Summary

Chapter 1 of the report discusses the immediate macro economic outlook for the global economy. Chapter 2 argues that the euro crisis was fundamentally triggered by major macroeconomic imbalances within the euro area. These imbalances hindered capital flows, while uncertainty surrounding the repayment of government debt and the mid-term economic prospects of individual regions triggered outright capital flight. With European monetary authorities injecting ample liquidity in favour of the banking system, massive capital flight has resulted in huge balance- of-payments imbalances. Risk premiums on government bonds have also risen to levels that are unsustainable for some countries. Chapter 3 analyses Europe's financial architecture. It highlights the need for proper banking regulation and a well-defined framework for crisis resolution in order to create a more stable financial system able to cope with future problems of a similar kind. Chapters 4 and 5 profile two very different countries, Sweden and Hungary, and highlight the lessons that can be learnt from current and past crises. Whereas many European countries may envy Sweden's fiscal discipline, recent economic policies in Hungary seem to bode ill for the country's future. Finally, Chapter 6 looks at the longterm crisis of climate change and argues that the cost of both emissions and abatement should be equalised across technologies, industries and regions.