Re: Re: Demise of the Euro closer? – Ignore this if it bores you


@Chopera wrote:

Interesting but I do wonder where this 6.5% yield limit meme comes from.

Countries who run a deficit borrow to fund the gap and assume that inflation will reduce the real value of the debt and growth in the economy will enable them to service the debt. Hence the important measure of sustainable debt is a percentage of GDP.

Back in the 90s inflation was higher than these days, as was average growth. The assumption now is that inflation will be low (the target is 2%) and growth will be extremely low or even negative, therefore in order to keep the debt manageable i.e stable and not growing vs GDP, lower interest rates are required than the 90s, whoever works these things out say that 6 – 7% is the tipping point these days.