A country’s debt is a double-edged sword: It can represent a means to an end, allowing a country to cover its deficit or carry out investments but it can also constitute a threat if it is accumulated without a clear management and sustainability vision.
For the PIIGS (Portugal, Ireland, Italy, Greece and Spain), debt, which was initially accumulated as a means to an end, became a threatening macroeconomic weakness for these countries and eventually for Europe as a whole. Up until this day, Greece is deep into debt negotiations with its fellow European governments which are only willing to unlock more assistance funds if Greece engages in serious reforms.
This begs the following questions: When is debt sustainable and when is it not? What should policy makers look at when assessing a country’s debt level? The essential key to be highlighted is that debt cannot be regarded in absolute terms but rather in relative terms. The level of debt should be assessed against the size of the economy and against the ability of the country to pay back its dues…
To read the full report, click on the link below: