>What questions should be asked about fiscal deficits and sovereign debts? (NATIXIS)

We suggest the following interpretation grid for countries posting high fiscal deficits and public debt ratios:

1. Was it justified to run up these fiscal deficits?
That is the case if the economic situation will be better in the future, which justifies transferring
income from the future to the present via fiscal deficits;

2. Are the fiscal deficits squeezing out private investment, or are there sufficient savings to prevent this?

3. If fiscal deficits are very large in the short term, is fiscal credibility maintained? If it is ensured, even if the fiscal deficit is very high in the short term, investors expect fiscal solvency to be restored and long-term interest rates not to rise.

4. If a country is in a budget crisis, is this a liquidity crisis or a solvency crisis? In the first case, the remedy is loans from other countries (or from the IMF) that enable countries to continue to finance themselves. In the second case, these loans are useless and solvency must be restored.

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