1、 Allianz Research Eurozone public debt:The interest rates reality check How the end of zeronomics changes public debt dynamics in Europe 30 September 2022 EXECUTIVE SUMMARY In recent years,Eurozone governments borrowing more and more seemed to matter less and less as falling interest rates made high

2、 and rising debt levels less burdensome.However,sovereign debt dynamics are bound to significantly deteriorate as the ECB raises interest rates to fight rampant inflation.Now all eyes are on new budget announcements by several Eurozone governments.With monetary policy becoming increasingly restricti

3、ve,finance ministers need to strike a delicate balance between extending targeted fiscal support and potentially exhausting available fiscal space at a time when growth is slipping and refinancing costs are rising.So far,announced budgets suggest strong crisis support until next year at the risk of

4、delaying fiscal adjustment.We expect budget deficits to decline in all large Eurozone economies,except for France(at 5.5%of GDP).The French government just published its draft budget bill for 2023,which extends support measures to households and firms but implies an overall reduction in real spendin

5、g.In this paper,we assess the consequences of the new debt reality in the four largest Eurozone countries by projecting the expected debt path over a 15-year horizon.Our key takeaways are:The largest economies will struggle to reduce elevated government debt.In fact,the government-debt-to-GDP ratios

6、 in France,Italy and Spain are set to increase.On the other hand,Germany will cement its position as a fiscal policy outlier by pushing its debt ratio below the 60%mark by 2028.Rising refinancing costs will add pressure to debt sustainability.Assuming both government debt ratios and the average matu