Rising Debt Levels Spark Concerns Over Long-Term Fiscal Sustainability
• Debt ratios are rising globally, reviving old debates about fiscal sustainability • There is no agreed upon "safe" debt-to-GDP ratio; what matters is the interest rate versus growth rate differential • Higher interest rates are making debt burdens less sustainable for some countries like Italy • Countries borrowing in their own currencies have more flexibility to address debt issues via inflation or financial repression • Another crisis could force more aggressive debt reduction policies like financial repression instead of fiscal tightening