Long bond yields in the emerging markets increased and currencies depreciated as capital flows began to reverse. Monetary policies were generally tightened, although there were differences in timing and degree. According to Eichengreen and Gupta1, the countries hit the hardest were those with wide fiscal and current-account deficits and open capital markets.
The IMF says that a fiscal stimulus is useful but it is not questioning Europe’s budgetary criteria. The IMF is emphasising fiscal stimulus in countries which have the means, which have the room for manoeuvre, i.e. in countries where the debt is sufficiently low, and in particular in Germany.