As David Cameron said, after 13 years in government and just a couple of months before a General Election, the Prime Minister has been miraculously converted to changing the voting system. All those doubts and disagreements with such changes which he used to harbour and deploy under Mr Blair have been overcome.

The AV system is inherently unfair. If you vote for one of the two most popular parties you only get to vote once. If you vote for a party that cannot win you effectively vote twice, as your second preference then helps decide which of the front runners has won. Why is this fair?

If I go to a horse or car race, I expect the car or horse that comes first to be the winner. I do not expect the judges to say that as the first and second were close they will ask the losers who they would like to win. Nor do we say that as it was close the first and second place have to run it again without the others to see if one is faster without the others getting in the way.

Don’t meddle with a tried and tested system which we can all understand. Conservatives didn’t complain about the voting system for all those years when it made our fairly poor voting performance even worse in terms of seats. That’s just being a bad loser.

It’s wonderful to hear from the forecasters that after the fabulous BBQ summer and the mild winter we are now hurtling towards the early spring. It’s just a pity that could be on our snow sledge in near freezing temperatures! The forecasters seem to specialise in winding us up these days.

However, as readers of this site will know, this is just weather, not climate. The problem is we seem to get a lot of weather these days, with two snowfilled winters in succession and a cold wet summer in between. There’s no sign of any of my daffodils appearing from the soil as they clearly could not hear the message about early spring for all the snow there’s been on top of them.

Alister Heath of City AM has produced some more good topical figures to show that lower tax rates bring more jobs and more wealth and income to tax.

Apparently those states in the US like Texas and Florida which levy no additional state Income Tax on top of federal taxes have seen 89% more jobs created and 32% faster personal income growth than states with high state and local income taxes. As soon as one state introduces higher rate tax on the successful, they hop over the border into a low tax state, reducing the revenues of the high rate state instead of increasing them.

It adds to the case I set out before, based in the UK’s past history of lower and higher income tax rates, and based on international comparisons.

Today the pound opened lower again on the exchanges against the dollar. That means dearer petrol, dearer commodities, dearer imports from dollar related parts of the world including China. We are poorer as a result.

The MPC is like the drunk trying to walk along the pavement. They spend some of their time in the ditch of recession and falling prices because they underdo the money growth, and some of their time in the middle of the fast road, because they overdo the money growth and inflation.

Months ago I started warning they were overdoing the easy policy which was bound to lead to a lower pound and higher prices. That is exactly what is now happening. The Governor has to get ready to write another letter of apology. Why can’t they find people who can get it right?

There are three strong camps in the debate over whether John Terry had to resign as England’s soccer captain.

The footballing pragmatists say it should be settled solely on how well he is doing the job. His private life, they say, is no concern of the team or of England. If the Manager backed him the media would have to back off and he could continue. Many of them detect no sudden loss of form or authority on the pitch that worries them. They want a captain who plays football brilliantly. They do not expect him to be a saint or even a great role model off the field.

The media realists agree that you cannot prevent a man being England’s captain just for errors in his non footballing life. There are , apparently, few top flight footballers without something in their private lives that might cause concern or give opportunity for the media to criticise. They take the view that if a player can get away with it, so be it. If, however, a recent scandal leads to an overwhelming weight of media criticism and attention then they feel reluctantly the man has to go. You might call it Labour’s 3 day test. If something bad is leading the news three days running then action has to be taken to remove the source of the concern. It is a “distraction” from the main job.

The third group take a more traditional moral stance. They say that if someone aspires to lead in various walks of life, including in the high profile area of international team sports, they need to show discipline in their private lives as well. They do want great footballers or golfers or rugby stars to be people the young can look up to. They do not want them on charges for assault, or guilty of alcohol excess, or cheating their wives, or some other anti social conduct.

I invite my bloggers to send in their thoughts on where we should be in modern Britain. Should a clergyman lead by example and always behave honestly and decently? What should we expect of our political leaders? Should they be expected to live up to the moral standards expected of a Bishop? Should a sporting leader be required to behave better or allowed to behave worse than a government Minsiter? Is a business leader allowed to be unfaithful to his wife or to behave badly in a pub or club where a footballer or a politician is not? Is a business leader of a well known public company rightly more at risk for misconduct than one who leads a lower profile business?

Are there any absolute standards that all must meet? Are there graded standards that people with differing degrees of power and responsbility need to adhere to? Or is it now the case that the media is the judge, and all hinges on how long a story runs and how intense it is? Do the press in this case speak for the nation, and have they judged it right that people wanted Mr Terry to resign?

The word on the street is that a new Parliament will purge the old and give the country a new start with its democracy. Parliament can put behind it the mistakes, errors and frustrations of the past five years and suddenly become the Parliament people need and may even want. It will not be that simple.

If the new Parliament is to be better than the old, and if the new people are to make a difference, we need collectively to will and require a change in the way we do politics. Parliament should be there to test, to probe, to challenge the government as well as there to pass government legislation. The present Parliament talks about the need to scrutinise the executive – hardly language to send the pulses racing or to get Parliament back in touch with the people it is meant to represent. What we need is a Parliament which keeps Ministers up to the mark, which asks the right questions and refuses to take “No” for an answer, and a Parliament which is reluctant to legislate, forcing Ministers to work hard and to perfect their plans before they see the legislative light of day.

The Opposition is talking of reforms that could help. Stronger streamlined Select Committees where a few MPs learn their briefs and ask expert points would help. Giving Parliament more of a say in what is debated and what is questioned is important. If the government always controls the timetable and decides the subjects – apart from the odd Opposition day – it gives them power to conceal and power to spin the nation’s story as they wish.

We need more time to question and debate. If Parliament wants to carry on with half term holidays as if we were a primary school, maybe we could have those weeks for cross examining and discussing matters with Ministers without new laws or votes for those of us who would like to do the job better. We need to have enough time for each new bill. Prior to 1997 the Opposition was allowed as much time as it wanted to debate a bill in committee. Only if the Opposition started to abuse that trust by spending say 50 hours on Clause 1 did a government impose a timetable motion to limit the debate. Automatic timetable motions have crushed sensible resistance to badly thought through legislation, and have flattered uncontentious legislation with more time than it needed.

There is also the unhealthy relationship between spin doctors, leaderships and the media. Power is thought to be the power to control the message. In practice the controlled messages usually frustrate or infuriate as well as inform and make easy the lives of the journalists. The media say they want MPs to be more independently minded. Yet when one is, he is often pilloried for daring to disagree with his leadership, so the press can have great fun with a party row story. If we want more grown up politics, leaderships have to be relaxed enough to accept that not everyone all the time in their party has the same view. The media have to allow parties to have internal disagreements to shape the line or change the approach, without pretending that such a phenomenon is unusual or a crisis

A healthy democracy needs debate between and within parties. It needs a media that allows well intentioned and sensible people to disagree without it always being a challenge to the leadership or a demand for a different job. There are ideas as well as personalities in politics. If Parliament is to rebuild itself it not only has to find a way to claim the bus fare without a problem, but it needs to do its main job better. Its main job is to lead the national debate, to influence and guide government, to frame and develop wise but limited laws and to ensure that if government is spending too much, abusing power, or taking us in the wrong direction we at least know there is an alternative.

The BBC’s fixation with global warming produced a new insight this morning. It opened up a whole new line of questioning for the Green movement, which left their spokesman advocating that people should have a higher carbon footprint, for fear of sounding as if he wanted to kill off all the much loved cats and dogs we keep as pets.

The new topic was the carbon paw print of mogs and dogs. Apparently a large dog requires as much as 1 ton of carbon a year, or around 7% of the average British person’s carbon footprint. As I do not currently keep a pet, that makes me even greener than I realised.

The interviewer made a very good point. Turning to the green spokesman, she asked if people should stop owning pets to cut their carbon footprint. I assume she was kind enough to mean as nature takes its course with all the lovely animals people currently own. He realised the trap, and defended pet ownership as a pleasure we might need, suggesting pet owners should drive less to compensate. The last thing he wanted was the headline “Greens propose mass doggy and moggy murders to save the planet”. The greens always unite against the car, though it represents a modest proportion of the carbon total.

Not to miss the trick, the interviewer countered by saying why couldn’t people without pets buy a gas guzzling vehicle for their pleasure, as this would produce less additional carbon than a large dog? The Green spokesman was bright enough to have to follow the logic, and effectively conceded that non pet owners might well legitimately want to drive more, as long as everyone kept to a sensible average carbon footrpint.

I wonder if this question of the carbon paw print will develop legs? Will someone come forward with the idea that we should start to wean our furry friends off meat, and try and breed vegan pets with special low carbon impacts? Will someone else propose a recommended size limitation on animals we keep at home? It certainly makes a change from the endless discussions of how we should limit personal mobility.

What we need is some commonsense in this debate, an acceptance that we want to become greener and cleaner, to recycle more and waste less, to generate power in a more efficient way and to lift our fuel efficiency at home, on the move and at work as rapidly as possible. We need to cut our dependence on imported fossil fuels as quickly as possible. Cutting down on pets or stopping people driving should not be part of such a commonsense approach.

Last night at a meeting I felt the need to remind people just why we need change, and why that change has to be the Conservatives. Everyone has their ideal view of what the next government should do, say and be like. It will soon be time to live in the real world, and recognise that the choice lies between Labour and Conservatives.

We need to remember:

Conservatives opposed Mr Brown’s changes to the Bank of England which stripped it of important powers and contributed to the banking crash.

Conservatives opposed the switch in inflation target before the 2005 election, a switch which led to a bigger credit bubble than we wanted.

Conservatives opposed the excessive deficit of the last year, voting against the VAT reduction and proposing lower spending.

Conservatives opposed the tax raid on Britain’s pension funds, a raid which led to the closure of most funds to new members and the winding up of many funds.

Conservatives opposed the Nice, Amsterdam and Lisbon Treaties, because they transferred power to Brussels.

Conservatives opposed Labour’s lax approach to our borders, wanting proper border controls and limits on numbers.

Conservatives offered a refererendum on Lisbon and voted for one in the Commons. Lib Dems and Labour ratted on their promise and voted it down.

Conservatives opposed much of the new red tape which now envelops local government and business.

Conservatives opposed attacks on our freedoms and civil liberties.

Sorting out the mess our country, our economy and our society is in is no easy task. It will not be possible to tackle everything all at once. Even mending the economy will take time. The question being debated today is do we want to make a start, or do we intend to carry on living in make believe land, awaiting the market crash which is likely to happen if we do not start to live within our means and begin the task of running our public sector efficiently and well.

Readers of this site will not be surprised that world markets are starting to tell individual governments that they are borrowing too much. If there has been a surprise, it has been the delay before markets wake up and force changes on reluctant administrations. The sloth of markets to say “No” to excess will just ensure that as each country crisis comes it will be bigger and the reckoning heavier, because each country will have borrowed even more.

Iceland, Ireland and the Baltic Republics had their medicine administered sometime ago. They have each been forced into spending cuts, and have to pay more for their loans. Last week the storm surrounded Greece. Yesterday the pressures began to envelop Spain and Portugal.

This is the period of maximum pressure on the Euro. Markets are saying to countries in the Euro who have wandered miles away from the discipline of keeping public borrowing down to an annual 3% of their national incomes, they need to cut spending. If they refuse, they need to seek loans and subsidies from the better run members of the Euro area, as the markets are no longer willing to lend to them at German rates. It turns out they are not part of an integrated money union where all are for one and each is for all. Each Euro member has its own deficit problems, and each has its own credit rating. So it will remain unless and until they each guarantee each other’s borrowings and freely transfer cash from the richest to the poorest, from the best run to the worst run, as needed. Germany is understandably reluctant to do that at the best of times. When she is wrestling with her own recession and deficit problems she is unlikely to bail them all out to the extent needed.

Some in the UK look on with a sense of relief or even amused superiority because we stayed out of the currency union. As a keen advocate of UK currency independence myself it is tempting to write of the advantages for us of not being caught up in this particular Euro crisis. I have always said there are just two decisions made by Gordon Brown as Chancellor that I fully support – the decision to keep us out of the Euro, and the decision to set sensible CGT and standard income tax rates.

I will not do so , for one very good reason. It would be foolish of us to say we welcome being out of the Euro to give us the flexibility to borrow to excess, to borrow more than the prisoner members of the Euro, Greece, Portugal, Spain and Ireland. There is one very simple observation. It does not matter whether you are in or out of the Euro when it comes to world market reactions to how much money you can borrow. The UK will not escape the government debt crisis. It has been living on borrowed time for too long. What can happen to Greece, Portugal and Spain today, can easily happen to the UK tomorrow.

Far from enjoying the collapse of the Euro against the dollar and the good questions now being raised over the whole shaky edifice of the single currency, we should look to our own problems. The UK has borrowed too much already, and is borrowing far too much going forward.

The Bank “paused” quantitative easing yesterday, to start to let the bubble in government debt down gently. From here it gets tougher to borrow all the money the government needs. If the UK government does not take the right budgetary action soon, it will be the UK’s turn to be tossed around in the world’s bond markets. The end of that process is for all of us to have to pay more tax to pay the rising government interest bills as the rates go up. At a certain point, just as happened in Ireland and now in Greece, the government has to cut spending.

Last night I gave a lecture to 300 professional and business people in the Sainsbury Wing of the National gallery. I presented my views on the true origins of the Credit Crunch and the continuing errors of monetary and fiscal management. No one in the discussion which followed queried my thesis that the Monetary and regulatory authorities were a central cause of the crisis – a view familiar to readers of this website.

Today people are at last waking up to the real threat that we will run out of power ere long, if cold winters coincide with modest economic recovery and if no more power stations are built quickly. This is something I have been warning about for years in the Commons, asking the government to make decisions about replacements for the ageing nuclear stations and the coal stations that the EU rules are closing. They have dithered instead of getting on with issuing the permits and licences required to replace them with more nuclear or something else. Our only option now to keep the lights on is to build some gas powered stations rapidly.

In the Economic Policy Review I repeated the urgency of sorting out this problem. We said “We also believe that government needs to provide leadership in tackling the large number of capacity problems and bottlenecks which have emerged in the UK’s ageing infrastructure. The UK may be an island of coal set in a sea of oil and gas, but it came close to running out of energy in 2006″ “We examine ways in which private capital and competition can be harnessed to ensure more plentiful supplies of transport network capacity, of energy and water”. Two years later, and we are still awaiting some decisions which will allow the construction of new power stations.

I also see others are now revising their view of the UK’s long term rate of growth. I have long been saying that it is likely to be 1.5% rather than the 2.75% the Treasury claims. The higher taxes go and the more debt that builds up, the lower the long term rate of growth is going to be. At least if they do succeed in putting the lights out we wont see how bad its got.

Will the MPC make honest people of us at last? With inflation well over 3% and rising it is high time they said “No” to more easy money for a government awash with too much debt and wasting far too much money. They should grasp that recovery requires a private sector, export and savings led recovery. That in turn requires a government spending sensibly and gaining us some better value for money. Someone today on the radio said he could not see how QE led to inflation. He should try looking at how the government overpays for all too many things and how it also slaps extra taxes on which drives prices up further.

The MPC’s boom and bust and attempted boom roller coaster ride has done us great harm. They have encouraged or allowed a government to debauch the national accounts and run up horrendous debts. Today they could start to do the right thing, start to get the UK back onto a prudent and well managed path. They also need to have words with the FSA and Bank over why credit is now so lop sided in our economy, and why the UK’s state banks cannot and will not help small business.

If you needed more evidence of Labour spin and their continuing influence on the media I invite you to consider the lop sided discussions of public spending cuts. There is just one relatively small departmental budget that is crawled over endlessly for spending cuts – that of defence. It just happens to be the only budget where this government has made some cuts, whilst all the others have soared.

In 1996-7 the UK spent £21.3 billion on defence and £85 billion on social security. This year the spending on defence will be around £35 billion whilst the spending on social security and tax credits will be £180 billion. So over the Labour years social security spending has risen by more than 110%, defence spending has gone up by 75%. Social security is now five times defence, whereas it was four times in 1996-7.

Anyone seriously wanting to control our deficit – or for that matter wanting UK people to have better lives with more jobs and higher incomes – would start with plans to get the costs of social security down. Labour in Opposition called it the cost of “economic failure”. Now in government, with the budget surging, they present such spending as evidence of caring and sharing. The truth is too much of the budget is offering people a substitute income for employment. We should do better.We have talked about this before and will do so again. We need to put the enterprise back into Great Britain, which means lower tax rates and less regulation. Then we could get more back to work and off social security.

Meanwhile over at defence the rows escalate. We are told we cannot do everything. The army wants more troops so it can fight future Afghan wars with more boots on the ground. The navy wants new carriers and support vessels. The airforce claims more heavy lift to support the army and more fighters with modern capability.The truth is we need all three. The second truth is no area of government spending can be exempt from pressure to do more for less, from the search for better ways to spend. The cuts I would like to see in the military budget are these. I would like fewer armchair Generals and shore based Admirals, and more officers leading active units. I would like to see better value for money procurement, and an efficiency drive in the large civilian administrative tail. I have set out before ways that we could use private finance to improve service housing and release cash.

I woudl also like us to get out of Afghanistan as soon as possible,. If any capability has to be cut, it should be the capability to invade Middle eastern countries where we have not been invited.

Yesterday we debated water in the Commons. Only the UK and the monopoly left overs from a nationalised industry could conspire to turn such a plentiful resource into something expensive and precious in short supply. Were we ever to have a couple of hot dry summers again doubtless the industry and its regulator would be out there again with hosepipe bans, exhortations for us to go around in dirty cars and requests for us to share a shower.

So I asked whether we could have some competition for retail water, as they now have for large quantities of industrial water. The latter policy has brought the price down as you would expect, whilst the regulated price of householder water has continued its inexorable rise. I am pleased to say I got an encouraging answer for a change. It is true it was from the Conservative spokeswoman rather than from the government, but we live in hope.

The Minister did agree with me that the best way to help those on low incomes afford their water was to cut the price. He, however, wanted to cut the price of water for those on the lowest incomes by increasing its price for everyone else. What we want is a policy to lower the price for all. Competition would probably take 20% off the water price, and create an industry keen to supply more and sell more. After all, most of the time there’s plenty of it about. So much so that the current authorities have difficulty in preventing it flooding all too many homes too often.

There is an undercurrent in present political life that says the rich must pay their way at a time of economic crisis. There are indeed still all too many socialists who wrongly think that if they just put the tax rates on the rich up the money will come pouring in and all our problems are solved. They do not see the queues to go to live in Switzerland, to relocate businesses abroad and to hire better tax lawyers and accountants to find ways round the higher tax rates.

I have a modest proposal for the Conservatives. They should go out on a policy that they intend to make the rich pay more tax. After all, in the 1980s, Tory tax policy led to the rich paying much more tax, and paying a much bigger proportion of total income tax raised. That Tory government did it by cutting tax rates. More rich stayed here. More rich came here. More rich paid more tax here. More ventured their money, created jobs and businesses and paid more tax. That is what we need to do again.

I also think we need to cut back on the large number of very highly paid people in the puiblic sector. It would be a welcome cut of public spending to thin out the public sector rich list, to get rid of the phoney bonuses and the fancy jobs. There are too many quangos and quango chiefs, too many mega salaries in low risk public corporations, too many overpaid public sector bankers.

So here’s a great Conservative policy for enterprise and for growth, for deficit reduction and for social justice – let’s soak and sack the rich in a way which will make us all more prosperous. Let’s do it by cutting tax rates and quangos.

The current political battle is over how soon we start to rein in the deficit. Labour says we must not do so too soon. Doing anything before the election is to them too soon. The Conservatives say start now and get on with it.

The government says ending the large deficit “early” would jeopardise the recovery. Yet their own figures shows that the UK has been the last out of recession and has the most feeble recovery of all despite receiving such a collosal “fiscal stimulus” and monetary boost. Indeed, over the last five years the government has nearly doubled the money supply, and doubled the national debt, only to achieve absolutely no growth in the UK economy. Who does believe on that evidence that their stimuli bring growth? The 1981 and the 1992 recessions ended when the government took action to cut the deficit.

If you look at what the public are doing, they believe the way to tackle excess debt is to pay some of it off. The private sector, families and businesses, were too deeply in debt in the boom. They are busily paying it off or reducing it at the moment. They do not think the best strategy is to go on borrowing more to “borrow themselves out of the crisis”. So why on earth does the government think it can defy gravity and borrow its way out of its own debt crisis? As Greece has shown in the last week, markets can extract a large price on any government that thinks it can get away with huge borrowings. First they make the debt very expensive, then they refuse to lend as much as the compulsive borrower wants.

Conservatives need to explain to people that when we are told the public debt is increasing and this is a good thing, that debt is our debt. As a French King once said “L’etat, c’est moi” . We have to remind our government that we are the public and the public debt is unfortunately ours. We are the state and we will be made to pay the interest and then repay the capital. They need to say that previous recessions only ended when the government stopped overspending and left some money for the rest of the economy to use.

Commonsense says when you are this deeply in debt you need to stop borrowing. It also tells you that the way to do that is to limit your spending. You can have too many five a day officers and Chief Executives of quangos. So bring on the economies before we all drown in a sea of debt.

States so often behave badly. They pick fights or provoke each other. They often boss or abuse their citizens. If they were people we would get fed up with them, send them to coventry, seek to change them or even put them in detention.

The next few years are likely to see a continuing struggle between the USA and China. Mr Obama’s “new” jaw jaw rather than war war approach to dealing with the world neighbours has broken down in the sands of Afghanistan, and is now having a bad time along the Great Wall of China. This week-end there is sabre rattling over Taiwan. Mr Obama intends to sell them lots of armaments for “defensive” purposes. China sees such an act as one of provocation, as she thinks Taiwan is part of greater China and does not want more military hardware in the way of her ultimate “settlement” of the Taiwanese issue. The USA needs to export more whilst also still needing to borrow too much money from the Chinese. China cannot afford to overreach herself and lose face at this sensitive time in her climb to world significance.

I have always thought that one of the most important moments in the evolution of China as the other great power of the world will be the moment when China demands Taiwan. If she tries too soon the USA could well rush to Taiwan’s defence. If China judges it correctly and has prepared the ground the USA will back off and we will know there are two super powers in the world. Meanwhile many in Taiwan will be seeking to keep the USA strong and on side.

I don’t think this week-end’s sabre rattling is the start of the denouement of this long running issue. I expect China to complain, impose sanctions, cool relations but not to force any military action. The oral spat is unpleasant but I hope and expect it will not bring the world to the brink of disaster. It is important that Mr Obama is very clear about his intentions, as indecisiveness or hints of a change of position could be dangerous in such a situaiton. Mr Obama needs to remember he does still run the only world superpower when it comes to the ability to project force beyond the homeland, even if he does need to borrow a lot of money from China to pay for it all.

This week markets took fright at the mountain of money Greece wants to borrow to pay its government bills. It needs to borrow about the same relative to its National Income as the UK. The markets have pushed the price of Greek government bonds down, so Greece now has to pay twice as much interest as Germany to borrow the same number of Euros for ten years.

Greece cannot devalue within the Euro. The UK has already knocked one fifth off the amount it has to repay foreigners who lent it cash by devaluing by a fifth over the last couple of years. Greece is saddled with paying back Euros, which have been more stable against the strong currencies of the lending nations. There are five possible options for Greece from here:

1. Leave the Euro and devalue. That cuts the amount of real money they would need to pay back, would make their exports more competitive and their imports dearer, leading to a shift from consuming too much at home to working harder for foreigners abroad. They would still need to cut their deficit by cutting spending, as they would still need to borrow to pay some of the bills and they would no longer be able to offer Euros for repayment.

2. Stay in the Euro and accept the discipline of the club. They are meant to keep borrowing down to 3% of their income. Instead it has soared to 12.7%. They could cut their spending substantially, restoring confidence and limiting the amount they need to borrow.

3. The strong countries within the Euro zone could lend them the money they want to borrow on better terms than the market, or give them grants to see them through this bad patch. London sends grants and loans to Liverpool so they can stay in the same currency union, so why shouldn’t Munich send cash to Athens, say some single currency single Europe exponents.

4. There could be a deal. Germany and her friends within the Euro zone could agree a package, where Greece cuts her deficit by spending cuts and then is eligible for some grants, loans or subsidies to make up the rest.

5. They could all decide to do nothing. Greece would have to pay more to borrow internationally, and would gradually have to take action to curb the deficit. Otherwise the interest rate she had to pay might become so penal the markets forced a crisis, requiring action under one of the four options above.

I think Option one, leaving the Euro, is unlikely. Greece is keen to stay in, probably hoping for protection from her own folly by belonging to the larger club, and hoping against hope for more loans and subsidies from within. Whilst some in Germany and France might see going back to a core Euro as an attractive and more stable option, the overall balance of opinion in the EU is likely to want to keep Greece in. If Greece left, the positions of Spain, Portugal and some others would also be in question. It could lead to a messy unravelling of the wider Euro project.

I suspect Option 5 is also running out of room, as the markets are close now to forcing action to correct the deficit or to force a bail out for Greece.

I would think Germany unlikely to simply offer to fund the excessive Greek deficit. It would be an open invitation to all the other ill disciplined Euro members to run up big debts and ask the centre for easy money to pay the bills. It would also start to place too much strain on Germany herself, as Germany is not without her own economic problems.

So that leaves the two options of tackling the deficit herself or doing so with European help and assistance for meeting various targets.

The whole saga shows the folly of premature currency union without proper arragements in place for transfer payments and common fiscal policy. The Euro is becoming a system to try to impose discplined policies on the periphery, as Ireland, Greece, Spain, Portugal and even Italy have to keep reining in their excesses to live within the Euro scheme. Their reluctance to do so creates unemployment and lower incomes in each of them, and will generate a series of debt crises and economic crises as they push against the need to control spending.

Greece has a simnple choice. Either live with German discipline, or run a shambolic fiscal and economic policy and be at the mercy of markets. The Euro is not the frree lunch some members thought it was going to be. It does not give a right to badly run countries to borrow at German rates of interest. You cannot run a single currency successfully unless you first create a single country and gain acceptance for the fiscal and other economic policies from all the voters of the enlarged area. The fact that we kept the UK out of it will mean the Euro is spared the bigger crisis of containing within it a large unruly subject with very different economic characteristics from the rest. It has also spared us in the UK major steps on the road to being subsumed into a European country.I helped oppose the Euro for the UK as a believer in an independent Britain, but one of the arguments I used was our actions would also spare the Euro a massive problem.

All past European currency unions have failed. All past attempts to create a large country or bloc of countries out of smaller European states have also ultimately failed. The plight of Greece a small chapter in the stpry of this latest project. If Germany and France are serious about a country called Europe they need to come up with deal quickly to keep Greece in on tolerable terms to both sides. If they are not, the sore will fester and the markes will dictate answers. Watch this space, and expect some messy compromises.

This morning Mr Blair returns to the centre stage of British politics. It is not a triumphant return. It is the return Mr Brown dreads. It is cross examination day over the Iraq war.

The 2005 election haunted Labour with their Iraq war. Anti war Labour candidates put up. The dislike of the war was one of the main reasons Labour’s vote slumped so low. Mr Blair was lucky, because the Conservatives were still unable to take advantage of Labour’s misery, and some Conservatives were keen supporters of the same war. A sullen electorate stayed at home in large numbers.

Many Labour strategists thought that was an end to it. When Mr Blair left office, they hoped the Iraq war left office with him. It was never going to be that simple. After all, Mr Brown was in the room when the decision was taken, and he had to pay the bills for the hostilities.

I read recently a Labour inspired comment that Mrs Thatcher would never have allowed a similar enquiry into her conduct over the Falklands. That is clutching at a straw that is well broken. The Conservative government did hold an enquiry into the Falklands war. That war was a popular, legal and just war. No-one queried its justice as it was designed to liberate people from an aggressor. It was legal under international law, as a country had been violated by another and sought intervention to free it. The hopes and good will of most of the country sailed with the Task Force.

The Brown/Blair war in Iraq was very different. It was never popular. Many people thought it unjust, intervening in an overseas country because the government did not like its Leader. Some thought it illegal, including we now learn a couple of senior lawyers at the Foreign Office.

So what can we hope to learn from Mr Blair’s appearance? I think the Enquiry should concentrate on three main lines of questioning.

The first would be to tease out the legal position. Parliament was always told the government had clear advice that it was legal. We need to know how many lawyers within government held a different view, how hard fought it was, and why the legal advice changed in the government’s favour at the last minute.

The second would be to find out why Mr Blair was so keen on going to war. Why was Parliament told there was an immediate and worrying threat from Iraq’s weapons of mass destruction when it appears there were no such weapons? When did regime change become the purpose? Why did the UK decide to change this particualr unpleasant regime by force, but not other regimes it disliked?

The third would be to ask why there was apparently so little intelligent planning for what was to happen once the war had been won. Why did they make such bllunders in handling Iraq after they had won?

Davos is a time for overpaid bankers and consultants to rub shoulders with the senior regulators and government officials who determine the rules for their money making games. Once again, just like last year, regulation will be a big topic of conversation.

Governments will be saying they want more of it. They will argue their favourite syllogism – Our purpose is regulation. Regulation has just failed. Therefore we need more regulation. Big businesses will be saying – Our businesses agree we need lots of regulation. We can live with all the regulation we currently have. If you impose any more the money making machines could break down. Both these stances are idiotic.

There will also be a delicious dance over the canapes. The politicians wil be seeking opportunities to cash in on the rich vein of public anger about bankers, polishing soundbites on how they too like President Obama will be tough on bankers and the causes of bankers. The bankers and consultants will be responding off the record saying that they cannot take too much pain, tactlessly saying that they are in a vicious squeeze already which means no remuneration over £1million until things have calmed down a bit.

The truth is there were both market failures and regulatory failures to create the Great Crash. Competitive markets work, rewarding the successful and customer friendly and weeding out the unsuccessful. The banking market is not a properly competitive market. In the UK the Competition authorities were asleep at the wheel or ordered by the government to turn a blind eye to the competition failures. They allowed mega banks to emerge, when they should have blocked the takeovers and insisted on more competition. We need to make the elaborate competition machinery work properly. That does not require more law or more regulators. It just requires a few senior regulators in the current structure to break up over large banks and to prevent new mega banks emerging from anti competitive mergers.

Most people agree there does need to be some addtional regulation on banks and other deposit taking institutions besides enforcing a competitive market. We need the reassurance that the banks will be able to pay our money back. That requires regulation of cash and capital. Again, that is already part of the present system. There are plenty of highly paid people who are meant to do that. The only change we need to is to have a few people in each major jurisdiction who know how to do it properly. It does not take many people in the UK, as the banking market is so concentrated. If you get the top ten banks right you have sorted out the problem. One person could do that, armed with the right regulatory powers, if he or she understood bank balance sheets.

Large companies like all present regulation because it keeps competitors out. They have spent the money on complying with it, and don’t want that changed. Just because the regulators and the large companies agree does not mean we should. The truth is much current regulation is a waste of money, an anti competitive practise, a nonsense which does not keep our money safe. If Davos wanted to do somehting that actually helped get us back to stronger growth it needs to do three simple things:

One: Assert the need for more banks and a much stronger enforcement of competition policy. The UK could pledge to create half a dozen new banks out of the two it currently owns
Two: provide simple counter cyclical rules on cash and capital to ensure we have better endowed banks in future
Three : Prune the other regulations, so more businesses can start up in competition against the established players.

Bolting on more rules to a system which does not work is a bad idea. Failing to create a competitive banking market means business as usual.

The government keeps telling us borrowing more, spending more and printing more boosts the economy. They should look at the figures and ask themselves Where has all the stimulus gone? The figures are amazing.

Since 2005 the government has doubled central government borrowing (on its own understated figures ) from £469 billion to £922 billion – an injection of £452 billion.

Since 2004-5 money supply (M4) has surged from £1,212 billion (£1.2tn) to £2,100bn (£2.1 tn) – it has also almost doubled. Notes and coin have gone up from £42 billion to £55 billion.

And what has happened to real output? It is almost the same in Q4 2009 as it was in Q3 2005! No growth at all for 5 years.

So where did all the stimulus go? Much of the public borrowing went on inefficiencies and on imports. Some of the extra money went into price inflation, and some is just circulating less rapidly now, given the poor state of the banks and the new regulatory toughness.

The government needs to go back to the drawing board on whether these sorts of stimuli work. If they had studied Japan over the last twenty years they could have seen for themselves that huge boosts to public spending and public borrowing just put the state more into debt but did not lift the growth rate. It could have saved us a lot of money and false hopes.