Public Debt and Economic Growth after Covid-19 in Europe: Challenges and Policy Implications

Abstract

The Covid-19 pandemic has had a profound impact on European economies, leading to a significant increase in public debt levels. This paper examines the challenges and policy implications of managing public debt and fostering economic growth in Europe post-Covid-19. It provides a conceptual framework by defining and measuring public debt, exploring the relationship between public debt and economic growth, and highlighting the role of public debt in times of crisis. The paper analyzes the impact of Covid-19 on public debt in Europe, including the fiscal response, debt accumulation, and reasons for increased debt levels. It further discusses the challenges posed by high public debt, such as debt sustainability, crowding out private investment, financial stability risks, and constraints on future fiscal policy. The study then presents policy implications for balancing public debt and economic growth, including fiscal consolidation measures, long-term debt management strategies, prioritizing public investments, implementing structural reforms, considering monetary policy, and fostering international cooperation. Additionally, the paper provides case studies of selected European countries, evaluating their approaches, assessing policy effectiveness, and drawing key lessons and best practices. Finally, the paper concludes with a summary of key findings, policy recommendations for European governments, and suggestions for future research directions.