And, going forward, this diagnosis also makes it clear why the euro area faces extra challenges. We have to find the right balance in what Markus Brunnermeier recently described as the “stimulus versus reform debate” at the European Economic Association conference in Mannheim. 7 As I said on the same occasion, in a similar spirit, we need to bring together two different macroeconomic traditions.
•  The “macroeconomic” tradition, by which I pretty much mean the British and “saltwater American” tradition of macroeconomics, with its solid emphasis on demand management. It correctly identifies the need to provide stimulus but may have a tendency to overlook incentives and institutions. Here, a focus on “demand  6  See my speech on Price stability: a sinking will-o’-the-wisp?