Unfortunately, we can point to several episodes in history when governments and social partners failed to internalise external constraints, resulting in widening imbalances. This typically led to currency crises and exchange rate realignments in Europe. Monetary instability prevented Europeans from reaping the full benefit of the internal market and limited Europe’s growth potential and its role as a global economic actor.
The outlook I just presented, however, is subject to various upside and downside risks. One upside risk is that growth in emerging and commodity-exporting economies might accelerate. Recently, a growing number of emerging and commodity-exporting economies have been shifting away from accommodative monetary policies, while in China, the government has implemented measures to curb the overheating of the real estate market.