The U.S. and global economies are in a perilous state, and yet we may be underestimating the dangers. Just out of sight lies a second large threat: a global debt crisis that, centered in Europe, would further destabilize a world already struggling to combat the dreadful consequences of the coronavirus pandemic. In the United States and elsewhere, tens of millions have lost their jobs, and business losses total in the trillions of dollars.

What’s certain is that another debt crisis would prolong and deepen the worst economic downturn since the Great Depression of the 1930s. We may be dealing with a multi-decade and poorly understood cycle that originated in the 1950s and mixes politics and economics in unfamiliar ways.

People with good memories will recall that, from 2010 to 2012, Europe stumbled through its first “sovereign debt crisis.” The weakest members of the European Union (Greece, Italy, Portugal, Spain and Ireland) struggled to avoid default on their sizable governmental debt — a task made harder by annual budget deficits.

The crisis was resolved when Greece was allowed to restructure (that is, reduce) its debts and Mario Draghi, the then-head of the European Central Bank (ECB), declared in July 2012 that the ECB would “do whatever it takes” to ensure that other countries didn’t default.

The bargain was clear: Over-borrowed countries got debt relief from the ECB, which then effectively guaranteed their bonds. In return, borrowing nations trimmed deficits so they would depend less on the ECB for credit. For a while, the bargain seemed to work. Confidence rose; financial risk fell. But the bargain was fragile. It depended on steady economic growth that has vanished with the pandemic’s arrival.

Like the United States, much of Europe has now entered a deep recession. In 2020, Germany’s economy (gross domestic product) will contract 8 percent, France’s 10 percent, Spain’s 15 percent, Italy’s 18 percent and Greece’s 15 percent, reports a new study from Capital Economics, a major forecasting firm. Consumer confidence has plunged, and budget deficits have widened.

Definitions matter. A budget deficit signifies the annual gap between government spending and its revenue. Government debt is the cumulative total of all past deficits. Both deficits and debt have grown significantly in Europe, as in the United States. In 2019, Germany’s budget had a surplus equal to 1 percent of GDP; in 2020, it will run a deficit of 8 percent of GDP, according to the Capital Economics study. From 2019 to 2020, France’s deficit is projected to rise from 3 percent of GDP to 10 percent. Italy swings to a deficit of 15 percent of GDP, up from 1.6 percent in 2019.

The combination of shrinking economies and expanding deficits automatically increases the debt burden. These are already high and are going higher. The Capital Economics report estimates 2020 debt at 73 percent of GDP for Germany, 120 percent for France, 180 percent for Italy and 222 percent for Greece.

Is this sustainable? It’s impossible to answer this oft-asked question directly, because there is no exact definition of “sustainable.” To most economists, debt is “sustainable” as long as the market — investors, traders — continues to lend voluntarily. It assumes that maturing debt can be “rolled over” into new debt. The answers vary by countries and circumstances.

Based on many factors — low interest rates, a record of repaying past loans, low inflation — some countries can borrow more than others. Although Germany’s debt ratio is rising, hardly anyone thinks it may default. By contrast, Italy and Greece are closer to the brink.

If some sort of financial rescue isn’t organized, Italy might be forced out of the euro, dragging along some other highly indebted countries. It’s worth remembering that Italy has the third-largest economy in the euro zone (the 19 countries that use the euro as currency), behind Germany and France.

But organizing a rescue would be hard, because the amount of money would be huge — think trillions of dollars — and because a recent ruling by Germany’s Constitutional Court may prevent Germany from participating in a rescue, says economist Desmond Lachman of the American Enterprise Institute. Without Germany, Europe’s largest economy, other countries may balk.

The stakes here are extraordinarily high. The social and political superstructures of modern societies rest upon economic foundations that enable most people to live decent lives most of the time. We have taken this for granted, despite constant grumbling about the perceived shortcomings of the modern economy.

But is what we assume to be true actually true? What if we can no longer take this basic stability for granted? That is what’s really at issue here. It’s a sobering thought.

Read more: