Recent economic reports, based on data published by the Financial Times, reveal that global sovereign debt has risen to unprecedented levels , with debt growth now outpacing global GDP growth. This alarming disparity raises serious concerns among international financial institutions about the sustainability of governments' public finances and their ability to withstand long-term economic pressures.
US and European debt crisis: alarming figures
In the United States, the world's largest economy, federal government debt has approached 100% of GDP, a psychologically and economically critical level. Even more alarming, total national debt (including state debt) has already exceeded 110%. Pessimistic projections suggest this figure could jump to 156% by 2055 if current fiscal policies and spending levels continue without radical reforms.
The situation in Europe is no better; European countries face similar challenges, with debt burdens expected to double over the next fifteen years unless public spending is curbed. This upward trajectory threatens to stifle economic growth in the Eurozone and drive up borrowing costs, thus reducing the fiscal space available for investment in infrastructure and services.
Lessons from history: Why is the current situation different from the post-World War II era?
The report pointed to the UK's historical experience in the post-World War II period, where Britain successfully reduced its enormous debt from 250% to 42% of GDP over three decades. During that era, inflation played a contributing role in eroding the real value of the debt.
However, experts emphasize that current economic conditions are entirely different . While past policies allowed for the monetization of debt, central banks today (such as the US Federal Reserve and the European Central Bank) are waging a fierce war against inflation by raising interest rates, making debt servicing more expensive and preventing governments from relying on inflation as an easy way to reduce their debt burdens.
Geopolitical and demographic challenges exacerbate the crisis
Structural shifts in the global economy further complicate the situation; aging populations in developed countries are placing immense pressure on pension and healthcare systems. Simultaneously, escalating geopolitical tensions in several regions around the world have led to unprecedented increases in defense and military budgets , adding further strain to already overburdened public finances.
Given these circumstances, Deutsche Bank forecasts low global productivity growth of just 0.7%, a rate deemed insufficient to address mounting debt and its accruing interest payments. This situation raises fundamental questions about governments' ability to meet their future financial obligations without resorting to harsh austerity measures or increased taxes, thus presenting the global economy with a formidable challenge in the coming years.
