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Crisis at the Guardian

Parent company GNM is losing £100,000 a day but the Observer is set to survive

The revelation that losses at Guardian News & Media (GNM) are running at £100,000 a day has heightened the sense of crisis at the company and compulsory redundancies are now a serious prospect.

In an internal memo to staff on Monday, Tim Brooks, managing director of GNM, described the current losses as "unsustainable".

"We are looking at everything -- literally everything -- that we do, to see how we can economise, and we will do whatever we can to keep the impact on staff to a minimum. However, because the biggest portion of our costs is people's salaries, we have to review staffing levels," he said.

Brooks previously offered staff this jaunty advice: "It is more important than ever, at times like this, to keep work in perspective. So the other thing I ask you is this. Take the dog for a walk; take the kids for a swim; retune that engine; reread Jane Austen; buy in the popcorn and have a West Wing box-set weekend on the sofa -- please make sure you remember to do whatever it is that allows you to keep a clear head, and shake off the tensions of work."

Guardian journalists increasingly fear that editor-in-chief Alan Rusbridger's hubristic ambition to transform GNM into the "world's leading liberal voice" has put the future of the paper itself in peril. The risk is that by the time a sustainable business model for free internet content emerges, as Chris Anderson, author of Free: the Future of a Radical Price (yours for £18.99), believes it will, the Guardian will have been destroyed.

Guardian Media Group, which reported pre-tax losses of £89.9m in July, still refuses to rule out closing the Observer in a bid to stem the losses.

But for now it seems likely that the company will opt instead for full integration of the two titles, in effect transforming the Observer into a Sunday Guardian. The move could sound the death knell for the Observer's popular monthly supplements and its stand-alone business section.

It is also no exaggeration to say that the Guardian faces a political crisis at the next election as it decides which party to endorse. It cannot credibly endorse Labour so long as Gordon Brown remains leader (as I expect he will), having called on the party to force him out.