France and Italy face ~150% of GDP debt by 2040 absent policy change; France's challenge is structurally high spending, Italy's is high interest and weak growth
Under a no-policy-change scenario, @morganstanley's debt sustainability analysis simulations point to a similar destination for France and Italy but via different routes.
France's debt ratio could rise toward 150% of GDP by 2040. The underlying driver is structurally high expenditure. France was one of the few euro area countries failing to contain its primary deficits in the 2015-19 period, averaging a primary deficit of 1.3% over that stretch. Public spending at 57.3% of GDP in 2024 is already among the highest in the euro area, which averaged 49.5%.
Italy's trajectory is not materially different. @morganstanley projects Italy's debt ratio at around 150-160% of GDP by 2040, starting from around 137% today. The driver differs though: Italy has historically run primary surpluses, averaging 1.5% in 2015-19, and can return to them. The challenge is persistently high interest expenditure compounded by an already elevated debt stock and structurally weak growth.
Germany diverges. @morganstanley estimates the German debt ratio could rise by slightly more than 10pp between now and 2030, peaking below 80% of GDP from the low 60s currently, then returning toward primary surpluses in the early 2030s.
Spain looks better near term, with the deficit likely falling to around 2.4% of GDP in 2025 from 3.2% in 2024. But under no-policy-change, ageing pressures reverse the trajectory post-2030, pushing debt back to around 120-130% of GDP by 2040.
The four trajectories matter for rates because the supply and credit channels operate very differently across these starting points. The EU fiscal rules require debt ratios to decline with at least a 70% probability, meaning Italy, France, Belgium and Spain face required annual fiscal adjustments of around 50-60bp per year even under a seven-year plan.
Under a no-policy-change scenario, @morganstanley's debt sustainability analysis simulations point to a similar destination for France and Italy but via different routes.
France's debt ratio could rise toward 150% of GDP by 2040. The underlying driver is structurally high expenditure. France was one of the few euro area countries failing to contain its primary deficits in the 2015-19 period, averaging a primary deficit of 1.3% over that stretch. Public spending at 57.3% of GDP in 2024 is already among the highest in the euro area, which averaged 49.5%.
Italy's trajectory is not materially different. @morganstanley projects Italy's debt ratio at around 150-160% of GDP by 2040, starting from around 137% today. The driver differs though: Italy has historically run primary surpluses, averaging 1.5% in 2015-19, and can return to them. The challenge is persistently high interest expenditure compounded by an already elevated debt stock and structurally weak growth.
Germany diverges. @morganstanley estimates the German debt ratio could rise by slightly more than 10pp between now and 2030, peaking below 80% of GDP from the low 60s currently, then returning toward primary surpluses in the early 2030s.
Spain looks better near term, with the deficit likely falling to around 2.4% of GDP in 2025 from 3.2% in 2024. But under no-policy-change, ageing pressures reverse the trajectory post-2030, pushing debt back to around 120-130% of GDP by 2040.
The four trajectories matter for rates because the supply and credit channels operate very differently across these starting points. The EU fiscal rules require debt ratios to decline with at least a 70% probability, meaning Italy, France, Belgium and Spain face required annual fiscal adjustments of around 50-60bp per year even under a seven-year plan.