Spain’s public debt surpasses 100 percent in record high

Spain's public debt rose above 100 percent in the first quarter to its highest level in 20 years, the central bank said Wednesday as Madrid faces an EU sanctions threat for public overspending.

Spain's public debt surpasses 100 percent in record high
Photo: AFP

Debt as a proportion of economic output hit 100.5 percent in the first quarter up from 99.2 percent at the end of 2015, the bank said in a statement.

It had already surpassed the symbolic 100-percent mark in the first quarter of 2015, when it hit 100.2 percent.

Spain's public debt stood at €1.09 trillion ($1.23 trillion) at the end of March.

The debt, as well as Spain's public deficit, are contentious issues as general elections approach at the end of the month, particularly after acting Prime Minister Mariano Rajoy promised tax cuts.

His conservative government has promised to bring the public debt down to 99.1 percent of economic output by the end of 2016 and reduce the public deficit to 3.6 percent.

Despite the return to growth Spain's public deficit came in at 5.0 percent of gross domestic product (GDP) last year, far higher than the target of 4.2 percent Madrid agreed with Brussels.

The European Union has set a public deficit limit of 3.0 percent of GDP and debt limit of 60 percent of economic output.  

Austerity-weary Spain has overshot its fiscal targets repeatedly, making it one of the worst performers in the eurozone.  

The European Commission, the bloc's executive arm, will decide in the coming months whether to slap sanctions on Spain for public overspending – an unprecedented step if it happens.

Spain goes to the polls on June 26 for the second time in six months after bickering parties failed to reach an agreement on a coalition government following inconclusive polls in December.

The country in 2014 posted its first full-year of growth since a 2008 property crash which put millions of people out of work and pushed the country to the brink of a bailout, with an expansion of 1.4 percent.

It now is one of the EU's fastest-growing economies, growing 3.2 percent last year.

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Spain is officially off the hook over budget deficit breach

EU member states let Spain and Portugal off the hook on Tuesday, deciding against fines for their repeated breach of budget deficit rules meant to bolster growth and the public finances.

Spain is officially off the hook over budget deficit breach
Photo: AFP

EU Commissioner for Economic and Financial Affairs Pierre Moscovici said the decision reflected “an intelligent application” of the Stability and Growth Pact which sets the fiscal rules member states are supposed to follow.

The move confirms an earlier ruling by the EU Commission.

“By giving more time to Spain and Portugal to bring their public deficits below (the ceiling of) three percent (of GDP), the Council sets new credible fiscal trajectories, which will contribute to strengthening both their economies and the euro area,” Moscovici said in a statement.

“Stability and growth require a strong determination to put public finances in order. I trust that Spain and Portugal will respond accordingly,” he added.

The European Commission agreed late last month not to impose fines of up to 0.2 percent of Gross Domestic Product for fear of stoking even more anti-European Union sentiment in the wake of Britain's shock vote to quit the bloc.

The final decision rested with the 28 member states in the European Council where many such as France and Italy argued Brussels should cut them more slack as they try to get their economies back on track amid public anger at continued austerity.

Germany in contrast championed the SGP rules as the only way forward, saying that sound public finances are the only foundation for growth.   

After six years in recession, Spain reported a 2015 budget deficit of 5.1 percent of GDP, way off the 4.2 percent target set by the Commission.    

For this year, the Council said Madrid must find savings equivalent to 0.5 percent of GDP to bring the deficit down to 4.6 percent, and then 3.1 percent in 2017 and 2.2. percent in 2018.

“All windfall gains must be used to accelerate deficit and debt reduction, and Spain must be ready to adopt further measures should budgetary risks materialise,” the Council said in a statement.

“Fiscal consolidation measures must secure a lasting improvement of the government's budgetary balance in a manner conducive to economic growth,” it said.

Portugal must find savings worth 0.25 percent of GDP to bring its budget deficit to 2.5 percent this year, compared with 4.4 percent in 2015.   

The Commission last month warned both countries that should they fail to meet the new targets it would consider suspending their EU structural funds but this would be only at a later date and after discussion with the European Parliament.