A crisis of governability has engulfed the world’s industrialized democracies. It is not coincidental that the United States, Europe, and Japan are simultaneously experiencing political breakdown. Rather, globalization is a common culprit. Across the West’s open societies, globalization is producing a widening gap between what electorates are asking of their governments and what those governments are able to deliver. This mismatch between the growing demand for good governance and its shrinking supply is dangerously compromising the power and purpose of the Western world.

The paper by Thomas Cooley (New York University) discusses the challenges for the European Central Bank in the current situation both in terms of long term fiscal adjustments and of potential fragility of the European Banking system. The pair of papers by Giancarlo Corsetti (Cambridge University and EUI) and Massimiliano Marcellino (EUI) focuses on debt sustainability and the implications of the debt crisis for growth. The paper by Harold James (Princeton University) focuses more specifically on the challenges to monetary and fiscal policies in Europe. The joint paper by Joanna Gray and Patrick O'Callaghan (both Newcastle University) discusses the legitimacy and efficacy of the EU and Member State response to the sovereign debt problems in the Eurozone from a legal perspective. The joint paper by Franklin Allen (University of Pennsylvania) and Elena Carletti (EUI) turn the attention to the issue of systemic risk and the need for macroprudential regulation. Finally, Luigi Guiso (EUI) tackles the issue of trust and risk aversion in the aftermath of the financial crisis. Our hope is that this joint policy paper will contribute to shaping the debate further and help policymakers to tackle the challenges emerged in the aftermath of the financial crisis. Elena Carletti, Giancarlo Corsetti and Saverio Simonelli