Europe’s Subprime Quagmire

BRUSSELS – Back in 2007-2008, when the financial crisis was still called the “subprime” crisis, Europeans felt superior to the United States. European bankers surely knew better than to hand out so-called “NINJA” (no income, no job, no assets) loans. These days, however, Europeans have little reason to feel smug. Their leaders seem unable to come to grips with the eurozone’s debt crisis.

Banks in Ireland and Spain are discovering that their customers are losing their jobs and income as the construction bust hits the national economies. And one could argue that a loan to the government of Greece or Portugal affords little more security than a NINJA loan. Indeed, lending to governments and banks in the European periphery represents the European equivalent of subprime lending in the US (which was also concentrated in a few sunshine states).

Given the many similarities between the two crises’ basic features, European leaders could learn a lot from the US experience.