The falling costs of financing will not cut away the nation's significant national debt. Contrary to what has happened with home and corporate debt, the government will not shrink its debt beneath 100% of GDP until 2017 even though Rajoy has said it can get there by 2016.
How can economic growth improve, financing costs decrease, government revenues increase and the national debt still loom large? Rajoy just said that there won?t be any more cutbacks. Still, in this year alone the deficit has been slashed by 10 billion euros bringing it to 5.5% of GDP and meeting the level that the EU mandated. But meeting this near-term goal carries a mid-term cost: the deficit will rise again in 2015 and 2016. Not making any more cutbacks because we are heading into an electoral year is an irresponsible move that will increase our national debt. The government is simply deferring its problems to the future and putting us in a dangerous position. When the national debt equals 100% of everything we produce in a year, the government does not have much room to maneuver in the event of another economic crisis. Although an economic upswing is good, the long view is still cloudy. A heavy debt burden will force Montoro to execute even more reforms to the tax system.
A budget imbalance this massive is a sword of Damocles. Any slight hiccup will erode investor confidence, which would send financing costs higher once again and force Spain to refinance some of its debt. These are good reasons to take the national debt problem seriously and ask the government why it is not taking more action.
