Many western democracies in the second half of the twentieth century had two main parties competing for power – a centre right party and a centre left party. This model is being blown apart by Euro membership and the austerity policies it has generated.

The most extreme outcome so far is in Greece, which has arguably the worst experience of Euro membership to date. There latest polls for the forthcoming General Election put Pasok, the old centre left party, on just 5.8% of the vote, with electors put off by its implementation of EU austerity when it was in government. The centre right party is in second place on just 29% of the vote, also damaged by its association with the iron discipline of the Euro. The relatively new left wing anti austerity party, Syriza, currently leads in the polls on 33%. So the two old parties that used to alternate as governments command just 35.2% of the vote.

In France a recent poll for the 2017 Presidential election showed Hollande’s socialist cause struggling on just 15% and the recent version of the Gaullists, Sarkozy’s team UMP, on 27%, both behind the National Front. So there the two main old parties (and successors) on this particular poll were on just 42%.

In Spain PP, the right of centre party is on 28.6% and PSOE, the left of centre party on 23.4%, before the onslaught of Podemos, the left wing anti austerity party on 23%.

In Italy, with no tradition of stable majority governments, the present left grouping is polling well at 37% whilst the right of centre alternative, Forza Italia, languishes on 14%. The 5 Star challenger movement is on 19%. The latest surge has come for the regional party , the Lega Nord, with 13% of the overall vote, concentrated in the north where they seek a largely independent Padania under a loose federal structure. In both Italy and Spain the richer parts want to split from their nations, or at least control more of their own money.

Even in Germany, where the Euro has worked well for the country and where recent economic performance has been much better, the CDU and SPD only marshall 65% of the vote between them and have ended up in grand coalition as neither can win outright or win in coalition with similar allies.

The interesting question is why do these traditional parties across the zone remain so keen on the whole project, when increasing numbers of their electors reject it or want it modified, and when electorally it is so damaging to these parties? It appears that the southern countries cling to the idea that Germany will pay more of the bills and they need to stay in and try and change it, whilst Germany makes clear she can only put up with it if the Euro is on German terms of no bail outs, no cross guarantees, and tight control of spending and deficits.

It is also interesting that none of the challenger parties so far have managed to win a majority, and none of the challenger parties outside Germany (save in France) want to get out of the Euro anyway. The Euro has helped make a mess of the old parties, but has so far not triggered its nemesis with strong anti Euro parties. The Greek election will be fascinating, to see if Syriza can win as a challenger, and then to see if they can stay in the Euro and deliver their promise of debt cancellations and less austerity.

The Coalition when it came to office had sensible aims to rebalance the UK economy. It wished to cut the state deficit, and create a better balance between the productive sectors paying the taxes, and the state sector spending them.  It wished within the private sector to increase manufacturing as a percentage of the whole.

Almost five years on the government has made progress in cutting the share of GDP spent  by the state, but has further to go to eliminate the deficit altogether. The private sector in the second half of the Parliament has grown much more quickly than public spending, adjusting the balance between the two in a welcome way. It has also seen a  manufacturing revival with some notable success stories,  but not sufficient to increase the proportion of manufacturing in the total.

Rebalancing the private sector is more difficult for a government to achieve than rebalancing the state sector versus the rest. The government has considerable control over the size of the state sector, so can vary that as it sees fit. It has little control over the sizes of the manufacturing and service sectors. When trying to shift the balance it should want to do it  by helping grow the manufacturing sector more rapidly, rather than by cutting the size of the service sector through adverse taxes and regulations.

As someone who has led manufacturing businesses in the past, with more than a decade of experience in senior positions at  industrial groups, and who believes in making things, I do not need convincing of the desirability of expanding industry here. Nor is it difficult to say what other measures would help. As I have often pointed out, the single biggest stimulus to more industry here would be more reliable cheap energy, as the USA is discovering. Better purchasing by government would also help, so that more state spending could be used to buy things we need that are made here, without infringing competition rules. France and Germany seem to find ways of buying more of their own goods.

The boundaries between service and industry are not well defined. If a large industrial business decides to contract out its cleaning, catering and other back office services, the national accounts are likely to report a decline in manufacturing activity and a rise in service activity, though nothing real has changed. If an engineering business decides to buy in engineering consultancy to design its next product or solve some of its technical problems, again the figures flatter services and reduce manufacturing.

Sometimes the UK discovers that some of its engineering talent is drawn to the city where they can command higher salaries. Some people think this wrong, but they are adding value and earning  their living. If those same engineers are better paid by working for an engineering consultancy, which in its turn can be hired by UK manufacturers, that may be a sensible model for advancement.

Labour hit a new low in its presentation of figures in its dossier on the NHS. It is common and acceptable for parties to highlight accurate figures that most serve their case, but not acceptable to get figures deliberately wrong. The Conservatives have already highlighted Labour’s  mistake over numbers of medical staff. The numbers have gone up since 2010, whereas Labour said they had gone down.

Worse still is Labour’s continuing abuse of the percentage of national income figures supplied in the Red Book for total state spending in 2020.  This is forecast at  35%, after five more years of modest cash increases in total state spending and the economy growing faster than the public sector.

In their health brief Labour argue that the Conservatives wish to cut state spending “to levels in countries where up to half their health service is privately funded. ” They cite Mexico and Korea as two such examples. They then argue that this proves the Conservatives must have plans to privatise parts of the NHS and by implication people will have to pay for their health care.

The figures are wrong. They later have a table showing that Mexico has state spending at 27% of GDP, not 35%, and Korea at 20.6%. It is clearly not the government or Conservative plan to get UK state spending down to Korean or Mexican levels, not even as a percentage of their respective economies, let alone in real terms, as the published figures show. The Conservatives plan a much larger state sector than Korea or Mexico. They also ignore the fact that the UK is a lot richer than these two c0untries, so 35% of our GDP is worth more than 35% of their GDP. UK GDP per head of nearly $40,000 is  50% above South Korea and 3.6 times Mexico’s. So even if these two countries were at 35% of state spending to GDP, they would be able to afford a lot less healthcare.

The whole lie that Conservatives want to take state spending back to 1930s levels is bizarre. The UK is a much richer country than it was in the 1930s, so 35% of our national income now will buy us a lot more state service than it bought us then.

I was interested to see that Labour’s press release said at the bottom “Designed and built by Bluestate Digital. Hosted by Tumblr, 35 E 21st Street, 10th Floor, New York City, 10010 USA”.  Such is Labour’s confidence in our country and contribution to our economic success.

Mrs Merkel is a clever politician. In Berlin she speaks German, and in Brussels she talks European. She wants the Euro area to reform in a Germanic way, but she wants Germany to stay within the wayward zone and gradually to assume the responsibilities of leadership for the currency.

Her German electors were never keen on the Euro. I remember when senior Germans came to London to persuade me and others of the joys of the Euro which they categorically said the UK would join, they had to admit 70% of the German people wanted to keep the DM.  How wise the people were. Their leaders’ predictions that the UK would lose its City business and find trade difficult outside the currency were less well judged.

Now Germany is in the Euro there is relentless pressure on her to put the German trade surplus and strong tax revenues at the disposal of states with weak finances,  to assist Euro  countries with trade imbalances, and to guarantee commercial banks with weak balance sheets. Just as the UK government, taxpayers and Central Bank stands behind the cities and parts of our country that are in trade and budget deficit, and behind all the main UK banks, so many think Germany should now stand behind  the Greek state and Spanish banks, to name but two problem areas.

Mrs Merkel knows she cannot openly back major subsidies or guarantees from German taxpayers to the problems of the zone . She needs to play brinkmanship with the troubles, only in the end agreeing expensive compromises and even then trying to avoid any direct German payment.  This is why Germany does not want to see the UK leave the EU.

Accepting that the UK has stayed out of the Euro – something the German establishment would not accept  before and shortly after the formation of the Euro –  the UK has a couple of important uses for Germany. The first is the UK can normally be relied on to be more fierce against expansion of EU budgets, subsidies and taxes than Germany, providing good cover for the German position. Second, the UK is a useful unpopular large member of the club making Germany look more mainstream and acceptable. I doubt  Mrs Merkel is stupid enough to think they need to keep the UK in in order to be able to carry on exporting  so much to us, and her Ministers have said sensibly that if the UK left the EU they would want a free trade agreement so they could sell to us and we to them.

Mrs Merkel now has another reason to be nice to the UK. The adverse reaction of many UK voters to the scale of European migration, and to the required favourable benefit treatment of migrants from within the EU, is mirrored by some of the reactions in Germany. Mrs Merkel is wise enough to heed the warning, and needs to take some action to show German opinion that there have to be some limits to generosity to recently arrived individuals, and some understanding of worries about the pace of change in once settled communities.

She and Mr Cameron may well be able to agree some reforms to the EU rules on these matters that are mutually beneficial. She also needs to understand on this visit, however, that the “British problem” is not going to be fixed by a few modest changes to benefit rules. The British problem is an advanced version of the German one. The UK stayed out of the Euro. We did so because UK taxpayers do not wish to stand behind the Greek state, or Cypriot banks or any other country’s trade deficit. Our worry is the whole Treaty architecture is now designed for the Euro area and not for us. That is why we need a new relationship.

When the UK joined the EEC I opposed it for two main reasons.  The first was the likely long term erosion of our sovereignty. The Treaty of Rome made clear it was much more than a free trade area or more accurately a custom union that  they had in mind. The second was the economic damage high UK contributions and the asymmetric approach to trade was likely to do to our economy.

Which brings me back to the UK balance of payments. The UK is not uncompetitive. We have a healthy trade surplus on a regular basis with our number one trading partner, the USA. We regularly sell more to Australia and Switzerland  than they sell to us, two other important trade partners.  When it comes to the rest of the EU it is always the other way round. We have usually suffered bad deficits.

In the early years of our membership the whole approach was to ease duties and restrictions on trade in goods where Germany had the advantage, and to restrict or fail to liberalise trade in services where the UK had an advantage. That worked very well for the rest of the EU who ran big surpluses at our expense.

In more recent years the EU has dangled the carrot of a better trade in services for the UK as a means  to gain more and more control over our service areas by endless regulation. Whilst some of the new rules have helped build pan European business opportunities, more of the rules have driven up costs and damaged the UK’s worldwide competitiveness in services.

The official Pink Book for 2013 shows the UK running a massive deficit of £88bn on the current account with the rest of the EU, led by Germany at minus £35bn.  In all years since 1997 the UK has run a current account surplus with the Americas, Australasia and Oceania.  We have been large importers from China, but the German deficit has far exceeded our Chinese deficit. Trade with India is well matched.

The UK’s surplus on services is heavily dependent on insurance, pensions and financial business, which recorded a £58bn surplus in 2013.  Our travel account is in heavy deficit, as we travel more and spend more than foreigners do when visiting the UK.

When conducting domestic policy we need to remember just how this country earns its living. When conducting foreign policy, we need to remember just what a bonus the rest of the EU gets from its current relationship with the UK. £14.8bn of our current account deficit in 12013 was our  net payments to the rest of the EU, for the privilege of them selling us goods! They would want to keep their access to our market, whatever other sensible political arrangements we might insist on.

2015 should bring more economic growth to the UK. The banking system is now able to finance more of a recovery. Many individual consumers will get a boost as wages are now on average rising faster than prices. The new year will bring further falls in petrol and diesel prices. This will relieve family budgets directly, as vehicle fuel is  a large cost, and help lower other prices as delivery costs to shops and to customers decline.  The food retail sector remains intensely competitive, with lower prices resulting from that and from some falls in commodity prices.

Voters will naturally wish to see per capita growth, which should happen. They will more importantly wish to see their own living standards rising. The government will have to push on with its p0licy of cutting the rate of inward migration by a variety of means, and make early progress on benefit entitlement issues for recently arrived people. It will be popular if more and more of the new jobs the economy is generating are taken by people already settled here legally, cutting unemployment and related welfare costs.  All this is possible.

The government will also need to do more to tackle the problem of housing. House prices are now very high in some parts of the country, particularly in the areas with the most new jobs available. Limiting new arrivals will help. There will need to be more actions to ensure a decent supply of new housing in locations where people wish to live and where there is employment opportunity. The best place to start is London, where the building rate is rising but more needs to be built within the urban area.  Much of this can be done by redeveloping brownfields and previously developed sites, and by changing uses intelligently.

The mortgage market needs to be sufficiently responsive to give people a decent chance of climbing the property ladder. Of course it is right to avoid excessive lending with no deposits and very high multiples of income that make it difficult to repay. It is important not to lurch too far the other way and  make it too difficult for buyers, especially first time  buyers, to get started.

I have found it extraordinary to read some of the commentary on the liberalisation of the City in the 1980s, written by people who now have access to state papers under the 30 years rule. They wish to see in our debates and discussions the  causes of the banking crash which happened 23 years later from quite unrelated causes. Such is the power of Labour’s spin.

The banking and broking system moved smoothly from the cartelised and small City of the early 1980s to the global market of the later 1990s without accident. When the Conservatives left office in 1997 we had a decade of success with the larger City under our belts. The commercial banks were bigger and did more, but they still had sensibly controlled balance sheets thanks to the continuity of banking regulation under the Bank of England. There were  no more scandals then than in the years prior to Big Bang.

Gordon Brown decided to tear up our regulatory settlement, take most of the bank regulation responsibilities away from the Bank of England, and give them to a new Statutory body, the FSA. It was that fateful decision, not our decision to liberalise the City, which caused the banking crash. Mr Brown’s new regulator allowed a massive expansion of bank balance sheets and credit, well beyond anything we would have allowed, and then in 2007-8 they decided to bring the system crashing down by forcing change too rapidly on  a bloated banking industry with higher interest rates and demands for more capital.

Big Bang transformed the City for the better, as I hoped at the time. It broke up the cosy cartel of the old stockbrokers and jobbers, introduced competition into commissions which made share buying and selling so much cheaper, allowed in many foreign banks and brokers with extra capital, new business and job opportunities, and allowed UK institutions to raise serious amounts of new money to operate on a world scale.

It built one of the dominant financial service and banking sectors of the world. The City expanded from the narrow Square Mile around the Bank of England, to encompass Aldgate, Liverpool Street, the Finsbury area , parts of Mayfair , St Paul’s and parts of docklands. Today we earn £60 billion from our financial and business service exports, and have a  group of companies and service industries that the world envies. Without Big Bang none of that would have  happened, and the UK would be a lot poorer. Instead of blaming Big Bang for financial scandals, people should remember there were scandals before Big Bang, and remember above all that it was Mr Brown’s regulators who  helped bring on the crash they were meant to prevent.

Apparently when Mr Osborne says he has halved the deficit as a percentage of the economy, he is according to Labour wrong to mention that true figure. He should concentrate on the cash figures, which show the deficit down by one third.

So why then does Labour bang on about the Conservative spending plans for the next Parliament, and claim wicked cuts to get it down to 35% of GDP?  Applying their own latest logic, they should accept that Mr Osborne’s plans for cash public spending show further gr0wth of £40bn a year by the end of  the next five years. Fair’s fair. If it’s cash we are using, then Conservatives plan rising spending next Parliament.

The UK has a long and difficult history in its relationship with the rest of Europe. For much of the last millennium UK policy was based on the proposition that we had to prevent a single power dominating the continent, as they were likely to be hostile to us and opposed to free trade. Our need to preserve our right to choose our own political and religious views led us into war against Spain, the European hegemon of the sixteenth and early seventeenth centuries. Our wish to preserve our independence and trade led us to fight many wars against France, culminating in the epic struggle for our own survival and the future of our continent in the long Napoleonic wars. In the twentieth century it was a necessity to stand up to German aggression and dominance. Spain, France and Germany all attempted invasions, and all failed. The Dutch pulled off an invasion by agreement with a substantial part of the British establishment.

If our neighbours had been less keen on fighting for control, or if at times we had been better at diplomacy, we would saved ourselves a lot of blood and treasure. The long and damaging European wars held us  back as well as the continent, destroying wealth and diverting effort.

Since the 1960s the UK has decided on a different European diplomatic strategy.The UK establishment, with some notable exceptions, has decided to allow and actively promote a new European hegemon to emerge called the European Union. This is against the whole run of our past policy and experience, and is a very dangerous experiment. I have no wish to go back to a policy of continuous wars between nation states,  but fortunately the main European countries are now peace loving and respectful of each other’s borders.  I do  worry that this so called cure for these wars   is not the right way to extend and preserve the peace. It is not in the UK’s national interest, and is bizarre as France and Germany would have no intention of invading us if we were outside the EU.  There is danger in the EU developing an aggressive state personality of its own, and an obvious threat to our hard won liberties from placing ourselves under EU control.

Indeed, I think there is clear opportunity for the UK to be independent, and free of wars against major continental countries. The fact that all the major countries of western Europe have at last decided they do not want to fight more wars, and no longer assert rights over each other’s territory means we have that opportunity for peace which does not depend on accepting ever greater political union with the continent. We should seize the moment, and welcome the conversion of our neighbours to the paths of peace. It is far better they beat ploughshares than swords. That peace will be more prosperous and extend for longer if it respects the independent minded nature of the UK. We do not wish the UK to become some forgotten fields controlled  on the edge of  a new European empire.

Whenever the UK disagrees with the EU we are told we are ” marginalised” and will lose influence. It is another case of EU double speak, because history shows it is only when we disagree strongly with the EU do we ever get anything we might want.

Margaret Thatcher’s most public disagreement with the EU was over the size of the UK financial contribution. She gained a new settlement which saved us substantial sums.

John Major disagreed over the Euro and gained us a valuable opt out which we still use to this day. It’s a pity he did not just veto the whole Maastricht Treaty, as David Cameron did with the recent Fiscal Treaty.

David Cameron is demanding changes over borders and benefits. Already we hear noises from the continent that some changes will be possible, though not yet enough to satisfy us. There would have been no offers on these topics at all without the UK expressing disagreement with the current position.

Labour’s approach of agreeing with anything the centralisers in the EU  bureaucracy wanted and then either telling the UK it was good for us, or playing it down as an insignificant or unimportant change was the opposite of having influence. There was  no strategic aim for the UK within the EU, and no successes of this craven policy.

Some in the UK establishment seem to be afraid of Germany, and think we need to be pliant supplicants at the court of Mrs Merkel. I see it as the other way round. The UK’s relationship with Germany should be based on the central proposition that we are a crucial customer for their industry, buying much larger volumes of goods from them than we sell to them. As customer we should be able to tell our supplier what we want and expect to have more of  our wishes met. Our bargaining position is much stronger than the pro EU sell out officials and politicians would have you believe.