The US and Europe still live with the legacies of the financial crisis of 2007-09 and the subsequent eurozone crisis. Could better policies have prevented that outcome; and, if so, what might they have been?

A recovery is under way, but only in a limited sense. The change in gross domestic product of crisis-hit countries is now almost universally positive. But GDP remains far below what might have been expected from pre-crisis trends. In most cases, growth has not recovered, mainly because of declines in productivity growth. In the eurozone, GDP was still below pre-crisis levels in the second quarter of 2015. In crisis-hit members, a return to pre-crisis output is still far away. They will suffer lost decades.

From a sample of 23 high-income countries, Professor Laurence Ball of Johns Hopkins University concludes that losses of potential output ranged from zero in Switzerland to more than 30 per cent in Greece, Hungary and Ireland. In aggregate, he concludes, potential output this year was thought to be 8.4 per cent below what its pre-crisis path would have predicted. This damage from the Great Recession is, he notes, much the same as if Germany’s economy had disappeared.