Public debt is very much under discussion. It has always been given attention, not least under the EU Maastricht Treaty, which set a limit of 60 per cent of GDP for member countries. Nowadays the issue is in the headlines, because of both the plight of Greece and of other PIIG countries. In Malta the public debt also draws much attention, both because of the country’s membership of the EU and the eurozone, and due to it being one of the main economic indicators subject to hot political controversy.

The government discusses the national debt in far too relaxed a manner- Lino Spiteri

As shown by the PIIG countries the public debt demands attention which goes beyond its size, large or huge as that might be relative to the Gross Domestic Product. Its main relevance is the carrying cost, how much it takes to service the debt annually, and the related issue of rolling over the debt as it matures.

Generally speaking public debts are funded to a considerable extent by external investors. It is their interest or lack of it which, along with the cost of insuring their exposure, determines the going coupon. When foreign holders of the public debt run scared the rolling-over cost rises. That happens through time and occurred with frightening regularity over the past three years in the eurozone.

If the cost rises beyond a sustainable limit, the threat of sovereign default rears its ahead. That used to be considered unlikely when I was studying finance and economics.

Can a country go bankrupt, we used to be asked. A common answer was no, because a sovereign country could print itself out of a corner by issuing bonds which would be taken up by the Central Bank, thereby creating new money.

That answer used to be carefully coupled with recognition that the process would result in inflation, which had other hard implications, but not default.

Times have changed. Foreign lenders have become far more diversified and sophisticated. They know that the higher the coupon, the greater the inherent risks.

They demand a high coupon but, at a certain level, they lose confidence and shy away. Sustainability of servicing the national debt and the danger of reluctance to help roll it over combine into a deadly potion.

That is what the eurozone has been testing, with contagion spreading from the smaller countries – Greece, Ireland and Portugal – to threaten even the larger ones.

The possibility, at a time even the likelihood that Spain and Italy could default created panic all over Europe and across the Atlantic too.

The bailouts were not dreamt up out of philanthropy. The leaders of the eurozone have been travelling scared at various prospects, principally that contagion would spread and that could bring down various banks and other lending institutions located within the stronger countries.

Though it is cruel logic that Greece could possibly be better off defaulting, since it is nearly impossible to see how it could grow itself out of the public debt problem, not even the German taskmaster was willing to let Greece fold, out of cold calculation of what that would do to the eurozone as a whole.

The eurozone crisis is far from over. The public debt conundrum will be around for a long, long time. It is a rare development that a country can actually reduce the volume of its public debt, as distinct from its ratio to the Gross Domestic Product.

With the GDP measured at current market prices, thereby including inflation, if that indicator expands the public debt can come down in relative terms without diminishing by a single euro in volume.

There is some method in that apparent madness. With central banks hawk-eyed over inflation, the presumption is that nominal growth will also include real GDP growth, with larger output resulting thereby. That would increase a country’s ability to service its debt.

One can understand this line of thinking, but one can overstretch it as well. The argument gets lost in the simple working of the numerator – the volume of the public debt and the denominator – the GDP in nominal terms. Thereby one can lose sight of how much the debt servicing is costing in absolute terms, compared to other major items of current expenditure.

Such loss of sight is very evident in Malta. Over here the government discusses the national debt in far too relaxed a manner. It ignores the cost of servicing it. Rather the authorities focus on the fact that our public debt is almost completely owned by Maltese investors. That is good, for thereby Malta is far less susceptible to contagion than countries who borrow abroad.

It is not good at all, however, that the volume of the public debt is steadily rising (ignoring the impact of the cost of Malta’s participation in eurozone bailouts). Thereby the cost is also rising. Both outlays in volume terms are a worry to the Finance Minister of the time.

Then there is also the Enemalta factor, repeated on a lesser scale elsewhere in the rest of the public sector, which has substantial foreign debts. These are not considered as sovereign debt and are not included in the official estimate of the public debt.

Nevertheless if one factors in the probability that these non-sovereign borrowers will never be able to repay their debts, the exposure should be taken into account for analytical purposes. One of the rating agencies already does that.

One certain thing about the public debt, which our authorities too should bear in mind, is that you cannot talk yourself out of it.