For decades, crushing debt has spread misery in the world’s poor and lower-income nations. But the menace of unsupportable borrowing that now hangs over the global economy emanates from some of the richest countries.
Record or near-record debt in the United States, Britain, France, Italy, and Japan threatens to hamstring growth and sow financial instability worldwide.
At home, it means countries must make interest payments with money that could otherwise be used for health care, roads, public housing, technological advances, or education.
The hunger for more and more loans has also pushed up borrowing costs, gobbling up a bigger share of taxpayer money. It can also push up rates on business, consumer, and car loans, as well as mortgages and credit cards, and drive-up inflation.
And perhaps most worrisome, overhanging debt — pumped up even when an economy is relatively sound and unemployment rates are low, as in the United States — gives governments less room to respond when things sour.
“You want to be able to spend big and spend fast when you need to,” said Kenneth Rogoff, a Harvard economics professor.
What happens if there’s a financial crisis, a pandemic, or a war? What if there’s a sudden need for more social services spending and jobless relief because of changes caused by artificial intelligence or climate-related disasters?
At the World Economic Forum in Davos last week, President Trump commanded center stage, but on the sidelines, finance ministers fretted over their ability to fund a growing list of must-haves, from beefed-up militaries to upgraded electricity grids.
Government borrowing when an economy is strong and interest rates are low can support growth and, in times of distress, bolster spending.
The cycle of supercharged borrowing began with the 2008 financial crisis and recession, when governments rushed to provide assistance to struggling households and tax revenues fell.
Relief programs during the Covid-19 pandemic, as economies shut down and health care costs rocketed, pushed debt levels up another notch as interest rates rose and outpaced growth.
But debt levels did not decline. And now, in six of the wealthy Group of 7 nations, the national debt equals or exceeds the country’s annual economic output, according to the International Monetary Fund.
More and more countries are being squeezed by demographics and slow growth. In Europe, Britain and Japan, aging populations have driven up government health care and pension costs while the number of workers who provide the necessary tax revenue has shrunk.
The need to rebuild infrastructure and invest in advanced technology in many regions is also dire. A yearlong study requested by the European Union’s executive arm concluded that the 27-member bloc needed to spend an additional $900 billion on initiatives such as artificial intelligence, a shared energy grid, supercomputing, and advanced worker training to effectively compete.
In Britain, it will cost at least 300 billion pounds ($410 billion) to upgrade infrastructure over the next decade, according to Future Governance Forum, a think tank in London. Billions more will be needed to revitalize its limping National Health Service.
Efforts to trim public spending in Italy, where debt equals 138 percent of gross domestic product, by cutting health care, education, and public services, or in France by raising the retirement age, have set off vehement protests.
France, which has been politically deadlocked over the budget for months, saw its sovereign debt rating downgraded last fall, raising questions about the country’s financial stability.
Meanwhile, the world has turned more dangerous. Tensions between China and the United States have sharpened. Europe is threatened by an increasingly aggressive Russia and a belligerent American president.
Most countries have responded by providing significant financial support to Ukraine, totalling billions of dollars, and by increasing military spending.
Members of the North Atlantic Alliance agreed to eventually devote 5 percent of their gross domestic product to defence. Japan is also substantially enlarging its military budget.
The prospect of an even deeper hole grew last week when Prime Minister Sanae Takaichi suddenly called for a snap election. Both Ms. Takaichi’s Liberal Democrats and opposition parties are promising to increase spending and lower taxes.
Ms. Takaichi, for instance, has proposed suspending the consumption tax on food and non-alcoholic beverages, a move the Finance Ministry estimates would cost more than $30 billion annually.
For decades, Tokyo managed to fund its spending through rock-bottom interest rates that kept borrowing costs low. The Bank of Japan began to reverse its longstanding policy of ultralow interest rates in 2024.
It is moving slowly because of fears of financial instability, Mr. Rogoff of Harvard said. Japan has “stuffed debt into every orifice of the financial sector — pension funds, insurance companies, banks. And there are inflation pressures.”
The combination of low interest rates and elevated inflation particularly hurts working- and middle-income families, who see the value of their savings erode.
