NCPA - National Center for Policy Analysis

IMF Warns Countries of Debt Risks, Dismisses Idea of Greek Default

September 3, 2010

Economists with the International Monetary Fund (IMF) recently warned that a number of countries are running perilously close to their "debt limit" -- the point at which markets might react to the threat of default by boosting interest rates sky high on new borrowing.  According to the IMF analysis of 23 wealthy countries, Greece, Iceland, Italy, Portugal and Japan are very close to that point, while Ireland, the United States, Britain and Spain are moving into dangerous territory, says the Wall Street Journal.

With that said, IMF economists note that Greece and other advanced European countries are very unlikely to default, disputing market analysts who have warned that the IMF's multimillion euro bailout for Greece only delayed a day of reckoning, says the Journal.

  • Overall, the IMF says that escalating debt levels in the Group of Seven industrialized countries --the United States, Canada, Germany, Britain, Italy, France and Japan -- are the result of welfare state growth, particularly in health care spending.
  • The economists say that the recession has worsened the debt problem, but argue that stimulus plans are responsible for only a small portion of the debt increase.
  • The key to taming debt to more manageable levels is getting health care and pension costs under control and boosting growth.

Source: Bob Davis, "IMF Warns Countries of Debt Risks, Dismisses Idea of Greek Default," Wall Street Journal, September 2, 2010.

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