Challenges for policy-makers The roots of the crisis, which is affecting most advanced economies, lie in the accumulation of excessive debt – both private and public. The solution is to go back to more sustainable – i.e. lower – levels of debts. The key issue is the speed of that adjustment.
If, on the one hand, the de-leveraging is too slow, the imbalances at the heart of the crisis will be protracted, reforms delayed and the prospects for recovery will remain fragile – and be certain to disappoint. But on the other hand, if the adjustment is too quick, it may lead to a credit crunch with negative feedback loops on the real economy.