EU decision means that Spanish debt has now increased by nearly 3 per cent

A DECISION by the European Union to require Spain to include the value of ‘bad bank’ liabilities still outstanding from the previous financial crisis has increased Spain’s debt position.

Initially the Bank of Spain reported that 2020 debt was equivalent to 117.1 per cent of the Gross National Product (i.e., Spain owed more than it earnt) but with this new requirement imposed by the EU’s body Eurostat, this has now increased to 120 per cent.

Much of the reason for this huge debt is the fact that the Spanish Government, like so many others, has had to increase spending by way of assistance to individuals and businesses due to the ongoing pandemic as well as the significant drop in revenue caused by lockdown and lack of tourists.

As so many building companies and lending banks had become bankrupt from 2008 onwards, the Spanish Government in association with major Banks created SAREB (known as the ‘bad bank’) to take control of properties and debts.

Whilst it has reduced the €50 billion of negative assets it took over since being created in 2012, it still holds huge amounts of debt and as such, the EU believed it appropriate to consider it an organisation effectively owned by the Government which is why the debt situation has on paper worsened.