UK cuts killing economic growth as an old enmity with France is revived.

We are promised that Christmas Day will be sunny and warm. The mood is rather different. One can scarcely turn on the telly for fear of catching sight of Robert Peston (the BBC's Financial Apocalypse Editor) gazing fixedly at the camera and intoning our doom.

The Government is facing twin crises. On the one hand there is refusal of our economy to stop flirting with recession and, on the other, there is the escalating difficulties that are being generated by the crisis in the Eurozone.

The Government's approach to its domestic difficulties has been to seek to slash public spending, refuse overtly to increase the tax burden and hope that private sector growth will pick up the slack. The term coined for this approach is "expansionary fiscal contraction". For many, the coinage succinctly captures a oxymoron. Why on earth, they ask, do you expect the economy to grow if you are sacking hundreds of thousands of people and choking off the government economic stimulus? Put aside the devastating effect that the loss of jobs and public services will have, does it make any economic sense?

Is it working? The Government expects to shed 710,000 jobs from the Public Sector. How is the private sector doing in its efforts to find new jobs for those terminated? In the period August to October 2011, the number of people employed in the Private Sector rose by 5000. Over the same period, the number of people employed in the Public Sector fell by 67,000. The economy plainly has some growing to do if it is going to avoid further substantial increases in unemployment. The number of unemployed people is already the highest it has been in 15 years.

Growth projections do not look reassuring. The Office of Budgetary Responsibility has had to revise them downwards. Its present forecast for growth in 2012 is a measly 0.7 percent and even that is premised on the Eurozone countries finding a solution to the present sovereign debt crisis. It is, therefore, not only not a worst case projection, it may be a fantastically unrealistic one.

The Government's response to its present difficulties could hardly be called nuanced. It has a number of limbs:

(1) It is not our fault (they blame the previous Labour Administration, the Eurozone Crisis, the weather, etc);

(2) It will all come good in the end, just a little slower than we thought;

(3) There's no real choice, we simply don't have the money; and

(4) The bond markets like this approach.

The UK still has a AAA rating. Geroge Osborne has been pinning a lot on this. Britain, he says, is seen as a safe haven because the bond markets are impressed by his steely fiscal resolution. There is no doubt that the markets do like what he is doing. Other countries have had to have the IMF or unelected technocrats devise austerity measures and impose them. Our Government has embraced austerity with a convert's zeal.

Why is keeping the bond market so happy our Government's principal concern? Because, to use the words of Andrew Neill (former newspaper editor turned TV pundit) we are in thrall to it - that being what tends to happen when you borrow trillions of dollars from it.

Meanwhile the rating agencies are gazing at countries in the Eurozone and their downgrade trigger fingers are itching. Greece contiues to slide towards default and other countries appear to heading the same way. The markets know what they want: they want the European Central Bank to be a lender of last resort. They want promises that it will do whatever it takes to keep the ship afloat. Germany, still haunted by memories of what printing money can do to inflation, purports to be having none of it. So the markets remain unimpressed as the Eurozone muddles along and the crisis remains on a low boil.

There are some "Little Englanders" who smack their lips with satisfation and profess themselves grateful that we still have the dear old Pound. But the truth is that if the ship goes down we go down with it: partly because we have directly underwritten some sovereign debt; partly because our banks are exposed to banks who are exposed to banks in the likely defaulting countries; and partly because as Europe is our biggest export market, a financial meltdown on the Continent would decimate our own industries.

Europe has grown tired and grumpy with our semi-detached approach to the European Project. At the summit of European leaders on 9 December 2011, there were proposals made for a treaty between all 27 members. The plan, devised by French and German Governments, was for a top up of the bailout fund along with new rules that would force the governments of the Eurozone to run their economies "responsibly". The British had a power of veto. In the run up to the summit, the talk was all about what David Cameron, the British PM, could secure in return for not exercising that veto. As a minimum, the City (our equivalent of Wall Street) was to be kept out of the jealous clutches of the French and Germans whom, it was suspected, wanted to regulate it into irrelevance. However, there was heady talk of "repatriation" of powers - in particular, the possibility of escaping the European regime of Employment Rights.

What transpired was that the Prime Minister turned up with a list of demands so technical that no-one could understand what he was actually asking for. The mood was against him. It was as if a bomb disposal technician had refused to pass the hero the wire cutters (despite the clock ticking to zero) until the question of who should pay for lunch was finally resolved. Britain found itself isolated. At that point, the game already lost, David Cameron decided to take the ball home and exercised the veto. The core European states were horrified. President Sarkozy called Cameron an obstinate kid.

Of course being disliked by the French does little to harm to popularity in the UK. The view here is that French progress over the last 100 years has consisted merely of going from needing repeatedly to be rescued from the Germans to needing repeatedly to be rescued by the Germans. Cameron has certainly been unpopular, however, with Nick Clegg, the Leader of the Liberal Democrat party (the junior partner in our governing coalition) and holder of the office of Deputy Prime Minister (a bigger political irrelevance than the office of the Vice-President). He described the use of the veto as bad for Britain.

The French then stoked up the row by inviting rating agencies to downgrade British debt before considering touching the French AAA rating. Today, the stakes have been upped further by the Government's refusal to contribute funds to the IMF to be earmarked for bailing out the Eurozone.

Somewhere, diplomats are weeping. Here at home, the unemployment lines are growing.