\n
Comment on this story<\/title><path d=\"M14 14V2H2v9.47h8.18L12.43 13ZM3 10.52V3h10v9.23l-2.5-1.66Z\"\/><\/svg><\/button><\/p>\n<p>Comment<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"teaser-content grid-center\">\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">Time and again, Europe\u2019s leaders have pledged to address a looming threat to their union: excessive government debt. Yet time and again, events \u2014 first the pandemic, now a war-related energy shock \u2014 have undermined their plans, making the problem larger.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">This can\u2019t go on forever. At some point, a major government will probably end up insolvent. The European Union needs to be much better prepared than it is.<\/p>\n<\/div>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">When divergent economies share a currency without sharing coffers, imbalances invariably arise. German exports and savings, for example, give rise to debts in other countries. A decade ago, such imbalances \u2014 together with official mismanagement \u2014 resulted in a Greek financial debacle that nearly tore the euro area apart and imposed suffering on millions of people. But instead of addressing the root of the problem by forming a fiscal union, Europe\u2019s leaders reiterated an old pledge: Over time, they would seek to reduce government debts to a safer level.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">No such luck. Amid emergency spending to ease the pandemic and blunt the effects of volatile energy prices, debt burdens have headed mainly in the opposite direction. As of 2021, the combined gross debts of euro-area governments stood at 95% of gross domestic product, up from 86% in 2010 and well above the agreed target of 60%.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">So is another crisis coming? That will depend on whether investors think European governments can get their debt-to-GDP ratios under control. To some extent, this year\u2019s inflation surge will help, by increasing the denominator. But rising interest rates will make it difficult to keep the numerator from racing ahead.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">Consider Italy, with a ratio of 151%. Official projections show its debt burden declining significantly over the next decade. But that\u2019s assuming borrowing costs of only about 2%. If, instead, Italy\u2019s debt rolls over at current interest rates of about 4%, its outlook will be more precarious. Just to keep the debt ratio stable, the government would have to engage in permanent austerity, maintaining an average primary budget surplus (excluding debt payments) of almost 1.5% of GDP \u2014 something that, while not unprecedented, would risk popular unrest and impair\u00a0public investment. Getting the debt down to 60% of GDP, even over two decades, would require sustained primary surpluses larger than any country has ever achieved.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">If at some point markets decide that Italy\u2019s debt is unsustainable, officials will have just two options: write off the debt at the expense of private investors, or rescue Italy at the expense of EU taxpayers. Under current conditions, the first would probably trigger a financial crisis, because Italian banks are among the largest holders of their government\u2019s debt. The second is a political non-starter, particularly in relatively well-off countries such as Germany.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">Ultimately, only a true risk-sharing union\u00a0\u2014 in which fiscal transfers balance out asymmetric shocks \u2014 can ensure the longer-term viability of the euro. In the meantime, Europe must at least create the conditions for relatively orderly sovereign-debt restructurings. To that end, policymakers should accelerate the diversification of banks\u2019 holdings away from the debts of their home governments, require more loss-absorbing capital, and complete the banking-sector reforms\u00a0\u2014 such as harmonizing deposit insurance and streamlining supervisory authority \u2014\u00a0needed to ensure that failures can be handled with minimal collateral damage.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">Beyond that, Europe needs a sovereign bankruptcy mechanism. The aim should be to ensure that, when a government proves unable to pay its debts, losses are imposed on private creditors as quickly and equitably as possible \u2014 thus minimizing the involvement of taxpayers and avoiding the kind of serial bailouts that did so much damage in Greece.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">As the economist Herbert Stein aptly put it, \u201cIf something cannot go on forever, it will stop.\u201d Europe had better be ready.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">More From Bloomberg Opinion:<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">\u2022 Central Banks Get a Breather But Can\u2019t Afford to Rest: Mohamed A. El-Erian<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">\u2022 India Is a Bright Spot for Global Oil Demand: Javier Blas<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">\u2022 Erdogan\u2019s Ego Trip Is Undermining NATO: Andreas Kluth<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">The Editors are members of the Bloomberg Opinion editorial board.<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"wpds-c-cYdRxM wpds-c-cYdRxM-iPJLV-css font-copy\">More stories like this are available on <a href=\"https:\/\/www.bloomberg.com\/opinion\">bloomberg.com\/opinion<\/a><\/p>\n<\/div>\n<section class=\"dn-ns hide-for-print\" data-testid=\"mostRead\" subscriptions-section=\"content\"\/><\/div>\n\n<br \/><a href=\"https:\/\/news.google.com\/__i\/rss\/rd\/articles\/CBMimwFodHRwczovL3d3dy53YXNoaW5ndG9ucG9zdC5jb20vYnVzaW5lc3MvZW5lcmd5L2V1cm9wZXMtc292ZXJlaWduLWRlYnQtY2FudC1rZWVwLWdvaW5nLXVwLWZvcmV2ZXIvMjAyMi8xMS8xNS85MTgyMjRiNC02NGFiLTExZWQtYjA4Yy0zY2UyMjI2MDcwNTlfc3RvcnkuaHRtbNIBAA?oc=5\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Comment on this story Comment Time and again, Europe\u2019s leaders have pledged to address a looming threat to their union: excessive government debt. Yet time and again, events \u2014 first the pandemic, now a war-related energy shock \u2014 have undermined their plans, making the problem larger. This can\u2019t go on forever. At some point, a …<\/p>\n","protected":false},"author":1,"featured_media":36381,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[161],"tags":[],"_links":{"self":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/36380"}],"collection":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/comments?post=36380"}],"version-history":[{"count":0,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/36380\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media\/36381"}],"wp:attachment":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media?parent=36380"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/categories?post=36380"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/tags?post=36380"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}