Where does the money come from?

We hear about the European debt crisis on a daily basis, sovereign states that have too much debt and therefore have problems managing their loans and interest payments. But, it is also about individuals and households that have too much debt and need to pay that off, which makes the economy slow down further.

Are we living in a world where everyone is too heavily in debt, sovereigns, companies and households alike?

“Yes, that is a problem in the Western world. However, it is mostly true for sovereigns and households. Companies generally have strong balance sheets, with little debt,” Bergqvist says.

At the beginning of the millennium, until 2007, indebtedness grew too fast. Bergqvist highlights many reasons: the price of money was too low – central banks kept interest rates down; economies became more international; economic prospects were too rosy; and economist, politicians and central banks talked about the “super cycle” and the “death of economic downturns”. In addition, the birth of the euro induced an exaggerated belief in what the common currency would mean in terms of growth, employment and prosperity.