Current turmoil may yet turn out to be relatively good times

HAVING spent the past decade being "governed" (harried, bamboozled and cheated, more like) by a bunch of unprincipled riff-raff whose incompetence was matched only by their arrogance, we British know a thing or two about politicians and their extraordinary capacity for making the worst of a bad job.

We are emerging from a truly dark age, an age of persistent mendacity and endemic incomprehension of how anything out there in the real economy actually works.

These have been bad times; can things only get better?

My theory, expounded in a couple of columns earlier this year, that deficit reduction may be more elusive and, if overly zealous, more damaging than we all think, has met with a quite striking lack of support.

Taking a contrarian line is usually the key to success, but being outnumbered 60 million to one suggests that some intellectual flexibility is in order. Already we know of the quite plausible plans to shave 6 billion from current spending, and the forthcoming Budget will doubtless bring tidings of dubious joy for the next few years. So the effort is going to be made and whether the cyclical deficit does indeed blow out as the structural deficit is trimmed will remain to be seen.

But the general direction of the economy over the medium term is becoming clearer, external accidents aside.

So GDP growth can be expected to pick up; after 18 months in recession, it would be just too depressing otherwise. Sterling weakness has to date done more to improve exporters' profit margins than export volumes, but our diminutive manufacturing sector is showing encouraging signs of life. The City (or Cities, London being far from the only centre of financial excellence in the UK) will continue to lick its wounds and start paying more taxes. Consumers are celebrating the aversion of Armageddon by cautiously popping out for the occasional new frock, although I do not in this instance speak for myself.

But growth will be slow. Forget the tosh trotted out in recent Budgets about growth settling at 3 per cent a year. It will be interesting to see what numbers the Treasury comes up with under its new masters, but a decent finger-in-the-air bet would be little more than half that. The nearest we can get to certainty is that the coming five years will be a hard grind.

If self-delusion was a key weakness of our former government, in the eurozone it is elevated to an art form.

The euro seemed like a promising idea when, at the outset, it was confined to the core countries of the EU. But as soon as mendacity and self-delusion took a hold, the project was doomed eventually to face a major crisis. The inclusion of Italy was the clearest marker.

It wasn't Italy but Greece, but the effect has been just as awesome. The euro is in trouble and its fundamental weaknesses are home and roosting. The central bank has broken two of its cardinal rules and has no credibility left.

And the politicians? We marvelled at the naivety and self-delusion of British MPs when their dodgy expense claims were rumbled; but look south – every day some idiot who happens to be in a position of power opens his mouth and inserts a foot.

This would all be quite entertaining were it not so dangerous. Vince Cable has already cited sovereign debt risk as a driver for serious, credible plans to tame the finances, and he is right. Starting with Greece, then Portugal, Spain, maybe France, a rolling crisis could so easily reach the UK too. Heaven forfend, but if the worst were to happen, five years' hard grind would look a pretty soft option. So pray, fervently, that by some miracle Europe gets its act together.

• Peter Bickley is a consultant economist.