The U.S. and global economies are in a perilous state, and yet we may be underestimating the dangers. Just out of sight lies a second large threat: a global debt crisis that, centered in Europe, would further destabilize a world already struggling to combat the dreadful consequences of thepandemic. In the United States and elsewhere, tens of millions have lost their jobs, and business losses total in the trillions of dollars.
The bargain was clear: Over-borrowed countries got debt relief from the ECB, which then effectively guaranteed their bonds. In return, borrowing nations trimmed deficits so they would depend less on the ECB for credit. For a while, the bargain seemed to work. Confidence rose; financial risk fell. But the bargain was fragile. It depended on steady economic growth that has vanished with the pandemic’s arrival.
The combination of shrinking economies and expanding deficits automatically increases the debt burden. These are already high and are going higher. The Capital Economics report estimates 2020 debt at 73 percent of GDP for Germany, 120 percent for France, 180 percent for Italy and 222 percent for Greece.
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