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All businesses need liquidity to operate and carry out their activities, but when the financial resources available are no longer sufficient, they often take on debt.

The same happens when a government has to deal with public spending, but doesn’t always have the money it needs to fund it.

Just like private firms, a government can borrow the money it needs, thereby taking on a debt, known in this case as public debt.

To help explain the subject we’ll be covering in this guide, let’s begin with a definition of public debt: the outstanding debt owed by a nation to other entities, be they public or private.

In technical terms, public debt is the total amount of debt taken on by a nation to cover its financial requirements; it is equivalent to the nominal value of all the gross liabilities built up by public administrations, from central government to local authorities.

To explain what public debt is in simple terms, we might say that it’s the amount of money borrowed in order to keep the machinery of state running.

Now we’ve seen what public debt is, it’s easier to understand how and why each country’s indebtedness takes on particular relevance, since it influences the economy.

According to many financial experts, there is a negative correlation between public debt and economic growth: when debt increases, growth slows down, and vice versa.

However, the connection becomes particularly significant when the debt/GDP ratio exceeds 90%.

What’s more, the negative correlation between public debt and economic growth does not necessarily imply causality - in fact it may be reversed.

High debt can certainly lead to low growth, but the opposite can also be true: high public debt can also be triggered by a stagnating economy. Lower tax revenue in the face of identical spending requirements might be a cause of the problem.

Public debt encompasses risks and opportunities. Much depends on the debt/GDP ratio: when it’s low, there is less risk of insolvency for the country in question, and vice versa.

High public debt makes it more difficult to raise funds: this limits a government’s investment and expenditure, with a negative impact on the economy; the same occur when restrictive measures such as raising taxes or cutting public spending are introduced.

Public debt can create an opportunity when it serves to boost a nation’s development and growth and to provide services for its citizens.

Before we look at how it works, it’s worth explaining the difference between public debt and deficit, two terms that are often wrongly used as synonyms.

Public debt is government borrowing, that is, the outstanding debt a nation owes to its creditors.

However, the term deficit (or budget deficit) refers to the negative difference between revenue and expenditure, and it occurs when public spending exceeds tax revenues.

A nation can fund its public debt in various ways, but the most commonly-used instrument involves issuing bonds.

In practice, government bonds are issued with different maturities: short-, medium- or long-term.

Among the first category in Italy we find BOTs and CTZs, while CCTs and BTs fall into thesecond and third groups.

Other countries’ bonds include the Bund in Germany and Treasuries in the United States.

Bonds can be taken out by the retail public, i.e. small savers, but they are mostly purchased by professional investors and the major financial institutions, be they private (banks, for example) or public (like the Bank of Italy and the ECB).

Those investing in government debt reap a two-fold benefit: the capital they pay in is returned on maturity, and they also receive additional returns during the life of the bond.

The returns take the form of public debt interest, i.e. the cost to a nation of borrowing money from its creditors.

Interest, which varies depending on different factors, takes on a significant role as it is included under government expenditure.

It is therefore vital for a nation to keep its public debt and spending on interest under control.

In Italy, the Ministry of Finance is responsible for issuing and managing sovereign public debt .

The same roles are performed by the ministry of finance – called the Department of the Treasury in the US – in other countries, too.

Public debt is a feature that’s common - albeit in different ways - to the economy of every country in the world. Read the article to find out more!

Eurostat reveals that by the close of the first quarter of 2023,Spain had a debt/GDP ratio of 112.8%.

In June 2023, public debt in Spain stood at 1,568 billion euros, an increase on the previous year caused by the cost of tackling the energy crisis, the economic impact of the war between Russia and Ukraine and other measures taken by the government.

The situation is similar in France, which had a debt/GDP ratio of 112.4% and public debt of over 3,013 billion euros at the end of the first quarter of 2023.

Public debt in France is rooted in centuries past, having grown for many different reasons during almost one thousand years of rule by the monarchy.

Enormous resources were once assigned to finance the army, added to which was an imbalance in the tax regime, with exemptions for certain regions and ranks of society.

Tailing France is Belgium, with a debt/GDP ratio of 107.4%. The country’s indebtedness has worsened in recent years due to the financial support provided during the pandemic; this was followed last year by extra grants to help families and businesses cope with energy hikes.

To find out who has the highest public debt in Europe and access up-to-date figures on the subject, Eurostat graphs are exactly what you need! To provide an idea of the scale of public debt in Europe in billions of euros, suffice it to say that by the end of 2022, the Euro Zone had racked up public debt of 2,757.55 billion. This figure doesn’t even take account of liabilities from financial aid granted to EU member states.

What about the US? Although its debt/GDP ratio isn’t among the highest in the world, US publicdebt is proportionate to the size of its economy. We’re talking about a number that’s difficult to imagine - 33.75 trillion, that is, 33,750 billion dollars.

Public debt: