a world made uncertain by change. One of the EC's prime problems is its flagging competitiveness, starkly underlined by a trade deficit with the rest of the world of Dollars 60bn to Dollars 70bn a year (against a Dollars 20bn surplus in 1985). Conscious of this handicap, not least vis-a-vis newly industrialised countries, large European companies seem likely initially to use the single market above all to spur further productivity gains, through rationalising and concentrating their activities.

Over the longer term, the single market opens a path to a more cohesive and competitive Europe which will create and not destroy jobs. By encouraging countries and companies to adopt the best available business and labour practices, it lays groundwork for deeper integration, including, perhaps, monetary union. So the new year beacons of celebration shone in a good cause. The milestone of the single market shows how far the Community has travelled; and it provides a sense of direction and purpose for the arduous but rewarding journey still to come.

Last year was an annus horribilis for the Queen. It was an annus horribilis for Mr George Bush and Mr Neil Kinnock. But what sort of year was it for the reputation of the FT writers who were asked a year ago for their forecasts for 1992?

Joe Rogaly wondered whether the Labour party would win the general election. 'Possibly, but not probably' was his answer, one that proved closer to the truth than the polls and most pundits. Asked whether George Bush would be beaten, Lionel Barber replied 'no, but he will have a run for his money'. He did, indeed, but then he was beaten.

Asked whether the economy faced a great depression, Samuel Brittan replied robustly that 'this constant harping on the great depression is an enemy to serious thinking'. Certainly, it did not happen in 1992. Barry Riley predicted that 'all in all, you are likely to make some money on shares over 1992'. So you were. Meanwhile, John Plender correctly predicted that UK house prices would fall in another year of gloom for homeowners.

Martin Wolf predicted that the European Community's exchange rate mechanism would be realigned, which was hardly conventional wisdom a year ago. He also thought the Uruguay round of multilateral trade negotiations would be completed in 1992. He was right in judging the differences over agriculture too small to be an obstacle forever, but that agreement took longer than expected to reach.

John Lloyd argued correctly that there would not be a civil war in what used to be the Soviet Union, but noted that several small wars were raging already. Judy Dempsey said Serbs and Croats would not make up, and also pointed to the dangers in other republics of the former Yugoslavia. Her warning was wise, as was the forecast from Roger Matthews that there would be no peace treaty between Arabs and Israelis in 1992. Meanwhile, Alexander Nicoll concluded that the Chinese Communist party would not go the way of the Communist party of the Soviet Union.

Finally, David Lascelles thought the First Earth Summit in Rio de Janeiro would be mostly hot air, but also hoped it would focus the world's minds. The summit was at least more successful than its host, Mr Fernando Collor de Mello, who resigned this week faced with impeachment.

In all, 1992 was a good year for FT forecasters. What a pity about the world.

Will there be a global recovery?

Martin Wolf writes: No, not in the countries of the Organisation for Economic Co-operation and Development as a whole, if recovery means substantially faster economic growth than the 1 1/2 per cent expected for 1992.

The OECD forecasts growth of aggregate OECD gross domestic product of 1.9 per cent between 1992 and 1993. Even this improvement is unlikely, unless the US economy achieves growth substantially greater than the 2.4 per cent now forecast.

The OECD believes Japan and Germany will grow by 2.3 per cent and 1.2 per cent, respectively, between 1992 and 1993. This is already far below the 3.1 per cent and 2.3 per cent forecast by the OECD last June. In the present recession, however, mainstream forecasters have tended to underestimate economic weakness. There is a good chance that the Japanese economy will grow very little between 1992 and 1993, while German GDP will shrink.

Will there be peace in the Balkans?

Edward Mortimer writes: Alas, most unlikely. The war in Bosnia might peter out, but only on the basis of a de facto Serb victory which neither the international community nor the Moslem losers would ever accept de jure. In this case the Moslems would prepare for another round, smuggling in weapons from Moslem states. On top of that, Croatia may have a go at recapturing territory lost to the Serbs in 1991, when the UN mandate in those areas expires in March.

In Serbia proper, clashes are likely between Serbs and Hungarians in Voivodina, which could draw in Hungary; between Serbs and Moslems in the Sanjak; and above all between Serbs and the Albanians who form 90 per cent of the population in Kosovo. Both Albania and the Albanian minority in Macedonia would then be sorely tempted to help their kith and kin, which in turn could bring Serbian reprisal raids across their borders. It would not take much to upset the delicate balance in Macedonia between Slav majority and Albanian minority; and chaos in Macedonia could lead to intervention by any combination of Albania, Bulgaria, Greece and Turkey. If the last two are both involved, the Balkans could become the scene of the first war between two Nato allies.

Will John Major still be UK prime minister at the end of 1993?

Philip Stephens writes: Yes. If there is a single lesson from 1992, it is that political predictions are as useful as the average long-range weather forecast. Most people thought that John Major would lose the April election. No one anticipated the calamities that befell him a few months later.

But the storms have abated and the satellite pictures tell us that there is a much clearer, if dull, spell ahead. There will be more unexpected squalls but, having survived the disintegration of his economic strategy, Mr Major is unlikely to be swept away.

An end to the recession should help the prime minister restore some of his battered authority. Even Labour's John Smith - who will also still be around at the end of the year - believes that Mr Major will fight the general election due in 1996-97. But both leaders need to make an effort to persuade us that politics and politicians have the capacity to excite and enthuse as well as to survive.

Will the Maastricht treaty be ratified and what difference does it make?

Lionel Barber writes: The Danes remain capable of pulling off surprises, but the odds are that the Maastricht treaty will be ratified after a divisive referendum in late April or May. Britain will follow, thanks to Mr Major's deft handling of the EC summit in Edinburgh and the probability that Tory Euro-sceptic opposition peaked in early October, shortly after the petit Oui in the French referendum.

The treaty itself is flawed. Monetary union for the 12 by the end of the decade looks fanciful. Germany is wavering about giving up the D-Mark. The big question this year is how the EC will respond to crises beyond its borders, in eastern Europe, Russia and the former Yugoslavia. The answer will determine whether the EC strengthens Maastricht's provisions for a common security and foreign policy - or once again defers to the US.

Will there be an ERM at the end of the year?

Martin Wolf writes: Yes, but a further reduced one. The current European exchange rate mechanism is likely to collapse into a narrow D-Mark zone, while exchange rates among all five major European economies - Germany, France, Italy, the UK and Spain - either float or become readily adjustable. If this outcome is to be avoided, German monetary policy must be loosened both substantially and soon.

The Bundesbank believes that the ERM is making a welcome return to the adjustable exchange rates of the period before 1987. But the absence of effective exchange controls makes any such ERM unstable.

The persistently slow economic growth of today exacerbates the ERM's unavoidable fragility. Markets may accept that the Benelux countries are prepared to import restrictive German monetary policies, whatever their consequences. They do not believe that large countries will tolerate slow economic growth indefinitely. When the problem is restrictive German monetary policy, the only escape is in the possibility of substantial exchange rate movement, in both directions. Since such movement has been precluded by the D-Mark's anchor role in the ERM, the system will have to be modified substantially.

Will there be peace in the Middle East?

Hugh Carnegy writes: The crisis over Israel's deportation of 415 Palestinians and the spate of killings that preceded it by Islamic fundamentalists in the occupied territories showed how easily violence can dominate events in the Middle East, disrupting peace negotiations begun in late 1991.

In any case, Israel has yet fully to bite the bullet on yielding the Arab lands it has occupied for more than 25 years, despite the election of Mr Yitzhak Rabin's Labour-led government. The terms so far on offer from Israel fall well short of the minimum that the Palestine Liberation Organisation could accept without risking a grass-roots rebellion within its own ranks and within the Islamicists.

Nevertheless, the fundamentals which drove Israel and its Arab neighbours into talks still apply: the US is dominant in the region following the demise of the Soviet Union; all countries engaged in the negotiations have deep strategic and economic reasons for maintaining good relations with the US and the west; the ultimate alternative to peace - non-conventional war, possibly involving a resurgent Iran - scares everybody.

The Washington talks will almost certainly resume after the Clinton administration takes over. But, as the deportation crisis illustrates, the 'window of opportunity' for peace may be narrowing. Awareness of this should spur all sides on to a breakthrough this year. But never discount the volatility of the conflict, which could as easily destroy the chance of agreements.

Where are the next global hotspots?

Edward Mortimer writes: The problem with the new world disorder is that almost anywhere can be a hotspot. Explosions can happen without detonating a superpower conflict, because there is only one superpower left. The disintegration of the other superpower has, however, left plenty of fissile material around - figuratively and, alas, literally. Watch for signs of a more truculent Russia, ready to intervene on behalf of Russian minorities in other ex-Soviet republics: most dangerous would be Ukraine.

Likewise watch Hungary, surrounded on three sides by countries with large Hungarian minorities, living on territory that was Hungarian before 1918. Further afield, Africa and the Middle East are full of unresolved conflicts. If US intervention appears to succeed in Somalia, there may be demand for it elsewhere, such as Sudan. In Asia, Cambodia seems almost certain to blow up again, as the Khmer Rouge is sabotaging the UN peace plan.

Veteran communist rulers Deng Xiaoping of China, Kim Il Sung of North Korea and Fidel Castro of Cuba are presumed to be mortal. Should any of them pop off this year, the temperature would rise in and around their countries.

Will US President Bill Clinton get it wrong in the year ahead?

Jurek Martin writes: Probably not, unless he is simply overwhelmed by events. Lack of big-league experience notwithstanding, few presidents have come to the job so well prepared in policy terms, so keen to deploy a formidable intellect on practical problems, and with such highly developed political and populist instincts. Critically, he may also be 'lucky', if the recent modest improvement in the economy he is inheriting can be sustained and if the opposition Republicans remain in their present state of disarray.

The pitfalls are obvious: a double handful of external crises, which may require more US military involvement overseas and, relatively, less of his promised 'laser beam' focus on the domestic and economic programme; structural issues at home, like healthcare, welfare and education reform, which will bring him up against powerful vested interests; and financial market scepticism about his determination to control the budget deficit.

But with the Democrats running Congress and as keen as Mr Clinton to end 'gridlock', and with every new president enjoying a honeymoon of varying length, there is no reason why he should not have a productive first year. The betting is that the new policies to be set in train will more resemble in their longer-term impact the very different agenda of President Ronald Reagan's first year in 1981. For most new presidents life gets harder after year one, as the first mid-term elections to Congress loom.

Will reform continue in the former Soviet Union?

John Lloyd writes: Most things will get worse in Russia this year. The policies of President Boris Yeltsin and Yegor Gaidar began the march to the market. Mr Victor Chernomyrdin, the latter's successor as prime minister, must choose between continuing the (relatively) tight money policies brought in by the Gaidar team - and thus risk mass unemployment - and debauching the currency, courting financial collapse. The decisions which must be made this year - on the economy, the constitution, the integrity of the Russian state, the form of the Commonwealth of Independent States - should not be further postponed.

Ukraine has just begun economic reforms from a position of near hyperinflation, and with most of its industries suffering a severe loss of markets. In the three Baltic states - especially tiny Estonia - financial reforms have begun and have yet to hit employment.

The three Caucasian states of Armenia, Azerbaijan and Georgia are now all on militarised footing, their rackety economies (with the exception of the Azeri energy sector) ignored. The four central Asian states of Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan are suffering from a big market loss in Russia. Tajikistan is also rent with civil war.

Only Belarus in the west and Kazakhstan in the south remain relatively stable, so far avoiding both nationalist excess and plunges in living standards.

But there are no hiding places from the effects of the excruciating painfulness of integration into the world economy. This pain will deepen in 1993.

Is Chinese economic reform set to last?

Alexander Nicoll writes: China's economic growth rate, at about 12 per cent, is probably the world's fastest in 1992, the result of a push for reform by 88-year-old Deng Xiaoping. Production, investment and exports have shot up. After 14 years, reform has considerable momentum, especially in the prosperous south. It is probably irreversible, even if it suffers setbacks as after the 1989 Tiananmen Square massacre.

Most of the economy is effectively in the private sector, and prices of many goods have been freed in 1992. But the bloated public sector presents huge challenges.

Two doubts remain: when Deng dies, will economic reformers survive in power without him? More immediately, will fast growth lead to overheating and austerity - slowing reform - as did two previous booms? A third question looms ever larger: will economic freedom lead to greater pressure for political freedom? The Communist party is determined to resist such demands at any cost.

Will Brazil realise its potential as Latin America's economic powerhouse?

Stephen Fidler writes: No. Brazil seems determined not to lose its reputation as 'the country of the future'. Brazilians face more stagflation in 1993 or, worse, another ineffective economic shock plan.

The government is now fighting inflation by keeping real interest rates high - which is why the economy is so weak - but has not fundamentally addressed the core of the problem: a budget deficit of 40 per cent of GDP.

President Itamar Franco, who took office after the impeachment on corruption charges of Collor, seems inclined to lower interest rates to reactivate the economy. If he does, inflation will accelerate. But if he does not and interest rates stay high, the economy will remain weak.

Either way, many Brazilians are betting that 1993 will see another shock plan - unorthodox measures such as freezing bank deposits and fixing prices and wages, which will fail without necessary fiscal reform - in a vain attempt to magic away the country's problems.

AS THE western powers struggle to redefine their international roles in the post-cold war political climate, the markets confront an equally difficult, if less newsworthy, set of adjustments. The case for optimism, at the start of a year that will see no more than sickly economic growth in the developed world, is that some of the building blocks of a sounder economic and financial order are in place - not least a pattern of capital flows that begins to make global sense.

In the 1980s the world's creditor countries recycled disproportionate sums to the United States, thereby diverting capital from potentially higher returns in the developing world. Today, in contrast, Latin America is once again emerging as a capital importer, after a decade in which its economies were throttled by debt and bad policy. Direct inward investment into China is contributing to such dramatic double-digit growth rates that there is a real, and awesome, possibility that China might become the world's largest economy within a matter of decades. Meanwhile the dragon economies of Asia are hosting some of the world's biggest infrastructure projects, as well as playing their traditional game of export-led growth.

Policy mistakes

The snag is that the markets of the developed world are still scarred by the policy mistakes and exchange rate disequilibria of an earlier period. Conventional wisdom has it that the United States will lead the world out of recession, but more slowly than in previous economic cycles. With the private sector constrained by debt, the banking system fragile and fiscal policy less expansionary than it looks because of the debt interest burden and the cost of bank bale-outs, it is hard to quarrel with that verdict. The US is in no position, this time, to act as a locomotive for the world.

Nor is it easy to be optimistic about Europe, where German unification has resulted in a policy mix comparable with Reaganomics and an outcome that is arguably more damaging. The German combination of loose fiscal and tight monetary policy imparted a powerful deflationary impetus to the rest of Europe via the rigid framework of the ERM. Having voluntarily sacrificed their monetary sovereignty, the larger member countries of the ERM then felt obliged to follow Germany in relaxing fiscal policy.

As a result, Europe is now a capital importer, which slightly mars the more attractive picture of capital flows painted earlier; and the fiscal legacy of the ERM period raises questions about the ability of equities to resist the gravitational pull of any rise in long bond yields, especially in those countries that have improved their prospects for recovery by leaving the ERM.

Tide over

For Britain, where the public sector borrowing requirement threatens to top Pounds 50bn, compared with an annual institutional cash flow of just under Pounds 40bn, the question is acute. Yet despite fears of funding crises ahead, long gilt yields have not risen since sterling left the ERM. This suggests, first, that the markets do not expect the one-off rise in import prices after devaluation to leave an early mark on wage settlements. Perhaps, too, that inflation is assumed to be moderating at such a pace that the gilt market offers sufficiently high real returns to persuade international capital to tide the government over until growth permits a significant reduction in the PSBR.

Even so, UK equities are moving into more contentious territory. And there are still plenty of areas of instability around the globe. The currency markets have unfinished business in the ERM, where the French franc continues to be vulnerable. Japan, the only significant creditor country remaining, is in the throes of a banking crisis; its equity market persists in staying overvalued chiefly thanks to the manipulation of public sector pension funds. And there is a worryingly small flow of capital into the former communist bloc, which underlines the geopolitical, as well as the economic and financial risks, with which the markets must live. There are limits to what capital can achieve in the absence of political leadership. With Mr Clinton in the White House, leadership has another chance. Let us hope, in 1993, that the chance is grasped.

PENSION funds enjoyed high annual investment returns last year, according to initial estimates, in spite of the poor state of the economy.

Investment returns - capital gains plus income - of 19 per cent to 20 per cent on average were the best annual result since 1989.

Most of the gains were earned in the final few months of the year, following the withdrawal of sterling from the European exchange rate mechanism in September.

According to WM Company, performance-measurement specialists, the best-performing asset category was overseas bonds, with returns of more than 31 per cent boosted by the devaluation. Equities returned about 20 per cent, both at home and overseas, and UK bonds 15 per cent.

The only disappointing category was property, which returned just 1 per cent or 2 per cent. Funds owning no property will therefore have performed better, and are likely to show an overall average return of 20 per cent.

But according to Hymans Robertson, the pension consultants and actuaries, last year's returns could prove illusory, because although share prices were strong dividends fell slightly. On an actuarial basis returns are likely to be closer to 5 per cent, and are 'less than adequate' when compared to inflation-linked liabilities.

Hymans Robertson said: 'A typical pension fund with a healthy surplus at the end of 1991 is likely to see part of that surplus eroded in 1992, reducing markedly its flexibility.'

WM said that although stock market returns were good last year the 1990s still look like being the decade of the bond.

Over the three years 1990, 1991 and 1992 UK and overseas bonds have produced annualised returns of 14 per cent and 16 per cent respectively, but UK equities have returned only 9 per cent and overseas equities a disappointing 2 per cent.

WM added that 1992 was likely to prove another bad year for pension-fund cashflows, reflecting the number of companies taking contribution holidays. Cashflow was only 3 per cent of assets in 1991 and will have been even lower last year.

These estimates and comments are based on market returns. Actual pension-fund returns will be calculated individually over the next few weeks.

Lex, Page 22

A COIN will be struck to commemorate the 40th anniversary of the Queen's coronation. The Pounds 5 coin, although legal tender, will not be generally available until June and is not intended for general circulation. The coins will be available to collectors from early in the year.

CUSTOMS officers are to be balloted over strike action following changes to their jobs caused by the introduction of the single European market.

The CPSA civil service union has recommended that officers vote for a one-day strike in protest at the changes, which the union claims will result in a 'significant loss of pay'.

MR STEPHEN Dorrell, the Treasury financial secretary, has moved to reassure MPs that the new unified Budget arrangements will not mean a reduction in parliamentary time for the finance bill, Alison Smith writes.

In a letter to Mr Nick Brown, a Labour Treasury spokesman, Mr Dorrell says that this year's second Budget will be in early December. The finance bill will be published early the following January and will complete its passage through parliament by May 5.

Labour is likely to be satisfied with the timetable which means that, as now, there will be just less than four months between the publication of the finance bill and its enactment.

BRITAIN abandoned a project to build a hybrid helicopter/fixed-wing aircraft to revolutionise intercity travel in spite of strong backing from Mr Harold Macmillan, the prime minister.

The Fairey Rotodyne project was ultimately cancelled by the government 30 years ago but cabinet papers released yesterday show Mr Macmillan had insisted four years earlier that the project 'must not be allowed to die'. The aim was to produce an aircraft which would take off vertically and carry 48 passengers at 180mph over a 200-mile range.

The Rotodyne, which had two small wings and was powered by two turbo-propeller engines and a rotor blade, was aimed at intercity air travel.

A prototype first flew in 1957 after the government funded Pounds 13m of development costs. Commercial airlines showed little interest and the project was dropped on February 12 1962 after armed forces chiefs said they were not prepared to support it.

A similar aircraft, the Boeing-Bell tilt rotor, is being developed in the US supported by the US government. The aircraft takes off vertically like a helicopter and then flies like a fixed-wing aircraft.

The US aircraft, of a roughly similar capacity to the UK project but with much longer range, has been earmarked for military and civil applications.

The Cabinet papers also disclosed that the Anglo-French Concorde could have been called 'Europa' or 'Alliance' if the British government had had its way.

Although the British and French governments formally agreed to build the supersonic airliner on November 29 1962 the two countries continued to disagree on the name of the jet, according to the cabinet papers. The aviation minister at the time, Mr Peter Thorneycroft (now Lord Thorneycroft), suggested 'Alliance' and 'Europa' to the cabinet.

He said France had agreed to a name that underlined co-operation and meant the same in the two languages.

The two manufacturers of the aircraft, British Aircraft Corporation (now absorbed into British Aerospace) and Sud Aviation (now part of Aerospatiale of France), preferred Concorde.

The consortium had planned up to 40 aircraft, but in fact only 16 were produced.

Aerospace manufacturers are now studying the development of a second-generation supersonic airliner with a capacity of 300 against Concorde's 100.

BUSINESSES are taking a long, hard look at one area of expenditure that could be seen as less than essential in a recession: corporate sponsorship.

Royal Insurance set the tone this week when it decided to end its Pounds 700,000-a-year sponsorship of the Royal Shakespeare Company.

Mr Roy Randall of Royal Insurance said: 'We certainly got a lot out of our association with the RSC but in a recession, if dividends are not increasing, you can expect that some shareholders may not be as keen on it as we are.'

Others are also reviewing the benefits of having their name on a programme when set against the cost.

Mr Robert Pennant-Jones, head of communications at British Petroleum, the UK oil group, said: 'We're beginning to come to the conclusion that big national sponsor-ships are not as good for some of our operating companies as smaller local efforts.'

BP spends about Pounds 600,000 a year on the arts and has a fairly extensive spread of sponsorship inherited from Mr Robert Horton, its former chairman, who was ousted last year.

The company remains committed to its present programme but it is not planning to take on any more sponsorships. BP will also be looking very hard at its existing commitments when they come up for renewal. These include the National Portrait Gallery in London and Cardiff's Singer of the Year competition,

Few companies appear to be looking for new events to sponsor while profits remain under pressure. Ms Ross Frost, sponsorship manager at Barclays Bank, said: 'It simply means we can't expand.' The bank spends about Pounds 1m a year on the arts, including sponsorship of fringe theatre.

Corporate sponsorship can be crucial in creating an image for a company. BP, for example, sponsored a high-profile ecology exhibition at the Natural History Museum in London as a way of making a statement about its concern for the environment.

Sponsored events also provide a venue for corporate entertainment, where customers can go backstage and meet the cast of a play.

Privatised companies such as British Gas, which spends Pounds 10m a year on sponsorship, and British Telecom stress how sponsorship meets the need to put something back into the community.

Mr Bob Raggett at British Telecom, which spends Pounds 16m a year on sponsorship, said: 'It is important for us to sponsor events which get the arts out to the people.'

For example, the company sponsored a tour of the Scottish islands by the Scottish Symphony Orchestra - the first time such a tour had been organised.

Even British Gas and British Telecom, with their deep pockets, are scrutinising their commitments. British Gas is reassessing its approach to sponsorship and charitable giving in the light of regulatory constraints, while British Telecom is responding to the cold economic climate by trying to get greater benefit from its sponsorship.

TREASURY managers at UK companies were yesterday monitoring how sterling ended 1992 against the dollar, the D-Mark and other currencies.

After a year of turbulence the year-end rates were watched particularly closely.

Companies which draw up accounts at the end of the calendar year calculate the value of their overseas subsidiaries using the closing rate in London on December 31. In some cases overseas profits and losses will also be translated to the parent group's balance sheet using the rates for that day.

Many treasury managers calculate profits and losses using the average exchange rate over the accounting year. Even in these cases, however, the year-end rate is usedas a guide to how the average will come out.

Mr Derek Ross, a partner at accountancy firm Touche Ross, said the overall value of a company might change sharply because of sterling's devaluation. 'Those companies with net assets overseas will find that the value of their holdings has increased because of sterling's devaluation.'

The devaluation implied in the year-end rate can also change a company's gearing ratio and borrowing capacity. The debt-to-equity ratio can also change, depending on the extent of a company's overseas holdings, and this may have an impact on existing borrowing.

Mr Ross said that the recession had resulted in companies having larger borrowings than usual. The devaluation as reflected in the the end-of-year rates may have an adverse effect on gearing percentages.

British business will be in the front line of a new Battle of Britain this year, Mr Peter Morgan, director-general of the Institute of Directors said in a New Year message to members.

'January 1 1993 is an important turning-point for the UK economy. Symbolically, it brings the European single market into existence while in real terms it opens a new year in which we do expect recovery from recession to begin,' he said.

Foreign exchanges, Page 11

-------------------------------------------------- END-OF-YEAR EXCHANGE RATES -------------------------------------------------- Dec 31 1991 Dec 31 1992 % change -------------------------------------------------- DM/Pound 2.838 2.453 13.6 Dollar/Pound 1.871 1.514 19.1 Yen/Pound 233.8 189.0 19.2 FFr/Pound 9.698 8.365 13.7 SFr/Pound 2.535 2.218 12.5 CDollar/Pound 2.163 1.934 10.6 DM/Dollar 1.517 1.620 6.8 Yen/Dollar 125.0 124.9 0.1 Yen/DM 82.37 77.09 6.4 --------------------------------------------------

IMPERIAL Chemical Industries' attempt to take over Courtaulds was the biggest and most fiercely fought takeover battle of its day and the Macmillan cabinet did not know how to handle it, according to cabinet papers which have been released under the 30-year rule.

The aim was to rationalise the UK's synthetic fibres industry but Mr Frank Kearton, then deputy chairman of Courtaulds, strongly resisted the plan and a long series of secret negotiations broke down. The battle between Mr Kearton and Mr Paul Chambers of ICI fascinated the City, particularly when Courtaulds, having cut its interim dividend before the battle, proposed a dividend increase and distribution to shareholders of Pounds 40m in loan stock.

The government was an embarrassed spectator of the bitter in-fighting, and the Labour opposition rejoiced in the daily revelations of jungle warfare in the City. Cabinet papers show the scale of the disagreement among ministers on whether to intervene.

Some ministers urged intervention to prevent an ICI monopoly but a majority argued in favour of allowing the bid to run its course and for the Monopolies Commission to step in at a later stage if necessary.

Mr Rab Butler, the home secretary, absented himself from the discussions as he had married into the Courtaulds family.

Mr Frederick Erroll, president of the board of trade, publicly washed his hands of the affair. He told the Commons he had decided not to decide whether the merger would be in the national interest.

Fortunately for Mr Erroll the battle ended on the expiry of ICI's time limit for Courtaulds shareholders, when only 37.4 per cent of Courtaulds ordinary stock had been acquired.

Cabinet minutes show recognition that the dispute had crystallised growing public anxiety about the effect of big mergers on the national interest, and that ministers would be pressed to assume further powers to control these operations.

THOMSON, THE UK's biggest tour operator, yesterday estimated that holidaymakers spent about Pounds 75m in the first three days of this week on summer bookings - about 50 per cent up on the same period last year.

The holiday rush, stimulated by price cuts and special offers, was accompanied by further brisk business in the sales yesterday.

Mr Charles Newbold, Thomson's managing director, said: 'Clearly consumer confidence is now returning to the high street.'

Thomson, which expects total holiday bookings to reach Pounds 150m this weekend, has doubled the size of its Skytours brochure, offering 200,000 additional holidays in Spain, Greece and the Canaries.

Thomas Cook confirmed the early surge in demand. Bookings through its 340 travel agencies were 50 per cent ahead of last year. 'We have had a very good few days since Christmas,' it said.

Retailers reported an improvement on last year's start of the January sales. Mr Robin Cannon, marketing director of Allied-Maples, said: 'It has been a good day for us. The momentum has been maintained since Monday and augurs well for the weekend. Carpet sales have been particularly buoyant.'

Lillywhites, the London sports store, reported business was 'a lot better' than in last year's sale. Mr Steve Forbes, merchandise manager, said: 'For the Christmas/New Year period as a whole, sales are 41 per cent ahead of our forecasts and 140 per cent up on last year, when the redevelopment of the store disrupted business.'

Gieves & Hawkes, the Savile Row tailor, said it had fewer customers yesterday than earlier in the week, but it was 'very pleased with the results. The Christmas period this year has certainly been better than a year ago.'

Mr Malcolm Busby, retail director of Daks-Simpson, said trading yesterday had been 'quite brisk'. He added: 'Christmas got off to a slow start but over the last two weeks business has been very much better than last year.'

The sale at Austin Reed's Regent Street store in London yesterday attracted slightly more customers than last year. Mr Michael Tiffin, merchandise director, said: 'There are noticeably more tourists among the shoppers.'

It had been a good week for the company's 34 shops throughout the country, Mr Tiffin added. 'We are very pleased with the results.'

The John Lewis Partnership reported yesterday that its department stores had increased sales by 0.7 per cent in the week to December 19, the last full week before Christmas.

MR HAROLD Macmillan, the prime minister 30 years ago, felt the Cuban missile crisis strengthened the country's special relationship with the US. This was in spite of the British government's serious doubts about the legality of US actions.

The prime minister's papers record daily phone calls between him and US President John Kennedy.

Mr Macmillan later told the cabinet that the UK had played a more active role in the resolution of the crisis than was widely believed. He hesitated to publicise the fact for fear of embarrassing President Kennedy and further antagonising Britain's European allies.

At one stage Mr Macmillan wrote to President Kennedy offering to immobilise the UK's 60 Thor nuclear missiles as a face-saving gesture for Mr Khrushchev, the Soviet leader. The crisis was resolved the following day without such action being necessary.

Documents that have been removed indefinitely from the files made public yesterday may hide evidence of whether a secret deal was responsible for the sudden resolution of the situation.

Close co-operation with Washington did nothing to help British relations with Europe when the UK was trying to join the European Economic Community, but Mr Macmillan did not appear to consider this a problem.

He wrote in a memo: 'I am glad to feel that the crisis leaves us with strengthened ties to the administration . . . I do not feel so inhibited by our European negotiations because I am now beginning to feel that we shall have a fight with de Gaulle (of France) and Adenauer (of West Germany) anyway.'

A flurry of memos between senior members of the government reveals serious doubts about whether the US blockade of Cuba was justifiable under international law. The consensus appeared to be that it was not. The government was particularly concerned about the possibility of setting a precedent in international law for ships of a third-party nation to be stopped and searched at sea.

A REPORT to the cabinet raised concerns that a whaling deal could lead to the south Atlantic island of South Georgia becoming populated entirely by Japanese. The government felt it could not interfere in a commercial transaction.

Housing was becoming a 'lively political issue' because of a shortage of private rented homes and high interest rates.

Mr Rab Butler, the home secretary, warned of the risk of a 'big explosion' of racial conflict if the government was not seen to take action after a series of fascist meetings were broken up violently.

Rapid growth of office employment worried the home secretary. He feared the concentration of offices in inner cities could lead to land shortages, increased homelessness, traffic congestion and high travel costs.

REDUCING unemployment must be the overwhelming priority for this year, Mr John Smith, the Labour leader, said yesterday as he accused the government of complete inactivity on jobs.

He said Labour believed there should be a return to the idea of 'active government' which could deal with the UK's problems by restoring the manufacturing base, improving skill levels and providing better social services.

He contrasted the opposition's view with that of Mr John Major, who was simply 'keeping his fingers crossed' and hoping that something would happen.

Mr Smith said on BBC radio: 'There is no plan, no action, no drive on the part of this government to tackle Britain's over-riding problem.

'We're determined to run a campaign to make sure there is the maximum pressure on the government to make the next Budget a Budget for jobs and for economic recovery.'

Mr Smith underlined Labour's commitment to an intensive campaign to force the government to act on unemployment.

The campaign may help draw the party together and take the emphasis away from likely areas of tension and division. Mr John Prescott, the shadow transport secretary, said this week there were 'clear divisions' in the party on proportional representation, Europe and trade union links.

Mr Prescott said that there were some party figures who seemed 'to be wanting to believe that imagery and language are more important than the substance of ideas. I reject that view.'

THE man who dominated the historic launch of Kenya's opposition coalition to the continued rule of President Daniel arap Moi has earned his spurs the hard way.

Mr Kenneth Matiba, who emerged in the elections as the leading popular opposition figure, has one essential African qualification for power: a long spell in jail for his opposition to authoritarian rule.

Detention without trial has done for Mr Matiba what it did for former President Jomo Kenyatta, who was incarcerated by the British for his challenge to colonial rule: it has made him a political martyr to Kenya's masses, particularly his powerful and dominant Kikuyu tribe.

The 60-year-old former cabinet minister, jailed in 1990 by President Moi for leading the multi-party democracy movement, has established himself as the power broker of Kenya's political future.

Yesterday Mr Matiba, leader of the Ford-Asili party, was flanked by the two other members of the coalition, Mr Mwai Kibaki of the Democratic Party and Mr Jaramogi Oginga Odinga of Ford-Kenya - once bitter rivals of Mr Matiba but now deferring to him as primus inter pares of the united opposition front.

From the start of the campaign for multi-party democracy nearly three years ago, Mr Matiba has displayed an almost messianic belief that this was the leadership role he was destined to play.

He has battled Mr Moi since 1988, when he became the first minister to resign from his cabinet over election rigging. Spearheading the nascent multi-party movement, he was detained in July 1990, three days before tens of thousands of people heeded his call to demonstrate for political change. At least 40 people were killed in three days of rioting in Nairobi and Central Province in the wake of arrest.

Now he has the opportunity to shape the opposition to Mr Moi and determine whether Kenya's transition to democracy will be peaceful.

Interviewed in his campaign office, as it became apparent that he had become a pivotal figure, Mr Matiba gave an early indication of his strategy to lead the opposition and put aside the bitter rivalries which had emerged during the campaign. 'The country does not want Moi any more,' he said. 'The opposition have the majority of votes and we have to stop the violence which is there already. I am the only man who can stop the violence and keep the country together.'

Mr Matiba has made an extremely strong showing in three of Kenya's eight provinces and can now claim the mantle of leadership of his Kikuyu tribe. The Kikuyu have been the most militant in pressing for the introduction of multi-party democracy, and observers say many are prepared to take to the streets to remove Mr Moi forcibly if Mr Matiba issues the call.

Doubts about their possible return to power, after a 14-year break since Mr Kenyatta's death, remain Mr Matiba's chief Achilles' heel.

Mr Matiba was last night firmly in second place behind his one-time jailer, by 1,228,870 votes (26 per cent) to 1,796,233 (37 per cent), in the election for the presidency. His remarkable performance among his Kik-uyu people in the face of stiff competition from his fellow tribesman, Mr Kibaki, stems from his status as the hero of the multi-party movement.

A strong family man and enthusiastic mountain climber, Mr Matiba suffered a severe stroke shortly after his release from a 10-month confinement which left the right side of his body seriously paralysed and affected his reading and writing ability. He spent almost a year convalescing in London before returning triumphantly to Nairobi last May.

At his country home in Limuru, he shows off the remarkable recovery he attributes to God and stiff exercise. 'Look at this,' he says swishing the air with an imaginary squash racket. 'I couldn't do that not so long ago.' He is light-hearted, even schoolboyish.

Many Kenyans remember with affection his career before he entered parliament in 1979, which was built on two of Africa's greatest enthusiasms: beer and football.

As a senior executive and later chairman of Kenya Breweries between 1968 and 1979 he was responsible for massive industrial expansion and job creation in one of Kenya biggest state-owned companies. As founder of the Kenya Football League and chairman of the Kenya Football Federation he promoted Kenya's most popular sport across the country.

His family and many of his close colleagues opposed his return to the cut-throat world of Kenyan politics, and urged him to retire to the business empire he has built up in hotels and horticulture exports.

But Mr Matiba felt he was the only man capable of leading the opposition to Mr Moi and holding the country together - an almost De Gaulle-style arrogance which was to win him many enemies in the opposition.

The results of the elections show that if the opposition had held together instead of fragmenting into three main parties, based largely on tribalism and personal greed for power, they would have easily swept Mr Moi aside.

Mr Matiba must bear some of the responsibility for this failure to present a united front. He claims his rigid stance has been based on democratic principle, repeatedly stressing that his was the only party to carry out direct elections for the leadership. 'I have been for democracy from the beginning and that was not up for compromise,' he says.

But politicians in the other opposition parties, including former close friends like Mr Charles Rubia, who was detained with Mr Matiba in 1990 but subsequently broke with him, say his prickly and volatile nature make it impossible to work collectively with him.

An ironic parallel can be drawn, say his critics, between Mr Matiba and his close British friend Dr David Owen, the former leader of the Social Democrats: both men whose personalities led to divisions in the opposition.

His policies, too, are close to those of Dr Owen, mixing a commitment to private sector enterprise and privatisation of state-owned companies with a belief in the social welfare role of the modern state, especially in education, and accountability in public affairs.

Critical for Kenya is whether Mr Matiba can now rise to the challenge of opposition leadership bestowed on him by the electorate, and play the role of conciliator to unite a fragmented opposition still groping for a path to power.

The Armed Forces Ruling Council, Nigeria's highest governing body, has been dissolved to pave the way for a new body that will help guide the country through eight months of extended military rule, Reuter reports from Abuja.

Trade sanctions against the Khmer Rouge have come into effect after the guerrilla faction launched its most serious attack on UN peacekeepers since they were deployed in Cambodia, Reuter reports from Phnom Penh.

The sanctions were imposed by the UN Security Council in November because of the hardline guerrilla group's refusal to comply with the peace accord signed in Paris in October 1991 to end 13 years of civil war.

The US Food and Drug Administration ended the year by publishing its long-awaited rules for the labelling of bottled water, Nikki Tait reports from New York.

Under the proposed new rules mineral water will be defined as bottled water with at least 250 parts per million in total dissolved solids, coming from a source 'tapped at one of more bore holes or springs, originating from a geologically and physically protected underground water source'.

Spring water, meanwhile, is defined as bottled water obtained from an underground formation from which the water flows naturally to the surface - or would if it were not collected underground.

THE US manufacturing sector continued to expand in December, according to a widely watched survey of industrial buyers, George Graham writes from Washington.

The National Association of Purchasing Managers index rose for the third consecutive month to 55.9 per cent, and a NAPM index of new orders climbed sharply to its highest level for three years.

Separately, the Commerce Department said manufacturers' new orders declined by 0.9 per cent in November, the first drop in three months. Economists said, however, that this decline was mostly attributable to aircraft orders, which tend to fluctuate erratically. Factory shipments rose by 1.1 per cent in November.

US-led forces yesterday warned warring factions in Somalia against any further use of heavy weapons after two clans exchanged artillery, mortar and heavy machine-gun fire for three hours on New Year's Eve, Agencies report from Mogadishu.

The clashes on the outskirts of Mogadishu - which came on President George Bush's first night in Somalia - left at least 17 people dead on one side alone, according to US Marine officials.

The fighting was a minor clan's attempt to become a participant in peace talks, a United Nations official said. The UN also said one of Somalia's two main warlords was dragging his feet on attending a peace conference in Addis Ababa, Ethiopia, next week.

The fighting and threat of a conference boycott gave Mr Bush a glimpse of the rivalries and bloodshed that have plunged Somalia into humanitarian crisis, clan warfare, looting and famine.

Mr Bush saw the devastated interior of the country yesterday when he visited Baidoa, 190km west of Mogadishu, where he was greeted by cheering youngsters and foreign relief workers at an orphanage.

He thanked US troops for their relief efforts in Somalia but warned that he and President-elect Bill Clinton agreed America should not act as the world's watchdog.

Asked by a Marine if the US would take similar action in the future, Mr Bush shook his head. 'I would have to say to you it would be a special case because of the enormity of it,' he said.

The New Year's Eve fighting, which lit up the night sky and resumed briefly yesterday morning, broke out when the Murursade clan, led by Mohamed Kanyare, tried to seize a barracks belonging to one of the main warlords, Gen Mohamed Farrah Aidid.

US Marine Col Michael Hagee said Mr Aidid's forces lost 17 fighters, with 25 wounded. He did not have figures for the other side.

Hospital doctors said up to 35 people, including several children, were wounded.

ISRAEL'S parliament yesterday approved the 1993 state budget, the first under Labour Prime Minister Yitzhak Rabin, after a marathon all-night session, Reuter reports from Jerusalem. The vote was 44-36.

The Shk102bn (Pounds 24.3bn) budget aims to ease 11 per cent unemployment by creating 90,000 jobs, mainly through infrastructure and business incentive allocations totalling Shk6.4bn.

Inflation was forecast to remain steady at 10 per cent.

The government abolished a Shk250 travel tax, a 4 per cent fee on foreign currency purchases, and customs duty on products from the European Free Trade Association countries. It reduced value added tax from 18 to 17 per cent and company taxes from 40 to 39 per cent.

Defence, at Shk18.2bn, is the largest item in the operating budget. In the overall budget, debt repayment takes the largest allocation, at 29 per cent, followed by 26 per cent for welfare and transfer payments. Defence accounts for 18 per cent of the overall budget.

The deficit, which by law must be wiped out by 1995, is projected at 3.2 per cent of gross domestic product in 1993, compared to the 1992 projection of 6.2 per cent. GDP, up 6.4 per cent in 1992, is predicted to increase by 3.5 per cent in 1993.

BRAZIL'S new government has outlined a general strategy to promote growth and reduce inflation.

But the scheme for achieving these goals, presented by Mr Paulo Haddad, planning minister, was short on details. He failed to address structural reforms such as privatisation, a programme which President Itamar Franco suspended and promised to re-initiate under unspecified new rules.

The key points included the elimination of public waste and corruption through increased oversight and administrative decentralisation, a gradual reduction of interest rates, tripartite sectoral accords negotiated with business and labour, and the liberalisation of certain investment rules to attract foreign capital.

Mr Franco hopes to generate 4m jobs during the two years left of the term he inherited from Mr Fernando Collor de Mello, who resigned last week.

The government estimates that there are 8m unemployed in Brazil's big cities.

The government aims to cut inflation from 25 to 10 per cent a month by the end of 1993, and to what Mr Haddad called 'civilised levels', 2-4 per cent a month by December 1994.

The strategy for 'selective growth', as Mr Haddad put it, partly depends on the co-operation of business and labour. The model will be an accord last year in the automotive sector, where industry reduced prices and guaranteed job stability, labour moderated salary demands, and the government cut taxes.

Mr Franco is calling Congress back from its summer recess on January 11 to address fiscal reform. Reform would also make room for the gradual reduction of interest rates, said Mr Haddad.

VERNOR Chris Patten ordered an inquiry yesterday into a New Year stampede in which 20 young revellers were trampled to death, saying lessons must be learnt before the Chinese New Year festival in three weeks, Reuter reports from Hong Kong.

The victims, including two teenagers believed to be British and a Japanese, perished as more than 15,000 revellers poured into a narrow, beer-slickened street after the stroke of midnight.

Three of 17 people admitted to hospital were in a critical condition, officials said.

Police watched helplessly for several minutes, unable to reach the mostly teenage victims who one officer said simply dropped from sight to be crushed underfoot.

Mr Patten said the inquiry, under high court judge Kemal Bokhary, should start early next week, as speed was essential to avoid similar chaos at the Lunar New Year, which has been marked by tragedies for two years running.

Malawi's President Kamuzu Banda has set a referendum on multi-party politics for March 15, the pro-democracy movement said yesterday, Reuter reports from Johannesburg.

The date was announced by Mr Banda in a broadcast, according to Mr Kennedy Msonda, a representative in South Africa of Malawi's opposition Alliance for Democracy.

US officials are pondering what to do with the Cuban pilot who this week hijacked his aircraft and flew to Miami, taking with him 48 willing defectors and also some passengers and crew members who were diverted against their will.

The case again places the US government in a quandary as a result of its enduring feud with Mr Fidel Castro, the Cuban leader.

While Washington welcomes any refugee from the Castro government, it is reluctant to appear to condone hijacking, and some US airlines are agitated about the possible precedent.

The Cuban American National Foundation, a right-wing grouping of Cuban exiles headed by Mr Jorge Mas Canosa, a Miami businessman, has hired a lawyer to represent the pilot, Mr Carlos Cancio, and is acting as Mr Cancio's interpreter in interviews.

But the episode has also highlighted the contradiction between the open arms the US extends to any Cuban defector, and the cold shoulder it has turned to thousands of Haitian refugees from the military regime that ousted President Jean-Bertrand Aristide in 1991.

The US policy of forcing Haitian refugees to return home is justified by the argument that they are, for the most part, fleeing economic misery rather than the political persecution that faces their Cuban counterparts.

Human rights observers, however, say the US position is at best rooted in the distinction that Cuban oppression is communist, rather than merely totalitarian, and at worst in the fact that most Cuban defectors are white and relatively well educated, while most Haitians are black.

MR Kiichi Miyazawa, Japan's prime minister, has said the country must concentrate on developing its political role in Asia, signalling that Tokyo will increasingly pursue policies independent of the US.

In a New Year statement, Mr Miyazawa said Asia would be 'the world's brightest spot over the next century', and Japan must cultivate its own policies to take advantage of the changes in the region.

His comments follow the delivery of reports by two senior advisory panels recommending that the relationship with the US be redefined and that 'a new way of thinking' be employed in dealing with Asian countries.

The New Year comments and the publication of the panel reports are part of the build-up to a South-East Asian tour by Mr Miyazawa beginning on January 11.

While careful to show deference to US influence in Asia, Japan is trying to convince other Asian governments that Tokyo will not necessarily fall in line behind Washington in the future.

At the same time, most Japanese apparently sense that there are troubles ahead with the US. A poll published yesterday by the Mainichi Shimbun found that only 6 per cent of questioned Japanese consider ties with the US will improve in the future.

In addition, Mr Miyazawa presided over a 'round table on Japan and the Asia-Pacific region', which has just reported that 'it is indefensible to adopt the attitude that a nation can curl up comfortably into its own cocoon' in the face of international change.

But the conference also suggested Japan must make changes at home to ensure that it can be taken seriously abroad.

Meanwhile, Mr Miyazawa said Japan's reluctance to open the rice market to imports was not a cause of the delay in settling the Uruguay Round of multilateral negotiations under the General Agreement on Tariffs and Trade.

He said Japan should 'defend' the rice market, though, recognising that a market opening appears inevitable, he also suggested that farmers be compensated if their earnings are affected by trade liberalisation.

PRESIDENT George Bush will arrive in Moscow this evening for a farewell summit meeting with Russian President Boris Yeltsin. It is to be capped by the signature of an historic agreement cutting the US and Russian nuclear arsenals by around two thirds.

They are expected also to discuss Russia's economic reforms, as well as relations with other former Soviet republics - especially Ukraine, whose failure to fulfil its pledge to get rid of the nuclear weapons on its soil is viewed in Washington as one of the most critical threats to efforts to control the nuclear threat.

But Mr Bush has less than three weeks to serve before he hands over power to President-elect Bill Clinton, so little of substance is likely to be transacted.

Nevertheless, diplomats in Washington expect Mr Bush to use the meeting to press for Mr Yeltsin's co-operation in stepping up pressure on Serbia to end hostilities in Bosnia.

On his way home, Mr Bush will stop in Paris for dinner with President Francois Mitterrand, and will try to win his backing for a tough UN resolution allowing the enforcement of the no-fly zone over Bosnia - as he sought that of Mr John Major, the British prime minister, at a meeting last month in the US.

The broad outlines of the nuclear missiles agreement which Mr Bush and Mr Yeltsin will sign tomorrow, known as Start II because it builds on the framework of the Strategic Arms Reduction Treaty signed by the two superpowers in 1991, were agreed at their last summit in Washington in June.

The US and Russia have agreed to deploy no more than 3,000-3,500 strategic nuclear warheads by the year 2003, with a separate limit of 1,750 warheads deployed on submarine-launched missiles and a complete ban on the use of multiple warheads, known as Mirvs, on land-based missiles.

It has taken six months to resolve technical disagreements over issues such as the conversion of silos protecting one banned type of missile to enable them to house smaller missiles, but US officials said the delay in completing Start II has also reflected Mr Yeltsin's difficulty in selling the agreement to his military commanders and to nationalist politicians on his right.

The agreement throws out the principle of strict parity that has pervaded earlier US-Soviet arms treaties by setting a band of 3,000 to 3,500 warheads.

Mr Yeltsin said in June he intended Russia to aim for the lower end of this band, while the US is expected to end up closer to the upper limit.

THE first currency to come under attack after a quiet Christmas could be the Irish punt, as foreign exchange dealers brace themselves for a new year of speculation against the weaker currencies in the European exchange rate mechanism.

Trading on the foreign exchanges was so thin last week that most exchange rates were motionless. But the Bundesbank's unwillingness to ease monetary policy and uncertainty about the future of the ERM left the Irish currency looking beleaguered.

On New Year's Eve, the punt was trading at DM2.6315 against the D-Mark, close to its ERM floor of DM2.6190. In the last few days the punt has been alternating with the system's other weak currency - the French franc - at the bottom of the ERM grid.

The punt's vulnerability has been heightened by new dangers. Yesterday, the Irish authorities carried out their pledge to abolish the country's remaining exchange controls, in line with the EC's single market programme. It was, in the words of one Irish currency dealer, 'an extraordinarily brave decision'.

Until this weekend the controls had meant that foreign investors who wanted to trade in the punt had to deal in the less liquid Euromarket. Now non-residents can borrow punts in Ireland's domestic market, thereby enhancing their ability to speculate in the currency.

The arrival of the new year also brings clean balance sheets to many bank dealers.

As the end of 1992 approached, dealers were reluctant to take big positions in the market for fear of losing the gains made in the summer currency crisis and spoiling what, in many cases, were excellent end-of-year results. But some analysts believe the currency market is on the verge of renewed speculation.

Like the French franc, the punt ought not to be a candidate for devaluation against the D-Mark. Ireland's inflation rate for 1992 is about 2.7 per cent, well below Germany's. The country's current account balance is also in surplus.

This is all but ignored by dealers. The punt is under pressure because of investor confidence in the D-Mark as a currency which has never been devalued and which offers a high return, with short-term interest of about 8.75 per cent.

Analysts also believe the punt will have to be devalued by about 7 per cent to make up for the competitive devaluation of sterling earlier in the year. Britain remains Ireland's biggest trading partner, accounting for 33 per cent of the Irish export market, and last year's 10 per cent revaluation of the punt against sterling has made life difficult for Ireland's exporters.

Mr Steve Barrow, an economist at Chemical Bank in London, believes pressure on the Irish currency is now so great that the EC's monetary committee may be forced to consider a devaluation of the currency as early as this weekend.

However, Mr Nick Hunt, head of foreign exchange trading at the Bank of Ireland in Dublin, says that speculation against the currency will not be easy, with Ireland's money market remaining illiquid due to large-scale selling of the punt to the central bank in recent months.

Speculators make a profit on a devaluation by borrowing the currency, selling it at the prevailing exchange rate and buying it back when it is at the lower rate.

Mr Hunt says that most dealers will be forced to borrow money from the central bank as the interbank market is so illiquid. 'The central bank has already made clear that it will lend at increasingly high rates if it sees sustained pressure on the currency.'

With the overnight support rate at about 14 per cent, the central bank can ill afford to raise the price at which it is lending money to the domestic market, for fear of squeezing the country's economy.

But there may be limits to the price investors will pay to borrow a currency in the hope that it will be devalued.

Company calculations, Page 4

MR John McCann's 38-tonne refrigerated truck was one of two dozen commercial vehicles on board the Pride of Kent, the first ferry to dock at Dover after the removal of border controls at midnight on December 31.

He had hoped for an earlier arrival in Britain but when he made his usual two-hour detour to Steenvoorde on the Belgian border to pick up his documents, the clearing agents had jumped the gun on the single market and had stopped issuing them. They advised him to wait for the first boat arriving after midnight, when the papers would no longer be necessary.

Agents are private companies that prepare export and import documents for customs. For years Mr McCann went to Steenvoorde because clearing agents there were open at more convenient times than those in Calais.

Creation of the single market means most of the 55m customs documents for trade within the European Community will no longer be needed.

Mr McCann, a driver for 20 years, said the removal of routine customs checks at borders would be a 'big improvement' although he was unsure whether there would still be controls on food health certificates. (Customs said later any checks would be carried out on factory premises).

However, uncertainty abounds about the impact of the changes.

Mr Kenneth Ross-Steven, whose cargo of Dutch chicken livers was the last truckload to pass through Dover under the pre-single market system of controls, clutched a wad of documentation. He is concerned about any easing of health controls and the pace of change. 'We were just getting used to the old system where we knew what we were doing.'

Another of his fears is that customs posts elsewhere in Europe will not be prepared to clear drivers without the traditional documentation. And with many clearing agents around Europe going out of business advice may be difficult to get if problems arise.

British Customs and Excise officers, however, are convinced of the benefits. Mr Derek Leach, in charge of VAT, excise and duty collection on freight traffic, said customs officers in Dover handled about 2.5m import and export documents a year. These would be reduced to about 300,000 documents, mainly covering non-EC shipments, he estimated. Checks for smuggling will be carried out only on suspicious vehicles.

This has led to the loss of 550 customs jobs at Dover, Ramsgate, Folkestone and Sheerness, although most staff have been transferred to other jobs or will move to the Channel tunnel when it opens.

But even the removal of most customs controls will not mean drivers have a completely free run. The immigration department has taken over some of the space occupied by customs. And controls on drivers' hours remain; Mr Ross-Steven had to wait 11 hours in Dover yesterday because of EC tachograph rules.

FRANCE has given the go-ahead for a high-speed TGV railway link from Paris to the German border, after years of delay caused by financing problems, Reuter reports from Paris.

The prime minister's office said the cost of the project would be cut to less than FFr20bn (Pounds 2.43bn), from earlier estimates of FFr35bn. The construction schedule will be released next month.

The new railway, completing a network of 160-190mph trains running south, west and north from Paris, should put Strasbourg less than two hours from Paris by the end of the century and eventually extend towards northern and eastern Europe. The European Community is to provide some financing.

THE European Community yesterday became a 12-nation single market but was forced to concede that the free movement of people, goods, capital and services within the EC was not yet a reality.

All internal EC border checks on goods were abolished at midnight on December 31, and the European Commission declared that the Community had adopted 95 per cent of the 300 measures proposed when the single-market project was launched in 1985. Six members of the European Free Trade Association (Efta) are set to join the free-trade area during 1993 when the European Economic Area comes into being.

But in practice, confusion, omissions, delays and the inevitable political compromises mean the Community is unlikely to realise the aim of the 1957 Treaty of Rome - to establish a barrier-free European common market - before the end of the millennium.

Mr Jacques Delors, the European Commission president, declined to fete the arrival of the market. He argued that it would not be appropriate and that as a gradual process the single-market project was never supposed to end with a 'big bang' on January 1 1993.

In a statement released yesterday, he said: 'We shall have to display a more active presence together in global affairs relating to peace, liberty, respect for others and solidarity with the poor worldwide. The task is immense but it can be carried out successfully.'

For the EC's 344m inhabitants - and travellers within the Community - the immediate effect of the legislation that came into force yesterday will be limited. The main change is the abolition of limits on the goods individuals can carry across internal borders.

Travellers can now return home with as much alcohol, tobacco and other goods as they want, having paid tax where they bought the items. But national authorities can carry out spot-checks and seek proof that the goods are for personal use or consumption.

For many regular travellers within the EC, the greatest disappointment will be the failure of member states to lift passport checks at internal frontiers.

Passengers on flights within the EC will still have to show passports at airports until December at least, when most terminals should have adapted to the changes. Nine continental members of the EC will try to abolish other controls on people by the middle of this year, if external frontier controls are strengthened. But Britain, Denmark and Ireland could well persist with passport checks beyond 1993.

To a large extent, EC businesses have already adapted to the single market. Its announcement helped fuel the boom of the late 1980s and many companies have already restructured to take account of existing and proposed legislation lifting barriers to trade.

Exchange controls in all but four EC members were lifted by mid-1990, for example. Ireland yesterday joined Portugal and Spain in lifting controls reimposed during the autumn currency crisis. Only Greece has been granted a delay in liberalising capital movements.

Alongside the abolition of border controls on goods, yesterday was the birthday of a new system for collecting and monitoring value added tax and excise duty. The new regime abolishes 60m forms which had to be filled in by business each year, but traders complain that new administrative burdens have been imposed. They also fear confusion about the application of the new rules will undermine its benefits during the first few months of operation.

From now on EC banks are also free to set up branches anywhere in the Community, and government curbs on the setting of air fares have been lifted - a move which could herald cheaper air travel. Utilities and public authorities also have to open all contracts, except those in services, to competition.

But recent breakthroughs allowing stockbrokers and banks to deal on stock exchanges across Europe will not come into force until 1996 at the earliest, and legislation enabling insurance companies to set up anywhere and sell policies across borders does not take effect until 1994.

COAL miners at 65 Polish pits are to vote on Monday on a New Year's Eve agreement between strike leaders and the government which could end the most widespread stoppage in the industry's history, writes Christopher Bobinski in Warsaw.

The protocol commits the government to restructuring the coal mines' debt of 8,000bn zlotys (Pounds 334m) and providing subsidies worth 1,700bn zlotys. The government has also said it will turn to international financial institutions for modernisation loans for the industry.

The end of the 19-day strike would see the resumption of coal exports, which the government banned last week in view of possible domestic fuel shortages.

MR Vladimir Meciar, the first prime minister of newly independent Slovakia, appealed yesterday to Slovaks of all ethnic origins to rally behind the new country and build a legal, democratic and decentralised state.

In a televised address to the nation from the capital, Bratislava, he called on 'all Slovaks, and Hungarian, Czech, Polish, Ukrainian, Ruthenian and Romany (gypsy) minorities, all the citizens of the Slovak Republic,' to work together.

In Prague, now the capital of the independent Czech Republic, Mr Vaclav Klaus, the prime minister, pledged to maintain close ties with Slovakia, formerly the junior partner in the 74-year-old federal Czechoslovak state, which was formally dissolved at midnight on December 31.

Mr Klaus said in a speech to political and religious leaders in Prague castle that there would be 'no Chinese wall' along the common frontier. He underlined that Slovakia's economic prosperity and the maintenance of political pluralism was also a political concern for the Czech Republic.

Mr Meciar acknowledged, in a speech which implicitly recognised the fears and reservations that many Slovaks harbour about the ending of the link with the more prosperous Czech Republic, that difficulties lay ahead for the smaller of the two new states. He assured Slovaks that links with the Czech Republic would continue to be close and that Slovakia 'needed neither customs officers nor border crossings and other restrictions'.

Both leaders underlined the difficulty of predicting the exact course of their future relationship. Mr Meciar pledged to honour all obligations assumed during the six months the two states moved apart and to co-operate at the highest possible level.

He and other leading Slovaks attended independence celebrations in Bratislava's central square, which began with the hoisting of the new flag and the singing of the national anthem. Thousands of people turned out to usher in both the new year and the new state.

Under a placard saying: 'Kiss me, I'm Slovak,' one of the throng caught the mood of the night. She said it was a special moment for all Slovaks, as people queued to smother her with kisses. Then, to the strains of The Blue Danube, the singing and dancing continued into the night.

In his speech the Slovak leader stressed the importance of relations with Austria, and underlined Slovakia's 'permanent and sincere interest in good relations' with Hungary. In a reference to the economic difficulties facing Slovakia, whose heavy and arms-related industries were built largely to serve the former Soviet and Comecon markets, he warned there was 'a lot to learn'.

Mr Meciar, a former communist, said it was necessary to 'draw a thick line between the present and the past'. While the 'velvet revolution' of November 1989 had rejected a system that was bad, 'we cannot reject the work of those who worked honestly under this bad system' - an indication that he will not permit a clean break with communist-style methods favoured by the free-market orientated Czech government.

THE first face-to-face talks between leaders of the three warring factions in Bosnia-Hercegovina since hostilities began last spring open today in Geneva, amid mounting international pressure for outside military intervention to halt Serb aggression.

The talks, due to break on Tuesday before resuming later this month, are aimed at thrashing out a political settlement for Bosnia based on the draft constitution prepared by Mr Cyrus Vance and Lord Owen, the international mediators, last October.

This provides for a decentralised political structure, comprising between seven and 10 largely autonomous provinces based on geographical, economic and historical factors as well as ethnic composition and strong human and minority rights guarantees.

Attending today's meeting will be Mr Alija Izetbegovic, president of the mainly Moslem Bosnian government, Mr Mate Boban, the Bosnian Croat leader, and Mr Radovan Karadzic, the Bosnian Serb leader. President Franjo Tudjman of Croatia and President Dobrica Cosic of the rump Federal Republic of Yugoslavia (Serbia and Montenegro) will also be represented.

While the politicians discuss Bosnia's constitutional future, and in particular where the provincial boundaries should be drawn, their military advisers will continue talks begun under UN auspices in the Bosnian capital, Sarajevo. These will focus on the demilitarisation of the city, a reduction of hostilities throughout Bosnia and a lifting of the siege on Moslem-held towns.

Expressing fears that talk of military intervention could undermine the Geneva negotiations, Mr Boutros Boutros Ghali, United Nations secretary-general, this week described today's historic meeting as a 'last chance' for the peace process.

However, Mr Vance and Lord Owen are said to see it as a 'first chance' for top-level negotiations between the protagonists, in which a Bosnian settlement would pave the way for a broader regional accord.

The talks, which are the culmination of four months of painstaking peace-broking by Mr Vance and Lord Owen, follow last month's elections in Serbia which confirmed hardline President Slobodan Milosevic in power, and the reluctant acquiescence by Mr Izetbegovic to sit down at the same table as Mr Karadzic whom he (and the US administration) labels a war criminal.

The Bosnian government and Bosnian Croats are said to have moved closer in talks last weekend to drawing provincial boundaries, and Mr Vance and Lord Owen will have their own map in readiness to move the bargaining process along.

But when Lord Owen met Mr Karadzic and Mr Milosevic in Belgrade on Wednesday there was no detectable sign of flexibility in Serb demands for a single Bosnian Serb 'state-within-a-state' which could at some stage become part of a Greater Serbia.

MR JOHN MAJOR predicted yesterday that 1993 would bring clear economic recovery in the UK and could mark the start of a 'virtuous cycle' of sustainable growth and prosperity.

The prime minister promised that the government would seek a closer relationship with industry and commerce, and raised the prospect of a revival in areas of the UK's manufacturing base.

Interviewed on BBC radio's The World at One, Mr Major admitted that 1992 had been a miserable year for many people. Fear of unemployment was one of the brakes on restoring confidence - the task for 1993 was to bring hope to people who had lost their jobs.

Comparing the current position with the beginning of the 1980s, Mr Major held out the prospect of a number of years with steady and sustainable growth. Progress had been made in laying the foundation for recovery, he said, putting particular stress on the low inflation level.

He looked to the expansion of small and medium-sized businesses to create jobs, as they had done in the early 1980s. He said 400,000 businesses had been started even in the difficult circumstances of last year.

Mr Major promised further promotion of vocational qualifications, and forecast a broadening of the UK's industrial base. 'There are areas of manufacturing where I think we can begin to re-enter manufacturing . . . and that is not just a question of investment, it is partly a question of attitude.'

His positive tone is part of a continuing move by the government to re-emphasise the importance of manufacturing. Earlier this week, Mr Norman Lamont, the chancellor, said the UK's manufacturing performance should be 'a source of confidence and pride'.

It follows a signal last month that the Budget would focus on measures to underpin industrial investment, and offer particular help to small businesses and exporters which have suffered in the recession.

Downing Street said the European single market and the completion of the agreement on international trade meant that the coming months would be a time of great challenges for business, and that Mr Major wanted the government to try to ensure that British industry did not miss out on the opportunities.

Mr Major spelt out his continued support for Mr Lamont as chancellor, despite sterling's departure from the European exchange rate mechanism. That had resulted from events beyond the chancellor's control, Mr Major said - the Danish referendum, uncertainties surrounding the French referendum, and 'infelicitous' briefing by the Bundesbank which directed the markets towards sterling.

The prime minister's determination to seize the initiative on the domestic agenda and put behind him the past few months in which the government was widely perceived as at the mercy of events, was also explicit. He underlined his commitment to further education and health reforms, but was more cautious in his language on privatising British Rail, while insisting that the legislation would be passed by parliament this year.

Mr John Smith, the Labour leader, rejected Mr Major's sighting of increased economic confidence, saying that the government still failed to appreciate that the fear of unemployment was the fundamental barrier to a restoration of confidence.

He recalled previous ministerial forecasts: 'The Conservative party's promises about economic recovery are the biggest devalued currency of our time.'

Smith urges return to 'active government', Page 4

Financial markets in Europe, the US and Japan were closed yesterday. Reports on Thursday's trading in London and world markets appear inside the paper.

ZENITH Data Systems is seeking to regain Desktop Four, the Dollars 740m (Pounds 487m) US air force personal computer contract awarded under new Pentagon procedures designed to speed procurement.

ZDS, the US-based PC arm of Groupe Bull, the French state-owned computer maker, was denied the contract on Christmas Eve after appeals against the award were upheld.

Mr Thomas Buchsbaum, ZDS federal systems vice-president, said: 'Even though two out of the mass of protests were granted, we are still in a better position than anyone else on Desktop Four'.

Desktop Four is being closely watched as the first example of the Pentagon's fast-track procurement policy. For Groupe Bull, still losing money heavily, it represents additional revenue and a powerful confidence booster.

The contract was let first in 1991 to two US companies, CompuAdd and Sysorex Information Systems. When appeals against that decision were upheld, the contract was given to ZDS in September 1992.

Competitors including Compu-Add and Apple again appealed but ZDS, which supplied PCs under Desktop One and Desktop Two, believed its position was safe. It was surprised last week when the appeals were upheld. Desktop Three went to other vendors.

The appeals board has now published excerpts from its ruling which show that ZDS failed on two counts: First, the video monitor it proposed to supply with the 300,000 PCs in the contract did not comply with the Trade Agreements Act, a measure designed to ensure substantial US labour content in systems assembled from offshore components. Second, the board did not believe the Air Force had given enough consideration to sourcing its PCs from more than one supplier.

Mr Buchsbaum said ZDS intended to appeal against both rulings. He said he was certain ZDS monitors met and exceeded the legal requirements of the Trade Agreements Act. There were well-recognised benefits to the government of a single vendor policy including lower prices, greater compatibility between systems and decreased training requirements.

Mr Robert Dornan of Federal Sources, a marketing consultancy specialising in government business, said the onus now lay on the Air Force to clarify its requirements.

Fire destroyed a terrace of listed 17th century buildings in the centre of Marlborough. Damage was estimated at Pounds 1m.