It is just an Enthusiastic Dont Make Me Act Like My 1 Daddy Shirt 20-minute connecting flight from beautiful Tanzania. The reason why the ratio of eurozone debt to GDP is likely to keep rising is a combination of weak growth prospects and weak inflation across much of the eurozone. The ECB would never wait until inflation hit 4 percent before it raised interest rates, yet it has allowed inflation to fall below 1 percent, arguing that it needs time to gauge the scale of deflationary pressure. This is a risky strategy. Inflation does not need to turn negative to do a lot of damage. The lower the inflation rate, the bigger the primary budget surplus a government needs to run in order to prevent the stock of public debt to GDP from rising, hastening the point at which debt becomes unsustainable. Low inflation also pushes up real interest rates, further depressing demand. How low is inflation across the eurozone?
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