As consumers and companies everywhere keep a firm grip on their wallets, governments are stepping in to fill the gap. In Europe, they are doing so less by deliberate action than through the “automatic stabilisers” of welfare states and progressive taxes. Other countries, such as the US, have enacted large stimulus packages. The results are the same: yawning public sector deficits.

States are rightly boosting aggregate demand to halt the downward economic spiral, but indebtedness cannot increase without limit. As soon as the recession ends, public debt must be brought under control and more national income diverted from spending to debt service.