GENEVA, July 21. /TASS/. The European Union’s economy is heading downhill towards the public debt boost and the community again faces the same critical situation as it had during the Euro area crisis in the early 2010s, the Neue Zurcher Zeitung (NZZ) newspaper says.

According to estimates by the author of the article, Malte Fischer, the economic leaders of the European Union, Germany and France, face the challenge of dramatically soaring public debt. The journalist attributes the increase in debt to the problems of the ageing population, which is reflected in the rising costs of social transfers and the shrinking of the working population, leading to a decline in the economic growth of European countries. Another problem, according to the author, was the increase in defense spending, which is financed by new loans.

"If governments continue to draw funds from the loan treasury, there will be a threat of a vicious circle consisting of rising interest rates and the debt mountain buildup," Fischer notes. The European countries have so far benefited from the low cost of debt financing they secured during zero and negative interest-rate years by issuing long-term bonds, he noted. "However, when cheap loans expire in the coming years, governments will have to replace them with new loans at higher interest rates," the author explains.

According to Fischer, the countries of the community "are once again at the point where they were more than 10 years ago during the Eurozone crisis." Then the European Central Bank (ECB) became "a minion of governments, buying up their government bonds and pumping huge amounts of liquidity into the banking system," he stressed. The journalist reminded that during the coronavirus pandemic, the ECB "further increased the volume of purchases, which caused a wave of inflation."

Fischer thus predicts that what now appears to be "the end-of-the-world scenario may become reality faster than it seems." "Until governments have the courage to turn the tide on fiscal policy, citizens should better prepare for a new era of fiscal restraint," he added.