G7 Public Debt Soars to Alarming Levels

The public debt of the major G7 economic powers is at the center of concerns in 2025. Between growing worries and increased vigilance, the budget management of these nations has become a key indicator of global economic stability. The downgrade of the United States’ triple-A rating and disappointing bond sales in Japan perfectly illustrate this new tension, highlighting the risks associated with increasingly unsustainable debt levels. These alarming signals strengthen investors’ doubts and amplify the volatility of global financial markets.

The United States and Japan: a highly strained duo in the debt market

The United States is now at the center of bond investors’ concerns. Moody’s has withdrawn the last American triple-A rating, a first in decades, which has weakened confidence in the country’s ability to manage its debt.

In addition, the tax bill proposed by the Trump administration could increase public debt by $3.3 trillion by 2034, according to the Committee for a Responsible Budget, a non-partisan organization.

Jamie Dimon, CEO of JP Morgan, even speaks of a “crack” in the bond market, partly related to a debt policy deemed excessive. Despite these warnings, the role of the American dollar as the world’s reserve currency and assurances from Treasury Secretary Scott Bessent that “the country will never default” somewhat temper the fears.

More specifically, several key elements illustrate current tensions around U.S. debt:

• The downgrade of the American triple-A by Moody’s, a strong signal weighing on market confidence;
• The American tax bill that could increase federal debt by several trillion dollars by 2034;
• Jamie Dimon’s warning about a bond market collapse due to over-indebtedness;
• The dollar’s unique position as the world reserve currency, which offers a buffer against default.

In Japan, public debt now exceeds 200% of GDP, the highest level among developed economies. Demand for long-term Japanese bonds is declining, with recent auctions deemed “disappointing” by analysts.

The Bank of Japan is reducing its bond purchases for the first time in sixteen years, raising doubts about the current momentum.

This series of factors highlights a stressed bond market landscape, where markets question the sustainability of current fiscal and monetary policies, especially at the level of these two economic giants.

Europe between vulnerability in the United Kingdom and restored stability in Italy

The United Kingdom presents a critical situation, with public debt approaching 100% of GDP and long-term borrowing costs exceeding 5% for 30-year bonds.

Finance Minister Rachel Reeves is set to unveil a multi-year spending review, in a context where the government prioritizes increases in defense and health budgets without considering tax hikes.

This mixture of increased commitments and uncertain fiscal discipline keeps the country in a delicate position amid bond market volatility, with the International Monetary Fund urging deficit reduction.

Furthermore, a possible early end to the Bank of England’s active bond sales could offer temporary support to the stability of the gilt market (UK government bonds).

By contrast, France and Italy show contrasting trajectories. The risk premium on French debt compared to Germany has significantly decreased, from 90 to 66 basis points, thanks to improved investor confidence fueled by expectations of greater European cohesion, especially in defense.

However, the French government is preparing a four-year deficit reduction plan that could rekindle political debates and shed light on budgetary tensions.

In Italy, the situation has improved thanks to greater political and economic stability, with a budget deficit reduced to 3.4% of GDP in 2024, down from 7.2% the previous year, and a projection to 2.9% in 2026, comparable to Germany’s.

This performance has narrowed the gap between Italian and German bond yields, reflecting increased market confidence in Italian management despite persistent structural challenges.

It is worth noting that other blocs, particularly the BRICS, show signs of resilience and growth.

The rising tensions on the public debt markets of G7 countries illustrate a latent fragility at the heart of the major world economies. While some actors face very clear warning signals, notably the $36 trillion public debt in the United States, other European countries manage to stabilize their situation or show signs of improvement.