WASHINGTON, DC – The global economy has entered a dangerous new phase. There is a path to sustained recovery, but it is narrowing. To navigate it, we need strong political will around the world – leadership over brinksmanship, cooperation over competition, and action over reaction.
One of the main problems today is too much debt in the global financial system – among sovereigns, banks, and households, and especially among the advanced economies. This is denting confidence and holding back spending, investment, and job creation. These countries face a weak and bumpy recovery, with unacceptably high unemployment. The eurozone debt crisis has worsened, and financial strains are rising. Political indecision in some quarters is making matters worse. Social tensions bubbling beneath the surface could well add fuel to the crisis of confidence.
In these circumstances, we need collective action for global recovery along four main policy lines: repair, reform, rebalancing, and rebuilding.
First, repair. Before doing anything else, we must relieve some of the balance-sheet pressures – on sovereigns, households, and banks – that risk smothering the recovery. Advanced countries need credible medium-term plans to stabilize and reduce public debt.