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When the financial bankruptcy of 2019 becomes the warning that Washington and Europe should face
The Lebanese crisis is not the mechanical future of the West. But it can be the extreme alarm signal: that of a state that permanently substitutes debt for political decisions, until the day when confidence disappears.
Small countries sometimes know before big ones diseases that later threaten the rest of the world.
Lebanon could be one of those.
Since 2019, we have viewed the Lebanese financial crisis as an essentially local disaster: bad governance, corruption, chronic deficits, a state unable to reform, the Bank of Lebanon having extended the deadline by increasingly complex financial mechanisms, private banks having concentrated a considerable part of their assets on the state and the central bank.
All this is true.
But what if Lebanon wasn’t just an accident?
If it was a warning too?
And if, behind the Lebanese peculiarities, a much more universal mechanism is hidden: that of a state that spends longer than it earns, borrows to push back difficult decisions, gradually leads its financial system into its own debt, then one day discovers that markets no longer want to finance what they still financed the day before?
A debt crisis rarely begins on the day money is missing. She starts long before. It starts when politics refuses to choose.
The fatal triangle: state – central bank – banks
To understand what could make the Lebanese experience a premonitory one must return to its architecture.
For years, the Lebanese state has accumulated public deficits and debt.
It was therefore necessary to finance that State.
Lebanese banks collected savings and deposits, including those from the diaspora. A considerable proportion of these resources were then directed directly or indirectly towards the Bank of Lebanon and sovereign debt.
The Bank of Lebanon, in turn, financed the public system and supported a fixed parity of the pound with the dollar that had become increasingly expensive.
The system could thus give a remarkable impression of stability.
The banks were working. Interest was paid. The currency seemed stable. Depositors received generous returns. The state continued to live beyond its means.
And since the disaster did not happen, everyone could conclude that the system was working.
Until the day he stopped working.
When capital inflows dried up in 2019, the whole building appeared for what it had become: a single chain of claims linking the depositor to his bank, the bank to the Bank of Lebanon and the Bank of Lebanon, directly or indirectly, to a state that was in debt.
The World Bank estimated losses in the financial sector at over $70 billion by 2023 and noted that approximately 75 per cent of bank assets had been placed with the Bank of Lebanon. In the meantime, the state had been lacking on its Eurobonds in March 2020.
In other words, behind several apparently separate accounting balances, there was in reality only one systemic risk: sovereign risk.
When the state falls, he discovers that bank money was also his money
This is perhaps Lebanon’s most important lesson.
A bank may sound solid. A central bank may seem powerful. A public debt may seem perfectly redefinable.
But when banks have massive State or Central Bank debt, the border between public and private debt becomes dangerously porous.
Citizens’ savings indirectly become the creditor of the public deficit.
And when the state can no longer pay, the question turns brutally: who will bear the loss?
State? The Central Bank? The shareholders of the banks? The creditors? The depositors? Taxpayers? Future generations?
This is exactly the issue that Lebanon has still not fully resolved seven years after the start of the crisis.
In February 2026, the IMF was working with the Lebanese authorities on bank restructuring, the gradual recovery of deposits and the sustainability of public debt. In August 2026, the World Bank still found that public debt remained unsustainable and that negotiations on sovereign debt restructuring had not yet really begun.
We lived with bankruptcy before deciding legally who went bankrupt.
But beware: the Lebanon of 2026 is no longer exactly that of 2019
You have to be intellectually honest here.
To say that Lebanon simply continues to accumulate the same budget deficits as before 2019 would be incorrect today.
Extremely brutal adjustments have taken place.
The Bank of Lebanon stopped part of the monetary financing of the deficit, real government spending was crushed by the monetary collapse and the government even recorded, according to the World Bank, an overall surplus equivalent to 3.9% of GDP in 2025. Public finances remained relatively strong in the first half of 2026 before new conflict-related expenditures came to put pressure on them.
But this is where the lesson becomes even more interesting.
Balancing the flow does not make the stock disappear.
You can eliminate your budget deficit today: if you do not deal with the debt accumulated yesterday, the losses of your Central Bank and the insolvency of your banking system, the crisis remains there.
Lebanon therefore demonstrates two things.
First, it shows what happens when deficits are allowed to drift too long.
Then it shows how difficult it is to repair the system after the breach of trust.
And this is where Washington should start watching Beirut with more attention.
The United States: the same budget problem, but not yet the same disease
Comparison may seem excessive.
The United States is obviously not Lebanon.
They have the most powerful economy in the world, a huge financial market, a tax capacity without common measure, much more robust institutions and, above all, the immense privilege of issuing their debt in their own currency.
And that currency is the dollar, the world’s largest reserve currency.
This difference is fundamental.
But it does not mean that budgetary mathematics has been abolished.
By 2026, the Congressional Budget Office forecasts a US federal deficit of about $1,900 billion, or 5.8 per cent of GDP, even though the US economy is not in deep recession.
Public debt already accounts for about 101% of GDP.
If current policies continue, the CBO forecasts about 120% of GDP in 2036. Even more worrying: the net cost of interest would increase from 3.3% of GDP in 2026 to 4.6% in 2036.
The mechanism then becomes self-powered.
We borrow to finance the deficit. Then more to refinance the mature debt. Then even more to pay the interest on this debt.
And the higher the rate at which the state refinances, the faster the mechanics accelerate.
At what point do the markets stop considering the US deficit as a problem for tomorrow and begin to integrate it into the money price today?
Nobody knows that date. And that is precisely what should be worrying.
There is no magic figure before the crisis
A debt of 80 per cent of GDP can be dangerous for one country and a debt of 150 per cent perfectly financial for another for a long time.
The crisis is therefore not triggered at 100%, 120% or 150% of GDP.
It arises from the combination of several variables: economic growth; the interest rate ; primary deficit; the currency in which the debt is denominated; maturity of the debt; depth of the financial market; credibility of institutions; and above all the confidence of investors in the political will to one day correct the trajectory.
This is the last element that is still underestimated.
Markets can tolerate an unsustainable situation for a long time. Then, suddenly, much less long.
The IMF now estimates that global public debt, close to 94 per cent of world GDP in 2025, could reach 100 per cent by 2029. It explicitly warns against rising interest charges, refinancing requirements and even some erosion of the security premium historically granted to US Treasury bills.
It’s not a crisis yet. It’s a warning.
What about Europe?
Europe is in a different situation.
Overall, it is much less unbalanced than the US: the euro area deficit represented 2.9% of GDP in 2025.
But this European average conceals considerable differences.
At the end of 2025, debt accounted for around 146.1% of GDP in Greece, 137.1% in Italy, 115.6% in France, 107.9% in Belgium and 100.7% in Spain.
At the same time, France had a deficit of 5.1% of GDP, Belgium 5.2%.
And the euro area’s debt as a whole rose to 88.9% of GDP in the first quarter of 2026.
The European situation even contains a paradox.
An American state issues a dollar debt and has behind it a central bank capable of creating these dollars.
France or Italy borrow in euros but do not individually control the creation of the euro.
Protection is collective: European Central Bank, European institutions, solidarity mechanisms, common financial market.
This constitutes an extraordinary force.
But this also means that a crisis of confidence in the debt of a large European state could quickly become a European political issue.
We have already seen it with the Greek crisis.
With France or Italy, the dimensions would be radically different.
The true « libanization » of the West would probably not look like Lebanon
This is where the parallel must be deepened.
To imagine tomorrow the Americans finding their bank accounts blocked exactly like the Lebanese depositors would be caricatural.
This is probably not how a large monetary power debt crisis would manifest itself.
Western « libanization » could be much slower, much more sophisticated and, paradoxically, much less visible.
It could take the form of long-term inflation slightly higher than the savers had anticipated; low real interest rates ; a progressively heavier taxation; a real erosion of the value of bonds and savings; regulatory pressure encouraging banks, insurance or pension funds to hold more public debt; a growing burden of debt servicing preventing the State from financing other missions; less public investment capacity; Finally, a central bank faced with an increasingly uncomfortable choice between price stability, stability of the financial system and sustainability of public finances.
It has a historic name: financial repression.
And it is particularly striking that an IMF study published in July 2026, studying 17 advanced economies over more than a century, concluded precisely that the conditions traditionally favourable to the return of this financial repression are now again present and that it could be used more to alleviate the burden of public debt.
The Western depositor would not necessarily wake up one morning with his account blocked.
He could simply discover, ten years later, that inflation, taxation and low real returns silently paid part of the debt in his place.
The process would be different. The economic principle would be strangely familiar.
The real Lebanese lesson: we need to restructure before markets restructure for you
So the fundamental problem is not debt.
Debt finances wars, infrastructure, crises, pensions, education, research and investment. It can be perfectly rational.
The problem arises when the deficit becomes structural and politically impossible to correct.
When a government can no longer reduce its expenditure. Can no longer increase its revenues. Can no longer reform pensions. Social spending can no longer be affected. Can no longer reduce its administration. Can no longer increase taxes. Growth can no longer accelerate sufficiently. And yet continues to borrow.
At that time, the market gradually became the real Minister of Finance.
It sets the rate. Then he imposes the discipline that politics did not want to impose.
Lebanon has discovered this reality in the most brutal way possible.
The West still has the extraordinary luxury of being able to avoid.
Conclusion – Is Lebanon the prophecy of Western debt?
| My answer is: yes, as a warning; No, as an inevitable destiny.The United States is not Lebanon. Europe is not Lebanon. They have diversified economies, much stronger institutions, huge financial markets and fiscal and monetary capacities that Lebanon has never possessed, so it would be economically wrong to announce that a collapse similar to that of Lebanon is imminent in the West. But it would be equally wrong to believe that these differences give the great powers the privilege of forever escaping the laws of debt.Lebanon is premonitory on the mechanism, not necessarily on form or timing.He teaches us that a state can long live beyond its means. That a central bank can long save time. That a banking system can absorb sovereign debt for a long time. That investors can continue to lend for a long time. That money can long seem stable. And that all this can take long enough to convince an entire generation that what is unsustainable can last forever.Then comes the moment when trust disappears.And when it disappears, the problem is no longer just how much the state should. Who will pay? The taxpayer? Saving? The retiree? The bond holder? The bank? The Central Bank? Or succeeding generations with more debt?It is this question that Lebanon poses today to the West. The Lebanese crisis of 2019 does not say that Washington will be Beirut in 2030, nor that Paris or Rome will tomorrow have closed banks.It says something much deeper: no country, whatever its power, can permanently substitute debt for political decision-making.As long as markets believe in the future capacity of the state to reform, they finance the present. But when this confidence disappears, what was a question of fiscal policy becomes a question of monetary and financial stability.That is why the Western danger may not be a spectacular « Lebanese defect ». It could be slower: inflation, taxation, financial repression, erosion of savings, rising debt costs, gradual weakening of public services and increasing dependence of central banks on state budgetary constraints.It would be a libanization without a brutal collapse. Silent libanization.And it is precisely because the West still has the means to avoid that it would be unforgivable not to look at what Lebanon shows it.Lebanon may not be the future of the West. But it might well be the warning coming from the future. |
LIBAN IS PREMONITORY ON MECHANISM, NOT NECESSARY ON FORM AND TIMELINE.
Main sources
• World Bank – Lebanon Economic Monitor/financial sector and sovereign debt:https://documents1.worldbank.org/curated/en/099041124092526719/pdf/P181623178903407187061e79ae6699195.pdf
• IMF – Mission to Lebanon, 13 February 2026:https://www.imf.org/en/news/articles/2026/02/13/pr-26050-lebanon-imf-staff-concludes-visit
• World Bank – Lebanese Economy, 21 August 2026:https://www.worldbank.org/en/news/press-release/2026/08/21/renewed-conflict-derails-lebanon-s-fragile-economic-recovery
• Congressional Budget Office – Budget and Economic Outlook: 2026 to 2036:https://www.cbo.gov/publication/62105
• IMF – Fiscal Monitor, April 2026:https://www.imf.org/en/publications/fm/issues/2026/04/15/fiscal-monitor-april-2026
• Eurostat – debt and government deficit, 22 April 2026:https://ec.europa.eu/eurostat/en/web/products-euro-indicators/w/2-22042026-ap
• Eurostat – euro area public debt, 21 July 2026:https://ec.europa.eu/eurostat/en/web/products-euro-indicators/w/2-21072026-ap
• IMF – The Coming Great Repression, Working Paper, July 31, 2026:https://www.imf.org/en/publications/wp/issues/2026/07/31/the-coming-green-repression-new-measures-and-a-century-of-evidence-578320
Article prepared in August 2026.
Bernard Raymond Jabre
100% Owner, Chairman – CEO
Fund Manager and Analyst of Aleph Asset Management
E-mail: bjabre@aleph.bz
