Possible pressures on public debt: Part 2

The previous Note for Discussion demonstrated that there are fiscal operations that give rise to debt that are not included in the reported fiscal balance. This is a problem. It means that the reported fiscal balance is not always a good indicator of what happens to the debt. One should always check the variation in debt against the reported deficit and see if these two numbers are the same. If not, an explanation is due.

In this Note we look forward and ask the question: What organic factors do we have to watch to anticipate further pressures on the debt as the economy moves on? Two factors come to mind immediately: rising effective interest on the debt, and aging of the population. We will look at interest rates in this Note, and aging in the following one.

Figure 1 below shows the ratio of the stock of debt to GDP and the effective average interest rate that Greece...