What Amount of Government Debt to GDP Percentage is Sustainable?

Dear Reader,

Often numbers are cited and is claimed that a country's Government Debt to GDP is unsustainable.

But what is the right number of Debt to GDP Percentage after which the government debt can not and will not be repaid?

According to the euro convergence criteria (also known as the Maastricht criteria) it seems to be implied that level is 60%. Is this a correct estimation?

In my opinion, it depends. Germany's Debt to GDP ratio is 68.1% Can Germany repay 2.3 trillion USD? Hardly, I think. Why? Because the sum is simply staggering. Yes, I know Germany has a large manufacturing base, the Euro is a global reserve currency and so on. So what is the solution? I think Germany has to get its Debt to GDP to circa 40% to be sustainable.

How about USA's Debt to GDP ratio of 105.4% or 21 trillion USD? Is it sustainable? No. That is still an unbelievable sum of money?

How can indebted Eurozone countries and USA get out of this huge government debt problem? One solution is the government debt to be inflated. Basically USA, Germany, France, UK and Japan could borrow when their currency is strong and repay when their respective currencies are weak. The USA had a higher Debt/GDP level around World War II, but the USA managed to decrease its government debt substantially after that to below 40% of GDP in 1980s. But such exercises are dangerous experiments.This should, of course, be accompanied by high inflation. The problem is that it is not possible to have high inflation and growth everywhere in the world simultaneously. Japan's Debt/GDP is 253% which is above 10 trillion USD. Japan's solution seems to be the Bank of Japan(Japan's Central Bank) and other government owned entities buying up huge percentage of the debt. This of, course, will end badly if Japan's debt is not restructured or the country's GDP does not start growing very quickly after let us say a technological breakthrough.

For smaller countries the sustainable Debt/GDP % levels are lower than 40%, as far as I am concerned. Because smaller countries do not have global reserve currencies. Or if they have, like in the case of Switzerland, Norway and Sweden they are marginal.



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Kind regards,
Petar Posledovich