Public and private indebtedness A second important effect is that the low interest rate environment has led to a strong increase in total debt, both within the public as well as the private sector. Total debt-to-GDP ratios stand at 350% for Japan, and around 250% for the US, the UK and the Euro Area.
Higher debt levels may reflect a response to structurally lower interest rates and therefore structurally higher sustainable debt levels, but they can also create vulnerabilities. For example, despite the favorable economic conditions in recent years, very few countries have actually reduced their public debt ratio. In the current environment, governments do not face financing constraints.