The World Is Piling on Debt as It Battles Inflation

THE WALL STREET JOURNAL:

A surge in food and fuel prices is raising pressure on governments around the world to pick up the tab for consumers, stretching precarious public finances and intensifying political instability in the shakiest economies.

Spooked by protests that have broken out recently from Bangkok to Sicily, many governments have adopted subsidies or tax breaks to shield households and businesses from the soaring prices.

Yet the handouts are boosting already high government debt just as borrowing costs are rising. For some countries, the increase may prove too much to afford, raising the specter of political unrest.

Subsidies “might support consumer confidence in the short term, but they also prevent healthy adjustments in the economy,” deterring companies and consumers from adjusting to economic shifts, said Joerg Kraemer, chief economist at Commerzbank in Frankfurt.

In Europe, Russia’s attack on Ukraine saw gasoline and diesel prices make their biggest jumps since the oil shocks of the 1970s against a backdrop of already rampant inflation. After chafing under Covid-19 restrictions, Europeans are now protesting over their dwindling purchasing power.

Greek farmers in mid-March drove their tractors to the Agriculture Ministry in Athens to demand relief. In Sicily, protesting truckers disrupted food deliveries, including those of the island’s famous oranges. In Spain, striking truck drivers caused food shortages in some areas and prompted companies like Danone SA and Heineken NV to warn of production cuts.

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