The sovereign debt crisis roiling financial markets is just one of three major risks facing the global economy and threatening a double dip, explains economist Graham Turner.

House prices have started to fall again in the US. At the end of March, a record 10.1% of homeowners with a mortgage were in arrears. Repossessions have continued to rise, with 92,432 homeowners evicted in April alone. Attempts to cool runaway property speculation in China have triggered a steep reversal in share prices for property companies.

However, it is Euroland that has been dominating the headlines. The new Chancellor of the Exchequer made much of Greece’s travails during the election campaign, and George Osborne will cite the country’s inability to borrow on capital markets when he unveils his emergency budget in June. Many countries, including the US as well as Japan and much of Europe, have indeed hit the Keynesian buffers.   

Gordon Brown – and the Liberal Democrats – campaigned against early cuts in the deficit during the recent election, arguing that the recovery was too fragile. At first glance, they appeared to have a case. Consumer spending has slowed sharply this year, partly in response to the VAT reversal, but also because real pay is still contracting.