Now, Dr Walter argued, the G7 ought to lean in favour of a strong dollar (and hence weaker mark and presumably, weaker yen) to help German restructuring.It is a fascinating idea, and I think we will indeed tend to have a strong dollar (and sterling) over the next few years, but not particularly because of any G7 accord. But it needs breathing space, and Dr Walter argues that the 40 per cent depreciation of the US dollar between 1985 and 1995 could now be encouraged by the central banks and finance ministers meeting at the G7.It was, after all, the Plaza meeting of the same group (actually then a G5) in 1985 that triggered the fall of the dollar and therefore set the decline in train, while the general exchange rate stability encouraged by the Louvre Accord in 1987 bolted down the dollar. Dr Walter, chief economist for Deutsche Bank, is an important figure in German economic thinking. The German establishment is now edging towards accepting that the country has to make radical changes in its taxation system and its labour laws. This thesis that Germany needs a weak mark to soften the pain of restructuring was developed last week by Norbert Walter in the International Herald Tribune. When young couples set up home, it is usually by renting: if they do buy, they are usually helped by the rest of the family and so are not really free to cash in any excess equity.So cranking up demand depends, particularly in Germany with its large export sector, on cranking up exports. But there is no established tradition of borrowing on credit cards in Germany (and not much in Japan), and no link between mortgage rates and consumption.

But it doesn't work as well in Germany, or for that matter in Japan.In both Germany and Japan interest rates are very low. In America, cut rates and they get out their credit cards; here in Britain, cut rates and house prices rise, and people feel secure enough to splurge a bit. One of the wonderful things about American and British consumers is that if you put money in their pockets they will go out and spend it. Meanwhile, you see the point about the need to cushion the pain of restructuring. Germany remains the world's premier exporter and has been gaining ground in recent months, thanks in part to cost-cutting but also the weaker mark.This raises the question at the start of this column, a question which applies to Japan as well as Germany, and a question which happens to be at the front of the Group of Seven discussions taking place this weekend.We'll come back to G7 in a moment. Rising unemployment is a sign of commercial restructuring, a sign that German industry is renewing itself And it is doing so from a base of excellence. As the head of the federal labour office in Nuremberg said, the rise exceeded his fears "and the estimates of all experts".

Come to think of it, the figure is pretty nearly double that of the UK. Looking in from outside, it has been easy to see that German unemployment would rise sharply as companies adjusted to high wage and social security costs with the sort of radical downsizing that took place in the US and UK in the 1980s But they didn't see it coming. Even if you strip out the former East German provinces and just look at the west, unemployment is still nearly 11 per cent - more or less in the same band as France and Italy, and double that of the US. But even allowing for seasonal factors and a change in government compensation for building workers laid off because of bad weather, this news shocked German opinion. That figure is not seasonally adjusted (see the left-hand graph below), so the underlying trend is not quite so catastrophic. You need strong demand to cushion the pain of restructuring, but do you also need a weak currency? The shock economic news of the week was undoubtedly the climb in German unemployment in January, with 4.66 million people out of work, equivalent to 12.2 per cent of the workforce. But American Express's attempt to pull off the same trick lost it $4bn, and it recently disposed of Shearson and Lehman, its costly broking and securities subsidiaries.. Merrill Lynch is a highly successful combination of retail broking and investment banking, the example the merged group is trying to copy.

One help on this score is that the two firms have little overlap, so there will not be hordes of people competing for the same jobs.Morgan Stanley's chief executive, John Mack, who will be president and chief operating officer of the new firm, said that as long as the top managers get along, the rest of the employees will follow.But Wall Street has a short memory. Can the brokers and the mergers specialists get along?"Clashes of corporate culture are a risk whenever two distinct financial institutions merge," said Standard & Poor's, which rates corporate debt S&P added, however, that the differences will be overcome. People are the key to any business, and egos on Wall Street can be large; managing directors will complain about paltry million- dollar bonuses. The executive board will be made up of an equal number of representatives from each side.John Mack from Morgan Stanley and Philip Purcell from Dean Witter, the executives who will run the merged business, said they would work together as a friendly double act, though Wall Street is taking that claim with a pinch of salt.If this merger founders, it could be because Dean Witter and Morgan Stanley are so different. Dean Witter also owns the Discovery credit card, which is top of the tree in the US according to the total number of cards issued.Strictly speaking, the merger is a takeover of Morgan Stanley by Dean Witter, Discovery But both sides were sensitive about the control issue.

This is a type of business that has hardly got off the ground in Europe.The two together will have the largest collection of investment funds under management by any securities firm, including a powerful stable of mutual funds - the US equivalent of unit trusts. One reason securities firms such as Morgan Stanley say they need size to compete these days is that the US government is allowing commercial banks to encroach more and more on their business, as the restrictions of Glass-Steagall have been eaten away.Dean Witter is a very different animal. Morgan Stanley is a traditional investment bank dealing mainly with large companies, selling shares and bonds to professional investors.It was set up in 1935 when several partners of JP Morgan, the blue-chip bank, left to set up on their own because the Glass-Steagall Act of 1933 had prevented the bank dealing in securities. The investment banks' drive for greater size is based on this pressing need for distribution power.The network the new merged company will control will be impressive. The surest way to achieve that is to own a network selling to potential buyers of the shares and bonds issued by those clients.