Archives for April 2010

Birmingham: There is such a thing as the economy. It's just not the same as the state." In effect, that was David Cameron's pitch tonight - his way of explaining why cutting government spending would not be a threat to growth. In many ways, it's a more telling representation of the Conservatives' philosophy than Mr Cameron's better-known slogan about society.

When it comes to growth, David Cameron thinks government is the problem. He thinks the sheer growth in size of government over the past decade has not just put our credit rating at risk: it's put our future growth at risk, by stifling productivity and growth.

From almost his opening words in this debate, Gordon Brown showed that he took precisely the opposite view. "Don't believe that we can fail to support the economy this year," he said. Government isn't the problem, he says - it's the solution. It was government - his government, incidentally - that helped Britain avoid another Great Depression. And it will help maintain the recovery as well.

Even when he admitted that there would be cuts in spending after 2011, he found a way to remind us of the good side of Labour's massive spending spree since 2001. We can cut public investment, he said, "because once you've built a school, you don't need to build it again." And, he said, once you've raised public-sector pay, you can control it.

As ever, this basic difference on the proper size and role of the state is the key dividing line between the two largest parties in Westminster - and not just when it comes to their spending plans for this year. It helps explain why the Conservatives want to raise taxes less than do Labour - or the Liberal Democrats. And why they want more spending cuts instead.

On paper, the Liberal Democrats are closer to Labour than the Conservatives on this point: they would raise taxes by £20bn to cut the deficit, compared to £24bn for Labour and £14bn for the Conservatives.

However, you didn't get the same clear rhetoric from Mr Clegg tonight. His big message on the economy - if there were any - was the need for a "fairer" tax system, with the radical reforms that his party has called for. The IFS is still trying to decide whether all those ideas, taken together, would actually achieve the shift in fairness that he suggests.

So, no news on how they would cut the deficit. Surprise. But plenty of evidence of their very different world views.

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• - What's this?

"Could it happen here?" That's the question I keep getting asked, as the Greek tragedy in the markets continues to unfold.

I did a fairly comprehensive piece on the differences between Britain and Greece some time ago. But a pocket summary of my conclusions: like Greece we're borrowing a lot at the moment. Like other governments that are borrowing a lot, ours would be vulnerable if international investors decide, overnight, that sovereign debt isn't a safe bet after all. Like then, we also recently won the chance to host the Olympics. But there the similarity ends.

We have four important advantages which Greece lacks.

First, our stock of debt is rising fast, but it's still much lower than in Greece - and many other European countries. The OECD predicts that British government debt will rise to 78% of GDP in 2010. The forecast for Greece is 120%, with an average for the Euro area of 85%. (These are all on the Maastricht definition of gross public debt, which comes out higher than the net debt figure the government tends to use.)

Second, the average maturity of our debt is much higher - at around 13 years. That's the highest of any major economy. It means that, even with our big deficit, the British government is going to be raising less new debt in the markets this year than Germany, France or Italy. It also means that any rise in the cost of borrowing takes a long time to affect the average cost of the debt. (A point I made on Today this morning.)

Third, unlike Greece, we have a good track record of raising - and collecting - taxes when the Treasury needs them. Many voters would say, too good.

Fourth, and, most crucially, we're not in the euro. If push comes to shove, we can always rely on a falling currency to make our debt easier to manage. That is why most investors think it is more or less inconceivable that the British government would actually go into default.

If you don't believe me, ask international investors. The price of British government debt has risen today, only slightly less than Germany's -as the price of Greek debt continues to fall. You wouldn't guess it from the feverish debate here over the deficit, but right now investors think we're a "safe haven".

That may change. We may, after all, have some serious political uncertainty coming down the track. But market movements today are a good reflection of the distance between London and Athens.

Investors may worry a lot more about Britain's public finances than they did a few years ago. But they worry half as much about it as they worry about Greece.

Update 16:00: A bit of show and tell to back up my previous comments on the difference between Britain and Greece. This is what's happened to the interest rate on Greek and British two-year debt since last autumn.

(The white line represents the UK and the orange line represents Greece.)

As you can see, Greek debt has had a heart attack. The English patient is alive and well.

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• - What's this?

They may disagree in public, but privately they couldn't agree more. On the single most important issue facing the country after this election, our politicians think it's better to keep us in the dark.

Ever since the disastrous state of the public finances became clear, the Institute for Fiscal Studies and other experts have been talking about the need to cut borrowing drastically after the election - and the kind of tax rises and spending cuts that might be involved. The politicians have obliged with talk about "tough choices" - the Conservative shadow chancellor talked about a coming "age of austerity".

But what, exactly does that mean? Which public services would need to go? How much would defence - or road-building, be squeezed? Which benefits would need to be cut or reined back? We don't know. More than halfway through this election campaign, the three largest parties have still given us only a small hint of what they would do.

Robert Chote, the IFS's director, hammered away at them, once again, this morning:

"Repairing the public finances will be the defining policy task of the next government. For the voters to be able to make an informed choice in this election, parties need to explain clearly how they would go about achieving it. Unfortunately, they have not. The opposition parties have not even set out their fiscal targets clearly. And all three are particularly vague on their plans for public spending. The blame for that lies primarily with the government for refusing to hold a spending review before the election."

The chancellor has said that it cannot do this until the autumn, because the outlook for the public finances is uncertain. But, says the report, "Uncertainty is a fact of fiscal life: any responsible government would face up to it, and seek to reduce it, not use it as something to hide behind."

In today's report, the IFS estimates that the Conservatives would plan to cut spending by £57bn a year, in today's money, by 2015-16. The Liberal Democrats would cut by £51bn by 2016-17, and Labour would need to find cuts amounting to £47bn by 2016-17. Given the protection that Labour and the Conservatives are offering to some departments, the cuts for other parts of spending would be even greater than these headline figures imply.

Under any of the parties, the years 2011-2015 would involve the "deepest sustained cut to spending on public services since 1976-80", when the UK was forced to borrow from the IMF. The Conservatives' plans, starting in 2010, "imply cuts to spending on public services that have not been delivered over any five-year period since the Second World War."

None of the parties has revealed more than a fraction of what this would involve. True, the IFS thinks the Liberal Democrats are "slightly less bad" than the other parties in the amount of detail they have provided to the voters. They have proposed detailed spending cuts amounting to about £12bn a year, more than the others. But even that is only about a quarter of the spending cuts they would need to make their numbers add up.

Labour has announced concrete cuts in public services amounting to £6.7bn, only just over a tenth of the spending cuts they would need to find. Whereas the Conservatives have detailed proposals that would cut spending by £11.3bn. And that sounds better than it is: remember that they are relying more on spending cuts to start off with. So £11.3 bn is less than one fifth (17.7%) of the total cuts they would need.

There are some other interesting nuggets in this report. The IFS confirms that tax increases over the next Parliament would be highest under Labour: in the region of £24bn, of which £17bn have already been announced.

The Conservatives would be looking for total tax increases of £14bn, including many of those proposed by Labour. But the pledge to avoid Labour's National Insurance rise, along with other Conservative promises, will probably mean the Tories would need to raise taxes by an extra £3.5bn over the Parliament. They have not indicated whether, or how, they would do this.

George Osborne's office have now responded to the report, saying that the IFS is underestimating what they would raise from the new levy on banks. They deny that they would need to raise taxes by more than Labour has already announced, though of course, they have never ruled that out.

All three parties seem to want to cut government borrowing by £71bn over the next few years - the main difference is that the Conservatives would aim to achieve this one year sooner. The IFS estimates that this would leave the government needing to borrow an additional £604bn over the next seven years. Under Labour or the Liberal Democrats, the government would need to borrow £643bn - a difference of just 6%.

The IFS is sceptical that the Tories will be able to achieve their aim of cutting spending by £4 for every £1 raised in extra tax. In the early 1990s, under the (then) Chancellor Ken Clarke, the ratio was 1:1.

That did not come after such a long period of rapid spending growth. It might be a little easier today. But, again, the Conservatives would make their case more credible if they showed more clearly where they expect the axe to fall.

Since last autumn I've been banging on about the welfare bill being a large area of potential savings that the parties had kept below the radar. The IFS has highlighted this point again today. It is difficult to believe that the next five years will see double-digit real terms cuts in the budgets of some departments, all so the structure of tax credits and benefits can remain more or less unchanged. But that is what the publicly stated policies of the three main parties basically imply.

Then again, a few months ago, it would have been difficult to believe that we would not have got to these crucial issues, three weeks into an election campaign.

Given the dramatic turnaround in the polls, it's no surprise that everyone wants to think about what will happen in the days after the election. But given the momentous decisions that the next government will have to take, it is a shock that there has been so little interest in what happens in the months and years after that.

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• - What's this?

"Time is of the essence": this was the comment of almost every policy maker in Washington at the weekend on the subject of Greece. Guess what? It really was.

Thanks to another day of mixed signals from the rulers of the eurozone, the cost of fixing the Greek problem just went up again. If it can be fixed at all.

On Monday, Greek sovereign debt had its worst day yet: the interest rate on two-year government borrowing ended the day at an eye-popping 13.5%. It is now considered rather safer to lend money to Iraq or Venezuela than to Greece.

Strikes and demonstrations in Athens don't help. But angry Greeks don't spook the markets half as much as angry Germans: especially if the Germans who are angry about the Greek situation include the chancellor, Angela Merkel.

You can feel her pain. The German public was lukewarm about the euro from day one; the wider the membership, the less keen they were. They were especially iffy about Greece. For good reason, as it turned out.

I have been taking a look at some of the European statistical agency's reports on Greece over the past few years. Any German who wants their D-marks back after just over a decade of the Euro will not find them a happy read.

You'll remember that Greece was left out of the first wave of euro members and only got in by the skin of its teeth in January 2001. Well, in September 2004, Eurostat decided - in effect - they were false teeth.

It revised the Greek government debt and deficit data for the entire period from 1997 to 2003, with the deficits for 2000-2002 all revised up by more than two percentage points of GDP. The numbers for 2003 went up even further.There have been a string of revisions since then.

Take just one example: the deficit for 2001, the year they entered the single currency. Until 2004, everyone thought the Greek government had borrowed 1.4% of GDP that year, in line with the drastic austerity programme which Brussels (and Berlin) had been promised. By September 2005, that number had been revised up to 6.1% of GDP - more than twice the 3% Maastricht threshold. There were similar revisions to later years.

You might say: well, doesn't every government end up revising its borrowing numbers? After all, Gordon Brown usually did. That is clearly right. But, to state the obvious, chancellors tend to revise their forecasts of the future, or perhaps the financial year that's just ended (as happened last week). In the Greek case, the changes to the forecasts were the least of it. It's the past that kept getting revised.

Many reports later, Eurostat is still worried. Last week it sounded yet another warning about the quality of Greek data.

As we know, the agency revised its estimate of the Greek deficit in 2009 from 12.7% of GDP to 13.6%. But it thinks that it could yet turn out to be higher. That was one of the reasons that Greece's problems came to a(nother) head on Friday. Only a year ago, the Greek authorities promised Brussels that borrowing in 2009 would be 3.7% of GDP.

Yes, this is now spilt milk. Greece is under new management, and the eurozone has a crisis to contain. But for the average German - and probably many others in the eurozone's "hard core" - it rankles more than a little that this is the country that is getting bailed out. Few, if any, countries in the EU have seen revisions of this magnitude in the past 10 years. In Greece it has happened on a regular basis.

So, of course Chancellor Merkel wants to delay signing on the dotted line for Greece for as long as possible - ideally until after those state elections in North Rhine-Westphalia on 9 May. And of course she will use every opportunity she can to talk about "defending the stability of the euro" at all costs (the language that so irked bond investors yesterday - and apparently the French finance minister). If and when she does sign up, the chances are that she will be taken to the German constitutional court for failing to do just that.

As I've said, the months of delay in coming to terms with the Greek problem have been enormously costly - for Greece and for the rest of the eurozone. Just ask Portugal and Ireland. Their cost of borrowing shot up yesterday as well. It may yet bring on the event that even the Germans claim to want to avoid: a messy restructuring of Greek sovereign debt. Maybe not now, but sooner than anyone would like.

However, in their exasperation at German mixed messages and foot-dragging, investors and policy makers should perhaps spare a thought for all those Germans who never wanted to share a currency with Greece in the first place. As far as they are concerned, they woz robbed.

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• - What's this?

The Greek prime minister has given in to the inevitable in formally calling for help from the IMF.

But in financial crises, a few days delay can be a dangerous thing. What the markets considered inevitable last week may not be enough to save Greece today.

The euro has risen on the news, as you would expect. The Greek government and (hopefully) the eurozone appear to have decided that Greece's problems won't improve until investors actually see official money heading to Athens.

The questions will now turn to when, exactly, Greece and the IMF will be able to reach a deal; what the conditions will be; and whether the amount of money involved can possible be enough.

There are logistical issues over the next few days, because many senior Greek officials are in Washington for the IMF meetings, whereas the IMF negotiators are already in Athens. But of course those can be overcome.

IMF officials have been thinking about Greece since at least the start of the year: it won't take much to have a Letter of Intent on the table ready for the Greeks to sign.

But it will matter - in Greek political terms - what is in that deal. There is plenty of popular discontent already about the cuts that the government has committed to make over the next few years. The worse the medicine, the more that investors will doubt the Greek population's ability to swallow it.

Yesterday, Eurostat revised up its estimate of the Greek budget deficit in 2009, 13.6% - up from 12.7% before. It's amazing to think that only last summer, the OECD was writing economic updates on Greece which warned that the deficit "could rise to 6% of GDP in 2010". It only goes to show how fast these situations can change.

Will today's news slow down the pace a little? Perhaps. As I noted, the euro has risen on the news. The gap between Greek and German long-term bond yields has narrowed slightly, and the cost of insuring against a Greek default has fallen by about half a percentage point.

But the implied risk premium on Greek sovereign debt is still much higher than it was only a few weeks ago.

Back then, a clear signal of intent by the Greek government that it would seek to borrow upwards of 40bn euros from the IMF and the rest of the eurozone would probably have bought the Greek government a lot of time.

But as I noted last week, there is now plenty of room for investors to doubt whether a package of that size will be enough.

Update, 18:17: I've now spoken to senior G7 officials now meeting in Washington. The message from there, as you'd expect, is that right now, a default by a sovereign European government is "unthinkable".

At such a delicate time, the risks of contagion - and higher borrowing costs - for other countries are just too great.

For senior officials outside the eurozone, the Greek problem looks manageable. They just wish everyone would get on and manage it. Privately, they are frustrated that it took Greece so long to formally ask for support. But that is not only Greece's fault.

As I reported a few months ago, the Greeks have wanted to involve the IMF - in some way - for months. It was other eurozone governments, notably France, that initially wanted to keep the Fund out.

Privately, the Greek finance minister has been telling colleagues that Greece would have to go to the Fund since January.

Now it's finally happened. And the clock is ticking.

Several eurozone governments, including France, need parliamentary approval for their part of the deal. That means the first or second week of May, at the earliest.

The Greeks will want the IMF piece of the deal to be in place before that, and definitely before another great wodge of sovereign debt needs to be refinanced around the 19th of May.

As I predicted last week, it now looks as thought the IMF piece of the programme will be larger than initially suggested - in the region of 20bn euros. That is one cost of so many months of delay. It may not be the only one, for Greece or the eurozone.

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• - What's this?

Once again, many in the City will be scratching their heads at the first estimate of growth in the first three months of this year from the Office for National Statistics (ONS). Most City economists thought it would be a bit larger.

However, the gap between the City and the ONS is not as large as it has been in recent quarters - on the order of two tenths of a percent. And this time there are at least good reasons why the recovery might have lost a bit of momentum at the start of the year.

We already knew that the bad weather in January had hit some parts of the economy quite hard, especially services. On the coldest days, there were millions of people who couldn't get to work, and even the restaurants and shops that stayed open were usually empty.

This is borne out by today's early numbers, which show the distribution, hotels and restaurants sector shrank by 0.7% in the first quarter, after an impressive 1.9% rise in the previous three months.

That's the worst performance for that part of the economy since the start of 2009, in the depths of the recession - and rather worse than the leading business surveys had indicated.

But the bad weather makes it hard to judge which is right - and there is that other "special" factor to consider, the increase in VAT back up to 17.5%. We knew that might pull down the figures in the consumer side of the economy in these months as well.

What many will find most cheering in these numbers is the impressive 0.7% estimate for growth in the production sector, up from 0.4% in the last quarter of 2009.

That's the strongest quarterly performance for that part of the economy in 4 years. It owes a lot to a sharp jump in output in the utility sector, which will probably be a one-off. There is also another sharp decline in construction output buried in that headline figure.

But manufacturing also did well, continuing almost the same pace of growth as in the fourth quarter of last year. Hopes of an export-led recovery are not dashed yet.

Many will expect some upward revision in this number - if not in the next couple of months then in a year or two's time, when the ONS has 100% of the relevant data to go on - not just 40%. Remember that controversial 0.1% estimate for the final quarter of 2009 has now gone up to 0.4%.

Though disappointing, the 0.2% figure is not dramatically out of line with the popular experience of this recovery so far. We know this is a modest upturn, and the economy has yet to truly find its feet. What we don't know is what this mediocre number will mean for the campaign.

Update, 14:52: A couple of points to add about the GDP figures. It's worth noting that yesterday's retail sales figures gave a hint of the difference the bad weather made to some sectors.

In the first quarter of 2010, petrol sales fell by an astonishing 14.9% on the previous three months. (Thanks to Simon Hayes, of Barclays Capital, for pointing this out.)

If you can't drive anywhere, you don't need petrol. "Core" retail sales - excluding food and petrol - rose by 0.1% in the first three months of 2010.

Also - on the prospects for an export-led recovery, there were some positive signs from the eurozone today. Mervyn King and other have previously worried about a weak eurozone recovery putting the brakes on ours, because the rest of Europe buys more than half of our exports (see my post Weighing the risks).

The European recovery seemed to stumble at the end of 2009, but all the signs are now that growth is picking up.

Eurostat announced today that industrial new orders rose by 1.5% in the euro area in February, after falling by 1.6% the previous month. Excluding volatile sectors like ships and aerospace, the rise was 2.5%.

In Germany, the leading indicator of business confidence, the Ifo Index, has risen by much more than expected this month, to its highest level since May 2008. On current form, the economy could be looking at growth in the first quarter of more than 1.5%.

So countries like Germany are growing again. That is the good news. The bad news is that a good part of that new momentum is likely to have come from in the export sectors, thanks to the fall in the euro.

That's been a welcome side-effect, for German exporters, of the unfolding tragedy of Greece (see today's other post). I note that the Ifo Index for just the retail trade actually fell in April - albeit by much less than previous months.

Like Greece and other countries on the eurozone's hard-pressed periphery, Britain needs a big rise in domestic demand in Germany and other major European economies over the next year or two. It's not obvious that we will get it.

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• - What's this?

Andrew Neil and I are about to lead a crucial debate with the three men who would like to be Chancellor after the election: Alistair Darling, George Osborne and Vince Cable. Will Mr Darling admit that Labour was wrong to claim to have abolished boom and bust? Will George Osborne admit that back office workers are people too? Will Vincent Cable admit that he doesn't have all the answers after all?

All these questions and more...on BBC 2's Daily Politics at 2.15 pm.

And if that doesn't take your fancy - I've been working on a Reality Check on the vexed subject of "British workers for British jobs".
Read all about it here.

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• - What's this?

Inflation has surprised everyone again. Is it a problem? The best guess is: probably not. But the judgement is more finely balanced than the Bank of England would probably want, in an economy with so much spare capacity.

The best medicine for the UK - and its public finances - right now is economic growth. The Monetary Policy Committee does not want to have to crimp that growth due to keep the lid on inflation.

How great is that risk today? The target measure of inflation - the Consumer Price Index (CPI) - rose by 3.4% in the 12 months to March, up from 3% in February, and well up on market expectations of around 3.1%.

A lot of that increase is due to what economists call "base effects": utility bills were falling sharply in the first months of 2009. The headline CPI automatically goes up, when those declines fall out of the index (especially with energy bills now going up quite sharply). Food prices have also gone up, in part due to the falling exchange rate.

Many - even most - of the factors driving up inflation ought to be temporary. Retailers have also been passing on some of the effects of VAT going back up to 17.5%. But, as ever, it is striking that UK inflation seems to be surprising on the upside more often than not.

That is why most forecasters do not expect the Bank to be overly worried by these figures.

However, according to Neville Hill of Credit Suisse, in the past year CPI inflation has surprised forecasters to the upside more than twice as often as it has surprised on the downside.

You might see that as a sign of bad - or at least over-optimistic - forecasting.

But Mr Hill notes that core inflation is not coming down very quickly at all - last month it was 2.5%, down from 2.6% in February. Services inflation has actually gone up, to 3.3%.

On this basis, he says "it's not evident that spare capacity in the economy is still bearing down on domestically generated inflation".

If true, that would be cause for concern indeed. I'm not sure I would be so gloomy on the basis of the figures we've seen so far. I'm not sure the Bank would be either. Mervyn King has always said he expected CPI inflation to be above target for most of 2010.

But I do know that the MPC is keeping a very close eye on inflation expectations - and pay settlements - to see whether the higher headline rates of inflation in the past few months are becoming self-perpetuating.

There is not much sign of that so far. But as I noted a while ago, the GDP data for the fourth quarter of 2009 showed economy-wide inflation - known as the the GDP deflator - running at an annualised rate of 4%.

That could be a tribute to the success of QE (quantitative easing). It's not dangerous, in and of itself. But it will not be lost on international bond investors that prices across the economy are rising faster than in almost any other major developed economy.

Investors also know that the UK government has more to gain from an unexpected bout of inflation than almost any other economy.

That is because - like the US - a lot of our government debt is held abroad, meaning that they, not UK citizens, pay some of the price of a fall in the real value of UK debt. In addition, unlike the US, the average maturity of our debt is exceptionally high (see earlier Greek Britain? post). So, in the short-term, the benefit of higher inflation - in terms of reducing the value of our overall stock of debt - might more than outweigh the fact that the markets would demand a higher interest rate on our debt in the future.

None of this is to say that inflation is likely - let alone desirable. But it is more of a live issue than the Bank or anyone else would like it to be, so early in this economic recovery.

Update, 15:53: Many of you have disputed that today's inflation numbers were a surprise.

Let me be clear: it is no surprise, to anyone, that inflation is well above target and has been for months. The surprise I was referring to was micro. City forecasters, on average, thought the March figure would be 3.1%. In fact it was 3.4%. Surprise.

You might put this down to a lot of overly optimistic city economists. But, as Samanthav (comment 13) notes, it's not just city forecasters, it's the Bank of England too.

Mervyn King was been preparing us for above-target inflation since the end of last year. But that isn't what he or the Bank of England expected a year ago. In its February Inflation Report, the MPC forecast that CPI inflation in the first three months of 2010 would be 1.3%.

Since then, the economy has grown by less than the Bank expected, and sterling has gone up - all things you might have expected to push down inflation. But CPI inflation in the first quarter of this year has been 3.3% - some 2% higher than the Bank expected.

According to Michael Saunders, at Citigroup, this is part of a familiar pattern. In fact, he reckons that CPI inflation has been above the Bank's forecast of 12 months earlier in 17 of the last 20 quarters.

There's a chart to make the point. It's a version of the one I used earlier, but it goes back two years, and uses the MPC forecast of 12 months earlier as the comparison, rather than City forecasts.

Are there more inflation "surprises" to come? The facetious answer would be no; after all, the more often inflation overshoots, the less surprising it will be.

But here's an interesting twist for the many pessimists who seem to read Stephanomics. On Friday we get the preliminary estimate for growth in GDP in the first quarter o 2010. These have tended to surprise the other way - with growth much weaker than city analysts expected.

On the day, I have often discussed why many city economists expected them to be revised up (something some of you have dismissed as government propaganda.)

Now, at least one of those surprising figures - the first estimate for the fourth quarter of 2009 - has now been revised up, from +0.1% to +0.4%. But all of the first three versions of the GDP figures are based on output numbers, and those have still been consistently weaker than the figures for expenditure (one of the other ways to measure GDP).

That is why some city economists - and the Bank of England - expect the GDP data to be revised up even further over the next two years, as the ONS brings all the data sets together.

Why does this matter? It matters because if the recession was shallower than we thought - or the early months of the recovery stronger - then that would mean there was less spare capacity in the economy after all.

Depending on what happens to UK budget policy in the next six months, that's another reason to wonder whether fear of inflation will force some negative surprises from the MPC.

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• - What's this?

Elections are exciting sometimes - time-consuming, always. We've spent so much of this week on the campaign and the manifestos, the danger is that other stories fall between the cracks.

A total shutdown of UK airspace was hard to miss, even though it had to play second fiddle yesterday to the prime ministerial debate. But a few other things have happened as well.

On Monday, you'll remember, we had more clarity on the support that might be offered to the Greeks - a third injection of clarity, you might say, adding some details to the statements that had been made in February and March.

As I suspected on Monday, the deal gave the Greeks some relief on the markets - but not much. Their debt auction on Tuesday was oversubscribed. But the price was shocking: more than 4.5% for six months' cash, 350 basis points over short-term policy rates.

With the usual clouds of official vagueness and uncertainty hanging over the deal - and some question marks about how, exactly, the eurozone loans would be approved - Greek bond yields ballooned out again, to higher than they were before the new and improved rescue package was announced.

So, the Greek prime minister was forced to go to the IMF for real yesterday. Well, he sort of went to the IMF. True to the tradition - in this saga - of informal half-moves, signals and suggestions, the Greeks have only asked for "consultations" over the possible terms of a loan.

The IMF's chief spokesperson, Caroline Atkinson, said in her briefing yesterday that the talks could "mutate" into something more formal. For now, they are talking about a deal. And the markets remain unimpressed: Greek debt has been punished again today.

The latest edition of the Economist, out today, has an excellent briefing on the Greek crisis. I recommend that anyone interested read it in full. But to give you the headlines, they have some useful guesstimates on the scale of the funding problem for Greece, and the vulnerability of European banks to a restructuring of Greek debt, let alone an outright default.

They reckon that Greece could need official help to cover 67bn euros in new debt by 2014 - more than twice the 30bn euros so far on offer. And that's on, if anything, optimistic assumptions.

Many leading institutions are staying well clear: they think today's yields don't provide enough compensation for the risk of default.

I still think a restructuring of Greek debt is more likely than not over the next few years. But the article shows just how painful that would be for other eurozone countries; more specifically, its banks.

Using the back of a fairly sophisticated envelope, the Economist reckons that eurozone banks hold nearly 60% of foreign holdings of Greek government bonds, worth maybe 70bn euros. French and German banks are especially exposed. They think UK banks hold less than 5% of it, an exposure of around 6-11bn euros,

So, in a sense, France, Germany and the rest are bailing out Greece, so they won't have to bail out their own banks at an even greater cost.

But this may not be what many economists would call a sustainable equilibrium. Especially when the ECB has just told eurozone banks they can continue to put up Greek and other low-rated sovereign debt as collateral on cheap loans. The maths on a 30bn euros loan looks much worse if it doesn't, in fact, prevent a restructuring down the road - and France and Germany end up having to bail out their banks as well.

Will the eurozone ministers meeting today (or the full Eco-Fin meeting this weekend) produce a more lasting solution? I seriously doubt it.

At bottom, the Germans have always wished they could let Greece solve its own debt problems, even if that meant some form of 'haircut' for investors, or outright default. That was what the "no bail-out" provision for the eurozone was supposed to mean.

The exposure of German banks makes this less thinkable, for now, especially with other parts of the eurozone so weak. But key German officials do not want to rule it out.

Why? Well of course they think that countries should pay for their mistakes. But the larger reason is that, once you say there is a fiscal safety net in the eurozone - you're walking yourself in the direction of fiscal union. At some level, every government of the eurozone would be on the hook for everyone else's debts.

Famously, that's where the French always wanted a single currency to lead. Equally famously, Germany did not. And we wonder why the Greek situation takes so long to resolve.

In the meantime, investors' thoughts turn, naturally, to the question of who will be next. For a while I've been talking up Portugal as the country most likely to come under serious pressure. That's partly because I know that the European Commission and the ECB think so as well.

This week Simon Johnson and Peter Boone - two seasoned watchers of financial crises - also pointed the finger at Portugal.

Watch the election, by all means, but keep your eye out for troubles in Lisbon as well.

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• - What's this?

The Liberal Democrats may be only the third largest party at Westminster - but when it comes to tax plans, they punch above their weight. Their manifesto has a lot more numbers than either of the other parties. That deserves some credit. Their tax proposals are also by far the most ambitious we've seen this week. Whether they would do what the party says they would do is another matter.

At the heart of these proposals is a plan to raise an extra £17bn in taxes - as much as Labour wants to raise over the next five years. They don't want to spend any of that money on reducing the deficit. They want to do that almost entirely through spending cuts. Instead, they want to give back that £17bn to everyone in Britain who now pays tax, by raising the personal allowance to £10,000.

Their plans raise two big questions. First, can it be done? Second, who wins, and who loses? Both turn out to be fiendishly difficult to answer. But I'm giving it my best shot here.

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• - What's this?

The Labour and Conservative manifestos are very different. Labour's was big on words - and detailed promises and commitments which we had heard before. It put government at the centre. The Conservative version is longer, but lighter. About a third of its 118 pages actually contains written text - the rest is made up of pictures, fun facts, and (yes) blank pages to give readers a rest. Their focus is on the private sector - and on individuals.

But the two documents have one important thing in common: neither of them makes any further contribution to public understanding on how Britain's £167bn budget deficit is going to be cut. And they both leave plenty out.

This, I suppose, was what we expected. But it is still surprising to me, given the state of the public finances, that of all those 118 pages, the Conservatives decided to dedicate precisely four to macro-economic policy.

They will say that is as it should be. The manifesto says, time and again, that the Conservatives want a bigger private sector, and a "bigger society" to take the lead role in Britain's future, not the government.

But, assuming they don't agree with Engels and Lenin on this one, the state isn't going to just wither away. There is no new detail in those 118 pages on how, exactly, that is going to be done. There is not even any more detail on how fast they would do it.

Once again, we are told that a Tory government would "eliminate the bulk of the structural deficit over the next parliament". Once again, we are left to draw our own conclusions about the definition of the word bulk. All we are told is that it will be bigger than the "bulk" of the deficit that Labour plans to get rid of over the period.

As I've said before, the government has made it easy for the Conservatives by not doing a spending review for after 2011. It would be completely unreasonable to expect a party in opposition to offer more details on future departmental spending than the party that now sits in the Treasury.

But many would say that it was not unreasonable to ask for a concrete target for reducing the deficit from a party that has put the the deficit at the centre of its agenda.

Outside observers - the OECD, the IMF, and many others - have criticised Labour for not providing a more "credible plan" for reducing the deficit. The Tories have understandably leapt on that criticism.

Once again, the party in power can and should be held to a higher standard on this. But I wonder whether those same observers would say you can build a credible deficit reduction plan on the definition of the word "bulk".

What detail do we know? Well, once again, this manifesto has the cuts in tax credits, public-sector pay freeze and other measures which Mr Osborne announced last autumn, which he said would raise £7bn a year by 2014-15.

Now, not all of that is in addition to Labour's plans - the public-sector pay freeze, for example, will raise less money now that Labour has its own plans to cap pay rises in the public sector. But assume, very generously, that most of it is - maybe £6bn.

Yes, there is that extra £6bn a year in efficiency savings, starting this year. But remember that from 2011, they will be spending almost all of that on preventing Labour's National Insurance increase next year, and freezing council tax for two years.

The Conservatives' own costings of those proposals suggest they will cost £5.4bn a year by 2013-14. But the Treasury, and the IFS, have said the true cost of the council tax measure will be a bit higher, due to the vagaries of the Barnett formula - perhaps £1.4bn a year rather than £1.1bn suggested by the Conservatives.

So the chances are the £6bn have been spent after 2011-12. That leaves a one-off reduction in borrowing of £6bn - the equivalent of just over £1bn a year over the course of the Parliament - to add to that previous £6bn.

That means that, on the basis of this manifesto, the Conservatives would cut borrowing by - at most - £7bn a year more than Labour by 2015-16 - a difference of half a per cent of GDP.

Do we think that this is the extent of their deficit-cutting zeal? We are given the strong impression that it is not. For those who wonder what might come after the election that has not been signposted in this manifesto, I would note that the Conservatives, like Labour, have left themselves plenty of room for further cuts.

Notably - there is not a single reference to child benefit in this manifesto.

Mr Osborne said last October that he would "preserve" it. But (and I would be happy to get corrected on this), it's not clear whether that rules out means-testing it, which the IFS reckons could save £5-6bn a year. Freezing benefits and tax credits across the board would save £4.1bn a year from 2011.

The manifesto does commit the party to "protect" the winter fuel payment, free bus passes, free TV licenses, the disability living allowance and attendance allowance, and the pension credit.

Mr Cameron said recently, with regard to most of those, that he would keep them, as he inherits them. But that is not repeated in this text. But you can surely "protect" allowances, while you freeze them.

You can play the same guessing game - for both Labour and the Conservatives - when it comes to VAT. (As far as I can tell, VAT isn't mentioned either.) But I do worry that it's counter-productive. At best, the media ends up cornering politicians into making promises they shouldn't really make.

But, to end this post as I ended the last one, it would have been good to have some more details today, from the party that wants to be in government next month, of the fiscal upheaval we face in next five years.
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Update 16:00: I said I would be glad to have clarification of the Tories' policy on child benefit. Clarification has been duly given: George Osborne's commitment last year to "preserve" the benefit does indeed rule out means-testing.

It seems odd that the Conservatives did not choose to clarify this major promise in the manifesto - or, indeed, mention child benefit at all. Their explanation is that the manifesto "can't possibly deal with the position on every benefit".

That may be true. But the manifesto lists five benefits which they will "protect", four of which cost significantly less than child benefit. If you can find a line in your manifesto for free TV licences, which cost just under £600m a year, you might have thought you could find a space for a benefit that costs £11bn.

Then again, Labour didn't mention child benefit in their manifesto either. Apparently it is the Great Unmentionable.

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• - What's this?

Careful. That's the word that jumps to mind most often in reading through the Labour manifesto. The Conservatives have jumped to say there are no new ideas in the manifesto. I have to assume that is unfair. But there are certainly no new ideas on how to cut the deficit.

There must be the odd idea in the document which we have not seen Labour formally commit itself to before. But, reading through with an eye to what costs money, or affects the economy, I have yet to find a significant proposal that has not been included in a previous Labour policy document.

OK. That's not quite true. As far as I know, they have not publicly committed to trebling the amount of secure cycling storage at rail stations before. As a cyclist, of course I'm thrilled. But this is not the stuff of exciting headlines.

So no, there aren't any big new ideas. But then, there aren't many big hostages to fortune in this manifesto either.

Given that Labour is vesting everything on being the party of experience - the party of seasoned judgement, not "back of the envelope" guesses - you can see why they would decide that "safety first" was the way to go.

There are some "promises" in the manifesto that have already happened: for example, they say they will give disabled children an extra £100 for their child trust fund. But that was announced last year, and the children started receiving those payments at the start of the month. That's a bit cheeky.

But, by and large, Labour officials aren't denying that we've heard all of it before. In a sense, they are even proud of it.

Why? Because if it's not new, then it's not new spending, either. Every time I query, say, the "new toddler tax credit", or the £40 per week "better off in work guarantee", Labour officials helpfully point me in the direction of the paragraph of the Budget - or last year's pre-Budget report - where it was first proposed.

As far as I can see, this document is fully costed - and where it is not, Labour has made sure we cannot formally prove it.

For example, they have strengthened, slightly the commitment to restore the earnings link with the basic state pension. In the 2006 white paper on pensions they said "our objective, subject to affordability and the fiscal position, is to do this in 2012, but in any event by the end of the Parliament at the latest." In the manifesto they are dropping the caveats about affordability and the fiscal position.

On paper, this is one of the most expensive promises in the document: the Treasury has previously estimated that not linking to earnings saves them, on average, about £700m a year. But, since the government has not given us the Treasury's forecasts for social security spending after 2011, we have no way of knowing whether this cost is included in the chancellor's plans or not.

So we are back to the basic problem: that this very cautious, seasoned government is not willing to give us detailed spending plans extending more than 12 months ahead. Labour have given us more detail on the central issue of this campaign - cutting the deficit - than the Conservatives have so far. They at least have some headline forecasts, and some detailed tax rises.

But it would have been good to have more details today, from the party now in government, of the major fiscal adjustment that Britain is facing over the next five years. Alas, they're being very careful on that subject as well.

Update 1817: The IFS have put out some comments on the manifesto, highlighting the same basic issue. Their note is worth reading in full. But here are some choice nuggets:

"The key question for the next Government is what size and combination of public spending cuts and tax increases to implement to repair our public finances. Anyone looking for a more detailed answer from Labour in its manifesto will have been disappointed. The party listed plenty of new things it would like to do, but was no clearer about where the spending cuts would fall. And it listed a few tax increases that it promised not to implement, but left the door wide open to many others."

The IFS calculates that the since 1997 the government has brought in net tax increases:

"...that will cost families £31.1bn this year (£970 per family) and almost half as much again - a total of £45.4bn (£1,420 per family) in today's terms - by 2014-15, once the tax increases already announced in recent Budgets and pre-Budget reports for implementation during the coming Parliament take effect."

The widest measure of the total tax burden (total government revenue as a share of national income) has also risen since 1997, but by less than than the value of Labour's announced tax increases, because of the fall in revenues due to the recession and the collapse in revenues from the city.

Another killer fact: as the authors note, most OECD countries have seen their tax burden fall as a share of the economy since 1997. If the burden of UK taxes had fallen by the average amount of other OECD countries over the period, they calculate that it would now be "3.3% of national income below that forecast by the OECD for this year - a difference of £49bn in today's terms or £1,520 per family."

If that can be reduced to a catchy soundbite, you can bet the Conservatives will.

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• - What's this?

In their approach to the Greek crisis, European officials have taken the time-honoured route of taking it one day at a time - with the financial markets always several steps ahead. They hope to have broken the spell yesterday, with the new statement hammered out, over the phone, by eurozone ministers and officials.

Will it work? The British election is taking up a lot of my brain-space today, but some quick thoughts.

As I said on the Today programme this morning, this deal has three key features which the previous two statements of support (in February and March) did not have.

First: there's the higher headline figure: the ministers agree that "up to 30bn euros" could be made available to Greece by the eurozone group, up from the 22bn euros mentioned previously. There will be IMF money on top of that: the number being bandied about is 15bn euros, but I'm told to expect a higher total figure.

If so, European officials will have at least learned one lesson from past IMF-assisted bail-outs: when the package is formally unveiled, it helps if you can give the markets more than they expected.

Second, and crucially, we have a sense of the interest rate that Greece would be charged. For a three year fixed-rate loan, the statement implies that Greece would be charged the Euribor three year swap rate plus 3% - which would come out just under 5% at current market conditions. There would also be a one-off service fee of up to half a percentage point. The IMF money will be much cheaper, taking the average cost down to under 4.5%.

That is not cheap. But it's a lot better than the 7% the market was charging Greece on its bonds late last week. It is also probably the lowest that Germany could support.

That, of course, is the third key attribute of the new agreement. Unlike the previous statements to be drip-fed out of Brussels and Frankfurt, this one has Jurgen Stark's fingerprints all over it. In the past week or two, I'm told the German representative at the ECB has been a key part of the negotiations, second only to the ECB President, Jean-Claude Trichet.

Germany has not dropped the rather strange idea that Greece should pay "market rates" for its money (I say strange, because if it could pay market rates, it wouldn't need the money at all). But they have accepted a distinction between the "market rate" demanded by an hysterical European sovereign bond market, and a market rate suggested by the fundamentals.

Does 5% capture the "underlying" value of Greek debt? No-one can say. But we can say that in pricing Greek debt, investors are not - and should not be - ignoring the possibility of a Greek default. In that sense, the eurozone money is "cheap". Whether it is cheap enough to transform the situation for the Greek government is a more open question.

The questions for the next few days are: first, what exactly are the conditions of the support plan, and how soon could it be triggered? That will be especially important for Germany: Chancellor Merkel is apparently still hoping, against the odds, to avoid sending any money out the door before the state elections in North Rhine-Westphalia on 9 May, which could lose her party its majority in the Bundesrat. But if the next few days do not go well for Greece, its prime minister may well want to speed up the pace.

Second, and related, will the IMF require the Greeks to tighten policy a lot further in the next year or two? My guess is that the answer to that question will be no. But it will want the government to commit to longer term structural reforms to increase its competitiveness which could be even harder, politically, for the Greek government to push through.

Third, and the most important question - also the one most likely to be glossed over in the coming weeks - is whether this gives Greece a better chance of coming out of this with its economy, and its standing as a sovereign borrower, intact. As I have said before, a loan package, in and of itself, doesn't lastingly address either Greece's debt problem or its competitiveness one (see my posts of 9, 10 and 11 February). It simply buys it some liquidity, and some time: in this case, slightly less time than might usually be the case with this kind of programme, because of the higher interest rate.

In debt crises, time is a precious commodity. With luck, this deal will help Greece get through to the end of the year - maybe further. Its banks will also be helped by the ECB's decision to continue to accept lower-rated debt as collateral for cheap liquidity in 2011. (As I said on 3 March, distasteful though it might be to give backdoor support to the Greeks, the ECB was never going to let Greece's fate be determined by the decisions of a single American-owned ratings agency.)

But, in the cool light of day, I suspect that many investors will still look at the state of the economy and the public balance sheet and conclude that, sooner or later, Greece's time is going to run out.

Update 1817: Several of you have queried my use of the word 'hysterical' in relation to European sovereign bond market. You have a point.

Given what I - and others - have said about the severity of Greece's problems, it is probably rational to require a very high return on Greek debt. But in my defense, I was describing how the Germans might rationalise charging the Greeks a "market rate" that is less than the rate actually prevailing in the markets. As you know, senior German officials think that market hysteria - and speculators' greed - are responsible for a great many economic ills.

Then again, it was Germany that was most wedded to the "no bail out" clause for the Eurozone, and it is Germany that is most keen to reinstate it as soon as governments feel they can let a country default wuthout putting the entire system at risk.

If you believe, as they do, that default should be a genuine possibility, then the 7% starts to look very sensible indeed. But, as we've seen, we are not (yet) in a world of messy Eurozone defaults. We're in a world of messy Eurozone bailouts.

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• - What's this?

We know we're in for some unpleasant medicine after the election, but exactly how bad will it be? That's the question none of the politicians really want to answer. But you can get some interesting clues by looking across the Irish Sea. There you find a small country that has been going through something colossal: not just the steepest recession of any developed country since the war, but one of the most ambitious programmes of budget cuts as well.

UK Treasury officials have been over in Dublin in recent weeks, looking for some lessons in how to cut spending here in the UK. That gave me an added reason to take a look myself.

In two days this week, I learned plenty about the practical realities of cutting borrowing, some of it highly relevant to the situation here. You could hear some of my interview with the finance minister, Brian Lenihan, on the Today programme this morning. He's gained a lot of admiration in Ireland for carrying on with this Herculean task, even after being diagnosed with pancreatic cancer late last year.

Two interesting nuggets from that interview: he thinks the UK is probably expecting too much from the fall in the pound, and he thinks that whoever wins the next election will almost certainly have to cut popular benefits.

I also learned something about what it means to be a small country on the periphery of the eurozone, dependent on foreign investors for cash. Like Greece and the rest, Ireland still has some difficult adjustments in its future. But unlike them, it has bought itself a lot of credit in the markets with the drastic actions the government has taken in the past year. If there's an "I" in that infamous acronym, Pigs, investors no longer seem to think it stands for Ireland.

What kind of adjustments? Well, you remember the Conservatives have promised to have an emergency Budget if they win office? Ireland's had five in less than two years. All told, Mr Lenihan announced spending cuts and tax rises for 2009 worth 5% of GDP. For perspective, if you undertook that kind of tightening in the UK you'd be taking £65bn out of the economy, in a single year. That's roughly what the chancellor has said he will do by 2015-16. Mr Lenihan unveiled further cuts in December, of 2% of GDP in 2010.

Where's the money come from? The short answer is it has come from (almost) everyone. But public-sector workers have probably had it worst: many of them have seen a 20% cut in their net income.

There's a new pension levy on public-sector earnings, worth an average of 7% of pay - in effect a new tax, to pay for the cost of their generous pensions. I'm told the UK officials were looking especially hard at that. On top of that, public salaries were frozen - and then cut: by 5% for people earning less than 50,000 euros, 10% for salaries over that. The taoiseach (prime minister) has had his pay cut by 20%.

Let me highlight some big lessons, plus a few smaller ones.

Doubtless, the main parties here will each see something in Ireland's experience to support their point of view.

Labour and the Liberal Democrats will say it shows the importance of growth. Ireland's national income has shrunk by more than 20% since 2007 - and it's not growing yet. Economists agree that the recession has been made longer - and deeper - by the savagery of these cuts. And the weakness of the economy, in turn, has meant that, to some extent, the government is cutting to stand still.

The deficit was just over 11% of GDP last year, and even after all those cuts, it's going to be just over 11% of GDP in 2010 as well. That's because the economy is shrinking even faster than the budget. Whatever you think of the main parties' respective positions, we can probably all agree with Labour that that this is a situation it's better not to get into.

That''s why Mr Lenihan told me he would have liked to increase spending this time a year ago - when the G20 government were all talking about emergency stimulus. But the scale of the crisis in the public finances didn't give him a choice: any benefit from extra borrowing would have been more than wiped out by the loss of credibility in the markets.

In this kind of situation, there's a real risk of a deflationary spiral, with falling prices pushing up the real value of personal and public debts, and choking off the economy. The IMF raised this as a risk for Ireland last summer.

Prices did fall, economy-wide, last year - by more than 4%. And public debt has risen from 27% of GDP in 20006, to 78% now. But Mr Lenihan is adamant the risk has passed. Looking at the numbers, I'm less convinced, but bond traders who have more money riding on the judgement seem to agree with Mr Lenihan. The spread between German and Irish bond yields is a fraction of what it is in Greece.

Of course, that is where the Conservatives would come in: they'd say Ireland shows the importance of acting quickly to get on top of borrowing, before the markets force you to do things you don't want to do. The Conservatives think the UK is almost at that point right now. For the record, Mr Lenihan told me he thought the UK still had some room for manoeuvre, though it was shrinking.

So much for the big lessons. But there are some other interesting pointers for Britain today:

One was it helps to educate people about the nature of the challenge, before you wield the knife. Not an approach we seem to have adopted here. This time last year, the Irish government released all its budget papers for 2010 in advance - showing the kind of savings it needed to find. It then gave an independent commission to lead a national debate about what those cuts should be. It was asked to find two billion euros in savings. In the end it came up with more than double that amount, and the population knew what was coming before it was formally announced in December.

Ireland's experience also confirms that you need to spread the pain, with benefits a large part of the mix. Again, Mr Lenihan was quite clear on this point for the UK. He cut all benefits by 4% in his December budget, including child benefit and unemployment benefit. This, in a country where unemployment has risen from 4% to 13% in less than three years.

There is one group that even Mr Lenihan had to spare: pensioners. That is probably another lesson for the UK. In all this, the only measure Mr Lenihan's been forced to backtrack on was a measure which would have raised medical costs for pensioners.

Finally, Mr Lenihan thought we were taking false comfort from the fall in the pound. He would say that, you might think - they are one of the big losers from the UK's decision not to join the euro, and Irish companies have been hit by competition from across the border following the massive fall in the value of the pound. But he has absolutely no regrets about joining the euro.

We talk a lot about the dark tortured road that these countries on the periphery of the eurozone now have to walk. In Ireland's case it's not been pretty at all: prices are falling, but wages are falling faster. That's raising competitiveness the only way a country in the eurozone can. It's not much fun.

As Ireland shows, the debt dynamics of having that kind of collapse in national income can force a rise in national debt, as a share of the economy, which not every country could afford. But Ireland has the benefit of coming into this with a much smaller current account deficit than many of its "Club Med" friends. It might actually pull it off.

Small countries can do things that countries the size of Britain cannot do. But Ireland has bet the house on shock therapy to fix both their competitiveness problem - and their fiscal one. By comparison, here in the UK, even the Conservatives are looking at a more gradualist approach on the budget, and we're expecting a big depreciation to deliver growth.

Short term, Ireland's has been far more painful - for the economy and the Irish people. But it will be interesting to return to the comparison in a a few years' time. In the meantime, expect at least some of that Irish medicine to be making an appearance here.

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• - What's this?

This is what happens in election campaigns. Within days, the debate between the parties is said to "hinge" on a complex statistical argument which no-one had heard of a few weeks ago - and few people understand.

The mind-bending skirmish this week is over efficiency savings: specifically, the £12bn of them which the Conservatives have said they will deliver in 2010-11.

You'll remember they've said they'll reinvest half of those in the NHS, overseas aid and defence. The remaining £6bn they'll put toward avoiding most of next year's planned rise in national insurance.

Labour now says that the Tory plans "have the strength of a house of cards". Their argument boils down to this: we are already making the savings that the Tories are talking about; their own adviser doesn't think it's possible to do a lot more this year; therefore, George Osborne will be forced to cut front-line services to make his plans add up.

What is the truth? The short answer is that no-one knows: hand on heart, no-one on either side of the debate can predict exactly what a Tory government might be able to deliver. But I've now done you the favour of reading the Final Report of the Government's Operational Efficiency Programme (OEP) from April 2009, which Dr Martin Read - now a Tory advisor - helped to write. (Trust me, that's a big ask.) That's led me to some interesting conclusions.

For those that suspect a contradiction in terms in that last statement ("interesting? A year-old government report on operational efficiencies!?"), I'll give a sneak preview.

I don't think there's much doubt the Conservatives could find net cuts of £6bn in 2010-12. That's about half a percent of GDP. I've just come back from Ireland, where they cut spending by more than 4% of GDP in 2009 alone. In my next post I'll tell you more about the Irish case, and the lessons for the UK.

I'm also confident that many of those savings might be classified as "efficiency savings".

But here's the rub: unlike Labour's efficiencies, that £6bn will be coming directly out of budgets that departments had expected to spend this year. Whether "efficient" or not, they will be cuts. They might or might not represent a better way to cut borrowing than raising national insurance, but like that tax rise, they are unlikely to be pain-free.

Now, for the lovers of detail, some facts.

First, it is true that the government is already planning to save money, this year, in many of the areas that the Tories highlighted in their plan: for example, by cutting back office operations and IT projects, negotiating better deals on contracts, and better managing government property. These were the focus of the OEP, and roughly £6bn of the £15bn in savings planned for 2010-11 are lifted straight from there.

Interestingly, for the Tories, the report suggested there were more savings to be found - about £9bn of them. Many of those are included in the £11bn of efficiency savings for 2011-12 which the chancellor announced in the Budget.

The Conservatives have pilloried the government for wilfully allowing this waste to continue another year. Labour says it's not feasible to do more right away, and they say the independent advisers who wrote the report agreed. One, Gerry Grimstone, publicly supported the government on this point, in the pages of today's FT. The report itself was less strident, but it did say that further savings "will take time to deliver", suggesting a target of 2013-14 for the full amount.

So, yes, only one year ago, Dr Read, one of the main standard-bearers for the Tory plan, seems to have put his name to a report suggesting that savings of the order of £12bn would not be possible in 2010-11. But he, and the Tories, have a few get-outs.

First, even in that report, it's striking that the chapter Dr Read was closely involved with - on back office and IT - points out, more than once, that the three-year time-scale for achieving total saving in those areas of about £7bn "is at the upper end of private sector experience".

Dr Read might well argue that a new government, less beholden to civil servants, would be able to ram the changes through more quickly. In fact, Sir Peter Gershon has said a new government should up the ante, by promising to outsource back-office functions to the private sector if officials don't come on side.

There are other areas where the Tories might find some wiggle-room: for example, the report suggests that an extra £5.7bn could be gained from more collaborative procurement as soon as 2011-12 (basically getting different parts of government to club together to negotiate with the private sector). It doesn't seem beyond the realm of possibility that some of those gains could be achieved a few months earlier.

So, the report suggests that a determined Conservative administration might find another few billion in savings in 2010-11 from the measures outlined in the OEP.

It's worth noting, too, that there are items on their list that aren't explicitly included in the government's programme: notably, controlling recruitment, and cuts in "discretionary spending".

It's true, as Labour says, a large share of of the new hires in the public sector in the past two years have been in the NHS, which the Conservatives would protect. But Dr Read says the turnover rate in the public sector is typically 8%. There are about 3 million people working for central government, of which about half a million are in the civil service. If he's right about the turnover (I'd welcome some independent verification), that would mean more than 40,000 people civil servants leaving their jobs every year.

There's no doubt that cutting those jobs would save quite a lot of money. What we don't know is whether the colleagues left behind could easily fill the gap.

The same goes for cuts in "discretionary spending". (Apologies for those who are now losing the will to live. But come election time, I become the "boring but important detail" correspondent.)

Labour says that these kinds of savings are, in fact, embedded in the £15bn efficiency savings they planned to achieve in 2010-11, because those were to include a 5% cut in administrative budgets.

But there's nothing to stop the Conservatives making it 10%. Again, the point is not whether they could do it. It's whether we - or the economy - would feel the difference.

I return to the point I made when the Tories first announced their plans last week: back-office staff spend money too. When they lose their jobs, they spend less. When IT companies lose public-sector work, that hits their bottom line as well.

As we've seen, Labour's efficiency savings would have had many of the same effects. The difference is that under the Conservatives there would be £6bn more, which departments won't get to spend.

Where does all this leave us? Well, Labour is right that there's substantial overlap between the Conservatives' £12bn and the government's £15bn in savings for 2010-11. But the Conservatives are probably right that you could save more within this financial year - quite a lot more. And you might say they don't need to find an extra £12bn in efficiencies - only the £6bn they are actually planning to take off unprotected budgets. (Of course, to keep their promise they need to find the full £12bn, but they only need £6bn to be able to fund the national insurance cut.)

So, it's possible. But, to return to where I began, that £6bn will be a real cut: a cut in the amount of public-sector demand in the economy, and a cut in in the number of people employed directly or indirectly by the government. For the departments affected, it will represent a real-terms cut in their budgets of 2.8%, on top of the 2.4% cut they were already expecting under Labour.

There is no way to know whether or how that cut will affect the way the government does its job - not to mention that vaunted "front-line" of public services.

However, it's interesting to note that Labour announced a similar £5bn cut in spending on public services for 2010-11, back in the 2008 pre-Budget report.

Looking back at his speech, I see that Alistair Darling didn't suggest those cuts would be painless: he said they were the result of "tough choices, but necessary choices." I wonder if Labour would change its tune, if Mr Osborne used the same phrase today.

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The Conservatives' pre-emptive attack on the government's plans to raise National Insurance has achieved something important. As the campaign proper finally begins, it has shifted the grounds of the debate.

For months, the discussion about cutting the budget deficit was dominated by the when, and the how much - debates in which the true differences between the parties were fairly small. But thanks to the Shadow Chancellor, we are now also talking about the how. There, the differences are not enormous either. But they are telling.

Senior Conservatives are now putting all their rhetorical energy behind the idea that there's a right way and a wrong way to cut the deficit. (In case you missed it: spending cuts good, tax rises bad.)

This shift of emphasis may or may not help their party. But for voters, it might, just might, produce a more meaningful campaign.

How so? Well, for starters, the debate about how to cut borrowing does reflect a genuine point of difference.

True, everyone (or nearly everyone) thinks that public spending cuts need to make the largest contribution to bringing the deficit down. For Labour the ratio of spending cuts to tax rises by 2015-16 is about 2 to 1 - for the Tories it's 4 to 1. As we all know, behind that difference of emphasis lies a larger difference of doctrine.

At the margin, the Conservatives want you to know they will fear tax rises more than spending cuts. Labour wants you to know that, in a tight spot, they will put public services first.

It may sound like a trip down memory lane to depict the two parties in this way. But that is what the past week has really been about. In effect, Labour and the Conservatives have been reminding voters that, when it comes to the deficit, the old biases still apply.

You might have come to that conclusion about Labour already, from the fact that the role of tax rises in the Chancellor's deficit reduction plan has grown steadily since it was first unveiled (that ratio used to be 4 to 1.) Now Mr Osborne has shown some old colours too, complicating his message on the deficit with talk of reversing most of Labour's 'tax on jobs'.

I should say at this point that what the Liberal Democrats' basic instinct would be is much less clear.

That is one of the many downsides to the rather false debate about the public finances that we've had so far: Britain's third party has been able to sound like the voice of reason, without ever really telling us what it would do. As of today, it is not entirely clear, for example, whether the party would protect any public services from cuts. Vince Cable says no. But other senior members of his party, including his leader, have been less clear. Apparently we have to wait for the manifesto to find out.

You've seen the economists battle it out over the timing of deficit cuts. Will we see the same war of words from them over the national insurance rise? Perhaps. But in the basic choice between tax rises and spending cuts - as I've written in the past - the academic literature is unusually clear. In normal times, the evidence suggests that spending cuts are less harmful to the economy than tax rises.

Needless to say, the economists - and everyone else - can still have a debate about whether these are normal times. Labour's basic argument is they are not: after an unprecedented global financial crisis, we can't count on private demand to fill the gap.

That takes us back to more well-trodden ground. But there's another reason why the debate over the national insurance rise is useful: it introduces a knowingly abstract debate to some brass tacks.

Once they had said they wanted to avoid the National Insurance rise, the Conservatives were forced to commit detail in describing what they would do instead - much more detail than we have had from them before.

Yes, Labour would say not enough - because the efficiency savings are not spelled out by department. But as I said last week, the government has not exactly been a model of specificity in this area either.

From them too, the Tories' move on National Insurance has forced more detail about their efficiency savings than they had ever provided before. (After all, to show how the Tories were duplicating their plans, they had to indicate what those plans actually were.)

There are risks here for both sides. Labour are clearly uncomfortable talking about the impact on the economy of higher taxes next year. And the Conservatives may find they have to choose between a promise to cut borrowing further, faster, than Labour, and a promise to avoid further tax rises. George Osborne has not (quite) given the second promise yet. Without the National Insurance rise, it's not entirely clear he can offer both.

But, here too, this might end up telling voters things they would like to know about a future government.

No, it isn't the honest debate about Britain's budget choices that commentators say the voters deserve. But it's a start.

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Welcome to the election. If we're to believe Alistair Darling, the Conservatives' 'credibility gap' on tax and spending has shrunk by 34% since January, or about £11bn. If they carry on like this, they might be thoroughly credible by election day.

Naturally, that is not how the chancellor put it in his press conference this morning, as he released more than 180 pages detailing the Conservative Party's (new and improved) "Credibility Deficit".

Back in January, Labour said there was a £33.8bn hole in the Conservatives' plans. Now it's fallen to £22.2bn - suggesting a 34% rise in credibiliy. But, to coin a phrase, Labour's numbers really don't add up.

I'll come back with more detail in a later post, but here are some of the headline problems which I spotted in the first few minutes of looking at it:

The new dossier claims that since January the Tories have "broken" promises worth £7.2bn a year by 2014/15.

But the promises they've broken aren't always the same as those listed in the January report. For example, back then, Labour said the Tories were committed to spending £5.2bn abolishing stamp duty on shares.

That has disappeared entirely from this report, to be replaced by an entirely new Tory pledge to reverse the abolition of the dividend tax credit (Labour's famous "pensions stealth tax") at a cost of £5bn.

I asked George Osborne's office about this. They said that he promised to "look at" abolishing stamp duty a few years ago. Apparently they looked at it and didn't like it.

And as for the dividend tax credit - well, he has said he wants to bring it back but in his conference speech he admitted that it could take "more than one Parliament". So much for that.

Back in January, Labour said Mr Osborne had promised to reverse the new 50p rate of income tax, at a cost £2.4bn. Now that's gone from the list entirely. It's not clear whether Labour thinks they "broke" that promise or not.

On the other "broken promises", the Conservatives have "broken" their promise of 45,000 new single rooms in the NHS. That's a fair cop.

Most of the other promises, such as reducing taxes on savings, were part of their submission to the 2009 Budget. Perhaps others will disagree, but it's not obvious to me they count as election pledges. If memory serves, there was some debate at the time about the status of the submission.

Likewise, the dossier itself provides no documented evidence for a pledge to spend £492m a year on providing maternity nurses for all.

The quotes in the report suggest that Conservative officials have said they will "look at" the system in Holland, which might cost that much to replicate here.

But even Labour's attack dogs don't seem to be able to find a solid Tory pledge to do so.

Two other big-line items are also on what you might call the flakier end of the "fact" spectrum.

Once again, the tax cut for married couples is listed at £4.9bn, which would be the cost of the change proposed some time ago by Iain Duncan Smith.

But the Conservatives have now made clear they will be recognising marriage on the cheap. It won't cost nothing. But it could cost less than £1bn.

You can call that derisory. You can say it's an empty promise. But you cannot then also say they've committed to spend nearly £5bn on it.

The document suggests the Conservatives will save precisely zero pounds from the efficiency drive announced this week, which Mr Osborne says will allow him to cut the budget of non-protected departments by £6bn.

Labour say this is because the Conservatives' savings are already included in the efficiency savings that Labour has already committed to for 2009-10 and 2010-11.

As I said on Monday, there is quite likely to be an overlap here between Tory efficiencies and Labour's. But there is one important difference. The Tories are promising to cut departmental spending in line with the savings.

That makes them "real", even if they are not as painless as they suggest.

If they are the same as the efficiencies already built into Labour's plans, then they will have a bigger effect on services than the Tories claim. But, once again, Labour can't have it both ways. You can't claim the cost-cutting will have a devastating effect on public services and the economy - but somehow, with all that, not raise any cash.

The Conservatives have at least given us a number by which to measure whether those savings happen. That is more than Labour has done.

And a party that has yet to account for two thirds of the £35bn in efficiency savings promised between 2008 and the end of this financial year (April 2010) isn't really in a position to lecture the Conservatives on their lack of detail.

There are other, more minor mistakes in Labour's document. For example, they have costed the National Insurance tax cuts for next year at £6.7bn a year - as if they were reversing all of next year's rise.

However, the IFS has estimated the cost of the measures proposed by Mr Osborne on Monday at £5.6bn a year, falling somewhat over time.

The bottom line? Well, I haven't read all 181 pages yet (forgive me). But right now I'm hard-pressed to identify a hole in the Conservative plans of more than £5bn, if that.

Now, you might see the gap between that and the Labour figure as a tribute to the slipperiness of Conservative "promises". Certainly, the document shows some nice sliding in the rhetoric of senior Tory politicians, between things that sound like promises, to aspirations, or vague "hopes".

They turn out to be "looking at" so many policy proposals - I'm surprised they have time for anything else.

Yet the Conservatives hardly have a monopoly on non-pledge pledges, or uncosted aspirations. This election campaign is already full of them, from all of the main parties. And it hasn't even formally started.

Labour may have planned to land a knock-out punch on April Fool's day. But, as far as the Conservatives are concerned, the joke may have backfired.

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