Source: Financial Times
Date: 02/04/2004
Industrialised countries face crushing debt burdens - greater even than those during the second world war - unless governments make politically painful cuts in social spending in the next few years (or perhaps stop promoting declining birth-rates), according to Standard and Poor's.
In research published on Thursday, the credit ratings agency says continental European countries - including Germany, France, Portugal, Greece, Poland and the Czech Republic - would see their public debt grow to more than 200 per cent of gross domestic product by 2050.
In spite of immigration and higher birth rates than in many European countries, the US is also expected to see its government debt spiral higher as age-related spending grows. S and P says the sharp deterioration in US public finances over the past couple of years has prompted it to revise US debt forecasts sharply higher. "The US debt ratio is now projected to reach 158 per cent of GDP, almost double the 83 per cent projected two years ago."
Japan faces the world's heaviest debt load - more than 700 per cent of forecast GDP by 2050 - reflecting not only its generous pension promises but the longest life expectancy, and among the lowest rates of fertility, in the industrialised world.
Richard Jackson, senior fellow in charge of the demography project at the Center for Strategic and International Studies, a US think tank, says future pension promises pose a risk to political stability. "If you assume countries do not cut benefits, you are looking at fiscal Armageddon."
He noted that the report might understate the size of future deficits because the calculations use statistics that understate consensus of forecasts for improvements in life expectancy and overstate future fertility rates. "In a scenario which is about as optimistic as you can get, that still leaves fiscal meltdown in just about every country in 25 years," Mr Jackson said.
To avert an explosion in debt, the worst-affected countries must keep their budgets consistently in surplus, S and P says.
The alarming scenario painted by S and P contrasts with a less threatening one for Ireland at the moment because of more favourable demographics and early pension reforms.
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