Governments need to lay out a credible path to reducing their deficits in the medium term, but without excessively enfeebling an already weak recovery. That means raising retirement ages and overhauling pensions; putting in place the budget rules and institutions that will curb future profligacy; and favouring spending cuts over tax increases.

Many European countries and Japan need to free their labour markets and liberalise services to boost productivity growth.

Europe's budget plans are better designed: countries from France to Greece are raising retirement ages; others, from Britain to Germany, have created new organisations and rules to encourage fiscal probity. But Europe risks overkill.

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