Why is there so much national debt

Japan: Carelessly in debt

When Shinzo Abe announced his rescue packages in the past few weeks, his speeches always hinted at pride. The prime minister called his programs "bigger than ever before," with some justification. After all, aid amounting to 40 percent of the gross domestic product is now flowing to companies and families in Japan, the equivalent of 1.8 trillion euros. Abe takes historically unique sums in hand to economically master Corona.

It doesn't seem to bother the prime minister that his country is already deeper in the red than any other industrialized country. The national debt is 237 percent of the annual economic output and thus significantly higher than in Greece or Italy, where the debt has already triggered crises. Now the debt in Japan will increase significantly as a result of the corona aid. Nevertheless, hardly anyone worries - and certainly not Abe's government, which simply states how necessary the new trillions are.

This carelessness would be unimaginable in Germany, which otherwise has so much in common with the East Asian country. Both are among the largest economies and the fastest aging societies in the world. Only the German debt before Corona was around 60 percent, and when the government announced its economic stimulus package, the concern about too high new debt immediately arose again. With good reason: With low birth rates and increasing life expectancy, the average age increases. This means that national debts made today will be passed on to the relatively low births in the future.

For Japan, skeptics have long expected that an explosive cocktail will be mixed here. No society is older; 28 percent are already over 65, and the number is quickly increasing. The proportion of the working population decreases accordingly, the burden on each individual earner increases.

And yet: So far, there has been no collapse in Japan. The state does not have to pay high interest rates to borrow new money, nor do we hear of protests from the younger generation. And despite the debt, prices have fallen slightly over the past few years. Younger Japanese have practically never experienced a loss of purchasing power.

That doesn't mean Japan is a role model. The main reason why the country has not yet got into a debt crisis is because, unlike the euro countries, it has control over national monetary policy. Since Japan slipped into an economic crisis around the turn of the millennium, the central bank has been buying up government bonds and using them to finance the government's debt and economic policy.

In Shinzo Abe's cabinet there is hardly any illusion that the formally independent central bank decides on its own policy. At the end of May the prime minister announced: "The government and the central bank will continue to work together" - and make huge sums of money available.

Because it has been buying government bonds for many years, the Bank of Japan now holds roughly half of Japan's public debt - more than what the entire economy generates in a year. In addition to the license to print money, the state has also borrowed a license to swallow debt. But public spending is not creating a boom that would generate anywhere near enough tax revenue to pay off the debt. So the debt ratio keeps rising.

But Japan's citizens are stabilizing the country. The national debt is held almost exclusively by Japanese investors, especially the older ones and thus on average more affluent. It is unclear whether they are hoping for security for their money or are acting out of patriotism. But if the Japanese should one day no longer want their state's papers, things could get tight.

The land-citizens deal could be over when the elders die and inherit their wealth. Younger people hardly save and do not give the impression in surveys that they are a generation of willing believers; they will want to spend their money. Foreign investors could take their place, but would probably charge more interest.

So the only thing left is the so-called monetization of national debt: the central bank would have to buy up even more debt - exactly what the northern countries in particular want to prevent for the euro group and which many economists are warning against. Because although it can go well for a long time, it doesn't last forever. The loose monetary policy allows the money in circulation to swell until it loses value and inflation rises uncontrollably.