Matthew Norman: A haunted Prime Minister, marooned on his fantasy island

Not since Howe launched his cricket metaphor have we seen such an attack

These dusty old monetarists take a lot of winding up, but by Jingo they're lethal assassins once the spring is released. Whether Mervyn King's appearance before the Treasury Select Committee on Tuesday was a warning shot across Gordon Brown's bows or a formal declaration of war, not since Geoffrey Howe launched his cricketing metaphor counterstrike against Margaret Thatcher have we seen so devastating an attack on the judgement of a serving Prime Minister.

The Bank of England Governor, another deceptively lugubrious-looking buffer blinking amiably away behind the thick specs, avoided any hint of melodrama and was all the deadlier for the deadpan delivery.

What he said, in words measured for impact with exquisite finesse, and in a tone of studied dullness, was this: "I think the fiscal position in the UK is not one where we could say 'Well, why don't we just engage in another significant round of fiscal expansion?" What he meant was: "We're already bankrupt and I'm not sitting idly by while this deranged wastrel leaves future generations in bondage to rampant inflation and crippling debt to save his political hide." Or as Jeremy Thorpe almost put it of Harold MacMillan, greater love hath no man than that he lay down his country's future for his life.

A week today, that heavily-trailed G20 conference will be held in London. Even before Merv the Swerve bowled his inswinging yorker, the cosmetic absurdity of this pow wow was transparent. We are asked to anticipate it as the second Breton Woods, despite the fact that the G20 leaders are meeting for one day when the first BW lasted three weeks in July 1944. The notion that anything more could emerge from so brief a meeting than a meaninglessly bland and abstract communiqué – written and agreed before the event as tradition dictates – was always so foolish that the meeting should strictly be brought forward a day to 1 April.

Once the French and Germans expressed their disdain for any further stimulus packages, however, it took on the pre-emptive flavour of the phantasmal second UN resolution fiasco... a fight between the powerhouses of continental Europe and the Anglo-US alliance in which the battle lines were immovably drawn long in advance of the skirmishing.

And now? Now it's so much worse for Gordon that you could fall to your knees and sob for him. One week today, the self-appointed financial bridgehead between the EU and America – the exact role Mr Tony Blair played to such splendid effect over Iraq – will sit down for what he apparently regards as his last throw of the electoral dice, and have little choice but to argue for what his own central banker has dismissed as a long-range suicide note for the British economy. His only option is to perform a historic U-turn and adopt the more monetarist approach propounded by the Tories and a Governor with whom Gordon, seldom a stranger to raging paranoia, must imagine Messrs Cameron and Osborne are in league.

But it's not just the Tories and Mr King who are cuddling close on this issue. His own Chancellor is snuggling up to the Guv as well. In the aftermath of the Northern Rock debacle to which his response was so languid, Nos 10 and 11 were as one in briefing against Mr King.

Now the allegiances between the three fiscal superpowers have shifted, a bit like those between Eastasia, Oceania and Eurasia in 1984. With Darling and King united against him, Gordon faces his ultimate nightmare. There he is in Room 101, and the wire mesh holding the rats back is rising fast. Small wonder he's frantically trying to ratchet up the terror of terrorism, that classically Blairite diversionary tactic. But it won't divert many of us for long.

Supplying the Newspeak tutorial, meanwhile, is the Chief Secretary to the Treasury. In denying any rift, Yvette Cooper parsed the Governor with linguistic suppleness worthy of the Employee of the Month badge in the Ministry of Truth. "What he [King] said," she interpreted, "is we need to take a sensible approach, which we always do." That, bless her, is precisely what he didn't say. What he did say, in a previous select committee appearance, is, "We entered this crisis with levels of borrowing which were too high and that made it difficult" (his translation of Jilted John's "Gordon is a moron").

He further rued that in 1997, soon after granting the Bank the independence Mr King so lavishly indulged on Tuesday (oh the vicious irony that Gordon's most celebrated masterstroke should mutate into the loudest of death knells), the then Chancellor stripped the Bank of its regulatory powers in creating the tremendously effective Financial Services Authority.

The Governor, then, is now on record expressly blaming Gordon for deepening and widening the slump he has thankfully ceased assuring us Britain is uniquely well placed to withstand; and advising him – instructing him, really – on no account to sub-prime mortgage our long-term economic future for short-term electoral gain.

Much like his namesake, the in- form and imaginatively nicknamed darts star Mervyn "the King" King, the Governor found the bullseye with laconic ease, and at the very moment Gordon was flying off to lecture foreign leaders about the imperative for greater stimuli he is betting the farm on pressing at the G20 next week. That the PM is now pulling in the diametrically opposite direction to the Bank, not to mention the implications of this tug-of-war for sterling, the forthcoming Budget and the Government's general credibility, will take a while to filter through to an electorate that takes a wisely laissez-faire approach to charting the economic meltdown in tedious detail. But filter through, in the usual osmotic way, it will.

If Gordon, ever-more remotely marooned on his fantasy island of vast global influence and unfettered domestic command, backs down and muffles the stimulus hunting cry next week, it will leave him looking, to borrow from the resignation of yet another embittered former Chancellor, in office but not in power. If he doesn't – if he ploughs on with the demand for even more colossal spending and debt – he will be at war with the Bank of England, and at DefCon Two with his next-door neighbour.

There is no obvious way out of this one. He has been on his electoral death bed for ages, of course, ever since that definitive week in October 2007 when he cluck-cluck-clucked his way out of going to the country. But this may well be seen as the week he ran out of appeals for clemency, because the only quantative easing available to him now appears to involve the child-proof lid on that bottle of Downing Street strychnine.

m.norman@independent.co.uk