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It is the very essence of Mittel-Europa, this space in Davos where the world's savants come to discuss the salient issues of the day over a modest repast; where muslim interacts with Christian; intellectual rubs shoulders with hip-hop youth. I speak, of course, of the Davos Pizza-Kebab Shop (open Sundays).

The kebab shop is in the middle of the town's bleak co-op shopping centre, just below the discount ski-wear store. Obviously, since ski-ing and snowboarding are calorie burning sports, it attracts a fair number of local youth still high from the white adrenaline who sit there trying to calm down while chomping through the thick, soft bread that is wrapped around a Doner in these parts; their buzzing brains struggling with the key question of "senf oder maionnais" just as, a few yards down the road other brains struggle with "capital adequacy versus the Volcker rule".

There is a place like this in nearly every town I've worked. In Texas it has a floor covered with monkeynut shells and sells a burger branded "roadkill". In New York its walls are covered with photos of famous boxers hugging the proprietor, Jimmy. In Paris it has a small statue of Le Petit Marcel on the bar; in London it sells only coffee and reflects pictures of Italian boxers back over your shoulder. In Barcelona it sells cava and bacon sandwiches. To me such places constitute the essence of human discourse in a way the WEF struggles to. They are argumentative, true, places, where politeness goes out the window.

In the Davos kebab shop a Turkish carpet adorns the walls. Maghreb music drowns the general babble. There is displayed the shirt of an ice hockey team sponsored by the kebab shop and several trophies. Blokes wander in, read the paper and later in the day have a beer. Conscripts in camo fatigues shoot the breeze and, as I say, snowboarders go quietly mental. And they argue, curse the world, sympathise with each other's misfortune.

This is the "reality" from which the other Davos, the World Economic Forum, is so obviously and unfortunately divorced.

Today we had a high-powered debate on Afghanistan: Thomas Friedman, David Miliband, Carl Bilt, Radosław Sikorski, Ashraf Ghani, with Abdullah Abdullah speaking from the floor mic. It was utterly revealing and I sat amid a hall of rapt international journalists watching it on TV: taking notes, making wry comments, filling each other in on missing details. Much of the wryness concerned the fact that, of all the powerful people speaking on the platform, and from the floor, not one of them seemed to disagree with each other.

The west's strategy since 2002, I summarise, had been no good. The London conference excellent. The friendly wing of the Taliban were now prime candidates for being won over by bunging money at them. Politics had replaced military action.

It was so open, echt, and free-flowing that you could be forgiven for forgetting that, only a few years ago, a different cast of politicians would have been sitting there saying what a great thing the old, failed, military-focused strategy was and how you could never do deals with the Taliban.

The tide on Afghanistan, in short, has turned and the London conference has created momentum, and Davos is a very good place for journalists to be able to gauge this. But, we wondered, tapping into our laptops, would it have been too big a stretch to put somebody on the platform - just one person - who disagrees with the Afghan intervention? Or who would defend the old strategy?

Later, sitting amid the grumpy fug of the kebab shop, amid muslims, German-Speaking Swiss guys, mums, offduty security guys and young skiers, it occurred to me that if we could have re-staged the debate here, mit senf oder maionnais, it would have been at the same time less informed but more productive. People would have disagreed with each other and from the friction would have come wisdom.

This has been my first WEF and I've tried to suspend judgement but, as I get ready to call it a day, the biggest weakness here is groupthink. The limits of debate are predefined by a kind of liberal centrist consensus.

On some issues there is lively debate: for example Arianna versus Rupert over whether online content has to be put behind paywalls. But when it comes to the major issues, there are precious few here arguing, as the American conservative right does, against bank bailouts, or for a return to socially conservative values. Or as the left does for a radical rethink of corporate values and practice.

Likewise the economic debate ranges between a kind of moderate neoliberalism and a moderate neo-Keynesianism. Joe Stiglitz, in his new book, describes a previous Davos where the bankers poo-poohed his theories warning him that "nobody who matters thinks this". Though Stiglitz is here bigtime this year, I think it is still safe to say that "nobody who matters" really buys his critique or policy solutions.

As with parliamentary politics, the edges are filtered out and the centre reinforced with sessions discussing "How Classical Music Can Enrich the Lives of Children". Lula is absent because of illness, fair enough. But where is Chavez, Evo Morales? Where are UKIP? Where is Sarah Palin?

If there were any kind of democracy of attendance, you could excuse some of this, but Davos is after all an exclusive gathering: invite only. The average party conference in Britain is more diverse. Not even the "reporting media" are allowed in to the most important sessions; much of it's off the record. The exhilaration many people feel from being here is a product of the quasi-Athenian atmosphere that exists, where everyone who's made it here is taken seriously and everyone - to use the vernacular - gobs off, secure in the knowledge that important people are listening.

I wouldn't say it is mainly an event for naked commercial networking and dealmaking, although that clearly happens. It could just do with being less consensual, less polite, more able to pit the powerful against each other in intellectual death-match. At the level of business representation it could do with being less media-dominated and a lot more open to the small and medium businesses who are the backbone of the modern economy.

But here's the benchmark:

Newsnight is sometimes criticised for being an elitist or intellectual programme. But if you were to put all our studio guests on last year's Newsnight in one conference together it would be massively more diverse of opinion, less corporate dominated, and much feistier than Davos. In fact I might suggest this at our next office brainstorming session.

If you were then, as in an ideal world, to introduce the occupants of the kebab shop as equal participants, it would be feistier still.

Davos 10am - There is something frighteningly calm about Alistair Darling. He is running the only developed-world economy where growth is still borderline - he has got credit rating agencies dissing him left right and centre and now the banks. He is meeting them this morning and will tell them, he has just told journalists, "to stop feeling sorry for themselves", to "get off the front pages" and to "avoid a stand off".

Flanked by Lord Mandelson, Mr Darling hosted a breakfast for the economics press pack here: as a sign of the times there was, of course, no actual breakfast, only cold coffee which ran out somewhere between Edmund Conway and Larry Eliott.

What Mr Darling and lord Mandelson are here to do is to revive what they see as a faltering process of financial reform coming out of the G20. As I have blogged before, there is a growing trend for governments - responding to popular outrage - to begin "solving" the banking problem on a national basis: the US with the Volcker rule, Britain with its new stress test experiments run by the FSA, the EU with its anti-hedge fund rules.

The UK's message here is that "we've agreed at Pittsburgh to do things, so let's do them". The in-principle agreement to make banks hold higher capital against risky activities was shunted into a process at the Basel Committee, of central bankers and regulators, where Mr Darling believes "some banks, you will know who they are, are fighting a rearguard action". He declined to name them. The chancellor said he wants the new capital rules in place by the end of 2010 and warned that time was of the essence.

The UK also places great emphasis on the so called "living wills" for banks - contingency plans for their breakup in the event of insolvency. This too is not exactly progressing apace.

There was a subtheme in the briefing also that the commonality of the stimulus measures agreed at London and Pittsburgh may be falling apart. That countries will exit the anti-crisis measures too quickly and that the UK, with its highly globalised economy, is as much susceptible to this as it is to stimulus withdrawal at home.

Mr Darling was unequivocal on the Obama-Volcker plan. He echoed a point , that it is hard to ban proprietory trading because, as when airlines hedge the price of fuel, some of it is a logical protection for the banks' customers.

But his key point was a rejection of the Glass-Steagall principles behind the Volcker rule - that having separated speculation from deposit-taking, the state can allow a speculative bank to fail:

"You can't say ex-ante bank X will be allowed to fail," Mr Darling insisted. Northern Rock, he said, had been a small bank with systemic importance; Lehman had been a pure investment bank and its failure nearly brought the whole system down.

What is emerging is a clear philosophical difference between the UK and US governments over the banks - the UK sees so-called "moral hazard" as permanent and systemic. That is, every bank has an implied guarantee of bail-out from government so you then have to construct a social charge or penalty on the banking sector to compensate for this. The Volcker rule is designed to remove the moral hazard problem - the UK approach is designed to live with it. (Incidentally the UK government is also sceptical about Mr Obama's ability to get any kind of Volcker-inspired legislation through Congress).

The question then, for the UK, is - are the measures proposed and taken adequate?

Clearly Mr Darling is saying the measures taken are not adequate: there is too little progress on capital adequacy rules, living wills; and as for so-called macroprudential regulation, Mr Darling said there needed to be more discussion between regulators, governments and banks before any new rules were drafted.

The bigger issue is, are the measures actually proposed adequate? I asked Mr Darling what was the UK's key response to moral hazard. He replied it was the resolution regimes, the living wills banks will be forced to draw up, specifying just how much risk is being borne by the states which are underwriting the banking system. A resolution fund, which banks pay into to insure against further crisis, would only work, he said, if it were global. (The tenor here was that he did not expect it either to work or be global.)

Only when prompted did he mention the idea of a financial transactions tax. This remains on the table but it is clear the UK government has now focused itself on "achievable goals", and the Tobin Tax is not one of them. It sees the Obama administration, the EU and Japan each charging off in a different direction and is determined to be the last man standing when it comes to insisting on the minimal global solutions already agreed.

This leaves the UK's own position open to the following criticism - by sticking to the principle of global, co-ordinated action it appears to be clinging to the "lets solve it all with higher capital" strategy that other governments have realised is not working.

It also sounds, to the trained ear, like the City of London talking - let America close down prop trading desks and the EU stuff the hedge funds. With a seven year waiting list for places at the International School in Geneva there is only one place in the world bankers and their privately educated kids will want to be and that is Cool Britannia. Though I am sure this is not the motivation of the UK stance, it is how it will be portrayed in New York, Paris and Frankfurt.

Both Lord Mandelson and Mr Darling made predictable swipes at the Conservative leadership. "They are going wobbly," said Lord Mandelson, citing an absence of "conviction and swagger" in their calls for austerity. It is hard to square this with David Cameron's toughest ever statement, made to Channel Four News last night, that he would attack the budget deficit this year even if it risked a pushing Britain into double dip recession; that "the biggest threat to the British economy is not dealing with the deficit; it's failing to deal with the deficit".

But these two key Labour politicians were, observed up close, playing a much more clever game than simply sledging Cameron and Osborne.

There is a sheen to being in power, a patina. Literally in the case of Lord Mandelson's access pass to Davos which I noticed is exactly like mine except it has an embossed holographic stud, similar to that on caps worn by rappers, and mine does not.

This sheen of power has not yet descended on Mr Osborne and Mr Cameron. Their "tone" is necessarily strident, urgent, while the tone of the incumbent can be measured, soporific, as I say, frighteningly calm.

This is what Messrs Darling and Mandelson were up to at 7am, over their foodless breakfast table - emitting that quality once only possessed by Baliol men: "the tranquil consciousness of an effortless superiority."

They are going to play this quality of experience and supposed reliability hard, heavy and where necessary brutally in the election.

It's taken me nearly four hours to get here on the train from Zurich, up a branch line that would make a great film set if they ever remake The Great Escape.

I've arrived fuming against the general pointlessness of Davos. It's a kind of world stage for powerful people to come and have a monologue about their issues and agendas, and then listen to those of others, in an atmosphere where the media are almost duty-bound to make a fuss of them.

But there issues of great portent being discussed here. Haiti, Yemen, the ever present woes of the developing world. Climate change. And above all the aftermath of the financial crisis.

Financier George Soros has the US powers-that-be for failing to maintain a convincing economic stimulus, and warned of a double-dip recession. Coming in the same week that economics guru Joseph Stiglitz , it's making Davos a powerful node of pressure on the Obama administration for what I now call Plan N: the New York Times-led alternative of greater fiscal stimulus in America, which received a great fillip last week when Obama effectively sidelined Larry Summers and Tim Geithner in favour of a crowd-pleasing move to break up major banks.

But there is counter-pressure too. The Brit financial entourage is here - Treasury folks, outriders for Alistair Darling. Not only are the people from the Treasury deeply unenthusiastic about the Obama/Volcker move against investment banking, they are also making it clear in background that the Tobin Tax - or Financial Transaction Tax - is. as one government source put it to me, "down the running order". There will be, this week, a last flurry of enthusiasm for James Tobin's big idea before it is consigned to oblivion by the realities of the situation (see below).

What's happening is that governments, pressured by the electorate, embarassed by the sheer scale of the investment banking bounce-back, are looking for ways to penalise the banking sector for the implicit guarantee that stands behind it, and for the superprofits they have generated out of the anti-crisis measures still in force. Since this involves raising money, it is a win-win for cash-strapped treasuries.

But what they haven't got is any global means of acting: the IMF/World Bank can't, the G20 won't - therefore you could say that we are at a moment of realisation that the various "global good ideas" for shutting the stable door are really not going to happen and that, as with Obama and Glass-Steagall 2.0, it's all going to be national measures and realpolitik from now on.

What I am looking for, here in this snowy town full of 50s-era hotels (I am staying in one where the old New Zealand saying - "set your watches back 20 years" would be appropriate) are signs of an emerging new consensus or vision about the future of capitalism.

Right now all I can discern are glimpses. There's a big subtheme about the emergence of China and India (Indian CEOs are everywhere here); western consultancy gurus are pretty much all over this issue of the multi-speed recovery, the multi-polar world, the bi-polar power game between China and the USA etc.

But the idea that capitalism may have to go through an epoch-change, altering the balance between state and private sector, citizen and consumer, human beings and environment etc, is all, still, pretty inchoate.

Klaus Schwab, a kind of Alpine Maharishi to the Davos sect (he runs the WEF) has :

"We have witnessed a gradual erosion of this communitarian spirit over recent years. This erosion of societal values has progressed particularly in the business world, and is also one of the primary reasons of the current economic crisis."

What's interesting is, as corporate leaders try to grapple with what "nice capitalism" might look like, how they often go back to deep-rooted, old-fashioned religious concepts of ethics and morality for inspiration. I don't deride that, but it's interesting how un-modern much of it sounds, whereas in an ideal world what you would want was something that re-stated human, ethical values in a modern contex and sounded less like a public school prize giving speech from thirty-odd years ago.

In a way the unstated theme of this year's Davos is "we've lost something" - whether it be US hegemony, any sense of morality in business, or any sense of where sustained growth is going to come from in the economies that have been fuelled for two decades by cheap credit (see yesterday's UK GDP figure for a grim reminder of that problem).

Of course what you've got here are some of the most talented people on earth, and chutzpah in bigger drifts than the snow, so what the people on camera out of Davos say will always sound confident.

But what I'm sensing is an inner lack of confidence, 18 months on from the meltdown and less than 12 months on from the turn to quantitative easing in the Anglo-Saxon economies.

Some of the more farsighted people are basically going around saying: the western model is in decline, stand by for the rise of China, India, Brazil and South Africa. What I'm not hearing is the second half of the sentence, which should be: "and here is the new future for the west, for Britain, for America etc."

Anglo-Saxon economies, and politicians, are still it seems in the "dealing with it" stage, rather than the "moving on from it" stage. I had to endure a train journey through soul-less Switzerland to discover this but Davos is Davos. If you're going to try and sense the zeitgeist of global economy, you have to do it here, and all of the above - impressionistic though it is - is a summary of what my zeitgeist antennae are telling me.

First, well done Danny Gabbay and his economists at Fathom for predicting the ONS figure would come out at 0.1%. That's not the same as predicting actual growth but correctly modelling how the ONS will measure it.

That 0.1% is such a small recovery that I am now wondering whether, if had had eaten fewer Mars bars in December I could have single handedly sabotaged it.

Now, what does it mean? It means that - even though the 0.1% is even across sectors (service, manufacturing) it is highly likely that we're going through a two-speed recovery, the north stagnating, the south growing faster.

The reason we've recovered at all seems to be a) low interest rates, b) numerous micro schemes to stop foreclosures and job losses from spiralling into a deeper recession, c) £200bn quantitative easing, d) the falling pound and e) car scrappage schemes across Europe. Also discretionary public spending and the VAT cut.

Now: the public spending is set to be reined back and the VAT cut is over. The car scrappage stops this year and the low interest rates cannot last forever. Sterling devaluaton - not being a government policy - is prey to global conditons and could reverse (indeed had slightly). In addition, insolvency experts are telling us there are numerous retail businesses on the brink - again particularly in northern Britain.

We'll be exploring some of this patchyness and scratchyness tonight on Newsnight, with a cast of politicians, economists and businesspeople. If you've got a strong argument to make, hit the comments button. I've been in the Pennines talking to businesses for whome the economic climate still feels as raw as the weather.

There's a great scene in Monty Python's Life of Brian which explains a lot about President Obama's sudden turn to a Glass-Steagall solution: a blasphemer is about to be stoned to death for uttering the word Jehovah....

Blasphemer: Look, I don't think it ought to be blasphemy, just
saying "Jehova"!
John Cleese: You're only making it worse for yourself!
Blasphemer: Making it worse? How could it be worse? Jehova,
Jehova, Jehova!

This sums up more or less accurately the positon between the banks and regulators as they've curled their genteel vowel sounds around the words "capital cushion". "All we need to do, old boy," they've assured us "is raise the amount of capital banks have to hold. That'll sort things out".

And the governments and regulators bought it, until now.

They would penalise risky banks by raising their capital cushion, from the 4% RBS scraped by on, to the 9% they imposed during the crisis.

Pay excessive bonuses? Higher capital. Too big to fail? More higher capital. External macro-economic risks building up? Higher capital still.

Eventually the banks just look like the Monty Python guy in his toga: everyone knows you can't stone a man to death twice and, on this principle, it began to dawn on politicians that this ready remedy, so elegant, so replete with market principles, was not going to work.

Capital holdings by banks would end up so excessively high that all the dynamism and profitability would be squeezed out of the system. Eventually the banks would just say: "Jehova, Jehova, Jehova! - How much more capital can you force us to hold"

This is why, in many countries, they are now turning to direct intervention to restructure the banking sector. Having treated the whole Glass-Steagall principle of separation between speculation and depositors' money as itself blasphemous, they have begun to realise the long-term cost to the state of extending an implicit guarantee of bailout to the entire sector.

The money banks are making right now is all predicated on state intervention. The state (via its "independent" central bank) creates money and lends it at 0.25%. The banks lend it out at - well, take a look at the offered mortgage rates in the papers: 4%, 5% - take your choice. They can even lend it back to the government at above 3%. And because there is an implicit guarantee that any bank that fails will be saved, the market has priced that in - cheap money for banks will be a feature of the next 10 years, not just short term. Meanwhile, though, the banks are compounding things by refusing to lend the money to the mainstreet. The money lent by US banks has fallen every month for the past nine months.

This is virtually risk free profit and is the root source of all the money that is now going to swill around Lamborghini showrooms and Swiss Watch manufacturies and the New England coastal property market.

I date the change in attitude to an influential paper, , by Andrew Haldane of the Bank of England. This set out in clear, philosophical terms, why the two centuries of power-shift between banks and the state might have to be reverse. Note the timescales: Haldane himself harks back to the 12th century AD at one point, to illustrate how banks can exist as subservient to both society and the state.

President Obama's move last night opens a new chapter. Up to now all talk of a financial new world order has been just that, talk. Now - with the British Conservatives and the Bank of England's governor (the latter tacitly) supporting a Glass-Steagall 2.0 style law here, the game is on.

For if you deprive the speculative half of banking of access to the deposits of ordinary customers - and still more if you make it illegal for all those cosy plaforms to exist where hedge funds raise their money from depositors, using the banks as a mere pipeline, you really make the Basel II capital limits a secondary issue.

Let's be clear: if Obama's proposals go through in their philosophically pure form, as designed by Paul Volcker, then invesment banking goes back to being a functional but subordinate part of the finance system. In its heartland.

There will be strong arguments deployed as to why this is a bad thing, but we are not exactly hearing them flood the airwaves this morning. The banking world is stunned.

People on the very desks that would be deemed unlawful in mid-town Manhattan were turning round over their skinny-lattes to each other and saying yesterday: "This is about Martha Coakley and Massachusetts, right? 'S not gonna happen, right?" Nobody saw it coming.

The move, of course, places a major question on Gordon Brown's table. By comparison the Banking Bill going through parliament is not so far-reaching. But you've got now Mervyn King and potentially Adair Turner pushing at the edges for a more decisive solution to the "too big to fail" problem. And the Conservatives and Libdems. Plus serious, non-ideological voices in the economics community, like former IMF man Simon Johnson.

Wierdly, after 18 months of the most minimal and timorous reform moves, we now not only have a bonus tax here, a levy in America, but suddenly the philosophical outline of a Glass-Steagall type solution coming out of Washington and the Tobin Tax on the table in Europe.

And none of it was pushed by activist groups or mass demonstrations: it's arisen out of the simple realisation that the capital cushion idea is not going to stop another boom-bust cycle on its own; and that cycle has already begun; and if another bust happens there is no ammo left in the clip. And that populations and electorates are going to be, mad as hell and are probably not going to take it anymore.

In the face of this the state, and politicians have quite simply decided that the banks will have to be restructured and finance made to pay for the risk free business environment it enjoys. The main political debate now will be about how you make this happen.

Here's my quick take on President Obama's move against the banks, known as the Volcker rule.

1. What's the President doing here and what does he hope to achieve?
There's no actual text - only what the President said. But this is big. So big that IF it went through the whole legal structure of banks like Merill/BoA, JP, Goldman have to be rewritten.

It does two things: it says commercial banks - which take deposits - can't use those deposits to speculate in the financial markets using what is known as proprietory trading. Prop desks are THE most profitable part of the US banks. Abotu 1/4 of Goldman's profits announced today would have to be generated in a separate entity in future, says one Wall Street insider.

The second thing is, those banks have got to stop seed-funding hedge funds and private equity groups. This would prevent the creation of off-balance sheet halfway houses which formed the so called shadow banking system before the meltdown. Also, says my Wall Street interlocutor, it "screws" private equity.

Now it would always be open to such banks to break up, demerge and separate the gambling from the deposit taking. If they did that, it would resurrect precisely the situation imposed on the banks in 1933, the so called Glass Steagall. In addition, their access to capital would be limited. They would be smaller, risky, rich-man's banks again.

This is, in principle, so radical that, as one hedge fund insider said to me, if we really believed it was serious there would have been a stock market slump today.

Thirdly the size of the deposit pool owned by any one bank will be limited in practice, as it now is in theory, to 10%. There is a suspicion that certain large US banks are technically in breach of the 1994 law, which will now be updated and enforced.

2. Are they serious - and why have they done it now?

A bit of Kremlinology: they put Mr Volker, aged 82, on the platform. Also Barney Frank and Chris Dodds, the senators who would have to steer this through Congress. That says
a) they're serious
b) the star of Larry Summers, chair of the National Economic Council, who's reported to have oppsoed this, is waning; some in Wall Street also believe Tim Geithner star is waning. This has been cooked up by "true Obama" adviser Austan Goolsbee together with Veteran Carter-era eminence Mr Volcker, is what they're saying down there in those few fetid streets of Manhattan.

I'm told it is not primarily timed off the back of the Massachusetts defeat - it was always going to be timed to take a swipe at Goldman Sachs, whose profits and bonuses were announced today.

If, as they promise, the Republicans oppose this, it puts Obama in a place he wants to be, because while the average radical Democrat voter looks at Wall Street and sees evil capitalists, the average mid-west conservative looks at Wall Street and sees evil East Coast liberals. Zap. Biff. An electoral coalition is reborn?

3. Does it change the way the wind is blowing for the banks internationally?

Yes. Up to December, governments globally had focused on tightening the existing rules and using essentially a market mechanism: higher capital requirements, to reform banking. Now we're into the world of special taxes and levies and forced breakup. All done nationally, not through international conferences, because it's the electorate screaming blue murder againsdt the bankers, all over the world.

The bankers by the way are stunned. "This is all about Massachusetts" they're saying - but they're still stunned. One quipped: "it took the President weeks to react to stalemate in Afghanistan, but 24 hours to react to a setback in Massachusetts".

When it comes to the budget deficit it can feel, at present, like Britain's getting flashbacks from every bad trip we've ever had - Black Wednesday, Harold Wilson's devaluation, Jim Callaghan at the airport...

There is an atmosphere of impending crisis - some fear manufactured - where the City gangs up on Whitehall; where hands are forced; where political reality meets financial reality, and the money wins.

Mervyn King gave the government an extra head-spin on Tuesday when he threw in a quote from his opposite US number, Ben Bernanke.

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth. The Chancellor has made clear that the Spring Budget provides the opportunity to do precisely that."

Translated out of Mervynese, this means he wants more clarity about the path to a sustainable budget deficit - he has said before that the government needs to do more. In fact translated even more it simply means: I am on your case.

Who are these agencies?

In the nightmare scenario, the waking up in a sweat screaming moment for any politician is when the credit rating agencies, jointly or severally, downgrade Britain's credit rating.

This is currently AAA and always has been, which means lending to the UK government carries a zero risk of default.

But who are these agencies? What right have they to say to an elected government that it needs to do more? And are their methods sound?

I've been finding out.

It would be wrong to say "three faceless men could plunge Britain into political chaos" - but let me put it this way: Fitch, S&P and Moody's are the authoritative ratings agencies.

At each one there is a sovereign risk team where the top guy will call a committee meeting and there will be a vote (in order of seniority, from junior to senior) on whether the UK meets their published definitions of a AAA economy.

If it goes against, the day after that, whoever is chancellor will not be very happy.

Poachers turned gamekeepers

At Fitch, David Riley is the man who will sit at the head of the table. He is an economist by trade.

Most people in these teams tend to have backgrounds in central banks, country treasuries or places like the IMF. They are, in other words, poachers turned gamekeepers.

Mr Riley's verdict on the UK is that: "Halving the deficit over four years delays debt stabilisation and leaves public finances vulnerable".

Because of this Mr Riley thinks there is a "close-to but lower-than 50%" chance that he will downgrade the UK this year.

He just doesn't think Alistair Darling's PBR plan plots a credible path to a sustainable level of debt.

On the government's own measure debt will peak at just under 80% of GDP; on the Maastricht Treaty measure the City uses, it is closer to 90%.

Either way, for Mr Riley this is the key metric and 90% is unsustainable.

Political role

A few stops along the London Underground, at its Canary Wharf HQ, Moody's sovereign debt chief paints me a different picture:

Pierre Cailletau says there are two key factors: first, and measurable, is the affordability of a country's debt.

Mr Cailletau is confident that, because debt servicing costs are low, and Britain's government borrows in with long-term IOUs, it is manageable.

(Right now Britain's debt servicing costs are set to peak at around 3% of national income according to the , then fall back to 2.5%.

But there is another layer of reasoning - unsettling to many politicians but crucial to both men's view of their role.

They are, essentially, political economists. They have to take a view on whether a country like the UK has social cohesion, whether there is a long-term political consensus over fiscal stability, a stable party system, the rule of law etc.

They have, in other words, to look people like Alistair Darling in the eye and say "I don't believe you're going to do what you say".

This is unusual for private sector economists to have to do. But it is what makes their judgments inevitably nuanced and to an extent subjective: both agencies have pointed me to extensive methodology documents to explain how the decisions are come to.

(Standard & Poor's, for the record, refused to speak on or off camera for this report. It is the only agency that has put the UK on negative credit watch.)

Being watched

So, what we know is that the agencies have the UK - together with France and Spain and of course Ireland and Greece - under surveillance.

But you cannot read off from this the idea that "the City" has "lost faith in Alistair Darling".

Steven Major, HSBC's global strategist on sovereign debt, believes the rating agencies and the markets are systematically .

"The chances of Britain defaulting are zero. Yet the only thing a rating measures is that chance. There will not be a downgrade," he says.

He believes the methodologies of the agencies are open to question. Above all with Britain, he believes, a "true sovereign" country can tax, print money or devalue its currency to avoid default.

While this poses risks to some investors, above all the roughly 36% of UK gilt holders who are based abroad, it is not the same risk as that measured by the agencies.

If all this sounds arcane, remember it is political. Even Mr Riley, whose judgements are being brandished around by those who want Britain to cut spending faster, says it would be no tragedy if Britain lost its triple-A status.

It's a choice, he says: Japan lost its AAA and has debt at 200% of GDP but it can still borrow.

Benefit of the doubt

All the ratings bosses are keen to emphasise that they are not trying to dictate to governments: only to explain what will happen if the government fails to spell out a credible fiscal strategy.

In fact, both Mr Riley and Mr Cailletau use the same phrase: we are giving Britain the benefit of the doubt.

What they all worry about is political instability. There is a large wedge of fiscal pain to be borne between 2014 and 2017 that will have to be either tax or cuts - if there was an unresolved political debate about tax versus cuts, and a hung parliament, it is virtually certain the agencies would downgrade.

In that circumstance, says Mr Major, what you are then looking for is a downgrade spiral: markets lose faith, government fails to act, then a further downgrade that significantly hikes the cost of borrowing.

What's certain is that there is pressure on the government to cut faster and more transparently. But even those exerting it are aware it is a double-edged sword.

As one pension fund manager, who holds billions of pounds of UK debt put it to me off camera:

"Right now, to protect my pensioners, I will probably force the government down the path of greater austerity. But further down the line I know those same pensioners will suffer because of health and social care cuts. But I can't help it."

Thinking the unthinkable

There is of course an easy argument to make against the agencies: that they got it wrong over the complex credit products that fuelled the subprime boom and bust, in some cases, as the , culpably.

But it is an easy hit: sovereign debt metrics are not that complex and to be frank there is less pressure from governments on the teams that will make the decisions than there was from Wall Street.

This is, essentially, about the markets making judgements about politics and the agencies trying their best to embody that in an objective manner.

Right now the option of just doing a Japan and accepting a lower credit rating is treated as equivalent to suggesting we leave the UN Security Council and abandon the nuclear deterrent.

But when people understand the scale of the spending cuts that an incoming government will have to make to maintain AAA, it may not be so unthinkable after all.

Watch Newsnight tonight as I meet the men who have the power to slash Britain's credit score and provoke political chaos. ³ÉÈË¿ìÊÖ Two - 2230 GMT, then afterwards on the ³ÉÈË¿ìÊÖ iPlayer or Newsnight website.

My favourite photograph of Barack Obama is the one his conservative critics always bring out when they are trying to demonstrate that he has links to radical movements.

He is standing at a blackboard sometime during his period as a community organiser in Chicago, doing a "power analysis".

Under the heading "Relationships built on self interest" - and a fourth word, slightly obscured, that we'll come back to.

Out of the word "corp" - for corporations - he extrudes a line to a dollar sign, and thence to the word "mayor" and below that "citizen".

This is the method of power analysis taught by Chicago social activist Saul Alinsky.

Alinsky constructed coalitions of the oppressed, weaving together church groups, community groups, unions and political activists to enhance the power of citizens versus all the forces standing above them on Mr Obama's diagram.

Often the gains were minimal. Always they involved compromise.

This, I believe, explains the through line of Mr Obama's action in Year One of his presidency.

He has managed to enrage both the left and the right - just watch Glenn Beck on YouTube or read Huffpo to get a flavour of it if you are not regularly getting your fix of anti-Obama anger.

In the UK, the Alinsky doctrine is practised by the growingly influential Citizens Organising Foundation (COF), which runs London Citizens and has campaigned successfully for a living wage for cleaners in London, unsuccessfully for an "earned amnesty" for illegal migrants, and is now trying to cap interest rates at 10%.

I once asked Neil Jameson, who runs the COF, what Mr Obama was actually doing in that photograph. Neil was trained by the same people who trained the US president, all those years ago.

Power analysis, he told me, involves three questions: Who can stop us? Who can help us? Who has the money?

Once you understand the self-interest of these groups, you can use it to try and either persuade or force them to do what you want them to do.

If we read the Obama presidency according to these questions, much of the last year becomes intelligible - though that does not change whether it becomes acceptable, either to that large minority of Americans that voted Republican, or to the disgruntled Democrat grassroots who wanted Mr Obama to go further.

We know what Mr Obama wants at the level of ideals: more social justice; a rebuilt social infrastructure; disengagement from no-win conflicts (or an alteration of their terms); a new multilateralism in international affairs; plus a US government and consumer that begins to act as if climate change was a reality rather than a myth stirred up by the nation's enemies.

Who can stop him? He knows that - First, the Republicans in Congress. Second the conservative grassroots who are mobilising in large numbers against every initiative. Third major corporations, such as the big Pharma and healthcare lobbies. Fourth, high finance.

That's virtually the same list of forces who, by 1937, were able to force FDR away from the more radical aspects of the New Deal and it is a list that goes a long way to explaining why Mr Obama's presidency looks nothing like FDR's.

Much of Mr Obama's first year has been spent trying to negotiate a power-relationship with the groups I've listed, just as in East London or Birmingham, Alinsky-ite organisers spend much of their time trying to persuade, cajole and pressure the people who fit the answer "who can stop us?".

On health care reform, faced with the potential opposition of Republicans, centrist Democrats, big Pharma and conservative sections of the public, Mr Obama compromised.

On Afghanistan, though his instinct was clearly to draw down involvement, he has gone with the "surge, build and drawdown" strategy that worked in Iraq (and which he opposed).

Above all with the banks he has kept much of the same team that ran the finance system in the run-up to the crash; and stuck with the Bush/Paulson essential plan - a risk-free bailout for Wall Street that left the CEOs in position and never touched the capital of shareholders.

Much of this has outraged that set of people who you would list as answer to the question: "who is with us?".

That is because, for now, there is no danger that they will not be with him. If Tuesday's Massachusetts senatorial election goes against the Democrats it will be because the Republicans mobilised and the Dems did not.

The question you have to ask always about the power analysis school of thought and action - and indeed the only question it really cares about itself - is "has it worked?".

We'll know in a few days' time whether it has "worked" on healthcare.

If Massachusetts upsets the carefully crafted Congressional majority, making it possible that the whole measure could fall, it could be written off as an accident - but it is one of those accidents that happen while you are trying to negotiate with a web and network of power.

It could even be seen as a microcosm of the balancing act Mr Obama will now have to do between those "who can stop him" and those "who are with him".

The contrast between Mr Obama's statecraft and that of previous presidents, including both Bill Clinton and George W Bush, is obvious.

Mr Obama proceeds through compromise and negotiation at home, multilateralism abroad. I saw it working first hand at the UN General Assembly and at the Pittsburgh G20. The question is though, does it work?

Iran has thumbed its nose at Mr Obama's multilateral offensive to offer it a way out of confrontation on uranium enrichment. The Taliban has not been defeated. The healthcare bill is not passed. And above all the US economy is not responding to the treatment Mr Obama has prescribed.

In his new book, Freefall, economist Joseph Stiglitz accuses Mr Obama of choosing a "low risk" strategy with Wall Street, which has in fact turned out to be high risk for Main Street. Above all of failing to outline a vision:

"While the risks of formulating a vision were clear, so were of not having one. Without a vision the whole 'reform' process might be seized by those in the financial sector, leaving the country with a financial system that was even more fragile than the one that had failed."

Here Mr Stiglitz has put his finger on the key challenge for Mr Obama's pragmatism, alliance building and network-centric politics - you could substitute the words "financial sector" for Afghanistan or healthcare.

The risk is, always, that as you negotiate with those who can stop you, they actually do stop you, or divert you, so that you hardly achieve anything at all.

And meanwhile your vision - one so clear even if expressed in vague rhetoric - gets smudged beneath the ink of a hundred compromises.

At street level the response to this, from the Alinsky manual, is: you start again. The community organisers are always prepared to pull the plug on talks, go on the streets or even dissolve the alliance they've built if they feel one group within it is exerting too much power. But this is not an option for the president.

What he has found, in power, is that there is a ready template for the man determined to do deals, to pursue the middle way, to think twice before acting etc.

In other Western countries it is the "prime minister" of a party system who has to act like this.

Being prime minister is not very glamorous in American eyes, nor does it fit with the Alinsky doctrine. But it is what Mr Obama looks in danger of becoming at times: ie something no bigger than the leader of a majority in Congress, the commander in chief whose vision can never override the pragmatism of his subordinate generals.

At Pittsburgh I met grassroots Republicans and Democrats who convinced me that politics, society and culture in America are far more divided than the mainstream media understands: that the worker-ethnic minority-social liberal coalition behind Mr Obama wants much more than he can deliver, and that likewise the plebeian right - championed by Sarah Palin, spoken for by Glenn Beck and an army of shock-jocks - wants a radically different America.

If, as doomsayers predict, the USA is headed for a long-term kulturkampf between these two groups, echoing the racial, religious and demographic divides that have remained unresolved since the post-Civil War Reconstruction period, then the Obama doctrine of "Who can help us? Who can stop us? Let's appeal to their self interest" eventually falls apart.

By the end of a four-year term his strategy either turns the economy round - at the same time delivering significant reforms to his grassroots on, for example healthcare and labour rights - or it does not.

Likewise it either leads to a peaceful, multilateral resolution of the Iran issue or a violent one that fractures international relations.

This brings us to the fourth box on Mr Obama's blackboard: it's smudged but I read it as "DE-GOP", that is the Democrats and Republicans.

The parties are an equal part of the power system. Party patronage is probably more resilient in the US than here, despite the mobility of leadership and allegiance within the US parties.

For example, for Mr Obama, much of the Clinton-era Democrat party probably belongs in the category "Who can stop us?". It's only necessary to recall that Joe Lieberman, Al Gore's running mate in 2000, is now one of the president's bitterest public foes.

Many pundits in liberal, coastal America believe that the demographics of plebeian conservatism work against the Republicans electorally - choose Mrs Palin or another Christian right winger in 2012, they say, and you can never win a majority, because you alienate the party's metropolitan centrists.

I would imagine this is how Mr Obama calculates too. He is at home in the party system, and on Capitol Hill, and has proved adept at filleting the political opposition to him - for example, look how many Republican governors, having opposed the fiscal stimulus, took the money on the nod and a wink that it could be spent on their local priorities.

Many perceived this as a moral victory over the president - but that is how power analysis works. He got the money into the system; they got to spend it on their pet projects. Win-win.

Ultimately it is too soon to tell whether Mr Obama's "prime ministerial" approach is working. To those used to seeing executive power used, well, executively, it can feel at times hardly like a presidency at all.

But be clear: what we are in the middle of is an experiment. The use of soft power by the globe's hardest power. The deployment of compromise in a culturally fractured nation. The attempt to re-grow the state into an economy philosophically wary of the state.

It is way too early to say whether Mr Obama can use all these "relationships built on self interest" to succeed. But it's worth understanding what "success" might look like.

Power analysis folks and community activists do not live in a binary world of victory versus glorious defeat. They live in a world of incremental change, uphill struggle, reverses, compromise, unglamorous backroom deals and thanklessness.

So, for now, does Barack Obama.

Tonight George Osborne, the Shadow Chancellor, will tell Newsnight that he plans to make in-year cuts to the spending budgets of government departments in the emergency budget the Tories promise if they win the next election. That means money already allocated for spending this year could be snatched away from public services even as they try to spend it.

In order to minimise the shock, sources close to Mr Osborne have indicated that some cuts could be specified even before an emergency budget - within days of any Conservative government taking office.

In a non-too-subliminal message, Mr Osborne has made the move on the day he's hosting , the architect of Sweden's swingeing cuts budget in the early 1990s. Conservative Sweden and Canada's cuts model - whereby there is an across the board cut for government departments. They claim there is evidence that it can rapidly foster recovery in growth - in Sweden's case, a 14% turnaround from 11% deficit to 4% surplus came alongside 3.5% GDP growth.

Up to now the Conservatives have refused to specify whether an emergency budget would claw back money for the current year. They have said the NHS and DFID budgets are ringfenced. Emily Maitlis is, as I write, trying to get more detail from the man himself.

The big detail of course is this: Britain is not Sweden. Moss Side and Hackney are not like Wallander's stamping ground of Ystad. And the Swedish state was spending 60% of GDP when the cuts started - we'll start, if we ever get to it, from a much lower state spending total - and much higher poverty.

Oh and another detail. The government that launched the cuts budget was kicked out of office pretty sharpish.

Watch our exclusive interview on ³ÉÈË¿ìÊÖ2 at 2230.

When the Austro-Hungarian Empire tried to erase the name Italy from the official maps of Europe, in order to legitimise its own rule there, the English essayist William Hazlitt wrote this:

"Go on, obliging creatures! Blot the light out of heaven, tarnish the blue sky with the blight and fog of despotism, deface and trample on the green earth; for while one trace of what is fair or lovely is left in the earth under our feet, or the sky over our heads, or in the mind of man that is within us, it will remain to mock your impotence and deformity"
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In other words, if you want to suppress the truth you have to do it ruthlessly and totally. Leave a shred of it and you look idiotic, and the masses of the people "mock your impotence". Tonight, on thousands of bulletin boards inside and outside the Chinese firewall, impotence is being .

The astonishing thing about Google's about-turn on self-censorship in China is not the move itself. Still less the fact that gmail accounts were hacked. It is that the crowd that gathered outside Google's Beijing HQ was sympathetic to Google and have actually been laying flowers. The last time a corporation got caught up in global criticism of China's human rights record it was Carrefour, which saw its supermarkets invaded by nationalist Chinese youth simply because the Olympic Torch procession was disrupted in France.

By contrast here is just one example of the reaction of Chinese netizens:

"Shut it down. TG [The government] already does whatever it wants.
Entering email boxes, deleting the account owners' emails...is tantamount to
entering someone else's company and kicking out the old customers. They [the company] can no longer do business, so of course they will want to leave. I ding you Google. Your name will go down in history."

The rising generation of Chinese youth is deeply attached to the rule of law and market principles and will see the cyber-attack on Google as just the latest in a string of government measures on the internet which flout these principles, which are incidentally also enshrined in the Chinese constitution.

But do not expect the goodwill to last. Even among some bloggers in China there is mistrust of Google for trying to, as one netizen says, "foist its ideology on China".

The background is a massive rise in low-level defiance of authority by Chinese netizens. You can get a great translated selection on the . Chinese youth have adopted a whole Rabelasian code to discuss sex on the internet; meanwhile mobile telephony has enabled two other gaps in the Great Firewall to open up - to porn and to surreptitious twittering about politics. In Orwell's 1984, you will remember, the heroine, Julia actually works in a Party-run porn factory. But today - in the west as well as the east - governments have lost control of this particular form of online discourse. Chinese young adults regularly mix risque discussions of sex with discussions of freedom. It's no big conspiracy - young people tend to be heavily interested in both phenomena.

In recent days China has launched a crackdown on porn, widely interpreted as a cypher for a wider crackdown on low-level anti-establishment conversations on the web. To give one example of how mild but at the same time canny Chinese netizens' discourse has become, last December netizens nominated the Chinese character for "blocked" as the key word of the year. Young people began to express that the internet phenomenon of content being blocked was also a metaphor for their own lives, which felt perpetually "blocked" - though few people then went on to say what by.

Before we condemn China for cracking down on web porn, anybody whose children use the Internet will be aware of how untrammeled and accessible porn is on the internet, and how readily Google serves it up to you from the most innocuous search terms. Google points out that it has upped the power of its safe search technology, but accepts its an area of concern.

But China's porn crackdown does seem to be a pretext: it has allowed them to introduce in swift succession a ban on individuals registering URLs; plus a warning to Chinese mobile phone users that their SMS services will be cut off if they upload porn. There is also the persistent monitoring of web cafes, and the reported 40,000 members of the Internet police who pro-actively take down content and post bogus content critical of the west and human rights campaigners. Since June, when Chinese state TV attacked Google for carrying porn results, Chinese netizens have been accusing the state-run TV news of siding with rival Chinese-owned search engine Baidu, which they point out has spent tens of billions in ad revenue with CCTV.

Is Google's response proportional? The attack on Google seems to have been what spooks call "humint" - that is it wasn't a hack of Google's own systems but malware allowing intelligence agents (or, yes of course a totally voluntary group of private individuals who suddenly decide to collect intel on the Chinese state's opponents) into Google's systems. It did, Google alleges, involve the theft of the company's own IP.

Google has felt harassed by the and initiatives but I read Google's immediate decision to start listing search results about Tiananmen, and threat to pull out of China, as a measure of how frustrated western businesses are becoming about operating in this state, which to call it what Hazlitt would have called it, is a one-party despotism where the rule of law barely exists.

As I write, for example, Chinese prosecutors are of Rio Tinto employees, one an Australian citizen, arrested on espionage charges coincidentally just after a Chinese attempt to buy a stake in Rio Tinto fell through. And read , for a micro-level account of what happens to entrepreneurs in a country where people in power are simply allowed to make things up, unchallenged by a free media, and unqueried by any kind of online democracy.

Whatever the outcome, and whatever the motivation, as Chinese netizens log on to do their nightly rants against the west, France, CNN, the ³ÉÈË¿ìÊÖ, Amnesty Internatioanal, and - surreptitiously - the government, the CCP, police brutality, and nouveau rich airheads, one astonishing thing is becoming clear:

It is impossible for repressive regimes to close down information without closing down the functioning of modern society. This was the nightmare Orwell depicted in 1984, and of course remains the dream of the people currently running Iran and Burma.

But the Chinese state has just found out it is not possible. And in a popularity contest between the CCP and Google among urban Chinese youth, I would not like to bet on the winner.

The biggest split in the Labour Party is now not between left and right, Blairite or Brownite. It is between a generation of politicians who still think they can win the election and those who - thinking beyond election day - wonder whether they can prevent the party itself from falling apart thereafter and allowing the Conservatives to be in power for a decade.

Though there is nothing concrete yet, this is the shared agenda of people like , Jon Cruddas, the centre-left backbencher, and .

What has happened since the non-event of last Wednesday is significant, and has begun to focus a lot of minds inside Labour. I've spoken to half a dozen insiders in the past couple of days and concluded as follows.

First, Gordon Brown has won the war to stay leader but lost control of the policy. That is a widespread feeling on the Labour backbenches and in government.

Harriet Harman, Alistair Darling and Peter Mandelson each wanted something slightly different, but what they agreed on was that an "investment not cuts" line going into the election was not sustainable. Also that 10 Downing Street's operation was "dysfunctional" and that control should pass - under the guise of election planning - to a wider group of Cabinet ministers, including themselves.

The political substance of this is primarily economic. Labour will now go back on track, as it did after the June coup attempt against Brown, trying to spell out big spending cuts, privatisations and welfare reform. It will also abandon the class war rhetoric Brown began in the run up to the PBR in favour of the new buzzword: "aspiration".

This is more than mere to-ing and fro-ing between Brownite and Blairite rhetoric.

I am told even many on the centre left did not trust the PM to be able to deliver a rhetorical swing to the left without it becoming a core vote strategy. Most voices on the Labour centre left still speak of "rebuilding the coalition" with the progressive middle class, and are not emotionally attracted to a cloth-cap, core-vote strategy.

Anyway, the tangible outcome is a change of control over policy and the beginnings of a much higher degree of transparency over the cuts agenda. And next comes the backlash phase.

Labour's grass roots are beginning to feel very nervous about what this new "aspiration + tough cuts" rhetoric might mean. The trade unions had come up with a whole list of policies they wanted in the manifesto. They are now feeling very nervous about whether any of their agenda will get into the manifesto. More than one general secretary has been heard to say that if there are cuts and privatisations as a result of Alistair Darling seizing control over fiscal policy back from Brown and Balls, then they simply cannot persuade their members to fund the election campaign.

I am told the key issue is going to be rights for agency workers. Britain has a derogation from the EU rule that says agency workers have rights from day one of their employment, because there is an informal agreement between the government, CBI and TUC. Some union leaders are now musing on the prospect of pulling the plug on that agreement, triggering the immediate application of full EU law.

Ordinarily, the mainstream political discourse in Britain tends to treat unions, and still more so the non-Labour left, as an irrelevance. However both these forces are highly relevant to the current crisis Labour is going through.

In the first place, there is going to be an election for the leadership of the Unite union - Britain's biggest and the biggest Labour donor. This is mired in factionalism and there is the possibility, as one union official put it to me, that the battle becomes one between the left and the centre-left.

The possibility of the left winning in Unite seems to be bigger in the minds of their opponents than themselves, but these worries are just a cipher for the bigger issue that Labour is going to struggle to take its grass roots organisations in the direction it has just decided to travel.

The bigger picture? It is front of mind for some of the key Labour backbenchers who fear they will have to pick up the pieces in summer - and from all wings of the party - that Britain may be convulsed by social unrest as a result of the scale of the cuts the next government has to make.

In that scenario the nightmare is not a Labour swing to the left, it is the loss of any traction or activist base that connects all these deep-thinking, younger Labour politicians to the people at grass-roots level.

They are waking up, says one backbencher, to the fact they have no activist base in any social movement: not the unions, not the environmental campaigns. James Purnell's article touches on this with regard to the vibrant and highly influential . How did it end up, he muses, that this mass, multi-ethnic, heavily religious and avowedly non-socialist activist group ended up outside the orbit of the Labour movement. Bearing in mind that London Citizens springs from exactly the same sources as the movement that produced Barack Obama, it is a question I think this new generation of Labour politicians will keep returning to.

What you have the beginnings of this week are two forms of scrambling in the Labour Party. At the top, scrambling over how to put together a manifesto that recognises the reality of cuts, asset sales etc, and a pre-election budget that reflects this new consensus about "aspiration" rather than class war.

Then you have in quick succession Ed Miliband (Observer), and James Purnell (Guardian) scrambling in quick succession to lay out their political stalls in thinkpieces about policy and strategy.

Behind it all there is profound nervousness about what the party "machine" will look like if Labour ends up out of power - and about how effective machines like the Trade Union Co-ordinating Group or the will be in that situation.

It must be weird to have a red dispatch box in your hand and still be worrying about Joe Marino and the , but for Labour ministers right now, that's life.

Like Marshal Grouchy, whose failure to turn up at Waterloo decided 100 years of European history, sometimes the non-arrival of things can be just as decisive as their arrival.

Harold Macmillan once said it was "events, dear boy, events" that blow governments off course, but non-events matter too. Those commentators who believe there's nothing really political at stake in Labour's current internal struggle I think are missing something.

There are in reality three "poles" of political opinion within Labour: There's the Blairite old-guard centre-right, which most decisively shot its bolt yesterday; there's the government - an alliance of Blairites for Brown and Brownites; and there's the centre left, which on all recent votes - at the 2009 conference and the deputy leadership campaign - commands a majority because the remaining affiliated unions are centre-left run.

The pattern in every attempted coup - above all last June when James Purnell resigned - is that the Blairite centre-right has to pull together two sets of people: cabinet ministers who are sick of Gordon Brown and think Labour cannot win with him in charge; and then the centre left.

That's for starters; because the way Mr Brown runs the Labour party is to use the centre-left-led unions as his organising base, specifically in the form of Charlie Whelan, political officer in Unite, and Ray Collins, the general secretary, also from Unite.

Any revolt involving left-MPs beyond Compass (figurehead Jon Cruddas) and the Campaign Group (figurehead John McDonnell) would have to see the leadership of Unite, Unison, the GMB etc be prepared to pick a fight with their "own men" inside the Labour machine.

For many months it's been clear that is not going to happen. It didn't happen in June, it didn't happen in January. Ergo, this side of an election it's not going to happen.

However, the independent factor is what goes on within the Labour Cabinet. Here, it is clear, since the pre-Budget report there have been frictions that precisely reflect the two "outer" wings of the party's priorities.

The centre left, in the form of William Straw's Left Foot Forward blog, has been calling for an overt Keynesian defence of budget deficits. Pressure from what's left of Labour's base in high finance is telling Mr Brown and Chancellor Alistair Darling to balance the books faster and give a more convincing account of how they're going to do bring the budget deficit down.

Mr Brown and Education Secretary Ed Balls are said to believe they can fight the election on an "investment versus Tory cuts" line. Mr Darling and Lord Mandelson have been making noises about the opposite course of action: being straighter with the public about the cuts Labour will be forced to specify should it get back into office.

The problem over the weekend was that, faced with the question of what happens if growth returns quicker, what do you do with the tax receipts? Mr Brown indicated you invest them in services and Mr Darling indicated you pay back the debts.

One way of reading this week's events is that this unresolved tension within the Brown government over how to play the crucial issue of the budget deficit actually reflects the more solid ideological positions on the left and right of the party.

But that's not the only factor.

There is the wild-card issue of Mr Brown's leadership style. This, to be truthful, seems to satisfy almost nobody in the cabinet.

The Blairites-for-Brown moan openly to journalists about how ruthless and efficient the old Blair-Ally Campbell machine was; the true Brownites miss the days of those brutal 3am text messages from Damian McBride.

That discontent was what the plotters hoped to play on.

I understand Labour apparatchiks were aware this was coming from early Tuesday morning and the key issue was going to be the Cabinet. The unions, and backbenchers, will not act independently of that.

That is why all those "Miliband only declared at 6.45pm" news lines mattered: this is what Labour's HQ staff were watching and they were by mid-afternoon pretty worried at the non-appearance of many Cabinet members.

However, for me, Wednesday's events signal that the Gordon Brown leadership issue is over. The non-event tells you that all forces that now matter inside Labour have decided to go through to the election with Mr Brown as PM.

However, what it leaves open is this matter of substance: how to play the political economy of the budget deficit.

It will all come down now to a wrangle over the budget, assuming the election is in May.

Does Mr Darling sketch out at least one year's worth of cuts for each department in 2011-12, or does he do a mini-spending review, maybe with a two year horizon? Or do the growth projections get massaged upwards?

What you cannot do in a budget is split the difference between credibility with the markets and your own domestic political priorities.

Iceland, Greece and Ukraine are extreme forms but, as everybody in finance knows, the "bond vigilantes" in the City are out to get Gordon and if they decide to stage a test of Labour's fiscal credibility, it will not be done with a few cack-handed text messages at noon.

I've just been to Alistair Darling's press conference, rubbishing Conservative spending plans and claiming they have a £33bn credibility gap. Outside were a motley crew of freezing Tory activists wearing Gordon Brown masks, accusing Labour of hiding a 17% cut in departmental spending.

The event was at Labour Party HQ, not the Treasury, a sign of the times: Labour's started the year in party political mode so you get an immediate glimpse of what a Darling shadow operation might look like if shorn of civil servants (first impression: everybody's quite young).

The substance is this: Labour has "costed" Conservative cuts and spending plans and claims there is a £33bn gap between this and their stated budget plans.

However the press conference was entirely dominated by questions about Mr Darling's own absence of candour over what is to be cut under the deficit reduction plan announced by Labour.

He did indicate that "over the next few weeks" we might learn more about the programmes to be cancelled. But the Institute for Fiscal Studies reckons there's about £15bn of cuts unaccounted for in Darling's own figures.

It all betokens a bigger problem. Over your Turkey dinner this Christmas you may have heard it ventured by the odd family member that all politicians are a worthless bunch of thieves, mobsters and charlatans who spend their entire time trying to keep the truth from the public. Indeed you may have heard more of such talk than at any other time since Suez or Wilson's sterling devaluation.

If so, the current "war" over whose fiscal credibility gap is bigger seems like a bizarre way for the politicians to address the more general gap between mainstream party politics and the British people.

It is, in fact, a phoney war. Its language excludes people - indeed it even excludes the poor souls whose job it is to report politics: most of the reporters in the room were political rather than economic correspondents and I could just see their faces go into a kind of numerical despair as they flicked through the inch-thick document - about Conservative spending plans! - Mr Darling had produced. It was, in fact, thicker than the Pre-Budget Report.

So, on we go. A whole day ahead of us containing announcements and counter-announcements by Labour and Conservative big-shots. Indeed, maybe 160 days like these, if there's a May election.

Content and substance? Emotional reconnection? Leadership, narrative, credibility? You be the judge.