After Clegg’s absurd hyperbolic puff about his (welcome) civil liberties reforms being the most radical programme since the Great Reform Act of 1832, the Cons-LibDems are now facing reality on several fronts – three in particular.

First, the Eurozone nightmare is ominously beginning to lap round the shores of the UK.   Having defenestrated Greece, the bond markets are now prowling round their next potential victims – Spain, Portugal, Ireland, UK.   Within a year or two the UK could well have the largest public deficit as a proportion of GDP in the EU.   The bond markets are assessing, not the rhetoric of ‘savage cuts’, but what the coalition actually delivers – where exactly they draw the line between cutting the short-term cost of debt to restore market confidence whilst not putting economic recovery at risk.   They will be looking at UK growth prospects where Government forecasts of 3.5% are widely seen as uproariously optimistic.   They will be judging whether the Eurozone can survive without either greater fiscal harmonisation or much closer moves to political union to safeguard the currency, and how an alternative new Stability and Growth Pact might impact on UK economic prospects.

Then there’s the coming Budget where recent conditions have worsened.   Rising inflation, up to 3.7% CPI and nearly double the Government target of 2%, constrains the Budget options markedly.   The markets want a sharp cut in the £163bn deficit, but putting up VAT to 20%, the prime candidate, would push inflation still higher.   Furthermore any temptation to raise interest rates to damp down resurgent inflation risks killing the recovery, and both that and raising indirect taxes would stifle demand and further postpone any sustainable upturn.   And higher taxes, rising inflation, and lower growth will squeeze real incomes.

Then there is the small matter of the Royal Mail which the Tories (Ken Clarke as then was) were committed to privatise, a poisoned chalice that now falls to Vince Cable.   LibDem policy at the election was to sell off 49% whilst the reamining 51% would be split between an employees’ trust and the Government.   Most people would see this as simply a precursor to a full-scale private takeover, as has happened frquently before in the history of privatisation (e.g. BP).   But   certainly a revival of the epic struggle between the CWU as the totemic proponent of a universal public service (which made £184m profit in the most recent half-year period) and a Government determined to push privatisation still further will drive a yet deeper wedge between community-conscious Liberals and hard-nosed Tory marketeers.

And this is only for starters.

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