US Debt Hits 125 % Of GDP : What’s Next for the Global Economy ?

As the global economy tries to stabilize after years of uncertainty, U.S. public debt is drawing renewed attention. Indeed, with a level reaching 125 % of GDP in 2024 and a growing budget deficit, this issue is worrying international institutions, notably the European Central Bank (ECB). Thus, the recent statements from its vice-president, Luis de Guindos, highlight the urgency of the situation and its potential repercussions on the eurozone.

A public debt of historical proportions

The U.S. public debt continues to climb, reaching unprecedented levels. According to recent data, it now amounts to 125 % of the Gross Domestic Product (GDP) of the United States. The budget deficit, for its part, surged to 6.4 % of GDP in 2024, up from 6.2 % the previous year. Thus, Luis de Guindos, vice-president of the ECB, stated at a banking conference in Frankfurt: “The debt could explode with an additional $15 trillion over the next decade, according to the Committee for a Responsible Federal Budget (CRFB).” This scenario raises concerns about the United States’ ability to contain these budgetary imbalances.

Such a situation is partly the result of current economic policies. Promises of tax cuts combined with maintaining public spending risk exacerbating budgetary imbalances. Moreover, the tariffs instituted by the Trump administration are not enough to compensate for these declines in tax revenues. This dynamic, referred to as “XXL protectionism,” is already weighing on the value of the dollar, which is appreciating against the euro, thereby disturbing transatlantic trade balances.

The global and European repercussions

Beyond American borders, the colossal debt of the United States represents a direct threat to the global economy. Moreover, with 23 % of this debt held by foreign investors, a crisis could significantly affect international financial markets. Maria Vassalou, director of the Pictet Research Institute, summarizes the situation: “The rest of the world has a lot to lose in the event of a U.S. debt crisis, as it financed the American deficit by purchasing dollars, Treasury bonds, and American stocks.” Concerns are growing as protectionist economic policies heighten trade tensions and reduce market stability.

For the eurozone, the potential consequences are equally significant. While the ECB strives to stabilize inflation around 2 %, the poor economic performance of the last quarter reveals declining productivity and downward revised growth prospects. Luis de Guindos warns that these “cyclical headwinds” exacerbate the structural problems of the eurozone, compromising efforts to enhance economic resilience.

If the United States remains attractive to investors due to its ability to issue debt in its own currency, rising tensions and protectionist policies could reverse this dynamic. Prudent management of these challenges will be crucial to avoid a global financial crisis. At the same time, the eurozone must strengthen its economic mechanisms to protect itself against potential turbulence. American debt reflects global imbalances and calls for international coordination to stabilize an increasingly interconnected financial system.