The surge in US government debt, now above $40 trillion, is increasingly affecting Europe as global borrowing costs rise and governments compete for investor capital.
Germany’s 10-year borrowing costs recently reached their highest level since 2011, while higher yields are putting additional pressure on heavily indebted EU countries such as France, Italy and Spain. The strain comes as governments face growing spending demands, particularly for defence, while inflation and higher interest rates make debt more expensive to refinance.
Eurozone public debt has risen from 66% of GDP in 2007 to almost 88% last year, with the European Commission expecting further increases. France faces particular pressure, with debt-interest payments projected to rise from €30 billion in 2020 to €124 billion by 2030.
Higher borrowing costs could force EU governments to consider tax rises or spending cuts, potentially intensifying political tensions ahead of elections in several member states next year.
Europe is not considered to be facing an imminent sovereign-debt crisis, with stronger fiscal safeguards and a smaller combined deficit than the US. However, economists warn that rising debt and investor confidence risks are creating a growing danger zone.
