Abstract

This paper uses three case studies to show how European states have managed their public debt since 1900. The United Kingdom, France (to a lesser extent) and Germany entered the twentieth century with relatively low levels of public debt. This reflected the contemporary fiscal and monetary orthodoxy that governments should balance their peacetime budgets and fix their currencies against gold. All three states borrowed substantially to fund the world wars. British governments restored their fiscal credibility with postwar austerity and continued to service (most of) their debts. France inflated her debt away after World War Two and Germany twice repudiated her debt through hyperinflation. Debt burdens declined during the post-WW2 Golden Age of Capitalism as economic growth and moderate inflation offset government deficits. But fiscal policy has become increasingly pro-cyclical in the post-Bretton Woods era. Governments have run deficits during economic downturns while proving reluctant to run corresponding surpluses during upturns. The cost of economic stabilization during the Global Financial Crisis and the COVID -19 pandemic means that all three states now find themselves with debt levels usually only experienced after major wars.