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Three weeks ago, Gordon Brown (remember him?) was making a spirited election campaign pitch against the imposition of £6bn of cuts to the UK government's budget this year.

It would risk a double dip back into recession, warned the then Labour leader.

Both Mr Brown and that argument have been overtaken - not just by events but by a stampede of European governments rushing to slash their budgets and placate the markets.

Greece had to take the medicine first, being the worst offender. Those so-called PIGS, including Portugal, Ireland, Italy, Greece and Spain - were warned of contagion spreading along the Mediterranean and up Europe's Atlantic coast.

The British budget deficit is running as high as Greece's, but it has the safety valve of its own currency. That should help, yet it offers limited protection against the contagion as investors lose confidence in the ability of Europe's big borrowers and debtors to pay back their loans.

The £6.2bn in-year cuts announced on Monday by the new Chancellor, George Osborne, were taken in the markets' stride - something to be expected, rather than a threat to economic recovery.

Italy and Spain cut

By today, the markets moved on. The latest bout of selling on the London Stock Exchange focussed on Britain's banks, with Lloyds, Barclays and Royal Bank of Scotland registering sharp falls. The FTSE fell 2.5% during Tuesday.

Market fears about Europe's economies have been worsened first by an IMF warning to Spain to move swiftly on its deficit and its structural blockages, and then by the concerns that Spain has had to shore up its banking sector, with mergers and government capital. Santander was a big faller on the Madrid stock market, and fears there could affect its appetite for buying the large chunk of RBS that's for sale in Britain.

The Madrid government is cutting civil service pay by 5%, and that of members of the parliament by 10%.

The Italian government's cabinet meets on Tuesday evening, to decide on a big cut to its deficit, despite it being nothing like as big as others. At 5.3% of GDP, it's below the European average and particuarly modest by British or Greek comparison.

But Italy's debt, at 115% of GDP, is much higher than the rest of Europe, even if it is funded mainly by Italian investors. According to a government spokesman, Italians face "very heavy sacrifices".

(A reminder, if you need it, and as I'm asked this from time to time: if you're running a deficit, it's the amount you spend each year in excess of the amount you earn, whereas the debt is the pile of deficits that mount up over time.)

Deutsche demand down

What's new is that the wielding of budget axes has spread to the parts of Europe that looked relatively sound. Denmark, with its own currency pegged to the euro, is cutting unemployment and family welfare benefits, plus some tax breaks and government ministers' pay.

Although it's one of those driving the European economic motor, France has announced a freeze in public spending for three years, and it's mulling an increase in its retirement age, returning it from 60 to 65.

Perhaps the most telling convert to budget austerity is Germany. With a deficit above 5% and eager to get down to the 3% limit it is demanding of others, the Berlin government aims to cut its federal budget by £9bn per year for three years, also including a rise in the retirement age.

That is intended to set other Europeans a good example. But the worry for other parts of Europe is that Germany has the economy on which others were depending to keep demand buoyant.

That is: while governments rein in spending, and reduce demand for goods and services within their own economies, most of them look to exports to pick up the slack. But if government demand is being cut across your key export markets, well, where is the demand going to come from?

Oil slides

So the financial markets are being spooked by a paradox: they fear default on sovereign debt, so government deficits have to be cut sharply, but they fear those cuts will return Europe's economies to recession.

The commodities markets provide indicators of the latter concern. The falling oil price - down by 22% in three weeks, and sharply on Tuesday - reflects a fear that demand for raw materials and fuel is about to dip again.

And if you look at the price of gold and the strengthening dollar, you can see where many investors are going for refuge.

It's not all panic and gloom. Data today from the US, including American consumer confidence, suggests the recovery there looks a tad more assured.

But what if international investors switch their attention to America's 10% budget deficit - this year expected to reach $1.5 trillion, or more than a thousand million pounds, and question how long before that has to be choked off.

Lessons for Scotland

A final note from a Scottish perspective, and for those who see today's Queen's Speech at Westminster as ushering in a major shift in taxation and borrowing powers at Holyrood...

In paring back government borrowing in Spain, one of the most difficult issues is negotiating across a range of devolved administrations with different taxation powers, but without the debt liabilities that are the focus of the Madrid government's attentions.

And in cutting back in Italy, one of the problems is that regional and local governments have taken on their own debts. According to the Bank of Italy, they owe 100bn euros, either to central government or their own bond-holders.

The challenge for the Scottish government and the Treasury in London is to devise a system that avoids that risk of undermining Britain's debt position even more than it's already compromised, while giving Scotland meaningful taxation and borrowing autonomy.

The lessons from other European countries in the current "fiscal consolidation" do not make that balance look an easy one to strike.