Less Obvious Risks of High State Indebtedness

Luboš Smrčka ()
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Luboš Smrčka: University of Economics, Prague, Czech Republic

Romanian Economic Journal, 2010, vol. 13, issue 37, 95-117

Abstract: Within the discussions on the growing indebtedness of developed countries and the threat of insolvency that some countries of the euro area are currently facing, a number of related factors seem to be omitted, although they do deserve their share of attention as well. One of these related factors is the link between the indebtedness of national governments and that of families in their respective countries which calls for further examination. However, the most pressing of the topics in this respect, one that may send shivers down our spines, is this simple question: “As the developed countries have already seen a large number of defaults of businesses and banks, with us now therefore perceiving this phenomenon as a standard part of the economy undergoing recession or stagnation while we also get used to countries on the brink of bankruptcy being bought out by extensive aid provided by other countries under non-market conditions, are we to expect future financial collapses to affect families or entire social strata and their budgets on a mass scale ?” As clear evidence exists that the key cause of defaults is the untamed debts , which get out of the control of businesses or governments, we should get alarmed by the fact that private loans, as opposed to business or government loans, have become the most dynamically growing debt type in developed countries over the recent years.

Keywords: state indebtedness; private loans; debt imbalance (search for similar items in EconPapers)
JEL-codes: F34 H63 (search for similar items in EconPapers)
Date: 2010
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