The discussion on debt sustainability often focuses exclusively on public debt levels, whether it’s the national, European or global context. The lesson of the euro-crisis however was that for debt sustainability of an economy, also private debt levels matter.  

To gain a fuller picture, this report broadens the view one step further, by showing not only the debts (liabilities) both public and private, but also the development of the assets of governments, households and firms.  

For the European context, the findings nuance the overall picture. While the general perspective that the economic situation in the North is better than in the South still holds, Italy stands out positively, for example in terms of net financial assets. Countries like the Netherlands and the Nordic countries have very high household financial liabilities, whereas firm financial liabilities are the highest for Ireland and Luxemburg. 

This report changes the way we look at debt sustainability and shows that the 60% fiscal debt norm of the EU’s Stability and Growth Pact should never be used in isolation from other variables. International institutions and countries that base fiscal analyses, recommendations and policy on debt sustainability analyses (DSA’s) should start from a more comprehensive understanding of debt sustainability. 

Download the report here.