The economic prospects of Europe and other parts of the world have traditionally hinged on the U.S. economy. Now most economists concur with the view that the U.S. economy is sneezing. Yet this time the rest of the world is not expected to catch a cold. Why not? Why is there so much confidence that the euro area can successfully decouple its economic trajectory from the current U.S. slowdown? Let me lay out some thoughts in this regard in the context provided by recent macroeconomic developments--at the global level, in the U.S. and in Europe.
Let me start with the global macroeconomic environment. The dynamism of the world economy since its rebound in mid-2003 has been ...