Ideas
July 23, 2015 6:24 AM EDT
Bremmer is a foreign affairs columnist and editor-at-large at TIME. He is the president of Eurasia Group, a political-risk consultancy, and GZERO Media, a company dedicated to providing intelligent and engaging coverage of international affairs. He teaches applied geopolitics at Columbia University’s School of International and Public Affairs and his most recent book is The Power of Crisis  

The one major country more deep in debt than Greece is one you might not expect: Japan. Greece’s debt-to-GDP ratio is a staggering 173%, according to the International Monetary Fund. Japan’s debt-to-GDP ratio? 246%.

Yet despite major challenges, Japan has options and a dynamic economy, while Greece is on life support. That’s in part because it’s not the size of the debt that counts. It’s the ability to manage it. That’s a useful motto to remember when comparing one country’s debt burden with another’s.

Unlike Greece, Japan has control of its own currency, allowing policymakers a lot more flexibility in dealing with an economic slowdown. Japan can choose between stimulus and austerity in ways that Greece, locked inside the euro zone, can’t. And while the overwhelming majority of Japan’s debt is owned by Japanese institutions and individuals who remain committed to financing the government, Greece’s creditors are overwhelmingly foreigners.

But Japan is also simply better governed than Greece. Estimates vary on the scale of tax evasion in Greece and its impact on the country’s economy, but at the end of 2014, Greeks reportedly owed their government about $86 billion in unpaid taxes. That’s a big problem in a country where tax revenue represents nearly a quarter of GDP.

A primary function of government is to ensure “rule of law.” Property rights are protected, contracts are enforced, and corruption is punished. For 2014, the World Justice Project ranked Japan 12th in the world on rule of law, between Canada and Britain. Greece ranked 32nd, between Georgia and Romania. In the same report Japan was ranked as the 11th best country for absence of corruption, while Greece was 34th. Greece was 49th in order and security; Japan was No. 1.

As a result, investors have much greater confidence that Japan can manage its debt. That’s why Japan’s 10-year bond yield stands at about 0.4%, and Greece’s yield is at about 11%. It’s cheaper and easier for Japan to borrow the money to finance spending that can boost growth, which adds to tax revenue and helps manage the debt.

It’s not how much you owe. It’s whether you can handle it. And that depends on the quality of your government.

This appears in the August 03, 2015 issue of TIME.

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