IN 2008 banks were saved by governments. The
question that dominated 2011 was how to save governments. The euro-area
sovereign-debt crisis metastasised from a problem affecting small, peripheral
states to one that threatens the single currency itself. The rise in Italian
bond yields in particular marked a dangerous new stage in the saga (chart 1).
European banks, stuffed full of government bonds, have suffered a severe
funding squeeze since the summer (chart 2). The euro was oddly resilient
against the dollar, but Switzerland and Japan intervened to hold down their
currencies as investors sought shelter (chart 3).
Faced with skittish creditors, countries in Europe
tried to instil confidence by cutting spending (chart 4). Austerity and growth
do not mix, however. Euro-area GDP remains below its pre-crisis level. American
output did at least regain that mark in 2011 (chart 5) but US unemployment
remained very high.
source : Eeconomist
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