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PUBLIC DEFICIT

France’s public debt set to hit record levels

France's economy is set to break more records in the coming months, but there will be no cause for celebration. After its jobless total hit a historic high earlier this year, the government said on Tuesday that public debt will reach a record 95.1 percent of GDP.

Published: 25 September 2013 13:15 CEST
France's public debt set to hit record levels
France's public debt to hit €2 trillion by 2014, Le figaro reported newspaper has reported. Photo: Joel Saget/AFP

France admitted on Wednesday its public debt would hit a record 95.1 percent of GDP in 2014, far higher than previous estimates, as it unveiled next year's draft budget for the embattled eurozone economy.

But the government said debt should fall back in 2015, and reiterated a pledge to meet its EU-mandated deadline to bring the public deficit below three percent that year.

The announcement comes after Le Figaro newspaper claimed the debt would hit €2 trillion by next, a figure that was not rejected by the country's finance minister.

The draft budget was presented to the cabinet by Finance Minister Pierre Moscovici and Budget Minister Bernard Cazeneuve, who outlined "unprecedented" €15-billion ($20-billion) cuts in public spending as France tries to rein in its public deficit without compromising growth.

The country is battling to rekindle tepid economic growth back amid record-high unemployment, limited investment and low consumer spending.

Some 80 percent of fiscal savings next year will come from cuts in public spending and 20 percent from a rise in taxes, the ministers said.

These decisions are based on an estimated 0.9 percent rise in GDP next year, close to a consensus of 0.8 percent amongst French economists.

European Union rules require public debt to be no more than 60 percent of GDP or falling towards this ratio.

Adding to concerns, Didier Migaud, president of the Cour des Comptes – France's public auditor – has said that the current financial state of the country's generous healthcare system was "worrying".

The system is haemorrhaging money, with a deficit expected to hit nearly $8 billion this year.

This "maintains a particularly abnormal and particularly dangerous spiral of social debt," Migaud said as he unveiled an annual report on the state of France's social security system.

The country's heavy debt load has caused concern that financial markets could turn against France, but that has yet to happen.

France's borrowing prices are quite reasonable and have even hit record lows in the past two years.

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PUBLIC DEFICIT

Spanish public debt hits new record in 2013

Spain reported Friday its public debt soared to a new record high in 2013 despite a slew of budget-cutting measures, ballooning to nearly 94 percent of the economy's entire annual output.

Published: 14 March 2014 13:09 CET
Spanish public debt hits new record in 2013
Prime Minister Mariano Rajoy's conservative government has raised taxes, frozen public salaries and curbed spending on items such as education and health. Photo: fotouiscmg/Flickr

Prime Minister Mariano Rajoy's conservative government has raised taxes, frozen public salaries and curbed spending on items such as education and health so as to rein in bulging annual budget deficits and the fast-accumulating state debt.

The austerity drive sparked mass street protests.

Despite those efforts, however, public debt in the eurozone's fourth-largest economy leapt to €960.6 billion ($1.33 trillion) at the end of 2013, the equivalent of 93.9 percent of gross domestic product for the year, the Bank of Spain said.

That was up sharply from €884.7 billion, or 86.0 percent of GDP in 2012, the bank said.

In 2007, the year before a property crash plunged Spain's economy into a five-year, double-dip recession that destroyed millions of jobs, Spanish public debt represented just 36.3 percent of gross domestic product.

The public debt for 2013 is nevertheless within the government's forecast of 94.21 percent of GDP.

Spain's government expects the public deficit to top 100 percent of GDP in 2015 before stabilising at about 101 percent in 2016; a figure well above the European Union-agreed ceiling of 60 percent of GDP.

High public debt levels cost governments more in interest payments, leaving them less money to spend on public services.

If a state's public debt spirals out of control, investors fear not being repaid. That can push interest rates so high that it becomes impossible for the state to borrow to finance even its day-to-day activities, leading to financial collapse.

Spain's borrowing costs have fallen sharply, however, since the country was pushed to the edge of financial catastrophe in mid-2012 with interest rates on benchmark 10-year bonds topping 7.0 percent at one point.

At a bond auction last week, Spanish 10-year bonds yields eased to just 3.344 percent.

Though Spain avoided a full-blown bailout in 2012, it nevertheless tapped its eurozone partners for an emergency loan of more than €40 billion to bail out banks struggling with bad loans built up during a decade-long property boom that imploded in 2008.

Despite emerging gingerly from a recession in the second half of 2013, Spanish economic growth is slow and the unemployment rate remains stubbornly above 26 percent.

A breakdown of the 2013 debt report showed that the eastern Valencia region was deepest in the red among the regions, with liabilities equal to 32.9 of its economic output. Spain's powerful regions are responsible for education and health spending.

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