Margareta Pagano: Is the IMF the only answer for a bankrupt Britain?

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The Independent Online

Was David Cameron being mischievous when he warned that Britain may have to go to the International Monetary Fund to rescue the economy or is it a real possibility? Cameron is a slick performer, and is more than capable of mischief.

But I was in the basement of the Commonwealth Club listening to him make the threat and he didn't seem to be playing games. Quite the reverse, his tone was measured. Even so, you could feel the frisson as he reminded the audience that the Government's own forecast for public debt – 8 per cent of GDP in this financial year – was the magic number that drove Labour to the IMF in 1976.

It was also interesting that Cameron chose the launch of Progressive Conservatism, a new project by the centre-left Demos think-tank, to give his warning. Associating himself with the progressive project suggests he knows he has to spill a little blue blood in his own party. More importantly, Cameron is now clearly on the warpath against the Government. Although he was only 10 at the time, Cameron knows only too well that the spectre raised by the IMF for Labour takes the party back to its darkest hours when its record for economic competency was destroyed for a generation.

And Cameron's attack was great timing politically because the public's mood palpably shifted last week in one of those defining moments that stay to haunt you. It wasn't just the ghastly economic numbers that poured out on a daily basis beside the almost hourly list of job losses. We all knew we were in recession and we all know that sterling is being hammered in the markets. More worrying was the smell of fear; perfectly normal people with relatively safe jobs were asking me whether they should take their money out of the banks while the banks were admitting they didn't have a clue how big their potential losses would be.

Even normally optimistic economists were turning their forecasts on their heads and the "good" news that the credit rating agencies had decided not to downgrade Britain's sovereign debt. But that didn't stop bond yields rising in the markets by 0.5 per cent, suggesting that international investors need compensation if they are to be persuaded to buy Britain's debt.

'Is Britain Bust?', a report from Chris Watling of Longview Economics, suggests that international investors don't like the outlook for the UK. Watling reckons Cameron could be right that we may need an IMF bailout if the Government continues on its present track. He has looked at the numbers for Britain's total non-financial and corporate debt and they are frightening. The debt is 265 per cent of GDP, the highest in Europe – rather dashing Gordon Brown's defence that the UK is in the best position to fight this downturn. As Watling says, international investors are the key as our economy is utterly dependent on inflows of capital. It's impossible to predict whether we will be forced to the IMF but it is a possibility if the Government keeps pumping billions into the economy without finding a way to balance the books – cutting expenditure or raising taxes are the only options in the long-term. We may still have to go cap in hand to Washington, but we will only find out if international investors decide to turn their backs on the UK at a Government bond auction.

If Cameron really wants to go for the jugular, that would be the time to call for a vote of no confidence.

Looking for a hero? How about a UK firm that's bought an American rival?

It's odd, but we don't do hi-tech heroes here in the way the US has Steve Jobs of Apple and Bill Gates of Microsoft. We prefer our celebrities to be nobodies – contestants from 'Big Brother' or 'The Apprentice' who can all too easily be built up, only to be destroyed. When it comes to the really big, important industries, such as engineering or technology, we don't seem to care very much about our heroes.

But if we did have a poster-boy, then it would have to be Mike Lynch, the brilliant academic boss of Autonomy, the Cambridge-based global search software company which he created from scratch 14 years ago. Lynch pulled off a spectacular deal last week, propelling him into the big league of software for content management. It was spectacular in that it was rare for a British company to buy a US one and rare in the present tough markets, as Lynch paid with cash, a new share placing and new credit facilities.

The placing was five times oversubscribed – and the shares rose sharply to £11.20. Can't be bad. Autonomy paid £565m for Interwoven, a US rival whose strength is in the legal market.

Autonomy is often likened to Google, but this is too simple; it provides contextual search technology to customers such as the US government and the UK police for security and counter-terrorism-type projects. The way it works is to allow customers access to all the unused stuff that sits in the computer. So it searches across emails, documents and voice calls to come up with information it probably didn't even know it had.

Its deal with Interwoven takes it into the huge US legal market, and Lynch's timing looks good, as regulation, certainly financial, can only increase as a result of new financial rules bound to be introduced by President Obama. Clear proof that if the business is good, you can do good business despite the wretched conditions.

Football sponsorship The curse of the shirt for banks

AIG, the once mighty insurance giant, was right to pull its sponsorship from Man U last week. But questions still remain whether Barclays, still reeling from its recent pasting by investors who drove its share price down to new lows, will continue its £60m sponsorship of the Premier League. Barclays Capital boss, Bob Diamond, a big football fan, should note that most banks and companies that have backed clubs end up a disaster. Pulling out of the deal would please Barclays' small shareholders, already unhappy about the terms under which Middle Eastern investors bought their stake. By withdrawing their sponsorship, the banks would also help restore some sanity to the transfer market, as over-leveraged as the credit markets have been.