Economy

Markets sank into negative territory this morning, following Standand&Poor’s downgrade of Italy’s credit rating. (Although they have since recovered.) The agency cut Italy’s rating from A+/A-1+ to A/A-1; it also kept its outlook as negative. The agency’s reasoning is hardly surprising: growth is negligible, debt is unsustainable and Silvio Berlusconi’s inert government appears incapable of arresting the crisis. Frail economics and supine politics, those twinned threats to prosperity, have struck again. The implications to the Eurozone, and the world economy, are obvious. An economist in Nomura’s Sydney office told Reuters, “It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here.” Over

The Telegraph’s splash on Europe indicates that the issue, which proved so toxic to the last Conservative government, has risen again. Writing a stern op-ed for the paper, serial rebel and anti-Cameroon Mark Pritchard calls for a referendum. This will have irritated Downing Street no end, which is understood to have hoped that the whip-sanctioned Eurosceptic grouping that has formed around George Eustice might have contained the party’s factious elements. But some disgruntled MPs on the right privately say that last week’s well attended meeting of Eustice’s group turned into something of a disappointment. The insistence that an exit from the EU was off-limits for the moment was apparently met

Sandals are being rattled in Birmingham this morning. The Liberal Democrat conference opens to a chorus celebrating the party’s achievements in government. Nick Clegg tells the Independent that “Liberal Democrat fingerprints” are all over flagship coalition policies on schools, welfare, pensions, banking reform and the NHS reforms. He says of the latter that the Liberal Democrats have tempered the Conservatives. Clegg will reiterate this point at a rally later this afternoon. Despite news that the Liberals seek an electoral accommodation with the Conservatives, senior party figures are at pains to accentuate their differences with the Tories. Danny Alexander informs the Financial Times that he views the new backbench Tory Eurosceptic

It is hard to overstate how serious the crisis in the eurozone is or what it might do to the politics of Europe. The European project is putting in danger the very political stability in Europe that its supporters have always claimed to be its strategic and moral justification. I understand that American banks are now so nervous about the situation on the continent that they have effectively stopped new lending to European banks. The view in Westminster today is that the Greeks will avoid default for a little longer. But few can see them making it to Christmas. Indeed, the expectation seems to be a default sometime in October.

Cameron and Miliband went six rounds on the economy at PMQs. Miliband tried to portray Cameron as just another Tory who thinks that “unemployment is a price worth paying”. Cameron, for his part, wanted to paint the Labour leader as someone whose policies would send Britain tumbling into a sovereign debt crisis. At the end, it felt like a bit of a no-score draw. Interestingly, Cameron stressed that “every week and every month, we’ll be adding to that growth programme”. We’ll have to see whether he’s talking about more small-bore measures, or something bigger on infrastructure investment. Labour had a new tactic today, trying to fact-check all of Cameron’s answers

David Cameron and IDS have been promoting the Work Programme this afternoon and they reiterated that jobseekers must learn English to claim benefits if their language difficulties are hampering their job applications. It’s another indication of the government’s radical approach to welfare reform. Aside from that, the main event in Westminster today was Ed Miliband’s speech to the TUC. Miliband was widely heckled by the Brothers, especially when he told them: “Let me just tell you about my experience of academies as I’ve got two academies in my own constituency. They have made a big difference to educational standards in my constituency and that is my local experience of that.” The Tories

If anyone had any doubts about how difficult the politics of banking reform and planning would be for the Conservatives, they’ll be dispelled by a glance at a couple of tomorrow’s front pages.  ‘Osborne to let banks off the hook—for now’ screams The Independent. This a reference to the Chancellor’s plans to consult with the banks on the conclusions of the Vickers report—which the government has seen but is officially published tomorrow morning. The political problem for Osborne is that anything other than the immediate implementation of Vickers’ recommendations will be seen as a favour to the banks. But pushing the reforms through now could undermine an already weak economy.