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Lessons from Europe’s Debt Crisis for the United States
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Lessons from Europe’s Debt Crisis for the United States

Desmond Lachman
In: Cato Journal
Cato Institute, 2013

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Editorial Rating

6

Qualities

  • Controversial
  • Eye Opening
  • Overview

Recommendation

The United States is sleepwalking toward a fiscal precipice, lulled into complacency by historically low interest rates, says Desmond Lachman, a resident fellow at the American Enterprise Institute. His conservative-leaning article states that, unless it changes its trajectory, the US is on course to follow in the footsteps of Europe’s peripheral states. Although always politically neutral, getAbstract applauds this reminder that the US needs to acknowledge some uncomfortable facts now, before it’s too late.

Take-Aways

  • The United States is blithely repeating the same mistakes Europe made in the run-up to its sovereign debt debacle.
  • America has a budget deficit of around 8% of its GDP and a gross public debt ratio of at least 105% of output, while Europe is struggling with a combined budget deficit of about 3% of GDP and a gross public debt ratio of around 90% of GDP.
  • Anemic policy enforcement in Europe before the crisis allowed Greece, Ireland, Spain and Portugal to run up unsustainable deficits. Moreover, access to easy credit allowed housing bubbles to expand in Ireland and Spain. The burst was devastating.

About the Author

Desmond Lachman is a resident fellow at the American Enterprise Institute.

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