EU runs out of patience, money and options

Greek Prime Minister Papendreou may have been writing his epitaph by calling a referendum on the bail-out package.

If so, he clearly knew how he wanted it to read. That, in the face of an imminent takeover of his country by foreign forces, he at least turned first to the people to allow democracy a final say before Greece as an independent nation was wiped out.

For this, I give Papendreou credit, even if such actions could spawn a progressive collapse of the euro, and an end to collective Europe as we know it.

We now learn, of course, that Papandreou's commitment was not as strong as it seemed. Or rather, that EU blackmail was stronger and - in the time-honoured tradition - a national referendum has been overruled by the EU in order to get the right result.

Given all this, I suggest even eurosceptics trembled somewhat at the potential outcome if Papandreou had been allowed his last stand. An ugly exit of Greece from the eurozone, without the calming effects of a managed withdrawal, would spook the markets no end.

Next in line for the battering ram would be the teetering financial walls of Spain and Italy. If the EU can't shore up these walls in the way it has attempted - but so far failed - in Greece, then they too will collapse. And the painful truth is, the EU cannot afford to prop up these countries.

The only possible salvation would be to turn to the international community. These days, that means not the US, as banker of last resort, but China, the world's new global banker.

It would be playful to consider China agreeing to help out Europe in return for each EU country regaining its WTO seat and Britain being handed back its fishing rights! However, any deal China cuts is likely to be far less sanguine than that.

It's ironic that Edward Heath, Britain's most fervent EUphile, was also one of China's most ardent supporters. For Heath, the world consisted of just three blocks - the US, the EU and China. Was it always his one-world plan that China should eventually rule the roost?

As the eurozone collapses, and the US buries itself under its own debts, only China now has the potential - or is that the threat - to sort out the world's financial mess.

Perhaps the greatest irony today, nevertheless, is that the first country the EU has destroyed by its over-centralising aims is the mother of European democracy itself. And, as such, a fitting EU target some sceptics might say.

Greece can regain its democracy - in a way - if it reinstates the drachma. But being in pawn to international bankers won't be a pleasant or a recognisable form of freedom. After its euro adventure, Greece could lie in ruins for another two decades.

Qaddafi's Libya

For a madman, Qaddafi displays surprisingly subtle strategic skills. He is, of course, an Army colonel (even if his stars are self-appointed) and armies are not known for subtle acts. But the strategy Qaddafi has adopted to counter Libya's popular revolution is worth study, not just by other military dictators but equally by chairmen of besieged corporations trying to salvage damaged brands.

While his first reactions, through surprise and shock, displayed a typical bunker mentality, he has now adopted all the skills of a modern marketer — going on the offensive with openness and some frank admissions and calling in the world's media to prove, or rather disprove, the international community's condemnatory case.

We shouldn't be surprised that the Libyan revolt has not followed the rapid path of those in Tunisia and Egypt. Qaddafi's Libya has always been prepared to be a thorn in the side of all others — often just to assert the uniqueness of its revolutionary status. In addition, Qaddafi has always been a showman.

His apparent rapprochement with the West in recent years gave him the symbolic opportunity to plant his simple bedu tent beside the extravagent richness of the meeting houses of the world's most influential leaders. He gained financially and politically by seeming to come in from the cold. But he could never change his beliefs that his Libya is a singularly revolutionary nation that can stand alongside others, but will never be subsumed.

To Qaddafi — who has long spent his nights in a desert tent surrounded by armed loyalists — the methods used to intimidate and eliminate circling opposition demonstrators seem perfectly logical and justified.

Now he has co-opted the international media to endorse his position. The scattered nature of the opposition and their geographical dislocation enables him to present himself — as 42 years ago — as the nation's natural revolutionary leader fighting reactionary forces. Now these forces are armed, media coverage simply bolsters his story.

Libya's future today is unclear. But one thing seems certain. There will be many twists and surprising turns before the country's latest revolution ends. And the media, which has now (perhaps unfortunately) become part of the story, is likely to play a significant role in its resolution.

Viktor Orbán: Centre Stage at the EU

Hungary's accession to the rotating EU Presidency in January has thrown up the sort of political contradictions that may cause reflection by Europe's right-of-centre parties.

This Presidency is personified by the robust figure of prime minister Viktor Orbán, the 47 year-old, chairman and co-founder of Hungary's centre-right Fidesz party. Fidesz stormed back into power at Hungary's National Assembly elections last May, gaining a two-third's majority and becoming the first Hungarian party since the Soviet era to win outright election victory.

In Orbán's maiden speech to the EU Parliament, heading the latest Presidency to carry forward the EU's political agenda, he presented all one might expect from someone who has gained a rebellious political reputation, but it was far from what most MEPs wanted to hear.

Considerable discontent exists in the EU parliament over measures introduced in Hungary since Orbán's election. Aware of this, he chose to focus on defending his national position before MEPs rather than on the Presidency programme. And he did so not by explaining his legislation, but by accusing his critics of being anti-Hungarian and anti-Fidesz (because his governing party enjoys a freedom from coalition denied to others).

What has particularly upset liberals in the EU is Orbán's revision of Hungary's media laws, ostensibly to introduce EU compliance. However, additional requirements will compel all publishers, including those online, to register with a Fidesz-dominated media council and comply with legal requirements to reveal sources if required and to provide objective, balanced and 'moral' reporting, with threats of suspension or fines for non-compliance.

This is not only viewed as an undemocratic measure for an EU state, it is also seen to undermine the EU's ability to support press freedom within non-EU countries that exercise illiberal sanctions against media and journalists.

The conundrum that particularly now faces right-of-centre parties in the EU is the attitude to strike towards their nominally centre-right Hungarian partner. Uncertainty lies not just over Orbán's media laws, but also over his steps to reduce Hungary's budget deficit by nationalising the country's private pension funds and applying seemingly protectionist turnover super-taxes to many of the largest foreign companies operating in Hungary.

These are not the kind of measures one would naturally expect from a centre-right Christian Democrat party, of which EU group Fidesz is indeed a member. Yet, other legislation introduced by Orbán might provide succour even to economists of the Austrian School. Income tax has been levelled to a flat rate of 16 percent and ordinary corporate taxes also cut to 10 percent. By these tax-cutting measures, and provision of preferential loans to SMEs, Orbán hopes to raise employment and stimulate growth in Hungary's stagnant economy.

Overall, however, Orbán's economic package – the New Széchenyi Plan – distinctly departs from the response of most western economies facing excessive debt – plus, in Hungary's case, the pressures of repaying a $25 billion IMF loan. Hungary's treasury will be temporarily boosted by embracing private funds but deep and meaningful balancing cuts in government expenditure have yet to materialise.

The contradictions inherent in Viktor Orbán's conservatism confuse western observers, but they are better understood by Hungarians themselves. Since the 1980s, Orbán has followed a very public political journey, from an aggressive ultra-liberal to an ultra-conservative. As a radical liberal he became a natural activist against the elitist form of capitalism introduced by the 1990 election of the first post-communist HFD government. In this same year, Orbán placed his Fidesz party under the umbrella of the Liberal International. But over the following decade he took political advantage to change Fidesz into a right-wing conservative party. After winning the party's first election into government in 1998 he immediately switched political allegiance to Europe's Christian Democrats.

In this final guise, Orbán has led his party into representing itself as a pillar of traditional – though some would say authoritarian – Hungarian values. (Online blogs speculate he could apply his media laws to impose respectable family values on Hungary's most popular reality TV show!) In practice, Fidesz has polarised Hungarian politics, unifying the right against all the rest, who are roughly dismissed as "Liberalbolsheviks".

Yet, isolating Hungary's liberal SZDSZ party is an ambition shared with Fidesz' main opposition, the socialist MSZP. And between Hungary's two major competing parties there is evidence of even more co-existence of otherwise 'rightist' and 'leftist' policies.

The MSZP-led governing coalition ousted by Fidesz last year advocated free market economics and replacement of universal benefits with the targeting of social needs. In contrast, Fidesz has favoured state intervention in the economy, including potential ownership of significant economic enterprises. Fidesz' critics suggest the party shows too much support for favoured businesses. It has appointed party supporters to supposedly independent public bodies. Doubts are also expressed over the party's reluctance to introduce fundamental economic reforms, relying instead on the financial largesse of EU grants.

Contradictions concerning the political direction of Fidesz, and its outspoken leader, will therefore certainly remain. To many conservatives, Orbán's bold, plain-talking, and lack of inhibition in supporting national identity, are qualities to admire. And moderate Conservative parties facing similar budget issues, such as Poland's Civic Platform, will certainly offer Orbán support where they can. But he is likely to continue to be viewed as a controversial and divisive figure from the liberal-minded, cooperative ethos that predominates in the institutions of the EU.

Now at EU centre stage, Orbán will hope to separate his approach to domestic economic management from his wider EU responsibilities: namely, to secure the economic governance and crisis management reform programmes that have been outlined for the EU by the Belgian Presidency. Fortunately, he is not a newcomer to the EU, nor to the practice of adapting policy to secure political ends.

Orbán must hope to employ the charm and resolution he undoubtedly possesses to win the consensus needed from his European colleagues to be able to claim a successful Presidency. But, over the coming months, many in Brussels will surely experience anxious moments in expectation of Orbán-style departures from the conventional harmonised EU script.

N.B. Since this piece was first written in January, Orbán has somewhat modified his media law proposals at the behest of the European Commission. Private online bloggers, for one, will not now be required to register with the State.

Free for all in the eurozone?

In Autumn 2008, I attended a small public meeting entitled 'Sound Money'. I learned that for years the commercial banks had been getting away with literally printing money by issuing loans on the back of money they simply did not have.

On leaving the meeting, I was fired with the righteous indignation of the newly awakened and immediately wrote about the power and irresponsibility of such banks on an online forum. Instantly, I was seriously flamed by a professional banker, who insisted that talk of banks creating money out of thin air was total rubbish and I should get a grip on fractional reserve banking rather than spread such blatant ignorance.

Duly chastised, I studied fractional reserve banking. Banks did indeed maintain a relationship between the deposits they received and the money they lent out. But this relationship – the multiple of the amount held against the amount lent – had been stretching for years. And, given the additional practice of banks like Northern Rock of borrowing further sums in the international markets to lend to borrowers, it was little wonder a run on the bank soon resulted in that bank's collapse and others quickly realising they could no longer continue lending on such thin reserves.

Commercial banks, of course, are responsible for their own solvency – at least, up to the point where governments deem that allowing them to fail would undermine public trust in the financial system as a whole. It's at this point we get government bailouts: RBS and Lloyds in the UK and, rashly, a financial guarantee for the whole of the nation's commercial banking system by the government of the Republic of Ireland.

I am a little weary of reprising my eurosceptic credentials, but suffice to say, if Ireland was a truly sovereign country – that is, if it managed its own currency, the Irish Punt – it might have had some hope of staving off the swirling pirhanas of the bond markets for a little further time.The practice it would almost certainly have adopted is the same as that used by such illustrious independent nations as the UK and the USA. I speak of Quantitative Easing (QE), of course.

The advantages of managing your own Central Bank sadly have been much underestimated across the capitals of Europe. Not only do yet get to manipulate your own interest rates and exchange rates, you also get the opportunity to engage in QE. It is a trick that commercial banks – especially those that have stretched lending beyond their means unto insolvency – must desperately envy. For QE is that ultimate goal of both alchemist and banker: the ability to actually create money out of thin air.

QE has received a mixed press from economists. Some instantly recognise that it must be a recipe for stoking inflation. Others are more sanguine and judge it may be a harmless tool to stimulate an economy at a time of deflation. No-one, however, seems to have pointed the finger at the damage QE may yet inflict on the Eurozone currency.

For many months, the European Central Bank (ECB) has been supporting government deficits in Greece, Ireland, Portugal, Hungary and perhaps even Spain. Greece and Ireland have been receiving rolling handouts to keep their debt payments afloat. Now, a 'once-and-for-all' financial package has been arranged for Ireland, with the ECB at the core of the deal.

The ECB may not admit to following other central banks, but it too provides funds by engaging in QE: printing money. And the EU in Brussels is determined that such financial support must appear unequivocal if the integrity of the eurozone and even the EU is to survive.

But what has been the reaction of the bond markets to this latest Irish financial support? The answer is very little – in fact, they seem to be saying "is that all?". And can you blame them?

QE represents a bottomless pit of an ever-expanding money supply. If demanding 5% yield for investing in Irish government bonds brings this kind of guarantee, why not demand 6%...7%...8%? Such printed money is effectively free. Roll on the bond market calls in Portugal, Spain and Italy!

If my doubts about QE seem as naive as my understanding of fractional reserve banking, just ask yourself where, when and how will it end? The European financial institutions are becoming slaves to the markets. Each new bailout devalues the euro's credibility. The bond markets may not be satiated until they've escalated and extracted every cent the ECB is willing to issue to defend eurozone solidarity. If the euro survives it may be minus several members.

Even more importantly, if the global financial system is to survive with future credibility it might be time to consider what is really meant by "sound money". It surely can't mean just printing ever more money for the benefit of bond traders.

Lord Young Resigns

Lord Young's job at Central Office has been to mediate between government and industry and recommend regulatory improvements that can help British businesses succeed. Talking up the positive aspects of the financial environment in which our businesses now operate (though perhaps not strictly part of Lord Young's brief) is as important as any government initiatives for encouraging business investment and ultimately creating more jobs.

Lord Young's error, however, seems to have been to translate this wishfully positive view of Britain's business landscape into a description of the state of our population as a whole.

Statistics offered by the NIESR suggest that Lord Young's "Britons have never had it so good" assessment was not too far wrong. It was, nevertheless, about 12 months out. In fact, it was this time last year, despite the recession, that Britons really had never had it so good in terms of spendable income.

So could Lord Young's analysis be forgiven for being "within the margin of statistical error" over the lifetime of the recession? Unfortunately, this surprisingly rosiest period for the average Briton occurred under the management of the previous Labour government. For it was they, we will remember, who were desperate to delay necessary cost-cutting measures that might affect the well-being of the population – at least in advance of the general election.

Since that election, all has changed. The effects of tax rises, inflation and the beginning of public service job cuts have taken the edge off the unprecedentedly celebratory good times of 2009! And, of course, we have all known this must happen.

In the end, this unfortunate political incident leading to Lord Young's resignation is all about relative perceptions. Undoubtedly, GDP growth has resulted in the nation as a whole being better off during this last recession than those before, such as 1981 (when David Young was special adviser to the Dept of Industry and a year later Chairman of the Manpower Services Commission).

But that was then – this is now. Such memories do not serve today's 30 year-olds facing redundancy.

Nor do such comparisons serve a government needing to justify the severe measures required to correct the public finances.

The government's preferred message now is the need for a period of haircloth and ashes, in atonement for the financial excesses encouraged by the previous government. Woe betide anyone in government preaching that our immediate future might be relatively painless. It seems those bearing such embarrassing off-messages shall be hurriedly cast out.

It remains at least debatable whether it is Lord Young, or David Cameron, presenting us with a misleading impression of our present state of well-being. For example, we are certainly better off than than our Irish cousins.

Less debatable, unfortunately, is the sad political wisdom of Lord Armstrong when Cabinet Secretary that the prudent course is often to be economical with the truth.

Recess

This website is presently in a legacy condition, but may be revived at any moment the political environment enlivens and demands comment.

You are welcome to enjoy the purposeful prose set out below, which covers issues leading up to and including the May 2010 general election from a Conservative perspective.

New government: new politics?

So there I was...about to upload a commentary on the new government after an adequate time for reflection...when up shoots another political bolt from the blue to splatter all over the front pages.

No headlines proclaiming 'Rent Boy' that I've noticed yet, but the omens do not look especially good for the government's LibDem rising star, David Laws.

In my view, the most incriminating evidence revealed against him so far is perhaps the excessive utilities and maintenance bills claimed in addition to his rent. (Though charging taxpayers £950 for use of a bedroom does seem excessive even for London.) It continues to surprise how complex applying MPs expenses regulations can be. So I won't speculate on how soon, or far, Laws is going to fall.

Instead, here's my brief and generally upbeat - until yesterday - view of what I think of the new politics so far...

* * *
I have refrained for several days from commenting on the arrival of the new government.

One reason is a genuine ignorance of what was being developed within the two-party partnership. The other is awareness that first impressions are often not a reliable basis for firm opinions.

Initial impressions were that the Conservative side of government had given up philosophy and beliefs to create an alliance representing a new political party with an unknown manifesto.

David Cameron's new leadership style seemed to magnify the authoritarian nature he'd shown as opposition and campaign leader. The decisions without consultation to propose fixed term parliaments, a lock over the dissolution of parliament, and controls over the backbench 1922 Committee, suggested a ruthless intention to impose his new party over both Conservatives and the parliament.

However, a full three weeks have passed since the election. MPs have returned to parliament. We have had the Queen's speech. And most importantly, we have begun to see how the new government, through its ministers, intends to act and present its case in parliament.

I have been impressed by the natural confidence of the ministerial team. This may be a confirmation that Conservatives are indeed the natural party of government or just an awakening of our long-suppressed knowledge of how inadequate Labour ministers always were.

The shining performance of some of the LibDem team certainly reflects the latter. David Laws in the economics debate on the Queen's speech showed the metal of which he is made, even as he referenced some softer inclusions of LibDem policy. And David Heath, beardedly LibDem as he is, provided a cogent and conciliatory explanation of the 55 percent dissolution rule (as far as it has yet developed), and even made me think twice about whether it might actually be necessary.

Most of all, the Queen's speech debates this week, especially on foreign affairs and defence, showed parliament at its best. The depth and sincerity of argument from the government front and back benches, and the generosity of spirit shown to fellow parliamentarians, showed the stature that parliament is capable of when the right people are in charge. In fact, it's something I haven't witnessed for thirteen years!

There's a long way to go – and substantial disagreements between the governing partners and Conservative back and front benchers have yet to emerge – but, despite the election result, the presentation so far gives encouragement that hopes for a Conservative-style Britain look a little better than Conservatives might have hoped.

Should the Duchess of York be sacked?

On the one hand, Sarah Ferguson has been caught demanding a fee to introduce a scam businessman to her trade envoy former husband. Introduction fees are nothing remarkable. Political parties regularly raise funds by offering the presence of, and potential conversations with, influential politicians. Undoubtedly, businesses pay fees to middlepersons for access to important people, whether for an innocuous charity dinner, a networking breakfast, or a meeting on a private yacht.

An introduction is a limited commitment. In Ferguson's case, it simply requires attending a sporting event with said businessman and on Prince Andrew's arrival introducing one to the other. Job done. Fee received. If a businessman is willing to pay a vast sum for such an introduction, then Ms Ferguson might be admired for taking such businessman for all he's willing to give. After all, an introduction implies no commitment on future business relationships—and Ferguson is in no position to offer such guarantees.

On the other hand, the former husband is a significant member of the Royal family. His duties as a national trade envoy require an image of absolute integrity, not to speak of his constitutional position as a senior Royal. Ms Ferguson's money-raising exploit exposes her husband to suspicions of bias and corruption, even though he is specifically exonerated from awareness of his former wife's secretive deal. His integrity may be compromised by association—even if the association is merely that he continues to morally support his former wife.

The problem now is that this exposé—faked entrapment by newspaper though it was—not only puts Ferguson's public position in doubt, it also raises questions about the propriety and impartiality of using senior Royals as ambassadors for trade. Undoubtedly, Prince Andrew wants to be active and, even more, to benefit national prosperity in return for the state benefits he receives. And there is a long history of Royals doing such work, not least the present Prince Philip, Prince Michael and Duke of Kent. But in an age of ethical foreign policies, can an envoy of the Queen, subject neither to election nor FOI requests, ever be seen to be acting in a completely impartial manner when drumming up trade for British businesses?

Leaving that question open, Ms Ferguson's compulsion for embarrassing the Royal family ought to be closed. Perhaps a decent family pension and compulsory retirement would help.

The 55 percent rule

My curiosity lies in discovering who inspired this curious piece of potential legislation.

My political bias suggests the naivety and apparent unworkability of the 55% rule places it squarely as a Liberal Democrat concoction. But who knows? In true consensual coalition form, it seems intended to provide equal protection to both parties from a presumptive dissolution of parliament.

Many observers have declared that an artificial bar to parliament being subject to re-election, after a majority of MPs have voted a lack of confidence in the government, is simply unconstitutional.

More to the point, as Christopher Chope MP has pointed out, the 55% rule is unworkable and therefore meaningless.

If the situation arose that either governing party pulled out of the coalition, a minority Conservative government would be unable to resist the subsequent majority overturning the 55% rule. This would then enable a vote of confidence to defeat the government causing immediate dissolution of parliament and a new general election.

If Cameron and Clegg choose to resist objections and force this new rule through parliament, they may believe its very existence will act as resistance to ever testing its principles in practice.

However, starting a new era of political reform with legislation regarded as both unconstitutional and unworkable is not a good advertisement for the political process or for the new form of government.

Put simply, sticking to the 55% rule doesn't add up.

UPDATED today

Sir George Young, justifying the rule, refers to the Scottish parliament requiring a 2/3 majority to achieve a dissolution. This type of measure is required, apparently, to manage the increased political stresses that arise within coalition government.

That is as may be. But this is more than just a simple supply and confidence measure. Together with fixed term parliaments, it has the strong flavour of European style government—where coalitions are the norm, governments appear to change but people and policies stay the same, and no-one can ever kick the bu––ers out.

UPDATED again

The more this issue is discussed and attempts are made to explain it, the clearer it seems that the root lies in the determination to establish [a] fixed term parliament[s].

Few people seem to consider a fixed term parliament as controversial or unwarranted. Yet, as we see, nothing is so straightforward or without constitutional consequences.

The 55% dissolution rule gives politicians the chance to cobble together an alternative coalition government if the existing coalition partnership fails. In the present Con–LibDem case, this would actually enable the LibDems to seek to join a coalition with Labour and others if the present coalition failed. (Or Conservatives might join with Labour, of course!)

All of this would take place without reference to the electorate—and would be enabled by the determination not to dissolve parliament within the timeframe of a fixed term parliament.

Consider fixed terms as the actual democratic problem and it presents the issue in a different light.

Moving up and moving on

So as the dust starts to settle in Downing Street it seems we have a new governing party.

It should probably be no surprise that an energetic marketing man should feel the urge every few years to step up, move on and try his hand at something new.

The emotional impact of such change usually affects just a few fellow workers. In David Cameron's case, the impact is felt by several million close followers—plus 306 dependent members of parliament.

Yesterday, in the No 10 rose garden, Cameron justified his move by saying his negotiations with Nick Clegg led him to believe a full coalition between Conservatives and LibDems was not only possible but desirable. The alternative—the risk of needing to fight an election again in several months and possibly losing—clearly focused his mind.

The full-blooded coalition was an intelligent decision but rash and risky. Cameron's willingness to fully engage with this new big idea may have led him to set aside the impact it could have beyond Westminster. The Big Coalition concept remains untested among the thousands of both party's workers and millions of supporters outside the meeting rooms off Whitehall.

Yet it seems we must adapt to the proposition that elected politicians lead and their parties must follow—or be left behind. We live in extraordinary and critical times. And a coalition government of national emergency may be the most rational solution to addressing the country's issues.

Meanwhile, party workers like myself who may feel abandoned by the new politics, might consider an analogy with a family experiencing a new birth. As elder siblings we have become used to our familiar domestic environment. Now a new member has arrived the attention we expect has been transferred to nurturing the new arrival. We will have to adapt—in time may get used to it.

Certainly, for now we can only be hopeful, and magnanimous, and allow this powerful new government time to set about its unprecedented tasks in the way it presently thinks best.

A Very British Coup

Two days ago I wrote that Gordon Brown's attempt to steal the election by partnering with the LibDems would be an undemocratic poltitical coup.

Today, it seems likely the prize for achieving a coup in British politics falls squarely with David Cameron.

Full details have yet to be announced of the concessions Cameron has made to his new Liberal Democrat partners, but in addition to five Cabinet posts they include twenty junior ministerial positions. That amounts to 44% of the LibDem parliamentary party.

The most interesting question—as yet to be revealed—is whether this coalition is a takeover of the Liberal Democrats by Conservatives or a takeover of the Conservative Party by David Cameron.

The first proposition is not hard to justify. The opportunity to lock LibDems into a five year parliament and remove substantial opposition in parliament to the Conservative programme is a political achievement without parallel by David Cameron.

The second proposition—that Cameron may have done as much or more to change the nature of Conservatism in Britain through the coalition government he has formed—has yet to be fully uncovered.

Cameron led a very insular policy development group in the run-up to the election and the grassroots party handed him open-ended trust that all would be for the best if it won the election.

The subsequent negotiations with the Liberal Democrats were even more secretive. We may learn that Cameron has conceded so much to the LibDems that the party he leads will find it hard to recognise Cameron's policies as Conservatism.

This could yet be revealed as even a coup in reverse, in which Cameron has willingly adopted a change in the philosophy of the party to reflect a broader liberalism, if not social democracy.

Either way—whether it is Cameron or Clegg who has shifted the most—we have seen a remarkable realignment in British politics in the space of just five days.

Sense and justice prevails - at last

Here at Pol-e-tics we feel exhausted. The energetic run-up to the election, the all-night marathon following results, the dawning of a victory so narrowly missed and the daily roundabout of LibDem indecision ... towards the end it began to pall.

But now the elation of victory is sublime!

Cameron has been dignified throughout—keeping his distance from the media—which will make the sight of his appearance finally to declare a Conservative-led government all the more dramatic and satisfying.

The fact is that over the election and subsequent negotiations the Conservatives have won!

There have been doubts over the negotiations within all three parties. This is unsurprising given the electoral result produced a situation our traditional party system is not designed to cope with.

The Labour party deal was never going to be a winner—even if it had been sealed. Some sensible Labour MPs were willing to acknowledge that a Libd–Lab pact would be undemocratic.

Then many Conservative supporters believe Cameron went too far and should have tried to run a minority government. Again, this would be an undemocratic result that ignored the numbers delivered by the electorate.

More party political still, some Conservatives believe Cameron should have walked away from any government. This would leave other parties to do their worst until an inevitable fresh election restored Conservatives to power with a sound majority.

But such a strategy is just not part of Conservative DNA. Conservatives are pragmatic but above all responsible. The country needs a government, and a Conservative government. To walk away from the challenge would be cowardly, damaging and irresponsible.

Can Conservative parliamentarians work with the LibDems?

The LD leadership has not covered itself with glory over its negotiating tactics. Conservatives are familiar with LibDems facing two ways according to their audience. But what we have seen at play is the division between right and left that still lies at the heart of the LibDem party.

The liberal faction that stresses civil liberties and personal responsibility can make accord with Conservatives. The social democrats will have to live with the reality that Labour could not, or would not, deliver an alliance.

A lot has yet to be revealed about the Conservative–LibDem relationship and how it manifests in policy decisions. The alliance will be awkward and fragile.

But at last Labour is gone. Conservatives are substantially in power. And the process of bringing energy to restoring the nation can finally begin.

Brown's exit fractures the coup

A 'political coup' is a commonplace description of many commonplace events in political life. But the proposed partnership between Labour and the LibDems is a political coup for real.

Yet it seems to me that Gordon Brown's resignation—on which this coup depends—ironically throws a sizeable spanner into the grinding works of the potential LibDem–Lab coalition.

How will it be possible to line up the necessary minority parties to provide a notional majority, when none of them will know who their leading political partner will eventually be?

No minor party can rely on a new Labour leader honouring promises given today, whatever potential leadership candidates may say.

At best, such a coalition would have a maximum lifetime up to this autumn—just four and a half months including the summer.

The election of a new Labour leader would surely be the point when a new general election must be called—to establish leadership credibility and to try to bolster a parliamentary majority.

What party would consider it worthwhile to engage in such a sordid, unreliable and time-limited pact?

Apparently, the LibDems are such a party: such is their desperation to put electoral change before the political needs of the country.

But will any other parties—even though they too might benefit from electoral reform—be willing to share the consequences of the public's growing disgust at this attempted political coup in return for just 140 days in government?

And since the LibDems have handsomely illustrated over the past four days just what a "fair votes" election means, a coalition designed to achieve voting reform will probably have its aims duly turned down by a disgusted public.

Representation in proportion

Monday p.m. 10 May

The Conservatives do need an arrangement with the LibDems.

Not only is this necessary to have reasonable expectation of passing financial and deficit reduction measures in parliament: it is also necessary to provide electoral legitimacy to the government, which a minority government wouldn't have.

The LibDems do not need an arrangement with the Conservatives, unless they can be offered sufficient agreement on support for crucial LibDem policies.

The Conservatives would also benefit from a power sharing agreement by diluting the poison in the debt reduction chalice and spreading the electoral consequences.

The LibDems could suffer electorally by being party to severe measures. But they could gain from the statesmanship shown by enabling government to proceed and the rise in media profile provided by participation in government.

The Conservatives cannot deliver substantial voting reform. This could only be achieved legitimately—in public and political eyes—through a national referendum. Holding a referendum would need to be agreed by parliament. Only a decision to present this option to parliament and a contribution on the options to be presented to the public would be in Conservative hands. However, the Conservatives could offer other political reforms—such as Lords elections by PR, re-sizing constituencies, recall of politicians and a smaller parliament.

Going too far in supporting electoral reform in exchange for parliamentary support would be unacceptable for the Tory party. Creating a full coalition without substantial support for electoral reform would be unacceptable to many LibDems.

The best solution for both parties therefore seems to be a mid-way house that presents neither full coalition nor full independence.

Detailed agreements could be reached on a range of Conservative policies that LibDems would support, perhaps in modified form. And a number of LibDem policies could be introduced without party political difficulty. These agreements would be published to reassure both parties.

LibDems would not take cabinet posts, could retain their independence, and continue to provide criticism of Conservative government policy outside the areas of support.

Of course, LibDems could still opt to partner with Labour. But I don't think it's excessively party political to say this would be a shameful election result.

Seeing the Big Picture

There are different ways to fulfil a task. One can do it my way, the familiar way, the way we've always done it. Or one can try to see the bigger picture and respond as actual circumstances demand.

David Cameron has surprised by stepping out of his Conservative clothing and showing willingness to consider other modes of operation to address the task he has been set of governing the country.

Some, especially in the Conservative party, may find Cameron's flexibility no surprise at all. For some dedicated activists, it may confirm he's no Conservative at all. But for others, seeing the bigger picture, inside and outside the party, it may confirm him as a statesman of our times.

Cameron could have opted for the challenge of a minority administration, but he evidently saw – ahead of many commentators – that this would not deliver 'strong, stable and decisive government'.

So he's gone further and faster than many could imagine to bring the political crisis the indecisive election has caused to a stable end.

The negotiations to secure a deal with the LibDems to form a new government will probably, inevitably reveal shades of the shabbiness we've come to associate with such deals.

But the difference with coalition deals of the past is that this one is not intended to support a weak and disgraced government. It is intended to introduce new, fresh government that can survive the party politics of parliament and deliver the decision-making the country urgently needs.

And there are political advantages for the Conservatives. It is possible that a Tory–LibDem deal could see the end of Labour socialism that Margaret Thatcher long sought to achieve.

Labour have been thoroughly outmanouvered. First by the electorate and now by the willingness of Cameron to go beyond party limitations to embrace a more liberal vision of Britain.

Whatever emerges from the Cameron–Clegg discussions (and even a weakened Clegg has indicated statesmanship too) Brown and his cohorts have become Yesterday's Men, sounding more desperate, shabby and divorced from the reality of British politics by the hour.

Cameron, on the other hand, has revealed his intelligence by recognising the electorate are not yet ready to go solid blue.

But he is now the man of the moment. And with good grace, sound judgement and not a little creativity, he could be the statesman to form a government that finally addresses both the electorate's and the nation's needs.

Who says who stays, who goes?

I'm intrigued by the Constitutional Arrangements established by the Cabinet Office for this election.

As I understand it, if the governing party receives the most seats but fails to gain a majority, it assumes a right to continue in power until winning or losing the vote on the Queen's speech.

Perhaps this is just a formal iteration of an acknowledged procedure. Yet my memory tells me the convention was that the Monarch herself decides who will be allowed to try to form a government.

I'm not actually advocating the Conservatives form an alliance with the LibDems, or with any other parties, but, in theory, there are potentially stronger options available than Brown trying to cling to office with a minority government.

Is this another instance of our constitution being 'modernised' by politicised officials—just like those in Brussels?

I presume the Queen's opinion on this constitutional matter also hasn't been sought.

UPDATE: Wed 5th May
Professor Robert Hazell, of the Constitution Unit at UCL, tonight confirmed the impact of the constitutional arrangements he has recommended for the event of a hung parliament.

If Cameron gains the most seats, but less than a majority, by Friday morning he'll be claiming victory and a right to form the next government—with or without others' help. But according to the newly defined procedures, Gordon Brown will still get first bite at the cherry.

If Brown can fix an arrangement with other parties that could survive the Queen's speech, then he'll be able to continue in government and the Conservatives (despite winning most seats) won't get a chance to offer a plausible alternative.

This doesn't sound very fair to me.

Professor Hazell may be called to defend his recommendation, together with Gus O'Donnell at the Cabinet Office.

N.B. Hazell is an expert in constitutional reform research that is substantially funded by the Economic and Social Research Council (ESRC), which in turn is funded by the Department for Business, Innovation and Skills, which is of course Lord Mandelson's department.