David Fuller's view There are good reasons for the weakness and volatility of sterling. Among industrial countries, Britain's economic fundamentals are uniquely awful. As regards public debt and deficits, Britain's true fiscal circumstances are about as bad as Greece's reported situation, once we allow for the understatement of UK public debt through the off-balance-sheet accounting tricks of the past decade (the private finance initiative, unfunded pensions, student loans and other Enron-like constructs).

The fiscal weakness of the UK is largely government-inflicted, rather than a result of the financial crisis and global contraction. During the long boom preceding the crisis, fiscal policy was relentlessly pro-cyclical, with public spending rising steadily as a share of gross domestic product. The size of the bank bail-out reflected failures of UK regulation that permitted the financial system's balance sheet to pass 400 per cent of GDP.

Britain has four, inconsistent, features. It is a small, open economy, with a large, internationally-exposed financial sector, its own minor-league currency and limited fiscal spare capacity. This makes it uniquely vulnerable. Its central bank is limited in the liquidity support it can give banks with short-term foreign-currency liabilities. Its fiscal authorities may discover that major banks are not just too big to fail but also too big to save. The markets have recognised this, become nervous and started testing it.

When a government has credibility - its promises and commitments are believed by its citizens and by the markets - the best policy is not an immediate fiscal tightening. A credible government would implement an immediate fiscal stimulus of, say, 2 per cent of GDP and commit itself to sufficient future tightening to restore fiscal sustainability.

Unfortunately, thanks to a decade of fiscal mismanagement, the British government has little credibility. Public finances during the last boom are the obvious guide to expectations about the likely future fiscal behaviour of a Labour government. The cynical manipulation of Gordon Brown's "golden rule" (over the economic cycle borrowing only to invest) and the decision to jettison it and the sustainable investment rule (net debt not to exceed 40 per cent of GDP) as soon as they threatened to become binding constraints will cause the markets to act like St Thomas towards promises of future fiscal tightening: seeing is believing.

The Conservatives are untried and untested. So the markets will also demand their pound of flesh in the form of immediate fiscal tightening if the Tories form the next government.