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Gordon Brown is getting ready to face Jeremy Paxman tonight, but that may not be his biggest challenge.

It looks like the Guardian newspaper, the mouthpiece of the British centre-left, may be preparing to call for a vote for Nick Clegg - or at the very least a tactical voting strategy to create a Lib-Lab coalition.

[UPDATE: .]

Last week I foresaw this. I wrote:

"As well as Compass, another player to watch is the Guardian. They're having a "crowd sourced" process to decide who to back. If the Guardian and maybe the Indy come out next weekend and say "vote tactically to create a centre-left coalition" that could have a material impact."

If this does happen, what impact will it have? It depends on how it interacts with people's reading of the economic situation.

Reading the newspapers and the blogs this morning there are now parallel universes. Radio viewers and people in the United States believe Gordon Brown won the debate; the Labour spin-o-sphere is full of messages about "we're really doing well, game on," etc. But the broadsheet press - from the Guardian to the Telegraph and the Times - thinks David Cameron came close to "sealing the deal". We will see - it's such a febrile moment that nobody can really predict it.

What's shaping the debate though is the economic situation, and in the course of the election campaign that's changed. Let me sum up why:
a) We've had the Q1 GDP growth figures - worse than expected and a danger signal of a double dip recession
b) We've had the March unemployment figures: worse than expected and signalling a jobless recovery - with Job Centre Plus performing the sterling service of reducing the claimant count by shunting people onto courses, but negative job creation.
c) Then we had the IFS report - an authoritative demolition job on the fundamentally dishonest way all the parties have tried to mask the cuts they're forced to inflict.
d) Finally the Greek contagion story rocked the markets, and put points a-to-c into a brutal context. This is what happens to countries who do not spell out credible deficit reduction plans and whose politicians delude themselves about future growth.

The press coverage of the IFS was important. Normally consigned to wonksville, the polite number crunchers of the IFS made the front page of every newspaper. Message: the politicians are not levelling with us and the cuts are going to be very bad. Then Mervyn King spills the beans, via a briefing, that the next government is going to be so unpopular it will be out of office for a generation. Then Greece.

Last night Goldman Sachs issued a sobering and thoughtful note on the possibility of the UK getting the Greek contagion. UK debt is already trading as if it had been downgraded but the key, as everybody knows, is whether the incoming government has a credible deficit reduction plan and a non-deluded understanding of possible growth: "The pace and credibility of deficit reduction plans, the prospects for nominal growth," it says, are crucial in the way the markets judge the UK. ("UK Sovereign Rating Under Scrutiny", Goldman Sachs, 29 April 2010)

In the space of a month we have moved, then, from fears of a double-dip setting the agenda - which benefited Labour - to fears of a run on sterling and a gilts crisis driven by contagion from southern Europe. And that benefits the Tory narrative. Though most voters struggle to understand the detail, they can feel the fear.

Labour's misfortune is that, being in power, it is obliged to give the greatest detail not just on cuts and tax rises, but on where it expects growth to come from and how this translates into the fiscal position. I have always thought some of the least credible aspects of Budget 2010 were these non-headline issues: like expecting £17bn of the structural deficit to be wiped out by the rebound in the housing market and the banking sector; and by a rapid growth surge after 2011.

If there is still anything to play for in this election, I think the sobering realities facing Greece and Portugal will lead to people rewarding any politician who is prepared to go beyond last night's evasiveness and start to spell out what they would do in the first 100 days after 6 May.

I understand George Osborne has such a 100-day plan. It would be great if he, or any potential chancellor, would "share that with the group".

Yesterday's developments summarised: Merkel and Strauss-Kahn meet and no bailout is forthcoming. Strauss-Kahn tells German MPs that the final bill could come to E120bn, for Greece alone. The boss of the OECD calls the contagion "Ebola" and though this comes out at lunchtime, when Bloomberg wires it during the close of the London markets, they temporarily tank. An analyst from JP Morgan puts a E600bn price tag on an EU bailout of Portugal, Spain, Ireland and Greece. Nouriel Roubini re-emerges in doom mode warning that Greece is the tip of the iceberg. The whole thing gets a total of four minutes on Newsnight because of Gordon Brown's gaffe...

So where is it going next, and are the contagion fears overblown? First, from conversations with bond market participants the Greek story has changed and is no longer about whether a bailout will happen: once the word "haircut" entered the conversation, the markets were spooked. If the Greek bailout is so big that governments insist bondholders take a hit, to the tune of a 50% loss (or "haircut") on what they are owed, then it is time to lessen your exposure to south-European sovereign debt.

Fund managers are judged by their performance. Long-term asset managers, for example pension fund managers, are so heavily into sovereign debt that any debt write-offs on this scale are "career finishing events", says one source. They're used to thinking of 2% losses on sovereign debt as large. 50% means, well, sovereign debt does not exactly deserve the moniker "gilt edged" anymore.

Bond strategists have started to analyse what's happened in the past - with South Korea or GM - where the debt becomes junk, a restructuring happens and then the value of the bonds come back. It is not looking pretty - you rarely get your money back - hence the contagion.

The market in Greek debt, says Graham Turner of GFC Economics, is effectively broken. If Portugal goes the same way then whatever template the EU creates for Greece will have to be applied to Portugal, then Ireland and Spain come under pressure.

Since many banks also hold south-European debt and use it as collateral to borrow from the European Central Bank, this could spread the contagion to the banking system. It already looks likely the ECB will start to swap its good money for the banks' junk, just as the Bank of England did.

OK - that's the "markets" part of the contagion story. Now here's the political economy: if you read the S&P, Fitch, Moody's etc notes about the so-called "PIGS" countries, one theme comes back again and again: total lack of realism by governments about the scale of cuts and tax rises needed, total over-optimism about the growth they can expect.

S&P for example predicts 0.7% annual growth for Spain out to 2016. The Spanish government is talking about >2%.

So what is emerging is a disconnect that does remind you of the build up to the Lehman collapse.

You get the discovery of dodgy data (incoming Pasok government finds books in much worse state than imagined); then you get denial; then you get the crunch where the authorities say to an institution's peers "guys you gotta bail them out or you go down with them".

In Lehman's case we know what happened. The banks refused to bail out Lehman and the US government let it fail. With Greece, it is by no means certain that the bailout will happen. As its estimated cost rockets, and the political consequences become clear, you are already getting an incremental version of what happened with Lehman - that is the EU governments passing the buck to the IMF, just as Goldman, Citi and JP Morgan passed the buck to Hank Paulson.

But even if Greece goes bust it can be contained. Even if it costs, as Strauss-Kahn says, 120bn Euros, the IMF could do that. It could call on the world to help, not just the kleinburgerlich electors Nordrhein-Westfalia.

But let's get to the root of why that might not be enough.

Lehman sparked a systemic liquidity crisis because Wall Street's bosses looked at each other and said, "you know what, I don't trust you: I only trust myself". Even as the big bosses frantically ordered their traders to go on trading with their rivals, market logic forced them to stop trading and stab each other in the back. It was a crisis, in the end, of credibility.

As the financial crisis has become a fiscal crisis, it is now the credibility of states that is in question. The credibility of their bailout pledges and of their deficit reduction plans.

If Germany and France have to bail out Greece, the first question is - will their electorates buy it? If not, then the EU-managed bailout solution is not credible.

But there is a much bigger problem of credibility among the stricken countries. There is no evidence whatsoever that they can impose the necessary austerity on their populations to meet the conditions of the bailouts. With Ireland, worse, there is a dawning realisation that its tough deficit reduction plan, lauded as a model for others, may not be enough.

What has to be stressed here is that we are in a totally unprecedented situation. With all debt defaults in the past there has been a strong creditor group of countries that took control of the process; even to the extent of manipulating the politics of the stricken countries, as the United States did to Latin America in the 1980s.

But now it is the developed world that is in danger of going bust. For the past two years governments have improvised a rough-and-ready Keynesianism. But that response is now in crisis.

Keynes himself never advocated strategic use of budget deficits: he advocated temporary fiscal expansion (tax cuts and spending increases) to boost growth and soak up excess labour, with deficits as the price. Keynes' chosen methods were monetary: manipulate the currency, print money.

In the Depression, those who ran up deficits never went much higher than 5% of GDP. And remember this was in an era of closed markets - we're now in an era of floating exchange rates and open capital markets where running a giant permanent deficit is only really an option for self-contained markets like Japan, or a dominant superpower like America, and then comes with huge eventual downsides.

We will never know what would have happened if the Brits had simply nationalised Northern Rock on day one, if Paulson had let Bear Stearns go bust and bailed out Lehman instead. But there is every chance that if the EU and IMF handle the Greek bailout deftly, the contagion stops at Greece. If they do so they will demonstrate the competence of institutions that badly need to demonstrate it. They will restore credibility.

But if the Greek bailout is delayed so long that it infects Portugal, then Spain drifts into the crosshairs. I cannot see the northern Europe finding the equivalent of 8% of GDP for Spain.

Just as the Germans are finding reasons to dislike the Greek lifestyle (except for the one month a year when they choose to live it), northern Europe will surely find a reason to dislike Spain's. "They've lived an unrealistic lifestyle" will be the refrain - even if that lifestyle involves glorious football and Almodovar-style high jinks, rather than kleftiko and retsina.

Spain, like Lehman, could be too big to bail, say people in the markets.

And here is the unspoken politico-economic truth about this crisis: America has transferred the pain of the crisis from banks to taxpayers, but it has not imposed austerity. The US is still in the middle of its fiscal stimulus. Ditto China. That leaves Europe, where the logic of saving the banks using taxpayers' money means that the European population pays the price.

It will be noted that each of the stricken countries is a "young democracy": (Greece overthrew the junta in 1974; Portugal underwent a revolution in 1974; Spain saw armed officers attempt to storm its parliament as late as 1981).

In retrospect we can see how the wounds of left-right battles in the 1970s were finally healed by the rapid, speculative growth that came with Euro-entry. The Balkan wars show us how easy it is to reopen old wounds.

For these reasons, imposing the cost of the banking crisis on the population of Europe is going to be hard. The north-European electorates will be disinclined to vote for it; we've seen, with the IFS report, how disinclined British politicians are to tell us the truth about the scale of the coming cuts. And the south-European population - whose iconic type is no longer the anarcho-syndicalist dock worker but the unemployed trendy graduate - will not very likely put up with it.

There are ways out: break up the Eurozone; hand the problem to the IMF, setting back for a generation the EU's claim to fiscal authority. You could inflate the entire problem away, but unless you cut Europe adrift from the international markets it would provoke further mayhem. You could impose more of the cost of the banking crisis on the bankers themselves - through aggressive nationalisation and breakup.

But in the end, the price you pay for a system wide financial crisis comes down to this: either your own population pays for it, or you pass off the cost to somebody else.

Does this play into the British debate on fiscal policy? You bet it does. Market participants know that if the whole of south Europe catches the contagion then Britain's immune system is already compromised. Will it provoke a sudden outburst of clarity about the unspecified cuts they plan (£52bn for the Conservatives, £44bn for Labour, £34bn for the Libdems) in tonight's debate? We'll let you know.

* Watch it live on the ±«Óãtv and then tune to Newsnight on ±«Óãtv TWO for instant analysis

I am writing this surrounded by journalists clustered around TV screens wincing as Gordon Brown makes a live apology to Rochdale voter Gillian Duffy.

We will be wincing some more if the Greek debt crisis gets out of hand.

I'm dashing around trying to get the latest on Greece - we'll have the man who was in charge of the country;s finances live on air tonight. For now some bullet points:

What the markets fear is that Greece is forced to restructure its debt - that is that the debt holders have to take a "haircut" - losing 30-50% of their money.

That is driving "contagion" as investors get out of the riskiest government debt. Ireland has been hit hardest today; Portugal is suffering.

The next issue is Spain. Spain's public finances are stronger - but it is also facing a double dip and high unemployment. If the contagion takes hold in Spain, then it is possible that it spreads to the global banking system, because some banks are said to be exposed to that.

The authorities are saying restructuring - ie a controlled default - is not on the agenda. But the behind the scenes argument is raging between Germany, which is delaying and demanding a high price for bailout.

Some people in the markets say this - rather than the hung parliament scenario - now stands a chance of spooking the UK gilts market. More tonight.

[UPDATE: We are now in the middle of the biggest #ukelection "tw-event" so far. #gillianduffy]

[Preamble: I've been spending a lot of time watching the UK election's impact on Twitter. I'm also using it, under editorial guidelines, for my work. I also use it - in a self-censored manner dictated by my professional use of it - as a social networking tool. As a platform it's in its infancy and its utility is being defined with each iteration: Obama, Iranian uprising, UK general election. there's been some debate (on Twitter) about it, with some saying it's all rubbish, others disparaging my piece on an "old git gets wit' da youth" basis. Bearing in mind that a part of Newsnight's audience wishes the whole social media thing would go away, I offer the following totally subjective set of observations. Discuss]

1. Twitter gives potentially perfect realtime feedback to any political event (through realtime searching). The quality of the feedback rises in proportion to the quantity of mentions of the event. Thus, the bigger the event the better our knowledge of its impact.

2. Twitter has the power to amplify the impact of any political event. Because users create their own social network, by choosing who to follow, Twitter has the potential also to distort the impact of any political event, reinforcing existing political opinions and prejudices. Twitter and 24-hour rolling TV news tend to feed off each other during breakthrough-level mass events, to an extent that has not been properly understood.

3. Twitter has more power than any existing web-based network to spread suppressed information, heterodox responses and humorous rejections of the official line. It amplifies the impact of crowding in a more efficient way than blogging (through trackbacks, links, Technorati mentions etc) and Facebook (where group-formation can lead to duplication, and needs users to be more proactive).

4. Though providing a large, viral platform for political propagandists, propaganda on Twitter tends to provoke a cloud of critical, cynical and humorous demolition jobs, lessening its impact and in some cases producing total rejection and even permanent pariah status for the propagandist.

5. The 140 character rule tends to amplify the "false ring" that all propagandist prose contains, thus immediately "branding" spin-attempts as false and quickly branding persistent spinners as untrustworthy. A similar outcome awaits the more genuine, fired-up, activist shouter who quickly loses followers who do not agree with them and thus drops out of the conversation.

6. Twitter, especially when used to auto-update Facebook status, is an effective DIY news publication tool, but relies on the trustworthiness and identity of the writer. It is also becoming an ad-hoc collaboration tool between journalists. e.g. by tweeting, as opposed to texting each other, journalists have been co-ordinating and informing each other's questions at political press conferences, formalising the "collaborative competition" principle of lobby-type journalism.

7. For these reasons, Twitter is, at present a) a tool for realtime qualitative research; b) a reliable, but still legally constrained, tool to evade censorship; c) a sporadically effective means for the mass of people to force behaviour changes in the corporately-owned media; d) a highly-inefficient and ultimately self-defeating vehicle for propaganda; e) an effective transmitter of news; f) a collaborative tool for professional journalists.

8. Since Twitter does not release usage stats, and users' own stats are limited to knowing who follows and retweets their content, the owners have a monopoly of the information that would validate or disprove the above. Twitter would become a more perfect information tool for political discourse if the usage data were to be made completely transparent. In addition it is impossible to interrogate Twitter's history effectively, even with the public data. We would wish to know: a) what are the drivers of critical mass in hashtag trending? b) how quickly propagandists lose followers/ truth-tellers and reliable witnesses gain followers; c) the average size and demographic mix of a user's "followers" and "followed" list; d) the demographic makeup of Twitter users; e) qualitative research with newspaper editors, politicians, dictators, journalists and spin-doctors would identify the role of Twitter in the "we're becoming a laughing stock, let's stop this now"-type decision points.

9. Twitter does not create new trends, ideas or news but amplifies the speed of their adoption, refines their accuracy through collective criticism, reduces the ability of mainstream media and censorship to suppress them and mis-represent them. More users + bigger numbers of followers = more rapid amplification of trends.

10. Thus Twitter (building on blogs and Facebook) is the latest stage in a media revolution which is a) analogous to the arrival of uncensored, cheap newspapers representing heterodox views (cf , the first worker-produced newspaper in Lyon in 1831which led to ); b) has the potential to partially or completely neutralise the ability of the corporate media to transmit the dominant ideology. This has implications for the practice of professional journalism, which will need further research.

Behind the scenes there is not yet war inside the Labour hierarchy but as one participant describes it "brittleness". And the brittleness is evident wherever the party tries to be flexible and innovative in the face of its poll reversals over the weekend (it is third in a majority of polls).

Party activists describe the divide as "tribalists" versus "pluralists".

The pluralists - fronted by centre-left Labour-aligned pressure group Compass - are preparing to call for tactical voting. The "tribalists" - some are prepared to wear this pejorative monicker as a badge of pride - have adopted the motto: "fight for what we believe in".

The "pluralist" rationale goes like this: you need to offer Libdem voters the overt prospect of a hung parliament and a Lib-Lab coalition; so you need to put a better "offer" on the table over PR; and then you need to say to some of Labour's supporters in Lib-Con marginals they should vote Liberal Democrat and in turn Clegg has to tip the wink in the Lab-Con marginals.

Alan Johnson's intervention, softening the line on a hung parliament and PR at the weekend, was a reflection of this.

But as one Labour insider put it, every nudge to the election strategy provokes a reaction from a wing of the party that wants to stick with the current strategy, which is premised on a late surge on the back of Gordon Brown winning the economic competence argument. (This in turn would need the media to up its reporting of the individual policy debates, hence Labour's ).

The fascinating thing about the self-proclaimed "pluralists" is that they represent the long-trailed but never quite sealed alliance between the communitarian centre-left and the neo-Blairites. And the "tribalists" are grouped around Peter Mandelson and Ed Balls, not previously the closest of allies.

Labour people are telling me they believe they have a week to turn things round. They are not experiencing any erosion of the C2DE Labour vote, they say. But there is an amplification of the phenomenon marketers call .

In the 2005 election the transient young population in University towns deserted Labour over Iraq. But now this group has grown 5 years older, and gone through the disillusionment cycle with mainstream politics and the credit-fuelled boom. It is soft in its support for any party - but most crucially for Labour seems to be the group that is switching from red to yellow in the polling results. And it is certainly part of what I've called "iPhone world".

Indeed some Centre For Cities polling, , claims to show that urban voters were already signalling the Clegg phenomenon before it broke through into the mainstream.

As well as Compass, another player to watch is the Guardian. They're having a "crowdsourced" process to decide who to back. If the Guardian and maybe the Indy come out next weekend and say "vote tactically to create a centre-left coalition" that could have a material impact. However it becomes less likely if the Libdem front bench signals that the Conservatives are its preferred coalition partner.

As the election draws closer the pressure mounts on both Labour and Conservative front benches to deal with the non-collapse of Cleggmania.

What will they do about it? Well - as Elvis once said - "Ambition is a dream with a V8 engine." Let's see.

Last week there were some graphic warnings from the Conservative front bench about the economic perils of a hung parliament. Ken Clarke :

"Bond markets won't wait. Sterling will wobble. We have seen even minor flickers in the opinion polls causing problems with interest rates in the recent past. If the British don't decide to put in a government with a working majority, and the markets think that we can't tackle our deficit problems, then the IMF will have to do it for us."

Since then I have been speaking to my contacts in the bond markets. Being self-proclaimed "bond-bores", preferring tweed jackets to the red braces and lap dancing image, they do not want to speak in public, but the message was clear: a hung parliament is already largely factored in to UK bond market.

It may sound prosaic but, as one explained, "the City takes the bookmakers as the best guide to the future, where politics are concerned". If you think about it, it's logical - even the hi-falutin' "global strategy analysts" inside the biggest banks don't have the kind of intelligence operation that could second-guess the UK electorate. Right now the polls and the bookies are signalling a hung parliament. William Hill has it at 4/7.

It's not that my interlocutors like the idea of a hung parliament. Indeed one professed to be amazed by the lack of market reaction to such a violent polling shock as the post Clegg-Thursday leap of the Libdems into second place. (Sterling is different, being tossed between the troubled Euro and the dollar)

On the basis of these conversations think the majority view in the bond market is that any government was going to find it hard to impose 38bn worth of cuts, especially when there has been no attempt to lay out where those cuts will fall during the election campaign.

Just to put this into context I've converted yesterday's 0.2% quarterly GDP growth into billions. One percent of GDP is £14bn; so 0.2% is about 3bn. The Conservative efficiency savings for this financial year potentially take £6bn out of demand; Labour's planned NIC rise in 2011 takes out roughly the same, but later - and there is a legitimate argument as to when and how to do it, and which stands the best chance of avoiding recession, which I will put to one side here.

But if growth is going to achieve 1.25% - let's say £18bn in notional money - then you can see the headwind that taking down public spending creates: £20bn of Labour pay/pension cuts plus efficiencies; £6bn of Conservative efficiencies plus whatever they find in the emergency budget. £38 billion envisaged in Budget 2010.

My own judgement if the 0.2% provisional figure turns out right is that unless something miraculously stimulates UK growth in the next 3 years, at some point the scale of public service cuts means a real danger of a public-sector-led double dip recession.

That's because we also know more about the way the UK economy is responding: it's been a jobless recovery so far - in which employment has declined and unemployment (OECD measure) has risen. Plus the worrying uptick in inflation makes it harder for the Bank of England to maintain its loose monetary policy.

For those in the bond markets who share this view, there are swings and roundabouts between a low-majority single party government and a big-majority coalition.

Provided there are advanced and swift negotiations between the parties (see below), and a clear common ground on deficit reduction in the medium term, there are even some who see the hung parliament scenario as positive. Moody's - one of those ratings agencies who were once thought to be about to plunge Gordon Brown into the abyss my slashing Britain's credit rating - :

"We do not think that a hung parliament will have a direct impact on the UK credit rating. If you had a fiscal plan agreed by a coalition, that could actually be quite positive, because it would imply broad popular support."

What the markets fear is a "chaotic hung parliament" - as one market participant put it to me - with "the DUP, Plaid, SNP - and maybe one each of Respect, BNP or the Greens holding the balance of power".

You can see why if you take into account the facts David Cameron referred to in last night's interview with Jeremy Paxman. Northern Ireland, Wales and North East England each sees more than 2/3 of economic activity driven by the public sector. Due to the recession the percentage of GDP accounted for by the public sector nationally has risen from 40 to 50% in just three years.

Even if there is no differential application of cuts to the high-public-sector regions - and there is no suggestion of this - it means any across-the-board cuts have a differential impact in these particular nations and regions.

This inevitably places pressure on MPs from these areas - and not just those from nationalist or Unionist parties. Once party loyalties are muddied by the creation of a coalition, there is temptation for MPs from any party to go native over local spending priorities. And this is true even if you buy the analysis that says rapid pending cuts produce private sector growth and eventual rebalancing.

When Ken Clarke sounded his warning this week, many heard only the frightening bits "sterling will wobble" etc. But there was another subtler implication to the phrase "the bond markets won't wait" - and that is that the parties may have to face the polling evidence and spell out what they would offer each other in case of a hung parliament.

And, by no coincidence at all, this seems to be.

My flight got cancelled at Gatwick this morning - Meridiana flight to Florence. Also a Sharm-el-Sheikh flight cancelled. Could not get straight answer as to whether these were volcano-ash related but anybody expecting to hear me give a talk at the International Journalism Conference in Perugia this evening, I am sorry to disappoint. Anyway, enjoy Perugia.

[UPDATE: The event is going ahead via Skype!]

In the meantime there's been a lot of pickup and retweeting about my "Blackberry election versus iPhone election" blog - in a rare double whammy both the techno-geek and the politics-nerd community have found it vaguely enlightening. If you missed it, here's the link.

On Newsnight tonight we will be trying to make some more sense of the polls; capture the flailing panic behind the serene exterior of non-Cleggite parties etc.

I will probably blog later today or tomorrow about the public sector % of regional GDP issue, which the regional and Northern Irish press have splashed on today, following David Cameron's comments to Jeremy Paxman. Or the aftershock of the Greek bailout. Or both. Arrividerci.

Cameron's need to address soft Tories, dominance of Clegg and resurgence of Brown on his social/economic issues meant centre of gravity of entire debate was, de facto, the socially liberal political centre. I did not hear Cameron make a single attempt to viscerally appeal to right-of-centre "true-blue" conservatism. So trying to view the whole thing as an outsider, the debate process has pulled the locus of UK politics slightly to the liberal centre.

I also thought the best question was about the Pope. All three men were frank in their opposition to the Catholic Church's social teachings, but in a different way. Again, evidence of how far towards secularism/social liberalism British political discourse has moved. That's the snap observation.

Here's what I think is happening in this election: what's moving the polls, the zeitgeist, causing tabloid editors to go into Pravda mode and seasoned commentators to shrug their shoulders with incomprehension.

It goes deeper than Cleggmania - and it does, if the trends observed carry through, presage a big change in the UK's electoral landscape.

1) It's been a long time since 2005 and the conversation has changed.

In 2005 there was no Facebook, Twitter, iPhone. Some televisions were HD ready but there was no HD. iTunes was less than a year old. London had not won the Olympics yet; the 7/7 bombings and the 21/7 bombings lay in the future. The Libdem leader was Charles Kennedy and the Tory leader, lest we forget, Michael Howard.

Why does this matter? Because politics is about telling, and believing, a story.

The technological revolution that we're in the middle of is changing social life and social attitudes.

I've just walked through London's Soho: grown men sitting in the open air wearing giant Sennheiser headphones, sipping flat-white coffee, composing, what? Symphonies, club anthems, klezmer? In the DVD store Fopp (saved from administration during the financial meltdown) top titles include: The Thick of It Series 3; District 9; Pasolini's 120 Days of Sodom enjoying an ironic hip revival in the age of internet porn.

And here's the question: does that generation capable of laughing at the Thick Of It; that never lived through the anti-apartheid era but has watched District 9; that has taken control of content creation and is happy to walk around wearing ironic t-shirts categorising their own sex lives etc... does that generation believe it is in any way represented by mainstream politics?

Anecdotally, apart from the anoraks who are involved in politics, I would say not. In 2005 we were about five years into the Broadband revolution; (I wrote my first blog for Newsnight ).

We are now 10 years into that revolution. The top sites on the web traffic monitor Alexa.com are mainly social networking or self-published content sites - which were almost nowhere in 2005.

Those who wonder whether the social media will "affect the outcome" of the election are asking the wrong question. It is affecting the outcome of everything, from having an idea, buying a pair of jeans or going on a date. It is not the dweeby tweets of campaigners, or the sad slanging matches between beer-fuelled political hacks that matter.

What matters is that a new conversation is out there, and the first politician to look vaguely like they knew this got a (what may be short term) boost from this.

2) The two biggest things in mainstream ideology collapsed.

First, the economic bubble burst. Then the expenses scandal broke. And it was not just any old bubble: the economy post 1992 was built on rising debt, rising house prices, rising real wages. The fact that this happened alongside the tech revolution I've described above injected an aura of success into our major institutions that has now vanished.

It all collapsed in 2008-9. The financial model that has dominated the UK economy broke down; and then it was revealed that large numbers of MPs were using their parliamentary status to feather their nests on an unimagined scale.

I know from experience how compartmentalised this is in the minds of media and political folk. Once the expenses scandal broke, an economic crisis story had to be really huge to get on TV. We saw these as two events. But in the minds of many they seem to have merged. If you went into a pub and said "we are ruled by a corrupt elite of politicians in the pockets of corrupt bankers" about the only two places where you would get chucked out of the pub would be Westminster and Canary Wharf.

Do not mix this up with the "death of deference" narrative. That had begun already and was nearly a generation old. There's been an acute and rapid collapse in trust in major institutions. If you watch an old episode of Father Ted you will see, amazingly prefigured by 10 years, the whole story of the Catholic Church's struggle to come to terms with the paedophile priest scandal. It may be that, with The Thick of It, we look back to that as signalling a sea-change in British politics - chronicling in merciless detail the ludicrousness of the party machine and spin system.

The point is, I am picking up from many parts of the electoral landscape, the nostrum that "a hung parliament would be a good thing": for some because it would signal a move to PR and the end of the two-party system; for others because it would annoy the City of London.

3) Lots of other stuff has changed.

a) Barack Obama came to power because he understood some of the changes - but seeing a black, liberal President in the Whitehouse has changed the way a lot of Brits look at both America and the world.
b) In 2005 East European migration had only just begun. By 2009 1.5 EE migrants had entered Britain and according to the EHRC, 700,000 were working here at any one time. It has now entered mainstream political discourse that this has adversely impacted the living standards of lower-income British workers (though the economic evidence for this remains contested).
c) After 7/7 the whole tenor of the debate about Islam and terror changed, indeed intensified. A real and tangible hostility to the economic and social impact of migration is there everywhere you go: the ±«Óãtv's polling, and many bloggers, validate this as the under-expressed issue in the current election.
d) The withdrawal from Iraq and the mounting losses in Afghanistan have changed public consciousness about the role of the UK armed forces.
e) I could go on. Some cultural commentator somewhere probably has a full list. Add your own bullet points.

4) How does this impact?

I don't think that with Cleggmania we have seen the last of the surprises resulting from the collision between the political class, in their suits and Blackberries, and the electorate, with its trainers and iPhones.

And don't think I'm being metropolitanist here: if you think the north, Scotland, Wales and working class areas in general are in some way removed from the big cultural changes the tech revolution has unleashed, stop watching Corrie and get out some-more.

The most obvious second surprise could be how this translates into support for non-mainstream parties. Actually, and one of my City bond-analyst contacts said what's really worrying the finance guys is a "chaotic" hung parliament where there's maybe one Green, two Respect and one or two BNP members of the Commons, with strong showing from Plaid and the SNP. Right now the political class is thinking Cleggmania might go away, or recede, leaving the old two-party slugging match to get back into business. Even some Libdems fear this will happen. What they have not even begun to plan for is if Cleggmania begins to give the electorate "permission" to just break away from the whole mainstream party circus. I don't predict this, but you would have to say it becomes more possible.

Managing the coming fiscal crisis: Whether the bond vigilantes and the forex guys stage some kind of wobbly before or just after 6 May, we are still in the mother of all fiscal tightenings. When I meet top bankers in private, the words "social unrest" are always on their lips. They fear the electorate, having not been told the full extent of the cuts necessary, will simply reject them once they are unleashed. It is not a question of trade unionism - though the PCS union now looks like the strongest and most militant of all the unions, and has no ties to Labour. What they fear is something more like the fuel protest, with themselves as the target.

5) The big question for the politicians: do they get it?

If you buy my analysis, then the big question for the politicians - left, right or centre - is do they get it? You can make your own judgements on that, but even if you were being charitable you would have to say probably not all of them do. The tabloid editors, issuing their concocted weird propaganda stories, are proving spectacularly that they do not get it.

The more I think about this, the more I come to this conclusion. It's people with Blackberrys who don't get it.

They've had privileged access to high-speed transglobal comms for the best part of a decade but they have never downloaded an app (my own ±«Óãtv Blackberry is corporately locked down to prevent its highly limited store of fun stuff being utilised). People with iPhones get it; young people looking at very limited job prospects get it.

And they're becoming highly interested in politics. The more I monitor the twittersphere's response to Newsnight the more I am convinced of this. Our celebrated AB over-45 audience, (which would make us a prime target for Volvo and Stannah Stairlift adverts if we ever took commercial breaks) is being joined by a bunch of young adults who - again much more violently than in 2005 - simply hate the sight of men in suits shouting over each other.

What's happening is that Blackberry world is colliding with iPhone world and finding out that, in the digital age, five years is a political eon.

The ±«Óãtv's business editor Robert Peston has got hold of a copy of the IMF's draft proposal on a global banking tax. Here's my initial take on the draft, :

1) There are two kinds of levy proposed: one to pay the fiscal cost of the crisis and to create a "resolution fund" for any future crisis; another designed to prevent risky behaviour and to be levied on profits and bonuses.

2) That means that, for reasons outlined in the report, the Financial Transaction Tax - or Robin Hood/Tobin Tax - is ruled out. Though like a runner up at Crufts it gets a methodological pat on the head from the IMF guys.

3) Here's the impact on British politics and the general election:

a) the Libdems welcome the whole thing and their existing policy is conceived as a tax on profits. They would do their manifesto proposal, Vince Cable has just told me.

b) the Conservatives would do the tax on assets part if necessary unilaterally; they are more sceptical about the profits tax - and would certainly only do it if it were global.

More follows. Alistair Darling about to come on Newsnight live to discuss this. But the two opposition parties are philosophically at odds here: the Tories by implication worried about the radical nature of the profit tax piece; the Libdems concerned mainly about the timing.

And the fascinating thing, if tonights polls are right, is there may be a combination of two of the parties trying to decide how Britain acts on May 7th.

In the pre-meltdown days banks like Goldman Sachs were happy to stay above politics, quietly using their soft power through that Venn Diagram of influence that overlaps the Wall Street banks with the Council on Foreign Relations, the US Treasury and, well, almost everything else on Earth.

But the SEC's decision to charge Goldman with civil fraud has forced the issue of investment banking's business model into the electoral limelight in the UK.

[UPDATE: My colleague Robert Peston has got hold of the . We'll be grilling Alistair Darling about it on Newsnight, and getting reaction from Vince Cable and Philip Hammond]

The trader at the centre of the Goldman operation under scrutiny was based in London; now, with Gordon Brown accusing Goldman of moral bankruptcy (while as he told me yesterday, "reserving judgement on the individual case"), the Lib Dems have trumped this and called for the UK government to boycott Goldman as a client.

Goldman's defence is that it was doing nothing wrong: that it obeyed its own rules and the law. This defence goes to the heart of a bigger problem: many commentators believe it's not Goldman that's at fault but the entire investment bank business model which allows the same, giant, heavily influential bank to represent the buyer and seller in the same transaction.

A risky state of affairs in the abstract, when you turn it into gleaming-toothed bankers confronting you with "buy this product or you go off our Christmas card list" type sales techniques it has obvious pitfalls.

What it led to was a boom and bust that has left the state picking up the pieces. What the political debate is all about now is how society and the state can levy a legitimate charge on the banks for the implicit guarantee that - should any inadvertent mistakes by these high-rolling individuals ever threaten an economic nuclear winter again - there will be a pot of money there to bail them out.

Hence we come to the global bank tax. The G20 at Pittsburgh asked the IMF to design a global bank tax. The tax has two purposes - (and I can hear the engineers among you begin to groan mentally here, because things with two purposes are hard to design): to limit risk taking and to raise money to compensate the state for the implicit bailout.

However, nobody can agree how to do the former, and where the money should go to. So at the weekend the Dutch wanted the tax to go straight into the Dutch treasury; the Spanish into a Spanish contingency fund, and the Brits into an international contingency fund. Meanwhile the debate on how to design the tax is fraught: do you tax profits straight; do you tax bonuses; do you tax risky activities differentially; do you tax types of bank differentially?

If you are aiming to deter risk, you become more differential - the smart money is on a tax raised on banks access to the wholesale markets. If you are aiming to raise money you use the Huey P Long principle: "soak the fat boys and spread it out thin".

Now here's the problem. Two words: Copenhagen; Doha. Global deals are proving virtually impossible to do. Since it's the G20 running this show, and the G20 does not take votes but operate through consensus I would place a large bet on the eventual IMF proposal being watered down to its lowest possible impact.

In the UK election a clear difference has emerged between the parties. The Lib Dems have embraced the Glass-Steagall principle: attack the investment banking business model that allows Goldman Sachs and its peers to consider trades such as the one in question as being lawful. Basically - as with FD Roosevelt - you ban speculation using other people's money.

The Tories have not been so specific but they have promised to put Mervyn King in charge of bank regulation, and Mervyn King favours breaking up the biggest banks if the systemic risk they pose is too great.

(Incidentally the banking tax proposal coming out of the IMF does not seem to contain much in the way of addressing the systemic risk - or too big to fail problem; though the IMF was at one point said to be trying to do this.)

Labour remains the only party committed - implicitly, Gordon Brown evaded my question yesterday - to a global or nothing approach. I also reject breaking up the banks on any lines.

In this its position reflects most closely that of the banking industry.

I saw Gordon Brown laugh today - not just smile but genuinely laugh in during a moment of confusion in a press conference. In fact Labour's whole machine, gathered at Bloomberg's HQ in London for an economy press briefing, seems to have lightened up. Two reasons:

First, as one senior Labour person put it to me: getting to the first weekend after the debates without Cameron establishing momentum and an unassailable lead was always going to be a result. They now feel they have done more than that.

Second: the impact of Cleggmania. Here's the brutal logic, as explained to me by a Labour strategist. There are about 35 Tory/Lib Dem marginals the Conservatives have to win to form a majority. Cleggmania makes that harder. There are, maximum, 15 Labour-Lib Dem marginals that could harm Labour (these are the party's calculations, of course, not mine).

Then there are "about 100" straight Lab-Cons marginals that will decide the election.

The way Labour's high command thinks about these seats is as follows:
a) Some of Cleggmania is coming from people who are naturally centre-right and would have voted Conservative, but now like the idea of Nick Clegg.
b) Some of Cleggmania is really Vincemania, and is coming from people who are naturally centre-left, who want PR, want to break up the banks etc.

In Labour-Tory marginals, for the past two elections, some Lib Dems have voted tactically against the Conservatives. But if this phenomenon were to stop, or be diluted, that changes the electoral calculus quite brutally for Labour.

There is a third part of the demographic that is difficult to quantify because it is new. My hunch, based on a number of conversations with party workers and pollsters, is that quite a bit of Cleggmania is coming from young, first-time voters who may not have voted before. If it's true the Lib Dems have "captured the anti-politics zeitgeist" then we are not talking about a swing but an injection of new force into the election.

Such new voters may not be in any mood to be told they are wasting their (first ever or long-disused) vote if they vote Lib Dem. And they may not be natural tactical voters either.

It's also clear that a part of the electorate is revelling in the possibility of a hung parliament; possibly because it a) blows apart the two-party consensus and b) is exactly what the banking industry keeps saying it doesn't want. A hung parliament, by this logic, punishes both the politicians and the bankers.

So Cleggmania does pose a problem for Labour. But what it also does is define their task quite brutally, in those 100 marginals. No-one in Labour would say it openly but they need to turn Cleggmania there into pro-Labour tactical voting. Do they know this? I can assure you that they do. What they do not know yet is what the political cost of this is going to be: what is the new offer they have to make, either to the Lib Dem front bench or the Lib Dem voting base.

You can be certain that this is on their minds.

I don't claim to understand birdsong but there is a distinct subext of "where have those big noisy things gone?" to the tweets in my back garden this morning. In fact the tweets are all the clearer for the fact that the sky is silent.

I live on the Heathrow eastern approach path and have now woken up two days running to a total sky silence. Soon the smoothie-makers and power-drills will get going, but - as with the fuel protests - we're having another inadvertent glimpse of what a post-carbon future might look like, or in this case sound like.

Tens of thousands are stranded. At the whim of nature this could turn into a serious economic event, with airlines already projected to lose tens of millions of pounds, air freight disrupted and global mobility impaired. British shoppers may soon get to find out what non-Keynan green beans taste like; in fact we may be forced back to seasonal veg. The supermarkets may even be forced to find some British lamb to put on the shelves.

A couple of days ago I tweeted this thought in jest but it is worth thinking about: the original Krakatoa eruption of 1883 killed tens of thousands in the blast and tens of thousands more with the tsunami. Then its dust cloud spread into the global atmosphere: it lowered the temperature of the earth by more than 1 degree, turning the sky red, making Edvard Munch paint The Scream. Crops were disrupted. But air traffic was OK because, er, there wasn't any. Has anybody modelled what a Krakatoa-scale eruption would do to modern air transport?

I've seen first hand in New Orleans how fragile a hi-tech society is faced with a natural catastrophe. I don't think even now we've understood the true lessons of Katrina: that societies reliant on high technology and high development collapse really fast in the face of an overwhelming catastrophe.

One reason for this is the "just in time" and optimisation culture we've created to use capacity to its maximum. So, for example, NHS hospitals are kept at a near permanently full level, with bed allocation meetings assuming blitz-like intensity on even a normal day. Likewise inventories are run down to an absolute minimum, with a high percentage of inventory in so called "fast moving consumer goods" actually on the road rather than on the shelves at any one time.

If the volcano cloud dissipates in a few days time this will have been just a glimpse into an alternative reality of quiet skies, clear birdsong and frozen carrots. But if it persists we are in trouble. Most major airlines are struggling economically; the cut-price ones will find it all too easy to lay off staff; the food and flower economy of East Africa will feel the pain early; as will tourist industries all over the northern hemisphere.

Big events trip us, psychologically, into awareness. The fuel protests unleashed a complex re-appraisal of our love affair with the car. Katrina made us understand how rapidly modern society disintegrates. This ash cloud is, already, making us appreciate how reliant we are on air freight and air travel.

One of my neighbours was a veteran Labour MP. He pointed out to me today that in 1955 the Liberals were "nearly dead" (they had just 6 MPs). He believes, and he was active then, that the mass rollout of TV, combined with televised elections between then and 1964, saved them.

They had 6 MPs in 1959 and 9 in 1964 and rose thereafter. It's just a theory - but if you fast forward to 2010 - to leadership debates plus the internet - my observation is that the more "mass" the media, the better chance the third party has. Clegg seems to be ahead in most of the realtime scoring polls (though Guardian saying a lot of clicks coming from Libdem HQ).

So the Tories want a "new economic model" and Labour want "radical change". Both say they want more manufacturing, higher exports and a less regionally uneven economy. But there is one, big unanswered question in all this: where do the banks fit in?

The banking issue tends to be discussed as a global problem - but if the banks really did distort and harm the rest of the UK economy under the old model then there have to be straight answers at a national level about what government thinks their future role should be.

The banks stood at the centre of the old economic model: Britain carved itself out a niche as the least regulated venue for international finance: it became Europe's financial centre; the world's foreign exchange trading depot and - despite not having a strong stable of domestically owned investment banks - managed to turn its biggest three high street banks into high -rolling losers in the global casino.

Eighteen months on from the banking collapse the debate has moved, quietly, away from the old orthodoxy. There's talk - among regulators, ministers and even in the boardrooms of the banks and big law firms - of a "new model" in banking as well. But there remain two big dividing lines: the heavy re-regulators and the softly-softlies; and the globalists versus the localists.

But, as Credit Suisse analysts pointed out yesterday, this does not map stereotypically onto the Labour-vs-Tory battle.

Thinking among regulators tends to focus on two problems: the first is how to force the banking system to pay for the implicit guarantee - what I call a generation of moral hazard - that the state extends to them.

Originally the bankers thought they were going to get away with a simple hike in "capital adequacy": there would be a Basel III treaty, with new tougher rules on how much capital you have to hold, and the lawyers would make a mint designing new ways to get around them. They thought this because that is what they had told the politicians to do: and the politicians had repeated it.

But a seminal paper by Bank of England executive Andy Haldane changed the game. Haldane's paper, , set the tone for a more vigorous pursuit of payback in the form of various bank levy and taxation proposals.

As early as the Pittsburgh G20 Summit you began to see this filter through into policy: Gordon Brown espoused then dropped the idea of a financial transaction tax; President Obama dumped the "capital adequacy only" approach and switched to a strategy designed by Paul Volcker, including a hefty levy on Wall Street.

Finally the onset of fiscal crisis brought the debate into the bread and butter world of avoiding riots on the streets: politicians realised that as well as deterring risky behaviour the levy proposals would actually raise money for cash-strapped governments.

But how to impose the levy? President Obama has gone for it unilaterally; the Conservatives propose a (smallish at around £1bn) unilateral levy. But Labour has stuck out for a global approach. It has accepted the argument put forward by the City of London that any levy that is not global - even an EU wide one - would disadvantage London. The City view is that both Wall Street and an unholy alliance of Paris and Frankfurt want to, as one well-heeled lady banker put it to me, "shaft London".

Naturally the banking industry is opposed to all forms of the levy. The British Bankers' Association have called it "populist, political and penal". But in so far as they are prepared to support it at all they prefer Labour's "global" version to the Swedish style flat tax on bank profits proposed by the Conservatives. The reason for this is a mixture of self-preservation (don't shaft London) and logic (it's a global system so you need global rules). However the implication of the "do it globally" argument - rarely spelled out - is if you can't do it globally you don't do it at all. Or, to put it another way, you only do what you can do globally, and therefore you accept a more timid reform at a slower pace.

This debate is set to before and immediately after the election.

The IMF is due imminently to issue a draft of the global banking levy. I understand Gordon Brown will immediately endorse it: handily arming himself with a bigger, more comprehensive banking measure than that proposed by the Conservatives, and challenge the opposition parties to match the commitment. Britain has a big voice in the IMF so this matters. There will be a G20 finance ministers meeting this Friday to hammer out a common EU position on the banking tax to take into the G20 Summit in Toronto in June. In both G20 and IMF what Britain says matters a lot, so if there is a change of government the rest of the world will want to know how George Osborne or Vince Cable actually plans to vote.

Now for the second big problem perplexing the bankers and their regulators: "too big to fail."

Capital adequacy could never address the "too big to fail" problem; nor can a straight levy on bank profits - because it does not weigh differentially on high risk activities nor deter the creation of entities whose collapse can bring down states.

Here again some tough thinking has been done at the Bank of England. Governor Mervyn King is on record as saying that if a bank is too big to fail then it is too big to exist. The position on this, originally, was the so-called "living will" for major banks. A giant, complex, cross-border bank like Barclays or HSBC would be required to specify which bits of its operation would be bailed out by which government in the event of collapse. But again it became clear that this early panacea was not going to be enough.

Politicians and regulators are now looking at ways to prevent or downscale the creation of giant, high-risk, cross-border banking empires. The IMF version of the banking tax is said to do just this. It will be designed to penalise systemic risk: so that - unlike the Tory/Swedish version of the tax - if your mere existence poses a risk to the system, no matter how risky or profitable your activities per se, you will be made to pay more.

But again there is another, simpler, national-level solution: forcibly break up the big banks. This is what Mervyn King advocates. I understand it will be high on the agenda of the cross-party commission on the Future of Banking. And of course the Conservatives intend to give Mervyn King regulatory oversight of the banking system, abolishing the FSA.

[UPDATE 1142: As I was writing this the Libdem Manifesto came out. I should add therefore that of the three main UK-wide parties the Libdems are the only ones to issue a crystal clear pledge to break up the banks - not just to avoid complexity but to create, effectively, a Glass-Steagall style wall between savings and speculation. Read it .]

Hence, politically, this curious situation has emerged: on both the bank tax and on breakup the Conservatives and Libdems have either announced or signalled early, national-level intervention while Labour is reliant on the emergence of global consensus and new global rules. And on breaking up the banks, the perception of the City at least is that the Conservatives could be harder than Labour. The Libdems certainly would be.

If you add to that City disquiet over Tory immigration cap policy (a number of City folk were put up to the media to oppose this by Labour HQ yesterday) that explains why big City voices are not yet queuing up to endorse the Conservatives. Indeed there is a strong Labour lobby in the City with ex Standard Chartered boss Lord (Mervyn) Davies at its centre.

All of this puts into context Gordon Brown's admission to ITV today that he listened too much to the bankers during the boom and did not consider sufficiently what was in the public interest.

Even now, when it comes to the chosen path of regulation, Gordon Brown's path at present coincides with the one favoured by the big cheeses Canary Wharf: global or nothing. (Just to validate that I phoned the Treasury. Question: What is the UK government's fallback plan if there is no global agreement on banking regulation? Answer: The UK is working towards a global agreement).

Both the Conservatives and the Lib Dems have said they will act in advance of any global deal: the Lib Dems with a 10% tax on banking profits, the Tories with their banking levy.

Labour has never spelled out precisely what it would do if the global banking tax, the living will rules and even the Basel III negotiations themselves all come to nothing. "What do you do if there is no global agreement on re-regulation?" should be high on the list of the questions for the leaders in the economy debate.

Here's why it's an important question: the world has laboured for a decade on the Doha trade round, yet there is no global treaty on trade. We had the farce of Copenhagen - so there is no global treaty on climate change. Healthy cynicism would suggest that it is at least a possibility that we never get the global banking tax, or the new tough rules to penalise systemic risk, and that therefore governments have to act at national and continental-wide level to re-regulate banking.

And the imperatives to reshape banking are not just global: they are national. If you want a new economic model for Britain, and if you want to begin building it pronto as both parties say they do, then you have to make some signal to the banking system of what its new role is to be.

If you think, as Adair Turner implied, large parts of what Canary Wharf does are "socially useless" and actually crowd out innovation in the rest of the UK economy, that is an issue for Westminster, not Basel.

Basically the issue of global banking could take years to solve but the issue of rebalancing the UK economy is - as all parties now say - urgent.

If you are of that school of thought that thinks manifestos are irrelevant, and only hard, costed pledges matter, skip this blog. If you are interested in political philosophy, read on.

There is a very interesting philosophical juxtaposition to make between the ways the Labour and Conservative manifestos analyse Britain's strategic economic problem.

Let me give you Labour's formulation:

"As the economy steadily recovers, there will be no return to business as usual: financial institutions cannot continue the practices of the past. Radical change is needed. Without creating infrastructure and enterprise, accompanied by the diversification of our industrial base, Britain will not emerge from the recession ready for a stronger, fairer future."

Now here's the :

"One thing is clear. We can't go on with the old model of an economy built on debt. Irresponsible public spending, an overblown banking sector, and unsustainable consumer borrowing on the back of a housing bubble were the features of an age of irresponsibility that left Britain badly exposed to the economic crisis... Britain needs a new economic model."

The Conservative manifesto contains numerous references to a "new economic model" for Britain. The word "model" does not appear, as far as I can tell from word searching, in the at all (though "economic future" appears a lot).

This is very interesting. I have looked at the last three Tory manifestos and their economic sections make no mention whatsoever of the old economic model being in any way flawed.

Indeed the language tended to be about "freeing up" the pent up dynamism of the old economic model (ie debt-driven, property-driven financial capitalism); and much of the economic policy in those manifestos was about tax.

Now whatever you think about the Conservatives' ability to deliver, or even design a new economic model the manifesto contains - verbally at least - an absolute U-turn in economic philosophy. It does not go so far as Conservative thinktanker Philip Blond and say "neo-liberalism was wrong" but it does pose that very question.

Indeed this would be an apt first question should David Cameron decide to be interviewed by my colleague Jeremy Paxman.

The language of Labour's manifesto tends, by contrast, to focus on "radical change" through a new emphasis on industrial base, green technology and export-led growth. In this Labour overlaps with the Conservatives. So what you are left with is the "big-state/small-state" difference: there are two distinct visions for the role of the state in the new kind of capitalism, but there is a lot of shared territory.

For Labour this shift in economic philosophy comes easier - there has always been an inner Keynesian/industrialist soul to Labourism: for this reason Labour's language is less radical.

Having made a long feature for Newsnight exploring whether Britain needs a new economic model, speaking to businesspeople, green thinkers, social activists and blue-sky thinkers on the right and left, I confess to being even now a little bit stunned to read the words "Britain needs a new economic model" in the first page of the Tory manifesto.

In truth both parties were somewhat beguiled by the apparent success of the old model. Since they are both now verbally committed to a new one, the task is to interrogate the vision - and question who is best equipped to execute against it.

I hope the upcoming leaders' debate on the economy does manage to pose some of these root-and-branch questions about economic philosophy and not just descend into a late-night Charlie Parker solo about deficits and debts.

The philosophical debates are the tough ones because, in truth, they involve soul-searching questions for politicians in both the Labour and Conservative high command.

There is some kerfuffle right now about what Labour's manifesto launch means for VAT. The wording of the manifesto is clear: there'll be no extension of VAT to the commodities it currently excludes. But there is no commitment to rule out raising the rate of VAT itself.

The reason this is important, which we keep coming back to, is that out of Labour's deficit reduction plan, totalling £90bn of adjustments by 2014, there is on the most generous interpretation an £18bn gap between spending cuts needed and spending cuts announced.

Some within Labour wanted Gordon Brown to rule out a VAT rise, signalling the hole would indeed be filled by spending cuts. The Mirror's Kevin Maguire has been loudly agitating for this, which he believed would have killed of the Conservative momentum on NICs.

However the Manifesto has to be read as a clear signal that Labour retains the option to raise VAT. A VAT increase brings you between £6bn and £9bn a year and - if everything else goes as planned - brings you within striking distance of balancing the books.

Gordon Brown made two attempts to answer journalists' questions: the first, I summarise, was "look at our record - we have not raised VAT since 1997"; the second was to say that Labour's budget plans were "costed on the basis of not raising VAT".

This was read by some journalists in the hall as a semi-guarantee not to raise VAT. But the Budget 2010 was also costed on this basis.

That budget contains an 18bn credibility gap (and to be fair the Conservative announced tax plans are no clearer).

Interestingly the page summarising Labour's fiscal commitments is clearly a late addition to the manifesto (page 0.6 since you ask). It is at the end of the first section, and is typographically completely different to the rest of the document. It has clearly been recently updated to include Labour's attack line from last Thursday on the "£15bn efficiency savings this year".

Since no party has ruled out raising VAT, and since VAT is the only way to raise extra tax if you rule out raising income tax (and corporation tax take remains depressed because of low growth and business flight), I think it is fair to read these signals as a sign that a VAT rise is a distinct possibility under any of the three main parties.

Indeed you could say Labour is positioning itself to say: if we do raise it, it will not hurt the poorest because of the exemptions.

I will come back to some of the detailed pledges. The Cadbury's Law is there, across two separate sections. Channel Four and the Royal Mail seem safe from privatisation if Labour gets in.

Last night, at precisely 21.08 Peter Mandelson emailed the Labour faithful with his "State of the Race Memo #2". It makes clear that Labour has no intention of trying to escape from what I call Deficitland.

"As in 2001 and 2005, the incoherence of Tory tax and spending plans is the slow burning fuse under the Tory campaign and we do not need to rush our fences in detonating it."

Now if Deficitland were a computer game it would be one of those -style shoot-em ups, set in a bleak, deserted landscape full of harsh De Chirico shapes and shadows.

The protagonist would be a politician whose mission is not to kill the deficit - which would be symbolised by a Godzilla monster - but to realise that he has no weapons to kill it and to escape to a nicer place.

His enemies would be economists, pundits, businessmen and economics journalists. There would be a points system for zapping them, from Tim Besley to James Caan to me and Faisal Islam.

But the aim - just like in the famously subversive computer game - would be to escape.

However as Lord Mandelson's memo makes clear, Labour has no intention of trying to escape from Deficitland. It wants to go on zapping the Conservatives' tax plans.

If there is one article in today's papers that is worth a read it is the Sunday Times piece by which explains the rationale for this. Quoting a Labour minister they say:

"Gordon and Peter believe they can do to the Tories what they did to them almost two decades ago. Many people have counselled them to concede and move on to other subjects. But they think attack remains the best form of defence."

This, in a nutshell, is the state of the campaign. In four weeks time we will look back on Labour's tactical decision and know whether it has worked or not. In the meantime, you can read my previous blog as a kind of "how to" guide to playing Deficitland - and my early morning clash with Alistair Darling as a worked example of the gameplay.

Happy zapping.

Labour's manifesto is to include what trade unions have called a "Cadbury's Law" - giving the government powers to block or restrain a hostile takeover of a British company on national interest grounds. The move will involve "significant changes" to the 2006 Companies Act, I can reveal.

The law, I understand, would apply to infrastructure companies and to companies where the government deemed there was a national interest.

Potential takeovers of strategic companies would need to be approved by two-thirds of shareholders, as opposed to half now, and the acquiring company would be required to disclose long term investment plans.

The law would also include measures to prevent hedge funds taking short-term positions in target companies. There will be a "long-term interest test" and the acquiring company will have to specify how any debt would be paid down.

The new law will be seen as a victory for the Unite union, which believes such a measure would have allowed the government to block the acquisition of Cadbury's on at least two counts. Labour refused to confirm or deny that such proposals are in the manifesto but said there was no law proposed that would prevent the takeover of Cadbury's itself.

Industry Secretary Peter Mandelson is understood to have swung behind the new law following fractious interchanges with Kraft executives over the Cadbury's acquisition. In January he had opposed new powers saying:

"It might give rise to capricious decision-making and it can lead to a loss of transparency and a predictability which at the moment makes the current UK regime open to investors from which, I just underline, we benefit a great deal."

I understand Labour's manifesto will contain a limited commitment to the "living wage" demanded by the influential community group London Citizens.

Labour will pledge that cleaners working for contractors in Whitehall will get whatever the London Mayor decrees as the living wage - currently £7.60 an hour. I understand this is the only significant move in the manifesto on employment law.

But this falls short of a national commitment by Labour to introduce a "living wage" ethos into business above the minimum wage. Despite being , I understand Labour nixed the idea because it would have been seen as circumventing the Low Pay Commission's work, which sets the minimum wage.

David Cameron this morning claimed the as a Conservative policy.

I've covered the emergence of the idea during the past six years, from the windy leafletting sessions in Canary Wharf to the Conservative front bench, and watched the pressure build from groups in civil society that are supposed to be powerless: churches, mosques, unions, youth groups. But Labour's move leaves it as still a very London-centric issue.

Campaigners see what Labour has agreed to as an absolute minimum of what they could have delivered, given the Tory espousal of the principle. And it is certainly less than what was being briefed only a few weeks ago.

"War is the remedy that our enemies have chosen," said General Sherman in the American Civil War, "and I say let us give them all they want".

That's the approach Gordon Brown took this morning, with the Conservative National Insurance Cut. It's a good approach to take if you are about to smash your enemy to smithereens and send his population begging for immediate truce, as Sherman did to Atlanta, Georgia. But it is not yet clear Labour is in this position.

The story so far: at the Budget, Labour faced the choice of raising taxes through VAT or National Insurance. It chose the latter; and it chose to delay substantial cuts to public spending until 2011-12, when it will make £11bn of efficiency savings.

The Conservatives have pledged to reduce Labour's National Insurance hike by about £6bn next year and pay for it with £6bn worth of efficiency cuts this year. When a bunch of business leaders came out in support of the Tory policy, Lord Mandelson accused them of being "deceived". Come off it they said.

Then Gordon Brown repeated that yesterday on GMTV. Thirty more business leaders signed up. Then on the Today Programme just now, he said the Conservatives were "misleading" them, adding that he "had no quarrel with the business leaders".

Labour strategists admit privately the Conservatives are winning the tactical battle over NICs, but are hoping that the whole thing blows up in their face if their total budget plans can be shown to lack credibility. They produced quotes from three members of the government's Operational Efficiency Programme, including Martin Jay who advised on procurement.

The problem here is that Labour's own budget plans lack - if not credibility - then sufficient detail to clinch the argument.

Because, as I pointed out yesterday, the whole argument over how to cut or raise £6bn takes place in the context of the government's failure to specify how it will make £18bn cuts - £27bn say the Tories - implied in its deficit reduction plan.

Of £38bn cuts only £20bn have been specified and even here, more than half rely on efficiency savings where there is no guarantee of delivery.

Today the Labour Party tried to break apart the detail of the Tory efficiency cuts. They argued that they were sketchy and impossible to achieve; and also unwise to do macro-economically because it would take demand out of the economy. Lord Mandelson also took a sideswipe at Labour's erstwhile ally Peter Gershon, who has designed the cuts.
The Labour rebuttal document is available here. Let's go through the arguments.

First, the Conservative plan is brief (see it ). It is not broken down by departments but by type; it is four pages long - "the back of an envelope" Gordon Brown called it. In addition the Conservatives have broken the savings down by type, but not allocated actual targets to each type of saving.

However I understand the bulk of the saving is expected to come from renegotiation of contracts; Labour pointed to only two renegotiated contracts today - the HMRC IT project (aspire) and the cost of medicines in the NHS. But where the Tories expect to deliver is at a much more micro-level of departmental haggling, which they expect to be done in year. We need more detail on this from both sides to be able to make a judgement about who is right.

Second, the idea of efficiency savings being impossible to achieve is plausible. We know this because only a third of efficiency savings actually targeted by Peter Gershon for the Labour government were ever achieved. The problem here is that Labour itself has based its entire budget credibility on efficiency savings: £11bn in 2011-12.

Third there is the question of the macro-economic impact. The Tory proposals, say Labour, would pull twice the spending power of Newcastle out of the economy this year. What is true is that Labour has already withdrawn a fiscal stimulus in the order of £15bn this year; 6bn on top of that is half a percentage point of GDP. It does not look decisive, but if growth this year ends up at 1% - the most plausible prediction - then it is half of all growth.

The central thrust of the Labour attack was to question the credibility of the Tories, in basing tax cutting plans on unspecified and undeliverable cuts. As I pointed out to Alistair Darling, that's exactly what he did in the Budget: the entire deficit reduction plan rests on £18bn of as yet unspecified cuts. It's the back of the chancellor's big envelope that we haven't seen; ditto for George Osborne, who has declined to specify the even bigger cuts he intends to make.

As I said to Gordon Brown this morning: how can the electorate make a judgement about the Tory £6bn when there is no detail about Labour's £18bn? And as I pointed out yesterday, there are crucial assumptions in the Labour budget that are not overtly carried over into the Conservative tax and spend policies. So we are not comparing like with like. I'll be trying to dig out more detail and response on this today.

Here's what strikes me at first glance: of the three OEP participants quoted by Labour today Gerry Grimstone and Lord Carter are very strong: they say, effectively that making extra efficiencies this year would harm the economy. Martin Jay, who advised on the crucial issue of procurement - which is where the Tories would make most of their £6bn savings - says:

"I am confident that we identified very extensive savings and that the Government is moving forward at real pace to deliver them". What he did not say - at least not on the Labour press release - is that renegotiating contracts downwards this year is impossible or would harm the economy. I'll be digging into this.

Watch my exchange with the chancellor here:

The strange, staged, stunt-ridden spectacle that is Day One of a British election campaign brought us temporary relief from the disingenuous battle over tax rises and spending cuts the parties have been waging. But it will soon be back.

[UPDATE: Gordon Brown's GMTV means it is back already.]

Let me first of all justify the word "disingenuous". Ingenuous means frank and open; disingenuous means lacking candour, frankness, open-ness.

Now let me quantify it. According to Budget 2010, two factors contribute to slashing the budget deficit: cyclical and structural. The aims is to halve the deficit from 11.8% of GDP to 5.2% by 2013-14 - that is 6.6 percentage points or £112.5bn in 2013-14 money.

Here's how they get there according to (measured in billions extrapolated from Section C15, page 186):

- 22.5bn as a result of the projected economic recovery.

That leaves the 90bn so called "structural deficit" which is addressed by:

- 19bn tax rises

- 38bn spending cuts

- 17bn from the reversal of the 2009 fiscal stimulus

- 17bn from an assumed upturn in tax receipts "not allowed for in the cyclical adjustment methodology, for example from a recovery in the financial and housing sectors".

The holes in this were spotted on budget day but have not gone away. They are twofold:

a) Only 20bn of spending cuts have so far been identified out of 38bn. Of these 11bn are "efficiency savings" not guaranteed to be delivered. 5bn are cuts already announced and 4bn are cuts to public sector pay and pensions. That leaves a minimum of 18bn of cuts yet to be specified, even if the full 20bn can be delivered.

b) The 17bn expected from housing and finance is not guaranteed to materialise.

c) Furthermore, the growth projections on which a future Chancellor gets 22.5bn out of a cyclical upturn have been decried as over-optimistic.

This is the credibility problem that lies at the heart not just of Labour's budget plans but which forms the "base case" for all potential incoming governments. They will face the same civil servants on May 7th as Alistair Darling did, over the same cold croissants, and will have the same problem.

Now let's look at whether the Conservatives' tax plans clear anything up. By raising the threshold at which people start paying the new, higher National Insurance contributions (NICs), the Conservatives raise 5.6bn less tax in 2011-12. But they have promised to cut spending in this financial year by 6bn, again through "efficiency savings". (For clarity, these are 2010 billions, not 2013 billions, but it's about half a percent of GDP in each case).

If we add the caveat that efficiency savings are not guaranteed, what the Conservative proposal does is alter the ratio between spending cuts and tax rises from about 66:33 to 80:20 by the end of the parliament. The Conservative plan also claims to get deficit reduction going a year earlier than Labour's, since the impact of the £6bn cut this year then feeds over into next, etc. I would also add the observation that the renegotiation of contracts seems to form a central core to the Tory 6bn of "low hanging fruit" - one senior Conservative told me that the major contractors were "surprised" that only Whitehall, of all their customers, had not demanded renegotiation of contracts during the downturn. We'll see how happy they are once the renegotiations start.

What the Conservative plans do not yet clear up is where the remaining spending cuts are coming from: £18bn in Labour's projection (£27 billion in the Tory analysis of Labour's budget, on the basis that some of Labour's efficiency savings are not achievable).

OK, now the Libdems. The Liberal Democrats have specified an extra 15bn of spending cuts, £10bn of which go on deficit reduction. The Libdem claim to be "closer than the other parties" in filling in the disingenuity gap stands up - but only if you accept all the planned growth and efficiency savings in Budget 2010 hold water.

Right now it suits the parties for us to get lost in the detail. But if you add up all the caveats it amounts to this:

There is at the very least an 18bn gap in the assumed deficit reduction plans of Labour and the Conservatives. Both parties already rely heavily on "efficiency savings" for which there is not proven methodology nor track record of delivery. In addition, the baseline scenario on which all other parties calculate rests on government growth projections way more optimistic than those of independent forecasters.

On top of that there is the pain projected for the first two years of the parliament after next, calculated at about £40 bn by the IFS, that is not accounted for by any planned cut, tax rise or growth.

The problem is, as Greece is now finding out, financial markets look for big-picture credibility.

I heard one Labour minister comment disdainfully, off camera, during a recent broadcast by one of my colleagues, "when in doubt ask the markets". Unfortunately this principle does apply, because the markets - long term weighing machine they may be - are, as the saying goes, in the short term a voting machine. For now they have suspended judgement on the UK's fiscal credibility because they know all parties plans are incomplete.

Being in government, Labour are pinned to figures on growth and the "cuts specificity gap" contained in Budget 2010. Opposition parties are currently making free with their right to propose all kinds of measures without reference to growth projections and total cuts targets. In that sense voters already face trying to measure apples against oranges.

But with all parties voters are being asked to make such a judgement on the basis of incomplete information, risky assumptions about growth and barely sketched out plans for efficiency savings.

What you therefore have to keep in mind when politicians rail at each other about tax, is the size of the cuts they have refused to specify and the riskiness of the assumptions on which they calculate those cuts, and the riskiness of their growth projections.

The general election will be called today for 6 May. Both and Tory leaders have been for a jog. The heavyweight politicians are already on the airwaves making claims about their economic policies which it will be my pleasure to subject to objective scrutiny.

But don't forget the viral election. The Tories unveiled today; there will be more from all sides. With the broadcast media in election-compliance lockdown, the press gone tribal, the blogosphere, Twitter and what one person says to the next on their iPhone becomes more persuasive than all those shouty men trying to talk over each other.

For the leaders this is going to be the "local" election: they've all headed off away from Westminster and Newsnight's dogged teams of fluffy-mic wielding journalists have set off after them.

I'll be blogging and twittering as well as reporting from the front line and dissecting claim and counterclaim in the studio. Join us tonight for the first of our Newsnight election programmes. ±«Óãtv TWO 2230 GMT

One day in 2007 I was filming in Tianjin's old German concession area, in the middle of a street full of Alpine brick villas being systematically stripped and destroyed by leisurely demolition teams.

"What," said my guide, a local official, "do you think we should do to attract foreign businesspeople to come and settle here so that we can fulfil our ambition of becoming the next Shanghai?"

"Er, how about not destroying all these western mansions; because upmarket businesspeople might want to renovate and live in them."

He looked at me as if mad, of course. The whole historic centre was destined for destruction in favour of an overpass and some newbuild hi-rise.

To get a sense of what's been lost, and how attitudes are now changing, Tianjinophiles (I've reported from there umpteen times) should have a look at the .

Most of my reports from this city have featured the changing landscape, the destruction, the wierdness of medieval hutongs side by side with skyscrapers, the luminous Jugendstil windows of a warlord's mansion. It seems they are finally getting it, but a lot's already been lost.

OK, consider this. You are the pre-eminent military power in Europe. Suddenly out of nowhere you spot a "threat". But no worries: your officer corps is skilled in expeditionary warfare and you have the finest professional army in the world. You set your technologists off to develop new and secret weapons. Then you declare war on the "threat" at the first opportunity.

But the "threat" turns out to have three things you don't. A reserves system that can mobilise hundreds of thousands of trained part-timers; a railway system that can deliver them to the battlefield; and a level of social legitimacy for the military which your professionalised armed force never enjoyed.

Result: within six weeks your head of state is a POW and your army has surrendered. Within six months your capital city is surrounded by the "threat" and ruled by armed insurgents.

That is the story of France in the Franco-Prussian war, which was won, effectively, at the design stage between two military systems.

After the election, the UK armed forces will once again be going through a design stage, and in a world where threats are hard to predict.

There will be a Strategic Defence Review, 12 years on from the last, which is still as an example of how hard it is to anticipate a threat. The word "terrorism" appears 13 times in the document, almost always in a list of potential threats that goes: "drugs, terrorism and crime". The word Afghanistan appears once, in relation to heroin supply. There is no mention of Islamism or jihad.

The timescale for the upcoming SDR is looking very crushed. I understand both Labour and the Conservatives see the Strategic Defence Review as needing to be complete by the time of the departmental spending review they plan in October/November.

I also understand that, for the Conservatives, in addition to the usual efficiency savings and the perennial problem of the MoD's procurement culture, the issue of 1st Armoured Division in Germany is looming large.

The British Army has around 23,000 troops in Germany "facing nothing" as one senior Conservative put it to me. Though there would be a high upfront cost in moving or decommissioning this force it would have geo-political overtones as well, as the force forms the "framework nation" of the NATO Allied Rapid Reaction Corps, which is already moving its signals and logistics brigades back to the UK this year.

Labour meanwhile is also preparing to make "tough choices", though not necessarily the same ones. Here the dichotomy tends to be posed as "tanks versus digital warfare and drones" - but there is, I understand, a similar determination to get most of the big decisions done before the cuts packages are announced.

The problem is that some in the armed forces are looking for a more "strategic" and therefore more deliberate process to come out of the SDR.

There is the army-versus-navy lobbying effort that Newsnight has reported on before, essentially and argument about how much blue-water naval capability you need if your primary goal is to the ability to conduct expeditionary warfare.

But there is also some thinking going on in the UK Armed Forces about their role and "legitimacy" in society: that is, a much broader set of questions about the relationship between reserves and professional soldiers; military intervention versus stabilisation and humanitarian roles abroad; where soldiers and their families should live and who provides their health care etc.

Those I've spoken to are asking bigger questions than the politicians and over a longer time-horizon, in which the security threat to the UK may be very different to what it is now.

The Afghan deployment showed the UK's procurement system as out of step with the speed of change at the military level, leaving much of the kit to be procured out of "urgent operational requirement" budgets, and the long-term procurement plans needing hasty revision.

But the procurement process is only one part of the long-term agenda the SDR will have to address. The Defence, FCO and DFID budgets will be looked at as a whole under an incoming Conservative government's wider Security Review. But if the Institute for Fiscal Studies is right, we could be looking at a 25% real-terms cut whoever wins the election.

It is in this context that the, published in February, poses the following questions: what's the balance between defending the UK/ Europe and projecting force outside; if you do the latter, what kind of force do you need (ie do you need something like the US Marine Corps with one ethos for all its functions and one basic operational role); how do you square this with the armed forces' role in coping with disasters, terrorist attacks or banking collapse. Then, do you redraw the map of the NATO/EU command system and do you integrate forces more thoroughly within that?

I hear, among the military people I've talked to, a desire for these questions to be answered at the level of, well, strategy - by strategists. That is, politicians who take responsibility for designing armed forces that have the capability, wider societal support and resources for what they are going to ask them to do.

There is some doubt being expressed within the armed forces as to whether a process totally focused on delivering cuts by Christmas will deliver answers to these longterm questions.

Meanwhile there is also concern among civil servants - just as with the budget deficit issue - that if we get a hung parliament then none of the strategic decisions will get taken by the time the cuts have to happen.

One hundred years ago Britain was about strategy which enthralled parliament and the popular press .

One byproduct of the parties' lack of candour about the cuts in general is that Labour and the Conservatives are keeping their detailed strategic defence proposals under wraps until after the election.

Whoever wins, finding out what is to be cut and why is going to be a signal moment of the next nine months.