The leader of the Conservative Party has warned that government policies are taking the country to the brink of bankruptcy and before long, like Iceland, we will have to ask the International Monetary Fund (IMF) for a bail out.

This week’s second tranche of money to rescue stricken banks was not met with the restoration of confidence that the government had hoped and, if anything, just highlighted the continuing parlous state of the banking sector with large falls in the share prices of HBOS, RBS and Barclays and contributing to an ongoing slide in the value of the £. It wasn't helped by the lack of detail over the government's proposed insurance scheme for bad assets, the specualtion surrounding the creation of a "bad bank" for toxic paper and RBS' announcement that it has recorded the largest loss in UK corporate history - £28bn.

To gauge the severity of the situation it is necessary to look behind the headlines at some of the fundamentals. At the end of December 2008 Public Sector Debt - the total amount of money the British government owes to the private sector - was £697.5 billion or just under 50% of our national income. The European Union average is 60% so we are still well below this figure and even with the additional borrowing required for banking bail-outs it isn’t expected to increase by more than an extra ten percentage points.

There has also been concern around the foreign currency liabilities of banks based in the UK which currently stand at three times our gross domestic product (GDP). But the figure represents all banks including foreign owned institutions and they ignore the foreign currency assets held by these banks which marginally exceed the liabilities.

British banks actually only account for a third of these liabilities - about £1.5 trillion. We are a long way from Iceland where they account for 7 times GDP or Switzerland with two and a half times GDP.

Importantly for our reputation in the financial world we also continue to maintain a triple A credit rating – the highest available and a measure of the confidence investors should have in our ability to handle our borrowings and spring back once the recession is over albeit under a regime where higher taxes will be necessary to re-balance the books.

It is for this reason that the government has been easily able to raise the borrowing in the first place via auctions of government bonds on the international markets.

Also, despite a heavy reliance on business and financial services and not withstanding the recent news on manufacturing performance (see earlier story) the UK economy still has a much larger manufacturing base than most people think. The UK is the world’s sixth largest manufacturer by value and this will be an important contributer to our ability to trade our way back to good health once the recovery starts.

When discussing bankruptcy there are certainly countries in a more worrying position than the UK. Greece, Spain and Portugal have all had their credit ratings down-graded and the joke doing the rounds of financial circles is that the difference between Iceland and Ireland is one letter and six months. Ireland was the first country to give 100% guarantees for all bank deposits, leaving it with potential liabilities of twice its GDP and it wasn't enough to avoid the nationalisation of its third largest lender Anglo Irish Bank. With inflation at 20% above the European norm, 11% unemployment and GDP growth forecast to plunge to minus 4% this year (against growth of 6% only two years ago) Ireland makes the UK look like an economic fortress.

The recession will evenutally end (they always do) and the country will certainly be looking at the prospect of repaying a lot of debt with consequently higher taxes and a contraction in public spending. And it will take time for house prices to start climbing and unemployment to start falling but national bankruptcy on the scale of Iceland seems very unlikely unless things go disastrously wrong. And then there will be a queue at the door of the IMF.