The Dangers of High Public Debt in an Uncertain World: Post-Covid-19 Dangers for Public Finance

In this EconPol Policy Brief Daniel Gros cautions countries with high debt ratios not to simply rely on low interest rates to make their (Covid-19) debt sustainable. Now that the health emergency is subsiding, governments have to chart a new course for public finance. The starting point is a higher level of public debt. However, high debt ratios represent a danger, even when interest rates are low. The key reason is increased uncertainty of growth prospects in a post-Covid-19 economy, coupled with an uncertainty regarding the probability of future large shocks. A prudent policy would therefore be to start reducing debt levels to pre-crisis levels as soon as the economy normalizes, according to the author.

Daniel Gros will present his research in his keynote at today's EconPol Europe Conference at 4pm (CEST) . Please register on our conference website www.econpol.eu/2021 or follow our livestream at www.econpol.eu/2021#live