US debt, which has now reached $40 trillion, is at the center of global headlines. However, while the fiscal challenges of the United States are significant, we must not forget a critical lesson: fiscal policy is not about who wins, but who loses first. According to official estimates for 2026, the present value of the funding gaps for Social Security and Medicare in the US amounts to approximately $95 trillion over a 75-year horizon. This amount corresponds to roughly 5% of the cumulative present value of projected GDP for the same period, in addition to federal debt held by the public, which is already projected to reach 101% of annual GDP in 2026. However, the hidden fiscal burden of the Eurozone is at least as large as its recorded debt. Official estimates from the European Commission place the net accrued liabilities of public pension systems at around 150% of GDP, after factoring in future contributions, while total pension promises amount to approximately 371% of GDP. And most importantly: these figures do not include a large portion of future pressures from healthcare and long-term care spending.
The next debt crisis may come from the Eurozone
What does all this mean? The next debt crisis may not start from the US, but from the Eurozone. First, the US dollar remains the global reserve currency and US Treasury bonds continue to be the most important asset for central banks worldwide, despite recent gold purchases and reserve restructuring. Second, the political landscape in most major economies of the European Union is characterized by fiscal denial. Yields on French government bonds are now higher than those of Italy. No Eurozone government appears willing to cut spending or curb future liabilities. Unfunded committed liabilities—debts already incurred but not yet issued—exceed 300% of GDP in core Eurozone economies. Third, Eurozone sovereign assets have generated negative real financial returns since 2021, leading to a reduced appetite among international investors to hold them. US debt is a problem, but Eurozone debt is significantly more complex, as recorded debt corresponds only to the amount shown under the excessive deficit procedure and not to total general government liabilities.
The real debt is much larger than it appears
Eurozone debt based on the Maastricht criteria records only consolidated currency and deposits, loans, and debt securities at their nominal value. Therefore, it is significantly smaller than total liabilities on the general government balance sheet and even smaller than implicit pension and other public sector commitments in the Eurozone. The main lesson for investors is that they are rightly concerned about already issued debt, but they should be even more concerned about the expanding size of the state combined with unfunded liabilities in a region hit by economic stagnation. All this indicates that the recent global sell-off in the bond market is not a temporary phenomenon. Markets are sending a clear message to governments: no central bank is going to hide their irresponsibility anymore.
The three limits governments have crossed
Governments in advanced economies have exhausted all margins of debt-financed policies and crossed their fiscal, economic, and inflationary limits. Fiscal limit: Higher spending creates persistent deficits, and tax increases do not solve the problem. Government spending represents a burden on taxpayers and the economy. Economic limit: Further increases in government spending and artificial inflation of GDP through debt-financed public sector spending weaken the economy and productive investment, ultimately leading to stagnation. Inflationary limit: Government spending leads to persistent inflation, while markets price in higher consumer prices for longer. This erodes the economy, while the combination of higher taxes and higher consumer prices severely impacts the middle class.
Why the US creates noise, but Europe could cause the shock
The United States generates headlines because yields on US Treasuries serve as the global benchmark for the price of money and collateral. However, the Eurozone could trigger the next major sovereign shock because its member states borrow in a currency they do not control, while governments refuse to cut spending and constantly resort to tax increases and regulatory burdens that weaken the economy. On August 21, 2026, the yield on the 30-year US Treasury stood at 5.27%, while the 10-year yield was around 4.73%, following a week of sharp fluctuations that briefly brought long-term yields to their highest levels since 2007. However, if markets viewed the US as the risk and other countries as safe havens, yields on German bonds would fall, as has happened in other periods of risk aversion. But that is not happening. The yield on the German 10-year Bund has surged to 3.26%, the yield on the British 10-year has reached a historic high of 5.1%, while the corresponding yield on the 10-year Japanese bond stands near 2.89%. This confirms that the repricing of risk is global and not focused solely on the US.
Government bonds are no longer the ultimate safe haven
This is what matters for investors and governments. Long-term government bonds are no longer undisputed safe assets. This is also one of the reasons why gold is recording such a strong rally. Long-term bonds are being repriced to incorporate inflation risk, fiscal deterioration, increased debt supply, and the inability of central banks to conceal fiscal irresponsibility. When yields on 10-year and 30-year US bonds rise, financial conditions tighten globally through mortgages, corporate credit, bank funding, and borrowing costs for emerging markets. In this environment, the market is not turning to Eurozone debt for protection. It is moving away from it.
The US has the dollar – the Eurozone has repricing risk
The United States retains the global reserve currency and the deepest, most liquid government bond market in the world. This does not eliminate the debt problem, but it changes how it is transmitted through the global financial system. Furthermore, at least the US government keeps federal spending under control, even if it does not cut it as fast as some would like. This is not the case in the Eurozone, where none of the major economies appear to have any intention of controlling spending. On the contrary, the trend is moving in the opposite direction. And this adds even greater pressure to unfunded liabilities. The euro is the only global currency facing the risk of value repricing, while fiscal policy in the Eurozone has chosen interventionism and state control over free markets. The ECB centralizes monetary policy in the Eurozone, but governments spend and borrow as if they possess unlimited monetary credibility. Their only fiscal tool is higher taxes. This creates the risk that a liquidity event could quickly turn into a solvency problem, especially when markets doubt whether Brussels, Frankfurt, and national governments can respond with a cohesive strategy. We saw this in 2011.
The "banking union" does not solve the problem
Now the Eurozone has added even more risks. Plans for a "savings and banking union" and the central bank digital currency (CBDC) offer no relief to international investors. Instead, they reinforce concerns that the Eurozone has chosen interventionism and state control, enforcing currency use rather than enhancing its appeal as a global hub for free markets and capital attraction. The plan for a savings and banking union will not prevent a debt crisis in the Eurozone. With governments unwilling to accept spending cuts, a digital currency may simply lead to more surveillance, control, and ultimately higher inflation.
The next crisis could start from Europe
This is why the next crisis could originate from Europe—not despite the US debt problem, but because the Eurozone lacks institutional flexibility, fiscal discipline, and an open-market approach. If the Eurozone accelerates its interventionist plans to compel investments and enforce currency usage through restrictions, the problem could become even larger. If monetary policy cannot act as a check on fiscal irresponsibility and governments refuse to limit their spending, the currency and the financial system are at risk. Resolving the US debt problem requires spending cuts and boosting productive growth. Unfortunately, Eurozone governments are not generating economic growth and are instead increasing state intervention. Therefore, when confidence in a major member state is lost, the consequences are systemic for the entire monetary union.
Germany fails in the state spending "experiment"
The world is watching the failure of the German "experiment" of increasing government spending in real time. This is why German bonds are falling at a pace similar to other markets, rather than strengthening. Recent data from France and Germany show that the problem extends far beyond a single small member state of the monetary union. The core of the Eurozone is weakening, while peripheral countries either cover stagnation through migration and spending policies, like Spain, or remain in a post-crisis state. The yield on the French 10-year bond has surged to levels not seen since 2008. German bonds, once considered a safe haven, have weakened alongside the securities of other Eurozone states. The ECB's anti-fragmentation tool masked imbalances for a time, but it has now transferred risk to all sovereign issuers.
France: The Eurozone's new weak link?
France is of particular importance, as together with Germany it forms the core of the Eurozone economy. French public debt is expected to stand at around 118% of GDP in 2026 and could rise toward 130% of GDP by 2030. Markets now understand that no new prime minister is going to implement spending cuts. Instead, they will repeat the same failed approach of the last three decades: raising taxes and postponing necessary spending cuts. As markets begin to reprice France as a fiscal weak link rather than a pillar of strength, the internal problems of the Eurozone become impossible to ignore. The European project has made increased government spending and a large public sector the centerpiece of its policy, treating the private sector as a cash machine for an ever-expanding bureaucracy.
The problem is not just the size of the debt
The real issue is not simply the absolute level of debt. It is the combination of high borrowing, a large state, high taxation, and a lack of real potential for growth. This combination leads to rising debt service costs, and it is now clear that central banks cannot hide the problem. When borrowing costs rise in the US, global financial conditions tighten. This is a major issue that requires spending cuts, downsizing the state, and higher private sector growth. However, when borrowing costs shoot up in the Eurozone, it signals that a European project relying on the continuous expansion of the state at any cost is unsustainable. When governments reject short-term pain, they pass it on to citizens.
The solution is not more state
The solution is not more state involvement, monetary financing, interventionism, or higher taxation on productive capital. The solution lies in credible spending cuts, lower structural deficits, stronger incentives for private investment, and reforms that reduce regulatory burdens while boosting productivity and economic growth. If nothing changes, US debt will continue to tighten global financial conditions. However, the Eurozone may remain the place where the next major sovereign debt crisis erupts.
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