Escaping the Sovereign-Debt Crisis: Productivity-Driven Growth and Moderate Spending May Offer a Way Out
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Sovereign debt and fiscal deficits are strangling many advanced economies. Policy choices are complex, but there is an escape strategy that does not require draconian budget cuts or risky debt-financed stimulus spending. The solution is based on two principal policy levers: encouraging productivity-driven GDP growth and keeping government spending per worker constant. If governments align their policies with these growth principles, a fiscal surplus will eventually materialize and the ratio of government debt to GDP will decline substantially within one to two decades.