Spanish public debt hits new record in 2013

Spain reported Friday its public debt soared to a new record high in 2013 despite a slew of budget-cutting measures, ballooning to nearly 94 percent of the economy's entire annual output. Prime Minister Mariano Rajoy's conservative government has raised taxes, frozen public salaries and curbed spending on items such as education and health so as to rein in bulging annual budget deficits and the fast-accumulating state debt. The austerity drive sparked mass street protests. Despite those efforts, however, public debt in the eurozone's fourth-largest economy leapt to 960.6 billion euros ($1.33 trillion) at the end of 2013, the equivalent of 93.9 percent of gross domestic product for the year, the Bank of Spain said. That was up sharply from 884.7 billion euros, or 86.0 percent of GDP in 2012, the bank said. In 2007, the year before a property crash plunged Spain's economy into a five-year, double-dip recession that destroyed millions of jobs, Spanish public debt represented just 36.3 percent of gross domestic product. The public debt for 2013 is nevertheless within the government's forecast of 94.21 percent of GDP. Spain's government expects the public deficit to top 100 percent of GDP in 2015 before stabilising at about 101 percent in 2016; a figure well above the European Union-agreed ceiling of 60 percent of GDP. High public debt levels cost governments more in interest payments, leaving them less money to spend on public services. If a state's public debt spirals out of control, investors fear not being repaid. That can push interest rates so high that it becomes impossible for the state to borrow to finance even its day-to-day activities, leading to financial collapse. Spain's borrowing costs have fallen sharply, however, since the country was pushed to the edge of financial catastrophe in mid-2012 with interest rates on benchmark 10-year bonds topping 7.0 percent at one point. At a bond auction last week, Spanish 10-year bonds yields eased to just 3.344 percent. Though Spain avoided a full-blown bailout in 2012, it nevertheless tapped its eurozone partners for an emergency loan of more than 40 billion euros to bail out banks struggling with bad loans built up during a decade-long property boom that imploded in 2008. Despite emerging gingerly from a reession in the second half of 2013, Spanish economic growth is slow and the unemployment rate remains stubbornly above 26 percent. A breakdown of the 2013 debt report showed that the eastern Valencia region was deepest in the red among the regions, with liabilities equal to 32.9 of its economic output. Spain's powerful regions are responsible for education and health spending.