I have argued that while finance is important for growth, and completing the repair of the euro area’s financial system is an essential condition, it will not be sufficient to jump-start the economy. Europe has turned a corner after a dangerous period of turmoil. The sovereign debt crisis has been stabilised, redenomination tail risks have been overcome and financial markets have recovered their buoyancy.
ECB decisions and the painful adjustment in stressed countries were mostly responsible for those achievements. We are now experiencing a period of financial stability, but we face the double risk of short-term high unemployment with low inflation that aggravates the burden of the debt overhang with a longterm risk of quite low potential growth.