Pity George Osborne at the helm of the British economy, adrift in a sea of foreign economic troubles. To the east, the leaders of eurozone countries fight for the survival of their flagship project. It took a last-minute bailout of Greece on 21 July to assuage fears that the country's
insolvency would spread to other heavily indebted nations and sink the single currency. To the west, Barack Obama is locked in hand-to-hand combat with Republicans over the terms on which Congress might grant the government permission to borrow more money. Failure to reach an agreement risks a US debt default and panic in the markets.

Ministers are fond of maritime metaphors about the economy. The Justice Secretary, Kenneth Clarke, recently described the European and US crises as a pair of icebergs, between which the UK economy must sail. For months, Osborne has been warning that our recovery will be "choppy". When, on 26 July, the Office for National Statistics announced that gross domestic product grew by just 0.2 per cent in the second quarter of 2011, the Chancellor defended his strategy by insisting that austerity had made the UK "a safe harbour in a storm". The implication is that bond traders, reassured by the government's unbending discipline, will not question Britain's creditworthiness.

Made in Britain

You don't have to travel far from Osborne's office to find sceptical responses to the Chancellor's view. You don't even have to leave the Treasury. "That's a pretty lame argument," was the verdict of one senior mandarin. Without growth, the government risks falling short of its revenue and deficit-reduction targets. Markets would then be unforgiving. Austerity was supposed to be the means to an end - restoring confidence as a spur to growth. It isn't working. There isn't much point in securing a harbour without any ships in it.

The Chancellor's misguided metaphor signals a deeper failure of imagination, dating back to the onset of the financial crisis. Now that he is responsible for the economy, Osborne is keen to place Britain's predicament in the wider context of global financial instability. This perspective is newly acquired.

The global economic storm has been raging for nearly four years. For the first two of them, Osborne, as shadow chancellor, played down the international scale of the crisis. Tory election prospects depended on heaping as much blame as possible on Gordon Brown. Yes, there was an international crisis, Osborne conceded, but Labour's reckless spending had left the UK defenceless. The worst of the recession, he claimed, was "made in Britain". Labour deserved some of that scorn but not all. Brown's reputation for sound judgement expired with the hubristic claim to have abolished boom and bust. Yet the relentless focus on domestic politics stopped the Tories from developing a coherent account of what lay behind the financial meltdown. It is an omission that is making the Chancellor's job much harder today.

The credit crunch was, above all, a crisis in globalisation - the deep economic integration of market economies that accelerated exponentially after the end of the cold war. A defining feature of that process was the erosion of borders to facilitate the swift movement of goods, money and people. Power drained away from national governments, with their jurisdictions quaintly demarcated on old-fangled maps, towards global capital markets and multinational corporations.

The City of London was the hub of this globalised world order and host to some of its most reckless financial institutions. Britain became, in the words of the Business Secretary, Vince Cable, "a large offshore banking centre with a medium-sized country attached to it". That made the UK particularly vulnerable .

It is not, therefore, surprising that we experienced a particularly deep recession, followed by a feeble recovery. It is true, as the Conservatives claim, that more fiscal discipline during the boom might have cushioned the blow.

A Budget surplus would have been nice but it would not have changed the underlying reality that Britain was the most diligent disciple of an economic doctrine - ultra-liberal, free-market capitalism - that failed. Osborne and the Prime Minister, David Cameron, seem never fully to have grasped the implications of that failure. Instead, they constructed a morality tale about Labour profligacy causing both the deficit and the national debt. The two items are routinely and duplicitously conflated in the much-abused homily of the maxed-out national credit card. As a parable of domestic economics, it is neat. As an intellectual response to a global crisis, it is dangerously facile.

Fiscal masochism

Manifestly, Osborne's strategy is not going according to plan. Yet to admit even the possibility of an alternative would be to concede that his particular brand of fiscal masochism was a political choice all along and not, as advertised, a diktat from the bond market.

To avoid any discussion of a plan B, ministers privately talk up the flexibility of plan A. The headline ambition is to eliminate the structural deficit within four years but the Budget leaves room for manoeuvre. "If you read the small print," says one member of the cabinet, "it is really five years."

In political terms, the distinction is hardly relevant. The public has accepted austerity and, as the Tories never tire of pointing out, Labour fought the election offering cuts, too. Besides, the government's promotion of Osborne's deficit-reduction timetable as the only legitimate benchmark of credibility has become a self-fulfilling prophecy. Financial markets might have accepted a more flexible approach last May. Now, they are more likely to punish a fiscal wiggle as a failure of nerve.

Osborne and Cameron vigorously pushed a narrow domestic view of Britain's economic problems to serve the demands of last year's election campaign. Now, they are trapped in that parochial story. They have no way to express the global challenges they face without sounding as if they are making excuses for their failed policies - much as they accused Brown of doing. Without an adequate intellectual response to the underlying causes of the crisis, Britain's government floats rudderless through the storm.

Rafael Behr is chief political commentator of the New Statesman