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Lehman Brothers' collapse in 2008 sent shock waves through the global economy. AP Photo/Katsumi Kasahara

Katsumi Kasahara/The Associated Press

What turns a financial mess into a deep recession? The answer to that question is crucial right now. There is a mess in the euro zone and signs that GDP has stopped increasing in much of the world, but neither the markets nor any large economies have fallen off a 2008-style cliff. Not yet, anyway.

Most observers were astounded by the speed and scale of the last collapse – in just a year, industrial production in developed economies fell 17 per cent and global trade fell by 20 per cent, according to Dutch consultants CPB. The shock of the failure of Lehman Brothers in September, 2008, massively amplified the fear and credit tightening which were already slowing the global economy. The authorities responded with strong enough countermeasures to prevent a great global depression, but they were not fast enough to stop the economic decline.

The experience has made everyone more jittery. As European politicians bumble and investors' confidence crumbles, talk of a Lehman moment in the euro zone gets louder. At some volume, the worries can become severe enough to be self-fulfilling, precipitating a crisis.

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But there are good reasons to hope that the global economic fabric will not be torn. To start, the euro zone as a whole has nothing like the U.S. housing credit bubble and the profligate governments in the currency bloc are all moving in the right direction. Also, some lessons have been learned – the financial world has been preparing for substantial writedowns on Greek debts for more than a year.

But these bulwarks might not be strong enough to resist a Lehman-like unexpected calamity. The most obvious risk is that euro zone politicians live down to their worst instincts, but there are many financial imbalances around the world. If something explodes, panic could spread to businesses and ordinary people.

Everyone should hope that does not happen. After Lehman, the world's authorities could offer effective relief. But now policy rates can no longer be cut and more stimulus, either monetary or fiscal, would be as likely to increase panic as to calm nerves.

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