The Spanish debt crisis is not slowing down. Instead, with a ‘snowball effect,’ the amount of public debt just continues to grow. With the speed at which it grows, it will end up equaling over 100 percent of gross domestic product in 2020, according to a recently published report by the European Commission.
In the best scenario, it will equal 101.5 percent of GDP, which means more than 20 percentage points above the closure of this year, if the government’s estimates are correct. In the worst scenario, the public debt could reach 111.7 percent of GDP in 2020, according to Brussels, which is three times the level registered when the crisis broke out.
According to these forecasts, the amount of public debt in 2015 could reach 92.1 percent of GDP, which is far over the limit of 60 percent established by the old Maastricht Treaty, which still sets the limit for fiscal sustainability of the European Union.
Public debt will continue to grow
The report published by the European Commission presents an analysis of the huge imbalances of the Spanish economy. Its conclusion is that in the absence of ‘chock measures’ capable of stabilizing the growing debt, the ratio of debt to GDP will only become worse until 2020. The economists in Brussels come to this conclusion even though they base their estimates on figures that are slightly more positive than the current figures.
They count on, for instance, an interest rate in the short term of 2 percent over this period, and 6 percent in the long term (10 years). For other estimates, the commission uses the latest forecasts from this spring, as well as the EU Report on Ageing Populations.
The most recent statistics from Eurostat show that the level of public debt in Spain, in any case, clearly continues below that of the Eurozone average, which was 88.2 percent compared to 72.5 percent in Spain during the first quarter this year.
The difference between the Eurozone and Spain, however, is the development. While in the Eurozone, debt only grew by 2 percentage points last year, public debt grew by 7.4 percent in Spain. Only in three other Eurozone countries did the amount of debt grow more: Portugal, Ireland and Cyprus.
Recommendations for Spain
The report by the European Union on how to confront the major macroeconomic imbalances, recommends Spain to increase export and eliminate trade barriers that prevent small and medium-size companies to remain on the external markets. In this way, Brussels recalls that the current credit restrictions are insurmountable obstacles for many export companies, for whom the markets close because of lack of financing.
The independence of the regulatory bodies, the reduction of administrative obstacles to create companies or the elimination of barriers to allow for a free functioning of professional services are among the other recommendations that Brussels lists for Spain.
It also stresses the importance of education for young generations, and to reduce the duality of the labor market, where one quarter of the labor force holds temporary employments.
This article was translated and edited by Stina Lunden.
MORE IN ECONOMY & BUSINESS
CRISIS IN SPAIN’S INDUSTRIAL SECTOR
Carlos Sánchez (06:00).- The statistics give a clear picture: these are bad times for Spain’s industrial sector and things are not getting better. The figures don’t reflect the prevailing economic situation at a specific time and aren’t exclusively...
THE GOVERNMENT PUTS PRESSURE ON MAJOR BANKS
E. S. / M. L. (06:00).- From the Moncloa, the headquarter of the Spanish government, pressure is increasing on the major Spanish banks, following their initial rejection, to participate with capital in the ‘bad bank,’ according to sources close to the...
PARADOXICAL RESULT OF FISCAL AMNESTY
Eduardo Segovia (06:00).- The fiscal amnesty launched by the Spanish government in order to regulate capital gains hidden from the tax authorities will have a paradoxical result. It will be successful when it comes to the capital that will be regulated, but it will bring...