British comic strip character Andy Capp once said, “Never postpone tomorrow what you can postpone already today.” Sometimes I wonder if our political leaders have adopted this aphorism as their political credo.
The government debt problem is one of the best examples of this habitual postponement. Despite valiant commitments to the contrary, almost every member state of the European Union has allowed its government debt to inflate far beyond what is allowed by the EU Charter—or by fiscal and economic common sense.
Sadly, ignoring the debt is not going to make it go away. Much like an ingrown toenail, it will remain there and get worse until we decide to put an end to it. A new report from the Paris-based think tank OECD (Organization for Economic Cooperation and Development) gives us a glimpse of what is going to happen if our governments continue to ignore their debts for just a little longer.
The OECD’s Global Debt Report for 2026 sends a blunt, unmistakable message that Europe in particular must listen to—now:
Europe has had a debt problem since at least the late 1990s. That problem has slowly grown worse, and it has accelerated somewhat in the past 15 years. The message in the report is loud and clear: governments that choose to do nothing have nothing good to look forward to; if anything, their debt situation is going to escalate.
The debt problem itself originates in the fact that Europe’s welfare states are structurally unaffordable, thus causing perennial budget deficits. Over time, with no plan to address rising debt, Europe’s governments are now—according to the OECD report—reaching a point where the debt market is going to spell doom over them.
This is not shocking news—or at least it should not be. During the last real economic crisis 15 years ago (the COVID pandemic does not count), the ECB led an effort by central banks to shield deeply indebted governments from the free market verdict over their fiscal recklessness. That shield, says the OECD, is no longer present.
Since the 2008-2010 ‘Great Recession’ and—even more so—the 2020 pandemic, central banks have had to deal with the fallout of their own mistakes of buying large piles of government debt. They used newly printed money to buy treasury securities, a practice known as deficit monetization. This was a main contributor to the tidal wave of inflation that swept across the world in the aftermath of the pandemic.
Bringing the monetarily-caused inflation under control took a massive coordination of monetary policy by the world’s leading central banks. In addition, the central banks have been discouraged from monetization by another problem, directly resulting from their sovereign debt-buying spree. When they bought treasury securities during the pandemic, interest rates were low, which means that the prices of the securities were high.
Since 2020–2021, interest rates have risen in both Europe and North America, which has had the consequence of lowering the prices of those debt securities.
With fear of reigniting inflation and with bruises from portfolio losses on government debt, Europe’s monetary authorities from the ECB down to the non-euro countries are treading more cautiously with regard to sovereign debt purchases. It is fairly obvious that most, if not all, of them want to get out of the habit of supporting deficit-addicted governments with monetization measures. The question is how strong their independence is from those governments; a central bank that is beholden to the political whims of its government cannot conduct monetary policy with long-term policy goals in mind.
Fortunately, there are not many examples of central banks being coerced into using monetary policy to accommodate their government’s deficit-addicted fiscal policies; the loud noise that President Trump made last year over the Federal Reserve appears to—thankfully—have been an isolated incident. Therefore, the emerging trend of central bank skepticism toward buying more sovereign debt is a reliable indicator of an important change to the debt market.
When the monetary authorities scale down their purchases of treasury securities, indebted governments naturally have to sell more of their debt to private sector investors. Normally, this would be an unproblematic, almost trivial transition from monetary authorities setting the pace on the market to private investors taking that role.
But things are not normal on the global debt market—or at least not favorable to the governments that constitute two thirds of that market. Their efforts at trying to find lenders for their debt are meeting with growing reluctance. So far, there is not outright resistance to buying sovereign debt, but if I were the prime minister of an indebted European welfare state, I would be very worried.
The most obvious sign of trouble, reported prominently in the OECD report, is that interest rates on government debt in general, and long-term debt in particular, are on the rise. This is happening right after the two biggest central banks of the OECD countries, the Federal Reserve and the European Central Bank, have worked hard to reduce their policy-setting interest rates. On page 58, the OECD report provides an overview of trends in interest rates on sovereign debt in 25 of its member countries. Debt rates are rising in 15 of the 17 EU states included in the overview.
Data from Eurostat and the ECB confirm the upward trend in debt rates, especially for long-term securities:
Over the same period of time, a 3-year treasury bill has fallen from 2.81% to 2.59%. A 5-year has risen marginally from 2.76% to 2.81%.
It is never a good sign when private investors want higher yields on long-term government securities relative to their short-term alternatives. It indicates a rise in general uncertainty among investors. When that relative increase at the long end continues over two years, investors are uncertain specifically about government indebtedness.
With less involvement from central banks, private investors become the dominant price setters on the market for sovereign debt. This, in turn, means that the politicians who fail to rein in their governments’ budget deficits are placed under the direct—and rather merciless—spotlight of the free market.
That is not a pleasant place to be; the question is not if the debt market will issue a crisis verdict over indebted European governments. The question is when that will happen.
