´óÏó´«Ã½

It's hard to see where Alistair Darling can turn next.

Room for manoeuvre by the UK Government is getting very limited.

The chancellor has done what he can for the banks: he's cut tax, he's boosted spending, he's stretched borrowing to the limits, while the Bank of England has cut interest rates to historic lows and now has new powers to expand the money supply.

In early autumn, he was ridiculed for saying we were heading into deep trouble: last week, another minister was ridiculed for saying she could see the .

Today, Darling was in Brussels - where I find myself this week - informing other European finance ministers about the new toxic assets insurance plan, and seeking a relaxation of banks' use of their capital to allow more lending.

What he came away with was "a reminder" that banks can use their capital that way, which sounds some way short of a change of rules.

As is increasingly the case, small but significant financial news reverberates and magnifies as it travels round the world.

On Monday, the Royal Bank of Scotland results spooked the markets, with the assumption that it's not the only one in such trouble, so that currency traders took refuge in the US dollar, and even the Brazilian stock market fell on the news.

A small downgrade in the Spanish government's credit rating has had similar knock-on effects.

Following similar news about Greece last week, Portugal and Ireland are now under review.

And with the British Government dipping ever deeper into the bond market, the risk of sovereign default - until recently, absolutely unthinkable - has hurt sterling on the currency markets.

The European Commission has this week told the UK Government its forecasts are over-optimistic and it is unlikely to be able to start tightening public spending from 2010 to pay off the new borrowing.

With Alistair Darling doing little to defend his most recent growth forecasts, announced in November, he must also be aware that the re-start of growth looks further away.

That could delay some sharp pain for the public sector (including Holyrood's budget), but at the expense of the whole economy and a longer haul back to stability.

With poor tax receipts and high spending, the banks' problems just pile on the pain, the liabilities and the risk.

The was not because it is about to fail.

The UK Government has made it clear that won't be allowed to happen.

But if the Royal Bank or others require the Government to stand behind them, the obvious next question is: how secure are the Government's finances?