Euro Area's Hidden Fiscal Burden May Spark Next Crisis

The US debt has been a hot topic in global headlines, but Daniel Lacalle warns that it's not the only concern. According to estimates, the present value of U.S. Social Security and Medicare financing gaps is about $95 trillion over 75 years, roughly 5% of the cumulative present value of projected GDP over that period.

The euro area, however, has a hidden fiscal burden at least as large as its recorded debt. The official European Commission estimates put net accrued public-pension liabilities at around 150% of GDP, after future contributions are considered, while gross pension promises amount to roughly 371% of GDP. This excludes much of the future pressure from health and long-term care spending.

The US dollar remains the world reserve currency, and treasuries are the most important asset for central banks globally. The political landscape in most large European Union economies is one of fiscal denial, with no eurozone government willing to cut spending or limit future liabilities. Unfinanced committed liabilities exceed 300% of GDP in key euro area nations.