Despite the broad upswing in the euro area, it cannot be precluded that high public debts in some countries could spiral out of control if interest rates increase again.

Assessment and Recommendations: Debt Sustainability Analyses for Italy, Spain and Portugal
Article in Intereconomics
Institut der deutschen Wirtschaft
Despite the broad upswing in the euro area, it cannot be precluded that high public debts in some countries could spiral out of control if interest rates increase again.
To analyse the relevance of this danger, a debt sustainability analysis is carried out using a narrow range of relatively realistic assumptions through 2022. While public debts will remain high for an extended period, reasonable fi scal primary surpluses will be suffi cient to stabilise debt ratios, even if a moderate recession occurs.
More than fi ve years after the end of the acute phase of the euro debt crisis, the subsequent upturn in the euro area has increasingly gained momentum. But how stable is the overall economic situation?1 In Italy and Portugal, the public debt ratio is very high, at some 130% of GDP, and it is around 100% of GDP in Spain. In all three countries, this ratio has not or only hardly declined in recent years due to only limited consolidation progress. This raises the question as to whether the sovereign debts of these countries are still viable if interest rates rise again or if the next recession hits. These aspects are also of great relevance to the current debate on the future EMU architecture. Advocates of stronger fi scal integration justify their proposals with the supposedly too great fragility of the highly indebted euro area countries. Against this background, a debt sustainability analysis of Spain, Italy and Portugal is carried out to assess how fragile the situation really is.

Jürgen Matthes: Debt Sustainability Analyses for Italy, Spain and Portugal – Assessment and Recommendations
Article in Intereconomics
Institut der deutschen Wirtschaft

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