Many advanced economies are likely to require financial repression, outright debt restructuring, higher inflation and a variety of capital controls, a new research paper commissioned by the International Monetary Fund (IMF) has warned.
The magnitude of today's debt in Western economies will mean fiscal austerity will not be sufficient, Harvard economists Carmen Reinhart and Kenneth Rogoff said in the report, as policymakers continue to underestimate the depth and duration of the downturn.
(Read More: Reinhart-Rogoff Error Sparks Austerity Debate)
"It is clear that governments should be careful in their assumption that growth alone will be able to end the crisis. Instead, today's advanced country governments may have to look increasingly to the approaches that have long been associated with emerging markets, and that advanced countries themselves once practiced not so long ago," they said.
Delving into the realms of history, they detail the widespread default by both advanced and emerging European nations on World War I debts to the United States during the 1930s. The research suggests that "collective amnesia" of this history has led to current policies that in some cases risk exacerbating the final costs of deleveraging.