British voters must not be intimidated by an unholy alliance of currency traders and the Daily Mail. The pound is plummeting, we are told, because markets fear a hung parliament. Amplifying the Conservative party line, the Mail warns that either a Labour victory or a hung parliament "threaten a run on the pound" and could "trigger turmoil". So it's the Tories or national disaster.

Stuff and nonsense. If proper preparations are made, there is no reason at all why a parliament with no overall majority should produce a weak government, incapable of fiscal consolidation. According to a House of Commons study, seven of the 10 largest fiscal consolidations in OECD member countries since 1970 have happened under coalition governments. Germany always has coalition governments – and it has the strongest economy in Europe. Greece has descended to fiscal hell under one-party governments. Britain won the second world war with a coalition government. In fact, this country has had coalition or minority governments for 34 of the last 100 years.

It's only since 1945 that we've got out of the habit, except for two brief interludes in the 1970s. But now, with the British weakness for the invention of tradition, we are asked to believe that single party governments representing a minority of the popular vote are as English as roast beef and country lanes. (And I say English advisedly, since Scotland and Wales, not to mention London and our European parliament elections, all have more proportional systems.)

To be sure, the transition to a minority or coalition government would be tested by the markets. Because we have got out of the habit, and because markets move faster than Olympic ski cross finalists, careful constitutional and political planning needs to be done – and is being done. One tricky possibility derives precisely from the fact that our parliament is so unrepresentative.

Due to a combination of the first past the post electoral system and the way constituencies are drawn, Labour at present has far more seats than its share of the popular vote would entitle it to (36.4% of the vote but 57% of the seats after the 2005 election) while the Liberal Democrats have far fewer (23% of votes, 10% of seats in 2005), and the Conservatives are more or less even stevens. If, for instance, the election went the way predicted by a recent ComRes poll, with the Tories getting 37% of the vote and Labour 32%, that could, perversely, give Labour some 294 seats and the Conservatives only 277.

Initially, Gordon Brown would remain as prime minister. We may assume that his instinct would be to hang on to power like a terrier to a thief's pants.

Politically, however, much would depend on the Liberal Democrats. Nick Clegg has indicated that the Lib Dems do not want to enter a coalition; we are therefore talking about a Labour or Conservative minority government. Although the Lib Dems are ideologically closer to Labour, the only principled, consistent and politically prudent thing for Clegg to do in this eventuality would be to go straight into talks with the party with the largest popular mandate – that is, barring an enormous reversal, the Conservatives. How could you spend decades criticising the electoral system for being unrepresentative of the popular vote and then embrace a Labour minority government made possible only by that unrepresentativeness? What would be the reaction of all those voters who with their ballot papers had wanted to say "time for a change"?

Two things would then have to happen very quickly. First, the Lib Dems would need to agree not to kibosh Conservative tax and spending plans which would need to be clear enough to reassure the markets. In yesterday's Financial Times, Nick Clegg signalled to the markets his readiness to do this. In return, the Lib Dems would seek acceptance of one or two of their hallmark policies.

Second, the Tories would have to make some explicit commitment on a way forward to electoral reform. If the present government's proposal to mandate a referendum on introducing the alternative vote system had become law before the election, the simplest thing would be to get the Tories to commit to holding that referendum within a period of months (and in any case before a snap second election).

The AV system is far short of the proportionality that Lib Dems want and Britain deserves, but a bird in the hand is worth two in the bush. If the AV amendment had not gone through, then a firm timetable for putting a proposal on electoral reform to the British people would have to be agreed in incredibly short order. Tories would fiercely resist this, but if their claim to govern lay in the mismatch between their share of the popular vote and their share of seats in the Commons – that is, in the unrepresentativeness of the electoral system – they would not have an intellectual or moral leg to stand on. (Yes, I know politicians learn to walk legless almost before learning to crawl, but our job is to point to those missing legs.)

The very term "hung parliament" is calculated to deter. Like "hung jury", it suggests crippling indecision. But a hung parliament is actually a stronger parliament, since the executive is more dependent on the goodwill of the legislature. Properly arranged, this produces not weak government but limited government, something Conservatives have traditionally favoured.

The last 13 years have shown us the dangers of insufficiently constrained government. Labour has actually introduced a great many constitutional reforms, including devolution and the Human Rights Act. Yet at the heart of the system there remains this raging bull of an overmighty executive, trampling over a subservient lower house of parliament in which the ruling party's "clear" majority consists mainly of people who are either members of the executive or want to be. It is this system which has, for instance, produced an avalanche of Home Office legislation (more, by one estimate, than in the whole earlier history of that department) which is burying our civil liberties. If that's the roast beef of British strong government, I'd rather do without it. (Meanwhile, MPs can do something right away to strengthen parliament by voting for the Wright committee amendments – to give backbenchers more power – which come before the Commons today.)

The ultimate goal should be a written constitution. I've just read a fascinating attempt by the lawyer Richard Gordon to spell out in legal and political detail what a modern British constitution might look like (Repairing British Politics: A Blueprint for Constitutional Change). This being Britain, we know that it is most unlikely to happen like that, with a whole new document being triumphantly adopted by a constituent assembly, French or American style, and cocked hats flying in the air. "The rolling English drunkard made the rolling English road", and the British road to constitutional reform, which New Labour has somewhat drunkenly begun, is likely to continue that way. The apparently indecisive zigzag of a so-called hung parliament may yet prove to be a step forward – a cutting through the Cotswolds, so to speak – on this meandering British road to a better country.