Let me attempt, perhaps foolhardily, to map out a scenario of how the global economic crisis could evolve in continental Europe.

Even if we assume a recovery elsewhere, Europe’s economy may be stuck at low growth for some time. To understand why, it is perhaps best to look at sectoral balances for households, companies and the public sector.

The current account can be expressed as the difference between national savings and investments. Of the world’s 10 largest economies, the US, the UK and Spain used to run the largest current account deficits before the crisis. The US household sector has been shifting from a negative savings rate before the crisis to a positive rate of 4 per cent of disposable income now. The US corporate sector used to have a large negative...