One of the reassuring arguments that bankers repeat in these troubled times is that companies and families start from a much better situation to endure now than in the previous crisis because they have much less debt. This was confirmed yesterday by the Bank of Spain in its Financial Stability Report. The problem is public debt, because Spain has 60 percentage points more than in 2007, so the supervisor calls for a strong deficit reduction after the pandemic.
In the upper graph of the aforementioned report, it is clearly seen that at the start of the 2008 financial crisis the public debt was around 35% of GDP (right scale); Then, Spain came to have a surplus (left scale). From there, the deficit and debt soared due to the great recession. With the recovery after the second recession of 2011-2012, the deficit has been moderating but very slowly, which has not allowed the debt to drop just below 100% of GDP. Before the arrival of the coronavirus, the public debt stood at 95.5%, after increasing by 16,000 million last year.
Things will get even worse this year, since the scenarios of the Bank of Spain for the crisis place it between 110% and 122% of GDP at the end of 2020, with 115% as the central scenario. For this reason, the supervisor considers it essential that, when the pandemic passes, decisive measures are taken to reduce it.
"The economic deterioration caused by the pandemic will lead to persistent increase in the vulnerability of the position of public finances in our country. The foreseeably transitory nature of the Covid-19 disturbance means that the expected deterioration does not, in principle, have a predominantly structural nature. For this to be so, however, a limited fiscal response is required, but it is conclusive ", warns the Bank of Spain.
And he adds: "Now, the high levels of structural starting deficit and increases in public debt which are expected to be achieved, together with the challenges for public finances derived from the aging of the population, highlight the vulnerability of Spanish public finances to possible additional shocks to economic activity, financing costs or sentiment. from investors. "
Although in the short term the ECB's debt purchases will keep the risk premium controlled, the supervisor requests that "in the medium term, when the situation returns to normal, a fiscal consolidation and structural reform program that they reduce the imbalances of the economy and increase its potential growth. "It also puts a cloak on the government by asking the EU to give a" forceful response "" to favor adequate financing conditions with which to bear the high costs of the crisis " .
LOW BUSINESS DEBT IS NOT INSURANCE AT ALL RISKS
On the contrary, the report of the governing body Pablo Hernández de Cos highlights the safety net that means that companies and families now have much less debt than in 2007, as can be seen in the graph, although it warns that this is not insurance. at all risks: "Spanish companies face this disturbance with a more favorable financial position than before the global financial crisis, but vulnerable segments exist"
"Spanish non-financial companies have substantially reduced its debt levels in recent years, which are now below the European average, and have higher liquidity buffers. Furthermore, the sectoral distribution of activity is more balanced than in the situation prior to the previous crisis. However, the magnitude of the shock is very significant and segments of the Spanish corporate sector persist with a vulnerable position, "he explains.
The same is the opinion of the families' debt: "The Spanish families face the coronavirus crisis, which represents a significant adverse shock to their incomes, from a stronger equity position than they had before the 2008 financial crisis. Thus, in the last decade, households have made a significant effort to get out of debt, with a cumulative decrease of about 23% since the end of 2008. "Still, he warns of that there is a percentage of families where debt service represents an important part of their income, especially those that have consumer and mortgage loans.
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