It reduces the risk of an abrupt and painful correction down the road. But this new-found and welcome household prudence is dampening growth. To replace this growth, we need a rotation in demand toward exports and business investment. Unfortunately, this rotation has proven elusive. This is consequential – growth in Canada has slowed.
While such fears have been allayed by the credibility of subsequent action, most notably the announcement of the Outright Monetary Transactions (OMT) programme of the ECB, the wider need to rebuild trust and strengthen the institutional architecture of the system is evident and confirmed in a general recognition that progress needs to be made on four dimensions, Banking, Fiscal, Economic, and Political, as adumbrated in the report of the four Presidents (of the European Council, the European Commission, the Eurogroup and the ECB) last June.