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How do countries decide how much they can afford to borrow?

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How do countries decide how much they can afford to borrow?

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Debt sustainability has become a critical issue for both governments and international investors during the past half-decade of financial crisis. As all countries need to borrow to run their economies it is of vital concern to bailed-out EU nations like Greece and Portugal.

The more unsustainable their debt is the more difficult it is for them to borrow, stimulate growth and exit their bailout programmes. In this edition of Real Economy Maithreyi Seetharaman takes us through the nuts and bolts of debt sustainability and finds how and why some countries score better than others.

Point of view

We are caught in this quandary where the short term answer is 'Hey, one has to live within one's means'. But that's not an answer that a country can have, because that simply means that a country becomes poorer and poorer.

The programme examines the contrasting fortunes of two EU economies – Latvia and Portugal. Maithreyi also gets expert insight from economist Sony Kapoor.

Click on the video above to watch the story