The prolonged global crisis and the vulnerabilities created or exposed by policy efforts globally to address the crisis have to some extent increased the risk of financial contagion. In that context, reducing vulnerabilities must be a key priority for both monetary and fiscal authorities. We have been lucky in South Africa because our fiscal and monetary authorities responded in sync.
This matters not just for welfare and social cohesion within individual countries. It also matters for the functioning of Monetary Union. If countries have very different economic structures, their business cycles will diverge when faced with common shocks: some will return quickly to trend growth and full employment, while others will require a longer period of recession for prices and quantities to fully adjust.