In many advanced economies, the global financial crisis of 2008-2009 and ensuing recession resulted in large fiscal stimulus packages, the nationalization of private-sector debt, lower tax revenue, and higher government spending. These factors led to large budget deficits and increased borrowing by governments from capital markets in order to fund these deficits. Figure 1 shows the rapid increase in public debt as a percentage of GDP in the major G-7 economies (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) following the financial crisis. For the G-7 economies, sovereign debt rose from 84% of GDP in 2006 to a forecasted 121% of GDP in 2013. Concerns about high levels of public debt have been most focused on the Eurozone, where a debt crisis has been ongoing since late 2009. Four Eurozone countries—Greece, Ireland, Portugal, and Cyprus—have had to borrow money from other European countries and the International Monetary Fund (IMF) in order to meet obligations and avoid defaulting on their debt. There are also concerns about the sustainability of their public finances in Spain and Italy, much larger economies in the Eurozone. However, concerns over rising debt levels are not limited to Eurozone countries. Debates about the public debt are central features of political discourse in the United States, Japan, and the United Kingdom, among others. High levels of sovereign debt in advanced economies are of interest to Congress for a number of reasons. First, the IMF has identified advanced economy debt as a possible threat to the global economic recovery, as countries struggle to find a balance between growth and debt management in an uncertain global economic recovery. Second, Congress has and continues to debate a number of fiscal issues, particularly in the context of federal budget and the debt ceiling. In many of these fiscal debates, parallels are drawn between the United States and other advanced economies, such as Greece, Ireland, and the United Kingdom. Analyzing debt levels and factors that shape debt sustainability can help inform these comparisons. Third, how other countries reduce their debt impacts the U.S. economy. Most advanced economies are implementing fiscal austerity programs to lower their debt levels. Simultaneous austerity programs in the advanced countries, the United States' major trading partners, could depress demand for U.S. exports abroad, as well as deter investment in and from advanced economies. This report proceeds as follows: The first section provides background information on sovereign debt, including why governments borrow, how sovereign debt differs from private debt, why governments repay their debt (or not), and how sovereign debt is measured. The second section examines the shift of concerns over sovereign debt sustainability from emerging markets in the 1990s and 2000s to advanced economies following the global financial crisis of 2008-2009, and the challenges posed by high debt levels. The third section analyzes the different policy options governments have for lowering debt levels. It also discusses the current strategy being used by most advanced economies—fiscal austerity—and concerns that have been raised about its global impact. Finally, the fourth section analyzes issues of particular interest to Congress, including comparisons between U.S. and European debt levels, how efforts to reduce debt levels could impact the U.S. economy, and policy options available to Congress for engaging on this issue. Sovereign debt, also called public debt or government debt, refers to debt incurred by governments. Governments borrow money for a number of different reasons, such as health, education, defense, infrastructure, and research. Some borrowing is for consumption, while other borrowing is for investment. Governments may also borrow in order to run expansionary fiscal policies (such as increasing spending or cutting taxes), with the goal of increasing economic activity, spurring economic growth, and decreasing unemployment. Most economists believe that public debt can play a productive role in the economy under certain circumstances. They argue, for example, that borrowing by the government can help stimulate the economy during a recession or fund long-term investment projects that increase economic output in the future. However, they also caution that governments do not always use debt prudently. Many economists argue that governments may be reluctant to increase taxes or cut spending during economic booms in order to pay off debt incurred during economic downturns, leading to growing debt levels over time. They also caution that governments may borrow for consumption purposes, and that this type of borrowing can create difficulties when the debt obligation falls due, because it does not yield future economic benefits. Today, the governments of most advanced economies, as well as some emerging markets, borrow money by issuing government bonds and selling them to private investors. They may sell bonds to private investors overseas or to domestic investors. Some countries, such as Japan and Italy, sell a sizeable portion of their bonds to investors at home. The United States does both, with approximately half of its federal debt held by foreigners. Some emerging and developing economies also borrow from other governments and international organizations, such as the World Bank and the IMF. Sovereign debt differs from private-sector debt, or debt incurred by households and corporations, for two reasons. First, there is no international bankruptcy court that can enforce debt contracts between private investors and sovereign governments. In the domestic context, private borrowers cannot simply refuse to repay debts to creditors. Domestic laws and courts can force debtors to turn over existing assets to creditors or put the debtor through bankruptcy proceedings, during which the borrower liquidates its assets and turns them over to the creditor. In the international context, by contrast, there are no internationally accepted laws or bankruptcy courts to provide creditors recourse against governments that refuse to repay their debts. Debt contracts between governments and private creditors often include provisions that stipulate what jurisdiction's law is to be applied in the event of a dispute about the contract. However, there is no way to force a government that has defaulted on its debt to abide by another country's court ruling that it must repay the loan. Proposals for creating internationally accepted bankruptcy proceedings and regulations, possibly to be overseen by the IMF, have not been fruitful. A second reason why public debt differs from some private debt contracts is that sovereign debt is "unsecured," or not backed by collateral. Governments cannot credibly commit to turn over assets if they are unable to repay their debts, because, again, there is no international authority to compel them do to so. This contrasts with the private sector, where debt contracts are frequently backed by collateral. For example, property serves as collateral for mortgages in most countries. Some private-sector debt is not backed by collateral. Credit card debt, for example, is unsecured. This is not to say that public debt is inherently more risky than private debt. In fact, some credit rating agencies use the credit rating of the sovereign as an upper limit for the ratings that domestic borrowers in that country can receive. However, the strict use of a sovereign credit rating ceiling for domestic borrowers has waned in recent years. Sovereign debt may be less risky than private-sector debt because governments have the power of taxation to raise money in order to service debt, unlike private borrowers. If creditors have limited recourse against governments that default, why do they lend to governments in the first place? It is generally argued that governments, even in the absence of international bankruptcy court and secured debt contracts, will want to repay their debts in order to build a good reputation in capital markets. Having a reputation for creditworthiness means that the government can continue to borrow from investors at low interest rates, because investors view the loan as having a low level of risk. If the government does not have a good reputation with creditors, creditors will require high interest rates to compensate for the risk entailed in the investment, or they will refuse to lend the government money at all. Some empirical evidence also suggests that default can have adverse effects on international trade and economic growth, providing other incentives for governments to repay their debts. Despite these incentives to repay debt, there is a long history of governments suspending debt payments or falling behind on their debt payments, referred to as "defaulting" on their debt. A "debt crisis" typically refers to a situation where a country is either unable or unwilling to pay its debt. A debt crisis may not result in an actual default if, for example, the IMF lends the government the money it needs to stay current in its debt obligations. However, many governments that do default find an orderly way to restructure their debt that is acceptable to markets. Debt restructuring refers to some reorganization of the debt, such as a reduction in principal or lowering of interest rate, that makes debt payment easier for the borrower but still entails some payments to creditors. A creditor may get less in a debt restructuring than was originally agreed, but this may be preferable to getting nothing. Defaults and debt crises can be triggered by a number of different economic and political factors, including, but not limited to, economic recessions, fluctuations in the price of imports and exports, currency depreciation (if debt is not payable in domestic currency), wars, and changes in political leadership. Debates over why governments default are typically framed in terms of a government's "ability" to repay versus a government's "willingness" to repay. For example, a government may be unable to repay debt denominated in foreign currency if it does not have sufficient access to foreign exchange. By contrast, a government may be unwilling to repay debt incurred under a previous regime, even if it has the resources to do so. A nation's debt burden is usually reported as a percentage of the country's gross domestic product (GDP), which indicates the size of the country's economy. Scaling debt to the size of the economy provides some indication of the government's relative debt burden, since it is expected that countries with bigger economies can sustain higher levels of debt in absolute terms than smaller economies. Data on sovereign debt are reported in a number of different ways.