Macroeconomics & the euro

There was always a risk that a one-size-fits-all monetary policy would lead to big divergences in inflation and competitiveness across the eurozone. This, in turn, would result in trade imbalances which would be difficult to reverse.

In 2008, the global financial system came close to collapse. Ever since, policy-makers have been busy overhauling the way it is regulated and supervised. Will this flurry of activity produce a more stable financial system – and if it does, at what cost?

The eurozone has suffered a deep recession – bigger than the US and about as bad as that in the UK. Public finances across the eurozone have worsened dramatically, and in some cases now look perilous.

It is 20 years since the Berlin Wall crumbled and political and economic freedom started spreading through Eastern Europe. Today, however, the region is mired in deep recession.

Since last year, politicians and regulators across the G20 have been hard at work trying to place the international financial system on a more stable long-term footing. Many critics believe they are not doing enough.

The governor of the Bank of England (BoE), Mervyn King, has had a mixed financial crisis. He assumed that financial stability flowed from monetary stability – which we now know is not the case – and was very slow to recognise the extent of the crisis.

The good news first. The summit delivered more than expected. The trebling of the funds available to the IMF goes well beyond anything expected and is very welcome.

Christine Lagarde, the French finance minister, threatens to walk out of the London G20 summit unless France gets its way on tougher financial regulation. The toppled Czech Prime Minister, Mirek Topolanek, who happens to hold the EU presidency, describes the US fiscal stimulus as “the road to hell”. Not one EU leader deems it necessary to support Gordon Brown publicly when he tries to drum up support for a more concerted international effort to revive the global economy.