The European Union is facing severe challenges from the financial crisis and the deep recession. The European economy has been heavily affected by ongoing financial turmoil and the associated deep and synchronised recession in the global economy, reflecting the strong commercial and financial linkages between European economies and between Europe and the rest of the world. Output is projected to decline by around 4% this year, making this Europe’s worst post-war recession. The actions taken by central banks, member state governments, the Commission and other EU institutions have stabilised financial markets and supported the economy. It is important that these policy actions do not imperil the prospects for subsequent recovery or endanger the single market. The recession itself will result in a considerable loss of capacity in the European economy, adding to the pressures on long-term growth prospects that will come from population ageing, and has disrupted the progress that was being made towards achieving the objectives of the renewed Lisbon Strategy for Growth and Jobs. Reforms undertaken through the Lisbon strategy since 2005 have helped the EU to improve the resilience of its economy.