Three gloomy reports will put pressure on Bank of England to pump £50bn more into economy when it meets this week

The beleaguered state of the UK economy has been underlined by three separate reports revealing that Britain's one million small and medium-sized businesses were facing their most difficult year since the recession of 2009.

Sharp declines in bank lending to smaller firms, and a collapse in confidence across the sector outlined in the reports will add to concerns that the economy is about to enter a second recession in three years, analysts said.

The gloomy reports will also put pressure on the Bank of England to pump an extra £50bn into the economy when it meets on Thursday.

Mervyn King, governor of the Bank of England, has indicated he could support an extra boost to the £270bn quantitative easing programme if there were evidence of a further tightening in bank lending and a deterioration in the economic outlook.

Several other members of the nine-strong monetary policy committee are expected to vote in favour, including the economist Adam Posen, who believes an extra £75bn could be justified.

The European Central Bank has also faced calls to ease monetary policy to offset cuts in public spending and rising unemployment across the eurozone. The bank, which has allowed European banks to borrow £500bn since the start of the year in response to the deepening euro crisis, could cut interest rates further to ease borrowing costs, analysts said.

Most economists expect the Bank of England to sanction further quantitative easing despite positive figures from the services and manufacturing sectors last week that showed a steady expansion over December and January.

According to the Markit/CIPS UK services PMI poll, services firms, which make up more than two-thirds of the economy, were more optimistic about the outlook and had the strongest growth in new business since last July.

Businesses in the sector, which includes hotels, restaurants, banks and transport, gave cheer after official figures showed the economy contracted in the fourth quarter of 2011 but they hired new workers at the fastest pace for almost four years.

However, a report by economic forecasters the Ernst & Young Item Club is expected to dampen the mood. It said bank lending this year would be the lowest since the recession of 2009.

The Item Club expects total bank loans – after expanding by an estimated 4.3% in 2011 – to contract by 2.2% in 2012, with just 0.9% growth forecast in 2013.

Bank lending is considered a crucial measure of economic health and a fall this year could cripple many businesses that have struggled to keep their doors open since the recession.

Neil Blake, its senior economic adviser, said: "We have been warning about the impact bank de-leveraging could have on the economy for some time, but this is the first time there will be an annual contraction in total loans since 2009, when the UK economy was still suffering from the immediate effects of the global financial crisis."

A separate report, by the accountancy body ICAEW, found that business confidence had fallen at a record rate, and firms were planning to cut investment.

Job creation plans also stayed subdued, though small and medium-sized businesses were more likely than larger ones to hire people in the next 12 months, the report said.

Michael Izza, chief executive of ICAEW, said: "At the moment it is hard to see where growth will come from and the chancellor, George Osborne, needs to use the forthcoming budget to give businesses reasons to be more confident about the future – and unlock potential investments."

Osborne is understood to favour a boost to quantitative easing by the Bank of England to offset his austerity measures.

He came under fire last week from opposition MPs for sticking to his plans after the Institute for Fiscal Studies said he could spend at least an extra £10bn without undermining confidence in the UK's fiscal outlook.

Chuka Umunna, the shadow business secretary, said: "It is particularly worrying that business expectations for capital investment have fallen for a third successive quarter. Low business confidence is hitting Britain's future growth potential and discouraging firms from investing for the long-term, with over half of businesses surveyed operating below capacity.

"Vince Cable's promise that the Department for Business, Innovation and Skills would be the 'department of growth' has been exposed as little more than empty rhetoric, as ministers have failed to adopt an effective plan for growth or take meaningful steps to support businesses and our key sectors.

"Labour's five-point plan would get the economy moving again, including by bringing forward long-term investment projects and temporarily reversing last year's damaging VAT rise."

US president doubts Israel has yet decided on whether to strike, but America keeps all options open

Barack Obama has said that the United States will work in "lockstep" with Israel to prevent Iran from becoming a nuclear power, but he did not believe Israel had decided whether to launch a military strike.

The US president's comments appeared to be an attempt to downplay speculation that Israel was preparing to attack Iran following a report last week that the US defence secretary, Leon Panetta, believes an Israeli strike could happen this spring.

Obama told NBC television in an interview from the White House on Sunday that Israel is "rightly" very concerned about Iran's nuclear program, but said: "I don't think that Israel has made a decision on what they need to do".

He said that he hopes that the crisis will be resolved diplomatically but reiterated that the US has removed no option from consideration.

Asked about a potential attack by Iran on the US minlanbd, Obama said, "We don't see any evidence that they have those intentions or capabilities right now."

Tensions between Israel and Iran have continued to ratchet up in recent days. The Israeli defence minister Ehud Barak claimed on Thursday that there is a "wide global understanding" that military action may be needed, while Iran's supreme leader, Ayatollah Ali Khamenei, called Israel on Friday a "cancerous tumor that should be cut [out] and will bet".

Meanwhile, Obama said during the same interview that he deserves re-election, despite the difficulties of the US economy, adding that his administration is creating more than 250,000 jobs a month, the most since 2005, and a reversal from the 750,000 jobs the economy was losing three years ago.

The president said US manufacturing still needs a boost: "We have got to make sure we are pushing American energy, not just oil and gas, but clean energy."

Obama also said the country needed to return to "old-fashioned American values," so "everyone gets a fair shake".

Three years ago, Obama had said if the economy hadn't turned around by this time, his presidency would be "a one-term proposition".

Let's move our money from big banks to credit unions, ethical banks and building societies

What do the bankers do – work tirelessly on your behalf, or work for themselves on your money? We have an option – to move our money, but few of us actually do. In fact, we are more likely to divorce than change our bank account, and this despite a growing list of grievances. Forget bank charges, bonuses or lending droughts. Bankers triggered a world recession in 2009 and could well cause a double-dip recession in Britain. What to do? Last week a national campaign was launched to improve the banking system by exercising consumer choice. Move Your Money UK, based on a similar campaign in the US, aims to channel anger into action, by encouraging account holders to move from the big guys to credit unions, ethical banks and building societies, from Potter to George Bailey. Life may not, in reality, be that wonderful and this could be a peashooter pointed at an elephant. But it reaffirms agency. We don't have to take it.

The super-rich are relying on bronze spiders, balloon flowers and abstract paintings to escape volatile times

In this troubled economy, Christie's and Sotheby's are doing a booming business. Christie's year-end results were £3.6bn, up 9%. The percentage rise in sales of contemporary art was even better, at 22%. Sotheby's doesn't announce its complete results until the end of February, but its total auction sales increased by 14.5% with contemporary art up a significant 34%.

The gravity-defying surge of this segment of the art world is surprising, but only at first glance. The bulk of revenues comes from "ultra high net worth" individuals, many of whom operate at a level far above national economies. Even those who have taken blows in recent years remain super-rich. If they were worth £3bn in 2007, maybe they're worth £2bn now. It's not like they're feeling the pinch.

The burden for the stinking rich is what to do with their money. There is currently no interest to be earned on cash, so they can't leave it in the bank. The property market is nearly paralysed and, for these globetrotters, the drawback of real estate is that it is tied to specific currencies. A Mayfair flat sells in pounds, but the Francis Bacon painting that hangs on its wall could sell in Hong Kong dollars and take up residence on a yacht in the South Pacific. Like historic or extra-large diamonds, works by artists with international recognition are a hedge against volatile currency fluctuations.

Fifteen years ago financial advisers were not in the practice of recommending that rich people diversify their portfolios by buying art. Now it is the norm. While buying emergent art is high-risk, speculative investment, acquiring established masterpieces is perceived as the opposite – a back-up in hard times. If all goes wrong in the world, if the eurozone cracks, the Middle East erupts in war, and a tsunami hits Manhattan, that rare, portable 1964 Marilyn by Andy Warhol will still be worth something.

The auction houses are fostering a globalisation of taste with the help of galleries with international outposts such as Gagosian, Hauser & Wirth and now White Cube. While wealthy Belgians used to spend their money differently from wealthy Indonesians, this is decreasingly the case.

During the contemporary sales that will take place in London on 14 and 15 February, bidders from four continents are likely to converge on many lots, including a classic red squeegee-blurred abstract painting by Gerhard Richter (estimated at £2.5m-£3.5m at Sotheby's) and a black and white canvas by Christopher Wool emblazoned with the giant word "FOOL" (expected to fetch £2.9m-£3.9m at Christie's). Both works are tipped to exceed their estimates. Christie's and Sotheby's are superlative marketers who are getting better at funnelling demand for objects by a small group of well-tested artist brands.

A decade ago, few would have predicted that the most insatiable buyer of record-priced contemporary art would be the Qatari royal family (who are sponsoring the forthcoming Damien Hirst retrospective at Tate Modern). In 2007 they bought Hirst's Lullaby Spring pill cabinet for almost £9.65m, then the highest price ever paid for a work by a living artist.

Last year they bought the most expensive contemporary lots at both auction houses, paying £24m for a Roy Lichtenstein at Christie's and £39m for a Clyfford Still at Sotheby's. Behind the scenes, they have paid even higher prices in private transactions – most recently, as revealed on Friday, a gobsmacking £160m for Paul Cézanne's The Card Players

But the family is not just stockpiling; they seem to love their art. Sheikha al-Mayassa, the emir's daughter, was apparently at a loss for what to give her mother for Mother's Day. She settled on a nine-metre-high bronze spider by Louise Bourgeois. I wonder what her husband will get her for Valentine's Day? A Jeff Koons balloon flower? No, silly me, they already have one. Needless to say, a coup in Qatar would be a tragedy for the art market.

It is worth noting that Sotheby's and Christie's 10 highest-spending families may be responsible for as much as 10% of their revenue. This teeny elite includes the Qataris and, most likely, Russian oligarchs, US hedge-fund managers, Chinese billionaires, and Europeans with relatively "old money". These people use Christie's and Sotheby's as a one-stop shop in the way that certain members of the British middle class rely on John Lewis.

Indeed, they don't only acquire paintings from the auction houses but rugs, furniture, lighting, silverware, jewellery, watches, books, wine and beach houses. If these 10 players dropped out of the market, the auction houses' figures wouldn't look so hot. As they say in the business, the market is "thin" at the top.

But the biggest spenders are unlikely to abandon the market because, for them, art is more than an investment. It is a fast track to social acceptability and part of their claim to be the distinguished cream of the crop. For the rest of us, it pays to remember that art is about cultural enlightenment: and that flows from contemplating the work, not owning it.

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If politicians are now waking up to voters' increasing intolerance of excessive remuneration, then it's about time

To dismiss it as rough justice is to miss the point: public anger about the vast sums handed out to many bankers and bosses is great, growing – and justified. One can see the difficulties in the case of Stephen Hester, who didn't cause the mess at RBS but now has to clear it up. And even Mr Fred Goodwin deserves some sympathy: why should he alone be stripped of his honours, when so many others responsible for the banking crash still clutch on to their knighthoods and peerages?

Then again, injustice on the way down is usually matched by injustice in the ascent. A truly fair system would not have awarded Mr Goodwin his gong in the first place, while, as head of a state-owned bank, Mr Hester remains the best-paid public servant in Britain. More to the point, if politicians are now waking up to voters' increasing intolerance of excessive remuneration, then it's about time. Even during Britain's long boom, the public was never as "intensely relaxed" about people getting filthy rich as the political classes.

Granted, there is a definitional problem here. Salaries for those at the top have been soaring away since the 90s, rising at a rate faster than ministers or regulators can generally track. Instead, excess pay fits that test set by the US supreme court justice Potter Stewart who admitted in 1964 that he could not define hardcore pornography, "but I know it when I see it". Some may find that too imprecise a standard, but public sensibilities do tend to shift about, a bit like labour markets. For Sir Philip Hampton to say that he and the others on the board of RBS could not foresee the backlash that would follow the award of a near-million pound bonus to Mr Hester beggars belief. Similarly, when Sir Philip talks about "switching" from big bonus payments to even bigger basic pay or option giveaways to "make it more palatable" to the public, he demonstrates an unfortunate combination of being out of touch and rather cynical.

Over the past two decades, top pay in America and Britain has gone from being a question of how much bosses can earn, to how much some can extract from their companies. This does not apply to all firms, especially those outside the FTSE 100. But when the median FTSE CEO is earning 219 times the median worker, something has gone badly wrong. This is money that could have gone back into the company, either to investors, or to workers, or simply have been reinvested. For a long time, even progressive politicians were nervous about broaching how much private-sector executives should earn. That's changing, as recent speeches from Ed Miliband and Chuka Umunna, and from Nick Clegg and Vince Cable, demonstrate. This has a long way to go before translating into meaningful action; but the transformation is to be welcomed.

Your article on the increased vigour of business lobbying in favour of Heathrow expansion (Report, 2 February) neglected to ask a simple question: does the UK need more airport capacity? We'd suggest no. A recent report by WWF and the Aviation Environment Federation shows that there is already sufficient runway and terminal capacity in the south-east and other regions to meet demand to 2050.

It's important to note too that the UK Climate Change Act has set a legally binding target to reduce emissions by 80% by 2050 and aviation is expected to contribute to the achievement of this target. The advice of the Committee on Climate Change is that aviation emissions return to 2005 levels by 2050. However, the spokespeople from BAA, British Airways' parent company IAG, and from London business lobby group London First all fail to mention climate change, or carbon emissions.
Jean Leston
Senior transport policy adviser, WWF-UK

• Stansted has land to accommodate a second runway, so why can't this option be taken seriously. And why can't Stansted become a hub airport? It is better placed to serve the Midlands and the north, and compared to Heathrow it sits in a relatively unpopulated rural area. Stansted must have a strong case on environmental and amenity grounds, which may not carry much weight with the Heathrow lobbyists but should make it a serious contender. It would need a new high-speed rail link to London and the east coast mainline, and would not come cheap, but to dismiss it would be a lost opportunity.
Bill Hunter
Holmfirth, West Yorkshire

It is hard to think of a starker failure in domestic government since the poll tax

No one, but no one, thinks that the health and social care bill returning to parliament this week is any good. Nurses and doctors have lined up to denounce it – even GPs, whom the legislation claims to put in charge. Professional resistance can be dismissed as "producer interest", but not so the joint editorial published by three specialist periodicals, including the Health Service Journal. The journal is generally supportive of exposing medicine to competition, yet it damns the particular market-based reforms on offer as "unnecessary, poorly conceived, badly communicated" and "a dangerous distraction". Meanwhile, a committee dominated by coalition MPs has just concluded that the current upheaval "complicates" necessary cost-cutting, and displaces "truly effective" reforms.

Even the health secretary cannot any longer really believe in the watered-down product he is saddled with punting. The one hope for the bill which Andrew Lansley had originally articulated intelligibly was removing politics from healthcare. But, after a year of amendments and grudging stand-offs with the Liberal Democrats, he has utterly failed in this – as is underlined by the latest concession, which explicitly reaffirms that he will retain full political responsibility to parliament.

Having foolishly nodded the legislation through in the Commons, the Lib Dems blundered again by failing to kill the bill – as they could have done – when their members and peers revolted. Instead, they settled for fudge. The bill before parliament is littered with warm words such as "integrated", which mean entirely different things to advocates of planning and cheerleaders for restructured competition. It may well fall to the courts to determine what on earth whole passages mean. And yet – carried along only by the crack of the government whip – this unloved legislation rolls towards the statute book. The strongest remaining argument for passing it is that the hard-to-manage mess of half-disbanded care trusts could descend into uncontrollable chaos if new rules and structures of some sort, however flawed, are not agreed on soon.

Mr Lansley's great error was to allow the charged words "Tory", "cuts", "health" and above all "privatisation" to combine to become the story of the bill. The technocrat imagined that he could quietly impose a new healthcare market, and that England would soon bow to its logic. He not only misread opinion, but also mistook a well-founded concern to restrain medical profiteering for socialistic superstition. Last month the Guardian revealed that millions were being diverted to the likes of KPMG and McKinsey to teach "business skills" to GPs. On Friday, it emerged that a cash-strapped health department was having to stump up £1.5bn to trusts that cannot afford repayments under the PFI – the last great brainwave for getting the private sector involved. Public fear of racketeering is not boneheadedness. The medical marketplace will never be one where consumers (or, as they were once known, patients) can be sovereign – the knowledge gap with "producers" is too great.

David Cameron, like Mr Lansley, initially banked on voters being indifferent to health service structures so long as health service standards were maintained. He might have been right, too, were it not for the fact that the NHS is facing the sharpest spending squeeze in history. Seduced, perhaps, by his own comforting rhetoric about not cutting the service, the prime minister failed to see it coming. But with the queues for treatment lengthening – long waits are already up by 43% since the coalition came to power – the presumed indifference will soon give way to rage.

One of the few predictable effects of the reforms is that they will make it harder to manage scarce resources by imposing rationalisation; another is that all this frenzied ministerial activity will ensure that blame for the problems that flow from inescapable scarcity will now be laid squarely at the coalition's door. It is hard to think of a starker failure in domestic government since the poll tax.

Justine Greening to attend firm's AGM to vote against executive payout – though Labour says she is failing to use full powers

The transport secretary, Justine Greening, is planning to vote against a proposed £20m bonus pool for Network Rail executives. But she was accused by Labour of failing to use her powers to put a stop to the payments.

On Friday, she will attend Network Rail's annual general meeting to vote against a package which could see chief executive Sir David Higgins collect a £340,000 payout in addition to his £560,000 basic salary.

Greening's intervention will put pressure on Network Rail to reduce the bonuses which have been paid annually to executives for many years. The company that operates most of Britain's railway structure has faced criticism over its safety record and poor track conditions.

"I'm going to go to the meeting next Friday, I'm going to vote against them," said Greening on the BBC's Sunday Politics programme. It will be the first time that a minister of state has voted against bonuses at Network Rail.

Despite her vote against the company, she claimed that she would not have the powers to stop the payments from going through. "The governance structure that the last government set up means I can go and vote against it. The problem we have got is that won't actually change the result," she said.

However, Labour is claiming that the Department for Transport has powers over remuneration and incentive schemes thanks to its position as Network Rail's "special member".

Maria Eagle, the shadow transport secretary, said: "Greening is wrong to say that she cannot block these bonuses … It is difficult to see why Network Rail would have felt able to propose this new bonus package without knowing if it had ministerial backing."

Those close to Greening hit back, saying that Labour has misinterpreted company documents. "Justine can't block bonuses, because she has one vote among 80. Labour knows that the government doesn't have a power of veto and when in office repeatedly said that bonuses were an issue for Network Rail and not for government," a source said.

Higgins will also share in a long-term bonus scheme which could be worth up to £15.6m over the next three years for the rail group's six executive directors. The six will also earn £2.3m a year in salaries plus a maximum of £4.2m in bonuses.

On the same day that Greening casts her vote, Barclays will announce an estimated £1.7bn bonus pool, some 30% less than last year but a sum that will see staff at its Barclays Capital arm remain among the highest-paid UK workers, earning an average of £210,000 each.

Barclays, one of the world's largest investment banks, is forecast to report profits of £6bn, barely changed on a year ago despite the eurozone crisis.

While the bonus of its chief executive, Bob Diamond, is unlikely to be revealed until March, he could get up to £11m.

The latest round of payouts will fuel the controversy around City pay, which prompted Royal Bank of Scotland's chief executive, Stephen Hester, to waive his near-£1m bonus a week ago.

More than 20 MPs have signed a Commons motion saying Network Rail had been "found by the Office of Rail Regulation to be in breach of its licence" and had been responsible for "major asset failures, congested routes and poor management of track condition".

Last week, the company admitted health and safety breaches over the deaths of two teenagers killed at a level crossing in Essex in 2005.

A Network Rail spokesperson said that no decisions have yet been taken on any potential bonuses. "Friday's vote is not on whether directors will receive a bonus but on a proposed scheme, the shape of which is a result of discussions with our regulator. The independent remuneration committee will have full discretion on any decision to award bonuses."

Japanese camera maker to aims to hold managers to account over fraud claims at emergency meeting on 20 April

Olympus, the Japanese camera maker suing 19 current and former executives over accounting fraud, has told the Tokyo stock exchange it will hold an emergency shareholders' meeting on 20 April.

Michael Woodford, the firm's whistle-blowing former CEO, has said he will attend.

"This will be the first formal opportunity for all of the company's shareholders to question and hold its management to account," Woodford said in a statement Sunday.

A special committee will nominate a new board by mid-March and investors will vote on new management in April. The agenda for the April meeting is yet to be decided.

Cable firm expected to report first annual profit as it reveals network will be plugged in months ahead of schedule

Virgin Media will complete its rollout of super-fast broadband ahead of schedule, making the service available to each of the 13m homes passed by its network this spring.

The group, which is expected to report its first annual profit on Wednesday, will announce on Monday that its super-fast service now passes 10m of the UK's 26m homes and that its entire network will be plugged in several months ahead of the original mid-2012 deadline.

Virgin Media, which is the UK's only cable company and was formed through rounds of mergers between loss-making predecessors, is forecast by at least two banks to report a small net profit. Analysts forecast an average of £3.988m in revenues for the year, with BNP Paribas saying this could produce a £72m profit, and JP Morgan Cazenove estimating £60m.

BT Group and Virgin Media are engaged in a broadband arms race which will see download speeds double for many households in the coming year. In a separate project, Virgin will over the next 18 months double its customers' download speeds, with the fastest going from 50Mbps to 120Mbps from the summer. BT will move its 40Mbps customers to 80Mbps. The higher speeds ensure several members of a household can simultaneously watch internet TV, play online games, or use smartphones, tablets and computers.

The UK is outside the world's 30 fastest for internet connections, according to speed testing company Ookla, but Virgin Media says its work will push the country into the top 20, ahead of the US, Japan, France and Germany.

Jon James, executive director of broadband at Virgin Media, said: "Soon half the country will be able to get superfast 100Mbps broadband from us. Reaching today's milestone puts us ahead of schedule as we help propel the UK up the global broadband rankings."

The TV and telecoms group could add 13,000 customers in its fourth quarter, according to JP Morgan Cazenove, bringing its total subscribers to 4.8m. The total, which takes into account those leaving the network, could include 30,000 more broadband subscribers. In its last quarter, BT added 146,000 broadband subscribers.

BT and Virgin Media are racing towards higher speeds in the hope that consumers will leave Talk Talk and BSkyB, which will struggle to match their service. BT and Virgin are the only two operators that own fibre cables.

Sky and Talk Talk have spent millions unbundling BT's copper network, installing their own equipment in telephone exchanges, but the higher speeds cannot be delivered over copper.

According to analyst Robin Bienenstock at broker Sanford Bernstein: "This leaves the unbundlers (but in particular BSkyB as TalkTalk is the clear discounter in the market) in the unenviable position of having to choose between selling product that is margin dilutive or resisting its sale and seeing their premium quality status diluted."

Sky is already considering renting fibre from BT, and has begun a trial on the former national monopoly's network which could form the basis of a high speed broadband offer to its customers.

Prime minister Lucas Papademos faces an uphill struggle to win the backing he needs to avoid a disorderly default in March

Greece's economic future hung in the balance on Sunday as the debt-laden country's technocrat prime minister, Lucas Papademos, met party leaders in a last-ditch effort to rally support for the stringent reforms Athens must enact in return for aid.

With at least one political leader in the coalition government publicly refusing to endorse the rescue package, it was far from sure whether Papademos would win the backing to keep bankruptcy at bay.

Before the meeting, the Greek finance minister, Evangelos Venizelos, described negotiations with foreign lenders as being "on a razor's edge". To avert a disorderly default Greece must secure financial support by 20 March when it faces €14.5bn (£12bn) of loan repayments.

"The moment is very crucial," Venizelos said after emerging from 12 hours of "tough" talks with officials representing the EU, the European Central Bank and the International Monetary Fund, the "troika" propping up the near-insolvent Greek economy.

"Crucial issues which concern the future of the country and the Greek people remain [unresolved]. The distance separating the procedure being completed with success from stalemate … is very small. It's a very fine line. We are on a razor's edge," he said.

A subsequent teleconference with finance ministers from the eurozone had been "very difficult", Venizelos said. "There is great impatience and great pressure not only from the three institutions that make up the troika but also from eurozone member states," he added.

In recent weeks international frustration has mounted with the country's tardiness in delivering on reforms.

Addressing reporters over the weekend, Venizelos said the "hour of truth" had come for the political leaders backing Papademos's interim national salvation government.

"We are at the point where they must decide and commit," he said.

Wage and pension cuts are at the heart of the discord.

While international creditors remain adamant that the reduction of the minimum wage and abolition of two salaries granted to workers as bonuses in the private sector are key to boosting competitiveness, the government has called the measures "a red line" across which it cannot go.

Other controversial demands include a 35% drop in supplementary pensions and the axing of 150,000 public sector jobs in organisations due to be closed down.

Greek officials have argued that the cutbacks will be self-defeating by deepening a recession that has already brought the economy to its knees. Party leaders, trade unions and employers' associations have predicted social upheaval if the measures are applied.

"If it doesn't suit us and the troika doesn't budge we will not take the package," said Giorgos Karatzaferis, who heads the populist, far-right Laos party before heading into the meeting. "We will not give in to ultimatums."

With general elections due to take place in the spring, politicians are keen not to be associated with policies that have spawned such popular opposition.

But highlighting the gravity of the moment, Jean-Claude Juncker, who chairs the eurogroup of finance ministers, voiced the possibility of default. "If we were to establish that everything has gone wrong in Greece there would be no programme and that would mean that in March they have to declare bankruptcy," he said, in comments to the German news weekly Der Spiegel.

Greek insiders confirmed that the possibility of bankruptcy loomed larger than at any other time.

"The troika is not negotiating, it's dictating," an insider said. "When you negotiate you expect both sides to move, but they're like a rock. They're basically saying it's this or default. Our sense is that they would prefer the shock of a Greek default than throwing money into a country they have come to see as a bottomless pit. The problem is the measures are so hard, so painful, that it is hard to see how all three leaders will accept them."

Transport secretary Justine Greening to oppose executive bonuses at company's AGM following outcry from Labour MPs

Justine Greening, the transport secretary, is to vote against bonuses for Network Rail executives at the company's annual general meeting following an outcry from Labour MPs.

The government claimed the move would send a "very clear signal" it opposed payments like the £340,000 reportedly due to chief executive Sir David Higgins.

It is understood that this will be the first time a minister of state for transport has attended a Network Rail AGM.

Greening told BBC One's Sunday Politics programme: "I'm going to go to the meeting next Friday. I'm going to vote against them," she said.

She added that her hands were tied because the structure of the company – implemented by the last government – meant that she was unable to stop the bonus going through. "The governance structure that the last government set up means I can go and vote against it. The problem we have got is that won't actually change the result.

"The other problem we have got is that the members can vote against the bonus package but, at the end of the day, their vote is only advisory," she said.

Labour responded by claiming that Greening could have done much more to oppose the "bonus culture" in Network Rail, and said that not enough has been done to ensure that failure at the company is not rewarded.

More than 20 MPs have signed a House of Commons motion saying Network Rail had been "found by the Office of Rail Regulation to be in breach of its licence" and had been responsible for "major asset failures, congested routes and poor management of track condition".

Labour has called on the government to use its place on the company's board to oppose a new bonus package for the company's bosses, arguing they are not deserved.

It is claimed that the proposed scheme would see senior managers receive up to 60% of their salary as a bonus every year, and a further 500% at the end of each five-year funding period.

Network Rail has said that "no decision" has been made on bonuses.

Last week, the company admitted health and safety breaches over the deaths of two teenagers killed at a level crossing.

Olivia Bazlinton, 14, and Charlotte Thompson, 13, were hit by a train in 2005 as they crossed the tracks at Elsenham station footpath crossing in Essex.

The firm also faces prosecution over the 2007 Grayrigg train crash in Cumbria, in which one passenger died.

Monetary policy may bear too much of the UK economy's burden but will policymakers be brave enough to change?

Financial markets have had a rip-roaring start to 2012. Fire-fighting by the European Central Bank (ECB) has eased fears that the eurozone will slide into a severe recession this year. Upbeat surveys of both the manufacturing and service sectors suggest that the UK should return to growth in the first quarter of 2012, weather permitting.

Three pieces of upbeat news that should, in normal circumstances, guarantee that the Bank of England would leave monetary policy on hold this week and may even mull the possibility of tightening at some point later in the year.

This, though, is not what the City expects. As far as the markets are concerned it is not a question this week of whether the monetary policy committee (MPC) embarks on a third round of money creation under the quantitative easing (QE) process, but rather how big the boost will be. The betting is on a £50bn injection, which would take the total to £325bn.

The fact that the Bank is even considering a further easing of policy is testimony to the profound weakness of the UK economy. For the past three years, bank rate has been 0.5% – comfortably the lowest level on record – and despite the pain being felt by savers there is no sign of it going up any time soon. The Bank has bought up some 20% of the gilts market already in an attempt to boost the money supply. Meanwhile, the Treasury has borrowed £500bn since the economy went into recession in early 2008.

Even so, the level of national output is still 4% below where it was at the peak of the economic cycle and at the current rate of progress will take until the 100th anniversary of the outbreak of the first world war before regaining the lost ground. Those seven lost years will have cost the UK economy around £200bn in output. The argument that this unprecedented policy response from the Bank and the Treasury has had little traction on the economy is valid, but misses the point: namely that without the easing of both monetary- and fiscal-policy activity the economy would have been substantially weaker and unemployment markedly higher.

Is there, though, now a case for saying that enough is enough? Since the departure of Andrew Sentance last year, the MPC has lacked a voice favouring a tightening of monetary policy, but it is worth rehearsing what that case would be. Firstly, the Bank's job is to hit the government's 2% inflation target, yet the cost of living as measured by the consumer prices index has been 4% or higher for the past year.

Secondly, prices tend to be "stickier" in the UK than in other developed countries, so there is no guarantee that inflation will come down as quickly as the MPC thinks – even when one-off factors such as last year's VAT rise cease to have an impact.

Thirdly, the economy may be stronger than the 0.2% drop in output in the final three months of 2011 would indicate. The survey of the service sector from CIPS/Markit released on Friday was the strongest for 10 months and consistent with the sector growing at around 0.7% on the quarter.

Internationally, the news has also been better: activity in the eurozone as a whole (if not in some of its constituent members) looks to be bottoming out, while the latest jobs news from the US economy was strong. Greece is on the point of getting its debt relief from its private sector creditors, and the pressure has eased on Italy and Spain. We are back to where we were in early 2009: when the global economy was starting to recover but the mood was so gloomy that nobody could spot the upswing.

The final point is this: at some stage the Bank will need to unwind the monetary easing of the past three and a half years, selling gilts back into the financial markets. This is going to be tricky to achieve without leading to a collapse in the price of government bonds, and the more bonds the Bank has to sell the trickier it is going to be. This matters because the price of gilts goes in inverse proportion to the yield or interest rate payable on them. When the price of gilts goes down, long-term interest rates go up, so the challenge for the Bank is to unwind QE without triggering a run on gilts that would push the economy back into recession.

Even so, it would come as a surprise if, at noon on Thursday, the Bank announced that it was adopting a suck-it-and-see approach. Threadneedle Street is unlikely to be swayed by the recent survey evidence, and will note that the service sector's purchasing managers' index (PMI) does not include retail spending, which looks to have been weak in early 2012 as consumers retrench after a Christmas spending spree.

Despite the recent fall in inflation, prices are still rising more rapidly than earnings, putting a squeeze on real incomes, albeit more modestly than during 2011. Flows of credit to the private sector remain weak and the housing market is in the doldrums. The long and painful deleveraging from excess debt by the private sector will continue for some time yet.

There are two concerns about the state of the eurozone. The first is that even if Greece's debt can be put on a sustainable footing (and that looks highly improbable), Portugal is showing worrying signs that it will need a second bailout. Exhaustive efforts by the European commission and the International Monetary Fund (IMF) to make Greece a special case look doomed to fail.

The second concern is that while the ECB's long-term refinancing operations have stabilised the eurozone economy, the intractable structural issues – a lack of competitiveness in the weaker economies, the self-defeating nature of generalised austerity – remain unresolved. When it announced the second round of QE back in November, it was the state of Europe that forced the Bank's hand. Given the frequent false dawns over the past year, the chances of a further flare-up in the crisis remains high. What concerns the Bank is not just the direct trade links between the UK and its continental partners but the potential for any freezing up of the European financial system to be transmitted across the Channel into an intensification of the credit crunch.

Inaction by the Bank would make life harder for George Osborne. The government's case for the past 18 months is that the Treasury bears down on the budget deficit to allow the MPC to keep monetary policy loose. There is a case for saying that monetary policy is shouldering too much of the burden and that the chancellor ought to use the budget to provide the sort of modest boost sanctioned by the Institute for Fiscal Studies last week. Osborne is reluctant to go down that road. He believes he has a tacit deal with Sir Mervyn King and he expects the governor to deliver.

Museum listed as one of world's top 20 cultural assets due to be sold off to pay £134m pension deficit after high court ruling

The head of a Unesco committee that shortlisted a British museum as one of the world's top 20 cultural assets has condemned a high court judgment that is forcing it to close.

The Wedgwood Museum in Stoke-on-Trent is to be broken up and sold to pay off a £134m pension deficit, following a high court judgment in December.

As well as thousands of ceramics produced by Josiah Wedgwood, one of the world's greatest pottery manufacturers, the museum, which opened in 2008, boasts an archive of more than 100,000 documents and manuscripts, and masterpieces by Stubbs, Romney and Reynolds. Such is the collection's historic significance that questions will be asked in parliament this month.

David Dawson, who was responsible for listing the museum on Unesco's Memory of the World Register, described the collection as "one of the most complete ceramic manufacturing archives in the world".

"The nation cannot afford the loss of this piece of its heritage," he said. "[The Wedgwood collection] was selected as one of just 20 items on the register, along with objects such as the Bill of Rights and a copy of King Charles I's death warrant."

The high court ruled that the collection was an asset of Waterford Wedgwood Potteries, which went bust in 2009, and could therefore be sold to pay off their creditors, the largest of which is the Pension Protection Fund.

The ruling was an unintended consequence of legislation to protect employee pensions after the Robert Maxwell scandal of the 1990s.The museum had not been linked to the company for almost half a century but has been penalised because five of its employees were part of the Pottery Group Pension Plan's member scheme.

An early day motion tabled by Tristram Hunt, the historian and MP for Stoke-on-Trent Central, expresses grave concern. It condemns the legislation as in need of urgent amendment and urges the government to save the collection. The Tory peer Lord Flight has also tabled an question in the Lords for 14 February.

The museum was founded by a family known for its altruism. Simon Wedgwood, one of Josiah's descendants, told the Guardian the museum held unequalled correspondence from Industrial Revolution figures over 250 years.

"The loss to the nation and the world would be incalculable," said Wedgwood. "It is tragic that recent legislation can mean that the assets of a bona fide museum can effectively be seized by the Pension Protection Fund because of such a tenuous link through a handful of employees."

Martin Levy, the London dealer and former member of the Reviewing Committee on the Export of Works of Art, said that the collection's sale would plug only a fraction of the £134m black hole: "A small gain for the pensioners will be a long-term loss for the country – no more than a pyrrhic victory."

A vice-president of a major western bank in Tokyo compares the banking cultures of Japan and the west

• This monologue is part of a series in which people across the financial sector speak about their working lives

We are meeting in the centre of Tokyo on a Saturday in January. Casually dressed for the weekend, he is a slender man in his early 30s with a fashionable haircut. He orders pasta.

"When I travel to New York, I am always struck by the percentage of Caucasians in the banks there. Here in Tokyo it's overwhelmingly Japanese. But in London you have the whole world population represented. I may go to a desk in a major bank and not find a single English person on the team. They may be from India, from Lebanon, from anywhere. That's London.

"My job is in corporate banking. I am the liaison between my bank and one major global Japanese company. Let's call that company XYZ. Now XYZ has operations around the globe. It buys materials and half-products from lots of countries. It assembles and manufactures in lots of countries. It sells its own products across the globe.

"Imagine the money flows: across currencies, across time zones, across jurisdictions. Say XYZ wants to buy a factory in China. For tax reasons XYZ may have its 'paper headquarters' in a tax-haven like London, Amsterdam or Switzerland. This means that the payment has to go through there. So it starts in yen in Japan, is converted into sterling or Swiss francs or euros to originate in the country of the paper headquarters. Then it must be converted into dollars because Chinese renminbi must be paid for in this way. So the payment alone moves through four currencies, but at what conversion rate? You have different currency markets operating in different time zones. The yen market closes before the London market opens. On what day should the transaction be credited? How does the transaction look to different regulatory systems in the countries concerned?

"You need to agree on a fee for all this, provide certification … In a transaction like this there may be at least three other banks involved. And don't forget the need for 'local information'. In some countries official regulation can be quite different from how things are done in practice. I need to be aware of that and pass on relevant information to XYZ.

"This is just one example and you understand how global financial transactions get very complicated very quickly. And how a bank with global operations is at a huge advantage. When Japanese corporations expand overseas they cannot do so using Japanese banks as these lack such global networks. This is not good for Japan and we must work harder to change it. Japanese corporations could do more, too. I know of Japanese executives who take an English course but quit very soon; they decide they are just going to take an interpreter to wherever they are going.

"My day starts before 7am when I wake up and check my BlackBerry. It doesn't really matter where I am to do work. My office phone is routed to my BlackBerry so it looks as if I am speaking from the office. On the commute I read stuff and work from the BlackBerry. I need to know what has happened while I was asleep, both in the world and with XYZ. Say there has been a flood in Thailand. Has that affected operations for the local XYZ activities?

"On a normal morning there are between 50 and 100 emails to go through. I usually get into the office around 9am and work till midnight, till just before the last train. Working hours often shift. When the XYZ office with which I am doing business is in a completely different time zone, you need to adapt your hours.

"For example, European banks are currently withdrawing from Latin America, because the crisis forces them to retrench. So I may get a call from the XYZ office in Brazil that they can no longer get a credit-line from their European bank. Can we support them? I get on the phone with the XYZ office in Brazil and in Tokyo, and with our local office in Brazil as well as with the people in our bank here in Tokyo who are responsible for Latin America.

"What it comes down to is client maintenance. Any request from XYZ headquarters here in Tokyo or a local subsidiary goes to me. I speak to my counterparts every day about activities, needs, demands, strategy … Co-ordination is key.

"There are interesting parallels between Japan and the UK. Both are islands with a limited and stable population. They have their own currency and they are a former power with lots of history. Their banks and corporations now make most of their profits overseas, which they repatriate for tax reasons.

"London is still the financial centre for the Europe and Mediterranean region. It helps how countries like India and other former British colonies have adopted many of the British laws, rules and regulations. That is of great benefit to London.

"Yet it's unclear where London is going, what the regulatory climate is going to be. Also, I don't see much innovation coming out of the UK these days. The bankers' population may be very diverse. The products they come up with are rather old-fashioned."

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For weeks all the talk has been of Scottish independence. But amid clear signs that the north of England is slipping further behind the rest of Britain as the economic crisis deepens, there are signs of a new assertiveness from Manchester to Newcastle. Is our most beleaguered region about to rise up and demand a better deal?

To say Hartlepool is having a hard time would be an understatement. Every job vacancy in this seaside town 30 miles south of Newcastle attracts an average of 16 applicants and nearly one in 10 men are claiming benefits. In Owton Manor, a down-at-heel suburb in the south-west of the town, things are even worse. Nearly half of the 4,100 people who live there are without work.

At the community centre, Jacqueline, who didn't want to give her full name, is doing her weekly volunteering, manning the reception, but has plenty on her mind. Her 20-year-old son, who lives with her, has had his housing benefit cut and she can't afford to subsidise him and worries that he will end up on the streets. Her husband does shift work for the minimum wage, but is to lose his job at the local JD Sports warehouse because it is being moved to Manchester.

But it is the cuts to the buses that really gets her angry. "You can't get a bus after 6pm, they have stopped them," she said. "It is like we are being segregated. You just can't get anywhere. I don't understand why they are doing it."

In Hartlepool it had felt, for a while, that things were perhaps getting better. In May 1985 unemployment reached a high of more than 10,000 adults in a town once dependent on the steel and shipbuilding industries. With the help of large-scale, centrally funded regeneration projects, led in part by the soon-to-be-defunct ONE North East regional development agency, that was reduced to 2,000 people by May 2005.

The key, the council said, had been to encourage local entrepreneurs because it had become obvious that the foreign companies who initially set up call centres in the north-east had found cheaper employees in the far east. But small businesses need assistance, nurturing – and access to finance.

In the past two years, unemployment has gone up again to 4,451 and the local authority expects the picture to be considerably worse over the next year as they cut 33% from their budget. Kevin Sander, who runs Owton's community centre, is despairing: "We are being allowed to rot. They say we will benefit from the London Olympics because some guy is going to run through the town with a torch. I mean, come on."

There are, of course, similarly impoverished places across England. The east of London has a fair few, for example, but the statistics are stark – if you live in the north of England it is more likely that you are suffering. Of the 10 towns with the largest number of businesses going bust in 2011, seven are from the northernmost parts of the north-east, north-west, Yorkshire and Humberside. According to estate agents Rightmove, the north of England and the Midlands have seen the average property price fall from £174,053 in 2007 to £155,925 this month. Over the same period in the south, the average house price rose from £285,137 to £311,037.

And as revealed in the Observer today, the loss of jobs in the north of England is four times as deep in comparison to the rest of the nation, with an 18% year-on-year increase in unemployment compared with 4.5% elsewhere. There has been a 25% increase (31,000 additional people) in the ranks of the unemployed in the north-east, 16.9% (44,000) in the north-west and 11.6% (23,000) in Yorkshire and Humberside. In comparison, there has been a rise in unemployment of 4.5% (12,000) in the south-east of England and 10.4% (40,000) in London. In the south-west the increase is even smaller, 3.7% (15,000), while the West Midlands has seen a decrease in unemployment of 7.4% (19,000).

Sifting through the job cuts in the north of England, the Institute for Public Policy Research has found that it was initially the private sector that saw the squeeze as small businesses were hit by banks not lending. Over the past 20 months, the government's cuts to local authority funding mean the losses are now predominantly in the public sector, specifically those working in healthcare in the north-east, education in the north-west and careers advice in Yorkshire and Humberside. The northern regions, heavily reliant on the central government grant for their regeneration strategies, have been particularly hard hit by the chancellor George Osborne's austerity programme, critics claim.

An analysis by Newcastle upon Tyne city council of the local authority budget cuts illustrates this inequity: northern cities and boroughs will lose £150 to £200 per head this year, while in the south-east, the west country and parts of the midlands, the cuts range from £50 to zero. IPPR North additionally points out that, while the government spends £2,731 per head on transport in London, it gives just £5 per head in the north-east. It is true £1.4bn has been allocated for a regional growth fund, but that does not compare with the £14bn budget for London's Crossrail project. Is this what managed decline looks like?

In 1999, in the first flush of his premiership, Tony Blair declared the north-south divide a thing of the past. Economic prosperity was being evenly shared across the country in an unprecedented way, the fresh-faced prime minister announced, as he laid the foundation stone for the new Commonwealth games stadium in east Manchester, before joining resident Barbara Taylor and a gaggle of photographers for a cup of tea and a photo opportunity in her kitchen.

So what's gone wrong? Sitting in the small end-of-terrace home she has shared with her husband Bill, 66, for over 30 years, just a stone's throw from what is now Manchester City's Etihad stadium, TaylorBarbara, 63, has fond memories of Blair's visit and the improvements that followed. But she never believed the then prime minister's boasts on the subject of the north-south divide. "The north-south divide has always been there and it will always be there," she said.

Labour did lots for the area, Barbara admits. There wasn't a secondary school or a community centre, but then Labour built them. The young unemployed were offered training programmes and the housing stock was improved. But it was, on reflection, a sticking plaster. There has been diversification in Manchester's economy, as there has been elsewhere, into sales, service and finance companies, but the old industries upon which the deprived areas, here and in other northern towns and cities, were built have not really been replaced; many of the financial service companies have cut their regional presences now and retreated back to London, while the advances in education and training have not had time to bed in and bear fruit.

Asda, Barbara says, is the big employer in her area, and now the cuts to the services, the training, apprenticeship programmes and even the graffiti-removing patrols are starting to bite (the damage is worst on derby days, when City play United, she says).

"It feels like we are going backwards again. They have taken away our crutch. I spoke to a young lad, a bit of a tearaway really, who is always on the streets. One day he said to me, 'You won't see me out here any more'. I said, 'What you being locked up for?' I was serious. But he said, 'No, no, I'm going on a bricklaying course. I'm going to be a bricklayer'. Saw him again a few months later back on the streets. I asked what had happened and he said he couldn't get a job. There's nothing for him."

For Ed Cox, director at IPPR North, the tragedy is the waste of potential for growth that the country so desperately needs. "I would argue that there were considerable improvements up until 2008, and when the Tories try to say that it didn't work to improve the imbalance between the north and south there is no counter-factual," Cox said.

"We don't know how things would be if those Labour policies had not been in place. We could probably say that in their own right they were relatively successful in trying to reverse a century of industrial decline. But that takes time. I believe places like Manchester are ripe to make progress and provide the growth the wider country needs, but that requires a focused regional policy. There doesn't appear to be that intensity to deal with the problem or that challenge any more, and now the progress has stalled in its tracks."

Antony Steinberg, the economic development manager at Hartlepool borough council, also fears that the north of England's interests are not being prioritised. He said: "We are very concerned about the government's change to the business rates. Previously the councils collected the rates and passed them on to central government to distribute according to need. Now the councils get to keep the business rates they collect. But we don't have the advantage enjoyed by councils in the south-east of being close to parliament, the financial services and the City [to attract businesses]. And what we do have is a chemical industry on our doorstep that will be put at a serious disadvantage by potential charges over carbon emissions." He added: "We do need a voice."

The growing sense that the needs of the northern regions are being ignored has led to the establishment of the Hannah Mitchell Foundation, a thinktank named after a campaigner for women's suffrage, whose goal it is to develop the case for directly elected regional government. Backed by Labour MPs acting as patrons, including former deputy prime minister Lord Prescott, shadow equalities minister Kate Green and prominent backbencher Jon Cruddas, the thinktank believes now is the time to make the case for the devolution of powers to the north from Westminster.

It has been attempted before, of course. Prescott's hopes of setting up an elected assembly for the north-east came to nothing when 78% voted against it in a referendum in 2004. But, eight years on, the times are very different. Scotland's coming referendum on independence has left many in the north of England asking who is looking out for its interests as effectively as Alex Salmond north of the border.

George Osborne's controversial suggestion in the autumn pre-budget report that public sector pay may be regionalised raised alarm bells on both sides of the Pennines. Upcoming mayoral elections in the northern cities of Bradford, Leeds, Liverpool, Manchester, Newcastle and Sheffield may provide the building blocks from which to construct a future Council of the North which would have the clout to make Westminster sit up and take notice. Paul Salveson, a visiting professor at Huddersfield university, who is acting as the Hannah Mitchell Foundation's general secretary, said: "I think what is happening in Scotland will bring this to the fore. If you look at the rest of Europe – Germany, France – they have strong regional government too, and it has made a big difference to them.

"We have had a credibility problem in the past about regional assemblies, but that was before Wales and Scotland and London, of course, showed how it could be done."

The future of Hartlepool might depend on it. Outside the town's train station there is a long line of yellow taxis. In the past three years, 208 new taxi licences have been granted by the council in comparison to the 48 handed out in 2008.

"There is always a load of them now," said Pete Morgan, 46, who opened up the Rat Race real ale pub attached to the station after losing his job in computing two years ago. "They are cutting each other's throats for passengers, but there aren't any other jobs so they become self-employed and do that. To be honest, anyone who wants a career leaves Hartlepool. What hope have we got here?"

The judiciary seems to have a skewed view of what the public has a right to know

As soon as a British politician imitates a Bible-belt Republican and puts pictures of his adoring wife and chubby-cheeked children on his election literature, you can guess what will dominate the next "news cycle". The press will reveal that while the leaflets were at the printers he took a campaign worker behind the filing cabinet, buried his head in her hair and whispered words to the effect of: "My wife doesn't understand me." If he lacked the smallest trace of imagination, he will actually have said: "My wife does not understand me." Meanwhile, unless the wife possessed a capacity to forgive rarely found in the human species she would not take news of the affair well.

The literature Chris Huhne distributed to the voters in the 2010 general election showed a picture of Huhne and his wife, Vicky Pryce, as newlyweds. "Getting married does not seem like 26 years ago," he wrote underneath. Another faded snap saw the young couple holding a baby. "Families matter so much to me," said Huhne. "Where would we be without them?"

Chris Huhne was not so much tempting fate as lying flat on the floor and inviting it to trample all over him.

Sure enough, the tabloids reported that while he was telling his constituents of his devotion to hearth and home, he was also tending to the needs of one Carina Trimingham, his campaign press officer. Huhne responded to the exposure by dumping his wife of 27 years. "The quality of mercy," did not as Shakespeare had it, "droppeth as the gentle rain from heaven" in this instance. Or if it did, it missed his wife. The rage of Ms Pryce was Vesuvian and the vengeance she wreaked on the energy secretary's career a wonder to behold.

The outcry that followed has shown much that is dismal about British public life and a little that is good. The small comfort is that the police investigated the accusation that Huhne falsely informed the authorities that his wife had been driving a car that had allegedly been speeding so that she could take the penalty points and he could keep his licence.

The real scandal behind the phone-hacking inquiry is that the elite thought that it had to keep Rupert Murdoch sweet and not investigate criminal charges against his employees too vigorously. Although Lord Justice Leveson is yet to investigate the corruption of government, at least police and prosecutors have learned their lesson.

If Huhne had been a private citizen, two forces and the DPP would not have spent eight months on an allegation, denied by Huhne, that caused no death, injury or damage to property. They may have broken a butterfly upon a wheel. They may have been goaded by a rightwing press, which hates Huhne because he has the integrity to say that global warming is a real phenomenon that we must tackle. But most people in the world would love to live in a country where the law treated accusations against the powerful seriously – or indeed at all.

After that, however, the reasons to be cheerful vanish. A small point that may only bother journalists is that the police obtained a court order against the Sunday Times in the autumn demanding that its political editor hand over confidential emails from Vicky Pryce.

The Sunday Times said it would defend its source and appeal. According to the DPP's statement on Friday, the case against Huhne and Pryce moved towards prosecution because the Sunday Times "consented to producing the material in question just before the appeal was due to be heard, on 20 January".

The maxim that journalists must never reveal their sources is about the only moral principle we have. At its noblest, it recognises debts of honour. Informants give you information in the public interest and say that their career, liberty or life depend on keeping their name confidential. You promise to protect them and must keep your word. More prosaically, journalists reason that if we reveal sources, other sources will not take the risk of speaking to us in the future. The Sunday Times said it told its source it would protect the source's identity unless a court ordered it to hand over any material. Perhaps its lawyers said that the struggle was hopeless, but the fact remains that once journalists went to jail rather than make their sources public. Now they won't even go to the Court of Appeal.

Meanwhile, in another court, the bisexual Carina Trimingham began privacy proceedings against the Daily Mail. She claimed that it had published "inherently private" information and described her as a "comedy lesbian from central casting". We await the judge's ruling. But the willingness of the judges to consider her case, even after they provoked the scorn of public and Parliament by allowing Fred Goodwin to claim that the affair he was having at work while he was driving his bank over a cliff was a private matter, shows how little the judiciary understands the needs of a democracy.

Free societies are raucous places. They do not always conduct themselves in the best possible taste. In the US, with its constitutional protections for freedom of speech and the press, Goodwin and Trimingham would have been unable to bring a privacy action. They were public figures involved in public controversies and would have had to argue in free debates without calling on the judges to help them.

Trimingham was Huhne's campaign press officer and mistress when his campaign literature presented him as a wholesome family man. After he moved in with her, she touted for work with lobbying firms, telling them that she could get their clients in front of senior members of the coalition.

In these circumstances, she should have had to defend her reputation before the court of public opinion, not attempt to suppress debate before a court of law.

There is an argument that we do not need American freedom because there is no public interest in sniffing Hugh Grant or Sienna Miller's dirty linen. I would accept it if we had judges who overrode privacy rights and allowed publication when there was a public interest in exposure. Unfortunately, such judges are hard to find in Britain and we have a legal system whose priorities could not be more awry if it was standing on its head.

One branch of the law makes public what should be kept secret. Another keeps secret what should be made public.

Industrial recovery from the tsunami has been remarkable, but the competition from Korea's burgeoning electronics industry is becoming relentless

The circuit board of skyscrapers in Tokyo's tech district glints in the winter sunshine, with the Sony Technology Centre seemingly reaching up to the sky. It stands proudly alongside the other titans of Japan Inc such as Panasonic in the Shinagawa district – but in reality these are crumbling empires, their very foundations chipped away by the aggression of Samsung and the design brilliance of Apple.

Last week, Sony's Welsh-born boss, Sir Howard Stringer, the first foreigner to hold the top job, paid the price for his failure to turn the company around. Company veteran Kazuo Hirai, who has a record as a hard-nosed cost-cutter, will take over from him in April – but with a near £2bn annual loss on the horizon there will be no cheerleading from the new leader: he said he felt "an acute sense of crisis" and identified a need to push through urgent change.

The heavy losses at Sony were mirrored at Panasonic and Sharp, and the bleak scene was completed when Japan itself reported its first annual trade deficit since 1980, blamed on the impact of the tsunami and the strong yen.

Within the business community there are whispers of a sense of paralysis or "hopelessness", and the fear that if decisive action is not taken, some of the companies that were the engine for Japan's postwar growth could fall into irreversible decline.

"Japanese companies cannot keep doing what they have been doing," says Hiroshi Mikitani, the founder of e-commerce giant Rakuten. His company, which is worth more than £7.6bn, is not a household name in the UK yet, although many Britons are now indirect customers of Mikitani's following Rakuten's acquisition of UK e-retailer Play.com for £25m last year and Kobo, the Canadian ebook maker, for £200m.

At home it is best known for Rakuten Ichiba, the country's biggest online marketplace – ahead of Amazon – with more than 37,000 merchants selling almost everything from noodles and sushi to Japanese ceremonial armour. With annual sales of £2.6bn in 2010, its operations also span banking, travel ticketing and even a mediocre professional baseball team – the Tohoku Rakuten Golden Eagles, which finished fifth in a league of six teams last season.

Mikitani is confident Rakuten can take on Amazon around the world. Its Ichiba website has been likened to a "blog with a shopping cart attached": merchants are encouraged to talk to customers and give internet shopping a "human face" – unlike Amazon, which, he says, is just a "gigantic vending machine". Rakuten's strategy is to build alliances and it hopes the Kobo will be a more "open source" option than Amazon's Kindle for retailers and publishers. "There are lots of companies that don't like Amazon because they want to control and dominate everything," says Mikitani. "We are more alliance-oriented … We want to establish relationships with retailers."

The self-made billionaire, whose early career was in banking, claims Japanese executives lack a global perspective – a syndrome that has been called "Galapagos-isation", referring to the tendency among Japanese companies to focus on the tastes and demands of an isolated and shrinking home market rather than take risks abroad.

The country's electronics sector has been hit by the success of South Korea's Samsung and LG, which assemble products in lower-cost countries such as China, Indonesia and Thailand. There have also been spectacular own goals: Japan had web-surfing handsets nearly a decade before the iPhone, yet local producers failed to tap overseas markets.

Management writer Simon Caulkin says there is still much to admire about Japanese manufacturers, not least their "miraculous" recovery after the Fukushima disaster, and the Toyota production system, which is still is one of the "wonders of the industrial world". One criticism, says Caulkin, is that in areas such as consumer electronics and cameras, Japanese companies are so focused on competing with their immediate peers that they miss the big picture.

The classic case is Sony, ironically the most "western-facing" of the big Japanese firms, which had all the ingredients to create an iTunes-style online music store but was completely outflanked by Apple. "Even when Sony knew what Jobs was up to, it couldn't get it together because it was undermined by squabbling divisions, each struggling to protect its empire," explains Caulkin. "Apple, on the other hand, had a completely integrated view. It [was] one company, no divisions, one profit and loss account, under an utterly focused Steve Jobs."

Stringer's turnaround was said to be hampered by a resistance to change, and he recently quipped to one interviewer: "Love affairs with the status quo continue even after the quo has lost its status." One western executive based in Tokyo says that decision-making in a typical Japanese company is by consensus: "It can take six months and nothing will happen. They tried to build a consensus on everything. But once the strategy is decided everybody goes for it – for better or worse."

Last year, in an unusual step even for large Japanese multinationals such as Sony or Toyota, Mikitani switched Rakuten's official language to English. "We need to change the mindset of every single Japanese person," says Mikitani, who is likened to some of the country's other successful entrepreneurs such as Tadashi Yanai, founder of the clothier Uniqlo, and Masayoshi Son, chief executive of mobile phone network Softbank. "We don't push out a Japanese model to our subsidiaries. The lack of global vision is partly coming from the language [barrier]." To highlight Rakuten's swift decision-making process, he adds: "We did the Kobo deal in a week."

Rakuten occupies a former Sony building in Shinagawa: the stunning panorama from the top floor belies a dingy interior, as strict energy controls in the wake of Fukushima see lights dimmed and heating switched off in some areas. With a nod to Wal-Mart, Mikitani preaches the Rakuten shugi or "way", starting the day with the asakai morning meeting in a cavernous auditorium where the latest sales figures are discussed. The Monday meeting has been switched to Tuesday so that managers from other countries can be patched in.

Rakuten's egalitarian code is spelt out in a handbook, telling staff that they must all clean their offices together (including desks, whiteboards and "even chair legs"); that their work ID badge should be pinned with pride on the "left side of your chest"; and that they should "greet each other enthusiastically".

Whether Rakuten's model will be embraced by its peers remains to be seen but Mikitani is undaunted: "We are going to be very aggressive. You need to be agile and have vision." Other Japanese companies are closely watching its progress in the west. "If we succeed," he adds cautiously, "then they will follow us."

And will they succeed? He points to Carlos Ghosn's success in reviving Nissan: "I think the Sony brand can be revived. I think [electronics companies] will come back. They will wake up."

Fears of an internet meltdown during the London Games may lead to web access being rationed for British businesses

British businesses are being warned that they could lose their internet connections during the Olympics due to a surge in the number of people going online at key times. The demand could be such that internet companies might be forced to ration access, according to official advice.

The warning, in the Cabinet Office's official advice, Preparing your Business for the Games, says that the country's telecoms system may be unable to cope with demand to access the internet in certain areas. Businesses are being encouraged to offer staff flexible working arrangements to try to ease the pressure.

The document, shared with government departments, states: "It is possible that internet services may be slower during the Games or, in very severe cases, there may be dropouts due to an increased number of people accessing the internet."

The document says that internet service providers "may introduce data caps during peak times to try to spread the loading and give a more equal service to their entire customer base", leading to concerns that major corporations or those in areas of high usage could experience problems.

Experts said the warning was timely and showed that companies needed to examine whether their IT systems would be capable of allowing staff to work from home.

"A lot of businesses have still not prepared for the enormous risks presented by the London Games," said Kathryn Hurt, head of projects for MWB Business Exchange, which provides office space to businesses. "There's been a lot of discussion about traffic hotspots, but very little about potential internet traffic problems. The risk is that home workers are unable to work effectively due to over-capacity."

The government believes that encouraging businesses to allow staff to work from other offices or home, or at different times, is key to easing congestion in the capital this summer.

The Olympic and Paralympic Games are the largest sporting events in the world, with organisers claiming they are equivalent to holding the FA Cup final, Wimbledon tennis championships and London Marathon on the same day. As many as 800,000 spectators and 55,000 athletes, officials, organisers and press are expected to be travelling to and from Olympic venues every day.

The Games organisers predict that on 3 August 2012, the first day of the track and field events, London's public transport will experience an extra three million trips on top of the 12 million made on an average workday.

The Department for Transport (DfT)will launch Operation StepChange, a week-long pilot across Whitehall departments, in which many staff will work from home. Ministers believe the project could result in a "permanent revolution" in which home-working becomes common practice for civil servants, who are expected to use technology such as video conferencing to communicate with colleagues.

However, the initiative is not without its setbacks. The DfT conducted Operation Footfall, a pilot, last August, that resulted in participating staff experiencing internet connection problems, according to those familiar with the project.

"To make sure our plans are robust, we are running a test week," a DfT spokesman said. "This is about encouraging staff to reduce the impact of their travel by either walking or cycling."

Rewards may be down and sentiment against them, but bankers will still be flaunting the cash

"We still do well in February – it's bonus season," says Holly Midwinter-Porter of Boodles, an upmarket jeweller opposite the Bank of England in the heart of the City of London.

Stephen Hester, chief executive of Royal Bank of Scotland (RBS), won't be collecting his £1m bonus this month, but thousands of other bankers will. Boodles, and other high-end jewellers, including Bulgari and Theo Fennell, in the historic Royal Exchange on Threadneedle Street, are counting on them.

"It's the reason we're here," says Midwinter-Porter. "It's different from four or five years ago [before the credit crunch] but there is still a very noticeable increase [in custom] in February.

"They come in straight after work, and they've come in to spend their bonus," she says. "It's normally for themselves, it will be a Patek Philippe watch or similar. But if it's been a particularly good year they'll buy something for their wives too."

She says the average spend can be well over £50,000, but the notion that bankers run out of the office and buy the first expensive thing they see is unfounded. "They would have been coming in to look all year ... They've had a hard time and it's been miserable for them, they are universally hated."

At the bar in the heart of the grade I-listed Royal Exchange, designed by Sir William Tite as a trading floor for merchants and tradesmen, the talk invariably turns to the forthcoming bonus season and banker-bashing that led to Hester forgoing his bonus and his predecessor Fred Goodwin being stripped of his knighthood.

But across the City very few bankers are prepared to publicly speak out in defence of the £4.2bn in bonuses they are expected to receive this year – the lowest for almost a decade according to the Centre for Economics & Business Research (CEBR).

"We personally make hundreds of millions for our bank, and will get paid a very small fraction of that as a bonus. It's how the industry works. If they stopped paying bonuses here people would move abroad," says one banker who declines to be named.

"Everyone in the City thinks Hester has been treated appallingly," a director of an executive recruitment company specialising in the banking industry says. "He's got the worst job in the world, and he's being paid far below market rate to do it. He must be regretting ever taking that job. Worst of all he can't leave because it will look like he's leaving in a huff over the money."

He says bankers are victims of "political hysteria" that is painting them as villains ripping off the system, when their pay "endorses a structurally flawed" global pay system.

"They are taking advantage of the structure, it's the same as footballers, but no one complains about Wayne Rooney getting £250,000 a week."

It will be at the Royal Exchange's Grand Café, and other champagne bars across the Square Mile, that bankers will meet later this month to celebrate another well-remunerated year.

Despite public opprobrium against excessive pay, many bankers won't be afraid to display their bonuses. A Grand Café cocktail waitress tells the Observer the days of bankers racking up five-digit bar bills are far from over. "£10,000?" she says. "We take far more than that in private rooms."

Outside RBS's headquarters near Liverpool Street, a collector for homeless charity St Mungo's is finding it hard trying to get people to sign up for donations. "The quality of people we get is really good – being next to RBS. But the number of people who stop is much lower than in any other area we work in."

Across the road the Classic Car Club, in which people pay thousands of pounds a year for a timeshare deal that allows them to drive Rolls-Royce Corniches and Jaguar XK 150s, is doing a roaring trade. "This is the best possible pitch," says owner Nigel Case.

Some of this year's payouts will be as startling as ever, but as anger over rewards in the financial sector explodes across front pages, attitudes are shifting even in the City

It's like Christmas all over again – for a lucky handful at least. In the high-class homes of Notting Hill, the mansions of Connecticut and luxury towers of Hong Kong, investment bankers are eagerly waiting for their bonus cheques to land.

The latest round of bumper payouts could not come at a more incendiary time. The credit crisis that began almost five years ago is showing little sign of abating, unemployment is rising and pay for most workers is flatlining. Unsurprisingly, public anger about bonuses is growing.

Politicians have piled into the debate in a week that saw Royal Bank of Scotland chief executive Stephen Hester hand back his bonus and his widely vilified predecessor, Fred Goodwin, stripped of his knighthood.

They were headline-grabbing gestures, but have done little to upset the status quo. Banks say bonus pools have shrunk and payouts are being capped, but outside the glitzy world of investment banking, those used to drawing just an annual salary are increasingly baffled by a system of hefty incentivisation on top of already high pay. To put the disparities into context, the average wage bill for one top banker would pay for almost 70 nurses.

Understandably, questions are growing louder over how the banking system comes to award its staff so much, so often.

For Labour leader Ed Miliband, the bonus culture has been "corrosive" for Britain's economy and its society. He argues the meaning of the term "bonus" has been lost along the years.

"Exceptional rewards for exceptional performance means million-pound bonuses should not be handed out to people for just doing their job," he said in a speech on Friday.

In fact, he concluded, the system had failed. "It has enriched individual bankers, but weakened the banking sector as a whole by encouraging a form of risk which crossed the line into sheer recklessness," said Miliband. "For all the reform of the way bonuses are paid, they remain on a scale beyond the imagination of the vast majority of the population."

The bonus system in banking is a hangover from the days of partnerships, where banks distributed all their gains because there were no shareholders. But that annual disbursement of cash to partners has lived on into the days of shareholder-owned banks and even, now, to state-controlled lenders.

Professor Karel Williams at the Centre for Research on Socio-Cultural Change at the University of Manchester notes, however, that in the days of payouts to partners, those senior employees put up the capital and risked their own livelihoods. Their reward models have left the banking sector with "compensation ratios" – the proportion of revenues paid out to staff – commonly as high as 40%. In other words, unlike almost any other industry, senior employees are able to grab an extraordinarily large slice of the firm's revenues – not its profits, but its turnover. Traders therefore have an incentive to boost the volume of business coming in the door, rather than the long-term strength of their firm.

Williams says banks have only been able to generate such extraordinary rewards by leveraging – making bets with borrowed money. "The banks were living in a world of shareholder value, where they were under pressure to deliver returns on equity of 15 to 20%. What they did was they levered up," he says.

He adds that so-called proprietary (or "prop") trading, where banks use their own money to make risky investment bets, was another way of supercharging returns for investors, and therefore for the traders involved.

"What did they do with all this money? The short answer is, they passed it around within the financial system," he says.

Williams believes these bumper payouts distort the traditional role of the shareholder-owned firm, which is meant to distribute surplus income to investors: "I would describe it as the corruption of a public company."

He says no one complained about these lavish remuneration packages in the good times, because "the first rule of stock markets is: people who succeed are allowed to get away with murder". He believes that the government should legislate to bring compensation ratios down.

Other critics of the bonus system argue it has sucked money away from elsewhere in society. Tapping into anger in the business community over the difficulty of getting bank loans, Miliband argued that if banks were to show greater restraint on pay, there would be more money left over for them to lend.

Tony Greenham of thinktank the New Economics Foundation believes deregulating financial services has boosted their profitability – on the surface at least – but that has come at a cost to others.

"These profits have turned out either to be illusory, or not wealth that's been created, but resources that have been extracted from various parts of the economy," he says. "Finance is not like other sectors. If you deregulate finance then it begins to have monopoly control over the rest of the economy."

What has resulted in the pay stakes is a divergence from the rest of society. "It used to be that as a stockbroker or a merchant banker, if you were on the golf course with a surgeon or a headmaster, you'd be in the same world. You're not in the same world any more," says Greenham.

Bankers' pay is notoriously opaque, so trying to gauge the gap on those golf courses is tricky. Remuneration typically consists of complex packages of base salary, plus bonuses of cash, shares and options that vary from one employee to another, never mind from bank to bank. So it is difficult to come up with a benchmark. But recent data suggests the average remuneration for 1,265 senior bank staff was £1.8m in 2010.

In an analysis of regulatory disclosures by eight leading banks, the Guardian found that the average pay deal was £1m or more for employees regarded as having the most influence over risk-taking activities at their firms.

The highest average was at Goldman Sachs (£4m) and the lowest at HSBC (£1m), during a year when data from the Office for National Statistics showed the average wage in the UK was £25,900. To put it another way, the average £1.8m payout was the equivalent to the salaries for 68 nurses, based on an average income of £26,438. Recent research in the US by Thomas Philipon and Ariell Reshef found a growing divide between financial sector pay and wages in the rest of the economy (see chart).

What makes a banker imagine they are worth so much? Labour market expert John Philpott puts it down to business talk about "talent". "They treat themselves as though they're in the same situation as superstar sportspeople or entertainers," says Philpott, who is economic adviser at the Chartered Institute of Personnel and Development.

Banks, he says, "set people up as particularly special, whereas the degree to which the supply of financial services experts is fixed is highly questionable. There's a lot of evidence to suggest the success of these people is contextual, and if they go to different establishments, they often perform worse."

Philpott cites a further kind of damage to society from the lavish rewards available in finance: a brain drain. "A lot of people who would probably have gone into more productive endeavours – engineering or maths graduates – go into finance instead."

He expects total remuneration packages in banking to come down over the coming years, and there are signs from within the banking world itself that he may be right.

RBS chairman Sir Philip Hampton, who recently turned down a £1.4m bonus, has argued bankers' compensation is excessive. "Pay has been high for too long, particularly in the banks, particularly in the investment banks," he told BBC radio. "Shareholders have done pretty badly and employees have done pretty well over the last 10 years.

"That needs to be corrected. It isn't a society or fairness issue, it is a straightforward business issue. Too much of the money is not going to the right place and the shareholder rewards have not been sufficient."

Before anyone in the finance world starts to whine about the prospects of pay cuts, one of the world's top investment bankers has some harsh words.

Morgan Stanley boss James Gorman says anyone who does not understand falling pay needs a reality check. He offers them a three-point life plan: "You're naive. Read the newspaper, number one," he says. "Number two: if you put your compensation in a one-year context to define your overall level of happiness, you have a problem which is much bigger than the job. And number three: If you're really unhappy, just leave. I mean, life's too short."

Amid plans for a $10bn share offering, the social networking giant has come under fire for its controversial 'Timeline' feature. Two Observer writers discuss the merits of logging off for good

James Silver, writer and journalist I could blame it on the launch of Timeline (Facebook's now mandatory reboot of users' profile pages) or the forthcoming mega-IPO. Or even claim I was taking some high-minded stance (a social suffragette perhaps?) on how social media gnaws away at our privacy/sense of self-worth/ability to enjoy simple pleasures such as reading a book.

But in the end it was the soul-crushing ennui that led me to deactiviate my Facebook account last week. The sheer bloody listlessness logging on to the site produced in me in those final, dreary visits. "Steve listened to 'Death of an Interior Decorator' by Death Cab for Cutie on Spotify for Facebook." "Bob and Sophia commented on Mark's photo album University of Loughborough Reunion 04." Not forgetting that other classic: "Nigel likes Cordelia's post Me and My Cat Archie Eat a Tuna Flan."

It's not that I dislike social media. I know at their best these platforms can help spark the overthrow of despots, raise cash for medical research and share brilliant links. I'm a big fan of Twitter, which has become a primary news source for me. LinkdIn is a bit of an odd duck, but I can see what it's for. But Facebook? It's just white noise. A time sink. If you want to tell your life story, as the Timeline tagline has it, then go and write your autobiography. No one would read it. But that's kind of my point.

Elizabeth Day, Observer writer and author For me, the key to social media is that it's, well, social. What I value most about Facebook is the ability to keep in touch with friends, wherever in the world they find themselves. Although James is bored by the endless videos of cats eating tuna flan, I actively like being able to see the latest photo of my goddaughter in Hong Kong or having an instant messenging chat about the best way to eat panettone with my friend in Milan (thinly sliced, with a cup of tea is his take).

Perhaps it's because I have a strange form of phone-phobia. I hate the faux cheerfulness I have to assume when I call someone; the awkward pauses; the way you can never hang up until you've put the next social rendezvous firmly in the diary; the anxiety that you might be boring them. The thought of Skyping, where you can actually see someone's face, is enough to bring me out in a rash. I prefer communicating through Facebook – I like the jokes, the bonhomie and the sense that you're part of something (especially because, as a writer, I often work from home). And if the whole tuna-flan-feline thing gets too much, the true joy of Facebook is, of course, that you can always log out.

JS Is Facebook really the best platform with which to browse photos of your goddaughter or discuss how to eat Italian fruit bread, Elizabeth? Photo and video messaging on your phone would do just as well for the first (or one of the picture sharing sites) and if you could summon up the nerve to use Skype for video calls, you could even watch each other eat a whole variety of southern European cakes. In real time. Hell, you could even live tweet it.

I take your point that you can always log off, but what about your privacy when you're logged on? Unless you have a PhD in machine learning, you are unlikely to be able to operate Facebook's privacy settings, which means a disgruntled ex is just a couple of clicks away from checking out his former girlfriend's new man, and people who are "friends" – but only in a Facebook sense (ie they met once on holiday in Magaluf in 1997) – have an access-all-areas pass to each other's Facebook back-story.

But my problem with Facebook is not so much utility as ubiquity. From the IPO filed on Wednesday, we know the platform had 845 million monthly users, and 443 million daily, by the end of 2011. The next target is one billion. In fact, from its filing statement we learn that Mark Zuckerberg has plans for global domination: "There are more than two billion global internet users… we aim to connect with them all." (Don't you love that insidious word, "connect"?)

When will they be satisfied? When there are only six people in Africa who haven't connected with Facebook? When they've hardwired the Facebook "like" button into toddlers' teeth?

ED I know it's tempting to view Zuckerberg as an evil genius (especially after he wore pyjamas to a board meeting in The Social Network), but I don't personally feel his goal to "connect" people is all that sinister.

Of course, if you choose to leave your Facebook privacy settings wide open, if you choose to befriend someone you only met once on holiday to Magaluf, and if you then compound the error by posting (or failing to detag) a photograph of yourself in a compromised state with a vodka luge, then there might be certain drawbacks.

But I don't understand why everyone has got in such a tizz about the Timeline. It only organises the data that is already on your profile. If you want something to remain private then – here's a handy little tip – don't put it on the internet. On Facebook – unlike Twitter, which allows anyone to follow you – I am friends only with people I know and like. I have customised my privacy settings (truly not that difficult) so only certain of them can view my posts. Because of this, I find it a brilliant way of sharing photos, keeping in touch with lots of people in a time-effective way and using status updates for shameless self-promotion when I have a book out (Scissors Paper Stone, out now in paperback if you want to buy a copy, James).

JS Actually, I don't buy into the "Zuckerberg equals evil, cat-caressing genius" theory. I'm merely arguing that Facebook's plans smack of hubris. Yes, Google, Microsoft and Apple have flourished, but the evidence suggests that social networks come and go, as fashions change. Between 2005 and 2007, MySpace was the dominant player. Bebo, too, showed early promise. Friends Reunited once had 15 million users.

Facebook faces many bumps in the road, not least competition and regulatory issues, particularly over privacy. To those I would add the likelihood of new rivals appearing, seemingly from nowhere. Just a couple of years ago, few of us had heard of (games developer) Zynga or (deals site) Groupon – both titans now. As everything goes social, we can expect new, niche networking sites to emerge.

Leaving Facebook is a bit like quitting a cult: you can leave, but you're never truly free. Yes, my account is deactivated, but my details, friends, "likes" and even those dreaded status updates are merely mothballed in some underground server farm, waiting for that moment of weakness, where I log on once more… For now my resolve is strong. But you never know when the urge to "like" pictures of household pets eating savoury snacks may strike once again.

ED I'm sure all of this is true (not least the likelihood of James logging back on for those cat videos) but the fact that Facebook might face future challenges doesn't detract from my enjoyment of the site as a user at the moment. I'm on Twitter as well but for different reasons – as you say, it's a great way of getting the latest news developments. But Facebook performs a different role. It is more sociable – there is less pressure for constant 140-character updates and less competition over the number of followers/friends you have. Interestingly, whenever I speak to teenagers, they generally tell me they use Facebook but don't see the point of Twitter, which suggests Zuckerberg and his henchmen will be around for a while yet. So James, if you are ever lured back to the light-blue land of "likes" and Scrabulous, I'll be the first to request a friendship add.

Sly Bailey is under fire for being paid nearly £1.7m while Trinity Mirror languishes. Ashley Highfield thinks he can transform Johnston Press's stock price. In three years' time, who will have done better?

Consider our two biggest UK-owned newspaper chains: Trinity Mirror, with five national and 160 regional titles, and Johnston Press, with 18 regional dailies and 245 other papers. The chief executive at Trinity Mirror, Sly Bailey, was paid nearly £1.7m last year (with more than £600,000 of that as a bonus). This year the analyst and investor hounds are snapping at her heels. Trinity's share price and value have collapsed during her nine years on top – down to a tenth of their former glories.

Isn't any pay packet that comes close to a million a bit of a hoot while the Mirror bangs on about bonuses? Why pay Bailey more than the next BBC director general, or many multiples of the PM? Wouldn't hacking back there save dozens of the 75 editorial jobs that Trinity axed last week? Cue inside jokes such as "Honey, I shrank the group, but not my bonus".

So the arguments for squeezing Sly – and indeed any boss of a news organisation that serves the public in difficult times – are vociferous now. But others, in fairness, say she's done well at managing costs in decline. Headline figures don't tell the whole story, they say. Which is where the new chief of the Johnston Press steps in. Ashley Highfield was head of BBC Online and a digital star from Microsoft. You would expect some giant leaps into the future. But Highfield seems to be looking hard before he leaps – and prudently tells the new issue of InPublishing magazine only two things worth remembering.

One is that "every newspaper in our group has a healthy margin over 20% and all up the business is very profitable". (It had nearly £400m in revenue and underlying profits of more than £70m last year: if only there weren't £357m of debt.) The second thing is that, in just three years, "I would expect to have confounded those who said this was a sunset industry – transforming our share price along the way."

Johnston shares are 6p a time as I write. Trinity stands at 47p. Bailey wants to keep her millions. Highfield's predecessor took home more than a million last year, and Highfield will surely aspire to do better. It sounds (as Harry Hill might say) like a fight. Give them both 36 months to turn things around. The winner gets six figures. The loser goes off into the sunset.

Also used to treat medical conditions, Allergan's anti-ageing product has made Westport in Co Mayo a success story

Under the shadow of Ireland's holiest mountain, Croagh Patrick, in one of the most bucolic parts of the country's Atlantic seaboard, the global production hub of Botox is preparing for a major gear change.

Allergan, which manufactures the wrinkle-busting cosmetic on the outskirts of Westport in Co Mayo, estimates that within five years 60% of Botox sales will be for illnesses ranging from cerebral palsy to chronic migraines as well as for anti-ageing treatments.

Despite the recession and a banking crisis that has almost bankrupted the Irish state, the pharmaceutical industry has kept faith with the republic, where nine of the top 10 global pharma companies still have a presence. This month Allergan announced it is expanding its workforce in the west of Ireland tourist trap to more than 1,000 as well as building a new research and development centre in the coastal town.

Allergan's quarterly profit figures were revealed last Thursday in the US at $279.8m (£176m), up 6% from last year's fourth quarter. Global sales of Botox, which remains its key product, grew 8% in the fourth quarter to $415.3m. Regardless of the eurozone turmoil and global recession, consumers and health bodies are still clamouring for Botox.

As Ireland seeks to trade its way out of the doldrums, Allergan's decision marks a vote of confidence among the multinational business community that helped fuel the country's economic revolution during the 1990s. The company has a long history of involvement in the republic and its presence is estimated to inject an average $25m of capital expenditure in the republic per annum.

Allergan's managing director in Ireland, Pat O'Donnell, grew up on a 26-acre farm just five miles from the Westport plant. Straight from college, the genial O'Donnell worked his way up from lab technician in the 1980s to lead the entire Irish operation. He is keen to emphasise that Botox is much more than an intravenous means of rolling back ageing.

"What a lot of people don't realise is that at present about 50% of the revenue we get from Botox is cosmetic, but the rest comes from therapeutic treatments such as juvenile cerebral palsy, adult spasticity and, just recently, we got approval for chronic migraine and overactive bladder in people with spinal cord injuries or patients suffering from MS.

"We expect that in the next four to five years it will probably switch to 60% of the revenue coming from therapeutic treatments rather than cosmetic," says O'Donnell, who explains that the use of Botox to counter chronic migraine evolved out of its use as a beauty treatment. "Botox was being used to treat wrinkles and lines in the forehead, and some people doing that reported a reduction in migraine pain. I met a woman at a medical conference who told me she went from suffering around 28 days a month with severe migraine to just a few once she started using Botox."

He stresses that Botox is not the only product made in the Westport plant. Other therapies include Ozurdex, a steroid implant that counteracts the onset of blindness by reducing inflammation of the retina.

Barry O'Leary, chief executive of Ireland's Industrial Development Authority, whose inducements helped entice Allergan to Ireland, says its investment proves that the republic is still an attractive location for multinational industries, adding that its expansion at a time of recession is "a welcome endorsement of Ireland's record with the development and manufacturing model.

"Nine of the top 10 global pharma and biopharma companies have a significant presence in Ireland. The sector benefits from a highly skilled workforce, an exceptionally strong track record in development, manufacturing and compliance, a competitive tax rate and easy access to global markets."

O'Leary's optimism about the country's ability to keep the multinationals, particularly US corporations, is tempered this month by the ongoing fiscal crisis both in Ireland and the eurozone. In general, the economic news continues to cast a pall of gloom over the entire country. Last week, the Irish Central Bank downgraded the estimates for growth. It said Ireland would grow by 0.5% in 2012 and not 1.8% as the Fine Gael-Labour government had predicted. Unemployment remains one of the highest in the EU, with more than 14% of the labour force out of work, while emigration continues apace.

Yet, unlike so many places in Ireland, the "To Let" and "Closing Down Sale" signs that proliferate all over main streets from the capital to the smallest village are more or less absent in the centre of Westport. Allergan's presence and continued demand for Botox appears to have saved it from the worst ravages of the economic downturn.

The town, which Beirut hostage Brian Keenan chose as a haven to settle in after his release years of captivity during the 1980s, also has a multinational feel. Twelve languages are spoken at the Allergan plant and, as O'Donnell notes, the workforce has stayed loyal to the town and the company, with the average worker spending 11 years at the factory.

"That demonstrates serious loyalty and a lot of what we do is commercially sensitive with very specialised, technical knowledge. So because we can keep that within the organisation by virtue of the fact that we have a low employee turnover, it makes Westport even more attractive," O'Donnell says.

Although he underlines the importance of having a highly educated, skilled workforce that has access to a European market of 500 million consumers, O'Donnell concedes that the republic's low 12.5% corporation tax rate is still a major factor in convincing hard-nosed US executives that Ireland should be their foreign manufacturing base.

Such is the success of the corporate tax rate in attracting hi-tech export-driven foreign direct investment that the devolved government north of the border in Belfast has been petitioning the UK Treasury, thus far unsuccessfully, to grant Northern Ireland special status and lower its rate to the same level as the south.

"It's hugely important for a couple of reasons," says O'Donnell. "One, of course, is the low rate – and the message that it is staying low is vital. It should not even move, because once it starts to move that would send a negative psychological signal to corporations. The corporation tax is the bedrock, but it is also important that Ireland has a very transparent tax system, which works to our advantage. As well as manufacturing, Allergan runs a lot of its financial services in Ireland because of our tax system."

Allergan is based in the home constituency of Ireland's prime minister, Enda Kenny. When it comes to corporation tax and attempts by the republic's European partners, particularly the French, to try to tie Ireland's EU bailout to changes in the capital taxation regime, O'Donnell's message to the taoiseach is simple: "Fight, fight and fight again to keep our corporation tax rate. We must always, always leave that 12.5% rate alone and don't mess with it."

The lesson of the Great Crash was that unequal enrichment provokes asset bubbles, excessive demand for debt and, finally, economic failure. Now we are painfully learning that again

During the past 30 years, a growing share of the global economic pie has been taken by the world's wealthiest people. In the UK and the US, the share of national income going to the top 1% has doubled, setting workforces adrift from economic progress. Today, the world's 1,200 billionaires hold economic firepower that is equivalent to a third of the size of the American economy.

It is this concentration of income – at levels not seen since the 1920s – that is the real cause of the present crisis.

In the UK, the upward transfer of income from wage earners to business and the mega-wealthy amounts to the equivalent of 7% of the economy. UK wage-earners have around £100bn – roughly equivalent to the size of the nation's health budget – less in their pockets today than if the cake were shared as it was in the late 1970s.

In the US, the sum stands at £500bn. There a typical worker would be more than £3,000 better off if the distribution of output between wages and profits had been held at its 1979 level. In the UK, they would earn almost £2,000 more.

The effect of this consolidation of economic power is that the two most effective routes out of the crisis have been closed. First, consumer demand – the oxygen that makes economies work – has been choked off. Rich economies have lost billions of pounds of spending power. Secondly, the slump in demand might be less damaging if the winners from the process of upward redistribution – big business and the top 1% – were playing a more productive role in helping recovery. They are not.

Britain's richest 1,000 have accumulated fortunes that are collectively worth £250bn more than a decade ago. The biggest global corporations are also sitting on near-record levels of cash. In the UK, such corporate surpluses stand at over £60bn, around 5% of the size of the economy. This money could be used to kickstart growth. Yet it is mostly standing idle. The result is paralysis.

The economic orthodoxy of the past 30 years holds that a stiff dose of inequality brings more efficient and faster-growing economies. It was a theory that captured the New Labour leadership – as long as tackling poverty was made a priority, then the rich should be allowed to flourish.

So have the architects of market capitalism been proved right? The evidence says no. The wealth gap has soared, but without wider economic progress. Since 1980, UK growth and productivity rates have been a third lower and unemployment five times higher than in the postwar era of "regulated capitalism". The three post-1980 recessions have been deeper and longer than those of the 1950s and 1960s, culminating in the crisis of the last four years.

The main outcome of the post-1980 experiment has been an economy that is much more polarised and much more prone to crisis. History shows a clear link between inequality and instability. The two most damaging crises of the last century – the Great Depression of the 1930s and the Great Crash of 2008 – were both preceded by sharp rises in inequality.

The factor linking excessive levels of inequality and economic crisis is to be found in the relationship between wages and productivity. For the two-and-a-half decades from 1945, wages and productivity moved broadly in line across richer nations, with the proceeds of rising prosperity evenly shared. This was also a period of sustained economic stability.

Then there have been two periods when wages have seriously lagged behind productivity – in the 1920s and the post-1980s. Both of them culminating in prolonged slumps. Between 1990 and 2007, real wages in the UK rose more slowly than productivity, and at a worsening rate. In the US, the decoupling started earlier and has led to an even larger gap.

The significance of a growing "wage-productivity gap" is that it upsets the natural mechanisms necessary to achieve economic balance. Purchasing power shrinks and consumer societies suddenly lack the capacity to consume.

In both the 1920s and the post-1980s, to prevent economies seizing up, the demand gap was filled by an explosion of private debt. But pumping in debt didn't prevent recession: it merely delayed it.

Concentrating the proceeds of growth in the hands of a small global financial elite not only brings mass deflation – it also leads to asset bubbles. In 1920s America, a rapid process of enrichment at the top merely fed years of speculative activity in property and the stock market. In the build-up to 2008, rising corporate surpluses and burgeoning personal wealth led to a giant mountain of footloose global capital. The cash sums held by the world's rich (those with cash of more than $1m) doubled in the decade to 2008 to a massive $39 trillion.

Only a tiny proportion of this sum ended up in productive investment. In the decade to 2007, bank lending for property development and takeover activity surged while the share going to UK manufacturing shrank. While the contribution to the economy made by financial services more than doubled over this period, manufacturing fell by a quarter.

Far from creating new wealth, a tsunami of "hot money" raced around the world in search of faster and faster returns, creating bubbles – in property, commodities and business – lowering economic resilience and amplifying the risk of financial breakdown.

New Labour's leaders were right in arguing that the left needed to have a more coherent policy for wealth creation. That is the route to wider prosperity for all. But the central lesson of the last 30 years is that a widening income gap and a more productive economy do not go hand in hand.

An economic model that allows the richest members of society to accumulate a larger and larger share of the cake will eventually self-destruct. It is a lesson that is yet to be learned.

Stewart Lansley is the author of The Cost of Inequality: Three Decades of the Super-Rich and the Economy, published by Gibson Square

For technology entrepreneurs, Seedcamp is an opportunity to acquire investment for their fledgling companies. But what makes the money men want to sponsor startups?

In a former retail space, just yards from Soho's sex shops and market stalls, Britain's next wave of technology entrepreneurs are checking in for one of the biggest days of their lives. Clutching coffees and smartphones or iPads, the mostly young men in shirts, sweaters and jeans mingle awkwardly with the 120 investors and industry experts, who have come to hear them pitch their business ideas, offering advice in intensive mentoring sessions afterwards. A lucky few might also walk away with the prospect of financial backing.

Seedcamp London – to give this nerve-jangling day its formal title – has become a landmark occasion in the tech scene's calendar. At least 250 hopeful startups, from as far afield as Portugal and Finland, applied to this year's event, with just 22 (albeit a record number) invited to take part. Launched in 2007, Seedcamp is arguably Europe's leading early-stage mentoring and investment programme for tech startups and has backed a total of 60 companies.

While that number is modest (compared with its Silicon Valley equivalent Y Combinator, which invests in around 60 every year), the fund's investment is viewed as a golden ticket. Not only do "Seedcamp companies" receive an investment of €50,000 but, more importantly, they gain access to a network of more than 1,200 mentors, including many of the industry's leading players, and are taken on a meet-and-greet tour of investors and founders in every US tech hub from Boston to San Diego.

No wonder, then, that the smiles and hushed small talk at the event mask an atmosphere that at times resembles a shark pool. "The competition really is tough," says Seedcamp partner Reshma Sohoni. "Not only is it really hard to get in, but of the 22 teams here today, Seedcamp may potentially invest in two or three – or none of them."

By the time the pitches (a strict three minutes) are under way, the space is packed with startup teams and mentors. Some are tapping notes into keyboards, some are filming the proceedings, more are live tweeting. It's hard to miss the glaring lack of women both in the audience and among those addressing it. Only three pitches are led by women and just one (out of 22) is delivered by someone over the age of 50. What's more, there are just two black men in the room; one of them is a security guard.

Although it's changing slowly, the event is a reminder that the tech world is predominantly peopled by young, white, male geeks. "That's because a lot of the guys starting out in the business are coders; they come from a technology background," explains Sohoni.

While it's easy to see why the entrepreneurs apply to Seedcamp in their droves, the reason that investors prowl the room, scouting for talent and dispensing advice in huddled, urgent mentoring sessions, is harder to explain. Most of these businesses are not so much young, or even pre-pre-revenue, as nonexistent. Some are little more than a bright idea, a fast-talking founder and a holding homepage. But that doesn't put off venture-capital fund Eden Ventures, which now has investments in six Seedcamp-backed startups. Partner Ben Tompkins says he met three more teams at Seedcamp London 2012, which he is "taking seriously and following up on".

Eden makes very early stage investments of between £200,000 and £1m, with further stakes to follow as and when the business grows. "The key thing we're looking for is a really good group of people behind the business," says Tompkins. "Not just one individual, but a team who have come together to work on an idea. Second, have they got a good understanding of the market opportunities? Do they understand who's going to use their product or service? Third, do you think there's something they can create that's intrinsically valuable?"

Revealingly, Tompkins says that venture-capital funds have to develop diverse portfolios of companies to spread their risks. "The industry numbers for VCs in the US and Europe are that in 60% of companies in which you invest, you will lose money," he says. "In 30%, you will either break even or return some money to the fund. So you're down to 10% that's going to make a difference and effectively put the fund into a profit-making position." Which makes for grim odds for the startups. Fewer than 10% of applicants to Seedcamp London were selected to take part in the day. Of those, on average, around 10% will receive funding. And just 10% of that 10% will be a breakout hit. But funding – which is available in other accelerator programmes, from "angel" investors, seed funds and other sources such as friends and family (or "fools and family", as one investor quipped) – is not the primary reason that many startups apply.

The true value of being backed by a fund such as Seedcamp is the stamp of approval it confers. "When you come out the other end and say I was a Seedcamp 2011 company, that says something," says Tine Thygesen, CEO of digital travel site Everplaces, co-founder of start-up hotbed Founders House in Copenhagen and a mentor at Seedcamp. "If you're a good entrepreneur, you'll be able to figure out the business stuff yourself. What you can't do yourself is that borrowed credibility, which means that when you're calling up an investor, he'll probably call you back."

Seedcamp's credibility has been hard-earned. Of the first 22 companies they've had meaningful data from, just three have failed. Three more have been acquired, including Mobclix, which was bought by mobile marketing company Velti for around $50m. By 2012, the programme predicts that 11 out of the first 16 Seedcamp-backed companies still trading will generate at least $1m in revenue, creating hundreds of jobs in the process. "

"Some of our companies have 50 plus people working for them just three or four years after starting up," says Sohoni. "If we didn't exist, all that would either not have happened or taken these companies a heck of a lot longer. That's where we can really measure our impact."

Bertie & Bean

Who? James Tabor, 29, a former media salesman, and Stephen Trott, 29, a graphic designer from Birmingham. Pitch? "We're a website that helps parents save money, space and time, clothing their children by connecting families whose clothes their children have grown out of with families whose children the clothes will fit," says Tabor.

Come again? It's a service that allows families to send kids' clothes to each other.  It costs £15 to accept a bag and nothing to send one on.

Finances? Held an (early stage) seed funding investment round last December. With "cheques in the bank", a UK launch is planned for March.

Why Seedcamp London? "For the roomful of experienced, successful people," says Trott. "You can never have enough advice as a startup." The Observer's verdict: Snappy pitch, workable idea, so no surprise it's attracting investment. www.bertieandbean.com

Sendsy

Who? CEO Julie Allen, 30, and COO Jess Hitchman, 33, from London. Pitch? "Sendsy is a network of international personal shoppers enabling you to get anything from anywhere," says Allen. "People have had this problem of not being able to get items they really want – maybe some limited-edition Nikes from Tokyo or a backpack that's only available in Berlin – in their own country. So we want to hook people up with shoppers in other countries, who can find those items."

This is all about the trust economy. Users will rely on the trustworthiness of strangers? "We are vetting shoppers scrupulously because we want to make sure the trust levels are high," Allen says. Finances? Self-funding and both founders are still in their full-time jobs.

Not many women here today? "By calling it the 'tech scene' it can sometimes put women off," says Hitchman. The Observer's verdict: Great premise, but needs road-testing. sendsy.com

Playbank

Who? American-born Nancy Vega, who's 38 and "a passionate gamer". Pitch? "Playbank is a virtual universe for kids aged six-12, where they can chat with their friends, play games and buy merchandise from the catalogue," says Vega. Part of her goal is to build a competitor to Club Penguin that allows kids whose parents cannot afford a membership to earn membership to Playbank by taking "fun, educational quizzes".

Can a startup take on Club Penguin? "The gaming market is not winner takes all," she insists.

Where are you with the business? "We haven't looked for investment yet. But now that we've found our sweet spot we will be looking for funding."

The Observer's verdict: Moshi Monsters has grown into a $200million business with 50 million users. But the content had better be good, as kids are hard to please. www.playbank.com

Yossarian Lives!

Who? Co-founders J Paul Neeley, 33, and Dan Foster-Smith, 26.

Pitch? "We're creating a search engine that can generate metaphors," says Neeley. "Current search optimisation returns results that are closely related to your query, which is useful if you're looking for what the world already knows. But if you're on the edge of your knowledge field, it's not actually helpful. In those cases, metaphors become really valuable."

Finances? "We won a Deutsche Bank award in 2011. We've been kind of bootstrapping since then."

But what's the business model? "We want the product to be available to the public for free, but we've also had a lot of interest from people about applying the algorithms to corporate data sets."

The Observer's verdict: The most "out there" idea at Seedcamp London. A one-off and, if it works, potentially disruptive. www.yossarianlives.com

Stylechi

Who? London-based Emmanuel Eribo and Zanda Donaldson, who are both 29. Elevator pitch? "StyleChi is a loyalty-based fashion retailer," explains Donaldson. "We're trying to stimulate repeat purchases and to give people an incentive to keep coming back to our site with real time, immediate rewards."

Eh? Think Nectar points for people in the habit of purchasing D&G jeans online. The more you spend, the less you pay. Target customers? The modern shopper – people who shop online and are avid social network users, claim the duo.

Finances? "It's all been self-funded so far," says Donaldson. "We're at an early stage. We've had investment meetings and we've now got a Beta website to show investors."

Any investment in the pipeline? "Nothing concrete at the moment." The Observer's verdict: Neat idea, but an untested model in a very crowded marketplace. www.stylechi.com

Chris Riddell on the shaming of Stephen Hester and Fred Goodwin

During Bart Becht's tenure at Reckitt Benckiser its shares rose to £36, but can Rakesh Kapoor keep going for growth?

A big day looms on Wednesday for Reckitt Benckiser when it reveals its full-year numbers. The rather anonymous business behind under-the-sink brand names like Cillit Bang, Finish, Dettol and Vanish may not be the most glamorous enterprise, but the company, led by chief executive Bart Becht, was one of the best performing FTSE 100 companies of the noughties.

Becht was the mastermind behind the good times, and on his watch, from 1999 to 2011, the shares rose from about £8 apiece to north of £36. He was obscenely well paid for his efforts – trousering £92m from salary and long-term incentives in 2009, and another £18m last year – but, in the eyes of shareholders, the boy Becht done good and there was never much fuss about his eye-watering rewards.

Then, last year, Becht announced his surprise departure and handed the baton to Reckitt's marketing supremo Rakesh Kapoor.

Except that just as Becht was heading for the hills, the first signs emerged that Reckitt's go-go years might be coming to a close. Cash-strapped European shoppers were cutting back and Suboxone – a hugely profitable heroin substitute that Reckitt has never shouted about – went out of patent in the US and was facing generic competition. At the same time, Medicaid reforms in the US hit sales while promotional costs and the cost of raw materials such as oil, palm oil and rubber, were rising fast.

This week Kapoor will unveil the outcome of a strategy review and full-year financial results. Profits are expected to hit the guidance figure of £2.4bn, not least because the company was ahead of the curve three months ago. But the City will be looking hard at the final quarter for further signs of slowdown – and at Kapoor's big plan to reignite growth and a share price which has now been drifting for two years.

It's a big ask. As Cillit Bang's cheesy TV adman, Barry Scott, might say: "Bang! And the growth was gone!"

Whether or not the social network achieves a $100bn valuation, a glance at the flotation prospectus should convince right-thinking investors to steer clear

Can Facebook really be worth $100bn? Mark Zuckerberg hasn't yet put a price tag on his creation, so it's still premature to say he'll attempt to achieve that big fat round number when the flotation happens. But read last week's prospectus and put yourself in the position of a long-term investor. Would you really pay 100 times profits of $1bn, and 27 times last year's revenues of $3.7bn, for a seven-year-old business – even one with 845 million users?

If you are tempted to do so, there are probably three reasons why you should lie down until the feeling goes away.

1. Zuckerberg's first-person letter to potential investors – a now-obligatory inclusion in a prospectus out of Silicon Valley – was a strange dispatch. Here's the ambition: "Facebook aspires to build the services that give people the power to share and help them once again transform many of our core institutions and industries."

OK, but the reason advertisers might use Facebook is to flog stuff. What if Zuckerberg's "social mission" collides with the commercial mission being pursued by the advertisers, who provide the revenues? Nobody really knows. But WPP boss Sir Martin Sorrell's analysis that "you interrupt social conversations with commercial messages at your peril" sounds correct. Looking at your mate's photos on Facebook will be less fun if the system is badgering you to give a thumbs-up for a new washing powder.

"As people share more, they have access to more opinions from the people they trust about the products and services they use," continues Zuckerberg. "This makes it easier to discover the best products and improve the quality and efficiency of their lives." What he is describing there is word-of-mouth endorsement, which is indeed a highly prized form of advertising. But word-of-mouth recommendations are valued because money doesn't change hands – surely a problem for a profit-seeking business.

2. Facebook has no need to float. It doesn't require money to invest. It is profitable and generates enough cash to pursue its current ambitions. In a 200-page document, the section titled "Use of proceeds" runs to four paragraphs. That's because there's little to say. A portion of new capital (expected to be $5bn) will go on paying taxes that arise from the flotation itself; the rest will go on deposit.

The main reason for floating is to allow longstanding investors to cash in a portion of their winnings. Fair enough, but, in a rational world, those investors would have to accept a hefty discount to reflect the fact that Facebook is an immature business whose earnings potential can only be guessed at. For example: Facebook hasn't yet cracked how to present adverts on mobile devices, and saturation point may be approaching in countries such as the US, where the growth in monthly active users slowed to 16% last year.

The float's promoters will seek to emphasise the potential for profitable growth and play down the risks – that's their job. But, come on: valuing a company at 100 times earnings assumes years of 50%-plus profits growth. Very few companies in history have achieved that. Uncertainty ought to imply caution in pricing a business; at $100bn, there would only be optimism.

3. Zuckerberg is keeping control of Facebook by adopting a dual voting structure that, to British eyes at least, belongs to an era that has thankfully gone. Facebook's arrangement is deemed excusable because the company must avoid becoming bogged down by bureaucracy. But will investing absolute trust in Zuckerberg always be seen as sensible? Is he more interested in changing the world or in making money for his investors?

The twin goals may currently be aligned – as Zuckerberg puts it, "the best way to achieve our mission is to build a strong and valuable company" – but what happens if the circle becomes less easy to make square? Do outsiders get a real voice in how the company is managed?

Surely that's what you'd expect from a company that says it champions "direct empowerment" and "more accountability". What happened to empowerment of the owners of Facebook shares?

The SNP leader may find that severing financial ties with England leaves markets wondering if Scotland can pay its way

Alex Salmond, the SNP leader, used to claim that an independent Scotland would join fellow small, independent nations Iceland and Ireland in an "arc of prosperity".

Since these putative bedfellows went bust, the SNP tends instead to cite Sweden, Denmark and Norway to support its argument that an economic separation from the old enemy would be to Scotland's benefit.

But whether or not the timing of the proposed referendum in 2014 was chosen to coincide with 700th anniversary of the battle of Bannockburn, which many Scots argue is just a rumour put about by the Tories to make Salmond look as though he's more interested in claymore-wielding nostalgia than building a 21st-century state, the old contrarian has certainly picked a strange moment to advocate economic fragmentation.

It's instructive that the SNP is no longer advocating joining the European single currency. After the extraordinary boom-bust cycle in Ireland, which was stuck with interest rates set in Frankfurt even when house prices were rocketing by more than 20% a year, freedom from the sterling area no longer seems such a prize.

And the ideal that the inception of the euro would create a union of small, independent states that could each plough their own individualistic furrow has been swept away by events in Greece, Italy and Portugal, which are now effectively losing sovereignty over their own tax and spending policies as Brussels intervenes.

Moreover, the "fiscal compact" – the strict set of rules on spending policy and government deficits that Germany has pushed as the solution to the debt crisis – would preclude Salmond from exactly the kind of Keynesian fiscal boost he would like to be allowed to administer when times are tough.

Ireland is hanging on to its rock-bottom corporation tax rate for now, but the scope for fiscal independence will be drastically reduced in the new post-crisis world in which investors will no longer accept euro membership as a permanent pledge of solvency, come what may.

Of course, even if a separate Scotland stuck with the pound, there would still have to be a divvying up of the national debt, and of revenues, and Edinburgh would have to turn to the bond markets on its own account to fill the gap.

Research by Angus Armstrong, in the National Institute of Economic and Social Research's quarterly bulletin, tries to measure how large that gap is likely to be. Much would turn on how the revenues from the oil and gas fields off Scotland's coast were distributed. Armstrong calculates that if the spoils were divided geographically, as the Geneva conventions would suggest, the Scots would pocket 90% of revenues; if they were attributed by population, it would be just 9%.

At first glance, Armstrong's arithmetic looks quite favourable to the Scots: if the Geneva conventions are applied, its current budget deficit would have been a reasonably healthy 4% of GDP for the past five years.

But he also points out that this is likely to be a tough moment for a fledgling country to be venturing out into the world's bond markets. In other words, Scotland would almost certainly have to pay a considerably higher interest rate than the historic lows currently enjoyed by London.

Armstrong also argues that this need to borrow would place tight limits on Salmond's freedom: "In an era where solvency constraints imposed by international markets are increasingly stringent, particularly on countries without their own central bank, we expect there will be little latitude for tax competition."

Investors know that, in extremis, the Bank of England could print money to bail out the government in Westminster; but it's no more clear that it would do so to rescue an independent Scotland than that the European Central Bank would stand behind Portugal or Spain.

The over-riding logic of the euro-crisis – and arguably the development of the single currency over the past decade or so – has been to push countries towards ever-deeper fiscal co-ordination, with transfers of resources between one part of the euro area and another. That's exactly the model Scotland and the rest of the sterling area have developed over their 400-plus years of currency union, which the SNP wants to abandon.

Even if, as seems unlikely, London takes the most generous interpretation of Scotland's rights to revenue and the burden of public debt that should fall on its shoulders, Salmond may find that precisely the freedoms he wants to win – over tax and spending – could be undercut by the need to convince sceptical investors that Scotland can pay its own way in the world.

Sir Mervyn King argued in a recent speech that the world economy faces a tough adjustment to an era where less borrowing is tolerated. "After many years in which the stock of debt built up rapidly, there has been a reappraisal," he said. "A reappraisal by markets of the strength of banks, by consumers of their income prospects, by lenders of the likelihood that debts will be repaid, by investors of the value of assets, and by markets of the value of currencies. The world economy is moving to a new equilibrium."

Whatever the significance of 2014, Salmond may find it an inauspicious moment to launch a new nation out into the world.