THE markets don’t seem to know what to make of the European Central Bank’s package of measures to support Greece and other eurozone countries.

On Monday, the FTSE- 100 leaped 250 points on news that a huge bond purchase programme would be undertaken by the ECB. Then, yesterday, the FTSE was back down again as investors revised their opinions.

On its own, a defaulting Greece probably wouldn’t matter too much. Yes, some banks would have to take a share of a multi-billion dollar write-off, but they would survive and the rest of us would hardly notice. Should Spain or Italy default, that would be a wholly different matter. Governments around the world would struggle to raise cash and the world’s banking system would revert to the bunker mentality seen last year and stop lending to each other. That, in turn, would damage the global economic recovery that’s under way.

Alistair Darling told Europe’s finance ministers that Britain won’t be using its reserves to support the euro. It was quite an assertive attitude, which runs the risk that, should the pound ever need international support, eurozone countries may remind us of our lack of support now.

What the Greek episode demonstrates is the way some smaller EU countries took the perceived opportunity afforded by membership of the euro to run up huge government deficits that could never really be afforded. These spend-free governments have been every bit as reckless in the management of their affairs as the dreadful bankers. It wasn’t done out of personal greed, but to improve public services, yet that doesn’t get them off the hook.

OFFICIAL figures for manufacturing output yesterday showed a 2.3% rise. It was the biggest rise in factory output for eight years.

The figures from the Office for National Statistics suggest that the economic recovery is gathering momentum. Hopefully when the revised first-quarter GDP figures are published shortly, they will show that the first quarter of 2010 was stronger than the 0.2% growth originally estimated.

The manufacturing figures, however, directly contrast with data published the previous day by the British Retail Consortium, which estimated that shop sales in March were 2.3% lower than March last year.

It goes to show what is at stake with all the political shenanigans at the moment, and how important it is that Britain is given stable leadership sooner rather than later.

The fact is the General Election was a draw, with no clear winner. As a result, we are in for a period of weak government.

Its hard to say whether in switching between the Conservatives and Labour, Liberal Democrat leader Nick Clegg is cleverly playing one side off against the other or whether he is dithering. I suspect the former.

Mr Clegg appears to have made the issue of electoral reform central to his negotiating position. But does he not realise that, should first past the post be abandoned, the Liberal Democrats’ share of the vote would fall because there would be no need for anybody to vote tactically.

Things are so tight in Parliament that a few by- elections could change the balance of power. Since most by elections are caused by the in-service death of an MP, it would be worth Mr Clegg checking the age profiles of both parties before deciding which way to go.

But let’s dispel the idea that a centre left coalition would send the markets into a spin. Investors have lived with it for 13 years now.