Do we Need a Fiscal Crisis in the G7?

Sovereigns borrow money like other economic actors – and sometimes they borrow too much. Given the critical role of sovereigns in their national economies, this means the effective management of government debt is crucial. Over the past 20 years, sovereign debt has often increased in response to shocks like the Global Financial Crisis, euro crisis, Brexit and the COVID-19 pandemic. Typically, only sovereigns have the capacity to support economies in times of crisis; but doing so repeatedly can raise fiscal challenges. These challenges are prevalent among G7 members, where only Germany has reduced debt in the past decade. Because reducing debt is not a vote winner, it may take a major fiscal crisis to build popular and political support for debt reduction in the years ahead.