The global economy stands at a critical juncture, with the specter of a new debt crisis looming over both developed and emerging markets. According to a recent analysis by Forvis Mazars, the era of 'cheap money' is gone for good, leaving behind a mountain of liabilities that must now be serviced at significantly higher costs. The question is no longer whether debt is high—that is a given—but whether it is sustainable in an environment of slowing growth and mounting geopolitical tensions.
The End of the Free Money Illusion
For over a decade, central banks kept interest rates at historic lows, encouraging governments and corporations to borrow excessively. The COVID-19 pandemic acted as a catalyst, forcing states into unprecedented fiscal expansion to prop up their economies. However, the return of inflation forced the Fed and the ECB into sharp monetary tightening. As Forvis Mazars points out, this transition has created a 'service cost shock.'
Total global debt has surpassed $315 trillion, representing over 330% of global GDP. The problem is exacerbated by the fact that many countries must now refinance their bonds at rates double or triple those of five years ago. This means an increasing portion of national budgets is being diverted toward interest payments rather than investments in education, healthcare, or the green transition.
The European Dimension and the Return of Austerity?
In Europe, the debate is particularly intense due to the reactivation of the EU's new fiscal rules. After a period of suspension, the Stability and Growth Pact is back, requiring high-debt countries—such as Italy, France, and Greece—to demonstrate strict discipline. Forvis Mazars warns that abrupt deficit reductions could stifle the Eurozone's already anemic growth, leading to a vicious cycle of stagnation.
- France faces pressure from rating agencies due to its widening deficit.
- Germany, despite its low debt, struggles with the 'debt brake' constitutional rule that hinders necessary infrastructure spending.
- Southern European nations remain vulnerable to spread increases, despite the progress made in recent years.
The analysis emphasizes that Europe can no longer rely solely on monetary policy. Deep structural reforms are needed to boost productivity, which remains the major challenge for the continent compared to the US and China.
Corporate Debt: The Hidden Threat
While public debt dominates headlines, Forvis Mazars also focuses on the private sector. Many businesses, especially so-called 'zombie companies' that survived only thanks to low interest rates, are now facing the prospect of bankruptcy. The ability of banks to absorb these shocks is greater than in 2008, but the risk of a credit crunch remains real.
"The debt crisis of the 21st century will not look like a sudden explosion, but rather a slow erosion of the purchasing power and investment capacity of nations," the report states.
In conclusion, Forvis Mazars does not necessarily predict an immediate collapse, but rather a long period of economic vulnerability. Managing this debt requires a delicate balance between fiscal responsibility and the need for growth. Without a coordinated international effort, the risk of a new 'lost economic century' for certain regions is more visible than ever.
