Andrew Milligan, the head of global strategy at Standard Life Investments in London, explained on CNBC that while short-term fiscal pressures are manageable, "there are significant long-term risks from high levels of public sector debt."
With the Organization for Economic Cooperation and Development predicting that total industrialized-country public debt will exceed 100% of GDP in 2011 -- for the first time in six decades -- Milligan warns that governments will face considerable pressure dealing with unfunded liabilities. That will make tax and spending decisions needed to reduce debt burdens more difficult.
And with so many countries tightening fiscal policy at the same time, Milligan warns that "the multiplier effect could be larger in aggregate." He predicts global growth will be moderate for several years.
With slower growth and high deficits, "the fiscal position will remain vulnerable to external shocks for some time to come," he added. And given the elevated public debt, governments might encourage saving, as Japan has done, or perhaps initiate a period of higher-than-expected inflation.