Europe Under Stress

Marek Belka
The integration of Europe's economies has been a tremendous success story. This success could now be at risk. The trick is to manage the crisis, preserve the progress that has been made, and revamp Europe's frameworks and reform agenda.

Losing Their Halo

Martin Ĉihák and Srobona Mitra
The new central and eastern European members of the European Union had it very good for a while. But the good times didn't last. The new member states' initial resilience to the global financial turmoil has given way to deep crisis in a few of them.

A Tale of Two Crises

Erik Berglöf, Alexander Plekhanov, and Alan Rousso
Russia has not done enough to inoculate itself from recurring crises that stem, in large part, from a sharp drop in the price of oil.

Also in This Issue

Out of the Ballpark

M. Ayhan Kose, Prakash Loungani, and Marco E. Terrones
The current recession is easily the most severe of the postwar period: output—depending on the measure—is projected to fall between four and six times as much as it did on average in the three other global recessions, and unemployment is likely to increase twice as much.

Preparing for a Postcrisis World

John Lipsky
If current plans are implemented as anticipated, the postcrisis world is likely to be one characterized by enhanced multilateralism, greater policy coordination, and a more effectively regulated financial system. In the wake of the April summit of the G-20, the IMF is set to play a key role in this new global environment.

Asset Price Booms: How Can They Best Be Managed?

Giovanni Dell'Ariccia
Not all booms are alike—making the right call on which policies to deploy depends on how assets are held and who is exposed to a possible bust. A mix of policy tools is likely to be the best way of deflating a boom.

The Perfect Storm

The IMF's Chief Economist, Olivier Blanchard, explains how a crisis that began in mortgage-backed securities turned into the worst recession since the 1930s. Blanchard cites four preconditions, which all combined to create the perfect (financial) storm.

Playing with Fire

Randall Dodd
Transactions in exotic derivatives have resulted in massive losses that fueled currency market panics and helped transmit the financial crisis to emerging markets. The first reported losses were at private firms in the tradable goods sector.

F&D on the Global Crisis

See coverage of the financial crisis, including:

• the March 2009 issue of F&D, which examines the multiple facets of the recession,
• the December 2008 issue of F&D, which looks at the impact of the economic crisis, and
• the June 2008 issue of F&D, which examines the origins of the crisis.

New Paths to Funding

Suhas Ketkar and Dilip Ratha
When financing is scarce, innovative financing approaches are required to raise capital, especially for private sector borrowers in developing countries, who face even harsher credit rationing than public sector borrowers.

A Hedge, Not a Bet

Herman Kamil, Bennett W. Sutton, and Chris Walker
Some Latin American companies used financial derivative contracts to place bets on currency movements—and lost big when the currencies depreciated steeply. That not only led to financial problems for the companies, but presented authorities with difficult issues in foreign exchange markets.

Latin America: When Is Fiscal Stimulus Right?

Nicolás Eyzaguirre, Benedict Clements, and Jorge Canales-Kriljenko
In several countries, the slowdown in private sector activity may provide room for a temporary and well-designed fiscal stimulus. In countries with low credibility, however, countercyclical fiscal policy efforts may be counterproductive.

Viewpoints

Stress Test for the Euro

Barry Eichengreen
The ongoing credit crisis has given rise to chatter and speculation about the possibility that one or more euro area countries might now choose to abandon the euro. This article weighs the implications of such a move and concludes that it is not inconceivable.

The Euro's Finest Hour?

Charles Wyplosz
The financial—and now economic—crisis has presented the euro area with a large number of varied tests. But one thing these countries don't need to worry about is their currencies, because they don't have any. The euro works and that is no mean feat.

Regulatory Philosophy Matters

S. Raihan Zamil
The causes of the financial crisis are widely acknowledged, but what is less well understood in the public debate is how regulation and supervision of the global financial system played an enabling role in the runup to the current financial crisis.