Publications

Spanish public debt will come down very slowly over the coming years and is at risk of stagnating at around 100% of GDP. It seems that the extraordinary conditions that helped it come down have been squandered to promote reforms that would lead to a more robust path of fiscal consolidation.

Spanish companies have reduced their debt over the past decade, largely due to a contraction in bank credit. The performance of this type of credit has been negatively influenced by demand-side factors, especially weak levels of investment.

This Working Paper analyzes the evolution in regional revenues and expenditures, the sector’s budget balance and its debt stock from 2003 to the present.

In 2023, interest rates on debt have reached levels not seen since the financial crisis in the U.S. and the 2011 debt crisis in the eurozone. During the first part of 2023—similar to what occurred in 2022—short-term interest rates led the hikes.

The central government has subsidized the interest payable by the regional governments by guaranteeing them interest rates below what they would have paid had they borrowed on the market. The higher the debt incurred, the larger the transfer from central to regional government.

The rules versus discretion debate is back on the table, focusing not only this time on monetary policy (where central banks are having a hard time convincing the markets that inflation will return to target), but also on the reform of European fiscal rules.

Again, as in 1995, 2011 and 2013, uncertainty over whether the US Congress will raise the Federal Government's borrowing limit is beginning to cause concern in the financial markets, which could increase going forward.

The European Central Bank (ECB) has taken a further step in its process of normalizing monetary policy by announcing at its latest meeting that it will end its asset purchase program in July, and that it is prepared to pick up the pace of its rate hikes to contain inflation, in line with other central banks.