Public debt in the Eurozone, Japan, and the US

by Charles Wyplosz

Vox
September 16, 2011

Europe’s debt crisis is unfolding while Japanese and US debt problems are on hold. The problem of public debt in advanced economies will be with us for decades. This column introduces a new Geneva Report on the World Economy that addresses the nuts, bolts, and worries surrounding the issue.

There is little doubt that public debts have become outsized in many developed countries. Worse, they are expected to keep growing over the next decades as populations age. The financial markets have now set their eyes on this situation, making it difficult or expensive to borrow for a number of Eurozone countries, and the list could grow and expand beyond the Eurozone.

• Long ignored, the issue of public debt sustainability among developed countries has been brought to the forefront as a result of the crisis.

• The need to recapitalise banks and to provide fiscal stimuli to avoid another Great Depression has resulted in public debt increases of 20% to 30% of GDP.

The problem is that this increase comes on top of previously sizeable debts. For many countries, the challenge is to firmly establish fiscal discipline, an undertaking that has eluded them for decades. The 13th Geneva Report on the World Economy examines the case of the Eurozone, Japan, and the US.

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