3 million jobs. using a similar methodology, bank of canada researchers estimate that the increase in policy uncertainty observed since the reintensification of the euro - area crisis late last year may have lowered the level of euro - area gdp by roughly 1 per cent. analytically, there is a clear question of causality here – does uncertainty cause slower growth or is it the other way around, with difficult economic times inducing greater qualms about the future? surely it works both ways. thus, the current combination of economic weakness and heightened uncertainty may be forming a vicious circle in the global economy. that there is uncertainty about how the global economy will respond to an unprecedented period of deleveraging is not surprising. more troubling is the apparent uncertainty about the stance and perceived effectiveness of economic policy. the question is what can policy - makers do about it? europe let me start with europe. the euro - area economy is stagnating, with gdp still 2 per cent below its pre - crisis peak and private domestic demand a stunning 6 per cent below. the causes of this underperformance are deep - seated. an adverse feedback loop between weakening economic activity and sovereign and banking sector vulnerabilities has made the task of fiscal consolidation even more difficult. the vix refers to the chicago board options exchange volatility index, a popular measure of the implied volatility of s & p500 index options. it represents a market estimate of short - term stock market volatility. s. baker, n. bloom and s. davis, “ uncertainty and the economy, ” policy review 175 ( 2012 ). the index incorporates newspaper coverage of policy - related economic uncertainty, the number of tax code provisions set to expire in future years and the extent of disagreement among economic forecasters. bis central bankers ’ speeches europe ’ s banking losses and fiscal shortfalls are merely symptoms of a more serious underlying illness – a balance - of - payments crisis. to repay the creditors of europe ’ s core economies, the debtors of peripheral economies must regain competitiveness. although there has been some progress, this process will be neither easy nor quick. there are two ways to address the uncertainties plaguing europe. first, europe is often said to be suffering an existential crisis – meaning that the very existence of the euro is being questioned. recent actions, particularly by the european central bank ( ecb ), are now directly addressing this risk. the ecb has recently introduced a new

without limit. participation in the program is restricted to member countries that undergo a european financial stability facility / european stability mechanism program. this condition is critical, as “ strict and effective conditionality ” is needed to ensure that countries continue to undertake required reforms. bis central bankers ’ speeches policy - makers appropriately tightened monetary and macroprudential policies once the economy shook off the effects of the 2008 – 09 global crisis. given these excesses, the reduction in china ’ s growth to more sustainable rates is welcome. however, recent signs that the slowdown in the chinese economy may become too intense have prompted authorities to unwind some of the past policy tightening. this process has begun, with notable fiscal stimulus measures announced recently. nonetheless, there remains significant uncertainty over how quickly china can adjust its growth model. with the limits of an export - led growth strategy now obvious, rebalancing to encourage domestic sources of growth is needed. yet prior rounds of stimulus appeared to stoke already very high levels of residential and business fixed investment, rather than consumption, which remains exceptionally low. the risk is that, once again, the right stimulus will end up in the wrong places. for outside observers, the uncertainty surrounding the economic outlook in china is compounded by the difficulty in obtaining reliable information regarding the extent to which the economy has already slowed. that said, it is important to put china ’ s recent performance in context. the bank of canada expects growth in china ’ s gdp to average about 7. 5 per cent over the next few years. while this is substantially below the unsustainable double - digit rates seen in recent years, it is still considerable. in fact, 7. 5 per cent real growth in chinese gdp in 2012 will add roughly $ 800 billion to the global economy, an amount equivalent ( in real terms ) to the 14 per cent rate of growth in china in 2007, and approximately twice the dollar value of u. s. growth this year. the u. s. outlook the u. s. recovery remains modest, consistent with the experience of other advanced economies that have faced financial crises. although the fiscal challenges continue to loom, the recovery appears to be on a somewhat surer footing. american households have recovered more than two - thirds of the $ 16 trillion in net worth lost in the aftermath of the crisis. while it will take several more years to make up the balance, the process of household deleveraging appears well advanced, particularly now that the u. s. housing