Who in Europe is most in debt? A few days ago we received the latest possible data from the EU statistical office regarding the level of public debt of the Community countries. This level is illustrated by the debt to GDP ratio of a given country. In other words: Eurostat shows what part of the gross domestic product (i.e. the value of everything a given economy has produced) corresponds to the debt of this economy.
Debt in Europe. Poland below average
The statistics immediately show that Poland is not doing too badly. The debt of the general government sector in the second quarter amounted to 52.3%. GDP. Higher debt ratios include, among others: Slovakia, Germany and Hungary. The EU average is 81.5%. GDP. It is inflated by countries in the south of the continent, primarily Greece and Italy, as well as by euro zone countries such as France and Belgium.
On the map below, the southern debt is even more visible, and the eastern part of the continent looks relatively better. The lowest debt in this approach is in Bulgaria (22.1% of GDP), Estonia (23.8%) and Luxembourg (26.8%). We are far from them, but the level itself is just over 50%. GDP looks quite good compared to the EU.
The fact that countries are running into debt is not in itself disturbing. They do it not only because they have to, but also because they can. Just as they can then “roll over” this debt (i.e. repay loans and take out new ones on financial markets). Moreover, there are simply buyers for the debt issued by states – treasury bonds. Such bonds are widely considered by investors to be the safest form of investing money.
– The GDP of a given country is, in a sense, security for its debt. If a country has a large GDP, produces a lot, has a strong industry, is known for having its own technologies or for having a strong army – this is the case of France or the USA – investors can treat it as security that it will fulfill its obligation to repay the debt. – says Jan Oleszczuk-Zygmuntowski from the Polish Economics Network. He also draws attention to the fact that the most indebted EU countries are countries belonging to the euro zone, and Poland is in a completely different situation – it has monetary sovereignty, i.e. its own currency. – Not having their own currency is, of course, not the only condition for high debt, but in the case of these countries it is the basic one – he adds.
Poland's debt is growing. Why?
The level of debt in relation to GDP in Poland is not yet dramatically high, although it is soon to exceed the EU maximum threshold. – Everything indicates that in 2026 public debt will exceed 60%. GDP and may remain above this level for several years. Such a scenario is indicated, among others, by: medium-term budgetary and fiscal plan of the Polish government – says Adam Antoniak, senior economist at ING.
– Compared to other EU countries, Polish public debt is not high in relation to GDP, but what is worrying is its rapid growth and the relatively high costs of servicing it – interest – emphasizes the expert. And this is also visible in the Eurostat data discussed here. Poland was among the countries where the growth of the debt to GDP ratio was the fastest. This pace was 0.9 percentage points between the first and second quarters of this year, and year-on-year (i.e. compared to the second quarter of 2023) 4.1 percentage points.
There is more and more debt and the costs of servicing it are also increasing. Next year they will exceed PLN 70 billion, the next year 90 billion, and in 2027 it will reach PLN 100 billion. It is worth remembering that these costs depend largely on the level of interest rates. And in Poland, interest rates are still high compared to other European countries. The main rate is currently 5.75%. and so far everything indicates that the first reduction can be expected at the beginning of spring at the earliest.
– Public debt is a tool, just like the deficit. It can be used well or badly. There is no point in talking about it in nominal terms, says Jan Oleszczuk-Zygmuntowski. – However, we can pay attention to key structural issues, such as what part of the debt is in the hands of domestic investors and what part is in the hands of foreign investors, or what part of the debt is in foreign currency and what part is in the domestic currency. At this point, about 70 percent the entire public debt is held by national residents, this burden was borne primarily by the banking sector, which was stimulated to buy treasury bonds by tax banking. The currency structure is even safer, 76%. debt are liabilities denominated in Polish zlotys – the expert calculates.
Among public economists, there are those who firmly warn against the state's indebtedness and those who believe that this is the moment when we can and should do so. We do not intend to present all the arguments in this text and decide who is right. Especially since supporters of getting into debt also see some (subtle) warning signs.
– When it comes to debt, there is no reason to worry for now, we can only say that we have a warning light: we have to control what is happening and monitor the situation – emphasizes Oleszczuk-Zygmuntowski. One more aspect is crucial: in the coming years, the level of public debt will be increased by large defense spending. – One thing could be corrected thing. The pace of increase is particularly high now, because the negotiated arms contracts were postponed during the previous government. As the Polish Economic Network, we – and not only us – suggested to Minister Domański to “pack” all this in 2024. Unfortunately, this did not succeed and military expenditure was largely transferred to the next year.
So what to do with all this now? There are many expenses that we cannot give up because they are the so-called fixed expenses, others the government does not want to give up for various reasons.
– Fiscal policy currently lacks a clear definition of priorities – says Adam Antoniak. – One of them is certainly increasing spending on the army, but the government is also trying to maintain high social spending, increase spending on health care and avoid increasing the tax burden, or perhaps even reduce it – here the topic of increasing the PIT tax-free amount. All the above-mentioned areas are important, but they probably cannot be implemented simultaneously and sooner or later it will probably be necessary to define clear priorities – emphasizes ING's senior economist.
Jan Oleszczuk-Zygmuntowski has a slightly different opinion here. – Do we need everything at once? Yes, let's be ambitious. I would just refrain from handing out tax benefits to various groups, such as fictitious entrepreneurs. But as long as the book of demand for treasury bonds is filling up, we can continue to take on debt to have something to make a qualitative leap in the economy. Let us remember that in five years Poland will become a net payer of the EU. During this time, we should rebuild the economy by adding a stream of debt money to EU funds.
These are two more words about public finances. This week, the government revised the budget for this year. The deficit – i.e. the difference between income and expenses – increased by over PLN 56 billion, to PLN 240.3 billion. The increase itself was expected, but its scale was surprising. However, the level of expenses has not changed – no cuts are planned. You can read more comments on this topic, for example, here: The draft budget amendment is already in the Sejm. Record deficit. “The brakes were released” and here: The government is running into record deficits. A surprising thesis. “Technical play”.