The US employment report for February contains further evidence that, on the surface at least, the American labour market is returning to normal. The unemployment rate of 8.3 per cent is 1.7 percentage points below its peak in October 2009. Yet consumer pessimism about job prospects remains almost as bleak as it was in the darkest hour of the recession. If the labour market is really improving as much as the official data imply, no one seems to have told middle America.

Employment gains have certainly been strong in recent months. But over a longer period it seems that the labour force has been growing much less strongly than normal. The participation rate has actually fallen from 65 per cent at the height of the recession to 63.9 per cent now.

This shrinkage, part voluntary and part involuntary, leaves the potential output of the economy lower than it was before, and may explain why Americans do not perceive this recovery in the labour market as a genuine one. It is a major relief that the labour market is now clearly improving. But the financial crash of 2008 continues to cast a very long shadow on America’s economic potential.

As this weekend’s eurozone summit looms into view, the key question for markets is whether the new financing deal will be sufficient to handle three separate problems: the necessary writedown of Greek debt; the recapitalisation of eurozone banks; and the restoration of private funding for Italian and Spanish budget deficits.

It has been clear for a long while that the €440bn currently available to the European financial stability facility is far from sufficient to do the job. Consequently, it seems that the summit will agree to “leverage” the bail-out fund to give it much greater scale. This has triggered optimistic talk about a “big bazooka”, but achieving the right order of magnitude still looks to be a very tall order.

The latest figures show that Britain’s economy has barely grown in the past nine months. The official statistics may underestimate the true growth rate – and there may be supply side factors that fiscal and monetary policy cannot address. But assuming the economy stays subdued, there will be a strong case for a boost to demand through macroeconomic policy.

There is no doubt that George Osborne’s policy of fiscal tightening has slowed the economy. But the intention was that its effects be cushioned by expansionary monetary policy and a lower exchange rate, and that still remains the best route to easier demand policy.

Inflation is still too high for the Bank of England to ease policy immediately, but underlying inflation rates are now falling sharply. We now know that it would have been a serious mistake for the Bank’s monetary policy committee to increase interest rates earlier in the year. The case for another round of quantitative easing is growing.

The decision by Harry Reid, the majority leader in the Senate, to cancel next week’s planned recess in order to advance discussions on the US debt ceiling is a welcome indication that Washington is beginning to view the debt issue with more urgency. Viewed from overseas, the American political system has started to appear dysfunctional in recent weeks.

The atmosphere of political posturing does not build confidence that the longer-term problems in the US public accounts can be seriously addressed. And the country might one day need all the foreign confidence it can get. According to this week’s International Monetary Fund report on the American economy, a fiscal consolidation of 7.5 per cent of the gross national product will be needed to stabilise the debt ratio in the next five years. Washington should be focused on how and when such an adjustment should occur instead of attempting to score empty political points on the debt ceiling.