A person walks past a Euro logo, at the European Central Bank headquarters, in Frankfurt, Germany on July 24, 2025. [AP Photo\/Michael Probst]<\/p>\n
The fall of the French government on Monday because of its failure to get through parliament an austerity program to deal with rising government debt is a very sharp political expression of the developing debt crisis in all the major economies.<\/p>\n
In the period since the global financial crisis of 2008, governments have been piling up debt at an accelerating rate, particularly after the onset of the COVID-19 pandemic, as they provided bailouts to corporations and major tax cuts for businesses and the wealthy.<\/p>\n
France is illustrative of this process. The Bayrou government was seeking spending cuts of \u20ac44 billion. But according to calculations reported in the New York Times, tax receipts have fallen to 51 percent of GDP from 54 percent from 2017 when president Macron took office, with one estimate being that the tax cuts have resulted in a loss of \u20ac50 billion annually to government revenue.<\/p>\n
France has a government debt of \u20ac3.35 trillion which is expected to comprise 116 percent of GDP this year.<\/p>\n
The French government, as with many others, has been able to pile up debt to historically unprecedented levels because for a decade and a half after the 2008 crisis, followed by the euro crisis of 2012, central banks kept interest rates at or near zero. But now the chickens have come home to roost and with the rise in interest rates since 2022 the interest bill has soared. In the case of France, it has risen from \u20ac26 billion in 2020 to \u20ac66 billion today.<\/p>\n
The French financial crisis is the expression of a rapidly developing global trend. According to the International Monetary Fund, the amount of debt as a percentage of annual economic output has doubled since 2007 to reach 80 percent. The IMF has said public debt could reach 100 percent of global GDP by the end of the decade. The United Nations agency UNCTAD reported that global public debt reached around $102 trillion in 2024, an increase of $5 trillion over the previous year.<\/p>\n
The interest bill on government debt around the world rose to $2.72 trillion last year, an increase of 11.2 percent from the previous year.<\/p>\n
The rise of government debt has seen a sharp spike in global bond markets, particularly at the longer end.<\/p>\n
In the UK, the yield or interest rate on 30-year bonds has touched 5.75 percent, the highest level since 1998. Next year the interest bill on government debt is expected to reach the equivalent of $150 billion, nearly twice what is spent on the military. Debt is now at 100 percent of GDP and on present trends will rise rapidly in coming years.<\/p>\n
According to Ruth Gregory, deputy chief UK economist at Capital Economics, whose remarks were cited in the Wall Street Journal (WSJ): \u201cThe UK isn\u2019t alone in all of this. There is a common theme across many G-7 countries that do seem to be in place for a potential fiscal crisis, although that doesn\u2019t mean a crisis in imminent or inevitable.\u201d<\/p>\n
However, she went on to warn that the UK was a \u201cpotential tinderbox\u201d where a market crisis at home or abroad could lead to a jump in interest rates.<\/p>\n
The UK has already experienced such an event. In 2022 the attempt by the short-lived Liz Truss Tory government to fund tax cuts to corporations with debt led to a bond market crisis into which the Bank of England had to intervene with a rescue operation. It was significant that this crisis had a completely unexpected source in that it involved pension funds.<\/p>\n
Since then, the overall financial situation has worsened because the British economy is not growing fast enough to generate the revenue to cover debt and balance the budget.<\/p>\n
Summing up the significance of the situation in the UK\u2014the \u201ccanary in the coal mine,\u201d a designation increasingly being used\u2014Stephen Innes of SPI Asset Management wrote that \u201cthat the air is getting thinner in the sovereign debt mines.\u201d<\/p>\n
\u201cThe first cough isn\u2019t coming from the usual fragile corners of emerging markets but from the heart of the developed world. UK gilts\u2014those once staid, gentlemanly instruments of British prudence\u2014are now whistling a warning note that reverberates far beyond Threadneedle Street.\u201d<\/p>\n
He noted that even Japan, where bonds typically \u201cdozed undisturbed,\u201d had been \u201cshaken awake\u201d as yields on 30-year bonds hit record highs. \u201cCanada, Germany, name your sovereign\u2014the strain is everywhere.\u201d<\/p>\n
The debt crisis is most severe in the US, the heart of the global capitalist system. Government debt has risen to $37 trillion and the interest bill of $1 trillion a year is rivalling the budget outlays on the biggest item, miliary spending. If the US had not yet reached stage of France or the UK, it is only because the dollar is the global currency providing it with \u201cexorbitant privilege.\u201d<\/p>\n