Navigating the world of public debt isn't just a German concern - it's a global issue with various strategies in place. Let's dive into how a few key countries tackle debt, starting with the EU, France, the USA, and Italy.
EU: The European Union enforces debt limits for its members, ensuring that a nation's debt level remains below 60% of its economic output. The general government deficit, or the difference between income and expenditure, should also be less than 3% of GDP. However, these rules have been suspended due to the coronavirus crisis and the Russian attack on Ukraine and are set to return in 2024.
European countries like Germany and France diverge in their approaches.
France: The French government traditionally relies more on debt financing for investments than on frugal budgeting. Averaging a high debt-to-GDP ratio of 111.6%, they've long faced pressure for fiscal consolidation. The government is targeting a deficit below 3% of GDP by the end of 2027, despite a 4.9% deficit projected for this year and a debt ratio set to reach 109.7%.
USA: In the USA, Congress sets a debt ceiling, which reigns in the amount of money the government can borrow. Both Republicans and Democrats spar ending with dramatic moments, like the USA narrowly avoiding default in 2023. The U.S. reached its debt ceiling of around 31.4 trillion dollars in 2023 and managed to postpone raising it until 2025 by freezing the size of the federal budget.
Italy: Italy has a clause in its constitution requiring balanced budgets and sustainable debt levels. However, the country has not followed through on fiscal discipline, resulting in a national debt set to reach 139.8% of GDP by the end of 2023. The budget of Prime Minister Giorgia Meloni's government also envisions 16 billion euros in new debt in 2024, pushing the deficit to 4.3% of GDP.
These nations rely on various approaches to managing public debt, demonstrating that a one-size-fits-all solution is not the answer. The dynamic nature of a country's economy, political climate, and financial situation must be considered when designing effective debt management strategies.
