Margareta Pagano: A hung parliament just might be the best thing all round

After all, most of the world's triple-A rated countries are ruled by coalitions
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The Independent Online

Here's a fact which should debunk some of the sillier warnings whizzing around about the dangers of hung parliaments to the UK's financial position.

Thirteen out of the 18 countries in the world that have the magic triple A – the bee's knees when it comes to investment status – are ruled by some sort of coalition, or what we call a hung parliament. These are not ditzy little countries, but well-governed, wealthy ones such as Norway, Holland, Finland, Sweden, Canada, Denmark and, of course, Germany. Some have tiny populations and more consensual societies, making it easier for them to govern in this way. But what's so interesting is that none of them has been hit by the credit crunch as badly as the UK – or the US – and none has endured such extreme boom-to-bust cycles as Britain has for decades. So the idea that parties working together to bang heads or horse-trade on policy necessarily leads to dangerous, indecisive policy does not stack up. It's a legacy of the 1970s, and just doesn't wash in today's political landscape. Indeed, there is a strong argument to suggest that the more head-banging and horse-trading there is, the more stable the government, because policy goes through the wringer – it is subject to real scrutiny, and is not just imposed.

A more stable form of government seems to me what our electorate was aiming for when voting this time, punishing politicians for behaving so appallingly – and the best revenge was forcing them to break bread together. From the tone of his offer to the Lib Dems, David Cameron seems to have understood this pretty fast, and now has the chance of a lifetime to create a Tory and Lib Dem coalition that shows they can put aside petty differences to work in the national interest. If Cameron does makes it as PM – which seems the most likely outcome at the time of writing – his first test will be to ensure the UK keeps its triple-A status, and thus the confidence of foreign investors to halt sterling's slide and keep them buying our debt. His new government must move as fast as light to show the markets that it can convert public anger into a credible business plan to tackle the deficit.

Although the pound slipped and the markets fell on Friday, it is pertinent that UK Treasury bonds have held up well, mainly because sterling is seen as safe compared with the euro. But, as the graphic on pages 82-83 shows, Europe's banks are so entwined in webs of debt that if one goes, they'll all come tumbling down. Then watch out for the secondary banking crisis which will hurt all of us; Britain's banks have lent $230bn to the eurozone.

That's why Cameron, and his potential Chancellor, George Osborne, and maybe Vince Cable with them at the Treasury table, should be reaching out to the Europeans too, offering to do what they can to stop this sovereign debt contagion spreading from Greece. Not only would such a move be smart for Cameron, to show he can be a good European after all, but smart for us as it would help show the markets the politicians mean business.

In some ways, the timing of Europe's problems works in the UK's favour because it's taken the heat off – what's going on here is a mere side-show to the tragedy unfolding there. It is fear of the Greek crisis that gripped the US and Asian markets, leading to the big sell-offs, because of fears that Spain and Portugal are next. While both are in deep doodoo, neither is bust.

But markets crave clarity, and most of all they crave leadership. Until Friday night's meeting of European finance ministers, they were getting neither. Now, led by Angela Merkel, the German Chancellor, the politicians do seem to be preaching from the same pulpit. What is needed next is for Jean-Claude Trichet of the European Central Bank to show that the ECB will provide the liquidity to support government debt – a European form of quantitative easing – with some sort of bond purchase if things get really hairy – and for the first time this radical option was being openly talked about.

For their part, the countries in trouble, including the UK, must say how they will cut deficits and how they plan growth – in good coalition style.

Note to new small-business team: Take a leaf out of Plastic Logic's e-book

The story of how Plastic Logic, maker of the revolutionary QUE e-reader, built its first factory in Dresden, Germany, rather than in Cambridge, should be on the desk of whoever heads the Government's new-business team. Created by two professors at the Cavendish Laboratory, the QUE is the nearest thing yet to digital paper and is seen by many as a possible saviour of the newspaper industry. But when Plastic Logic tried to raise money to build its state-of-the art factory a few years ago, it decided not to build locally because the difficulties in getting planning permission, money and grants was so great it just wasn't worth the effort. After scouring the world, they were offered £50m or so from Dresden's local authorities. It was a "no-brainer" of an offer and the factory now churns out QUEs for the US market, and employs around 100 people.

This sorry tale was told to me over lunch last week by Cambridge financier Nigel Brown, who despairs over the problems still faced by firms like Plastic Logic.Brown, now High Sheriff of Cambridgeshire, is so incensed that he plans to do something about it and is close to raising £50m for a new bank that will back this sort of project. While this is inspiring, there's still a vast black hole in funding businesses from start-up to the £5m stage which the banks are not filling, whatever politicians say.

But as David Giampaolo of Pi Capital – a sort of dating service, matching rich people with those who need funding – says, the politicians are wasting their time bashing banks because they will never lend enough to fill the black hole. Much better, says the American entrepreneur – who talks to wealthy investors day in, day out – to introduce tax breaks and incentives to get the money flowing.

Whoever ends up in charge this week should (a) sit down and read the Plastic Logic file, (b) weep, then (c) call these two businessmen in for a chat.