Public Economics pp 321-377 | Cite as

# Public Debt

## Abstract

During the 1980s and 1990s, we observed many public debt crises in Latin America and Asia. Prior to, during, and after the financial crisis of 2007–2008, we also observed many countries in the European Monetary Union (EMU) with severe public debt problems. Government debt has increased to unprecedented levels in the post-World War II era in the so-called “GIIPS” countries (Greece, Ireland, Italy, Portugal, and Spain). The Greek, Spanish, and Italian governments have had to pay premiums of 16, 3, and 3 percentage points on their public debt relative to Germany. Consequently, the president of the European Central Bank (ECB), Mario Draghi, initiated a program whereby the ECB extended 3-year loans in the amount of 1 trillion (!) euros to the Eurozone banking sector. Interest rates subsequently converged, but debt levels remain high and still amounted to 179%, 100%, and 132% of GDP in Greece, Spain, and Italy in 2015, almost 10 years after the onset of the crisis. As a second major second case of severe public debt, Japan had accumulated a gross public debt equal to approximately 240% of GDP by 2015.

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