Yesterday is not a day that Gordon Brown will want to relive. He misheard a Labour supporting widow talking about immigrants: she said "flocking", not the well-known expletive. He ranted a little about it in his limousine, and sine his microphone was still live, it was picked up. He then went to make a probably rather insincere apology- which since Mrs Duffy will not now vote Labour was clearly not really accepted. This frankly trivial incident has nevertheless led to the biggest media furore of the entire election campaign, and people are talking now about a Labour meltdown.
Meanwhile, something far more serious has been relatively unreported. Yesterday the European sovereign debt crisis took a drastic turn for the worse. The Greek government can not stabilise their finances without growth, but the collapse of global trade has destroyed their shipping sector, and their failure to tackle their competitiveness problems now makes Greek unit labour costs more than twice that of Germany. The level of debt that Greece took on was unsustainable before- it is now crippling. Meanwhile the adjustments to the national statistics required to show a true picture- as opposed to the false picture that Greek statistics had been showing in order to "qualify" for the Euro- make it nearly impossible for Greece to avoid a default. This would not be the first time that Greece will have defaulted- but the consequences now would include being thrown out of the Eurozone.
The Greek crisis has now spread. Spain, which has had a significant sector- in this case construction- destroyed by the credit crash, now faces similar, albeit less acute, problems to those of Greece. The competitiveness of Spain and its neighbour Portugal has been drastically reduced. A crisis in the Eurozone is now well under way. The German government will simply not support governments that do not comply with the Eurozone rules. It is clear a major adjustment is going to have to take place which will lead to significant changes in the Eurozone, and the possibility of its partial break up.
However, before those who opposed British membership of the Euro gleefully shout "we told you so", they should, perhaps consider the nature of the crisis. I wrote that this is a sovereign debt crisis, but it is the UK that in Europe has most drastically changed its debt position for the worse. Britain on virtually every metric except total debt percentages has weaker numbers than Greece. Despite the "flexibility" that being able to devalue our currency by more than 30% has given us, the country has not been able to take advantage of this- with a savage deterioration of growth, and higher inflation continuing virtually unaffected by the supposed benefits of devaluation. Indeed, the sovereign downgrades that are afflicting Greece, Spain and Portugal are all set to hit the UK too. We are walking a tightrope: too little government cutbacks and the markets will punish our debt markets and our currency still further. Too many cutbacks and the recession will return, leading to the same problems in our debt and currency markets.
The UK is in a place of extraordinary economic danger- and this is the result of the implosion of one of our key sectors: finance. Our economy is not benefiting from our supposedly "flexible" currency, because that is not the nature of the crisis. The crisis is about debt- and the fact that we float the Pound is making the risk premium for holding sterling assets expand still wider, which is why, even in the face of the seriousness of the Eurozone crisis, the Pound continues to fall against the Euro.
The next six months will see the global market place take the measure of the policies put into place by the new government, whoever leads that government. There is little confidence in the competence of the Conservative team, who would have to work hard simply to be taken seriously by the City. The implosion of the Labour campaign makes it hard to believe that the half measures undertaken by Labour will be continued after the election anyway.
There is another way. There is confidence in Vince Cable's analysis of the problems. There is greater confidence in the credibility of the Liberal Democrat budget plans. The success of the Liberal Democrats at this election now gives them a genuine political -as well as a moral- influence.
The electoral system may make Mr. Cameron leader of the largest number of seats, even if the Liberal Democrats out poll him. In such circumstances, the idea of a Conservative minority administration is positively dangerous. The Conservatives would have two choices: to ignore the votes cast and to try to govern alone- with either a minority or very small majority in the face of a growing economic meltdown over uncertainty over how far the Tories can enact their programme, or they can try to create a more secure government and offer an historic olive branch to the Liberal Democrats in the interests of the country at large.
As both Labour and the economy reach the irrevocable end stages of this crisis, Labour is probably finished as a national electoral force. The economy should not be pushed over the edge because the Tories try to put their sectional interest above that of the country. The savage punishment that the voters would mete out to the Conservatives if they try to govern alone upon such a small minority of the vote should be sufficient for Mr. Cameron to at least pause for thought.
All the indicators are very serious indeed for the outlook of the British economy. The crisis we face is as serious of that in Greece, even though we are supposedly benefiting from being out of the Euro. Time is running out. After attacks of Greece, Spain and Portugal, the UK is firmly in the cross hairs. The post-Brown government will need to work hard simply to avoid disaster. For all of us it is incumbent to work together in order to improve things. We know that Nick Clegg has the vision to make the change, the question now is does David Cameron?