Excessive levels of debt create vulnerabilities, hinder the ability of households and enterprises to increase their consumption and investment and governments to cushion adverse shocks.

High levels of public indebtedness were a key driver of the EU sovereign debt crisis and one reason why the recovery of the real economy has been so slow. This sovereign debt crisis has highlighted the importance of reducing public debt levels and building up sufficient buffers during normal and good times.

The Covid-19 crisis occurred while the level of public debt was already problematic. Global public debt in advanced economies have grown by 30 percentages point between 2007 and 2018 to reach nearly 105% of GDP in 2018 according to the World Bank.

The economic consequences of the Current Covid-19 crisis are worsening this situation. Global debt, encouraged by the very accommodative monetary policies of recent years, reached a record $258 trillion in the first quarter of 2020, or 331% of global GDP. Such a level of public debt has never been reached before in peacetime, may exceed the limits of sustainability in many EU countries and raises fundamental questions: Who will pay? Will the markets never question the solvency of States? What is going to happen to the euro zone, where the heterogeneity of deficits and public debt is increasing?

Moving away from the debt-driven growth model of the last decades is essential for the global economy to recover from the crisis. Only domestic structural reforms can resolve structural issues and increase productivity and growth.