Mark Stuart: As our politicians argue, economic disaster lies ahead

AS the Conservatives and the Liberal Democrats continue coalition talks, this country faces its worst economic crisis since 1931.

Last week, while the British media focused almost exclusively on the closing stages of the election campaign, we lost sight of events in Greece, where civil disturbances threatened briefly to destabilise the government.

Meanwhile, world stock markets have fallen sharply, as international investors increasingly take the view that countries can go bust just as easily as the banks.

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The first banking crisis in 2008 led to the collapse of the Icelandic economy. This new financial turmoil threatens not only Greece, but also many of the other southern Mediterranean countries, particularly Italy, Spain and Portugal.

I've heard several political commentators over the last week remark that Britain is somehow immune from "sovereign default" (economists' fancy term for countries going bust). Such an attitude displays the worst kind of arrogance, as though Britain somehow still ran an Empire, and was a world power of the first order. Moreover, it ignores the stark reality that if countries do default, then this could provoke a fresh round of bank failures among those financial institutions that hold government debt.

Into this toxic economic environment came the inconclusive result of the General Election. The relatively modest falls in both the pound and the stock market that greeted this political stalemate on Friday should fool no-one. Britain has a few weeks' grace in order to form

a stable government before the markets take the view that we

too are incapable of paying off

our debts.

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There has been much talk over the weekend of a possible Lib-Lab pact, but these two parties combined would not command a majority in the House of Commons. They would have to get into bed with a rag-tag group of high-spending parties from Scotland, Wales and Northern Ireland. Voters in England, who clearly voted Conservative, would not put up with such a coalition, and nor can the country afford it.

Meanwhile, the Conservatives working as a minority government would not have a sufficiently strong mandate for the harsh measures that are required to cut the deficit. The only possible combination that might achieve parliamentary and economic stability is some kind of arrangement between the Conservatives and the Liberal Democrats. It need not be a full-blown coalition, with Liberal Democrat Cabinet ministers, but it has to include a long-term agreement to cut the deficit.

Almost all political observers have focused exclusively on the main hurdle to a Con-Lib deal: reform of the voting system.

This is a red herring. With 90 per cent of his grassroots members and the vast majority of his MPs firmly opposed to proportional representation for Westminster elections, Cameron simply cannot deliver what Nick Clegg most wants. Nor should Clegg fool himself into thinking that Gordon Brown's successor as leader of the Labour Party (either David Miliband or Alan Johnson) can persuade more than two thirds of his own MPs to sign up to electoral reform. In the absence of any possible deal on electoral reform, what we need instead is fixed-term parliaments. Never again should the Prime Minister of the day be able to call an election again at a time of his or her choosing.

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As Gordon Brown discovered to his cost in October 2007, such power is double-edged: failing to call the election did terrible damage to his authority.

But the most pressing argument in favour of fixed-term parliaments is economic. Given the parlous state of the public finances, if the Liberals and the Conservatives both knew they had four years in which to bring the deficit under control without the suspicion that the Tories might seek to gain political advantage from it by calling a second election, then the two parties would simply have to make their arrangement work in the wider national interest.

Last Thursday, the public sent a clear message to the politicians: we don't trust any of you sufficiently to run the country, so you are going to have to start behaving like adults by working together. Although Clegg ultimately failed to make a breakthrough at the ballot box, his central message in the first leaders' debate of parties co-operating constructively was what most resonated with the British people.

Were the Liberal Democrat leader to pass up this golden chance for a new kind of politics for the sake of an anorak argument about electoral reform, then he will be shown to be yet another who says one thing in public, while believing another in private.

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But do I think that fixed-term parliaments will emerge from the talks? No. In reality, a minority Conservative government will stumble from crisis to crisis, and will be forced to call a second election in the autumn. By that time, there will be nothing left for our narrow-minded politicians to argue about, because the IMF will control the levers of the British economy.

If you don't believe me, ask the Greeks.