The global debt of households, companies and countries amounts to the astronomical sum of 200 trillion dollars, the highest in 50 years, according to US-based multinational consulting firm McKinsey. In a report published earlier in February, the firm indicates that seven years after a burst of the global credit bubble resulted in the financial crisis, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by 57 trillion dollars, raising the ratio of debt to GDP by 17%. That poses new risks to financial stability and may undermine global economic growth, McKinsey warned. A new McKinsey Global Institute (MGI) report, entitled “Debt and (not much) deleveraging,” examines the evolution of debt across 47 countries, among which 22 advanced (including Greece) and 25 developing, and assesses the implications of higher leverage in the global economy and in specific sectors and countries. According to the report, the debt-to-GDP ratio has risen in all advanced economies. In many cases the rise exceeded 50%. Government debt is unsustainably high in some countries. Since 2007, government debt has grown by 25 trillion dollars. Similarly, household debt is reaching new peaks, while only in the core crisis countries (Ireland, Spain, the United Kingdom and the United States) have households deleveraged. At the same time, China’s debt has quadrupled since 2007, fueled by real estate and shadow banking, rising to $28 trillion by mid-2014, from 7 trillion in 2007. “These challenges need to be addressed. Yet if, as it appears, economies need ever-larger amounts of debt to grow, and deleveraging is rare and increasingly difficult. They may also need to learn to live more safely with high debt. That will require new approaches to manage and monitor it, to reduce the risk of crises and efficiently resolve private-sector defaults. Policy makers will need to consider more ways to reduce government debt and it may be time to reevaluate how incentives in the tax system encourage the amassing of debt. When there are signs of credit bubbles, regulators can seek to cool markets with countercyclical measures, such as tighter loan-to-value rules and higher capital requirements for banks. Debt undoubtedly remains an essential tool for financing economic growth. But how it is created, used, monitored, and (when necessary) discharged still needs improvement,” the report concluded. Eurozone debt In terms of debt in the Eurozone, according to Deutsche Bank, total state debt in the euro area is 9.473 trillion euros, or 94% of GDP. Greece has the highest percentage of debt, at 176% of GDP, translating into 300 billion euros, whereas the same figure in 2007 was 107.2%. Italy comes second with 131.8%, followed by Portugal at 127%. Estonia sports the lowest debt to GDP ratio at 10.5%. An Olympus-sized mountain of debt for Greece According to figures tabled by Greece’s Public Debt Management Agency in Parliament during 2014, between 2021 and 2030, the Greek state’s debt will reach 201.05 billion euros, out of a total of 291 billion euros in overall obligations between 2015 and 2030. The interest payments alone will amount to 114.45 billion euros.
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