Authored by Daniel Lacalle via dlacalle.com,
The US $40 trillion debt has dominated global headlines. However, although the US fiscal challenges are relevant, we must remember an important lesson. Fiscal policy is not about who wins but who loses first.
According to official 2026 estimates, the present value of U.S. Social Security and Medicare financing gaps is about $95 trillion over 75 years, roughly 5% of the cumulative present value of projected GDP over that period, on top of federal debt held by the public, which is already projected at 101% of annual GDP in 2026.
However, the euro area's hidden fiscal burden is at least as large as its recorded debt. Official European Commission estimates put net accrued public-pension liabilities at around 150% of GDP, after future contributions are considered, while gross pension promises amount to roughly 371% of GDP. Importantly, this excludes much of the future pressure from health and long-term care spending.
What does this all mean? The next debt crisis may not come from the U.S. but from the eurozone.
First, the U.S. dollar remains the world reserve currency and treasuries are the most important asset for central banks globally, even with the recent gold purchases and rebalancing.
Second, the political landscape in most large European Union economies is one of fiscal denial. France's sovereign bond yields are now higher than Italy's. No eurozone government is willing to cut spending or limit future liabilities. Unfinanced committed liabilities (debt already assumed but not issued) exceed 300% of GDP in key euro area nations.
Third, euro area sovereign assets have generated negative real economic
