The Foreign Office finances are dire. Its small budget has been hit hard by the collapse in sterling. The consequences are slowly beginning to emerge. As we reported today, Britain is set to withdraw the vast majority of the police seconded to EU reconstruction missions around the world. That will put the UK’s contribution to civilian operations in hotspots like Afghanistan, Georgia, Palestine on a par with Slovakia’s. So much for being a big player in Europe.

These kind of reconstruction and conflict prevention missions were a top UK priority. Gordon Brown even pledged last year to muster a 1,000 strong standing force of civilian volunteers. That now seems like a pipedream: the UK can no longer even afford its existing deployment of 100 police.

How did it come to this? One problem is how the FCO has managed its currency exposure.

Last year the Treasury removed the protection it gave the department against falls in the pound. (Very generous.) As a result, the FCO mandarins decided to hedge, telling MPs that “the ‘do nothing’ option is itself speculative and potentially high risk”.

But, for whatever reason, the FCO failed to cover itself beyond October 2009. So by the autumn, if the pound is still in the doldrums, the department will see its purchasing power slashed. You have to ask why it did not protect itself for longer — its budget, after all, is settled over a three year period. Other departments are facing pressure from the Treasury to cut costs and make savings. The FCO, somehow, seems to have put a squeeze on itself.

Was this a self-inflicted blow? I’m not sure. The Treasury may have stopped the FCO from hedging for more than a year. If this is true, the Treasury should cover the costs. But if this is a matter of the FCO being too timid, the mandarins will have some explaining to do. If the pound fails to recover by October, embassies around the world will see their expected budgets cut by up to a quarter.

The FCO board is now in a real pickle. Does it hedge to protect against the pound falling further in 2009/10? Or does it bet against the Euro and the Dollar by going into next year unprotected?

Gordon Brown used to boast that Britain was “better prepared” than other countries to ride out the economic storm. Britain’s diplomats now have to decide whether to bet their budget on whether the prime minister was right.

It lacks the punch of Sarko. But the French finance minister has clearly made her own bid for a Brit-bashing award. Christine Lagarde’s target for reproach is Alistair Darling, who apparently failed to warn her about Britain’s last rescue package, in spite of all his rhetoric about global co-ordination.

Unlike Darling, Tim Geithner had the manners to consult her before unvieling the US bailout, Lagarde says in an FT interview. She sounds exasperated at Darling’s failure to act on his own pleas for collaboration.

“Alistair says it himself. I say, ‘Yes, Alistair, get on with it. Just do it.’ ”

Has the rest of the world had enough of being led by Gordon and Alistair?

The UK was supposed to generate 15 per cent of its energy from renewables by 2020. That was the received wisdom. The prime minister himself has referred to it on several occasions*.

In fact British officials in Brussels have negotiated a slightly lower figure which equates to about 14.5 per cent.

This is because the EU-wide target - a more ambitious 20 per cent - will now include an element of aviation despite lobbying against this.

(Curiously, the UK sought to exclude planes with the argument that this would be un-environmental, ie “green” air fuel would come from biofuels, which destroy rainforest.)

In return the target is lower for islands which (in theory) must depend on aviation: the UK, Cyprus, Malta, Ireland and (don’t as me why) The Netherlands.

The difference may not look that big - I’m still trying to work out how many wind farms this equates to - but environmentalists say it is significant. That’s because the first 10 percentage points (or so) can be achieved from biomass and onshore wind farms. Getting beyond that requires difficult projects such as offshore wind and wave power.

A government source says that the tweaking of the targets don’t just apply to the UK so it would be wrong to portray this as a retreat.

Robin Webster, climate campaigner for Friends of the Earth, told me that the overall renewable energy deal was a “major leap forward amidst the back-tracking of the EU climate negotiations”.

But she went on….”It’s disappointing that Britain’s renewable energy target has been cut because we have such a large aviation sector. The government must deal with this rogue industry and take urgent steps to limit the threat it poses to our climate.”

* ”We need a massive expansion of renewables. Britain is fully committed to the EU target that 20 per cent of all energy must come from renewable sources by 2020. Last month Britain set out its strategy to meet our own 15 per cent renewable target - a £100 billion investment programme over the next twelve years.“

The US National Intelligence Council has a distinctly unflattering forecast of Europe’s future in its Global Trends 2025 report.

The finest US intelligence analysts conclude that, according to current trends, the European Union is in danger of being left behind as “a hobbled giant distracted by internal bickering and competing national agendas”. The title of the section says it all: “Europe: Losing Clout in 2025″. Continue reading "Europe: a hobbled giant"