Cover -- Contents -- Executive Summary -- 1. Outlook: Beyond the Crisis -- Fragile Recovery -- Strong Policy Response -- Further Policy Action Required -- 2. The Crisis and Potential Output -- Worrying About an Unobservable -- Long-Term Effects -- Medium-Term Effects -- Policy Implications -- 3. Implications of the Fall in Potential Output for Macroeconomic Policies -- Crisis Impact on Monetary Policy -- Impact of the Crisis on Fiscal Policy -- 4. Policies in Emerging Economies for Coping with Heightened Risk During Recovery -- Facing a Riskier Environment -- Adverse Effects on the Path to Recovery -- Challenging Policymakers -- Policy Options -- Conclusions and Policy Implications -- References -- Boxes -- 1. Employment and Productivity Dynamics Around Recessions Recessions: Germany, Spain, : and the United Kingdom -- 2. Asset Price Swings, Monetary Policy, and Prudential Policy: A European View -- 3. Currency Mismatches i in Emerging Europe -- 4. Managing Fiscal Risks Stemming from Public Interventions to Support Financial Systems -- 5. Risks to Medium-Term Growth and Convergence in Emer Emerging Europe ging -- 6. Effect of the Financial Crisis on Potential Growth in Western Europe -- Tables -- 1. European Countries: Real GDP Growth and CP CPI Inflation, 2006-10 I -- 2. European Countries: External and Fiscal Balances, 2006-10 -- 3. IMF Support for European Countri Countries Affected by the Global Crisis es -- 4. Gross Value-Added Growth and Contributions, 1980-95 and 1995-2005 -- 5. Potential Output and Output Gaps in the Euro Area -- 6. Macroeconomic Performance Under Output Gap Uncertainty -- 7. Fiscal Adjustment Req Required in Response to Var ired Various Crisis Scenarios ious -- 8. Volatility of Shocks in the Euro Ar Area ea versus Shocks in the Emerging Economy, Precrisis and Crisis -- Figures.

1. Euro Area: Contribution to Growth, 2006-09 -- 2. Selected European Countries and the United States: Unemployment, January 1999- August 2009 -- 3. Euro Area: Yield Curves and Equity Markets -- 4. Selected European Countries: Growth of Real Credit to Private Sector, January 2006- May 2009 -- 5. Euro Area: Real Bank Credit and GDP Growth, 2000:Q1- 2009:Q2 -- 6. Selected European Countries: Headline and Core Inflation, January 2006-July 2009 -- 7. Selected European Countries: Key Short-Term Indicators -- 8. Selected European Countries: Bankruptcies, 2005-09 -- 9. Selected Countries: Employment Over the Business Cycle -- 10. Selected Countries: Central Banks' Tota Total Assets, January 2007-August 2009 l -- 11. Selected EU Countries: Debt Level and Cumulative Fiscal Deficit -- 12. Selected Countries: Average Gross Value-Added Growth, 1995-2005 -- 13. Euro Area: Potential (Medium-Term) Growth with Different Methodol Methodologies, ogies, 1993:Q2- 2009:Q1 -- 14. Euro Area: "Real-Time" and "True" Output Gaps, 1993:Q1-2007:Q2 -- 15. The Benefits of a Price Stability Commitment Under Output Gap Uncertainty -- 16. Selected European Countries: Policy Rates, 2007-09 -- 17. Euro Area: Potential Output Scenarios, 1999-2014 -- 18. Selected European Countries: Pr Projected Chang ojected Changes in Public Debt es -- 19. Selected European Countries: Require Required Improvement of Primary Balance d -- 20. Selected European Countries: Bond Spreads-Level and Volatility, January 2006- June 2009 -- 21. Selected European Countries: Quarterly Revisions in Fiscal Balance Forecast, 2004:Q1- 2009:Q2 -- 22. Selected European Countries: WEO Revisions in Projected Government Debt for 2010 in April 2009 over September 2008 -- 23. Selected European Countries: Exchange Rate Volatility, 2004:Q1-2009:Q1 -- 24. Emergin Emerging Economies Have Higher Volatility.

25. Effect of the Crisis in the Emerging Economy -- 26. Limiting Discretionary Fiscal Polic Policy Shocks in the Emerging Economy y -- 27. Reacting to the Exchange Rate in the Emerging Economy.