Oops! Europe has done it again. After long viewing the crisis and economic downturn purely as a US problem – as has happened so often in the past – reality has hit hard. The latest downward revision of growth forecasts by the European Commission underlines the view that the European Union is heading into tough times.

The EU is subject to the same imbalances that have been much debated globally, albeit on a smaller scale. On the one hand, there are the big spenders, most notably the UK, Ireland and Spain. On the other, the big savers, led by Germany. During a boom, both sides can grow quickly: the spenders through easy credit conditions, and the savers through exports. But in a credit bust, both sources of growth break down – and the only way out is to loosen economic policy.