MacroScope

First quarter UK GDP figures will show whether Britain has succumbed to an unprecedented “triple dip” recession. Economically, the difference between 0.2 percent growth or contraction doesn’t amount to much, and the first GDP reading is nearly always revised at a later date. But politically it’s huge.

Finance minister George Osborne has already suffered the ignominy of downgrades by two ratings agencies – something he once vowed would not happen on his watch. And even more uncomfortably, he is looking increasingly isolated as the flag bearer for austerity. The IMF is urging a change of tack (and will deliver its annual report on the UK soon) and even euro zone policymakers are starting to talk that talk. It was very much the consensus at last week’s G20 meeting.

The government can argue that it hasn’t actually cut that hard – successive deficit targets have been missed – and that it does have pro-growth measures such as for the housing market and bank lending. But the inescapable political fact is that Osborne and his boss, David Cameron, have spent three years arguing that they would cut their way back to growth and that to borrow your way out of a debt crisis is madness. In fact, it’s arguably perfectly economically sane, given that if you get growth going, tax revenues rise and will eat away at the national debt pile.

Either way, elections are now only two years away and the government will have to galvanise an economy that has essentially flatlined for much of its tenure within the next year or so to reap any dividend with the voters.

It’s unclear quite where the austerity debate is in the euro zone. European Commission president Barroso says it has reached its limits, but the change of tack will probably extend no further than the granting of Spain, France and others another year (two at the outside) to meet their deficit targets. That decision is expected next month. The word is that others are unhappy with the bluntness of Barroso’s intervention.

The big euro zone development over the weekend was the re-election of ageing Italian President Giorgio Napolitano for a second term. The presumption is that to put himself through this again he must have got pretty serious expressions of intent from the warring political parties that they will strive for some form of grand coalition. That may have been made easier by the resignation of centre-left leader Bersani who was in danger of splitting his own caucus.

If that comes to pass it should push back the timing of fresh elections until next year at least, a welcome turn for markets which feared a new poll could result in an even more fractured outcome and put more power in the hands of the anti-establishment Five Star movement. All that means we should see a significant rally in Italian assets today. That should also benefit other peripheral euro zone bonds. Safe haven German Bund futures have already dipped at the open, Italian bond futures have leapt almost a full point and European stock futures are pointing upwards.

87-year-old Napolitano will address parliament later and could either rush through consultations with the parties or skip that step altogether since he’s already heard from them ad nauseam.

“I’d be Carrie, I guess, since I like to write,” he told the Finnish newspaper Helsingin Sanomat when asked about which character in the show he most resembles.

In the TV series, the promiscuous Bradshaw searched for true love and its meaning in the contemporary world in her newspaper column.

But while Bradshaw — played by Sarah Jessica Parker — thought her native New York was the centre of world and felt out of place in Paris, Rehn set her straight.  “The world revolves around Mikkeli,” Rehn said, referring to his hometown with a population of 49,000 in southeastern Finland.