…the optimum amount of debt is not zero. There are two reasons the government needs debt. Firstly, and most importantly, the government debt can be used to leverage GDP growth provided it’s invested in government spending that contributes to future GDP. For example, borrowing a sum of money to invest in resource exploitation, or better vocational training for the citizenry increases future GDP. Secondly, the financial services industry, especially defined benefit pension plans and banking institutions depend on zero-risk government bonds to remove risk from their portfolios and they depend on government treasure bills for short term liquidity. The advantage to the national financial system outweighs the national cost of debt service.

Given the choice between paying down the debt faster (say, within the next 15–20 years) or…investing in an infrastructure that will help Canada deal with the eventual move away from an oil-based economy (whether by choice or due to further shortages/environmental damages), I’d be in favour of putting some of it toward encouraging further progress on that front.
I wonder how Estonian finances are these days? They’re the newest member of the EU, and perhaps their budgeting is still influenced by Soviet-style management. Interesting that Germany and France are so high — I never would have guessed it, given their standard of living.

As with all metrics, debt/GDP can’t be taken in a vacuum, and the direction that number is going is also extremely important.

I wonder if there is a group that looks at the ‘health’ of countries based on a variety of factors (aforementioned debt/GDP, Quality of Life index, Natural Resources, Level of Corruption, etc.) to come up with an overall rating (like a Bond rating). I’ve never heard of one, and the Economist listings we used to get rarely go much deeper than one or two of those factors.

Debt to GDP in the EU by country. They’re all over the place. Lowlights: Germany, 65%; France, 64%; Italy, 104%; my beloved Greece: 95%.

OTOH, Ireland at 25%, Denmark at 26%, and numerous small countries in the 0–20% range, with Estonia leading the pack at 3.4%.

Good point, Ryan. The ratio of debt to GDP is a good indicator of a country’s fiscal ‘health’. It’s a little disquieting that Canada’s debt/GDP was so high as recently as 5 years ago. I can only hope that the country continues to live within its means, which may become more difficult as prices go up world-wide (but a stronger dollar does help there).