[Viewpoint] Will We Continue to Ignore the "Canaries in the Coal Mine"?

"Is the United Kingdom the canary in the coal mine for the world's heavily indebted economies?"

This was the headline of an article published last week in The Wall Street Journal (WSJ). While posed as a question, the article, quoting economists, essentially answers "yes." The countries where the canary has warned of a national debt crisis include advanced economies such as the United States and France.

In fact, the United States is the first canary, positioned even further inside the coal mine than the United Kingdom. The country has long suffered from national debt issues. The government has repeatedly faced shutdown crises due to hitting the debt ceiling set by Congress. As of now, U.S. federal government debt stands at 36.9 trillion dollars, with the recently raised debt ceiling at 41 trillion dollars. It is expected to reach that limit soon. The constant struggle with mounting debt has led all three major credit rating agencies-S&P, Moody's, and Fitch-to downgrade the U.S. credit rating. This is a national embarrassment. The side effects are significant. The annual interest burden is 950 billion dollars, prompting President Donald Trump to pressure (almost threaten) the Federal Reserve to lower interest rates. The Fed's independence has been compromised. The barrage of tariffs is also not unrelated to the national debt. U.S. Treasury Secretary Scott Besant has declared that this year's estimated 300 billion dollars in tariff revenue will be used to pay down debt.

In September 2022, then-Prime Minister Liz Truss of the United Kingdom attempted to increase national debt through expansionary fiscal policy, triggering a massive financial market upheaval, including a plunge in the pound sterling. This was the so-called "Truss Shock." As a result, Truss lost her position, becoming the shortest-serving prime minister at just 49 days. Three years later, the UK's national debt situation remains grim. Yields on 30-year government bonds have soared, sharply increasing interest costs. The current government debt ratio is approaching 100% of GDP. Projections suggest it could reach 270% in the early 2070s. There is a reason why talk of a fiscal crisis persists. The UK is indeed the second canary.

France is currently the country where the government debt problem is most urgent, making it the third canary without question. In the first quarter, France's national debt reached 3.346 trillion euros, or 114% of GDP. This led to a crisis. On August 8, Prime Minister Francois Bayrou, who had pushed for austerity measures to rein in national debt, was ousted by a vote of no confidence in the lower house. The public is addicted to government spending, while lawmakers are obsessed with votes, fueling fiscal populism. Following S&P in May 2024 and Moody's in December 2024, Fitch also downgraded France's credit rating on September 12, from 'AA-' to 'A+'. There is even talk of an International Monetary Fund (IMF) bailout, a scenario tantamount to national default.

The South Korean government's budget for next year is 728 trillion won, an increase of 55 trillion won from this year. According to government estimates, national debt is expected to rise by more than 121 trillion won annually on average over the next four years. The national debt-to-GDP ratio, which Prime Minister Kim Minseok mistakenly cited as 20-30% during a June hearing, will rise from 34% in 2015 to 49% this year and 58% in 2029. The pace of increase is steep. President Lee Jaemyung remains confident. "If we generate 100 trillion won in debt, we can use that money to create even more and repay it easily." If it were as easy as he claims, why are so many countries suffering from debt? It is worrisome. Now, even the brakes are gone. Due to a government reorganization, the Ministry of Economy and Finance's budget planning authority has been transferred to the Office of the Prime Minister. The warnings from the three "canaries in the coal mine" are dire. This is not something we can simply ignore or dismiss as someone else's problem.