Spanish public debt hits new record in 2013

Spain reported Friday its public debt soared to a new record high in 2013 despite a slew of budget-cutting measures, ballooning to nearly 94 percent of the economy's entire annual output.

Spanish public debt hits new record in 2013
Prime Minister Mariano Rajoy's conservative government has raised taxes, frozen public salaries and curbed spending on items such as education and health. Photo: fotouiscmg/Flickr

Prime Minister Mariano Rajoy's conservative government has raised taxes, frozen public salaries and curbed spending on items such as education and health so as to rein in bulging annual budget deficits and the fast-accumulating state debt.

The austerity drive sparked mass street protests.

Despite those efforts, however, public debt in the eurozone's fourth-largest economy leapt to €960.6 billion ($1.33 trillion) at the end of 2013, the equivalent of 93.9 percent of gross domestic product for the year, the Bank of Spain said.

That was up sharply from €884.7 billion, or 86.0 percent of GDP in 2012, the bank said.

In 2007, the year before a property crash plunged Spain's economy into a five-year, double-dip recession that destroyed millions of jobs, Spanish public debt represented just 36.3 percent of gross domestic product.

The public debt for 2013 is nevertheless within the government's forecast of 94.21 percent of GDP.

Spain's government expects the public deficit to top 100 percent of GDP in 2015 before stabilising at about 101 percent in 2016; a figure well above the European Union-agreed ceiling of 60 percent of GDP.

High public debt levels cost governments more in interest payments, leaving them less money to spend on public services.

If a state's public debt spirals out of control, investors fear not being repaid. That can push interest rates so high that it becomes impossible for the state to borrow to finance even its day-to-day activities, leading to financial collapse.

Spain's borrowing costs have fallen sharply, however, since the country was pushed to the edge of financial catastrophe in mid-2012 with interest rates on benchmark 10-year bonds topping 7.0 percent at one point.

At a bond auction last week, Spanish 10-year bonds yields eased to just 3.344 percent.

Though Spain avoided a full-blown bailout in 2012, it nevertheless tapped its eurozone partners for an emergency loan of more than €40 billion to bail out banks struggling with bad loans built up during a decade-long property boom that imploded in 2008.

Despite emerging gingerly from a recession in the second half of 2013, Spanish economic growth is slow and the unemployment rate remains stubbornly above 26 percent.

A breakdown of the 2013 debt report showed that the eastern Valencia region was deepest in the red among the regions, with liabilities equal to 32.9 of its economic output. Spain's powerful regions are responsible for education and health spending.

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Spanish PM targets 2014 as turnaround year

Spanish Prime Minister Mariano Rajoy told the leadership of the ruling Popular Party on Wednesday that corruption was a thing of the past in Spain, and that the country would see an economic turnaround in 2014.

Spanish PM targets 2014 as turnaround year
Spanish Prime Minister Mariano Rajoy broke radio silence to discuss key political issues on Wednesday. Photo: Dominique Faget/AFP

In a top-level Popular Party meeting held behind closed doors, Rajoy told the party executive that corruption was a thing of the past in Spain.

Without specifically mentioning the high profile corruption case involving former Popular Party treasurer Luis Bárcenas, Rajoy said: "I don´t want Spain to become an uninhabitable country because people are accused without evidence."

"This has nothing to do with hiding anything, or trivializing or forgetting. It's about acting sensibly," El Pais quoted the prime minister as saying on Wednesday morning.

"All corruption is unacceptable and we need to fight it wherever it appears," quoted El Mundo newspaper.

"This party has acted as soon as it learned of (any corruption) at a level that no one else has equalled, and we will work together with the justice authorities and used all methods to fight corruption," the prime minister said.

Rajoy also made a direct reference to what he called incidents of "harassment and verbal intimidation" that various members of his party had experienced in recent times.

In an indirect reference to the form of protest known as the "escrache" in which protestors target individual politicians at their home or place of work, Rajoy described this behaviour as unacceptable. 

The Spanish prime minster also said this form of protest was not acceptable to most Spanish people.

In his speech, Rajoy was also keen to stress that next year would be better for Spain.

"In 2014 Spain will show clear signs of growth and we will start to create employment."

He said the process would be difficult but noted: "Spaniards will see tangible results of the efforts we have made."

Rajoy stressed that the economic growth and the creation of jobs remained his first priority. He also said that "neither I nor anybody else in their right mind can be satisfied with labour reform (in Spain)".

The Spanish prime minister went on to talk up his government's economic performance.

"We have lowered the public deficit, and our public deficit and we avoided a rescue.

He said there was"positive economic data" which suggested the country could turn the corner. 

El País also quoted the Spanish leader as saying a successful budget had led to improvement in public administration. "The state is functioning and public services are guaranteed," Rajoy stressed.

El País also said that such a meeting of the Popular Party's executive  — the first in nine months — was usually be a low-key affair. However, the event was given extra importance because Spain's ruling party have generally maintained public silence since the corruption case involving their ex-treasurer erupted in January.