Must-Read: Steve Cecchetti and Kermit L. Schoenholtz: The Euro Area’s Debt Hangover

…but much of Europe lives under a severe debt burden. Nonfinancial corporate debt exceeds 100 percent of GDP in Belgium, Finland, France, Ireland, Luxembourg, Netherlands, Portugal, and Spain. And, gross government debt (as measured by Eurostat) is close to or exceeds this threshold in Belgium, France, Greece, Ireland, Italy, Portugal and Spain. Debt levels this high… are a drag on growth… households have more difficulty maintaining consumption when income falls; firms may be unable to keep up production and investment when revenue dips; and governments are in no position to smooth expenditure when revenue falls…. Beyond that, high levels of debt reduce the effectiveness of central bank stimulus…. Granted, zero (or even negative) interest rates postpone the day of reckoning, potentially for years. But as growth returns, we expect interest rates to rise and the burden of servicing the debt will rise with it. So, the time will ultimately come when waiting is no longer an option…