Wednesday, December 7

Half of the rise in debt in 2020 and 2021 was due to the pandemic and saved 2.7 million jobs


Slightly more than half of the rise in public debt in Spain in 2020 and 2021 is explained by the impact of the pandemic, according to the analysis carried out by professors from the Complutense University of Madrid (UCM) Pedro José Gómez Serrrano and Carlos Sánchez Mato have been carried out for the ‘Spain 2022 Report’ of the Comillas Pontifical University.

The ECB admits that raising interest rates will not be enough to curb inflation

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Nearly 80,000 million euros were needed to directly finance the extraordinary expenses to face the three major crises caused by COVID: health, social and economic. Both to pay for Temporary Employment Regulation Files (ERTE), and to buy vaccines or for the Minimum Vital Income (IMV), among other large items. This effort accounted for a third of the total increase in debt in the last two years, which went up to almost 240,000 million.

Another 60,000 million, a quarter of the growth of the public debt in the same period, corresponds to “the rest of the public deficit” (the imbalance between the income and the expenses of the State). And the truth is that most of the historic mismatch was also due to the shock of the pandemic on activity, with a sharp drop in tax revenues due to the hibernation in spring 2020 and subsequent restrictions.


Meanwhile, the ‘Spain 2022 Report’ details that the rest of the increase in public debt is explained by the payment of interest (around 30,000 million a year) and by the obligation to sign up for the hole in Sareb (the Sociedad de Gestión de Assets from the Bank Restructuring that was created to assume the toxic ‘brick’ of the financial entities rescued in 2012).

“There seems to be no doubt, at present, that this increase in debt […] it has been a necessary and effective reaction to mitigate the unprecedented reduction in income of families and companies”, observe Pedro José Gómez Serrano and Carlos Sánchez Mato in their analysis.

Of course, the growth of the debt was widespread in the world in 2020 and in 2021. And in our country, this increase, together with European support, for example, in the joint purchases of sanitary material or in keeping the cost of the ECB’s own debt, served so that for the first time a severe crisis did not translate into a great destruction of employment.

UCM professors calculate that 300,000 million jobs were lost between 2019 and the second quarter of 2021. According to their estimate, they were 2.7 million less compared to the potential impact, according to the historical evidence reflected in the graph, if there had been no shock measures.


“The negative impact of the indebtedness generated by the real estate-financial crisis unleashed from 2008 and the sharp cuts in public spending that the Government had to assume for almost a decade is still recent in the collective memory. On this occasion, a relapse so close in time could have a high and prolonged cost both in terms of social well-being -which would be deteriorated by the withdrawal of resources oriented towards debt payment- and in terms of macroeconomic stability, which It would happen if our country once again had to face a situation of sovereign risk”, warn the economists.

However, “without a doubt, the protection of wage income during the pandemic has facilitated the containment of the collapse of tax revenue and its subsequent recovery, the reduction of structural unemployment and has also contributed to the decrease in cyclical spending in this item ”, they continue.

“Furthermore, the role of the public sector in tackling the crisis has increased liabilities significantly, but has also made it possible to moderate the private sector’s indebtedness and, in this way, companies and families will have a more solid base to establish the recovery of the consumption and investment”, they add.

Record debt but low interest bill

The historic growth of the debt and the collapse of the GDP (Gross Domestic Product) implied that the debt ratio beat 120% for the first time since 1902, according to the ‘Spain 2022 Report’. This figure could mean an unprecedented risk, but different factors qualify it.

The first is that the extraordinary financing conditions of recent years had lowered the State’s financial bill, the interest paid each year, to 2.2% of GDP, a minimum in recent decades.


The average cost of all debt in Spain fell below 1.5%, containing this annual interest bill despite the increase in volume and the increase compared to GDP. In addition, thanks to these good financing conditions, the Public Treasury of our country was able to afford to lengthen the average maturity of this same debt.

In other words, it has more margin, more time, to renew it. 8 years on average. Thus, the ECB’s current strategy of raising official interest rates to make debt more expensive in general and thus fight inflation has less of an effect on the annual interest bill. They rise but more slowly, and are currently below 2%, according to the Treasury.

Lastly, the ECB itself has shown some sensitivity to avoid a debt crisis like the one that followed the outbreak of the Great Financial Crisis of 2008. With these data, Pedro José Gómez Serrano and Carlos Sánchez Mato carry out a projection of how the cost of the payment of interest as the cost of debt increases, which can be seen in the graph above.

debt reduction

Meanwhile, Spain closed the second quarter of 2022 with a debt of 116%, according to Eurostat. And if you compare the growth of the public debt to GDP ratio with the rest of the large economies in the euro area, it would be in a similar situation. With the disadvantage that our GDP is still 2 points below the pre-COVID level.

Now, with the energy and inflation crisis caused by the Russian invasion of Ukraine, Spain leads the forecasts for economic growth in the EU. It will even be the only major partner to dodge the recession this winter.


“A basic condition to digest the abrupt increase in public debt and prevent it from becoming a serious obstacle for the future, is that the economies recover their pulse with sustained growth and, for this, it is essential that energetic action be taken with sufficient stimuli to boost the economy, adapting it to new technologies and environmental challenges, whose approach is unavoidable”, conclude the authors of the analysis of the ‘Spain 2022 Report’.



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