Looks like the United States will have plenty of competitors in the race to fiscal insolvency. According to the European Commission’s May forecasts, public debt in the eurozone will soar to 77.7 per cent of GDP this year and 83.8 per cent in 2010, reports the Financial Times.
Barring remedial action by European governments, says Laurence Boone, economist at Barclays Capital, eurozone public debt will zoom to 105 per cent of GDP by 2015. Greece’s debt will be 149 per cent, Ireland’s 144 per cent, Spain’s 135 per cent and France’s 106 per cent.
Why should Virginians care? The eurozone’s economy is a bit larger than that of the U.S. If the 16 nations of the European Union borrow as heavily as the U.S. is projected to do in the years ahead, there is a very real threat that the public sector will crowd out private sector borrowing on a global scale. And that will set into motion a wealth-destroying cycle: Higher interest rates = lower economic growth = lower tax receipts = higher deficits = higher interest rates, and so on.
It’s going to get ugly. Only the solvent will survive.