Spain’s debt soars with coronavirus pandemic to highest level in 20 years

Spain's public debt soared in the second quarter to its highest level in at least 20 years as government spending rose sharply in an effort to tame the coronavirus pandemic, official figures showed Wednesday.

Spain's debt soars with coronavirus pandemic to highest level in 20 years
Photo: AFP

The government announced that it would have to suspend fiscal rules, which EU-member states must normally meet, in 2020 and 2021 as a result of the pandemic's impact on the economy. 

“The government has decided to suspend budgetary rules in an extraordinary fashion for 2020 and 2021,” Finance Minister Maria Jesus Montero told a news conference.

Montero insisted however that Spain would maintain a “fiscally responsible” approach overall as figures showed the national debt ballooning to around 110 percent of gross domestic product (GDP) in the second quarter, way above the EU limit of 60 percent.

Data from the Bank of Spain put total debt at 1.29 trillion euros ($1.5 trillion) or 110 percent of GDP, up from 1.22 trillion or some 99 percent in the first three months of the year.   

For much of the second quarter, Spain was in lockdown with the economy put into “hibernation” to fight the spread of the virus.   

In May, Spain's government acknowledged that managing the pandemic would have a devastating effect on the public accounts, given the collapse in revenue during months of lockdown and the “sharp rise” in expenditure to offset the resulting economic crisis.    

Government estimates see Spain's debt-to-GDP ratio soaring to as much as 115.5 percent by the year's end.

Over the same period, the annual public or budget deficit is seen rising to 10.3 percent, compared with 6.12 percent at the end of June, to produce the “biggest deficit since 2012”.

The government has activated a number of key measures to mitigate the pandemic's impact on the economy, notably an extended furlough scheme, which are set to cost the equivalent of 20 percent of this year's GDP.

Although the state of emergency was lifted in late June, Spain is currently fighting a second wave of the virus which has now killed 31,000 people and infected more than 750,000, the highest infection rate within the European Union.   

Spain plunged into recession in the second quarter when its gross domestic product tumbled by 18.5 percent due to the pandemic.

First-quarter growth fell 5.2 percent, with a recession commonly defined as two consecutive quarters of a contraction in GDP.



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Spain’s middle-class youngsters the most likely to end up poor across all EU

Spain leads the ranking of EU countries with the highest risk of young people ending up in poverty as adults, despite coming from families without economic difficulties.

Spain is the fourth EU country with the highest inherited poverty
Spain is EU country with most middle-class young people who end up poor. Photo: Jaime ALEKOS / AFP

Spain is also the fourth EU country with the highest rate of inherited poverty risk, according to Eurostat, the EU Statistical Office.

Data on intergenerational poverty indicates that there is a correlation between the financial situation of the household you grew up in and the risk of being poor when you reach adulthood and in Spain, there is a strong link. 

The latest statistics available from 2019 show that the at-risk-of-poverty rate for the EU was 23 percent among adults aged 25 to 59 who grew up in a poor financial situation at home when they were 14 years old. This is 9.6 percentage points more than those who come from families without financial problems (13.4 percent). 

READ ALSO: Spain’s inflation soars to 29-year high

How the situation in Spain compares with the EU

Spain has become the EU country with the highest risk of poverty among adults who grew up in families with a good financial situation  – 16.6 percent.

This was followed by Latvia with 16 percent and Italy with 15.9 percent.

That statistics also show the countries where it is less likely to be poor after growing up in households without economic difficulties. These include the Czech Republic (5.9 percent), Slovakia (7.9 percent) and Finland (8.5 percent).

The overall poverty rate in the EU decreased by 0.1 percentage points between 2011 (13.5 percent) and 2019 (13.4 percent), but the largest increases were seen in Denmark (1.9 points more), Portugal (1.8 points), the Netherlands (1.7 points) and Spain (1.2 points).  

On the other hand, the biggest decreases in the poverty rate were seen in Croatia (-4 percent), Lithuania (-3.6 percent), Slovakia (-3.5 percent) and Ireland (-3.2 percent).

READ ALSO: Spain’s government feels heat as economic recovery lags

Inherited poverty

The stats revealed that Spain was also the fourth country with the highest rate of inherited poverty risk (30 percent), only behind Bulgaria (40.1 percent), Romania (32.7 percent) and Italy (30.7 percent).

This means that children of poor parents in Spain are also likely to be poor in adulthood. 

The countries with the lowest rate of inherited poverty risk were the Czech Republic (10.2 percent), Denmark (10.3 percent) and Finland (10.5 percent).

The average risk-of-poverty rate for the EU increased by 2.5 percentage points between 2011 (20.5 percent) and 2019 (23 percent), with the largest increases seen in Bulgaria (6 points more), Slovakia and Romania (4.3 points), Italy (4.2 points) and Spain (4.1 points).

The biggest drops were seen in Latvia (-8.5 points), Estonia (-8.0 points) and Croatia (-2.3 points). 

The largest gaps in people at risk of poverty when they reach adulthood were in Bulgaria (27.6 percentage points more among those who belong to families with a poor economic situation as teenagers compared to those who grew up in wealthy households), Romania (17.1), Italy (14.8), Greece (13.5) and Spain (13.4).