Escaping the Sovereign-Debt Crisis: Productivity-Driven Growth and Moderate Spending May Offer a Way Out

Sovereign debt and fiscal deficits are strangling many advanced economies. Policy choices are complex, but there is an escape strategy that does not require draconian budget cuts or risky debt-financed stimulus spending. The solution is based on two principal policy levers: encouraging productivity-driven GDP growth and keeping government spending per worker constant. If governments align their policies with these growth principles, a fiscal surplus will eventually materialize and the ratio of government debt to GDP will decline substantially within one to two decades.