Developments in Spanish public debt since the start of the crisis

The economic and financial crisis has prompted a substantial increase in the general government debt of the European Union (EU) countries to levels far higher than those prevailing in the pre-2008 period. This trajectory, along with the difficulties of curbing the attendant expansionary dynamics, has placed the sustainability of public finances at the heart of the economic policy debate in Europe. In the case of Spanish general government, the low starting level of public debt (36% of GDP compared with 66% of GDP in the euro area in 2007) allowed the initial impact of the cyclical downturn on public finances to be absorbed without high levels in the stock of debt being attained. However, prolonged economic sluggishness and the continuation of high budget deficits, along with the impact of assistance to the financial sector, among other factors, have placed the debt/GDP ratio at 84.2% in 2012 (88.2% of GDP in 2013 Q1), though this is still below the euro area level. The rapid increase in public debt in some euro countries was, indeed, one of the factors that sparked the sovereign debt crisis that broke in early 2010. The review of the EU economic governance framework in response to this crisis has included a reform of the Stability and Growth Pact (SGP), one of the main aims of which has precisely been to reinforce the disciplining role of the ceiling set for public debt. Along these lines, the amendment of the Spanish budgetary framework, set in train in September 2011 with the reform of the Constitution and its subsequent implementation in April 2012 through the LEP (Organic Law on Budgetary Stability and Financial Sustainability), assigns greater importance to this variable. In particular, it sets an explicit cap not envisaged in previous stability laws, such that its weight relative to GDP may not exceed 60%. A transition period to 2020 has been set for the application of this criterion. Against this background, monitoring public debt has become most important. This article analyses developments in the recent period in Spain’s case drawing on the statistics published by the Banco de España. The following section first describes the different concepts of general government indebtedness that are habitually used. It is important to know the different definitions of this variable in order to be able to arrive at an appropriate interpretation, in particular when international comparisons are made. The third section has as its basis one of these concepts, that relating to public debt according to the Excessive Deficit Protocol (EDP), and recent developments concerning its determinants and its breakdown by agent, maturity, instruments and holder are analysed. The fourth section shows the main factors that have affected the so-called “deficit/debt adjustment”, which allows the figures for net borrowing or the general government deficit to be reconciled with those of the changes in the stock of EDP debt. The fifth section draws some brief conclusions.