Why Italy’s debt matters for everybody

The U.S. and global economies are in a perilous state, and yet we may be underestimating the dangers. Just out of sight lies a second large threat: a global debt crisis that, centered in Europe, would further destabilize a world already struggling to combat the dreadful consequences of the coronavirus pandemic. In the United States and elsewhere, tens of millions have lost their jobs, and business losses total in the trillions of dollars.

The U.S. and global economies are in a perilous state, and yet we may be underestimating the dangers. Just out of sight lies a second large threat: a global debt crisis that, centered in Europe, would further destabilize a world already struggling to combat the dreadful consequences of the coronavirus pandemic. In the United States and elsewhere, tens of millions have lost their jobs, and business losses total in the trillions of dollars.

Based on many factors — low interest rates, a record of repaying past loans, low inflation — some countries can borrow more than others. Although Germany’s debt ratio is rising, hardly anyone thinks it may default. By contrast, Italy and Greece are closer to the brink.

If some sort of financial rescue isn’t organized, Italy might be forced out of the euro, dragging along some other highly indebted countries. It’s worth remembering that Italy has the third-largest economy in the euro zone (the 19 countries that use the euro as currency), behind Germany and France.

More From The Washington Post (subscription required):