The economic challenges facing the eurozone are not the same as those facing the US. On balance, however, they are even more difficult.

The eurozone economy is not suffering from overheating of domestic demand to the same extent as the US. This should make the task of monetary policy easier for the European Central Bank than for the Federal Reserve. But the supply shock buffeting the eurozone is far bigger, with a huge rise in the price of energy, especially gas, after Russia’s invasion of Ukraine. That shock is both inflationary and contractionary: inflationary, in that it has raised the price level sharply; and contractionary, in that it has lowered real incomes for households and the terms of trade for countries.

Crucially, the eurozone is more fragile than the US. Its national economies are diverse and cross-border insurance mechanisms relatively undeveloped. Above all, politics remain national. As a result, fragmentation is always a risk. Nevertheless, the eurozone does have advantages in handling the Covid and energy shocks compared with the financial crises of a decade ago. Recent shocks have affected members in quite similar ways, while the global financial crisis split the eurozone between domineering creditors and humiliated debtors. This time is indeed different.