The long haul: debt sustainability analysis

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The long haul: debt sustainability analysis

The public debt ratio is set to decline in Greece, Ireland and Portugal under the maintained assumptions, but the debt trajectory remains vu

Publishing date: 18 June 2014
Authors: Zsolt Darvas Pia Hüttl

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This working paper details and updates the debt sustainability analysis of Darvas, Sapir and Wolff (2014) for Greece, Ireland and Portugal. The goal is not the calculation of a baseline scenario which best corresponds to our views, but to set-up a baseline scenario which broadly corresponds to official assumptions and current market views and to assess its sensitivity to deviations from these assumptions.

The simulated public debt/GDP ratios are slightly lower compared to Darvas, Sapir and Wolff (2014), eg for 2020 our new results are 2-3 percent of GDP lower than in our February projections. This is because of the European Commission’s downward revision of the 2013 debt level for Greece and Ireland, higher expected primary surpluses in Ireland, slightly lower interest rates for all three countries, and a 1.5 percent of GDP higher reduction in the debt ratio due to the stock-flow adjustment in 2014-15 for Portugal.

Our findings suggests that the public debt ratio is set to decline in all three countries under the maintained assumptions, but the debt trajectory remains vulnerable to negative growth, primary balance and interest rate shocks, even though we do not examine extremely negative scenarios.

About the authors

Zsolt Darvas

Zsolt Darvas is a Senior Fellow at Bruegel and a part-time Senior Research Fellow at the Corvinus University of Budapest. He joined Bruegel in 2008 as a Visiting Fellow, and became a Research Fellow in 2009 and a Senior Fellow in 2013.

From 2005 to 2008, he was the Research Advisor of the Argenta Financial Research Group in Budapest. Before that, he worked at the research unit of the Central Bank of Hungary (1994-2005) where he served as Deputy Head.

Zsolt holds a Ph.D. in Economics from Corvinus University of Budapest where he teaches courses in Econometrics but also at other institutions since 1994. His research interests include macroeconomics, international economics, central banking and time series analysis.
Pia Hüttl

Pia Hüttl is an Austrian citizen and joined Bruegel as an Affiliate Fellow in 2015. Her research interests include macroeconomics, financial economics and monetary policy as well as European political economy.

Prior to this, Pia worked as Research Assistant for Bruegel, and as a Trainee in the Monetary Policy Division of the European Central Bank. Also, she worked as a Blue Book Stagiaire in the Monetary policy, Exchange rate policy of the euro area, ERM II and Euro adoption Unit in DG Ecfin of the European Commission.

She holds a Bachelor's degree in European Economics and a Master's degree in International Economics from the University of Rome Tor Vergata. She also obtained a Master's degree in European Political Economy from the London School of Economics, with a thesis on Current Account imbalances in the Euro area and the role of financial integration.

Pia is currently pursuing a PhD in Economics at the Humboldt University in Berlin.

She is fluent in German, Italian and English, and has good notions of French.