Public debt in the eurozone is forecast to reach 102% of GDP in 2020. That’s a hefty surge in government indebtedness compared to 2019, when the euro area’s debt-to-GDP ratio was 86%. Even 2019’s chunky debt ratio was in breach of eurozone rules, which stipulate that government debt is not supposed to exceed 60% of GDP.
Are we all going to have to learn to live with higher debt? Goldman Sachs predicts Italian debt will top 160% of GDP in 2020 (significantly above the 135% ratio Italy had settled at in the wake of the European sovereign debt crisis). Outside Europe, debt ratios are even higher, with Japan’s debt-to-GDP ratio predicted by Fitch Ratings to soar to “well above 240%”.
After the 2007-2008 financial crisis, many governments instituted programmes of so-called “austerity”, which meant cutting public services and government expenditure. However, Europeans may not have much appetite for a fresh round of austerity.
According to some economists, tax rises could be one solution. Others, however, argue that (so long as interest rates stay low and debt interest payments are manageable) it may be possible to grow Europe’s economy faster than its debt.
How will we pay off our coronavirus debt? Is Europe headed for another round of austerity? Or will we learn to live with higher public debt? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!