Guest Contribution: “Europe’s Lehman Moment”

Today, we’re fortunate to have a guest contribution by Jeffry Frieden, Stanfield Professor of International Peace at Harvard University, and coauthor of Lost Decades: The Making of America’s Debt Crisis and the Long Recovery. This article first appeared on Reuter’s Opinion.

Europe’s Lehman Moment

 

By Jeffry Frieden

 

Europe is in the midst of its variant of the great debt crisis that hit the United States in 2008. Fears abound that if things go wrong, the continent will face its own “Lehman moment” — a recurrence of the sheer panic that hit American and world markets after the collapse of Lehman Brothers in October 2008. How did Europe arrive at this dire strait? What are its options? What is likely to happen?

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Recovery, or Replaying 1937 (and 2008)?

The President laid out a series of policy measures in today’s speech which are, by textbook standards, entirely reasonable. And yet, many have been declared by the pundits to be DOA. I’ll leave the assessment of political feasibility to others, but the very fact that these specific measures [0] are so reasonable by textbook standards makes me wonder if we have in fact experienced technological regress in our politico-economic discourse. Maybe those shocks in RBC models are just the fact that so many individuals with influence never took an intermediate macro course, let alone an economics course [1] (I highly recommend Robert Hall and John Taylor’s Macroeconomics, or the later editions, by Hall and David Papell).

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Double Dip or Not? The Data and Policy Implications

We know that in the aftermath of combined housing busts, financial crises, and recessions, recoveries are typically modest if not halting, even if the recession is deep. [0] This characterization appears to have held true, with the question now whether we will enter into a new recession, or merely plug along with growth that technically constitutes a recovery, but is not sufficient to close the output gap with appreciable speed.

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