The sovereign debt crisis has inspired domestic investors to reduce the amount of public debt in their portfolios. Only 0.74% of this kind of debt is owned by people who live in Spain, which is a historic low. Non-residents owned around 50% of Spanish national debt in the past, but they have also fled to safer assets and now only have 37.4%. To fill the void, the Social Security Reserve Fund and the Bank of Spain have purchased shares of Spanish debt. The Bank of Spain doubled its amount of debt and holds 31.8%.
This distribution of shares shows that the situation has not returned to normal. It is not a good idea for a national pension system to own more than 10% of a country's debt, which the Bank of Spain warned against several years ago. Pensioners seeking secure retirement funds should demand that the Social Security Reserve Fund is more diverse. It has invested more than 97% of its funds in Spanish treasuries.
Nor is it good that the Spanish banking sector owns a lot of national debt, although both the Social Security system's reserve fund and the banks are helping the government to finance its deficit by owning a lot of its debt. Moreover, it is inconvenient that the public sector is using resources from private debt. And there are other dangers.
When the European Central Bank met last with bankers from across Europe, Draghi warned them that having a healthier financial system would require limits on the amount of debt that the banks owned. One such measure would penalize banks for owning too much.
This is a possible threat that could cause a lot of harm if the banks do not trim their debt and the national government does not balance its budget, which is an underlying cause of the debt problem.
