World economy not out of the woods

Abstract

The world banking system has been adjusting to the post-crisis deleveraging in the household and corporate sectors. At the same time, leverage in government has shot up as governments have intervened massively to rescue financial systems and to boost public spending in response to recessionary conditions. As the recent Greek crisis has vividly demonstrated, a new threat looms, namely, a rise in sovereign risks and the prospect of default on government debt. Where do we stand in relation to the crisis? Has the banking system recovered and to what extent? What new risks raise the prospect of another recession? What risks are emerging markets exposed to? A discussion based on the April 2010 edition of the Global Financial Stability Report of the International Monetary Fund