Agitation among international investors with Spanish public debt. The advance of the elections in Catalonia to May 12 has caused a chain effect that will derail the approval of the General State Budgets (PGE) for 2024, as announced this Wednesday by the first vice president and Minister of Finance, María Jesús Montero. , after learning of the surprise announcement in Catalonia, where his investiture and legislative partner ERC governs.
The yield of the 10-year bond rose visibly after the Catalan call, the approval of the amnesty in Congress and the instability in the government coalition that had also been formed to prepare the public accounts with the PSOE, Sumar , ERC, Junts, Bildu, PNV, BNG and CC. However, the vote of the investiture coalition is breaking down before approving the key document that will finance the start of the legislature. First, Sumar’s fracture caused the departure of 4 Podemos deputies to the Mixed Group. Later, the former secretary of the PSOE and former minister, José Luis Ábalos, also went in that direction after being implicated in Operation Delorme (Koldo case).
Rise in the cost of public debt
Specifically, the profitability of the 10-year Spanish debt climbs to 3.23%, 8 basis points more than at yesterday’s close due to the uncertainty with public accounts, the amnesty and political instability. The absence of Budgets leaves the public deficit objective of -3% in 2024 in the air, after -3.9% in 2023 and the trajectory of previous years: -4.7% (2022), -6.7% (2021), -10.1% (2020).
In short, the increase in public debt (1.57 trillion euros) due to the accumulation of deficits has been mitigated in terms of the debt/GDP ratio (117%) due to the growth of the economy and inflation. This Thursday the yield on German debt stood at 2.41%, which left the Spanish risk premium at around 80 basis points.
Greece, ‘sortpass’ to Spain?
For its part, the Portuguese bond yielded 3.02%, unchanged, after the holding of elections this past Sunday that gave a narrow victory to the center-right, although with the possibility of governing with the far-right or the socialist party. who has resigned from governing. For its part, Greece’s debt is about to surpass the Spanish peso for the first time since its debt/GDP ratio (169%) is much higher, but it is reducing debt. The yield on the 10-year Greek bond stood at 3.22%, almost equal to that of the Spanish bond for the same term.
The case of alleged corruption investigates commissions in the purchase of masks during the pandemic in contracts of the current Government, but also the influence of the plot in the rescue with public money of Air Europa, which has led to a complaint from the PP for conflict of interest against the President of the Government, Pedro Sánchez, for the sponsorship of the head of the Globalia group in events organized by his wife, Begoña Gómez, at the IE Africa Center.
The withdrawal of the ECB in June
The Budgets are the fundamental law to carry out the initiatives of the current government, in addition to a demand from Brussels due to the reinstatement of fiscal rules, postponed by the pandemic and the energy crisis of Russia’s war on Ukraine. They are also important for Spain to continue receiving thousands of millions of euros in European funds from the resilience mechanism (NextGen). The European Commission requires the fulfillment of certain conditions to unlock the different tranches of this non-refundable aid that amounts to 70 billion euros for Spain from 2021 for just over five years.
The European Central Bank (ECB) has also demanded European governments in general, and the most indebted ones in particular, to balance their accounts and eliminate fiscal stimuli because they are inflationary and make the objective of a CPI at 2% difficult now that prepares to start cutting interest rates in June. Also then, the ECB intends to stop investing in European public debt through the PEPP program with the goal of reducing its debt portfolio.
On the other hand, the organization announced this Wednesday an adjustment in its policy that will involve the narrowing of reference rates (deposit and financing) and the creation of a structural debt portfolio with the countries of the euro zone with which to manage the fluctuations of the debt without having to reactivate programs such as the PEPP or APP. The ECB has become the largest creditor of Spanish debt with an accumulated portfolio that exceeds half a trillion euros at the end of 2023.
The Bank of Spain, a member of the ECB, published its economic forecasts this Monday in which it rules out that the Government of Pedro Sánchez will be able to adhere to the fiscal rules even in 2024, 2025 or 2026, that is, that it will be able to place the deficit p public below 3%. The body chaired by Pablo Hernández de Cos predicted that “it may be necessary to implement additional compensatory measures to adjust spending or increase income” this year, to compensate for the gap caused by the partial extension of some of the anti-crisis measures, such as the reduction in VAT on food, reductions in energy taxes or subsidies for passenger transport.
