The gap means that member countries are not required to change their domestic policies as long as these are consistent with domestic stability, despite of their negative externalities for others. But policies cannot be judged only on the basis of countries’ best short-term interests, for if they undermine stability in other countries, they might ultimately have negative repercussions at home.
The manner in which the financial turmoil intensified significantly across the world last autumn following the bankruptcy of Lehman Brothers has been extensively documented. History shows us that downturns in economic activity that are preceded by problems in the banking sector tend to be longer in duration and, partly because of this, more severe than those caused by other factors.