At the national level, there was high public debt and a lack of competitiveness in those countries that are now at the centre of the crisis. At the European level, there were weaknesses in the institutional framework of monetary union. But if most observers agree on the diagnosis of the crisis, why can’t they agree on the appropriate therapy?
But working in the other direction are flat real wages at a time when debt levels are high and housing prices are falling in our largest cities. We are continuing to assess the balance of these forces. As we do this, we are watching the housing market closely. There has recently been considerable public attention paid to declining housing prices in Sydney and Melbourne.