Why hasn’t Japan’s massive government debt wreaked havoc (yet)?
Charles Yuji Horioka, Takaaki Nomoto, Akiko Terada-Hagiwara 21 January 2014
Japan’s sovereign debt-to-GDP ratio is higher than any country in Europe and more than twice the OECD average. This column explains why Japan’s massive government debt did not wreak havoc in the past. Robust domestic saving and a temporary inflow of foreign capital caused by the Global Crisis have prevented a crisis thus far. As both of these factors become less applicable the government faces pressure to reduce debt-to-GDP ratio can be brought under control quickly.
The potential sovereign debt crisis in Japan looks even grimmer than those in the Eurozone economies if one looks only at the gross general government debt-to-GDP ratio. According to the OECD, this ratio ranged from 90 to 166% in some developed economies in 2012 (“only” 166% in Greece, 140% in Italy, 139% in Portugal, 123% in Ireland, and 91% in Spain—collectively referred to as the PIIGS economies) but was a full 219% in Japan in the same year.
Financial markets International finance
sovereign debt, fiscal sustainability
Why fiscal sustainability matters
Willem Buiter 10 January 2014
Fiscal sustainability has become a hot topic as a result of the European sovereign debt crisis, but it matters in normal times, too. This column argues that financial sector reforms are essential to ensure fiscal sustainability in the future. Although emerging market reforms undertaken in the aftermath of the financial crises of the 1990s were beneficial, complacency is not warranted. In the US, political gridlock must be overcome to reform entitlements and the tax system. In the Eurozone, creating a sovereign debt restructuring mechanism should be a priority.
Does fiscal sustainability matter only when there is a fiscal house on fire, as was the case with the Greek sovereign insolvency in 2011–12? Far from it.
Financial markets Global crisis International finance Macroeconomic policy
eurozone, sovereign debt, capital flows, financial crisis, credit booms, fiscal policy, emerging markets, global financial crisis, banking, banks, Eurozone crisis, Currency wars, fiscal sustainability, banking union, sovereign debt restructuring, balance-sheet recession
Greece and the fiscal crisis in the Eurozone
The Editors 12 October 2010
The saga of Greece’s public finances continues, and it is not the only country whose fiscal sustainability is in doubt. This column introduces a new Policy Insight by Willem Buiter and Ebrahim Rahbari that analyses the sovereign debt crisis in the Eurozone and the response of the national authorities, EU institutions, and IMF.
The saga of the Greek public finances continues. But this time, Greece is not the only country that suffers from doubts about the sustainability of its fiscal position. Quite the contrary. The public finances of most countries in the Eurozone are in a worse state today than at any time since the industrial revolution, except for wartime episodes and their immediate aftermaths. And the problems are not confined to the Eurozone, extending to other EU member states, like the UK and Hungary, Japan, and the US.
eurozone, bail-out, sovereign default, fiscal sustainability