Sweeping ever-growing debt under the carpet

Will the debt pile trip up policy-makers?

 
After the expansionary fiscal packages of 2020, the macro-legacy will be debt build-up, which was amassing even before Covid-19 and the Russian invasion of Ukraine. Stubbornly high government debt ratios now look inevitable for 2022 and beyond. Figure 1 shows them in both gross and net terms, where the latter excludes sovereigns’ financial assets, ownership, loans and gold.

Even in 2019, prior to the necessary fiscal stimuli, US, euro area and UK government net debt averaged 77% of gross domestic product – more than twice Japan’s (34%) when it entered its lost decade in the mid-1990s. Japan gets away with it by having its government bonds denominated in yen and held predominately (97%) by domestic investors less sensitive to yield and foreign currency ratings. Thankfully, the US, euro area and UK bonds too are in local currency, implying default risk is next to zero. This offers an extra incentive for euro area members to stay in the club.

 
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Πηγή:omfif.org