Two thirds of the reduction stemmed from capital increases, the other third from a decrease in assets. However, the context of the balance-sheet adjustment was different from that of the United States. In Europe the capital market is a less important source of finance for businesses; the economy consists largely of smaller firms that depend on bank credit.
Policy Although continued vigilance is warranted, the inflation and employment data thus far appear to reflect a temporary misalignment of supply and demand that should fade over time as the demand surge normalizes, reopening is completed, and supply adapts to the post-pandemic new normal.