Pablo Hernández de Cos Warned of High Public Debt Risks
The former central banker highlighted how high debt and rapid market shifts complicate future crisis management.
Updated on Oct. 5, 2026 in Economic Policy
Live Poll
Is rising public debt likely to make the next economic crisis harder for the country to manage?
Pablo Hernández de Cos warned that record-high public debt and the rise of non-bank financial institutions have made the global economy more vulnerable. He noted that modern technologies like AI and stablecoins increase the speed at which financial crises can develop.
Why it matters
High debt levels hinder central banks' ability to distinguish between genuine market dysfunction and investor concerns regarding government finances. This ambiguity creates significant challenges for policymakers attempting to stabilize markets during periods of economic distress.
Public debt levels are currently near post-World War Two highs across many economies, while non-bank financial institutions have become primary holders of government debt. These institutions utilize leverage and market-based funding that can amplify financial stress.
The players
Pablo Hernández de Cos
He is a prominent central banker who has highlighted the structural risks currently facing the global financial system.
European Central Bank
This is the central bank responsible for the monetary policy of the member states of the European Union that have adopted the euro.
The details
Central banks face increased difficulty in managing crises because non-bank actors like hedge funds and asset managers can trigger rapid volatility. The shift toward faster financial interactions, fueled by online banking and AI, necessitates better communication and limited purchase windows to maintain system stability.
Timeline
Over the last 20 years, central banks have demonstrated the vital importance of swift action during crises.
In March 2020, US Treasury markets experienced a significant dash for cash.
During 2022, Britain endured a notable gilt market crisis.
A new European Central Bank President is expected to assume office next year.
Macro View
This warning follows the pattern set by the 2022 British gilt market crisis, which exposed how modern financial interconnectedness can force rapid central bank intervention. Current fiscal conditions mirror historical extremes that complicate the transition into future monetary cycles.
Increased volatility in government debt markets can lead to higher borrowing costs and broader economic instability that affects interest rates on personal loans and mortgages. Readers should remain aware that fiscal pressures on governments may influence long-term inflation and job security.
The takeaway
The speed of modern financial crises requires central banks to refine their communication and governance mechanisms. Investors and the public should monitor government debt levels as a primary indicator of potential systemic financial risk.
Further reading
For more on the current global financial climate, see our Economic Policy section.
Live Poll
Is rising public debt likely to make the next economic crisis harder for the country to manage?
