Public debt is the total amount of money owed by the government to creditors. It is usually presented as a percent of gross domestic product (GDP). Because of the global financial crisis and the euro zone sovereign debt crisis, Advanced Economies have followed a particularly dangerous trajectory of indebtedness in recent years.

Project Coordinator: S.J. Yun

Public debt, also called “government debt” or “national debt,” includes money owed by the government to creditors within the country (domestic, or internal debt) as well as to international creditors (foreign, or external debt).

There are two standard ways to measure the extent of government debt: gross financial liabilities as a percent of GDP or net financial liabilities as a percent of GDP. General government gross debt refers to the short- and long-term debt of all institutions in the general government sector (some definitions of national debt include such government liabilities as future pension payments and payments for goods and services the government has contracted but not yet paid, and other definitions do not). General government net debt refers to gross debt minus all financial assets.

The differences between gross debt and net debt is very large for some countries and some analysts believe that net debt is a more appropriate measure of the debt situation of a particular country. However, since not all governments include the same type of financial assets in their calculations, the definition of net debt varies widely and makes country-to-country comparisons difficult. Therefore, gross debt as a percentage of GDP is the most commonly used government debt ratio and is the way that the OECD measures debt.

Discussion about the state of the debt crisis in the Eurozone (August 2014)

Many analysts see this high level of debt as being unsustainable in many countries, with the euro zone long in the eye of the storm. Indeed, until remarks made in the summer of 2012 by European Central Bank President Mario Draghi to the extent that his institution would do “whatever it takes” to preserve the integrity of the euro system, speculators were betting on defaults by Greece, and possibly Italy, Spain and Portugal. Still, in October of 2014, Standard and Poor's even lowered its outlook for France from “stable” to “negative”.

To respond to this emergency, governments across Europe have implemented painful austerity measures, which have been causing enormous political dissatisfaction. In recent months, the debate has gradually started to shift from spending cuts and balanced budgets to the need for more investment and job creation. However, the euro zone continues to see an internal split between Germany, and a number of northern European countries, pushing for painful structural reforms in the periphery while other members like France and Italy are demanding more flexibility for the national budgets so as to encourage more economic growth.

Next Page: OECD Survey of Public Debt (Selected Countries)