Debt handicaps recovery efforts

The Bank of Spain confirmed yesterday that the nation is no longer in a recession as of this month. Its report coincides with Rajoy's announcement that 2014 GDP will increase two-tenths of a point more than the last forecast, up 0.5% to 0.7%. The Bank of Spain pointed to strong domestic tourism and foreign export numbers and saw promising signs such as increased business within the industrial and services sectors and better consumer spending data.

Still, the Bank of Spain is caution and warns that even though signs are looking more optimistic, they do not guarantee that the crisis is over. Trimming its high annual deficits is Spain's biggest challenge, because public administrations continue to increase their overall debt levels every year.

The debt load threatens the sustainability of government accounts and will make it hard for them to meet debt/GDP ratio goals that the EU set. The Spanish national debt is now around 100% of the nation's GDP, and this figure does not account for high private-sector debt or the money that is tied to the financial sector bailout even though this is not classified as debt on balance sheets.

These threats will be difficult to overcome, because the government lacks the right political and economic tools and private sector businesses are struggling to regain pre-crisis sales levels.

If we really want to forge a fast recovery, the government should execute pending reforms, cut more spending from the 2014 budget that is being approved today and plan a strategy to reduce the national debt now instead of waiting until 2016.