This is because structural reforms are the policy levers aimed at boosting the supply side of the economy and ameliorate the framework in which businesses and people operate. By tackling obstacles to the efficient production and provision of goods and services, structural reforms can contribute to higher productivity, investment and employment, thus contributing to higher incomes and helping to tackle rising levels of debt. Three specific examples of Government structural reforms include the following: First: The implementation of measures that improve business conditions, promote better allocation of resources, and strengthen market competition are essential policy actions to boost productivity and hence GDP growth. In the area of product markets, a more competitive and business-friendly environment increases incentives of firms to innovate, and invest, in human and physical capital. A relevant example includes the transposition of the EU Services Directive, aiming at lifting restrictions on cross-border providers and removing limits to competition. Unfortunately, the latest periodic assessment by the Commission of the legal and administrative barriers of the EU, which was conducted in April 2021, points to an overall slow speed of barrier removal over 2006 to 2017. Second: Labour market reforms, such as the implementation of Active Labour Market Policies, could minimise labour shortages and labour mismatches, potentially helping to contain both private and public debt. Wage rigidities in Europe have been identified in the past to be important impediments to market clearing and have been linked to high and persistent unemployment. Typically, high unemployment rates are related to bad debt, that is Non Performing Loans.

So, there is no easy or simple answer to this question, but a common conclusion provided by many papers in the literature shows that the debt threshold for both private and public debt should generally be different across countries. Also, countries with more severe structural issues can handle less debt distress. The risks associated with excessive debt burdens are more prominent now, following the consecutive supply side shocks – the Covid pandemic and the war in Ukraine. Specifically, the measures taken to mitigate the effects of the pandemic to the economy resulted in an increase in both public and private debt around the globe. Governments were successful in mitigating the pandemic effects on the economy by providing ample liquidity to afflicted households and businesses through credit guarantees and subsidised lending. However, while these policies were effective in supporting the factors of production and the readiness of the economy to recover fast, they also resulted in an increase in private and public debt, prompting a significant rise in indebtedness. Furthermore, even though many of these measures were withdrawn after the reopening of the economies, governments introduced significant new stimulus measures in response to the energy crisis that followed the war in Ukraine. These represent a new risk to the levels of public debt around the globe, even though it is too early to have an overall assessment of the impact.