Europe and the UK

The Chancellor, yesterday told the country that weaker growth and higher borrowing would force the country to endure a record breaking six years of austerity. Then as soon as he had made his statement he was off. To where you might ask? To Brussels for an emergency meeting with European finance ministers. 

And oh, how he needed to go there. For he knows that however miserable the prospect outlined in the House, it will be a hell of a lot worse if the crisis in the euro zone is not resolved soon. 

If the European financial system goes belly up it would tip an already fragile UK economy into a double-dip recession.

As it is, the Office for Budget Responsibility painted a grim picture of what the country can expect until way past the next election.  The government is on course to borrow an additional £111bn over the next five years, while unemployment will hit 2.8 million and living standards will continue falling until 2013. 

But it is those in the public services that are going to take the biggest hit.They  will face job losses totalling 710,000, compared with the 400,000 it had previously expected as a result of the government's spending cuts.

But Osborne  let the cat out of the bag that things could be a lot worse when he said the Treasury was now undertaking "extensive contingency planning" to cope with a possible break-up of the euro, and admitted: "If the rest of Europe heads into recession, it may prove hard to avoid one here in the UK."

And what of Europe? The signs there are ominous. There are fears that Europe has entered the make-or-break phase of its crisis, as a sign of this Italian 10-year bond yields were closing in on the 8% level yesterday.

The EU Monetary Affairs Commissioner Olli Rehn said: "We are now entering the critical period of 10 days to complete and conclude the crisis response."

So whether our misery becomes a whole lot worse is no longer in the hands of George Osborne but in rather in the hands of Angela Merkel and how she responds in the next fortnight to the Euro zone crisis.

What is certain is that the next General Election will be a strange affair indeed. The government will have to fight it having already committed to £15bn of additional spending cuts for the first two years of the new parliament.

So parties will approach the election with little scope to make improvements to the wealth of the country. So the arguments will be about how the limited wealth is distributed. So the language of the next election will be about fairness. What is the fair thing to do when the coffers are low. The party(s) that is most convincing on this will get the spoils.