In this regard, while some gradual achievements have been made, the European leaders are expected to show further leadership. While the U.S. economy has been recovering moderately, supported by accommodative financial conditions, the pace of the recovery seems to be slowing somewhat.
At worst, firm and household defaults cause substantial losses to financiers, especially banks. If banks have also had too little capital and too much debt, especially short-term debt, banks may not be able to absorb the losses without cutting back their lending. This adds a further and potentially dangerous negative feedback to the economy. Macroeconomic models are now taking steps to incorporate such effects.