European government debt is at 88.5% of GDP and has increased since previous quarter: such ratio is considered manageable
changes in fiscal spending did not clearly match movements in the debt/GDP ratio: this implies that the EU has some fiscal space to increase public spending in the future, when needed
IntroGovernment debt is the total amount of money owed by a country's government to its lenders. It accumulates when governments spend more than they collect in revenue, necessitating borrowing to cover the shortfall. This debt is typically held in the form of bonds, loans, and other financial instruments.
Market implicationIncreases or decreases in the amount of government debt owed have implications on both the economy and markets. In general, a rising government debt burden is likely to exert upward pressure to longer term bond yields, posing challenges for bond markets: higher debt may come via more bonds to be issued (=higher bond supply, rising bond yields, lower bond prices)
Less known is an additional effect: rising debt could bring rising yields to such an elevated - and attractive - point for investors that bonds risk crowding out equity markets: in other words investors may leave equity markets to enter bond markets to capture a disproportionate yield there, ultimately pushing stocks down in the process.
EU interest expense
EU interest expense
checking the cost of servicing government debt
How much does it cost the EU to service its debt ?
Latest available data as of: 31-12-2022
In summary
interest expense is currently equivalent to 1.6% of GDP and has increased vs previous quarter
such level is low from a historical standpoint
IntroGovernment debt is the total amount of money owed by a country's government to its lenders. It accumulates when governments spend more than they collect in revenue, necessitating borrowing to cover the shortfall. This debt is typically held in the form of bonds, loans, and other financial instruments.
Market implicationIncreases or decreases in the amount of government debt owed have implications on both the economy and markets. In general, a rising government debt burden is likely to exert upward pressure to longer term bond yields, posing challenges for bond markets: higher debt may come via more bonds to be issued (=higher bond supply, rising bond yields, lower bond prices)
Less known is an additional effect: rising debt could bring rising yields to such an elevated - and attractive - point for investors that bonds risk crowding out equity markets: in other words investors may leave equity markets to enter bond markets to capture a disproportionate yield there, ultimately pushing stocks down in the process.