Is There a Debt-Overhang Problem in the European Union?

The last financial crisis opens the question of the level of debt sustainability in the developed countries. The majority of the EU member states faced the growing trend of public debt (while some countries are unable to service it on time, i.e. Greece) and some of the new members face the problem of external debt. Regarding there is no standard tool for measurement of public debt sustainability this analysis provides the statistical and econometric approach to find out bi-directional impact of public debt on GDP growth rate, unemployment, current account and interest rate spread. The research is performed on the five different groups of EU member states: EU28, Eurozone, new member states, GIIPS and EU-10-core countries. Results indicate the necessity to keep the public debt stable regarding the very slow post crisis recovery and low growth rates to avoid unintended consequences of debt burden on the EU economies.