The 2025 Version of Which Country Will Be the First Debt Domino?

September 18, 2025 by Dan Mitchell @ International Liberty 

 Back in 2011, I speculated about which nation would be the next debt domino.

 

I even wondered if it might be the United States.

Now I look at the chart I shared and think those were “the good ol’ days.”

Why? Because all of those nations today (other than Ireland) have much higher levels of government debt.

To understand the gravity of the situation, here’s the new version of the chart. But let’s remove Japan and add a few more European nations.

Based on OECD estimates of debt levels, lots of nations now have enormous debt burdens with Greece and Italy being the worst of the worst.

But since Greece is now moving in the right direction, I don’t think it will be the country that triggers a debt crisis.

I’ve long though Italy will be the guilty party, and that remains a safe bet.

Jessica Riedl, a former colleague from my years at the Heritage Foundation, shares a different perspective in a column for the Washington Post.

Here are some excerpts, starting with a grim assessment of the United Kingdom’s shaky finances.

 

Governments across the globe cumulatively spent on average $1.3 trillion annually on debt interest payments in the 2010s. Soaring debt and loan rates have escalated this year’s interest costs to $2.7 trillion. In five years, that number is projected to hit $3.9 trillion. …Let’s begin with Britain’s fiscal mess. …Britain’s Office for Budget Responsibility warns that the current debt — just less than 100 percent of its economy — is on its way to 270 percent within five decades… Yet the nation remains largely in denial. A historic tax increase enacted last year was plowed into government spending rather than closing the fiscal gap and a stubborn refusal to reform spending has brought calls for another tax hike.

I’m not surprised the the big tax hike simply led to more spending. That’s a well-established pattern in fiscal policy.

Next, Jessica looks at France.

France’s fiscal chaos has brought the current government’s collapse. …Within the European Union, only Greece and Italy exceed France’s debt, which stands at 116 percent of the gross domestic product and is heading to 130 percent within a decade. Annual interest costs are set to surge by two-thirds over five years and risk becoming the government’s most expensive budget item. Perhaps not surprisingly, Moody’s downgraded the French government’s credit rating last December. …French austerity is becoming economically unavoidable.

Austerity in unavoidable, but French politicians almost surely will impose austerity on taxpayers when they should be cutting back on a bloated public sector.

So expect a bad situation to get even worse.

Last but not least, maybe the next debt domino is the United States.

…neither France nor Britain can match the combination of debt unsustainability and denial in the United States, whose budget deficits are nearly $2 trillion and moving to $4 trillion within a decade. …Social Security and Medicare face a combined annual shortfall of $700 billion this year, rising to $2.2 trillion within a decade and totaling $122 trillion over three decades… France and Britain are at least debating solutions. The U.S. continues to slash taxes, add benefits and ignore unfathomable budget deficits. Yet the laws of math and economics always win eventually, and Americans are dangerously ill-prepared for what is coming.

For what it’s worth, I fully agree that the United States is in deep fiscal trouble.

That being said, I think France and the United Kingdom are more vulnerable to crisis.

I’ll close by re-sharing this visual, which shows investors are losing faith in many governments (as measured – in red – by rising interest rates on 30-year bonds). The U.S. has moved in the wrong direction, but interest rates have climbed even higher in the U.K.

Notice, by the way, that long-run interest rates in Switzerland have actually declined.

They are very low because Switzerland has a comparatively small government and the nation’s spending cap creates long-run stability.

Too bad politicians in Washington (and in Paris, Berlin, and every other national capital) can’t copy the one policy that works.