We spend, support and consume a bit prodigally. From that point of view the European debt crisis can be explained in simple terms and with equally simple consequences. When governments can no longer draw on the unlimited credit line that comes with having a stable currency, it is time for them to start reining in their deficits. But when they do, everyone takes fright at the prospect of an economic slowdown.
That may leave a sour taste in the mouths of some, but on a global scale it could prove doubly sweet. Not only will the resulting dip in European growth help cool the overheating emerging economies; the euro's depreciation that rampant public deficits have given rise to will moreover give a boost to German and French exports. America, whose currency has gained the upper hand against the euro by face value, has no more short-term financing problems.
And borrowing will be more affordable for the US with its economy showing tangible signs of recovery. The world's economic and financial problems have long been common knowledge. It was only politicians who wanted to ignore them up to now. It will take time to relearn virtuous behaviour, and doing so will be painful.
Near term, however, there are signs that to some extent we will enjoy the best of both worlds: low interest rates and economic expansion. So I am at a loss to understand the sell-off that drove financial assets down indiscriminately in May. Is it fear of another major credit crunch that has prompted investors to throw out the baby with the bathwater ? This is not 2008 any more. Things have changed because the actors have a different attitude towards the problems. These are due to a huge macroeconomic imbalance already more than a decade old.
Yet every crisis is different. By advocating a diet, governments have for the first time taken a courageous step that the IMF has shown to be effective. Equities and hard assets are the segments worth considering from this standpoint, and May gave rise to plenty of opportunities. In short, the summer sales have begun ahead of schedule!