Many European governments ramped up fiscal stimulus during COVID. Now, with calls for fiscal discipline, how sustainable are current spending levels? This could have long-term implications for bond yields and corporate access to capital.
I'm not so sure it's an immediate crisis. European governments still have some fiscal headroom, especially compared to their US counterparts. Plus, infrastructure investments can pay off long-term, not just be seen as pure 'spending'.
Agreed, the sustainability question is key. It's not just about the absolute debt levels, but also the growth outlook. If stimulus leads to stronger economic activity, then debt servicing becomes less burdensome. But if it's just propping up the status quo, then we have a problem.
That's a critical point. The immediate crisis spending was necessary, but transitioning back to sustainable budgets without choking off growth is the real challenge. Hard to see how they avoid higher bond yields if debt keeps climbing.