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Less Obvious Risks of High State Indebtedness

Author

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  • Luboš Smrčka

    () (University of Economics, Prague, Czech Republic)

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.

Suggested Citation

  • Luboš Smrčka, 2010. "Less Obvious Risks of High State Indebtedness," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 13(37), pages 95-117, September.
  • Handle: RePEc:rej:journl:v:13:y:2010:i:37:p:95-117
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    More about this item

    Keywords

    state indebtedness; private loans; debt imbalance;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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