Banking

One of the questions that most fascinates Westminster is what would make Vince Cable walk out of the coalition Cabinet. Cable might be a diminished figure and have lost standing on the Lib Dem left by pushing through the tuition fees hike, but his departure would still shift the tectonic plates of politics. As James Kirkup blogs today, banking reform, or the lack thereof, is the most likely cause of Cable going nuclear. Cable is a firm believer that retail and investment banking need to be separated, a view that he pretty much reiterated on Marr this morning. Osborne and the Treasury are far more cautious on this front. Everyone in government is waiting to see what the Vickers Review recommends.

In all likelihood, George Osborne will rise this afternoon to groans if not jeers. Britain looks set to lend Ireland £7bn as part of multilateral and bilateral bailouts. Many, particularly the Eurosceptic right, question our involvement, given our straitened financial circumstances and the apparent fact that Britain is sustaining the eurozone’s monetary and debt union, and will have to borrow to do so.     George Osborne has been adamant throughout: Ireland is too important to Britain’s recovery to risk collapse – British and Irish banks are closely linked, debts and borrowing are often co-dependent, trade is very profitable. That the bailout should strengthen the euro is a natural consequence of Ireland being a member of the euro.

"We certainly haven't looked to Europe." That was the message spilling from the mouths of Irish Cabinet ministers last night – but, as Alex suggested in a superb post on the matter this morning, their utterances may come to naught. After all, Europe has certainly looked to Ireland – and it doesn't like what it sees. Already, Brussels' moneymen are urging a bailout on the country, and Ireland's moneymen are thought to be in "technical discussions" about how that might work. The upshot is that a financial intervention from Europe is now considerably more likely than not. And with that come European demands over how Ireland should manage its public finances – and raise its taxes. There are plenty of lessons for all sides in this.

David Cameron is now in Seoul for the first G-20 summit hosted by a non–G-7 member state. It will be the Prime Minister’s second G-20. But things have changed dramatically since he came to power and had to jet to Toronto for his multilateral baptism. Then the Prime Minister’s arguments for austerity measures were theoretical - and a minority position. Now, they are real and have become the majority view. “Camerkelism”, the idea that short-term fiscal consolidation will induce sufficient private-sector activity to more than fully offset the fiscal drag seems to be in the ascendant. Yet the forced smiles at the traditional G-20 class photo will belie a number of continuing problems. The biggest issue will be about the Chinese exchange rate.

Courtesy of John Rentoul, Tim Bale, professor of politics at the University of Sussex, offers this appraisal of the 2010 election: 'For all the talk in opposition of decontaminating the Tory brand, of making the party more tolerant and inclusive and less ‘nasty’, the key task facing Cameron when he took over in late 2005 was reassuring voters that the Conservatives could be trusted on welfare and public services.  All the market research suggested that this was the sine qua non — a necessary if not a sufficient condition — of a return to office. When the global financial crisis hit and Britain’s budget deficit ballooned, however, this task remained unfinished and work on it practically ceased.

There is a reason why the coalition has used the Lib Dem conference to step up its rhetoric about the bankers and their bonuses. The coalition believes, rightly, that balancing the budget is a matter of political economy. It is acutely aware, and has been for some time, that the sight of banks paying out huge bonuses later this year just as the public sector begins to lay people off and cut services would be disastrous. This view is shared by everyone in the coalition from Cable to Osborne. Bumper bonuses would increase calls for new punitive measures against the banks and produce precisely the kind of political atmosphere that the more aggressive trade union leaders want.

Trust Bob Crow to turn down the charm. Explaining why he was boycotting Mervyn King's address to the TUC today, the RMT union boss managed to liken the Governor of the Bank of England to both the "devil" and the "Sheriff of Nottingham". Unsurprising, perhaps – but it's yet another reminder of why, for the Labour leadership contenders, marching in lockstep with the unions may not be such a good idea. To Harriet Harman, a Labour Party bound to Crow & Co. might be a “progressive coalition”. But to the rest of the country, it will probably look slightly left of sane. Only David Miliband, to his credit, seems to have properly grasped this fact – and the fact that he might hope to work alongside people like King one day.

The Big Tent just got a little bit bigger with the appointment of Stephen Green as trade minister. As most of the papers point out, landing the HSBC boss is something of a coup for the coalition. David Cameron was struggling to fill the role, but he's ended up with someone who is widely credited with steering his bank through the worst of the financial storm. Even HSBC's purchase of a dodgy sub-prime company in 2003 has done little to tarnish Green's reputation. Now that he's in government, though, it's worth pointing out that he is yet another minister who has warned of a double-dip recession. Here's how the FT wrote up a speech of his in July: "'We are three years into a crisis that is far from over,' he said.

A tough morning for the government at the hands of Tyrie, Fallon and rest of the Treasury Select Committee. Sir Alan Budd apologised for his naivety, Robert Chote described the Budget as ‘regressive’ in the main and the banking levy has been criticised on the grounds that is de-stabilising banks’ capital bases, which will affect lending. The government would prefer silence on these issues but the damage was far from total. Budd was an interim figure and the spat that has developed around him is largely political – there is no question that Budd was ‘nobbled’. Robert Chote deserves his reputation but he is not infallible. And Treasury Chief Economic Advisor, Dave Ramsden, put paid to the criticism of the banking levy.

As Allister Heath notes in City AM this morning, Mervyn King has had a good war. Well, not so much a good war as a profitable peace. King contributed to the domestic crisis by sustaining very low interest rates whilst ignoring asset prices. Brown may have forced the Governor’s hand, but King was groggily supine until a sovereign debt crisis threatened. George Osborne is dismantling Gordon Brown’s regulatory imperium. King is the major beneficiary as the FSA is subsumed by the Bank of England. How will exercise that power? Obviously, time will tell; but monetary tightening will moderate excess (and spruce up banks' balance sheets) in the short-term.

By rights, Gordon Brown should fear this debate on the economy more than any other. Here are ten questions I would like to hear him answer:   1. You told Gillian Duffy yesterday that you have a "deficit plan to cut the debt in half over four years." This was a lie, wasn't it? Our debt is £771bn now. Your deficit plan ­- ie, to run huge deficits for years - will actually double it to £1,406 billion within four years according to the Treasury. The debt for which Mrs Duffy and other taxpayers are liable would double under your plans ­- yet you told her it would halve. How can you tell a lie of that magnitude, to the very sort of women whose taxes you intend to use to service this extra debt? 2.

Woah. I doubt Brown will endure many tougher twenty-minute spells during this election campaign than his interview with on the Today Programme this morning. You could practically hear the crunching of his teeth, as John Humphrys took him on over Labour's economic record; practically smell the sweat and fear dripping down his brow. It was compulsive, and compelling, stuff. Humphrys started by putting a grim story to Brown: that his "handling of the economy was not prudent ... your record suggests that the economy is not safe in your hands."  The PM's mission was to deny all this, and he did so with his usual stubborness and disingenuity.  His pitch here was all about inflation: about how we'd avoided the high inflation of recessions past, and how we should be grateful for that.