A new term has been added to the vocabulary of economists, in addition to that of Ponzi finance coined by Hyman Minsky to describe the financially unsustainable position of an operator (such as Charles Ponzi in the XNUMXs or, more recently, Bernie Madoff) who pays interest on previous debts by always contracting new debts. The Lehman Moment, on the other hand, connotes a situation of widespread and systemic panic resulting from an uncontrolled increase in public and private debt which fuels speculation on the securities and real estate markets, inflating a bubble which then inevitably bursts, overwhelming banks, businesses and consumers.
In Europe we are seeing a repeat of what happened in the United States between 2001 and 2007, culminating in the bankruptcy of Lehman Brothers in September 2008. For a decade some peripheral eurozone countries, Spain, Portugal, Ireland, they are heavily indebted to banks and investors in core countries; this mountain of liquidity has mainly poured into the real estate market and consumption. A couple of data taken from a recent book Lost Decades: The Making of America's Debt Crisis and the Long Recovery, by Menzie D. Chinn and Jeffry A. Frieden (who coined the aforementioned term) are enough to give us the dimension of the problem. In Spain they built half a million houses every year, equal to as many new ones are built in Italy, France and Germany combined. In Greece the level of loans obtained from abroad in 2009 was equal to that of Argentina, Brazil and Mexico overall.
When the bubble burst, the same logic that forced the government in the United States to bail out the big banks forced itself on Europe, which had to throw the life preserver to countries that had become insolvent. Certainly the banks of the peripheral countries of the euro and the Greek government borrowed excessively, but the banks and financial companies of Germany and Northern Europe in turn borrowed excessively. And as in the case of the United States, the massive intervention - it appears increasingly clear by now - responds as much to the urgency of saving creditors as (perhaps even less) to that of helping debtors.
In Europe as in America the still unanswered question is who will shoulder the costs of this devastating crisis. Who will really pay? Will it be the creditors or the debtors, the taxpayers or civil servants, the Germans or the Greeks? In reality, no one yet knows, in relations between European countries and within each country, which combination of sacrifices will be politically sustainable. After every debt crisis, the adjustment to the new reality takes place amidst conflicts and resistances that are only partially predictable. But we know for sure that, if there is no other way than debt restructuring, the reduction of interest payable and the lengthening of the duration, the wave that arrives is an economic, political and social tsunami: the fearsome and devastating Lehman momentum.
