Debt and Taxes in the Eurozone

The current crisis in the eurozone is known around the world as the “euro sovereign-debt crisis.” But the crisis is really about foreign debt, not sovereign debt.

The importance of foreign debt is well illustrated by the case of Portugal: although the country’s public-debt and deficit ratios are broadly similar to those of France, the risk premium on its public debt increased continuously, until it was forced to turn to the European rescue fund. The key problem confronting Portugal is thus not fiscal policy, but the high (foreign) debt of its private sector – its banks and enterprises.