The new Foreign Secretary arrives for work…

UK reluctance to help with the Euro bailout has not gone down well at all:

Jean-Pierre Jouyet, the head of the French markets regulator, said sterling was bound to come under pressure on the markets given the delay in forming a UK government after last week’s inconclusive general election.

Mr Jouyet, a former Europe minister who is close to President Nicolas Sarkozy, indicated that Britain could expect no help from the eurozone.

“The British are most definitely going to be targeted given the political difficulties they have,” he told Europe1 radio. “If they don’t want solidarity with the eurozone, we will see what will happen with regard to the United Kingdom.”

Following its refusal to help its neighbours, Mr Jouyet said Britain had become a peripheral player in the bloc.

There was now a “three-speed Europe”, he said: “Europe of the euro, the Europe of countries that understand the euro, such as Poland and Sweden, and the British.”

Yesterday, I indulged in some late night speculation, wondering whether the only ‘impossible’ election outcome – the Queen being forced to send parties back to the country – might now have an outside chance of popping out of the pack.

Why consider such an outlandish possibility?

It’s important to do so, I think, because that’s the only way to make good decisions under conditions of radical uncertainty.

Look at how David Cameron’s team is said by the Telegraph to have acted even before polls closed last week:

By shortly after 7pm on Thursday, Jeremy Heywood, the Permanent Secretary at 10, Downing Street, received an extraordinary telephone call.

On the line was one of David Cameron’s closest aides, so confident of a Conservative majority that he spent the next five minutes dictating the names of every minister in the new Cameron government and the names of the civil servants who would be sacked the next day.

Even in the midst of the most unpredictable election in a generation, I suspect the Conservatives were far too committed to their preferred outcome to be well prepared for the labyrinth of choices that would soon confront them.

Similarly, I don’t believe Nick Clegg had really gamed out the dilemma his push for electoral reform would place all leaders in, as they became exposed to the unpredictable and shifting preferences of their own and each others’ backbenchers; and – through a referendum – to those of the public.

I wonder too whether Labour ‘strategists’ (most of whom are actually dyed-in-the-wool tacticians) saw credible routes to power if Gordon Brown resigned. Or was this merely a Hail Mary pass disguised as a game-changing moment?

(My first thoughts when Brown used his decision to stand aside as a negotiating ploy were: (i) Which of the leadership candidates were involved in the decision? And (ii) Will this later be seen in the same light as McCain’s surprise announcement that an unknown Alaskan governor was joining him on the Presidential ticket?)

In conditions of uncertainty, parties need what I think of as resilient strategies – ones that are not easily shifted from long-term goals, but blend this with a sensitivity to unpredictable outcomes, and which look beyond preferred outcomes to encompass a ‘plan b’ (c, d, e…) for failure.

So here’s a question for parties. Which of them has a ‘red team’ that has been isolated from the negotiations and has been asked to think simply about how the party should react to a ‘no deal’?

During the negotiations, the Tories have made major policy shifts, which they are going to find hard to reconcile with their core platform. Labour has initiated what is likely to be a long and acrimonious leadership campaign, which is going to turn it inwards at a time of national crisis. And the Liberal Democrats have sacrificed their reputation as standing for something other than the ‘same old politics’.

Each of them – in different ways – now stands on unstable ground. Unless their strategies are resilient to changed circumstances, they could find their support eroding very fast indeed.

[Read the rest of our After the Vote series.]

A week ago, when I tried to map the outcomes that would follow a close UK general election, I found it hard to find any easy path to the Lib Dems getting their primary goal – electoral reform with full PR.

In all scenarios, I suggested you should:

• Expect an extended period of political instability at a time when the government will face a highly challenging domestic and international agenda.
• Give at least reasonable odds for the whole enterprise ending in ignominious failure.

A referendum would de-stabilise any government, I argued. LibCon because ruling partners would campaign on opposite sides. LibLab because there’d be an obvious risk of losing the public vote, especially if the electorate was mostly motivated by a wish to punish the government.

And if a referendum on electoral reform was won, then the Lib Dems would of course want an election as soon as possible. If it was lost, the party would lose its main reason for staying in a coalition.

The fear of these outcomes, meanwhile, would make it harder to form a government in the first place. Why would any party form a deal if it couldn’t be sure what it was going to get for it?

Now we are deep into precisely this mess. The problem has been compounded by the failure of leaders to recognise the first rule of coalition-building: negotiate first with your base.

As I wrote yesterday:

[Cameron] is making a big mistake if he gets out too far in front of his party. He’s going to need every single of his MPs to back his first Queen’s Speech. And he’ll then be vulnerable to any subsequent rebellion turning into a confidence issue.

And what about Labour? […] Assume Brown goes, I simply cannot see how a new leader will have any legitimacy to lead a Lib-Lab coalition and take power as PM. For a start, there’d be a messy and lengthy succession process. After that the new leader would be damaged goods from the get-go – tarred with the ‘unelected’ brush that so damaged his (or her?) predecessor.

Sure enough, Conservative backbench support looks even more shaky now that leaders have suddenly offered the Lib Dems a referendum on electoral reform.

Meanwhile, Gordon Brown’s shock resignation (planned by a small clique) was hailed as a game changer, but a LibLab pact is already facing attack from within his own party (mutual assured destruction for both parties, according to John Reid).

Amidst the uncertainty, too many pundits have tried to maintain the fiction that they know what is about to happen.

How many times have we been told absolute tosh about the negotiations between parties, by people who make it sound as if they have spent the day sitting on David Cameron’s knee, but are actually passing on ill-informed scuttlebutt, or simply making things up?

The truth is this election has left British politics snookered. Four days after the vote, we are still no nearer to knowing what is going to happen.

I’d guess there’s still a good chance that a deal of some sort will be cobbled together in the next few days, but even then, it could fail to make it through a Queen’s Speech (for LibCon a few defectors will have enormous power, while LibLab will need the support or acquiescence of other parties).

So, at the same time, I wonder whether the only ‘impossible outcome’ – the one commentators said could never happen – may now have an outside chance of popping out of the pack.

Maybe we will see no swift resolution, no outbreak of amity, no sudden agreement on what the ‘national interest’ means. Instead, perhaps a fresh election will be the only solution left standing, and not called later this year – but reluctantly – in the next few weeks.

[Read the rest of our After the Vote series.]

While there’s a lot of talk about the sheer size of the EU stability package agreed yesterday, doubts are already mounting about how much good it can do – as David describes below.  A familiar theme is coming through a lot of today’s analysis: the Eurogroup’s ability to react to future crises is still seriously compromised by its lack of real fiscal and political unity. Here’s Wolfgang Munchau:

This deal is going to be ineffective beyond the very short term, unless it is followed up by substantive reforms – the introduction of a single European bond, an agenda to co-ordinate economic reforms with specific relevance for the monetary union, policies to reduce economic imbalances, much tighter supervision of fiscal policies that kick in well before budgets have already been announced, and, in my view also a kernel of a fiscal union – in essence all the things over which the EU has been, and still is, in denial.

Ouch. Over at the Economist, Charlemagne rams the point home:

Is this the start of a fiscal union or political union, a great leap forwards in EU integration? I have been saying for ages that I did not sense such a leap in integration, and I stick to that. I think political will is increasing, but it is in the direction of intergovernmentalism, not federalism. In fact, as a wise colleague pointed out to me just now, this crisis has actually shattered the idea that the eurozone as a whole is a single unit. It is, in his words, the return of country risk, as markets test and probe the credit-worthiness of each member.

Another striking factor is that, like the Greek bailout, the new stability package offers the IMF a big role in propping up the Eurozone.  As I note in a short piece for Global Europe today, this is not what eurozone purists hoped for:

On Sunday, the International Monetary Fund’s board signed off on its part of the Greek bailout — a cool €30 billion, nearly a third of the total. The IMF’s involvement is arguably essential to securing the markets’ confidence in the deal and to reassuring the European governments providing the rest of the cash. It may be the only institution hard-hearted enough to hold the Greeks to account or turn up the heat if they start to go astray.

But if the IMF’s presence is reassuring, it’s also rather embarrassing for the EU. Two months ago Germany, France and the European Central Bank were against any major IMF role in Greece. The idea of an organization traditionally dominated by the U.S. propping up a Eurozone member (and so the Euro) was too much to bear. That was then.

Now there’s recognition that the EU simply can’t match the IMF’s experience in disciplining dysfunctional economies — not to mention ignoring the street protests this often involves. While European finance ministers discussed a “stabilization mechanism” to fend off future crises this weekend, this also relies on a promise of further funding from the IMF, potentially passing €200 billion. It would be an exceedingly confident EU or IMF official who entirely ruled out another IMF intervention in southern Europe this year.

All of which raises deep and difficult questions about the EU’s place in the world:

The Greek bailout marks a blow to European exceptionalism: the idea that the Union, although a friend of multilateral institutions like the IMF and UN worldwide, can run its own affairs without these organizations’ assistance (or interference).

This annoys many African, Asian and Latin American observers who complain that the EU urges them to do what multilateral organizations tell them on everything from finances to human rights. They’ve taken some grim satisfaction from events in Greece.

Pramit Pal Chauduri, a commentator for India’s Hindustan Times, summarized his view of Europe’s Mediterranean economies with a quotation from an African diplomat based in Switzerland: “Africa begins south of Geneva. The southern Europeans are just like us.”

It was a momentous weekend in Brussels, as the European Union struggled to get to grips with the latest episode in the long financial crisis.

Fascinating to see how close it all came to the wire. At midnight, journalists milling around outside the negotiating room were wondering whether “good-quality farmland in neutral, wealthy countries” would be the best place to stash their money if the Euro collapsed.

When the package was finally announced, they were astounded by its size. “We have numbers, and they are much larger than promised,” wrote the Economist’s Charlemagne at 3 am this morning. “We are in shock and awe territory here.” Markets have been duly impressed (it will be interesting to see if this holds as analysts dig into the fine print).

At best however, the deal is a stopgap . There’s been a consensus for months now that Greece will be unable to avoid an eventual restructuring of its debt (hopefully, a planned default). Many believe the same holds for some, or all, of the other PIGS (Ricardo Cabral for one, or Morgan Stanley’s Paolo Batori for another).

My question for Europe’s finance ministers – will you now get ahead of the curve on the Eurozone’s chronic problems, or are you going to drift towards another crisis?

In the wake of Japan’s lost decade, it became fashionable for the British media to excoriate the Japanese government for failing to deal with its zombie banks (and the zombie companies on their balance sheets that had consigned the financial system to the realms of the living dead).

In 2002, the Economist bemoaned ‘the sadness of Japan‘:

From the Japanese government, there will be strenuous efforts to claim that reform is under way, that problems are being solved, that new measures are being considered. The claims will even be true, in a sense: there are plans aplenty, with stages and pillars and fine aspirations. But in a rather stronger sense they will be false: reforms are not being implemented, problems are not being solved, new measures are likely to make as little progress as the old ones. Japan is in a slow, so far genteel decline.

Perhaps the saddest thing is that there is nothing new about this. The turn in Japan’s fortunes began in 1990 with the crash in its stock and property markets, and then took firm hold in the mid-1990s when banks started to crumble and public borrowing lost its ability to keep the economy growing. As long ago as September 26th 1998, The Economist lamented on its cover about “Japan’s amazing ability to disappoint”.

But doesn’t Europe now have at least one zombie country in its midst- and possibly more (and zombie banks too, exposed to these countries’ debt)? And won’t the Eurozone continue to suffer almost indefinitely if it fails to take decisive action to take these countries through an orderly bankruptcy and get them back on a sustainable track?

(As an addendum, what about the UK? Could it become a zombie too? No. If markets stop funding British government debt, then the end will be swift. The IMF may ease the restructuring, but there’s no Eurozone for the UK to hide in. Relatedly, pre-election thoughts on how a Cameron-led government should deal with Europe, the economic crisis, and a volatile world.)

One lesson I took from from the Northern Irish peace process was that, when building a complex agreement, trouble results if any party forgets this rule: the first negotiation is with your own base.

Republicans understood this well:

Sinn Féin has emphasised that it is involved in a double negotiation – with its political opponents on the one hand, and with its supporters on the other. ‘For the IRA’s position to have been released or made public without its grassroots having had the opportunity to engage … would have been a total disaster,’ Gerry Adams has argued.

But David Trimble failed to keep his base on side, leading to a long period where Unionists were unable to project a credible position at the negotiating table. Their leaders weren’t taken seriously, because no-one could be sure who they were really speaking for.

Back in 2003, the British government was terrified that stalemate was allowing Ian Paisley’s hard liners to grab power – expecting this to lead to a titanic (and fruitless) ‘battle of the bottom lines’. Their pessimism was misplaced. The DUP was able to advance the talks, precisely because it had a much firmer bond with its own supporters.

How does this lesson apply to today’s post-election shake out in the UK?

Nick Clegg has been forced to by his party’s constitution to keep in close contact with his party – he needs 75% of MPs and 75% of the federal executive to approve any deal. He also went out onto the streets to talk directly to demonstrators backing PR.

Clegg may end up failing to take his party with him – but at least he seems to be trying to keep them on board.

David Cameron, however, seems much more isolated. The Guardian, of course, has an enormous incentive to sow dissent on Tory ranks (it badly wants a Lib-Lab pact that leads to PR), but its account of rebellion within the Conservative Party has a ring of truth about it.

Most damaging was that not all the dissent came from the backbench MPs (who are said to have heard little from their whips). One ‘senior frontbencher’ was prepared to dish the dirt (off the record, of course):

He ran his campaign from the back of his Jaguar with a smug, smarmy little clique – people like Osborne, [Oliver] Letwin and Michael Gove. He should get rid of all of them. The party will settle for nothing less.

For Cameron, there’s an enormous attraction in binding his enemies, the Lib Dems (or as Alex prefers, ‘the frenemy‘) into a formal coalition. He can dump unpopular policies foisted on him by the grass roots, implicate his coalition partners in all the hard decisions about spending, and leave the Lib Dems too unpopular to ever win the argument on PR.

But he is making a big mistake if he gets out too far in front of his party. He’s going to need every single of his MPs to back his first Queen’s Speech. And he’ll then be vulnerable to any subsequent rebellion turning into a confidence issue.

And what about Labour? I wonder if here, too, the interests of the ruling Brownite clan diverge from those of a (currently silent) faction in the party.

Assume Brown goes, I simply cannot see how a new leader will have any legitimacy to lead a Lib-Lab coalition and take power as PM. For a start, there’d be a messy and lengthy succession process. After that the new leader would be damaged goods from the get-go – tarred with the ‘unelected’ brush that so damaged his (or her?) predecessor.

Maybe, maybe, they might hope to wait out the storm that would accompany them taking office and wait for better economic times to heal the wounds – but they’d have a referendum on PR to fight, and that – as I argued last week – could well get ugly.

Surely better to head into opposition with a decent share of the seats and fight a government that – whether its Tory minority or LibCon – will struggle with some of the hardest political decisions of a generation.

But Gordon Brown has no incentive at all to see things that way – opening up a gulf between the leader and a party he still (just about) leads…

[Read the rest of our After the Vote series.]

Given the chaos in voting during the General Election, here’s how to do it better, while making elections a more televisual, social media-friendly experience.

As I argued in October:

Some thoughts on elections, which are – as things stand – the epitome of everything people hate about the public sector (inconvenient, confusing, dingy, etc). With a little redesign, we could make them so much more entertaining, user friendly, and festive: fit for the modern media age.

Consider. We live in the age of live. The online revolution has destroyed many business models, but it is driving the value of one-off events through the roof. Rock stars release albums to promote their live shows (ten years ago, it was the other way round). Sky’s business model is based on the capture of live sport, especially football.

Master manipulator, Derren Brown, understands this better than anyone. His recent series was structured deliberately as a series of events – designed to provoke and gel together a stream of frenzied media and online coverage.

To be sure, a British general election is gripping, but almost inspite of itself. We’ll soon be having the first British general election of the Twitter era, but as always the results will dribble in the middle of the night (thus ‘were you still up for Portillo?’).

That didn’t matter a jot in the print era – and television has learned to make the most of the bad timing. But it’s surely wrong for the new media age. When we next go the polls, most of the British public will be asleep when we get to the climax.

My suggestion:

• A Democracy Day, either every two and a half years – with a general election in June and a mid-term in November, or every two years, moving British politics onto a fixed four-year cycle.
• All elections – Westminster, devolved government, councils, European parliament, referenda, etc – will be held on one of these days (by-elections would be the only exception).
• Voting would be as easy as possible, with polls open throughout the week before, and voting could be made compulsory (with a ‘none of the above’ option, of course).
• Democracy Day – a Monday – would be a public holiday – with polls closing at 6 o’clock.
• Sunderland would then do its usual party trick and gets its result out within the hour. The rest of the action would then unfold across prime time; even in the closest years, the result would be clear before the nation went to bed.
• The TV audience would be huge; Twitter and its ilk would go berserk (think of all the local coverage from counts); while election parties and victory rallies could happen at a sensible time.

Some advantages:

- Fixed terms: a predictable, harmonised electoral cycle, with a clear rhythm for politician, bureaucrat and public.

- The creation of a consistent democratic system, even as devolution leads to confusing fragmentation.

- Economies of scale for electoral commission, political parties, media, etc, from running fewer, bigger elections.

- Opportunities to expand the role played by direct democracy in British political life, by running more referenda, elections to quangos and other public bodies, etc.

- More time to vote – which seems pretty important today.

- An unmissable media event.

Details:

- The June election might need to float slightly, depending on the date set for European parliamentary elections (though hopefully Europe will settle). But – before Eurosceptics start frothing at the mouth – there are great advantages to having national and European elections in the same cycle. The party in power in Westminster would also lead in Brussels, providing a much more consistent voice for the British electorate in Europe, while turnout would be much much higher, ensuring a better reflection of UK opinion.

- The general election would cover the House of Commons, Europe, and the devolved administrations, plus some councillors and seats in the (new) House of Lords. The minor election would be just local government, the Lords, and any odds and sods (referenda, quangos, etc).

- In a remodelled Lords, I’d like to see elected members able to serve only a single 10 or 8-year term – staggered, so a small number of members would be elected each Democracy Day (a small enough list for people to vote for individuals, not parties).

[Read the rest of our After the Vote series.]

I thought I could safely ignore the election for a few hours this evening. I voted days ago by post. And not much normally happens before the polls close at 10 pm.

But the past few hours has seen worrying economic tremors – as a raft of bad news from China and Europe, combined with skittishness over what will happen in Westminster tomorrow, drove a panic in the markets (with a trader’s error possibly fuelling the chaos [for more - see Felix Salmon]).

A 4 per cent drop in Chinese stocks started the downbeat mood, which carried over to Wall Street’s S&P 500 index, which was down 6 per cent to 1,065 – its sharpest correction in over a year, erasing its 2010 gains in one afternoon. The VIX index of market volatility spiked to its highest in a year.

“It’s really shocking,” said Jeff Palma, global strategist at UBS. “Stocks fell to minus nine on the year within seconds, that was a pretty shocking move. This is not your normal every day pull back, this is a pretty full-on collapse in risk appetite.”

As Alex pointed out earlier this week, bond markets will be open at 1 a.m. (in just four hours’ time) – at which they throw fuel onto the fire if they so choose:

Bond traders will be able to react in real time to results rolling in from key marginal seats, in other words: so as well as measuring how the night’s going through the traditional BBC swingometer, we’ll also be able to track progress through yields on three month short Sterling interest rate futures. Well, great.

All this reinforces how the UK – bereft of leadership throughout the campaign – has been sleep walking as a new economic reality (and a pretty disastrous one, at that) unfolds around it.

That’s why, over a week ago now, I called for the Chancellor (for now, at least) Alistair Darling to get off the campaign trail and get back behind his desk:

Election or no election, the UK simply cannot afford to sit on the sidelines while this crisis runs out of the control. Alistair Darling needs to stop giving speeches to activists in Scotland and get back to work at the Treasury.

Lord Adonis stopped campaigning as soon as Eyjafjallajökull erupted. Darling must do the same as the UK faces contagion from Eurozone turmoil.

Let’s hope he is at work now. Until a new PM has the ‘confidence of the House’ (and if results are close, that could take days to work out), he is 100% responsible for the British economy.

If necessary, he needs to haul in George Osborne and Vince Cable, and hammer out a consensus behind any short-term fire-fighting measures that might be necessary.

Once we have a new government – and assuming we have weathered any immediate post-election crisis – the team (of whatever political colour) will need to take an extremely active approach to economic policymaking.

Gordon Brown may have got the UK into this mess (he did), but there can be little doubt that the British government has played an important, and at times pivotal role, in trying to patch things back together again.

You just have to look at the absolute mess that the Germans and French have made of responding to the Greek crisis to see that this is a time when any half-way competent hand needs to be called onto the bridge.

I continue to believe that we’re seeing the latest stages of a crisis that stretches back until at least the late 1990s. This long financial crisis should force leaders to admit that they are part of an economic system that (i) they don’t understand; and (ii) seems to becoming more volatile, rather than less.

So how should the new PM and his Chancellor react? Here are three pointers – each of which cover the UK’s international economic policy (and its domestic policy, insofar as it is important to broader global financial stability).

First, the new government needs to balance the risks inherent in high levels of public and private debt.

We have heard a lot about the government’s deficit in this election, and quite a bit about its overall debt. But almost nothing has been said about colossal levels of private debt.

Private citizens owe much more than the government – most of it in the form of mortgages, secured against a residential property market that is significantly overvalued. (I wrote at length about the election and the housing crisis here.)

It’s no good trying to appease the global financial markets simply by cutting spending or raising taxes. Stall the recovery and unemployment will shoot up, while property prices will head down, threatening the banks again, and sending the tax take much lower.

No-one is going to be fooled into believing that the government can repay its debt, if we are hit by the twin nightmares of a double dip recession and housing market crash. That really would be game over.

So what can the government do?

There is so little room for manoeuvre that the unfortunate answer may be: nothing. However, I think the best strategy would be as follows:

• Take immediate and dramatic action to cut the structural deficit (I’d raise retirement age immediately, and then peg it to life expectancy – but any package of credible long-term tax or spend commitments would do).
• Avoid raising taxes or cutting spending by much in the short term, as the economy is still too fragile to take it (the government should probably make less of a song and dance about its caution here).
• Be explicit with the markets that interest rates will be kept low (propping up the housing market and boosting growth), even as the economy recovers – that the government’s main weapon against inflation will be its own spending. Think of this as a piece of reverse-Keynesianism.
• Take action to ensure that today’s secondary bubble in the housing market is not allowed to inflate further. Plans to cut stamp duty, for example, should definitely be put on hold. We don’t want housing prices to fall too fast, but neither should they be allowed to rise above today’s totally unsustainable levels.

Second, the government needs to get stuck into the Eurozone crisis, as I recommended in my post on Europe earlier this week, when I recommended that it should be:

…aiming for (in order of preference): (i) A strengthening of the Euro with greater sharing of economic sovereignty among Eurozone members (but with the UK left on one side); or (ii) An orderly removal of the weaker economies from the single currency.

Even on the Euro, the UK has some influence as an honest broker, given its position as an interested party, but not a full player. Cameron should adopt this role wholeheartedly – reminding British voters that the disorderly breakup of the single currency would be absolute disaster for the UK economy.

Third, we need to get the G20 back on track.

It briefly emerged as the forum for tackling the global economic crisis, but has now gone AWOL for, I suspect, a number of reasons:

• Obama is embroiled in a political system that cannot make foreign policy decisions.
• The Chinese are still bruised after Copenhagen.
• The Eurozone powers have utterly lost their nerve, and
• The Brits have left the field as the election approached.

Only the G20 has any hope of steering the global economy through what seem certain to be some exceptionally rocky times. If it is allowed to become a hopeless talking shop like the G8, then I think we are probably screwed.

Over the next year or so, the UK’s G20 policy will be its foreign policy. It’s essential that we have some radical new ideas to put on the table.

[Read the rest of our After the Vote series.]

In the run up to Copenhagen, I suggested the  economic downturn could be used to push for a goal of an immediate peak to global emissions.

In a pastiche of Kennedy’s man on the moon speech, I imagined President Obama laying down the following gauntlet to the world:

I believe that the world should commit itself to achieving the goal of stopping the inexorable rise in greenhouse gas emissions that is doing so much to put our planet in peril. I don’t believe we should aim to achieve this goal in 2020 or 2030 or 2050 – but right now in 2009, making this year the high water mark for mankind’s global experiment with the global climate.

Obviously this didn’t happen, but – gradually – we’re learning more about has happened to emissions. The figures for US carbon dioxide  for 2009 are now in and the good news is that they fell by an astonishing 9%.

Question is: has the US stimulus been wisely spent on measures that will push the economy onto a lower carbon path as it grows again? The answer is probably not, though there is some reason for hope:

As the economy recovers, the structure of that recovery will be important to the future emissions profile of the United States.  If energy-intensive industries lead the economic recovery, emissions would increase faster than if service industries or light manufacturing play the leading role.   If coal, which was more heavily impacted by the recent economic downturn than other energy sources, rebounds disproportionately, the carbon intensity of the energy supply could rise above the 2009 level.

However, longer-term trends continue to suggest decline in both the amount of energy used per unit of economic output and the carbon intensity of our energy supply, which both work to restrain emissions.

The world is at a major inflection point on its carbon trajectory, but I fear we’re going to blunder through it without realising the opportunity for transformation. As Copenhagen showed, unfortunately, we’re still a long, long way from reframing climate change as a now problem. But it’s still not too late to start working for peak emissions.

It’s a fitting end to the British general election.

We have had thirty years of entrenched majorities – as a dominant party defined the terms of the debate, and the media made sure the opposition never caught a break. In 1997, the swing from Conservative to Labour dominance was sudden and decisive.

Now we have an utterly unpredictable polling day. Tiny shifts in the share of vote between parties and, especially, its geographical distribution could have a disproportionate impact on the political landscape that emerges on Friday.

If it’s close, it will all come down to spur-of-the-moment decisions by three very tired men. Constitutionally, Brown remains Prime Minister until someone else can command ‘the confidence of the House.’

As incumbent, he also should get first dibs on forming a new government, though it is widely expected that Cameron will declare victory early, and use the media to establish his right to govern.

As Alex has warned, there’s also a possibility that the bond markets will push the pace, as they open at 1 a.m. tomorrow morning to react to election news. Yields on UK 10-year bonds have spiked this morning, but are still lower than they have been for much of the year.

If Cameron gets the most votes and the most seats, he’ll surely go on to form a government. If not, a period of Florida-style uncertainty seems more than possible. What, one wonders, will be the UK’s equivalent of the hanging chad?

Either way, we can expect some exceptionally close Commons votes, perhaps a referendum on electoral reform, and  – surely – a Parliament that won’t last for a full term. That means more elections for parties that have bankrupted themselves during this one.

This unaccustomed volatility in the electoral system seems curiously appropriate. As the past few years have shown, we now live in an era where the UK is far from being in control of its own destiny.

Look forward and we can expect the following forces to frame the government’s strategic choices.

First, global risks will continue to drive domestic policy. Voters will not actively call for a more effective foreign policy, but they will notice and bemoan its absence.

Global forces will continue to have considerable impact on their lives, with the main sources of strategic surprise coming from beyond the UK’s borders.

Over the next ten years, moreover, most risks will be on the downside. We have lived, as I have argued, through a volatile decade. There is every reason to expect risks to continue to proliferate.

Each new crisis will create political aftershocks with demands for governments to clear up the mess, matched by inquiries into why they failed to prevent the problem in the first place.

Finally, the government will find that, in most cases, it does not have the levers to manage risks as effectively as it would like to.

Whatever the next Prime Minister wants to do, he is going to find that global volatility, a lack of money, and government mechanisms that are equipped for the problems of another age, constrain his scope for action.

On top of that, he’ll only be able to solve problems if he can rustle up a coalition of other countries, all of whom will be beset by the same problems.

If – and it’s a big if – there is to be a new dominant paradigm in British politics, replacing those established by Thatcher and New Labour, then it will be because a leader emerges who has the skill to govern well in an age of global uncertainty.

I can’t imagine a more exciting time to pitch up in Downing Street, but it’s going to be a bumpy ride.

[Read the rest of our After the Vote series.]

On Greece, Martin Wolf is bleak…

Yet [despite the bailout] it is hard to believe that Greece can avoid debt restructuring. First, assume, for the moment, that all goes to plan. Assume, too, that Greece’s average interest on long-term debt turns out to be as low as 5 per cent. The country must then run a primary surplus of 4.5 per cent of GDP, with revenue equal to 7.5 per cent of GDP devoted to interest payments. Will the Greek public bear that burden year after weary year? Second, even the IMF’s new forecasts look optimistic to me. Given the huge fiscal retrenchment now planned and the absence of exchange rate or monetary policy offsets, Greece is likely to find itself in a prolonged slump.

Would structural reform do the trick? Not unless it delivers a huge fall in nominal unit labour costs, since Greece will need a prolonged surge in net exports to offset the fiscal tightening. The alternative would be a huge expansion in the financial deficit of the Greek private sector. That seems inconceivable. Moreover, if nominal wages did fall, the debt burden would become worse than forecast.

…Felix Salmon depressing…

Even if Greece were running a zero primary deficit (and I’d love to know if it’s ever managed that particular feat), a default without devaluation would still keep the country mired in its current uncompetitive state. If you’re going to go through the massive pain of a default, you might as well get the upside of devaluation at the same time, and exit the euro.

At that point, the only question is: do you default and devalue now, or do you wait a couple of years? Germany and France might well want to wait, in the hope that their banks will be better able to cope with such a thing in a couple of years’ time. But from a Greek perspective, if the pain is coming, best to go through it now and bring forward the growth rebound, rather than push off the devaluation stimulus to an indefinite point in the future.

…while most of Simon Johnson’s readers have now slit their wrists:

The Europeans will do nothing this week or for the foreseeable future.  They have not planned for these events, they never gamed this scenario, and their decision-making structures are incapable of updating quickly enough.  The incompetence at the level of top European institutions is profound and complete; do not let anyone fool you otherwise.

What we need is a new approach, at the G20 level; this can definitely include debt restructuring, but it has to be done in a systematic fashion (and even then there will be a considerable degree of total mess).  Such a change in framework for dealing with these issues will not get broad support until after further chaos in Europe, but it now needs to be put into place.

The Europeans will not lift a constructive finger.  The leading emerging markets are too busy battening down the hatches (and accumulating ever more massive chests of reserves).  And the White House still seems determined to sleep through this crisis.  Expect nothing.

What are the chances of the Euro emerging from this unscathed? Increasingly slim, it seems – surely one or more countries are going to find it almost impossible to stay inside the currency union. While the UK gazes at its navel, phase 2 of the global financial crisis has firmly taken hold.

We now have an inter-related banking and sovereign debt crisis; no procedures for an orderly bankruptcy of countries (having ignored the lessons of the East Asian financial crisis); and no legal way to allow the destitute to exit the Euro.

What a mess.