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Eurozone crisis: Public debt to soar by up to 4.2 TRILLION euros due to coronavirus

 

The coronavirus crisis is set to lead to a mountain of public debt in the eurozone, leading economists have warned.

Thousands of new deaths are being added to Europe’s tally every day as nationwide lockdowns continue. Economists Eric Chaney and Lorenzo Codogno have predicted a long and arduous recovery for countries using the single currency. But they said not all nations will be equally affected by what lies ahead.

They said: “On our rough estimates, the increase of public debt in the euro area taken as a single entity is likely to lie between 10 percent and 35 percent of GDP by the end of 2023, i.e. between €1.2Tn and €4.2Tn, depending on the duration and depth of the recession and the recovery path.

“Most of the increase will come from automatic stabilisers such as lower tax receipts or higher expenditure on unemployment benefits, and discretionary spending to improve the efficiency and the resilience of healthcare systems.

“Not all euro area members will be equal since some of them will experience deeper or softer downturns.”

Mr Chaney and Mr Codogno said the impact on the eurozone will depend on how long nations are in lockdown and how strict the measures are.

Another factor which will play a vital part is the state of each economy.

“It will also crucially hinge on their public finance starting positions, with gross public debts spanning from 49 percent of GDP for the Netherlands to 135 percent of GDP for Italy,” they said.

So the question that remains is who is going to pay off the debt.

 


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