John Rentoul: The week Gordon met his ERM

Forget the hype about the crisis revealing a reassuring Prime Minister. The next election is already lost

It has been a good week for David Cameron. In fact, it may be that we will look back and say that last week was when he won the general election. This is not how Labour MPs saw it, in their battle delirium. Gordon Brown was hailed as a man who had finally found his destiny, his voice, his purpose. At the first Prime Minister's Questions of the Age of Responsibility backbenchers enjoyed the added bonus of seeing their man score his first clear win at the debating game. The opinion polls also seem to be on Brown's side. They suggest a "Brown bounce", first reported in this newspaper three weeks ago, as the voters turn to him for his experience at a time of economic uncertainty.

But the sound effects from the City of London, of the clip-clopping as the cartoon character runs off the cliff, followed by the whoosh as it disappears off the bottom of the screen, herald a once-in-a-generation politics-changing event. The Winter of Discontent destroyed Labour's claim to be able to manage the trade unions, and hence its claim to economic competence, in 1978-79. Thirteen years later, the ERM crisis did the same for the Conservative Party's reputation. Since 1992 we have waited for an event of similar magnitude. Many people thought the Iraq invasion, five years ago, would be it. But in the end it simply reduced Tony Blair's majority from super-sized to extra large.

Now is different. Labour was already in deep trouble before the financial crisis took a sharp turn for the worse. That crisis may have prompted a temporary rally in the Government's position, but I suspect this is more like a recalibration of the index so that it can fully reflect the awfulness of what is to come. Before the latest lurch – "yes, I think we can safely call it a crisis now", Brown said in a Daily Mail interview yesterday – it was possible to chart a plausible course to Labour denying the Conservatives a majority at the next election. We have probably moved beyond that now.

Until last week, the Conservatives were frustrated that the voters seemed to regard the man who got us into this mess as the best leader to get us out. They were short-sighted, focusing on a tiny part of a big picture that is overwhelmingly in their favour. First, it was only a small minority of voters who took this view. Although Brown's personal rating blipped up in the latest Populus poll, Cameron is still rated a better leader. And Labour has only closed the gap from an average of 20 points behind before the conference season to 16 points behind now. It reminds me of all those "Blair slumps to 12-point lead" headlines before the Iraq war. Second, Brown's advantages as a crisis leader – intimidating, deep voice, been around for ages – are irrelevant against the scale of the damage now being done, not just to his reputation but to that of the Labour brand.

That is why I do not believe that it matters a jot who "won" the exchange in the House of Commons on Wednesday. In fact, I do not believe it matters very much what David Cameron and George Osborne, the shadow Chancellor, say at all. Just as it did not matter much what John Smith and his shadow Chancellor, one G Brown, said when the ERM policy went down the toilet during another Liberal Democrat annual conference 16 years ago. The similarities between then and now are telling. It was quite unfair that the collapse of British ERM membership should have benefited the Labour Party. For one thing, the effect on the British economy was wholly positive. For another, Labour, with Gordon Brown its chief spokesman, supported ERM membership more strongly even than the Government did.

There is no justice in these matters. Cameron and Osborne proposed no alternative policy of banking supervision before the crash. True, Osborne did say in November 2006: "High levels of debt, both public and private, make the economy more vulnerable to certain types of shock." And: "An economy built on borrowed money is eventually living on borrowed time." But he did not advocate a more prudent course of action that anyone noticed. Unlike Vince Cable, the Liberal Democrat economics spokesman, always going on about excessive levels of debt.

Anyway, all that matters now is what the voters think. We can argue about whether they are half right or half wrong to blame Brown for the economic difficulties that now loom before us, but there is no doubting what the majority opinion is. I expect that the Tories' focus groups reflect the views of the members of the public buttonholed by TV cameras on the street last week: they blame the Government and are especially furious that they, as taxpayers, should be asked to bail out the greedy bankers who were allowed to break the economy. Never mind that so few people, even in the media, seem to understand the difference between guaranteeing £250bn of credit and spending £250bn of taxpayers' money. The sums of money involved have gone beyond normal comprehension, and no one understood the derivatives market in the first place – not even those buying and selling in it, which is part of the cause of the problem.

So it does not matter much what Cameron says. In the middle of all this, he and Osborne have committed an incoming Conservative government to an Office of Budget Responsibility, which would hand over decisions on the level of total public spending to an independent body – as significant a move as independence for the Bank of England, and hardly anyone notices or cares.

Cameron could make a few pointed observations that go with the grain of public perceptions. Hence his populist attack on bankers' bonuses last Wednesday. I think he would be better advised to condemn Brown's cynicism in using anti-terrorist law to freeze the bank accounts of a fellow Nato country, Iceland. But mostly, he needs simply to sit tight and wait for the whole thing to fall into his lap.