20/09/2011 Newsnight

The IMF declares the global economy is entering a new dangerous phase,

just as Greece tries to grab at another �8 billion hand-out to

stumble on with. The global economic outlook today: grim.

In groz they are getting ready to implement yet another economic

shock, but with it draining away, can anything save this country from

default. They are burning their tax bills in

at then, if the fate of Greece is sealed, cannot the same be said for

the euro and our own economic experts.

Martin Wolf is here, along with a former Chancellor of the Exchequer,

former Chancellor of the Exchequer, and a City analyst.

Is Liberal Democrat enthusiasm the only thing standing between the

British Government and a fit of full on Europhobeia. If you keep

beating the anti-European drum, if you Labour over tax cuts for the

rich, you will put into peril the most crucial treatment of the

Government. The Energy Secretary will be here to bury the

misbegotten euro, or pos below praise it. The time was when

governing took place on paper and in triplicate. What happens when

politicians make decisions on smart phones. We poke the ant hill to see

what crawls out. What is the story about the

Government minister and the unofficial hidden e-mail system,

tell us how the secret world of Whitehall works today.

The grok Government tonight said they are getting close to a- the

Greek Government tonight said they are getting close to the package

for the bailout money. That won't put an end to the problems. If you

doubt how desperately serious maybe the consequences of this problem

for all of us, listen to the International Monetary Fund today.

It has slashed its growth forecast, and said if political leaders fail

to find way of sorting the mess in the eurozone, things could get much,

much worse. Is there a deal or what? There is

no deal. Greece has been 25 days worth of cash before it has to

switch the lights off here in the Acropolis, and sack the people who

look after that, and every other state employee in the country. So

no rush. We do, however, know some of the details of the deal. We are

seeing Greek national newspapers being briefed tonight. One of the

papers has 100,000 state workers to be sacked or moved to involuntary

holidays, and public sector wage cuts and generally more austerity.

I have been meeting people today, school students who have turned up

in their schools in September, no textbooks. I have been hearing the

police trade union claiming that police officers having to buy their

own armour, fill up their own patrol cars. All this before the

new round of austerity. Because the old austerity didn't work, and what

it means is things are going to get a lot tougher.

While the politicians dithered, the people were, once again, out on the

streets. Greek civil servants know they are hours away from a mass

redundancy programme, tens of thousands will be laid off, tens of

thousands more put on compulsory holidays on 60% pay. Once again,

Greece is at the centre of the storm, because past solutions have

not worked. Upped the terms of its first bailout, in May last year,

Greece was supposed to reduce its budget deficit to 7.6%, the latest

estimate is 8.5% and rising. Its debt is predicted to hit 189% of

GDP next year. As a result, IMF negotiators are holding back eight

billion euros of bailout money, and imposing strict, new austerity

measures. At the centre of the new deal is a two billion euro property

tax, this is what many people in Greece think of that tax.

The problem is, those who are bailing Greece out just don't

believe reforms will be enacted. The IMF yesterday called for a one-

off shock to the system. European partner, in effect, have

told you as a country, that they will standby you for as long as it

takes. Provided that Greece continues to pursue sound policies.

So this, in our view, really places the ball in your court. The ball is

in the Greek court, and implementation is of the essence.

But Greeks have had 18 months of this, there is a weariness on these

streets, and many economists and politicians believe the medicine of

tax rises and austerity is simply killing the patient.

When you have built within the people, the concrete people, the

very conviction that they are trying to impose measures that they

have just imagined out of thin air, the real situation will not conform.

Civil servants won't im pliment the measures, real people won't pay

their taxes, and the whole country, the whole economic system of the

country is going to gently flounder. This is pulling others towards the

danger zone, Italy saw their credit rating downgraded, and any Greek

default could signal a crisis in France, Belgium and Germany. The

global economy has entered a dangerous new phase. The recovery

has weakened considerably. Down sideways and increased sharply.

Strong policies are needed both to improve the outlock and to reduce

the risks. Globally the problems are mounting.

Fiscal crisis and recession feed off each other, the IMF today

revise its forecast down for the eurozone and the US and the UK.

Markets have become more sceptical about the ability of policy makers,

of Governments, to stablise their public debt. And tonight, on the

brink of yet another round of austerity, and protest, Athens is

the capital of the unknown. From what's known of the austerity

package, is it likely to work? depends what we mean by working.

There is a risk that Greece will default this week. That is why we

are having this meeting. If Greece defaults, that is bad news for the

world's banking system. But, I think it is likely there will be a

deal. It is effectively a game of chicken between the IMF and EU

negotiators and the Greek Government. We are down to the

detail. The detail is important, what the IMF needs, the EU, is to

go back to countries that provide the money for the bailout and say

this is not just going to work for now, but it will put Greece back on

a path that if not spectacularly brilliant, it is not disastrous,

and we won't be here again. It is in the balance whether they can do

that. They are scraping the bottom of the barrel by cutting the tax

ceiling from 8,000 euros to 4,000 though YuriGagarino50 roars, you

start paying tax at 4,000 though euros, it is stuff they can do now.

We have had 18 months of austerity now, and the economy is shrinking

faster, the tax take is collapsing. In part, because people are just

not making profits, not making money, but also, there is evasion,

there is revolt, there is refusal. What the IMF is asking the Greek

Government is to finally turn around to its own electoral base

and say, do you know what, the era is over, free education, free

health care, what's left of it, all the things we have stood for, are

gone. And they want it to be a kind of a political shock so that, as

the IMF guy put it, yesterday, the shock is felt and then we build

from there. They just don't feel there has been enough psychological

adjustment in Athens or the rest of Greece, as to what austerity really

means. The significance of this

downgrading of the IMF growth forecast? Well, I think the IMF

growth forecast for the USA, for the eurozone, for the UK, it means

that we're running out of steam on recovery. And we are now in the

territory of looking for policy action, not just here in Athens but

in Washington, London and Brussels. We can begin to expect some, we can

expect tomorrow the US Central Bank to signal the more - European bank

to have more money printed, quantitative easing as it is called.

We can see that more money will be borrowed on their behalf, with a

big policy debate, that all politicians, not just our's in

Britain and those in Greece have to grapple with, can there be more

stimulus, if the old stimulus didn't work, what price the next

stimulus. With us is the economic journalist, Martin Wolf, the former

Chancellor, Lord Lamont, and the markets analyst, Louis Cooper. Can

Greece be saved from defaulting on its debts? No, there is no chance

Greece won't default on the debt. Almost no-one believes anything

else. Do you also believe that Greece will default? It will

probably be put off until after 2013. They will find a package to

get them through. It is a default at the end? It has been a partial

default already. I think there will be a further default. I think it

would have been better if this had been recognised earlier. What do

you think? I think it's absolutely given. They can't pay back the

amount of debt they have. I would be quite so optimistic as 2013.

Credit Default Swap market is telling you that it's getting close.

So, you all agrow, Greece is going to default at some point if it

hasn't already done so. What is the consequence of that? It depends on

how it is done, is it with co- operation, with agreement,

essentially they have reached the end of the road. In that case it is

possible to default without leaving the euro. What would happen is

there would be a huge writedown of debt, halved at least, and an

agreement to recapitalise the banks, only the eurozone could do that,

and lickify the banks. If that weren't - liquify the banks, if

that weren't done they would have to have a new currency. Wouldn't

that destroy any credibility the euro would have? The opposite, if

the euro is going to work at all, some of us have always been very

sceptical, it includes the possibility, inherent in the model,

that Governments will default. Just like states can default in the

United States. The default is quite different from exit, though it can

lead to exit. Default seemed to me always a plausible outcome, Greece

is the case. I agree with that, I think if Greece left the euro,

which I think ought to happen in the long run, if that happened now

that would be, one thing is possibly a problem or disaster, the

other would be a cat it is a trophy. If that happened you would see a

huge increase in the debts particularly of French banks, all

detects to Greece. And ifth would be a very difficult problem to

manage. And it would be a very difficult problem to manage.

want them to stay? I think leaving with the market pressure would be

catastrophic, I think it is in the interests that they should stay in

for maybe a couple of years, and then you should have a

reconsideration of the whole structure of the euro. How does it

look in the markets? Ugly. The credit markets are getting to

Lehman level, they are creaking wildly. Most commentators and

journalists focus on equity markets, they don't know about the wholesale

funding markets. This is how banks fund themselves. At BGC it is what

we do a lot of. I had a long chat with the brokers at their desk, and

he said if you are a French bank with any exposure to Greece,

Ireland and Portugal, getting short-term funding is difficult. He

says you have to beg, borrow or steal. And banks have to, have to

balance their books at the end of the day. It is all very well

talking about big writedowns on Greece, but liquidity is far more

important. It is very tough out there.

What about the question, not of falling out of the euro, but being

chucked out of the euro? Legally it is impossible, there is nothing in

the treaty that allows it. The thing is you can't just leave the

euro, legally, you have to leave the European Union, and then you

have to ask to come back. I think in this case they wouldn't be

allowed back. But this was designed to be irrevocable. That is how it

is designed. So you would be creating a new treaty, you know how

that goes. The Dutch Finance Minister and Prime Minister have

proposed that there should be, in addition to fiscal measures that

there should actually be a mechanism created for the future

whereby countries that are not meeting their fiscal targets should

be able to be expelled. But this is something that they have just put

on the table. It is for the longer term. We need a new treaty. You are

going to need new treaties whatever happens. One of the great problems,

one of the reasons this thing is so dangerous, is that the stablisation

mechanism, the European fnction financial stability - Financial

Stability Facility, has to be radfied by all the 17 members of

the eurozone. Some countries - rad ratified by all the 17 members of

the eurozone. And the smallest party in the coalition in one

country is saying it won't vote for it. There are so many moving parts

in all of this, that even a small objection by a small country can

tip the thing over the cliff. There are so many possibilities for

miscalculation and error. At which point is it bad news for us? It is

already. The real danger, in my opinion, is they go on with half

measure after half measure, sticking plaster after sticking

plaster, you get a respite for a few weeks, then another crisis,

then another respite, and another crisis. This goes on and on, it is

sapping confidence in the most appalling way. Presumably it is

already having an effect, presumably from where you are in

the markets, the effect upon banks and the rest of it is something

that begins to feed through to other parts of the economy, is it?

Absolutely. There are many banks having trouble funding themselves

on a day-to-day basis. They can get money, but it is expensive, and

they are funding very short-term, three month, or six months money

that they used to get all the time. That has gone. And banks' long-term

funding where they issue bonds, we haven't seen big European banks

issue bonds since in June. Banks have big loan books, they have to

fund them. The banking system is getting close to crisis levels. It

is all very well talking about political will to sort the mess out,

but this takes months, years. quite agree. The markets don't wait

that long. We talk about politicians being behind the curve,

you are so far behind the curve you need to run very quick to catch up.

The European Central Bank is now going to be forced to do everything

it hates, among other things, it is going to have to finance the

Governments in trouble, including countries like Italy and Spain, it

is going to have to finance the banks, its balance sheet will have

to explode, and the Germans will absolutely loathe it. In addition,

as Christine Lagarde pointed out, they will have to find way of

putting capital in the banks to make them look stronger. The

European banking system, the big zest in the world is under enormous

stress. What happens to us? If they do manage this thing it creeks on

to a subsequent - creaks on to a subsequent crisis, the Germans will

hate all of this, they can leave, they have more of an option than

anybody else. But if they fix it goes on, if they don't fix it we

have a monstrous banking come sovereign crisis next door.

people start leaving the euro, they have to leave the European Union.

That is the end of the European Union then? I think it is true, if

the Germans decide that they cannot stand this, any more, and they do

decide to pull out, we are nowhere near that, but if they do, yes the

European Union, in my view is dead. This remakes political map of

Europe completely? This crisis is very serious. There is tremendous

tension in France, you have the older generation that this is the

crowning jewel, the creation of the euro and bringing in Germany and

anchoring it in Europe. Germany is fed up with the cost of it, opinion

is changing. Mrs Merkel is sitting there, waiting and hoping that some

consensus will emerge and it won't. Thank you very much. The crisis in

the euro casts a very long shadow indeed, which also falls across

those of us who choose not to be part of the project, bailing out

other European states who opted in has already cost us an arm and a

leg. There are other potential costs too, for example, the two

wings of our very unusual Government have quite different

instincts with some prominent Liberal Democrats having once seen

the euro as a passport to paradise, and prominent Conservatives getting

knows bleeds at the very mention of the - nosebleeds at the very

mention of the idea. When the coalition Government was formed

last year, the divisions between the Lib Dems and the Conservatives

on Europe weren't exactly a secret. The parties didn't settle their

differences, but decided to bury them in a Downing Street garden

instead. But now the crisis in the eurozone could become a crisis for

the coalition. If anyone inside Government thinks for one moment

that we can renegotiate our relationship with Europe that is

the end of the coalition, I am afraid. There will be a point where

the liberals and the Tories can't agree, then it collapses, it could

be the issue of Europe and the euro. Britain's relationship with the

rest of Europe has caused fissures in the political landscape, the SDP

was set up partly in response to Labour's policy to leave the then

European community. In the 190s John Major's Conservative

Government was riven with division over economic and monetary union.

These days the vast majority of Tory MPs are now sceptical towards

the EU. So today a Lib Dem cabinet minister warned some of his

Conservative colleagues not to turn the euro crisis into a political

drama. We will not, as Liberal Democrats in Government, weaken the

ties that deliver our national interest through Europe.

APPLAUSE And let that be a warning to the

Conservative right here, we need no Tea Party tendency in Britain.

APPLAUSE If you fail to compromise, if you

fail to seek the common ground that unites us, if you insist that only

you have the answers, if you keep beating the Antoinetteity European

drum. If you slave over tax cuts for the - anti-European drum, if

you slave over tax cuts for the rich, you will wreck the economy

because we are all in this together and we can't get out of it alone.

In truth there are far fewer divisions between coalition cabinet

ministers than between the two parties' backbenchers. In practice

David Cameron and Nick Clegg now accept the concept of a two-speed

Europe, where those nations inside the eurozone more closely align

their policies on tax and spending, putting it more bluntly, the

better-off countries on the continent would bail out the others,

in return for greater say over their economies.

The Treasury says contingency plans are being drawn up if the crisis

deepens. Unpessimistic scenarios a further recapitalisation of the

banks shunting ruled off. If Britain faces any of the cost of

the crisis, many people a political price should be exacted. The key

demand is we want powers back from the EU so we once against govern

ourselves in this country. In particular, the need to have a

referendum so that the people decide. And I think probably, I

mentioned 100 people, I think clearly there is a large number of

colleagues, I think really growing day by day, who are backing that

call for a referendum. Here at Lib Dem conference, a

former Treasury spokesman has decided to issue a stark warning to

any Conservative minister who is tempted to follow the lead of Euro-

sceptic backbenchers. Europe is obviously one of the real

fault line in the coalition, which is why in the coalition agreement

the only possible answer was a total stand still. We don't move

forward, we don't move back, that's the deal, that is what we are stick

to, and if anyone inside Government, and there have been some worrying

noises from William Hague, if anyone inside Government thinks

more one moment that we can renegotiate our relationship with

Europe, that, I'm afraid, is the end of the coalition, if that were

to happen. These blank cheques are on sale in

the Lib Dem shop, are you doing a roaring trade on those? We do a

very good trade trade on the cheques. The Liberal Democrats are

of course serious about deficit reduction, but as you have maerd

blank cheques are selling well. What the Conservative backbenchers

are suggesting is that the junior coalition parties have such a soft

spot for the EU they are willing to write as many of these as possible

to prop up the single currency. We have our Liberal Democrat cheque

here, you have been critical in the past about bolstering the eurozone,

how much do you think the British Government's liability should be,

how much should they pay? I will give you that back, I think we

should tear up this cheque, because we shouldn't pay any more money to

Europe. What we should be doing is making

sure that the euro collapses in a style and at a time that can

actually be managed, not in a crisis mode. At the moment we are

heading for the collapse of the euro in a crisis. But a former City

fund manager says that the eurozone shouldn't be allowed to collapse.

None the less, it may have to contract a little.

Greek bonds, Greek ten-year Government bonds are yielding 25%.

That says that everyone in the market knows that they have got to

default. Rather than having these ever-more frequent bailout packages,

just like letting a spend thrift increase their credit card limit,

we must get together and take a decision on Greece. More unites

than divides coalition ministers on how to handle the current crisis,

the pressure set to be applied from each party's rank and file for them

to move further apart. Joining us now from the Liberal

Democrat Conference in birmling ham is the energy - Birmingham, is the

Energy Secretary, Chris Huhne. On the question of the euro, do you

still subscribe to the view that you once held that the euro is

living up to the highest expectations of the economists who

advocated it, and Britain is missing out? Clearly not, Jeremy.

One thing I think is very clear, is that if you are like Greece, a

country that has falsified your national accounts, and in this case,

in order to get into the euro area, even if you were outside the euro

area, there would be a real day of reckoning. All that would happen if

the Greeks had their own currency, is that they would be facing a

Latin American-style hyperinflation, with a massive devaluation, that is

not an easy way out either. The reality is the problems that are

besetting Greece are ones which predated the euro area. It would

have been a huge mistake for us to join the euro was it? It was a huge

mistake for the Greeks to join knowing as they did their national

accounts were...I'm Asking whether it would have been a mistake for us

to join, and clearly it would, wouldn't it? Clearly, if you look

at the number of countries that have joined, there is a commitment

to making the euro work, which I think we would underestimate at our

peril. Up until now, right the way European Union history, from the

1950s onwards the British people have consistently underestimated

the political will on the European mainland to actually get these

problems together. Yes or no, should we have joined the euro as

you advocated, yes or no? question of joining the euro is

clearly not one for the UK. We are out of the euro and that issue is

settled. All I'm saying to you if we start wringing our hands.

trying to get a straight answer about whether you think it is a

good idea to join or not? You have had a very straight answer. We have

consistently underestimated the political will to the euro. That is

the answer to a different question, do you think it is a good idea to

join the euro, yes or no? The issue hasn't been a live one in British

politics for a long time. If we had joined the euro it might have been

a different beast. The key issue today is whether or not Greece

should have joined the euro, the answer to that is clearly no. If

they hadn't provided false figures to the European Commission in order

to get in, whatever the monetary system in Greece there would have

been a problem. You have made that point. Can I try something else out

on you. When you said today, that you do not want a Tea Party

tendency in Britain, were you referring to any members of the

cabinet, when you made that accusation? No, I'm talking about

what we are seeing on the Conservative right, a number of

cases. Who are they please? Well, you have just been quoting on your

own programme some backbenchers talking about trying to renegotiate

our existing treaty obligations within the European Union, this is,

afterall, the eurozone taking half of our exports. How many of them,

Bill Cash and a few friend? This is a significant number, and there are

people who are putting pressure on the Government to try to come to a

set of conclusions, which to my mind would be deeply against our

national interest. When we have a fundamental interest in the success

of the European Union, half of our exports go to the eurozone, these

are political choices, this is a geographical reality. We sell more

to Ireland alone, which is a member of the eurozone, than we do to

Brazil, India. We are familiar with the arguments, I'm trying it find

out? I'm not sure you are familiar with the arguments. You were

directing that at Bill Cash and a few like-minded souls on

backbenches, that is what it was directed at? We have had two

examples recently, where it seems to me there is an attempt to move

the centre of graeity in the Government away from the agreement

we made in the coalition deal, that was very clear about Europe, we

don't go forward but back either. If we are having people in the

Conservative Party saying we need to unpick our European

relationships, when they are so fundamental to our prosperity and

growth and export, that will be a problem for us in the Liberal

Democrats. You would agree with Lord Oakeshott, that it would be a

deal breaker, wouldn't it? Lord Oakeshott chooses his own words on

this. What I am saying is we have the basis of a compromise, which is

in the coalition agreement. We will not unpick that, we will respect

the coalition agreement. The point I will make in my speech is we have

achieved through the deficit reduction in Government. We have

got out of the economic danger zone affecting so many other countries

with bigger deficit than us. Let's talk about the deficit plan. There

is talk tonight of there being an additional �5 billion, some how

found, to be spent on capital investment in infrastructure

projects. Is that true? I have no, I don't recognise that figure at

all. I have absolutely no knowledge of that. It would be news to me.

you recognise any figure, is there a plan to free up billions of

pounds? No. There is no such plan? What there clearly is a desire

right the way across the Government to make sure we are putting forward

as creatively and imaginatively as we can, ideas to get growth going.

But the fundamental achievement, which we have made so far, which is

to get that deficit coming down, and to persuade the financial

markets, that we are a safe haven and not the sort of risk which they

have seen in Ireland, Portugal and Spain and Italy, and Greece. That's

fundamental. Because if our interest rates start rising like

their's, we will be in a double-dip recession, and we have saved the

country from that. We now need to build on that. Unlike them, they

are in the eurozone and we are not. Specifically on this question.

is not just the eurozone, as you have seen from the IMF forecast

there is a downgrade in the United States, and the failure of

compromise that I gave as an example in my speech was actually

in the United States. Where the failure to compromise between the

President and Congress actually has led to the downgrading of the

United States credit standing. I don't want to see us go through

that. Was there anything like this plan, �5 billion you say you don't

recognise, has anything like this been discussed in cabinet and

agreed upon? No. Nothing at all? Has anything like this been

discussed and agreed upon in the last couple of days, say?

Certainly not that I am aware of. This story is a fiction? We do that

r have a growth review process where we are attempting to come up

with pragmatic ways in which we can get the economy growing, and make

sure we are getting the jobs coming back, and getting back ob that path

to recovery. We have done the serious heavy lifting of reducing

the deficit and getting out of the danger zone, we have to move

forward to the positive agenda of stimulating growth and getting jobs

coming back. I don't recognise anything of the story you have

given to me. Thank you very much.

How much are we entitled to know about what goes on in Government?

Every party makes promises about not keeping things from the citizen,

and claims to believe in some form of open Government. Yet the

Financial Times has seen e-mails from a so-called special advisers,

they are the political cronies, politicians take into Government,

to keep them true to the faith, amid all those Godless civil

servants, which can be construed as showing something else all together.

We have spent most of the add - Michael Cockerell has spent most of

his adult life looking at how power works in this country. We asked him

what he made of it. Whitehall has its own secret world, for some

civil servants discretion is like the calcium in their bones. But

sometimes leaks reveals what has been going on inside Whitehall's

inner sanctum. A sensational story in today's Financial Times, alleged

that Michael Gove, the Education Secretary, and his senior political

advisers, were using a private e- mail system, which concealed

sensitive information from his own officials and from the public. When

the department was asked to produce these e-mails under a freedom of

information request, the department said it had no record of them.

think the question here is not whether it has once or it is a one-

off, it is whether or not there is a systematic avoidance of the

scrutiny that comes with freedom of information. The suggestion is that

Mr Gove and his advisers have established a parallel private

network, to the formal Government e-mail. If ministers decide to

short circuit official system that is allow decisions to be understood

and become accountable, then it will lead to bad Government. It

will trip ministers up and the Government up. It is very tempting

in the short-term, sometimes, to bypass systems and do things off

the record, private e-mail systems, blackberries, whatever, it is not

good Government. Decisions will be taken that aren't accountable or

properly understood. In its response to the allegations the

education department said its top Mandarin had seen the e-mail the FT

relied on. It said the e-mail concerned a political matter. As

Conservative spring conference and sent to party officials not civil

servants. The Financial Times story, which may or may not be known as

gofgate, shows dramatically how the way Whitehall works has changed

over the years. It contains many ingredients that are different from

the traditional Whitehall Mandarins. The rise of the span, the special

adviser. 30 years ago, a TV satire showed

how the efigures civil servants reacting to the intrusion of the

first Spad. This is my political adviser. Oh, yes of course.

Mr Weaser? Wiser. Of course. These are Labour's two top advisers,

with the power to give orders to civil servants, the super-SPADs

brought a new power. Do you know there has been a massive

irretrievable data loss, the last seven months worth of new immigrant

details have gone. During your time as a special

adviser, the thick of it was a satire which was satirising the way

special advisers work, do you recognise that? Not myself, but

there were certain people who liked life imitating art, or the other

way round, and modelled themselves on Malcolm Tucker. There weren't

that many of them. Mo of the special advisers I dealt with were

good people and highly motivated and wanted to contribute to

Government. There weren't that many of them, but a few? A few, not many.

Those were the ones that you usually hear about.

When David Cameron, a former SPAD himself came to power, he said he

was determined to run Whitehall in a pre-Blair way, he cut back

sharply on the number of unelected special advisers. But Cameron's own

chief SPAD, himself, became a hugely controversial figure. Andy

Coulson, the Number Ten press secretary, had the job of

secretarying Cameron to the tabloids. Coulson had resigned as

editor of the News of the World, while denying any involvement in

phone tapping by his journalists. But the affair continued to haunt

Coulson in Number Ten, though Cameron tried to stick by him.

Coulson resigned saying that when the spokesman needs a spokesman it

is time to go. Following a certificaties of gaffes, Cameron

decided to beef up the Downing Street machine by bringing in a

whole new raft of Blair-style special advisers.

Michael Gove had his own special adviser, who had been vetoed by

Coulson for being too leaky. Today's story about Gove and his

advisers, allegedly using an e-mail system to bypass civil servants,

comes itself from leaked e-mails. Tomorrow's Financial Times returns

to the attack, it claims that Gove ran his own private e-mail, called

the Mrs Blurt account, where he discussed policy matters, bypassing

civil servants. The department tonight told us that they and the

Cabinet Office are clear that private e-mail accounts do not fall

within the Freedom of Information Act and are not searchable by civil

servants, this is a Whitehall farce that will run and rup.

- run. The Liberal Democrats leave

Birmingham tomorrow, after their annual conference, to return to

their constituencies, and gloat about governing, or worey if they

will ever recover from it. Before they clambour aboard the train or

into their hybrid cars, their leader will tell them what a fine

job they are doing in making it possible for him to be deputy Prime

Minister, and what a great job he and his ministers are doing in

stopping the Conservatives eating babies for breakfast. We will have

the thrill of listening to Nick Clegg tomorrow.

What's got you going tomorrow? it show. I thought I was hiding it

well. The theme running through Nick Clegg's speech tomorrow will

be that his party in Government in coalition with the Conservatives

are doing the right things, not the easy things. To pick up on the

conversation with Chris Huhne about the �5 billion, there has been a

rumour all afternoon that will be announced tomorrow in Nick Clegg's

speech. I put it to one of Nick Clegg's advisers he emphatically

told me there will be no new capital spending announced tomorrow.

There will be a reiteration for the people in the hall to try to

reinvagueate - reinvague rate their achievements, things they have -

reinvigourate in their achievements, things they have done in Government.

In terms of going forward, it is going to be interesting to see

whether we pitches his message to the - he pitches the message

exclusively to the hall or beyond. It is a difficult job for any party

leader, particularly one in coalition with a party where a lot

of his members fundamentally disagree with them. Whoever said

you can't please all of the people all of the time might have been

thinking about the Liberal Democrat party.

There is no such thing as a typical Liberal Democrat. I'm a Lib Dem.

I'm a Liberal Democrat. I'm a Liberal Democrat. I'm a Lib Dem.

diversity can make this bunch a difficult party to lead. Leading

the Liberal Democrats can be like herding cats sometimes. But I think

if leaders are wise, they will realise they can get 80% of what

they want. It is when they try for 100% the trouble starts. Is Nick

Clegg trying for 100%?'S Going for 90%, he needs towards 80 and then

he will be fine. With the Liberal Democrats it is not that they have

a reason for Liberal Democrats, they have all reasons for not being

in other parties. The second thing to say about them, is the people

who turn up to conference aren't necessarily representative of

either the party as a whole, or still less, the people who vote

Liberal Democrat. Mark Littlewood knows all about the

different Lib Dem groups, when he was director of comouncations for

the party he had to live and - communications for the party, he

had to live and breathe these groups. The people addressed

tomorrow in the speech are left orientated. These are the guys

knocking on doors, delivering leaflet, collecting petitions,

usually to save the local hospital or whatever. A leftist bent. The

wider membership of the party, the many thousands of Liberal Democrat

members who aren't here, they tend to be a bit more market orientate.

They are not delivering leaflets or taking a week off work to come to

the conference. But when they are asked to vote in a members' ballot,

they make decisions that favour the orange book wing of the party. I'm

right in saying every Liberal Democrat leadership election has

always tended to elect the centre right rather than the centre

candidate. This is the health debate, where we

will find a huge concentration of the Social Democratic wing of the

party. Here, well they are kind of obsessed with, as they see it,

fragmentation and competition within public services.

Shirley Williams is very popular with this part of the party, she

was once a Labour minister, leaving there only when Labour, in her view,

became too left-wing. Like many Lib Dems though, she retains a left of

centre world view. If you were to do a straw poll in there, you would

get a large number of people saying this hasn't been fully considered

yet, there needs to be a lot more work on this, and we need to put it

off for a year and work out what to do? You would, and you would get

people saying start from scratch. The problem is because Mr Lansley,

who is a very energetic minister, has been campaigning for a long

time for the changes he wants to see. What we now have is a

situation where it is very difficult to go back. There is

There is a sense that there are people in the Liberal Democrats who

see things differently, who see localism and setting up local

autonomy as the way to save public services. Other people will say

that is leading to a postcode lottery of which we are not

comfortable? I don't find that to be the deepest division, there is

very little division on the concept of the NHS as a public service.

There is nom some division on where the power should lie. That has been

largely met by changes in the health bill. Pity poor Nick Clegg,

a line he puts in a speech that might get half the audience

cheering, and the other half throwing things. No wonder he has

to spend so much of his time trying to emulsify his dispr rate party.

- disparate party. Whether you consider yourself more of a Social

Democratic or classic liberal, whether you are here for Paddy

Ashdown or Shirley Williams. We will all, to one degree or another,

all of the above. We share the same interHans, we are cut from the same

cloth, we are Liberal Democrats. The diversity of the Liberal

Democrats has always been a strength for the party. It has been