It was a US vice-president who reportedly said: “Reagan showed that deficits don’t matter.” In 2004 Dick Cheney, one of the more right-leaning Republicans, was making the case for a trillion- dollar tax cut, when the public finances were in far from healthy shape.
He was not alone in his view. In the early years of the century debt was not a topic of great political interest. This was before a financial storm hit the global economy, leaving behind damage that will take decades to repair. The storm was fuelled by heedless borrowing — if not by states, then by banks, businesses and households assuming their liabilities would never matter. Soon debt management loomed over every other topic. Across the developed world elections were fought over the pace of fiscal consolidation.
Half a decade on, annual borrowing has mostly been brought under control. But years of double-digit deficits left a burden of debt far beyond what most countries would happily bear. The question now is the speed at which they must be reduced.