Spain’s public debt reaches historic high

Spain’s public debt surged to a historic record high during the last quarter of 2011, renewing concerns over whether the government will be able to keep its commitment to Brussels to bring down the deficit to 5.3 percent of GDP by the end of the year.

Overall debt last year amounted to 68.5 percent of GDP — 2.5 percentage points higher than the third quarter, according to figures released Friday by the Bank of Spain. That is the highest figure since 1995.

The increase was driven by runaway spending in the 17 regions that overshot their budget targets. The central government’s spending also increased 14.6 percent while expenditures in the municipalities remained almost unchanged at 35.420 billion.

The central government’s accumulation of expenses at the end of 2011 is also being blamed for the high debt figure.

Spain has some 734 billion euros in obligations.

Meanwhile, Deputy Prime Minister Soraya Sáenz de Santamaría said Friday that municipalities have turned over to the government some 1.9 million invoices for a total amount of 9.58 billion euros they owe to suppliers.

During a news conference following Friday’s cabinet meeting, Sáenz de Santamaría said that so far some 5,000 of Spain’s 8,200 municipalities have applied to the aid fund set up by the government this week to help cash-strapped city halls pay their suppliers.

Prime Minister Mariano Rajoy announced plans for the 35-billion-euro fund earlier this week before a group of government suppliers.

Municipal mayors will have 10 years to pay back the central-government loan, with an interest rate of around five percent, said Sáenz de Santamaría.

While Spain’s debt ratio continues to be far from the European average, the country is being penalized by the high costs of seeking financing. The risk premium is more than 319 points above the benchmark German bund, which means that Spain is paying more than three points more interest than Germany for its debt. 

Historical high

The regional communities helped push the debt to an all- time high with some 20.6 billion euros, or 13.1 percent of Spain’s GDP — the highest in history and double what it was at the beginning of the crisis.

Catalonia is the region with the most debt — 20.7 percent of its GDP. But Navarre raked up more debt during the fourth quarter (45 percent more) followed by Murcia (33 percent) and Cantabria (30 percent).

“Spain seems to be the main risk in the near future for Europe,” Stephane Deo, chief European economist at UBS AG, wrote in a note on Friday, which was picked up by Bloomberg. “So far the government has disappointed. An ambitious reduction of deficit is needed.”

Separate economic forecasts released on Thursday by the Spanish Confederation of Businesses (CEOE) and the international accounting firm Ernst&Young predict that Spain will close out 2012 with a deficit of 6.1 percent of GDP — eight points higher than what it has promised Brussels.