Debt-to-GDP in G-7 countries is now the highest since the Second World War. The Age of Austerity is not a slogan but a timetable. The task is enormous (Chart 7). Stabilizing debt will require increases in the primary balances of between 8 and 11 per cent of GDP for the United States, the United Kingdom and Spain.
Moreover, these forecasts assume that nominal interest rates will be roughly the same level as nominal growth rates. However, if markets begin to lose patience, higher rates will ensue and the required adjustment will be even larger.10 Canada is one of the few advanced economies on a path to avoid this outcome.