The consequences are familiar. Almost four years after the collapse of Lehman Brothers, most advanced economies are still struggling. We are reminded that financial crises may lead to a longer period of relatively low growth, with Japan’s lost decade as the most pronounced example.
Growth is reduced because banks remain fragile and hesitant to lend, households are saving to reduce debt, and governments are consolidating in order to counter the surge in public after the crisis. In the euro area, the situation is complicated further by the sovereign debt crisis.