Many nations hold debt so large they have to borrow just to pay the interest. Can that cycle continue forever? And if it can’t, what happens?
A person tries to settle debts that are past due. (Photo by SeventyFour)
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What would you choose for your family: A castle and extensive land to maintain, but also a mountain of debt accumulated through the considerable costs of supporting properties that are rarely used? Or a modest place to live, a healthy bank balance and greater financial flexibility?
As appealing as the first option may seem, the second is clearly a better financial bet.
If previous generations accumulated debt, it means they lived beyond their means, leaving younger generations with the burden of putting the finances back in order.
The younger generations then have the unpleasant task of paying back debt accumulated by their elders as they create value of their own.
In a family with plenty of cash, the new generations can relax more and spend as they please.
Who pays the piper?
The same principle applies to the state. A country with a high level of debt places the burden of paying back what previous generations already spent on its young people, leaving them with less room for investment and spending. There will be less, or no, room for healthcare or education, as paying interest on debt accumulated by previous generations becomes a significant component of the public budget.
Protests that started at the end of September in Paris’s working-class northern suburbs — where schools were overcrowded, teachers absent or scarce and facilities shabby — are demanding more public funds for education.
But these protests, which within a month had spread beyond France to much of continental Europe, often overlook a key point about public debt dynamics: how public spending is allocated differently between younger and older generations.
On 17 October, Europe experienced its worst unrest in years. Violence erupted in Limoges, Marseille and Lyon in France, as well as in Milan, Bologna and Rome. Protests were also reported in Lisbon and Porto.
The young crowds are not organised by any specific political party. Instead, they mobilise through social media, with some participation from trade unions. Their main grievances include the rising cost of living, accelerating inflation and deteriorating public services.
Assets and liabilities
According to the International Monetary Fund, many countries have a public debt-to-GDP ratio above 100%. That means that the total national debt is larger than the value of all goods and services the country produces in a year. In other words, you owe more than you earn.
In 2024, Italy, a country with historically high debt, had a ratio of 135%. France, a relative newcomer to the high-debt club, stood at 113%. Spain and the UK followed, at 102% and 101%, respectively. Things are no better in North America, where the United States ratio stood at 121% and Canada was at 111%.
On an individual level, borrowing more than you earn might not be so terrible as long as the interest rate you pay on the debt — say 3% — is made up for by the rising value of your assets or earnings.
You might borrow a lot to buy a house, but if the interest rate is low, and the amount you have to pay each month doesn’t change, then over time, the rising value of the house more than makes up for what you owe.
We’ve had almost two decades of historically low interest rates, but with the recent inflation those interest rates have gone up. At the same time investors expect to earn more money when they buy government bonds — basically loans made to governments — and that means that the governments have to pay more for the money they borrow. All this puts increasing pressure on governments to rein in spending.
Instead of spending money on things like education or healthcare, they have to put into paying back debt.
Rising debt
Italy pays interest equivalent to 4% of GDP — the total value of all goods and services in a country — while the UK pays 3.5% and the US 3.2%. All these figures are likely to rise. Debt issued in the past benefited from exceptionally low interest rates. Rates are now rising, meaning that new debt issued to replace maturing debt will carry higher interest costs.
Governments tend to spend more on old people than young. This bias is likely to become even more pronounced in the future. In some cases, it is not immediately visible in the data.
According to a Reuters report published in October 2026, a French Ministry of Finance budget annex revealed that 32% (€28.5 billion) of the French education ministry’s budget goes toward pensions for retired civil servants, leaving fewer resources available for other priorities, like school.
Demographic trends are adding to the strain. As populations age, spending on pensions and healthcare rises, while the working-age population that finances these services through taxes and social contributions shrinks.
At the same time, an ageing electorate gives older voters greater political weight, making it harder for governments to reform existing entitlements or redirect resources toward younger generations and essential public services.
The result is growing tension between fiscal sustainability, the protection of existing benefits and the needs of future generations.
Public debt in the United States
Although the protests are confined to Europe, the problem of rising public debt is equally relevant in the United States. The key difference lies in the global role of the U.S. dollar as the world’s leading reserve currency.
Foreign investors continue to hold substantial amounts of U.S. government debt not only for the returns it offers but also because U.S. Treasuries are widely regarded as safe, providing liquidity and security in times of uncertainty.
A recent sharp rise in U.S. Treasury yields may suggest that investors are becoming less willing to hold U.S. government debt, particularly as federal debt has surpassed 100% of GDP.
High levels of debt can weigh on future economic growth, making it harder for the government to grow its way out of the problem. If GDP were to expand more rapidly than debt, the debt-to-GDP ratio could decline over time, easing the burden without requiring drastic spending cuts or tax increases. Slower growth, however, makes that adjustment more difficult.
At the same time, while a certain level of public spending supports economic expansion, high levels of debt can weigh on GDP growth by diverting resources from productive uses.
Closing the spending gap
The Peter G. Peterson Foundation, a nonprofit organisation that raises public awareness about the health of the U.S. economy, reported recently that feasible levels of growth alone won’t close the country’s spending gap.
“The gap between what economic growth can realistically deliver and what fiscal sustainability requires is too large to bridge without also addressing the structural imbalance between federal spending and revenues,” the foundation concluded. “Putting the nation on a sustainable fiscal path will require both.”
At the same time, the evolution of U.S. debt is revealing rigidities similar to those seen in European countries, albeit with some delay.
A February 2026 report by the Congressional Budget Office, a nonpartisan agency that provides economic and budget analyses, found that much of the increase in spending in the next 10 years or so will go to Social Security retirement payments and Medicare, as more people age and as federal healthcare costs go up.
“The number of people aged 65 or older is now almost three times what it was 50 years ago. From 2027 to 2036, as baby boomers (people born between 1946 and 1964) age and as life expectancy continues to increase, that number is expected to rise by about 15 percent,” the report said. “As a result, the number of participants in Social Security and Medicare is projected to continue growing faster than the overall population.”
In 2023, during the protests against French President Emmanuel Macron’s pension reforms, which sparked widespread opposition to public spending cuts and led to a change in government, many young people supported generous public spending on pensions.
Was that a wise choice?
Questions to consider:
1. What do we mean by national debt?
2. Why would a government spend more money that it raises through things like taxes and tariffs and fees?
3. From an individual perspective why might it make sense to borrow money?
Tiziana Barghini has reported on popes, mobsters and political crises. A correspondent for the Reuters international news service, she led coverage of the euro crisis in southern Europe before moving to New York where she tackled the U.S. political economy including Detroit’s bankruptcy and the U.S. public pension system.