We want to get away from them. But “developments in the euro area remain the key risk to global financial stability. Recent important policy steps have brought some much-needed relief to financial markets, as sovereign spreads have eased, bank funding markets have reopened, and equity prices have rebounded. However, new setbacks could still occur. The path ahead has significant?.?.?.?risks, and policies need to be further strengthened to secure and entrench financial stability.” Thus did the International Monetary Fund’s Global Financial Stability Report assess progress towards what it called, optimistically, a “quest for lasting stability”. Many would settle for something far less ambitious: a few years of stability would be an unexpected delight.

The IMF’s latest World Economic Outlook, also released last week, offered sensible recommendations: “It is?.?.?.?critical to break the adverse feedback loops between subpar growth, deteriorating fiscal positions, increasing recapitalisation needs, and deleveraging?.?.?.?The European Central Bank should implement additional monetary easing to ensure that inflation develops in line with its target over the medium term and guard against deflation risks, thereby also facilitating much-needed adjustments in competitiveness. Moreover,?.?.?.?banking authorities should work together?.?.?.?to monitor and limit deleveraging of their banks at home and abroad.”

Let us summarise. First, it is still easy to identify risks, not least the state of the banks, particularly given their close relationship with fragile sovereigns. Second, growth is too slow and ECB monetary policy too tight. Finally, inflation needs to rise in the more competitive countries, to facilitate adjustment among member countries. If the IMF is called to offer assistance to member countries out of the additional resources it has acquired, its conditionality for the eurozone needs to match these arguments. It is not enough to beat up weak countries. The policy regime itself needs to change.