Less Debt Is Better
Other countries in the developed world, including the United States, United Kingdom and Japan, would be wise to heed the lessons learned in Europe. Policymakers in these countries must be proactive in restoring fiscal balance or risk coming under more intense scrutiny from investors.
ese countries are fortunate in that they have independent
monetary authorities and freely floating currencies that can alleviate some of the pain associated with fiscal adjustment. However, they also face large structural deficits due to the demands that aging populations will place on their public pension and healthcare systems.
By contrast, demographic trends remain much more favorable in emerging markets. Furthermore, the starting debt levels in these economies are a fraction of what they are in the developed world. e average gross government debt-to-GDP ratio in emerging markets is expected to decline from 38% to 34% by 2015. Faster growth rates, lower debt levels, and sounder financial systems suggest these countries will make further progress on convergence with the developed world. In fact, emerging markets’ share of world GDP is expected to surpass that of the developed world by 2013.