Why public debt does not work like household debt

Maastricht debt measures consolidated gross debt for specified public administrations and instruments. It is often expressed relative to GDP to give scale against the economy. It is not simply a bank overdraft or the sum of every future government obligation.

Unlike a household loan with a defined repayment schedule, a government regularly rolls over maturing securities. That does not make debt free: interest rates, investor confidence and financing needs strongly affect the cost.

Two countries with the same ratio can have very different maturities, average rates, currencies, tax bases and credibility. Rising nominal GDP can also reduce the ratio even when the euro amount of debt does not fall.

Interest expenditure and the amount that must be refinanced shape fiscal room each year. High debt at low locked-in rates can behave differently from a smaller stock that has to be refinanced rapidly at much higher rates.

Follow the deficit path, maturity profile, average financing cost, nominal growth and relevant public assets. The aim is not to dismiss debt risk, but to avoid reducing a macroeconomic system to a household budget.