Although euro area fiscal deficits and government debt remain above pre-pandemic levels, a debt crisis is unlikely in the next few years. However, in the medium term, most euro area countries will need to implement reforms to ensure sustainability, which will prove contentious. At nearly 90% of GDP, euro area government debt is high but lower than in other large economies such as the United States (120% of GDP) and Japan (255% of GDP). The sharp, COVID-induced economic downturn, which translated into higher spending and lower revenues, significantly increased fiscal deficits and debt ratios. However, high nominal GDP growth in 2022-23, including a major spike in inflation, helped reduce euro area debt from a peak of 97% of GDP in 2020 to 90%, despite the bloc's disappointing economic growth performance recently. This compares with a pre-pandemic debt level of 84% of GDP. The aggregate debt level disguises significant intra-euro differences, which...
