The markets, too, will end up underestimating the risks because they are confident of a bail-out. This leads to global misallocation of capital and shifts costs on to the public sector. Basically, this reveals the central problem of any form of interventionist economic policy: the other players come to expect interventions and anticipate the later measures.
I would say exactly the same with the budget. Decisions have been taken; they are very important. Let’s do it! Quick implementation, quick disbursement is what is needed. Not embarking on useless and counterproductive quarrels which fortunately are over now. WSJ: If recovery does not take hold gradually in 2010, does the Stability and Growth Pact give European governments room to do more?