Greece last week passed the necessary reforms to start negotiations with its creditors on a third bailout. But with the country back in recession, it will struggle to meet the creditors’ fiscal goals. Indeed, euro-zone fiscal data for Q1 last week showed a significant widening in Greece’s budget deficit, even as the overall euro-zone budget deficit narrowed. However, this improvement at the aggregate level was not sufficient to prevent the overall debt burden from rising. Moreover, in many countries, economic growth is likely to remain too slow and inflation far too weak to allow a sustained decline in their debt-to-GDP ratios.
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