Economist Covers

In the news last week...

Britain's general election on May 6th produced an inconclusive result, leaving the Conservatives as the largest party in Parliament but short of an overall majority. After five days of wrangling the Conservatives joined forces with the Liberal Democrats, who came third at the polls, behind Labour, to create the country's first coalition government since the second world war. David Cameron is the new prime minister, and Nick Clegg, leader of the Lib Dems, will serve as his deputy.

Leaders of the euro-area countries agreed on a 750 billion euro ($950 billion) 'stabilisation fund', with IMF help, for troubled countries in the currency zone. The package, designed to stave off speculative attacks, was seen as a triumph for France's Nicolas Sarkozy and a defeat for Angela Merkel, the German chancellor.

Markets responded positively, initially at least, to the 750 billion euro ($950 billion) stabilisation fund promised for the euro area. But the political independence of the European Central Bank came into question after it reversed course on its 'exit strategy' of gradually unwinding the emergency financial measures it introduced in 2008, and started to buy undisclosed amounts of euro-zone government bonds to soothe 'dysfunctional' markets.