World debt is growing. In 2016, global debt was estimated at $ 220 trillion, which is 325% of the global annual GDP. Is this a sustainable number? And who are the creditors?
Indebtedness is generally seen as a negative thing, but it makes sense in economic terms. If my own money earns me more than interest on borrowed money, it pays off. But how is the state debt? And in which country are households most indebted?
Public debt includes the debts of the state, regions and municipalities. Traditionally, Japan has the highest public debt to GDP ratio. Whose debt is mainly held by the Rose bank and the people of Japan. Japan is also the largest foreign creditor of the US debt. On the other hand, Greece has the majority of public debt in the European financial institutions and central banks (the biggest creditor is the European Financial Stability Fund, to which the euro area countries contribute). Greece, Germany, France and Italy are the largest creditors in each country. Creditors were forced to forgive some of Greece’s debts, and it had to commit to cuts and cut state spending on civil servants, pensioners, and other long-term high state spending.
According to current data from the first quarter of 2017, Greece has reduced its debt by 2.8 pp to 176.2% of GDP. The tightening of Greek belts and the implementation of agreed reforms with creditors meant that the International Monetary Fund (IMF) approved the launch of financial assistance to Greece in the form of a € 1.6 billion loan. However, it remains the most indebted country in Europe, and the IMF continues to regard Greek public debt as unsustainable.
In third place was Lebanon, which is torn by government instability and its state apparatus is pervaded by corruption and bureaucracy. Other European countries with debt over 100% of GDP are Italy, Portugal, Cyprus (107.8%) and Belgium (105.9%). The Czech Republic is among the countries with the lowest public debt in the EU. The EU average in the first quarter of 2017 was 84.1% of public debt to GDP. Czech public debt was 39.9% of GDP. During this period, Czech public debt grew the fastest from across the EU. This may be due to the upcoming elections, when the government is trying to thank a large group of people who receive public money. The current level is around 1.87 trillion crowns.
It is worth mentioning the public debt of Portugal. This state had problems with repayment in the financial crisis , as did Ireland . Both of these countries had approximately the same debt ratio in 2011 – 111% of their annual GDP. Ireland has taken the path of cuts and reforms, and within five years Ireland’s public debt has fallen to about 75% of GDP. Portugal has taken a different path and remains one of the most indebted countries in Europe, with its public debt at around 130% of GDP.
Household debt is growing in the world and in the Czech Republic. 7 of the 10 countries with the highest household debt are from Europe, of which 4 are EU members. The 10 most indebted countries are among the most developed countries in the world having a very well developed banking system and their inhabitants have high incomes. The question is whether such debt is sustainable in the long term and if the financial crisis comes, households may not be able to pay their debts.
The Czech Republic is one of the least indebted countries in Europe. Czech household debt accounts for 31.5% of GDP. Least indebted households have economically underdeveloped countries. There, values range from a few tenths to a few percent. The main factor is their low income and undeveloped banking system. For many large banks, lending to economically poor countries is too risky and a little profitable business.
In the future, economists expect a greater debt of Czech households. So should the Czech household learn to live on debt? Yes they have. Due to the low financial literacy of the Czech population, many households are trapped in a debt trap of disadvantageous fast loans. So we should not take household debts as evil, but we should be able to use them reasonably and not be caught in the disadvantageous high interest rates of fast loans.