Welcome to the deficit-populism doom loop

Finance ministers in rich countries are stuck in a deficit populism doom loop, struggling to balance creditors and voters amid poor economic growth, high debt, and rising interest rates.

• Economies are struggling with high debt and rising interest rates.

• Finance ministers face pressure from creditors and increasingly populist voters.

• Viable solutions are limited, and potential successors will face the same challenges.

Across the rich world, economies are struggling with the deficit populism doom loop, as finance ministers face high public debt, rising interest rates, and increasing support for populist parties. Austerity saps support for mainstream parties, while borrowing and tax increases are not viable solutions; fast growth is unlikely, and financial repression risks voter backlash, leaving governments in a bind. Potential populist successors will likely face the same challenges.

Economic Struggles

• 00:00:00 Economies across much of the rich world are struggling with poor economic growth, shocks from a financial crisis and a pandemic, and sky-high energy prices. Public debt is worth more than many countries' gross domestic product, while interest rates are at their highest in years. Servicing outstanding debt is taking up an ever greater share of tax revenue.

Political Challenges

• 00:00:25 Finance ministers must satisfy both creditors and voters, who are increasingly turning to populist parties. Mainstream parties are losing support as populist parties gain traction with promises of low taxes and more spending. Governments are caught between managing deficits and facing voter revolts.

Unlikely Solutions

• 00:01:08 Governments can't borrow their way out of the problem, as high inflation and interest rates become more likely with large loans, which won't be popular with voters. Tax increases may be less likely to fuel populist support but could be worse for long-term economic prosperity. Fast growth is the ideal way out, but it doesn't appear likely.

Financial Repression

• 00:01:31 Politicians could try financial repression, such as requiring pension funds to buy domestic assets or using tax incentives to encourage savers to invest at home. These policies could hurt savers, potentially leading to a backlash from voters. Governments find themselves in a bind as they seek to control debt burdens and keep the hard right at bay.