United States, China, Europe, Japan and emerging economies: behind the accumulation of trillions in debt lies a more difficult question than its sheer size. At what point has a state really borrowed too much?

Global debt ceased to be an anomaly a long time ago. It has become an ordinary component of how modern economies function.

Governments borrow to finance deficits, companies to invest, and households to buy homes or consume. Banks create credit, investors purchase bonds, and central banks intervene when markets cease to function normally. A considerable part of the global economy therefore rests on an architecture of financial promises that will be honoured tomorrow with tomorrow’s income.

The numbers are staggering. According to the latest available edition of the International Monetary Fund’s Global Debt Database, global public and private debt exceeded 235% of world GDP in 2024, or roughly $251 trillion. Public debt alone represented close to 93% of global GDP. Since then, the trajectory has deteriorated further: in its April 2026 Fiscal Monitor, the IMF estimates that global public debt reached 93.9% of GDP in 2025 and could approach 100% before the end of the decade.

These figures regularly feed the idea of an enormous financial bomb waiting to explode.

But they can also be misleading.

There is no universal threshold beyond which a state suddenly becomes insolvent. Debt equivalent to 150% of GDP can be manageable for one country, while 70% can become unsustainable for another.

The real limit of indebtedness therefore lies not simply in the volume of debt.

It lies in a country’s ability to convince those financing it that they can continue doing so.

Debt Is Not Necessarily a Problem

A state does not borrow like a household.

It does not have a finite lifespan and is generally not expected to repay its entire debt stock. When a bond reaches maturity, the Treasury repays the creditor but can simultaneously issue another bond. Public debt can therefore be refinanced for decades.

This mechanism works as long as investors remain willing to lend.

The central question is therefore not: When will the debt be repaid?

It is: Under what conditions can it continue to be refinanced?

This distinction explains why some economies can maintain extraordinarily high levels of debt for very long periods.

Japan provides the most spectacular example. Its gross public debt is well above twice the size of its economy, yet the country has not experienced a sovereign debt crisis comparable to those that have struck far less indebted states.

The structure of the debt matters as much as its size. Japan has substantial domestic savings, deep financial institutions and a central bank capable of intervening massively in the government bond market. Its debt is also denominated in its own currency.

In other words, Tokyo controls one of the essential components of its debt system: the currency in which its obligations must be repaid.

Not every country enjoys that privilege.

The American Privilege

The United States occupies an even more unusual position.

The Congressional Budget Office estimates that federal debt held by the public represents roughly 101% of GDP in 2026 and could reach 120% by 2036 if current policies remain broadly unchanged. The federal deficit is projected at approximately $1.9 trillion this year.

In many countries, such a trajectory would rapidly generate major concern in financial markets.

Washington, however, benefits from an advantage no other country possesses on the same scale: it issues the world’s principal international currency.

The dollar remains central to global trade, central bank reserves, financial markets and a large share of international financing. U.S. Treasury securities simultaneously function as savings instruments, reserve assets, interest-rate benchmarks and collateral across an enormous range of financial transactions.

Demand for American debt therefore does not depend solely on the fiscal position of the United States. It also reflects the functioning of the global financial system itself.

That considerably extends the limits of American borrowing.

But it does not eliminate them.

The problem increasingly becomes one of cost.

The CBO projects that the federal government’s net interest spending will exceed $1 trillion in 2026, equivalent to roughly 3.3% of GDP. It could reach $2.1 trillion by 2036.

At that point, debt begins to reshape the structure of the budget itself.

Every dollar devoted to interest is a dollar unavailable for infrastructure, research, defence or social programmes, unless the government borrows even more.

The financial constraint gradually becomes a political constraint.

The Return of Interest Rates

For almost fifteen years after the 2008 financial crisis, the major economies lived in an exceptional environment.

Interest rates were extraordinarily low, and sometimes negative. Central banks purchased government bonds on a massive scale. Governments could borrow at historically low costs.

Large debt burdens became considerably easier to sustain.

That era has changed.

The resurgence of inflation after the pandemic led central banks to raise interest rates sharply. Even when monetary policy subsequently begins to ease, the effect on public finances is not immediate.

A large proportion of bonds issued when rates were low remain outstanding until maturity. But every year, part of that debt must be refinanced.

That is where the problem emerges.

A bond issued at 1% can mature and be replaced by one costing 3%, 4% or more.

The stock of debt barely changes.

The bill does.

The IMF estimates that global government interest expenditure has risen from around 2% to nearly 3% of GDP in only four years, precisely because older debt is gradually being refinanced at higher rates.

Debt sustainability therefore depends on a fundamental relationship between interest rates, economic growth and the fiscal balance.

When nominal economic growth exceeds the average cost of debt, a country can sometimes stabilise its debt ratio despite moderate deficits.

When financing costs remain persistently above growth, the equation becomes considerably more difficult.

Debt can then begin to generate more debt.

Europe and the Fragmentation of Risk

Europe presents a different configuration.

Euro-area countries use the same currency but retain largely national fiscal policies. Germany, France, Italy and Spain all borrow in euros, yet financial markets do not value their bonds in the same way.

This peculiarity lay at the heart of the European sovereign debt crisis.

Italy can sustain a high debt ratio as long as investors consider its trajectory credible and the architecture of the euro area remains solid. But a significant rise in risk premiums can rapidly increase refinancing costs.

The European Central Bank therefore plays an essential role.

Its existence does not mean that every European sovereign debt is guaranteed. But its capacity to intervene against disorderly market movements profoundly alters perceptions of risk.

The credibility of a country’s debt therefore no longer depends solely on the balance sheet of the state.

It also depends on the institutions surrounding it.

China: A Different Kind of Debt

China’s debt problem is different again.

A significant part of the country’s indebtedness does not sit directly on the central government’s balance sheet. It is distributed across local governments, state-owned enterprises, local government financing vehicles and the property sector.

The boundary between public and private debt consequently becomes harder to define.

When a strategic company or local financing structure encounters difficulties, investors may anticipate government intervention even when no formal guarantee exists.

The system’s effective liabilities therefore do not necessarily correspond to officially recorded sovereign debt alone.

China nevertheless possesses several important safeguards: enormous domestic savings, a banking system largely controlled by the state, restrictions on capital movements and debt predominantly denominated in its own currency.

Beijing therefore possesses an exceptional capacity to shift losses across institutions and through time.

But postponing a loss does not make it disappear.

When too much capital is mobilised to support property assets, weakly profitable companies or low-productivity investment, the cost of debt can emerge in another form: slower growth, declining returns on capital and the gradual weakening of the financial system.

The Real Danger for Emerging Economies

For many emerging economies, the situation is much more unforgiving.

A country can have a relatively modest public debt burden and still experience a crisis.

The reason often lies in the currency.

When a government, its banks or its companies borrow heavily in dollars while their revenues are primarily denominated in local currency, depreciation automatically increases the real burden of debt.

A $10 billion liability remains a $10 billion liability.

But if the domestic currency loses 30% of its value, considerably more local income is suddenly required to repay it.

The mechanism can become self-reinforcing.

Investors become concerned, capital leaves the country, the currency depreciates, debt-servicing costs increase, foreign-exchange reserves decline and investors become even more concerned.

That is often how a crisis of confidence becomes a debt crisis.

The borrowing limit for emerging economies can therefore be much lower than for the United States or Japan.

Not necessarily because their governments are more profligate, but because they do not possess the same degree of monetary and financial sovereignty.

What About Private Debt?

Focusing exclusively on governments would be a mistake.

Global private debt remains enormous. The IMF’s latest comprehensive figures placed it below 143% of global GDP in 2024, despite a decline from previous years.

Yet the distinction between private and public debt can disappear during a crisis.

A bank is private until its collapse threatens the entire financial system.

A strategic corporation is private until its disappearance becomes politically unacceptable.

Mortgages are private until their collapse threatens the banks holding them.

Recent financial history is filled with private liabilities that became, directly or indirectly, public obligations.

The 2008 financial crisis offered a spectacular demonstration.

Assessing a country’s financial strength therefore requires looking at its entire balance sheet: government, households, corporations, banks, implicit liabilities and, in some cases, local authorities.

Can Central Banks Remove the Limit?

A central bank capable of creating its own currency possesses considerable theoretical power.

It can purchase government bonds, provide liquidity to the banking system and prevent a financial panic from transforming a liquidity problem into systemic collapse.

But it cannot abolish economic constraints.

If money creation intended to support public finances becomes incompatible with price stability, the fiscal constraint reappears in the form of inflation.

If investors anticipate the permanent monetisation of deficits, they may demand higher interest rates, sell the currency or move capital elsewhere.

A central bank can create money.

It cannot create confidence, real resources or productivity at no cost.

A powerful central bank can therefore push certain limits further away without eliminating the fundamental constraint.

So, How Far Can We Go?

It would be reassuring if the answer could be reduced to a number.

60% of GDP. 100%. 150%. 200%.

The real economy refuses such simplicity.

The limit depends on the currency in which the debt is issued, its maturity, the interest rate paid, domestic savings, potential growth, fiscal credibility, the depth of financial markets, the composition of debt holders, the independence and credibility of the central bank, foreign-exchange reserves and, ultimately, confidence.

Countries do not generally default because a statistical ratio crosses a red line.

They default — or enter a financial crisis — when they can no longer refinance their obligations on economically and politically sustainable terms.

That is why debt crises can appear to emerge so suddenly.

For years, almost nothing happens.

Bonds are rolled over. Deficits persist. Investors continue buying. Governments conclude that the system works.

Then interest rates rise, growth slows, a currency falls, a war begins, a bank falters or a political crisis calls the fiscal trajectory into question.

The perception of risk changes.

And when confidence changes, the mathematics changes with it.

Debt Is Also a Question of Time

The world is not necessarily heading towards some gigantic collective bankruptcy.

Global public debt could continue rising for a long time. The IMF now projects that it could reach approximately 100% of global GDP as early as 2029.

But that progression gradually reduces governments’ room for manoeuvre.

That may be where the real problem lies.

High debt does not necessarily prevent a state from functioning today. It reduces its ability to respond to tomorrow’s shock.

A pandemic, war, banking crisis, climate disaster or deep recession can suddenly require hundreds of billions in additional expenditure. Governments entering the crisis with strong public finances can absorb part of the shock. Those already carrying large deficits and heavy interest burdens have far fewer options.

Debt is therefore not merely a claim on future income.

It is the advance consumption of part of a state’s future capacity to act.

And that is precisely why its limit is so difficult to observe.

It is not established by an international accounting rule. It does not automatically appear when debt reaches 100% or 150% of GDP.

It moves with interest rates, growth, currencies, institutions and expectations.

Until the day a state discovers that markets are no longer asking how much it wants to borrow.

They are asking how much it can still afford to pay.

Main Sources

International Monetary Fund — Fiscal Monitor, April 2026: Fiscal Policy under Pressure: High Debt, Rising Risks.

International Monetary Fund — Global Debt Database, 2025 edition.

International Monetary Fund — World Economic Outlook, April 2026.

Congressional Budget Office — The Budget and Economic Outlook: 2026 to 2036, February 2026.

International Monetary Fund — data and research on global debt and public debt sustainability.