over a long period the debt would remain the same proportion of GDP. Although the committee might have constructed such a measure and set a target on this basis, the debt target is more easily understood and communicated.

  

2. In December 1991 the Maastricht Treaty of the European Union (EU) set future targets for deficits and debt that were to be used as conditions for membership in the European Monetary Union. The debt criterion was that publicly held debt may not exceed 60 percent of GDP. However, several EU member nations currently do not meet this standard. An official of the International Monetary Fund noted in a conference call in July 2009 that there is no “magic number” for debt-to-GDP (International Monetary Fund, 2009c). Buiter (2006) has written about the nature of the 1991 EU debt and deficit targets and the subsequent failure to enforce them, either as originally defined or with modifications.

  

3. Stabilizing the ratio of debt to GDP implies and is equivalent to stabilizing deficits at a constant percentage of GDP (or deficits minus debt service, the so-called primary deficit, as a percentage of GDP). The target could as easily be expressed in these terms. As discussed below, stabilizing the budget at a higher debt-to-GDP ratio would permit the government to run larger annual deficits.

  

4. With a 1-year respite in 1994, when debt service was 2.9 percent of GDP.

  

5. The IMF has used a target of 60 percent by 2030 as the basis for measuring “the aggregate adjustment required to restore advanced economy ratios to safer levels” (2009b:23).

  

6. The projections assume that inflation is generally well behaved during the projection period. A higher inflation rate allows a higher deficit, because the real value of past debt is being eroded. But the effect is limited in the United States because so much of its debt is short term and the average interest rate on the debt will adjust upward quickly.



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