Public debt is the obligation on the part of the government, one of its agencies, or of local government, to pay specific monetary sums to holders of legally designated claims at particular points in time. Public debt is created by the act of public borrowing or sale of government securities. Such a debt is amortized or retired by a reverse transfer in which government gives up money for the bonds, Treasury bills or other debt instruments. Under present conditions, the net effect of such debts is to further inflation on the one hand and hamper incentives (through the taxes necessary for interest payments) on the other. It is also argued that the financing of government activities by borrowing results in the transfer of costs from the present to future generations, who must pay higher taxes to meet principal and interest obligations. An alternative or supplement to increasing revenue by higher taxes, is the government's selling of some of its assets in order to repay debt. Assets may be sold internally (privatized, in a sense) or to foreign governments or investors. Included may be off shore land, gold, art treasures, historic jewellery, oil, valuable minerals, weapons, historic manuscripts or documents, and anything else a government possesses or can appropriate. Whatever method is used, it results in national impoverishment, as does the alternative of drastically reduced public expenditures.
[Industrialized countries] There is a current debt explosion which is not limited to a few countries, but rather is a worldwide phenomenon. Between 1974 and 1983 the ratio of central government debt to gross national or domestic product rose sharply in most industrial countries. For the seven largest industrial countries, that ratio rose from an unweighted average of 22% in 1974 to an average of 41% in 1983. In some of these countries the increase was quite sharp. In Japan, for example, the ratio rose from 12.2% of GNP in 1974 to almost 53% in 1983; in Italy it rose from 45.3% to almost 79%; and in Canada it rose from 16.3% to 35.5%. In the USA the ratio remained almost unchanged at around 28% up to 1981, but then it began to increase sharply, reaching almost 36% in 1983. In some of the smaller industrial countries the increases were even larger. From 1974 to 1983 the ratio increased by 50 percentage points Belgium; by 70 percentage points in Denmark; by 54 percentage points in Ireland; and by 34 percentage in Sweden.
By 1988, the net public debt as a percentage of Gross Domestic Product (GDP) was as follows for the seven largest industrial countries: USA 30%; Japan 24.6%; former Federal Republic of Germany 23.8%; France 26.6%; the UK 39.1%; Italy 92.0% and Canada 36.7%.
In 1996 Belgium's public debt was 130%, the highest ratio of debt to GDP in the European Union. In 1996, the National Bank had spent BEF 300 billion in gold reserves defending the exchange rate of the belgian franc in order for Belgium to qualify for the entry into the European single currency in 1999.