Sovereign Debt in Advanced Economies:
Overview and Issues for Congress
Rebecca M. Nelson
Analyst in International Trade and Finance
May 26, 2011
Congressional Research Service
7-5700
www.crs.gov
R41838
CRS Report for Congress
P
repared for Members and Committees of Congress
Sovereign Debt in Advanced Economies: Overview and Issues for Congress
Summary
Sovereign debt, also called public debt or government debt, refers to debt incurred by
governments. Since the global financial crisis of 2008-2009, public debt in advanced economies
has increased substantially. A number of factors related to the financial crisis have fueled the
increase, including fiscal stimulus packages, the nationalization of private-sector debt, and lower
tax revenue. Even if economic growth reverses some of these trends, such as by boosting tax
receipts and reducing spending on government programs, aging populations in advanced
economies are expected to strain government debt levels in coming years.
High public debt levels became unsustainable in three Eurozone countries: Greece, Ireland, and
Portugal. These countries turned to the International Monetary Fund (IMF) and other European
governments for financial assistance in order to avoid defaulting on their loans. Japan’s credit
rating was downgraded by a major credit rating agency, Standard and Poor’s (S&P), in January
2011 over concerns about debt levels. In April 2011, S&P put the United States’ credit rating on a
negative outlook, although the rating itself was not changed. Distress about high levels of debt in
advanced economies is a major shift; in recent decades, emerging markets were the center of
concerns about sovereign debt crises (e.g., the 1980s Latin American debt crisis and Russia’s
financial crisis in 1998).
To date, many advanced-economy governments have embarked on fiscal austerity programs (such
as cutting spending or increasing taxes) to address historically high levels of debt. This policy
response has been criticized by some economists as possibly undermining a weak recovery from
the global financial crisis. Others argue that the austerity plans do not go far enough, and do not
share the burden of adjustment with creditors who, they argue, engaged in reckless lending.
Issues for Congress
• Is the United States headed for a Eurozone-style debt crisis? Some
economists and Members of Congress fear that, given historically high levels of
U.S. public debt, the United States is headed towards a debt crisis similar to those
experienced by some Eurozone countries. Others argue that important differences
between the United States and Eurozone economies, such as growth rates,
borrowing rates, and type of exchange rate (floating or fixed), put the United
States in a much stronger position. The United States has a strong historical
record of repayment, and bond spreads indicate that investors do not currently
view the United States in a similar light to Greece, Ireland, or Portugal.
• Impact on U.S. economy. How other advanced economies address their debt
levels has implications for the U.S. economy. Currently, most advanced
economies are focused on austerity programs to lower debt levels. This could
slow growth in advanced economies and, because they are among the United
States’ main trading partners, depress demand for U.S. exports. If advanced
economies shift to restructuring debt, U.S. creditors exposed overseas could face
losses on their investments. U.S. bank exposure to Greece, Ireland, and Portugal
in general (not just to governments) is less than 3% of total U.S. bank exposure
overseas.
• Policy options for Congress. Congress is currently debating proposals to reduce
the federal debt. Multilaterally, Congress could urge the Administration to
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Sovereign Debt in Advanced Economies: Overview and Issues for Congress
coordinate fiscal policies to avoid simultaneous austerity reforms that undermine
the economic recovery.
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Sovereign Debt in Advanced Economies: Overview and Issues for Congress
Contents
Introduction ................................................................................................................................ 1
Background Definitions and Concepts......................................................................................... 3
Why and How Governments Borrow..................................................................................... 3
How Sovereign Debt Differs from Private Debt..................................................................... 4
Why Governments Repay Debt, and Why They Default ........................................................ 5
Measuring Sovereign Debt .................................................................................................... 6
Trends in Sovereign Debt ............................................................................................................ 7
Pre-Crisis: Vulnerabilities in Emerging Markets .................................................................... 7
Post-Crisis: Rising Debt Levels in Advanced Economies....................................................... 8
Variation Among Advanced Economies................................................................................. 9
Longer-Term Pressures in Advanced Economies ................................................................. 11
Challenges Posed by High Levels of Debt ........................................................................... 12
Addressing High Debt Levels.................................................................................................... 13
Policy Options .................................................................................................................... 13
Fiscal Consolidation...................................................................................................... 13
Debt Restructuring ........................................................................................................ 14
Inflation ........................................................................................................................ 15
Growth ......................................................................................................................... 16
Financial Repression ..................................................................................................... 17
Current Strategy.................................................................................................................. 17
Austerity....................................................................................................................... 17
Concerns....................................................................................................................... 18
Issues for Congress ................................................................................................................... 19
Is the United States Headed for a Eurozone-Style Debt Crisis? ............................................ 19
Implications for the U.S. Economy...................................................................................... 22
Policy Options for Congress................................................................................................ 24
Fiscal Reforms in the United States ............................................................................... 24
Multilateral Approaches ................................................................................................ 25
Figures
Figure 1. G-7 Public Debt as a Percentage of GDP, 1951-2009 .................................................... 1
Figure 2. Gross General Government Debt in the G-7 and Emerging and Developing
Economies, 2000-2016............................................................................................................. 9
Figure 3. Gross General Government Debt in Advanced Economies, 2010 ................................ 10
Figure 4. Net General Government Debt in Advanced Economies, 2010.................................... 11
Figure 5. IMF Forecasts of Fiscal Cuts Needed to Lower Advanced Economy Debt to
60% of GDP by 2030 ............................................................................................................. 19
Figure 6. Bond Spreads for Selected Advanced Economies........................................................ 21
Figure 7. Exposure of U.S. Banks to Advanced Economies ....................................................... 23
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Sovereign Debt in Advanced Economies: Overview and Issues for Congress
Tables
Table 1. Market Estimates of the Likelihood of Sovereign Defaults ........................................... 21
Table A-1. Gross General Government Debt in Advanced Economies, Actual and
Forecast ................................................................................................................................. 26
Table A-2. Net General Government Debt in Advanced Economies, Actual and Forecasts ......... 28
Table A-3. Exposure of U.S. Banks to Advanced Economies ..................................................... 30
Appendixes
Appendix. Data on General Government Debt and U.S. Bank Exposure Overseas ..................... 26
Contacts
Author Contact Information ...................................................................................................... 30
Acknowledgments .................................................................................................................... 31
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Sovereign Debt in Advanced Economies: Overview and Issues for Congress
Introduction
In many advanced economies, the global financial crisis of 2008-2009 and ensuing recession
resulted in large fiscal stimulus packages, the nationalization of private-sector debt, lower tax
revenue, and higher government spending.1 These factors led to large budget deficits and
increased borrowing by governments from capital markets in order to fund these deficits. Figure
1 shows that public debt as a percentage of GDP in the major G-7 economies (Canada, France,
Germany, Italy, Japan, the United Kingdom, and the United States) is at the highest level since
World War II.2 Although debt levels had been on the rise since the early 1970s, they increased
dramatically following the global financial crisis. For the G-7 economies, sovereign debt rose
from 84% of GDP in 2006 (pre-financial crisis) to 112% of GDP in 2010 (post-financial crisis).3
Figure 1. G-7 Public Debt as a Percentage of GDP, 1951-2009
Source: IMF World Economic Outlook, April 2011, Figure 1.12.
1 This report uses the IMF’s definition of advanced economies. The IMF identifies 34 economies as advanced:
Australia, Austria, Belgium, Canada, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hong Kong, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malta, Netherlands, New Zealand,
Norway, Portugal, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan, the United Kingdom,
and the United States. According to the IMF, their classification “is not based on strict criteria, economic or otherwise,
and it has evolved over time.” The IMF uses three major criteria to classify economies as advanced: (1) per capita
income level; (2) export diversification; and (3) degree of integration into the global financial system. For more
information, see the Statistical Appendix of the IMF World Economic Outlook
(http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/statapp.pdf) and the IMF World Economic Outlook Data Forum
(http://forums.imf.org/showthread.php?t=154).
2 Dominique Strauss-Kahn (then-Managing Director of the IMF), “Why We Must Still Cooperate Our Way Out of
Crisis,” Seeking Alpha, October 13, 2010, http://seekingalpha.com/article/229749-imf-managing-director-dominique-
strauss-kahn-why-we-must-still-cooperate-our-way-out-of-crisis.
3 IMF World Economic Outlook, April 2011. Data are for gross general government debt, which refers to the total
financial liabilities for all levels of government (central, province, and local). See the following section entitled
“Measuring Sovereign Debt” for more details about data on sovereign debt.
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High debt levels have already become unsustainable in some advanced economies. Three
Eurozone countries—Greece, Ireland, and Portugal—have had to borrow money from other
European countries and the International Monetary Fund (IMF) in order to meet obligations and
avoid defaulting on their debt.4 Despite international financial support, concerns about the
sustainability of their public finances persist, and analysts are also closely watching the debt
situation of other Eurozone countries, including Spain, Italy, and Belgium. A downgrade of
Greece’s credit rating by a major credit rating agency, Standard and Poor’s (S&P), in May 2011
sparked a sell-off of bonds of other European countries, including Portugal, Ireland, Italy, and
Spain, and a fall in the value of the euro relative to the dollar.5
Concerns over debt levels are not restricted to the Eurozone. In April 2011, S&P expressed new
doubts about debt sustainability in the United States and Japan. Specifically, S&P put U.S. and
Japanese credit ratings on a negative outlook. Japan’s debt rating had already been downgraded
once in January 2011, and S&P warned that rating downgrades could be forthcoming to both
countries if their budget deficits and debt levels are not addressed.
Historically high levels of sovereign debt in advanced economies are of interest to Congress for a
number of reasons. First, the IMF has identified advanced economy debt as a possible threat to
the global economic recovery,6 as countries struggle to find a balance between growth and debt
management in an uncertain global economic recovery. Second, Congress is debating, and is
likely to continue debating, a number of specific budget and debt issues, particularly in the
context of the FY2012 budget and whether to raise the debt ceiling.7 In many of these debates,
parallels are drawn between the United States and other advanced economies, such as Greece,
Ireland, and the United Kingdom. Analyzing debt levels and factors that shape debt sustainability
can help inform these comparisons. Third, how other countries reduce their debt impacts the U.S.
economy. Most advanced economies are implementing fiscal austerity programs to lower their
debt levels. Simultaneous austerity programs in the advanced countries, the United States’ major
trading partners, could depress demand for U.S. exports abroad, as well as deter investment in
and from advanced economies.
This report proceeds as follows:
• The first section provides background information on sovereign debt, including
why governments borrow, how sovereign debt differs from private debt, why
governments repay their debt (or not), and how sovereign debt is measured.
• The second section examines the shift of concerns over sovereign debt
sustainability from emerging markets in the 1990s and 2000s to advanced
economies following the global financial crisis of 2008-2009, and the challenges
posed by high debt levels.
4 The Eurozone refers to the group of 17 European Union (EU) countries that uses the euro (€) as its national currency.
For more on the Eurozone, see CRS Report R41411, The Future of the Eurozone and U.S. Interests, coordinated by
Raymond J. Ahearn.
5 Marcus Walker and Hannah Benjamin, “Greek Woes Fuel Fresh Fears,” Wall Street Journal, May 10, 2011.
6 Dominique Strauss-Kahn (then-Managing Director of the IMF), “Financial Crisis and Sovereign Risk: Implications
for Financial Stability,” remarks for IMF High-Level Roundtable, March 18, 2011,
http://www.imf.org/external/np/speeches/2011/031811.htm.
7 For more on the debt ceiling, see CRS Report RL31967, The Debt Limit: History and Recent Increases, by D. Andrew
Austin and Mindy R. Levit.
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• The third section analyzes the different policy options governments have for
lowering debt levels. It also discusses the current strategy being used by most
advanced economies—fiscal austerity—and concerns that have been raised about
its global impact.
• Finally, the fourth section analyzes issues of particular interest to Congress,
including comparisons between U.S. and European debt levels, how efforts to
reduce debt levels could impact the U.S. economy, and policy options available
to Congress for engaging on this issue.
Background Definitions and Concepts
Why and How Governments Borrow
Sovereign debt, also called public debt or government debt, refers to debt incurred by
governments.8 Governments borrow money for a number of different reasons, such as health,
education, defense, infrastructure, and research. Some borrowing is for consumption, while other
borrowing is for investment. Governments may also borrow in order to run expansionary fiscal
policies (such as increasing spending or cutting taxes), with the goal of increasing economic
activity, spurring economic growth, and decreasing unemployment.
Most economists believe that public debt can play a productive role in the economy under certain
circumstances. They argue, for example, that borrowing by the government can help stimulate the
economy during a recession and fund long-term investment projects that increase economic
output in the future. However, they also caution that governments do not always use debt
prudently. Many economists argue that governments may be reluctant to increase taxes or cut
spending during economic booms in order to pay off debt incurred during economic downturns,
leading to growing debt levels over time. They also caution that governments may borrow for
consumption purposes, and that this type of borrowing can create difficulties when the debt
obligation falls due, because it does not yield future economic benefits.
Today, the governments of most advanced economies, as well as some emerging markets, borrow
money by issuing government bonds and selling them to private investors. They may sell bonds
to private investors overseas or to domestic investors. Some countries, such as Japan and Italy,
sell a sizeable portion of their bonds to investors at home. The United States does both, with
approximately half of its federal debt held by foreigners.9 Some emerging and developing
economies also borrow from other governments and international organizations, such as the
World Bank and the IMF.
8 Government debt, public debt, and sovereign debt are used interchangeably in this report. Sovereign debt is related to,
but different from, government deficits. A government deficit occurs when government spending exceeds government
revenue in a particular year. If spending is less than revenue, the government runs a surplus for that year. If the
government runs a deficit, it borrows to finance the deficit spending, and the deficit adds to the government’s overall
debt level. The deficit is a “flow” of borrowing that increases the “stock” of debt.
9 For data on foreign holdings of U.S. public debt, see U.S. Department of the Treasury, “Major Foreign Holdings of
Treasury Securities,” http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt. For total U.S.
public debt, see U.S. Department of the Treasury, “Monthly Statement of the Public Debt of the United States,”
http://www.treasurydirect.gov/govt/reports/pd/mspd/2011/opds042011.pdf.
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How Sovereign Debt Differs from Private Debt
Sovereign debt differs from private-sector debt, or debt incurred by households and corporations,
for two reasons. First, there is no international bankruptcy court that can enforce debt contracts
between private investors and sovereign governments. In the domestic context, private borrowers
cannot simply refuse to repay debts to creditors. Domestic laws and courts can force debtors to
turn over existing assets to creditors or put the debtor through bankruptcy proceedings, during
which the borrower liquidates its assets and turns them over to the creditor. In the international
context, by contrast, there are no internationally accepted laws or bankruptcy courts to provide
creditors recourse against governments that refuse to repay their debts. Debt contracts between
governments and private creditors often include provisions that stipulate what jurisdiction’s law is
to be applied in the event of a dispute about the contract. However, there is no way to force a
government that has defaulted on its debt to abide by another country’s court ruling that it must
repay the loan.10 Proposals for creating internationally accepted bankruptcy proceedings and
regulations, possibly to be overseen by the IMF, have not been fruitful.11
A second reason why public debt differs from some private debt contracts is that sovereign debt is
“unsecured,” or not backed by collateral. Governments cannot credibly commit to turn over assets
if they are unable to repay their debts, because, again, there is no international authority to
compel them do to so. This contrasts with the private sector, where debt contracts are frequently
backed by collateral. For example, property serves as collateral for mortgages in most countries.
Some private-sector debt is not backed by collateral. Credit card debt, for example, is unsecured.
This is not to say that public debt is inherently more risky than private debt. In fact, some credit
rating agencies use the credit rating of the sovereign as an upper limit for the ratings that
domestic borrowers in that country can receive. However, the strict use of a sovereign credit
rating ceiling for domestic borrowers has waned in recent years.12 Sovereign debt may be less
risky than private-sector debt because governments have the power of taxation to raise money in
order to service debt, unlike private borrowers.
10 However, parties can voluntarily submit to recourse, such as through the International Centre for Settlement of
Investment Disputes (ICSID), a branch of the World Bank Group. Investors can also use the threat of legal
“attachments” to prevent defaulted governments from re-entering capital markets until defaulted debt has been
resolved. Attachments refer to a legal process by which a court designates specific property owned by the debtor in
default to be transferred to the creditor. For more information, see Marcus Miller and Dania Thomas, “Sovereign Debt
Restructuring: The Judge, the Vultures and Creditor Rights,” The World Economy, vol. 30, no. 10 (2007), pp. 1491-
1509; and CRS Report R41029, Argentina’s Defaulted Sovereign Debt: Dealing with the “Holdouts”, by J. F.
Hornbeck.
11 Perhaps the most prominent proposal was in 2002, when then-IMF Deputy Managing Director Anne O. Krueger
proposed creating a “sovereign debt restructuring mechanism” to make the process of sovereign default and
restructuring of sovereign debts more predictable, smoother, and quicker. Anne O. Krueger, A New Approach to
Sovereign Debt Restructuring, International Monetary Fund, April 2002,
http://www.imf.org/external/pubs/ft/exrp/sdrm/eng/sdrm.pdf.
12 See, e.g., Eduardo Borensztein and Patricio Valenzuela, “The Credit Rating Agencies and the Sovereign Ceiling,”
Roubini, October 4, 2007, http://www.roubini.com/latam-
monitor/337/the_credit_rating_agencies_and_the_sovereign_ceiling.
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Why Governments Repay Debt, and Why They Default
If creditors have limited recourse against governments that default, why do they lend to
governments in the first place? It is generally argued that governments, even in the absence of
international bankruptcy court and secured debt contracts, will want to repay their debts in order
to build a good reputation in capital markets. Having a reputation for creditworthiness means that
the government can continue to borrow from investors at low interest rates, because investors
view the loan as having a low level of risk. If the government does not have a good reputation
with creditors, creditors will require high interest rates to compensate for the risk entailed in the
investment, or they will refuse to lend the government money at all.13 Some empirical evidence
also suggests that default can have adverse effects on international trade and economic growth,
providing other incentives for governments to repay their debts.14
Despite these incentives to repay debt, there is a long history of governments suspending debt
payments or falling behind on their debt payments (referred to as “defaulting” on their debt).15 A
“debt crisis” typically refers to a situation where a country is either unable or unwilling to pay its
debt. A debt crisis may not result in an actual default if, for example, the IMF lends the
government the money it needs to stay current in its debt obligations. However, many
governments that do default find an orderly way to restructure their debt that is acceptable to
markets. Debt restructuring refers to some reorganization of the debt, such as a reduction in
principal or lowering of interest rate, that makes debt payment easier for the borrower. In a debt
restructuring, the creditor may get less than was originally agreed upon, but this may be
preferable to getting nothing in a default.
Defaults and debt crises can be triggered by a number of different economic and political factors,
including, but not limited to, economic recessions, fluctuations in the price of imports and
exports, currency depreciation (if debt is not payable in domestic currency), wars, and changes in
political leadership. Debates over why governments default are typically framed in terms of a
government’s “ability” to repay versus a government’s “willingness” to repay. For example, a
government may be unable to repay debt denominated in foreign currency if it does not have
sufficient access to foreign exchange. By contrast, a government may be unwilling to repay debt
incurred under a previous regime, even if it has the resources to do so.
13 It has also been argued that creditors are willing to lend to foreign governments because they believe their own
government will use military force to ensure repayment. However, the use of “gunboat diplomacy” to enforce debt
contracts is generally believed to have fallen out of practice in the early 20th century. See Martha Finnemore, The
Purpose of Intervention: Changing Beliefs about the Use of Force (Ithaca, NY: Cornell University Press, 2003). Also,
some argue that creditors are willing to lend to governments because they can seize the government’s assets overseas if
the government fails to repay. In practice, however, it is argued that governments have few assets in foreign
jurisdictions that can be seized by creditors, raising questions about the usefulness of that explanation. See Ugo
Panizza, Federico Sturzenegger, and Jeromin Zettelmeyer, “The Economics and Law of Sovereign Debt and Default,”
Journal of Economic Literature, vol. 47, no. 3 (2009), pp. 1-47.
14 E.g., see Andrew K. Rose, “One Reason Countries Pay Their Debts: Renegotiation and International Trade,” Journal
of Development Economics, vol. 77, no. 1 (2005), pp. 189-206; Eduardo Borensztein and Ugo Panizza, The Costs of
Sovereign Default, IMF Working Paper, WP/08/238, http://www.imf.org/external/pubs/ft/wp/2008/wp08238.pdf.
15 See Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ:
Princeton University Press, 2009).
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Measuring Sovereign Debt
A nation’s debt burden is usually reported as a percentage of the country’s gross domestic product
(GDP), which indicates the size of the country’s economy. Scaling debt to the size of the
economy provides some indication of the government’s relative debt burden, since it is expected
that countries with bigger economies can sustain higher levels of debt in absolute terms than
smaller economies.
Data on sovereign debt are reported in a number of different ways. They can be reported for the
central government only, or for all levels of government (central/federal, state/province, and local
governments, often called “general government debt”). For countries with high levels of spending
by regional governments, such as Spain, there can be large differences between central
government debt and general government debt. By convention, the headline number cited in news
reports as the “U.S. debt” typically refers to the federal government debt only. Due to accounting
practices in the European Union (EU), by contrast, general government debt is typically reported
in news reports about EU debt levels. Some international organizations, such as the IMF and the
Organization for Economic Cooperation and Development (OECD), report debt data for
advanced economies that are standardized across countries.
Public debt can also be reported on a gross basis, referring to the government’s total liabilities, or
on a net basis, referring to the government’s total financial liabilities minus the government’s
financial assets.16 For governments with large financial assets, this can make a big difference.
Japan’s gross general government debt in 2010 was 220% of GDP, but its net general government
debt was almost half that (117% of GDP).17 In contrast, for Greece gross general government debt
equaled net general government debt in 2010; both were 142% of GDP.18
Finally, there is often interest in who holds the government’s debt: foreign or domestic investors.
As discussed above, some advanced economies sell most of their bonds to domestic citizens
while others sell to foreigners. Italy and Japan, for example, sell large portions of their bonds to
domestic investors. To address this issue, “external” public debt, or government debt owed to
foreign creditors, is sometimes distinguished from “domestic” public debt, or government debt
owed to domestic creditors.
16 Financial assets of the government refer to non-physical assets, such as securities, certificates, or bank deposits that
belong to the government. Financial assets do not include all assets capable of being sold or activities capable of being
taxed.
17 IMF World Economic Outlook, April 2011.
18 Ibid.
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Sovereign Debt Statistics: Key Terms
Level of Government
• General government debt: Debt for all levels of government (central/federal, state/province, and
local governments)
• Central government debt: Debt of the central government
Inclusion of Government Assets
• Gross government debt: The government’s total financial liabilities
• Net government debt: The government’s total financial liabilities minus the government’s total
financial assets
Type of Creditor
• External public debt: Government debt owed to foreign creditors
• Domestic public debt: Government debt owed to domestic creditors
Many analysts warn that data on government debt should be used cautiously. They argue that
governments do not account properly for all their financial obligations, and that if these hidden
debts were included, estimates of government debts could be substantially higher.19 Data on
public debt levels are generally self-reported, and although there are international standards for
data reporting, governments have some discretion about what is included on their balance sheet.
For example, analysts caution that governments may not include their loan guarantees,
obligations of state-owned enterprises, or obligations of the central bank in their data reports.
Some governments may also underreport data. In the recent Greek debt crisis, for example,
revelations of underreported budget deficits contributed to investor anxiety surrounding the
sustainability of Greece’s debt. Some economists also argue that some governments do not fully
account for spending on government programs for aging citizens, such as pensions and health
care, in their budget projections, leading to substantial underestimates of future debt levels.20
Trends in Sovereign Debt
Pre-Crisis: Vulnerabilities in Emerging Markets
In the decades leading up to the global financial crisis of 2008-2009, concerns over sovereign
debt had been concentrated on middle-income, emerging-market countries. For example, the
1980s Latin American debt crisis, Russia’s financial crisis in 1998, and Argentina’s default in
2001 were major debt crises that received high levels of international attention and financial
19 See, e.g., Carmen Reinhart and Kenneth Rogoff, From Financial Crash to Debt Crisis, NBER Working Paper, No.
15795, March 2010, http://www.nber.org/papers/w15795.pdf; William Buiter, “The Debt of Nations,” Citi Investment
Research & Analysis, January 7, 2011.
20 See, e.g., Stephen G. Cecchetti, M. S. Mohanty, and Fabrizio Zampolli, The Future of Public Debt: Prospects and
Implications, Bank for International Settlements (BIS), Working Paper No. 300, pp. 8-9,
http://www.bis.org/publ/work300.pdf.
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support. Several emerging markets also restructured their debt in the late 1990s and 2000s,
including Russia, Ukraine, Pakistan, Ecuador, Argentina, Moldova, and Uruguay, among others.21
Emerging markets tended to be more susceptible to debt crises than advanced economies for a
number of reasons. High debt levels in some emerging markets, access to fewer resources to
repay debt, volatility in commodity prices, and weak political institutions are often cited as
factors. However, the structure of emerging-market debt contracts also made them more
vulnerable. Emerging-market debt tends to be denominated in foreign currencies, such as U.S.
dollars and euros, and tends to have shorter maturities.22 This made emerging markets vulnerable
to changes in the exchange rate, since a depreciation of the local currency could substantially
increase the foreign exchange amount of the debt. Short debt maturities also impacted their ability
to “roll over” debt, or renew the loan upon maturity. Since the debt contracts were short-term, the
debt had to be rolled over more frequently, which could be difficult if investors lost confidence in
the government. Advanced economies, by contrast, are able to borrow in domestic currency (for
example, the U.S. government borrows in U.S. dollars) and their debt tends to have longer
maturities. Because advanced economies do not bear exchange-rate risk and can roll over their
debt less frequently, sovereign debt in advanced economies had generally been more stable than
in emerging markets.
Post-Crisis: Rising Debt Levels in Advanced Economies
Since the financial crisis, concerns over sovereign debt sustainability have shifted from emerging
markets to advanced industrialized economies. In many advanced economies, the financial crisis
resulted in rising levels of sovereign debt. Governments extended financial support to troubled
banks to stabilize the financial system, and enacted large stimulus packages to boost demand,
output, and employment. The ensuing recession resulted in lower tax receipts and more
government spending on programs such as unemployment insurance. All these factors combined
to create a substantial increase in government debt among advanced industrialized countries.
Some argue that if growth returned to the economy, debt levels would fall due to rising tax
receipts and lower spending on programs such as unemployment insurance. Long-term trends,
however, suggest that aging populations will strain public finances in advanced economies in
coming years, and that public debt levels could continue to be a problem.
21 Federico Sturzenegger and Jeromin Zettelmeyer, Debt Defaults and Lessons from a Decade of Crises (Cambridge,
MA: MIT Press, 2007).
22 Barry Eichengreen, Ricardo Hausmann, and Ugo Panizza, Currency Mismatches, Debt Intolerance and Original Sin:
Why They Are Not the Same and Why It Matters, NBER Working Paper, No. 10036, October 2003,
http://www.nber.org/papers/w10036.
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Figure 2. Gross General Government Debt in the G-7 and Emerging and Developing
Economies, 2000-2016
Source: IMF World Economic Outlook, April 2011.
Note: See Table A-1 for more detailed data.
Specifically, Figure 2 shows that gross general government debt in the G-7 economies increased
slightly in the years before the global financial crisis, from 77% of GDP in 2000 to 83% of GDP
in 2006. During the financial crisis, however, sovereign debt levels ballooned, rising to 112% of
GDP in 2010. The IMF forecasts that it will increase by another 12 percentage points over the
next five years, rising to 124% of GDP in 2016.
In contrast, debt levels in emerging markets and developing countries were lower than those in
advanced economies in 2000. Emerging-market and developing-country gross general
government debt was only 49%, compared to 77% of GDP in developed countries. Moreover,
emerging-market and developing-country debt has fallen fairly steadily over the past decade,
from 52% of GDP in 2002 to 35% of GDP in 2010. By 2016, the IMF predicts that debt in
emerging and developing countries will fall even further to 28% of GDP.
Variation Among Advanced Economies
Although public debt has generally been rising in advanced economies, there is wide variation
among debt levels in advanced economies. Figure 3 shows gross general government debt across
advanced economies as a percentage of GDP in 2010. In that year, Japan had the highest ratio of
gross general government debt relative to GDP, at 220% of GDP. The second highest was Greece,
at 142% of GDP. Hong Kong had the lowest level, at only 5% of GDP. The United States ranked
eighth among advanced economies, just after Ireland and before France, with a gross general
government debt of 92% of GDP. It is also worth noting that the three Eurozone countries
experiencing the most severe market pressure—Greece, Ireland, and Portugal—do not have the
highest debt-to-GDP ratios among advanced economies. This fact highlights that markets
consider a variety of indicators, not just debt levels, when evaluating a government’s debt
sustainability.
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Figure 3. Gross General Government Debt in Advanced Economies, 2010
Source: IMF World Economic Outlook, April 2011.
Note: See Table A-1 for more data on gross general government debt in advanced economies.
Net general government debt presents a slightly different ranking of debt levels among countries,
as shown in Figure 4. By this measure, Greece was the most indebted economy in 2010, with a
net general government debt of 142% of GDP, followed by Japan with 117% of GDP. Some
countries, such as Norway and Finland, have negative net general government debt levels,
because their financial assets are larger than their financial liabilities. U.S. net general
government debt was 65% of GDP in 2010. It ranked 11th among advanced economies, with net
general government debt lower than Iceland’s but higher than Germany’s.
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Figure 4. Net General Government Debt in Advanced Economies, 2010
Source: IMF World Economic Outlook, April 2011.
Note: A negative net general government debt indicates that the government’s total financial assets exceed the
government’s total financial liabilities. See Table A-2 for more data on net general government debt in advanced
economies.
Longer-Term Pressures in Advanced Economies
Some economists caution that the rise in sovereign debt among advanced economies during the
financial crisis is only the start of more serious debt problems to come.23 Specifically, there is
concern that aging populations in many advanced economies will cause public debt to skyrocket,
as a shrinking workforce will result in lower tax revenue while more retirees will require an
increase in government spending on pensions and healthcare. Among OECD countries, for
example, there were about 27 retirees for every 100 workers in 2000.24 By 2050, the OECD
forecasts about 62 retirees for every 100 workers.25
Economists at the Bank for International Settlements (BIS) suggest that the unfunded contingent
liabilities associated with aging populations in advanced economies have not been definitively or
comprehensively accounted for in government balance sheets or in budget and debt projections.26
These economists argue that properly accounting for increases in age-related spending would
result in significantly higher forecasts of debt levels. According to their calculations, debt-to-GDP
23 See, e.g., Brian Keeley, “Debt—You Ain’t Seen Nothing Yet,” OECD Insights, April 1, 2010,
http://oecdinsights.org/2010/04/01/debt-%E2%80%93-you-ain%E2%80%99t-seen-nothing-yet/.
24 “Ratio of the Inactive Elderly Population Aged 65 and Over to the Labour Force,” OECD Factbook,
http://puck.sourceoecd.org/vl=1955252/cl=13/nw=1/rpsv/factbook2009/01/02/01/01-02-01-g1.htm. Retirees are
defined as inactive elderly population over 65 years old.
25 Ibid.
26 Stephen G. Cecchetti, M. S. Mohanty, and Fabrizio Zampolli, The Future of Public Debt: Prospects and
Implications, Bank for International Settlements (BIS), Working Paper No. 300, pp. 8-9,
http://www.bis.org/publ/work300.pdf.
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ratios could rise by 2020 to 300% of GDP in Japan, 200% of GDP in the United Kingdom, and
150% of GDP in Belgium, France, Ireland, Greece, Italy, and the United States. These forecasts
are based on a number of assumptions about government policies, interest rates, and growth, and
changes in these assumptions could result in very different (higher or lower) estimates.
Challenges Posed by High Levels of Debt
Historically high public debt levels in advanced economies, combined with the threat of
additional debt increases due to age-related spending, have become a source of serious concern
for a number of reasons. First, they make governments vulnerable to unexpected and quick
changes in investor behavior. If investors begin to fear that the government may default on its
existing debt obligations, they may start demanding higher interest rates or refuse to lend to the
government at all.27 Loss of market access or interest rates that are no longer affordable could
cause the government to make quicker and more drastic policy adjustments, including tax
increases and/or spending cuts, than would have been necessary otherwise. To date, three
Eurozone countries (Greece, Ireland, and Portugal) have come under this type of market pressure.
However, all three of these countries borrowed money from other European countries and the
IMF in order to continue to make debt repayments, while providing time for the governments to
implement reforms that improve each country’s fiscal position and regain investor confidence.
Second, government competition for loans can increase interest rates when the economy is at full
employment, causing private investment to fall. Because private investment is important for long-
term economic growth, government budget deficits tend to reduce the economic growth rate. This
phenomenon is often referred to as public debt “crowding out” private investment. However, to
the extent that government deficits finance public investment, there may not be any necessary
detriment to the rate of economic growth. Borrowing from foreign investors can help maintain
domestic investment and mitigate the problems associated with crowding out, although this
creates obligations for profits to flow overseas in the future.28
Third, high debt levels restrict the ability of the government to respond to unexpected crises, such
as natural disasters. As debt levels rise and investors become more concerned about the
sustainability of the debt in the country, the government may find that it cannot access the
financing it needs to address a crisis, and that it has to rely on other policy tools or on
international support. For example, governments with high debt may be more constrained in their
ability to employ policy tools to blunt the impact of economic downturns. Japan may be facing
such a situation, as its borrowing needs have increased for financing reconstruction following the
earthquake, tsunami, and ensuing nuclear crisis in March 2011.29 At least one credit rating agency,
S&P, has expressed concern about Japan’s plan to increase deficit spending.
27 If investors think that the government will use inflation to reduce the value of the debt in terms of goods and
services, they may demand higher interest rates, inflation-indexed bonds (bonds where the principal is indexed to
inflation), or denomination of the bond in a different currency.
28 CBO, Federal Debt and the Risk of a Fiscal Crisis, July 27, 2010, http://www.cbo.gov/ftpdocs/116xx/doc11659/07-
27_Debt_FiscalCrisis_Brief.pdf.
29 For more on Japan’s earthquake and tsunami, see CRS Report R41702, Japan’s 2011 Earthquake and Tsunami:
Economic Effects and Implications for the United States, coordinated by Dick K. Nanto.
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Addressing High Debt Levels
Given the problems that persistent high levels of public debt can create, there has been focus on
how governments can lower debt levels. Governments have five major policy tools at their
disposal for addressing high debt levels: fiscal consolidation, debt restructuring, inflation, growth,
and financial repression.30 The pros and cons of each strategy are analyzed below, as well as the
current strategies being pursued by the governments of advanced economies to address their debt
levels.
Addressing High Debt Levels: Policy Options
• Fiscal consolidation: Using tax increases and/or government spending cuts to reduce government deficits and
lower government borrowing. In this report, fiscal consolidation is used interchangeably with fiscal austerity.
• Debt restructuring: Renegotiating the debt contract to lower payments for the borrower. This can take a
number of forms, such as lowering the interest rate, extending the repayment period (maturity of the loan), and
lowering the outstanding balance (principal) of the loan.
• Inflation: Using inflation to reduce the “real” value of the debt, meaning the value of the loan in terms of goods
and services. If there is inflation, the nominal or face value of the loan purchases fewer goods and services than
at the time the debt contract was agreed upon.
• Growth: Pursing microeconomic reforms, such as privatizing state-owned companies, in order to spur growth.
Increasing growth lowers debt relative to GDP.
• Financial repression: Government policies that induce or force domestic investors to buy government bonds
at artificially low interest rates. All else being equal, when real interest rates (the interest rate adjusted for
inflation) are negative, debt-to-GDP falls.
Policy Options
Fiscal Consolidation
A government may lower high levels of sovereign debt through austerity or fiscal consolidation,
which generally refers to policies that reduce the government budget deficit. These include tax
increases, spending cuts, or some combination of the two.
Some argue that austerity programs are effective at reducing the debt by directly targeting the
cause of high debt levels: government spending that is too high or tax revenue that is too low.
Proponents of fiscal consolidation also argue that it can increase economic growth. They argue,
for example, that credible commitments to austerity measures can increase investor confidence in
the government and lower the interest rate charged by investors on government bonds. If lower
borrowing costs for the government also reduce interest rates for consumers and firms, consumer
30 See, e.g., “Locking Up Your Money,” The Economist, May 4, 2011. Also note that some analysts have suggested
that Greece should respond to its debt crisis by defaulting on its debt and depreciating its currency, similar to Argentina
in the early 2000s. They argue that it would stimulate exports and spur economic growth. However, Greece’s debt is
denominated in euros, and leaving the Eurozone in favor of a depreciated national currency would significantly raise
the value of its debt in terms of national currency. Since it is not a strategy for reducing debt levels, this policy option is
not discussed in this report. However, for more on the consequences of Greece exiting the Eurozone, see CRS Report
R41411, The Future of the Eurozone and U.S. Interests, coordinated by Raymond J. Ahearn.
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spending and investment may increase, expanding economic output.31 It is also argued that fiscal
consolidation can be “expansionary” (or increase economic growth) if it lowers expectations of
future taxes, encouraging private spending.32
Most economists agree, however, that these programs are costly to implement. They argue that
austerity policies reduce aggregate demand in the short term, causing the economy to contract and
unemployment to increase.33 This is why austerity programs are often also called “contractionary”
policies. Additionally, they argue that if economic output falls at a faster rate than the debt does,
the ratio of debt to GDP can actually rise, failing to address effectively the government’s debt
burden. Finally, austerity programs can be politically difficult to implement, as anti-austerity
protests in a number of countries, including Belgium, Greece, Ireland, and Spain, among others,
demonstrate.34
Some contend that financial assistance from other governments or the IMF can help ease the
contractionary effects of fiscal consolidation, by allowing austerity reforms to occur over a longer
time frame than they would otherwise have to occur. However, because the financial assistance
provided by the IMF, as well as from the European countries in the case of Greece, Ireland, and
Portugal, takes the form of loans, others argue that this financial assistance only exacerbates debt
problems.
Debt Restructuring
Debt restructuring refers to reorganizing a debt that has become too large and burdensome for the
borrower to manage.35 It can refer to providing more lenient terms about how a debt will be
repaid, such as extending the time period over which the debt will be repaid (the maturity of the
loan) or lowering the interest rate. It can also refer to a reduction in (or forgiveness of some of)
the outstanding balance or principal. In either case, it means that the current owners of the debt
get less than they were originally promised.36 Debt restructurings are unusual but not
unprecedented. Several emerging markets restructured their debt in the late 1990s and 2000s,
including Russia and Argentina, among others.37
Proponents of debt restructuring argue that it is a way for governments to reduce their debt
burden while limiting the austerity measures imposed on their citizens. Instead, it pushes the cost
31 See, e.g., Alberto Alesina, Fiscal Adjustments: Lessons from Recent History, Working Paper, April 2010,
http://www.economics.harvard.edu/faculty/alesina/files/Fiscal%2BAdjustments_lessons.pdf.
32 See, e.g, Francesco Giavazzi and Marco Pagano, Can Severe Fiscal Contractions be Expansionary? Tales of Two
Small European Countries, NBER Working Paper, No. 3372, May 1990, http://www.nber.org/papers/w3372.
33 See, e.g., discussion of Keynesian economics in International Monetary Fund, World Economic Outlook, October
2010, Chapter 3: “Will It Hurt? Macroeconomic Effects of Fiscal Consolidation,”
http://www.imf.org/external/pubs/ft/weo/2010/02/pdf/c3.pdf.
34 See, e.g., “European Cities Hit by Anti-Austerity Protests,” BBC News Europe, September 25, 2010,
http://www.bbc.co.uk/news/world-europe-11432579.
35 Lex Rieffel, Restructuring Sovereign Debt: The Case for Ad Hoc Machinery (Washington, DC: Brookings Institution
Press, 2003).
36 Martin Feldstein, “Why Greece Will Default,” Business Insider, April 10, 2010,
http://www.businessinsider.com/why-greece-will-default-2010-4.
37 Federico Sturzenegger and Jeromin Zettelmeyer, Debt Defaults and Lessons from a Decade of Crises (Cambridge,
MA: MIT Press, 2007).
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of debt reduction onto private creditors, who, some argue, should bear the consequences of taking
on higher risk in exchange for greater potential reward.38
Critics argue that restructuring is not a desirable option for lowering debt burdens. Economists at
the IMF, for example, say that debt restructuring among advanced economies is “unnecessary,
undesirable, and unlikely.”39 For some advanced economies, a large share of government debt is
held domestically. This suggests that imposing losses on private creditors instead of implementing
austerity measures may not shield the government from domestic backlash. Also, governments
may have trouble borrowing from capital markets after restructuring their debt, meaning that they
would need to bring their government budgets into balance or surplus more quickly than if they
had not restructured.40 Or they may face higher interest rates, making borrowing more costly. The
logistics of debt restructuring can also be difficult. Organizing and negotiating with potentially
thousands of individual bondholders can be cumbersome and time-consuming, although recent
changes in the legal processes related to sovereign bonds have helped streamline restructuring.41
Finally, debt restructuring may be undesirable because it can increase investor anxiety and cause
the crisis to spread to other countries. For example, with the Eurozone crisis, the European
countries and the IMF are working to keep the crisis from spreading from the relatively small
economies of Greece, Ireland, and Portugal to larger economies in the region, including Spain,
Italy, or Belgium.
Inflation
If sovereign debt is denominated in the domestic currency, the government can use inflation to
reduce the real value of the debt. This is frequently referred to as a government “running the
printing presses” in order to create the money it needs to repay creditors, although there are other
ways the government can create inflation in the economy. Many economists view this policy as
an effective default on the debt, because even if creditors are repaid, the value of goods and
services they can purchase is significantly lower than what they expected when they extended the
loan to the government. Inflation has not featured prominently in recent major emerging-market
debt crises because most emerging-market debt tends to be denominated in foreign currencies.42
38 Arvind Subramanian, “Greek Deal Lets Banks Off the Hook,” Financial Times, May 6, 2010.
39 Carlo Cottarelli, Lorenzo Forni, and Jan Gottschalk, et al., Default in Today’s Advanced Economies: Unnecessary,
Undesirable, and Unlikely, IMF Staff Position Note, September 1, 2010,
http://www.imf.org/external/pubs/ft/spn/2010/spn1012.pdf.
40 However, some argue that governments that have defaulted can regain access to capital markets by successfully
concluding a debt restructuring. See Federico Sturzenegger and Jeromin Zettelmeyer, Debt Defaults and Lessons from
a Decade of Crises (Cambridge, MA: MIT Press, 2007), pp. 50.
41 Specifically, the inclusion of “collective action clauses” (CACs) in sovereign bonds, which became popular in the
2000s, has helped expedite the restructuring process. CACs allow a supermajority of bondholders (usually 75%) to
agree to a debt restructuring that is legally binding on all bondholders. Without CACs, some bondholders may have
incentives to try to hold out for better terms, slowing down the negotiations. For more information on CACs, see, for
example, Federal Reserve Bank of San Francisco, “Resolving Sovereign Debt Crises with Collective Action Clauses,”
Economic Letter No. 2004-06 (February 20, 2004), http://www.frbsf.org/publications/economics/letter/2004/el2004-
06.pdf.
42Inflation has reduced the real value of domestic public debt in some emerging economies in recent decades, including
Argentina, Brazil, and Turkey in the late 1980s and 1990s. Domestic public debt crises, however, tend to garner less
international attention than external public debt crises. There is a long history of countries using inflation to address
debt levels, with numerous examples from medieval Europe and as far back as Greece in fourth century B.C. See
Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ:
Princeton University Press, 2009), chapter 8, “Domestic Debt: The Missing Link Explaining External Default and High
(continued...)
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Inflation allows a government to repay its debt without having to implement austerity measures,
and can be less complicated than a debt restructuring. Using inflation as part of a debt
management strategy, however, can be problematic. The inflation has to be unexpected to
investors, or else investors will price in the risk of inflation through higher interest rates. Even if
the government is able to introduce surprise inflation, it will raise the government’s borrowing
costs in the future. Inflation can also have a number of adverse consequences, including wiping
out the value of savings, creating shortages of goods, and reducing future investment by creating
uncertainty in the economy. Governments may also have trouble limiting the amount of inflation
introduced into the economy: one round of inflation may raise expectations about future inflation,
which in turn could lead to more inflation. Additionally, using inflation to lower the real value of
the debt assumes the cooperation of the central bank, but in most advanced economies, the central
bank sets policies independently of the government. Finally, using inflation to address a debt
problem is not available to countries whose debt is denominated in a currency held jointly.
Individual Eurozone countries issue debt denominated in euros, but they do not have control over
monetary policy in the Eurozone and cannot use inflation to reduce the real value of their debt.
Growth
Economic growth also allows governments to lower the size of their debt relative to the size of
their economy (GDP). In the short run, economic stabilization is a necessary condition for
sustained economic growth. Growth can be stimulated by pursuing expansionary fiscal and
monetary policies or by pursuing structural reforms at the microeconomic level. Expansionary
fiscal policies, however, lead to more debt, and “easy” monetary policies, such as lowering
interest rates, may not be effective if firms and households are unwilling to borrow to increase
investment and consumption. At the microeconomic level, growth can be supported by a number
of structural reforms that can increase the competitiveness of industries in the economy.
Examples include removing barriers to labor mobility, privatizing state-owned companies, and
liberalizing trade policy. The IMF’s program for Greece, for example, includes structural reforms
aimed at encouraging growth.
The benefit of growing out of debt is that it allows countries to address their debt problems
without possibly painful fiscal cuts or alienating creditors. However, the results of these reforms
tend to manifest themselves over the long term, and a country already in a debt crisis may have
difficulty just growing out of it in the short term. Moreover, empirical evidence suggests that
countries with high levels of debt have trouble growing.43 The uncertainty around growth as a
strategy for short-term debt reduction is one reason why Greece’s IMF program does not just
include structural reforms; fiscal cuts are also a central component.
(...continued)
Inflation,” and chapter 11, “Default Through Debasement: An ‘Old World’ Favorite.”
43 Carmen Reinhart and Kenneth Rogoff, “Growth in a Time of Debt,” American Economic Review, vol. 100, no. 2
(May 2010).
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Financial Repression
Some economists argue that governments can also use financial repression to lower debt levels.44
“Financial repression” generally refers to the use of government policies to induce or force
domestic investors to buy government bonds at artificially low interest rates. Specifically, they
sell bonds at interest rates below the rate of inflation, meaning that the real interest rate (the
interest rate adjusted for inflation) is negative. All else being equal, extending loans with negative
real interest rates results in falling debt-to-GDP ratios over time. In order to get investors to buy
these bonds, governments use a host of policies, such as restrictions on the outflow of capital, to
create a captive domestic audience for these bonds. For example, governments may require
pension funds to hold government bonds.
Empirical evidence indicates that financial repression was used by several advanced economies to
lower public debt levels following World War II.45 It is estimated that real interest rates in
advanced countries were negative roughly half the time between 1945 and 1980. Some
economists estimate that, in the United States and United Kingdom, financial repression helped
reduce debt levels by 3%-4% of GDP a year, or 30% to 40% each decade between the end of
World War II and the 1970s.
Financial repression may be attractive because it avoids many of the pitfalls of the other policy
options for lowering debt levels: it avoids politically painful austerity measures, is arguably less
disruptive than debt restructuring, does not require introducing surprise inflation into the
economy, and is a more certain policy option than growth. Thirty years of financial liberalization,
however, have made it technically difficult for governments to return to capital controls.46 Policy-
makers may also have trouble imposing the controls before capital flight takes place, and the
controls could damage a country’s ability to attract foreign investment. Financial repression may
also be politically difficult, as investors would likely oppose policies that restrict their investment
opportunities or require them to buy government bonds at artificially low interest rates.
Current Strategy
Austerity
The primary policy response across advanced economies to historically high debt levels has been
to implement fiscal austerity. Several advanced economies have announced austerity measures,
some, such as Greece, Ireland, and Portugal, in response to market pressures, and others, such as
the United Kingdom, ahead of changes in investor sentiment. Debt restructuring has not to date
been pursued by any countries, although some market participants consider a restructuring of
Greek debt, at some point, to be likely.47 At the G-20 summit in June 2010 in Toronto,
governments of advanced economies pledged to halve deficits by 2013 and stabilize or reduce
44 See, e.g., Carmen Reinhart and M. Belen Sbrancia, The Liquidation of Government Debt, NBER Working Paper, No.
16893, March 2011, http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf. Also see Gillian Tett,
“Policymakers Learn a New and Alarming Catchphrase,” Financial Times, May 9, 2011.
45 Ibid.
46 “Locking Up Your Money,” The Economist, May 4, 2011.
47 See, e.g., “The Year of the Sovereign Debt Crisis,” The International Economy, Winter 2011.
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government debt-to-GDP ratios by 2016.48 However, G-20 commitments are nonbinding, and
there has been little discussion of commitments for fiscal consolidation in subsequent G-20
summits.
Japan is the notable exception among advanced economies. Japan had devised a plan to
consolidate finances in 2010, but it was derailed in March 2011 by an earthquake, tsunami, and
ensuing nuclear crisis. The physical damage is estimated to be between $195 billion and $305
billion, and the crisis has created the need for immediate spending to cover reconstruction costs.
As the government borrows to finance reconstruction, Japan’s public debt, which is already one
of the highest among advanced economies, is expected to rise significantly.
Concerns
Some economists are concerned that the emphasis on austerity measures could undermine a
fragile global economic recovery, particularly while unemployment remains high in many
advanced economies.49 Others state that the announced fiscal consolidation plans do not go far
enough, and there will not be sufficient political will to undertake the reforms necessary to
stabilize and reduce debt levels over the long term. The IMF, for example, considers as an
illustrative exercise: How big would fiscal cuts need to be in advanced economies to reduce
gross general government debt to 60% of GDP?50 Its calculations make a number of assumptions,
including future growth and interest rates. There may also be questions about whether debt levels
equal to 60% of GDP are an appropriate target. Nonetheless, the IMF concludes that, on
average,51 advanced economies would need to reach a cyclically adjusted primary budget surplus
(the budget balance excluding interest payments) of 3.8% of GDP by 2020 and sustain it through
2030. A primary budget surplus (or deficit) is the budget surplus (or deficit) excluding interest
payments. In contrast, the advanced economies, on average, are running a cyclically adjusted
primary budget deficit of 4.8% of GDP. To reach the target by 2020, the average fiscal adjustment
would have to be equal to 7.8% of GDP, a sizeable adjustment.
These averages mask large differences among countries. Figure 5 provides the IMF estimates of
adjustment on a country-by-country basis. For the United States, the IMF estimates that a
cyclically adjusted primary surplus of 5.1% of GDP would need to be reached by 2020 and
sustained through 2030 in order to lower gross general government debt to 60% of GDP. The U.S.
primary deficit (cyclically adjusted) was 8.9% of GDP in 2010, meaning that the total adjustment
would be equal to 11.3% of GDP relative to the 2010 primary balance. Among advanced
economies, this is the third-largest adjustment, after Japan and Ireland. The IMF estimates that
some countries with low levels of debt, such as South Korea and Hong Kong, could actually run
fiscal deficits (have a negative primary fiscal adjustment) in order to reach a debt of 60% of GDP
by 2030, should they desire a higher debt-to-GDP ratio.
48 For more on the G-20, see CRS Report R40977, The G-20 and International Economic Cooperation: Background
and Implications for Congress, by Rebecca M. Nelson. For the Toronto summit declaration, see
http://www.g20.org/Documents/g20_declaration_en.pdf.
49 See, e.g., Paul Krugman, “The Austerity Delusion,” New York Times, March 24, 2010.
50 “Shifting Gears: Tackling Challenges on the Road to Fiscal Adjustment,” IMF Fiscal Monitor, April 2011,
http://www.imf.org/external/pubs/ft/fm/2011/01/pdf/fm1101.pdf.
51 Weighted average adjusted for differences in price levels across countries (adjusted for purchasing power parity).
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Figure 5. IMF Forecasts of Fiscal Cuts Needed to Lower Advanced Economy Debt to
60% of GDP by 2030
Source: “Shifting Gears: Tackling Challenges on the Road to Fiscal Adjustment,” IMF Fiscal Monitor, April 2011,
p. 20 and Table 9, http://www.imf.org/external/pubs/ft/fm/2011/01/pdf/fm1101.pdf.
Note: Estimate of cuts to the 2010 cyclical y adjusted primary balance (budget balance excluding interest
payments) needed by 2020 and sustained through 2030 in order to lower gross general government debt to 60%
of GDP.
Overall, IMF estimates indicate that large cuts are needed to lower debt levels to 60% of GDP in
many advanced economies, beyond what is currently being discussed in some countries. There
are concerns that because the fiscal cuts that are needed are so large, it will take several years to
implement and fiscal consolidation “fatigue” could disrupt the process.52 Each round of
government expenditure cuts and tax increases is likely to be more painful than the last and could
lead to demands from constituents and politicians that creditors should bear more of the burden of
adjustment, such as through debt restructuring.
Issues for Congress
Is the United States Headed for a Eurozone-Style Debt Crisis?
Some economists,53 as well as some Members of Congress, have expressed concern that the
United States is headed towards a debt crisis similar to those experienced by some Eurozone
countries, including Greece, Ireland, and Portugal. They are concerned about loss of investor
confidence and the loss of the United States’ ability to borrow at reasonable interest rates. Like
these Eurozone countries, it is argued, the United States has been reliant on foreign investors to
fund a large budget deficit, resulting in rising debt levels and increasing vulnerability to a sudden
reversal in investor confidence. S&P putting the U.S. credit rating on a negative outlook in April
52 See, e.g., William Buiter, “The Debt of Nations,” Citi Investment Research & Analysis, January 7, 2011.
53 See, e.g., Niall Ferguson, “A Greek Crisis is Coming to America,” Financial Times, February 10, 2010.
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2011 reinforced concerns about the U.S. commitment and ability to repay its debt, even though
the rating itself did not change.
Other economists argue that the U.S. debt position is much stronger than that of the Eurozone
economies in crisis.54 Unlike Greece, Portugal, and Ireland, the United States has a floating
exchange rate and its currency is an international reserve currency, which can alleviate many of
the pressures associated with rising debt levels.55 Additionally, they argue that the stronger levels
of economic growth and the lower borrowing costs of the United States put U.S. debt levels on a
more sustainable path over time. Even if the United States were downgraded, for example, its
rating would still be higher than the crisis countries. The United States has a strong historical
record of debt repayment that helps bolster its reputation in capital markets. Greece, by contrast,
has been in a state of default about 50% of the time since independence in the 1830s.56
Aside from the rating outlook downgrade by S&P in April 2011, bond data indicate that investors
do not view the United States in a similar light to Greece, Ireland, or Portugal. Figure 6 compares
the spreads on Greek, Irish, Portuguese, U.S., and UK 10-year bonds (over 10-year German
bonds) since 2008. Higher bond spreads indicate higher levels of risk. U.S. bond spreads have
remained substantially lower than Greek, Irish, and Portuguese bond spreads throughout the
Eurozone crisis. U.S. bond spreads have been much closer in value to UK bond spreads, even
during the financial crisis that originated in the U.S. housing market.
54 See, e.g., Paul Krugman, “We’re Not Greece,” New York Times, May 10, 2010.
55 For example, a depreciation in the dollar relative to other countries can bolster exports and spur growth, offsetting
the effects of austerity. Likewise, the dollar’s status as an international reserve makes it a safe haven for investments
during times of distress or crisis, bolstering demand for government bonds even as debt levels are rising.
56 See Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ:
Princeton University Press, 2009), Table 6.6.
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Figure 6. Bond Spreads for Selected Advanced Economies
(spreads on 10-year bonds over German 10-year bonds)
Source: Global Financial Data.
Additionally, one market research firm (Credit Market Analysis, CMA) estimates the likelihood
of default over the next five years for a number of governments, and publishes the top 10 most
and least risky sovereigns on a quarterly basis. For the first quarter of 2011, it estimated the
likelihood of the United States defaulting on its debt over the next five years to be 3.7%, making
the United States tied with Hong Kong as the seventh least likely country to default. By contrast,
Greece, Ireland, and Portugal all ranked in the top five countries most likely to default. Greece’s
estimated probability of default over the next five years was 57.7%, while Ireland’s and
Portugal’s are 43.0% and 40.1% respectively.
Table 1. Market Estimates of the Likelihood of Sovereign Defaults
(2011 Q1)
Highest Probability of Default
Lowest Probability of Default
1. Greece
57.7 1. Norway
1.6
2. Venezuela 51.8 2. Sweden
2.5
3. Ireland
43.0 3. Finland
2.6
4. Portugal
40.1 4. Switzerland
3.1
5. Argentina 34.7 5. Netherlands
3.4
6. Ukraine
27.7 5. Denmark
3.4
7. Dubai
24.7 7. Hong
Kong
3.7
8. Lebanon
21.9 7. United
States 3.7
9. Iraq
21.1 9. Germany
4.0
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Highest Probability of Default
Lowest Probability of Default
9. Egypt
21.1 10. Chile
4.3
Source: Credit Market Analysis (CMA), “CMA Global Sovereign Debt Credit Risk Report,” Q1 2011,
http://www.cmavision.com/images/uploads/docs/CMA_Global_Sovereign_Debt_Credit_Risk_Report_Q1_2011.
pdf.
Note: Likelihood of default over the next five years.
Markets may perceive the United States favorably not because they believe the deficits are
currently at sustainable levels but because they believe that the government will implement
policies that reduce the deficit. However, it is important to note that market perceptions can
change quickly, and it can be difficult to predict when markets can lose confidence. For example,
members of the U.S. business community reportedly fear that failure to raise the debt ceiling “as
expeditiously as possible” may be introducing uncertainty into the markets about the United
States’ commitment to avoiding default on its debt.57
Implications for the U.S. Economy
How other advanced economies address their debt levels has implications for the U.S. economy.
Most advanced economies are addressing high debt levels through fiscal austerity. If large
austerity packages in advanced economies slow growth in those countries, demand for U.S.
exports could fall. Because advanced economies are major trading partners of the United States,
this could impact U.S. exports. Slower growth rates in advanced economies could make
investment there less attractive, and could lead to U.S. investors shifting their investment
portfolios away from advanced economies and toward emerging markets. Investors in those
countries also could shift their portfolios away from U.S. debt.
If any advanced economies do restructure their public debt or use inflation to reduce the real
value of their debt, U.S. investors could face losses on their investments. Figure 7 shows where
U.S. banks have credit committed to borrowers overseas in general, not just to sovereign
borrowers—also referred to as how heavily U.S. banks are “exposed” overseas. U.S. bank
exposure in general is more heavily concentrated among advanced economies than emerging and
developing countries. In December 2010, 64% ($1,835 billion of $2,869 billion) of U.S. bank
exposure was concentrated in advanced economies.58 Among advanced economies, U.S. banks
were most exposed to the United Kingdom ($507 billion), Japan ($307 billion), France ($180
billion), Germany ($158 billion), and the Netherlands ($98 billion) in December 2010.
57 Patrick O’Connor, “Chamber Urges Lawmakers to Raise Debt Limit ‘Expeditiously,’” Wall Street Journal, May 13,
2011. For more on the debt ceiling, see CRS Report RL31967, The Debt Limit: History and Recent Increases, by D.
Andrew Austin and Mindy R. Levit.
58 Data on bank exposure from Bank for International Settlements (BIS) for September 2010. See Figure 7 source and
notes for more details. BIS bank exposure data shows direct bank lending only. What is generally not known is the
exposure of U.S. financial institutions through issuance of credit default swaps based on advanced economy sovereign
debt. The effect of credit default swaps could be to lower U.S. exposure to sovereign debt by offsetting U.S. bank
liabilities or to raise U.S. bank exposure to sovereign debt if U.S. banks sold credit protection.
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Figure 7. Exposure of U.S. Banks to Advanced Economies
(December 2010)
Source: Bank for International Settlements (BIS), "Consolidated International Claims of BIS Reporting Banks,"
Preliminary report (April 28, 2011) for December 2010, Table 9B, “Consolidated Foreign Claims of Reporting
Banks—Immediate Borrower Basis,” http://www.bis.org/statistics/consstats.htm.
Note: Direct bank lending only. Data does not include exposure of U.S. financial institutions through the
issuance of credit default swaps based on sovereign debt, which could lower or raise U.S. bank exposure. It also
does not consider secondary exposures (i.e., for U.S. banks exposed to the United Kingdom, who, in turn, the
United Kingdom is exposed to, such as Ireland). Countries listed as advanced economies are identified as such by
the IMF in the World Economic Outlook, April 2011. See Table A-3 for exposure in dol ar terms.
U.S. bank exposure to the Eurozone countries that have come under the most intense market
pressure to date—Greece, Ireland, and Portugal—is relatively small, totaling $78 billion or 2.7%
of U.S. bank exposure overseas. Some of these losses could already have been absorbed in bank
balance sheets if they are marking investments to market. If the crisis spreads more broadly in the
Eurozone, losses could be much larger. German bank exposure to the three countries is $189
billion, about two-and-a-half times higher than the U.S. level, and accounts for 6.2% of total
German foreign bank exposure. French bank exposure to Greece, Ireland, and Portugal is more
modest than Germany’s, at $117 billion, or 3.7% of total French foreign bank exposure.
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Policy Options for Congress
Most advanced economies, including the United States, have focused on addressing high debt
levels through fiscal austerity. The task facing these countries is how to pursue fiscal
consolidation without derailing economic recovery. How to do this is contentious and has sparked
debates within Congress and more generally at the multilateral level.
Fiscal Reforms in the United States
In the United States, the FY2011 federal budget deficit is estimated to be larger than the FY2010
budget deficit, both in dollar terms and as a percentage of GDP.59 Congress is currently debating
ways to lower U.S. deficits and debt levels. The debate has centered on how big the reductions in
the federal deficit and debt levels need to be, and on the policy mix of spending cuts and tax
increases to achieve deficit and debt reduction. Some specific proposals for deficit reduction are
listed below.60
• In 2010, President Barack Obama created a Presidential Commission on Fiscal
Responsibility and Reform, co-chaired by Alan Simpson and Erskine Bowles to
improve the fiscal situation in the medium term and to achieve fiscal
sustainability over the long run.61 The commission released a report in December
2010 outlining recommendations to reduce the federal deficit to 2.3% of GDP by
2015 and federal debt to 60% of GDP by 2023, among other objectives.62 The
commission established guidelines for reporting recommendations and approving
these recommendations. Not enough of members of the commission voted to
formally endorse the final proposal.63
• In early April 2011, House Committee on the Budget Chairman Paul Ryan
released a budget proposal for FY2012 entitled “The Path to Prosperity:
Restoring America’s Promise.”64 It estimates that its recommendations would
result in a primary budget balance by 2015 and reduce the level of federal debt.
Chairman Ryan also sponsored a FY2012 budget resolution (H.Con.Res. 34) that
passed the House in a vote of 235 to 193 on April 15, 2011. The legislation has
been placed on the Senate legislative calendar.
• In mid-April, during a speech at George Washington University, the President
announced plans for deficit reduction, and that Vice President Biden would lead
59 In FY2010, the U.S. federal deficit was $1,294 billion, or 8.9% of GDP. In FY2011, the Congressional Budget
Office (CBO) baseline estimates the FY2011 budget deficit at $1,399 billion, or 9.3% of GDP. For more information,
see CRS Report R41685, The Federal Budget: Issues for FY2011, FY2012, and Beyond, by Mindy R. Levit.
60 CRS Report R41778, Reducing the Budget Deficit: Policy Issues, by Marc Labonte, analyzes in depth policy issues
associated with U.S. budget reduction.
61 For more on the commission, see CRS Report R41784, Reducing the Budget Deficit: The President’s Fiscal
Commission and Other Initiatives, by Mindy R. Levit.
62 The National Commission on Fiscal Responsibility and Reform, The Moment of Truth, December 2010,
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf.
63 See, e.g., Damian Paletta, “Mortgage Tax Break in Crosshairs,” Wall Street Journal, December 1, 2010.
64 Chairman Paul Ryan, The Path to Prosperity: Restoring America’s Promise, House Committee on the Budget, April
2011, http://budget.house.gov/UploadedFiles/PathToProsperityFY2012.pdf.
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a bipartisan, bicameral group to begin work on a legislative framework for
deficit reduction, with hope of reaching agreement by the end of June.65
Multilateral Approaches
Congress can urge the Administration to raise debt issues in multilateral discussions, particularly
in the context of the G-20 and the international financial institutions (IFIs).66 Generally, there may
be multilateral interest in coordinating fiscal policies in order to prevent large simultaneous fiscal
contractions among all the advanced economies, which could lower demand in the advanced
economies and undermine a fragile economic recovery. Coordinating fiscal policies, such as
encouraging advanced countries that do not have debt problems to pursue more expansionary
fiscal policies, could soften the impact of austerity in countries with unsustainable debt levels on
the global economy. The G-20 and its process of assessing the compatibility of policies across
countries (the “mutual assessment process” [MAP]) could be one forum for these discussions.67
There may also be interest in revisiting the G-20 commitments for fiscal consolidation pledged by
the advanced economies at the Toronto summit in June 2010.
Congress may also urge the Administration to engage with the IFIs, such as the IMF, on the
challenges posed by high debt levels in advanced economies. The IMF already analyzes fiscal
policies and debt levels in its semiannual fiscal monitor reports. However, IFI engagement on this
issue could increase. Following sovereign debt crises in the emerging markets, the IMF and the
World Bank launched an initiative to systematically collect public debt data on a quarterly basis.68
The purpose of the initiative is to increase transparency about public-sector debt by facilitating
timely dissemination of standardized public debt data. To date, 34 emerging markets participate in
the database. Extending participation to advanced economies could help further increase
transparency about public debt levels in these major economies as well.
65 White House, "Remarks by the President on Fiscal Policy," press release, April 13, 2010,
http://www.whitehouse.gov/the-press-office/2011/04/13/remarks-president-fiscal-policy.
66 For more on the G-20 and the mutual assessment process, see CRS Report R40977, The G-20 and International
Economic Cooperation: Background and Implications for Congress, by Rebecca M. Nelson.
67 The G-20 Toronto declaration is available at http://www.g20.org/Documents/g20_declaration_en.pdf.
68 Specifically, they launched the Public Sector Debt Statistics (PSD) database. See
http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/EXTQPUBSECDEBT/0,,menuPK:7404478~pa
gePK:64168427~piPK:64168435~theSitePK:7404473,00.html for more information.
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Appendix. Data on General Government Debt and U.S. Bank Exposure
Overseas
Table A-1. Gross General Government Debt in Advanced Economies, Actual and Forecast
(% of GDP)
Country
1980 1990 2000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Australia
n/a 16.2 19.3
9.8 9.5 11.6 17.6 22.3 24.1 24.8 23.3 23.6 21.8 20.6
Austria
n/a 56.1 66.5 62.1 59.3 62.5 67.5 69.9 70.5 70.7 70.9 70.5 70.1 69.8
Belgium
74.1 125.8 107.9 88.1 84.2 89.6 96.2 97.1 97.3 97.4 97.8 98.2 98.3 98.8
Canada
n/a 75.2 82.1 70.3 66.5 71.3 83.4 84.0 84.2 83.1 81.0 78.5 75.6 72.6
Cyprus
n/a n/a 48.7 64.6 58.3 48.3 58.0 61.7 63.4 63.9 64.2 63.7 62.8 62.2
Czech
Republic
n/a n/a 18.5 29.4 29.0 30.0 35.4 39.6 41.7 43.4 44.5 45.6 46.5 47.6
Denmark
n/a n/a 60.4 41.0 34.1 42.2 41.5 44.3 45.6 46.5 46.3 45.1 43.0 40.2
Estonia
n/a n/a 5.1 4.4 3.7 4.6 7.2 6.6 6.3 6.0 5.7 5.4 5.2 4.9
Finland
10.8 13.9 43.8 39.7 35.2 34.1 43.8 48.4 50.8 52.7 55.0 57.3 59.2 61.1
France
20.7 35.2 57.3 63.7 63.8 67.5 78.1 84.3 87.6 89.7 90.3 89.8 88.5 86.7
Germany
n/a n/a 59.7 67.6 64.9 66.3 73.5 80.0 80.1 79.4 77.9 75.8 73.8 71.9
Greece
22.6 73.3 103.4 106.1 105.1 110.3 126.8 142.0 152.3 157.7 157.0 152.5 149.4 145.5
Hong
Kong
n/a n/a n/a 1.9 1.6 1.3 3.3 4.8 4.5 4.2 3.7 3.5 3.3 3.2
Iceland
25.5 36.2 41.0 30.1 28.6 69.7 91.7 96.6 103.2 97.1 92.1 85.3 80.9 73.8
Ireland
65.2 93.5 37.8
24.8 25.0 44.4 65.5 96.1 114.1 121.5 125.8 125.0 123.5 121.5
Israel
n/a n/a 85.5 84.6 77.7 76.8 80.4 77.9 73.0 70.0 67.5 64.8 62.6 60.6
Italy
n/a 94.7 109.2 106.6 103.6 106.3 116.1 119.0 120.3 120.0 119.7 119.3 118.7 118.0
Japan
51.4 68.0 142.1 191.3 187.7 195.0 216.3 220.3 229.1 233.4 238.0 242.4 246.7 250.5
Korea
n/a 12.8 16.7 30.1 29.7 29.0 32.6 30.9 28.8 26.9 25.1 23.3 21.5 19.8
Luxembourg
n/a n/a 6.2
6.7 6.7 13.6 14.5 16.6 17.9 19.5 21.2 22.4 23.4 24.1
Malta
n/a n/a 55.9 64.2 61.9 61.4 67.5 67.0 66.7 66.7 66.2 65.4 64.6 63.9
CRS-26
Country
1980 1990 2000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Netherlands
n/a n/a 53.8 47.4 45.3 58.2 60.8 63.7 65.6 66.5 66.7 66.5 65.7 64.4
New
Zealand
n/a 59.0 31.4 19.9 17.4 20.3 26.1 31.6 35.8 36.4 36.5 36.1 33.7 31.7
Norway
47.3 28.9 34.2 60.5 58.6 56.7 54.3 54.3 54.3 54.3 54.3 54.3 54.3 54.3
Portugal
n/a 57.3 48.5 63.9 62.7 65.3 76.1 83.3 90.6 94.6 97.5
100.8
103.7
106.5
Singapore
n/a 71.1 81.2 86.8 85.9 97.2 105.0 97.2 93.7 91.3 88.5 86.1 83.9 82.9
Slovak
Republic
n/a n/a 50.3 30.5 29.6 27.8 35.4 42.0 45.1 46.2 46.5 46.8 46.2 45.7
Slovenia
n/a n/a 26.8 26.7 23.4 22.5 35.4 37.2 42.3 44.9 46.7 48.0 49.3 50.6
Spain
16.6 42.5 59.3 39.6 36.1 39.8 53.2 60.1 63.9 67.1 69.9 72.1 74.1 75.9
Sweden
n/a n/a 53.2 45.2 40.1 37.7 41.9 39.6 37.3 34.9 32.2 29.3 26.2 22.8
Switzerland
n/a 38.2 61.1 64.4 57.2 54.9 54.9 55.0 52.7 51.2 49.7 48.3 47.0 45.7
Taiwan
n/a n/a 25.4 34.2 33.3 36.0 39.9 39.7 37.9 36.8 35.1 33.4 31.9 30.4
United
Kingdom
46.1 32.6 40.9 43.1 43.9 52.0 68.3 77.2 83.0 86.5 87.4 86.5 84.4 81.3
United
States
42.3 63.9 54.8
61.1 62.2 71.2 84.6 91.6 99.5 102.9 105.6 107.5 109.4 111.9
Advanced
economies
n/a n/a 72.6
75.1 72.6 79.5 93.2 98.7 102.9 104.6 105.5 106.1 106.2 106.6
G-7 advanced
economies
n/a n/a 77.5
83.7 81.9 90.0 105.3 112.2 118.2 120.4 122.0 122.9 123.6 124.4
Emerging and
developing
n/a n/a 48.7 36.8 35.1 33.6 35.9 35.1 33.6 32.7 31.7 30.5 29.1 28.0
economies
Source: IMF World Economic Outlook, April 2011.
Note: Forecasted data starts in 2008, 2009, or 2010, depending on the country. n/a = not available.
CRS-27
Table A-2. Net General Government Debt in Advanced Economies, Actual and Forecasts
(% of GDP)
Country
1980 1990 2000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Australia
n/a 9.5 7.0
-6.4 -7.3 -5.4 0.0 5.5 7.8 8.3 7.6 7.4 6.4 5.3
Austria
n/a 36.1 43.4
42.7 39.8 40.7 47.3 49.8 50.7 51.1 51.5 51.3 51.1 50.9
Belgium
65.3 112.4 97.5
77.3 73.3 73.7 80.0 81.5 82.3 83.0 83.9 84.9 85.5 86.5
Canada
n/a 43.7 46.2
26.3 22.9 22.4 28.4 32.2 35.1 36.3 36.3 35.5 34.4 33.0
Cyprus
n/a n/a n/a
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Czech
Republic
n/a n/a n/a
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Denmark
n/a n/a 22.5
1.9 -3.8 -6.5 -4.2 0.9 4.4 6.9 8.1 8.3 7.5 6.0
Estonia
n/a n/a 3.3
-4.9 -5.6 -3.3 -1.3 -1.0 0.1 0.8 0.9 -0.1 -1.6 -3.3
Finland
-177.2 -208.4 -31.1
-69.5 -72.6 -52.4 -62.7 -56.8 -52.6 -49.1 -45.6 -42.4 -39.4 -36.6
France
n/a 25.4 47.7
53.9 54.1 57.8 68.4 74.6 77.9 80.0 80.6 80.1 78.8 77.0
Germany
n/a n/a 40.8
52.7 50.1 49.7 55.9 53.8 54.7 54.7 53.9 52.6 52.6 52.6
Greece
20.6 64.2 77.4 106.1 105.1 110.3 126.8 142.0 152.3 157.7 157.0 152.5 149.4 145.5
Hong
Kong
n/a n/a 0.0
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Iceland
3.3 19.0 24.3
7.8 10.8 41.7 59.8 67.6 69.9 66.8 62.2 57.0 51.8 47.2
Ireland
65.2 93.5 36.7
12.2 12.2 23.0 38.0 69.4 95.2 104.3 110.3 108.7 106.4 103.5
Israel
n/a n/a 70.3
74.0 69.0 70.0 73.9 73.2 69.5 67.4 65.3 62.8 60.7 58.8
Italy
n/a 89.5 93.7
89.8 87.3 89.2 97.1 99.6
100.6 100.4 100.2 100.0 99.5 98.9
Japan
17.1 13.4 60.4
84.3 81.5 96.5 110.0
117.5
127.8 135.1 142.4 149.6 156.8 163.9
Korea
n/a n/a n/a
28.3 27.7 27.8 31.1 29.6 27.5 25.7 24.0 22.3 20.6 18.9
Luxembourg
n/a n/a n/a
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Malta
n/a n/a n/a
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Netherlands
n/a n/a 24.9
24.5 21.6 20.6 23.0 27.5 30.5 32.3 33.5 34.3 34.6 34.1
New
Zealand
n/a 46.6 18.2
0.2 -5.7 -4.8 -0.8 4.6 10.4 13.6 14.7 14.8 13.5 11.7
Norway
0.4 -31.8 -67.4 -136.3 -142.5 -126.1 -148.8 -156.4 -157.3 -163.7 -170.5 -176.4 -181.5 -186.0
Portugal
n/a n/a 42.0
58.8 58.1 61.1 71.9 79.1 86.3 90.4 93.3 96.6 99.5 102.3
CRS-28
Country
1980 1990 2000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Singapore
n/a n/a n/a
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Slovak
Republic
n/a n/a n/a
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Slovenia
n/a n/a n/a
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Spain
n/a 30.3 50.3
30.5 26.5 30.4 41.8 48.8 52.6 55.7 58.5 60.7 62.7 64.6
Sweden
n/a
n/a 2.6
-13.9 -17.1 -11.9 -15.8 -14.6 -13.8 -13.5 -13.7 -14.2 -15.1 -16.3
Switzerland
n/a 38.0 58.7
64.2 56.9 53.0 53.1 53.2 51.0 49.6 48.1 46.8 45.5 44.3
Taiwan
n/a n/a n/a
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
United
Kingdom
40.5 26.7 33.6
38.0 38.2 45.6 60.9 69.4 75.1 78.6 79.5 78.7 76.5 73.5
United
States
25.8 45.9 35.6
41.9 42.6 48.4 59.9 64.8 72.4 76.7 79.3 81.3 83.4 85.7
Advanced
economies
n/a n/a 43.4
45.8 44.0 49.5 60.0 64.1 68.8 71.7 73.3 74.8 75.9 77.04
G-7 advanced
economies
n/a n/a 45.6
52.6 51.7 58.1 69.6 74.4 80.7 84.1 86.5 88.3 90.0 91.6
Emerging and
developing
n/a n/a n/a
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
economies
Source: IMF World Economic Outlook, April 2011.
Note: Forecasted data starts in 2009 or 2010, depending on the country. n/a = not available.
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Sovereign Debt in Advanced Economies: Overview and Issues for Congress
Table A-3. Exposure of U.S. Banks to Advanced Economies
(December 2010, million US$)
Country Amount
Country Amount
Austria 9,264
Luxembourg
28,830
Belgium 29,781
Malta
225
Cyprus 1,119
Netherlands
97,870
Denmark 25,742
New
Zealand
5,215
Estonia 82
Norway
22,078
Finland 9,644
Portugal
5,407
France 180,098
Singapore
48,509
Germany 157,836
Slovakia
709
Greece 7,421
Slovenia 227
Hong Kong
44,834
South Korea
88624
Iceland 942
Spain
41,067
Ireland 65,429
Sweden
20,706
Israel 4,070
Switzerland
44,456
Italy 36,023
Taiwan
45192
Japan 306,798
United
506,528
Kingdom
Advanced
1,834,726
economies
Emerging and
1,034,473
developing
economies
Al countries
2,880,540
Source: Bank for International Settlements (BIS), "Consolidated International Claims of BIS Reporting Banks,"
Preliminary report (April 28, 2011) for December 2010, Table 9B, “Consolidated Foreign Claims of Reporting
Banks—Immediate Borrower Basis,” http://www.bis.org./statistics/consstats.htm.
Note: Direct bank lending only. Data does not include exposure of U.S. financial institutions through the
issuance of credit default swaps based on sovereign debt, which could lower or raise U.S. bank exposure. It also
does not consider secondary exposures (i.e., for U.S. banks exposed to the United Kingdom, who, in turn, the
United Kingdom is exposed to, such as Ireland). Countries listed as advanced economies are identified as such by
the IMF in the World Economic Outlook, April 2011.
Author Contact Information
Rebecca M. Nelson
Analyst in International Trade and Finance
rnelson@crs.loc.gov, 7-6819
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Acknowledgments
Amber Wilhelm, Graphics Specialist, assisted in preparation of the figures.
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