Problems under the 1990s synthesis
At first the 1990s policy settlement did not seem very auspicious. Sceptical observers saw it as a last-ditch attempt to restore credibility after the inflation traumas and policy confusion of the preceding 20 years. It nevertheless made a remarkably good beginning. Through the remainder of the decade and into the new century, inflation stayed well under control in the major economies, fiscal retrenchment proceeded satisfactorily, and activity stabilised and eventually picked up – even in Germany and Japan (as shown in Figure 1.1A). Indeed performance in North America and Western Europe through the new regime’s first ten years seemed so promising that optimism spread to other regions, especially among the EU’s neighbours in Eastern Europe and emerging economies in the Far East and the Americas. In due course hopes were raised that the new synthesis would not merely guide policymakers through a particularly challenging transition but also become the pattern for developed and emerging economies for much of the new century.