While world attention has been drawn to the deepening Murdoch scandal and the horrors of the Norwegian massacre, an unseen and even more dangerous scenario is taking shape.   In the US, EU and UK - for very different reasons in each case – the economy is threatened by a slow-burn economic collapse.   In the US Republican intransigence over a deal to raise the debt limit above its present level of $14.3 trillion (£8.7 trillion) by 2 August, just a week away, could trigger a breakdown in stock and bond marketsd worldwide leading to another global crash.   In the EU the second Greek bailout of €109bn is now looking a lot more shaky than at the original grand flourish by Merkel-Sarkozy, dragging both Spain and Italy back into the frame and one again threatening the future of the Eurozone.   And in the UK the likely news on Tuesday that second quarter growth was either zero or at best stagnant at 0.1-0.2% pushes the country to the brink of a double-dip recession.

Of course all of these fears may prove groundless.   The Republicans are taking Obama to the wire to extract further even further spending cuts (he’s already offered more than $1.6 trillions in government spending cuts), and will concede a deal at the last possible moment.   The EU nascent EMF deal may still hold even though the figures look uncertain, the private investors holding Greek debt may refuse to take a ‘voluntary haircut’, the Greek privatisation proceeds my not materialise, and the rating agencies’ selective default assessment may have greater knock-on effects than is complacently expected.   And a UK economy flat-lining for three quarters in a row may not damage long-term consumer and business confidence as much as is feared.   But optimism on all three is beginning to stretch credibility.

Whichever of the threats were to materialise, it would severely affect the British economy.   The damage to global markets in general and to UK exports in particular, it is difficult to see how the Government’s current economic stance could be maintained.   Already there are calls from Vince Cable for a new, more radical form of quantitative easing, and Osborne himself has hinted at a new stimulatory package which could include abolition of the 50p top income tax rate – an excuse for a politically partisan measure which would do next to nothing to re-inject life into a dormant economy.   But such measures would be small beer if the dam really breaks in Washington or Brussels.

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