Public Debt over Threeshold

Is a country with a public debt-GDP ratio higher than 130 per cent heading for default?

There are several reasons that could make reply “yes” to the question under analysis; and we are going to deal with each one of them proving that the answer to the question is actually “no” because an excessive public debt is a sufficient, but not a necessary reason for a country’s default.

This document entangles the argument under analysis by identifying key questions to demonstrate that countries with a public debt-GDP ratio higher than 130 per cent are NOT (necessarily) heading for default.

How big is the debt burden on future generations?

First of all, there is a common knowledge of the fact that debt means that not only the money borrowed will have to be repaid at maturity, but also interest payments will have to be paid to the lender during the loan’s lifetime. This rule is confirmed also for national economy (macroeconomic point of view) and not only for households and companies (microeconomic point of view). In fact, advocates of high public debt risk claim that it is unfair that new generations will have to bear the repayment of the debt accrued by prior generations. But, on some extent what should really be taken into account is the weight of the debt repayment that new generations will have to encounter. As a matter of fact, if public debt was divided on a per unit basis and an average lifetime income was estimated, we could find that the burden of the debt repayment weighs a small part of the overall lifetime income an individual will on average accrue (Italy example: public debt is approximately $ 39,000 per person