Forecast: U.S. Government Debt Surpasses Italy and Greece's Debt for the First Time Since the Turn of the Century

It is expected that the burden of government debt in the United States will exceed its levels in both Italy and Greece for the first time this century, according to the latest forecasts from the International Monetary Fund, highlighting the fragility of the country's public financial situation.

The Fund's estimates indicate that the total U.S. government debt is likely to rise by more than 20 percentage points from its current level, reaching 143.4% of GDP by the end of this decade, surpassing the record levels recorded after the COVID-19 pandemic.

At the same time, the debt burden in both Italy and Greece—countries that have long been models of public finance crises and the epicenter of the sovereign crisis in the Eurozone between 2010 and 2012—is expected to trend downward by the end of the decade, driven by measures to tighten control over the fiscal deficit.

The International Monetary Fund estimates that the U.S. budget deficit will remain above 7% of GDP annually until 2030, recording the highest level among advanced economies covered by the Fund's reports for this year and the next. In contrast, the debt-to-GDP ratio in the United States continues its upward trajectory until 2030, with projections from the Congressional Budget Office indicating that this trend will persist for decades to come.

Mamdouh Baradan, head of global macroeconomics at the Amundi Institute for Investment, told the Financial Times: "This is a symbolic moment, and the Budget Office's estimates indicate that U.S. debt will continue to rise, reflecting the effects of chronic deficits." He added: "However, it should be noted that Italy's growth prospects are weaker than those of the United States, so this cannot be seen as an indication that Italy is out of the danger zone."

As the issuer of the world's reserve currency, the United States has a greater capacity to borrow compared to its European counterparts. However, economist James Knightley from ING commented on this shift, saying: "Many U.S. politicians and investors look down on Europe and its weak, slow-growing economies, but when indicators like this emerge, the nature of the discussion changes."

An alternative measure, "net government debt," which excludes financial assets, presents a somewhat different picture, showing that U.S. debt will remain about 10 percentage points lower than its Italian counterpart by the end of the decade. Joe Gagnon from the Peterson Institute for International Economics explained that this measure "provides a more accurate reading of the U.S. debt burden because it more closely reflects the amount of debt that investors must hold," while also noting that "this net measure is also rising."

The U.S. federal budget deficit has widened significantly during President Joe Biden's administration, despite falling unemployment rates. Forecasts indicate that the Trump administration did not make sufficient efforts to address this dilemma.

For his part, Joe LaFornia, economic advisor to Treasury Secretary Scott Pessen, confirmed that the Trump administration made progress in reducing spending and increasing revenue through tariffs on imports, stating: "What many do not realize is that most of the improvement in the budget deficit this year occurred since April."

In contrast, the United States faces political challenges that hinder addressing the deficit. Joe Gagnon said: "Democrats do not want to cut spending, Republicans do not want to raise taxes, and both are sticking to this position, and I do not know when this reality will change."

On the European side, the government of Italian Prime Minister Giorgia Meloni has been praised by foreign investors for its efforts to curb the budget deficit. Italy is expected to end this year with a primary surplus of 0.9% of GDP, improving from the initial forecast of 0.5%. Rome expects the fiscal deficit to drop to around 3% this year, which may allow it to exit the European Union's excessive deficit procedures ahead of schedule.

Filippo Taddei, chief European economist at Goldman Sachs, commented: "There is a consistent and cautious approach to fiscal policy." These efforts have also led to an improvement in Italy's credit rating by DBRS Morningstar this month.

Maurice Obstfeld, former chief economist at the International Monetary Fund, warned that any forecasts suggesting the sustainability of the U.S. financial situation "are based solely on overly optimistic assumptions about future productivity growth in the United States or tariff revenues or demographic factors or interest rates... and perhaps all of them together."