This speech discusses the challenges of dealing with, and then recovering from, the global financial crisis in 2008. It suggests that policies implemented at that time were effective in averting a ‘potential catastrophe’ but that fostering a strong economic recovery has been more difficult.

From an international perspective, the speech looks in detail at the effectiveness of policies implemented to generate a robust economic recovery following the global financial crisis. It notes that there has been some progress in fixing banks’ balance sheets, and although this remains a work in progress, achieving this is a necessary condition for financial recovery. The use of fiscal policy to support economic growth is noted to have been restrained by the fragile state of public finances in many of the crisis-affected countries.

It then turns to the role of monetary policy in supporting the economic recovery and acknowledges that this policy had challenges of its own. The role of quantitative easing as a means of easing policy by lowering long-term interest rates, and reducing the cost of capital for the economy, is considered. The speech suggests that financial conditions globally have been ‘extraordinarily accommodative’ but that the impact on risk-taking in the real economy cannot yet be determined. In addressing the limits of monetary policy, the speech highlights that it cannot make people take on new business risks.

The speech concludes by suggesting that the subdued ‘animal spirits’ in the economy are likely to improve at some point. It considers measures that can be implemented to help this happen more quickly. It notes that whilst monetary policy is unlikely to be able to support an acceleration of ‘animal spirits’, the G20 agenda on growth could provide considerable help. And then, the speech suggests, highly accommodative financial conditions could have a more powerful effect in engendering real growth.

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