Scenarios for government debt in the eurozone

The massive compression in yield spreads for government bonds issued by the EMU "problem countries" would appear to signal the end of the acute financial crisis. At the same time, the countries on the continent's periphery are climbing out of the depths of recession and making a return to positive growth. Nevertheless, the debt crisis in the eurozone has left a - sometimes substantial - legacy of debt in its wake.

In our Working Paper, we have used three scenarios to show the development of government debt in the major EMU economies and the problem countries. If nothing else, this helps us to assess how sustainable state finances are in the countries analyzed based on the different scenarios.

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