ECB policy and Fed normalisation

CEPR Policy Insight No 75

Athanasios Orphanides

It has been five years since the epicentre of the global financial crisis that erupted in late 2008 moved from the US across the Atlantic. Since then, the US economy has enjoyed recovery with steady growth, while the Eurozone economy has languished, going through a double-dip slump, and is currently at risk of falling back to an unprecedented triple-dip recession. The mismanagement of the Eurozone crisis has converted a relatively small and potentially easily manageable fiscal problem that originated in Greece (a state representing merely 2% of Eurozone’s GDP) into a systemic crisis for the Eurozone as a whole. On average, real GDP has moved sideways, but the mismanagement of the Crisis has led to substantial declines in some member states. The resulting economic dislocation has threatened the very existence of the Eurozone, generating recurrent questions about the long-term viability of its construction.