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The worst squeeze on public spending since the 1970s, when the International Monetary Fund had to bail out Britain. Or it could be the worst for more than 65 years, if the Tories take charge and implement their manifesto plans.

This is the view of the Institute of Fiscal Studies. It's no surprise. We've seen versions of the same or a while. But this is the most reputable, independent watchdog of Britain's public finances. And it puts a lot of new pressure on political parties to spell out in more detail what they're going to do to get the deficit under control.

Let's go back to another key moment of post-1945 Britain for historical context - the great devaluation of 1967, which convulsed Harold Wilson's Labour government.

He is remembered at the time as telling the British people "the pound in your pocket" was worth no less as a result of a sudden drop in the then fixed exchange rate.

Absorb the shock

That was baloney of course. I was reminded of this by taking myself off to the eurozone over the weekend, where the pound in my pocket, converted into euros, bought a lot less in France than it did last time I was there.

Imports (or foreign holidays) cost more, and an open economy depends on a lot of imports. Even exporters depend quite heavily on imported components and raw materials.

Forty-three years ago, devaluation was a huge blow to the credibility of the Wilson government.

Now, it's a source of quiet relief. The depreciation of sterling over the past two years has boosted food inflation as well as oil, which is priced in dollars.

But it has allowed those who make their money in pounds sterling to absorb the shock to the British economy, without feeling the pain as obviously as they would with a straight pay cut, while giving the country some competitive advantage.

Drachma drama

In Athens, many would love to have that freedom to let the currency take the strain. Some would like the drachma back, eight years after it was lost to the eurozone. That might have absorbed some of the pain Greece is going through.

Such a move has been seriously discussed. But it's a non-starter. Not only would it undermine the euro but also the European project for all the other countries that use it.

In practical terms, it would mean the Greek government would collect its taxes in the weakening new drachma, while having to pay its debts off in euros. Nothing would be surer to achieve default.

And within the eurozone, default is very much on the cards. That's why the markets put the cost of two-year Greek government bonds over 15% today, with those bonds reduced to junk status, with Portugal's downgraded as well, knocking the world's stock markets with the fear of contagion.

By contrast, the Germans have played the eurozone game very cannily; staying competitive, savings lots, while paying a high price in unemployment and infrastructure for the cost of re-unification. Others have been much less disciplined, and they're finding out now that they can't do so indefinitely without a lot of pain - not only Greece and Portugal but those other PIIGS, Italy, Ireland and Spain.

Stultifying family

Two observations about Greece's woes, and perhaps implications closer to home:

Could this have to do with the strengths of tight-knit Greek families?
An article in the International Herald Tribune on Monday, written by a Greek woman law lecturer in Washington DC exile, argued that the economy is stultified by small family firms in which labour is in-house, exploited and the next generation's ambitions are corralled.

It's a very different take on such companies than was heard at a seminar on Tuesday run by the Scottish Family Business Association, where the biggest problem tends to be handling the transition from one generation to the next.

It claims 45% of the UK's GDP is produced by family enterprises, and 50% of the private sector workforce in Scotland is employed by them.

But Philomena Tsoukala's take on the public sector reforms in Greece is the opposite of the conventional wisdom that the welfare safety net should be cut back: instead saying a safety net should be provided "to help free young Greeks from the supportive yet suffocating grip of their families".

A generation of young workers languishing in their parents' living rooms and storerooms could be set free to help turn around the Greek economy, goes the argument.

Tory divisions

The other consideration is that Germany and Finland are looking to strengthen the rules of the eurozone to ensure Mediterranean members can't wreck it with their indiscipline.

They're talking about a new treaty between all EU members - just what the British Government dearly hoped it could park for at least a decade, while the dust from the constitutional wrangling of the past decade is given time to settle down.

And here's a challenge for an incoming Conservative government; would it welcome new treaty negotiations as a means to unravel elements of the union it doesn't like: would it feel committed to hold a referendum: or is that a fast-track to opening up the party's divisions over Europe?