Spain's external debt reaches record highs with 1.9 trillion euros

The external debt of the Spanish economy has reached record highs in absolute terms. Between public and private liabilities, the total gross amount with the foreign currency in the first quarter of 2017 reached 1,911 trillion euros, above the 1,868 trillion recorded in the previous quarter and a figure never recorded in the history of Spain, according to the data published Monday by the Bank of Spain.

As a percentage of the Gross Domestic Product, this debt in foreign hands has risen in March 2017 to 170% of GDP, compared to 168% in December 2016. Even with GDP growing, the debt rises somewhat in relative terms. Hence, it still remains close to the highs of early 2015, when the record of 174.6% of GDP was set.

The Governor of the Bank of Spain, Luis Maria Linde, stressed last week in Congress his concern about these indicators: "Net external debt remains very high. Their reduction requires the persistent maintenance of external surpluses, which would be hampered in a context of contraction of international trade flows or of any rise in interest rates. "

With the public deficit on the downside and the private sector reducing debt, it would be normal for external debt to decline, as has been the case over the past two years. However, that has not happened in this quarter. Although this is a volatile and timely data, if this trend is confirmed, the Spanish economy could waste growth and not reduce its vulnerability sufficiently. However, the guts of these numbers point to the fact that the data are not so bad: including banks and Public Administrations, all sectors have reduced debt, except for the Bank of Spain, which is fattening its obligations against the Eurosystem due to injections monetary policy.

And this last point is not so negative insofar as the Bank of Spain will not suffer from overnight a claim to return these debts. It is only a liquidity that the Bank of Spain has granted to Spanish entities and that these have been taken to another euro-system country, for example to Germany, either to pay a debt or to invest. In principle, the liquidity generated should not pose a great risk to the Spanish banks that took it, partly because they are bonds held by the central bank and bought by the central bank, partly because they can come from liquidity operations that the ECB renewing as it sees fit.

That is, they are not debts that are going to complain. As the economic literature shows and lived during the sovereign crisis, the type of debt matters: liabilities such as stocks or direct investment do not represent a great danger when they increase, since in the case of a crisis is the foreign investor the one that undergoes the value adjustment. On the other hand, if the liabilities that arise are debt, then it is a very serious problem, because the debt remains enforceable even if it has lost the capacity to repay it. What's more, it amplifies the financial swings because it has to be renewed and there may not be investors willing to risk their money, leaving the economy suffering from interest rates too onerous or even on the verge of default.

Approximately half of the Spanish debt, whether public or private, is in foreign hands, and that makes it even more sensitive to the turbulence. Italy, for example, has higher debt levels than Spain. However, it does not only have external debt, the refinance with the savings generated internally and that gives a greater sustainability to its financial obligations. Spain has rebuilt some of its liabilities during the last two years, increasing the Bank of Spain and reducing the rest. But in any case, much remains to be done.

If Spanish foreign assets are deducted from foreign debt, then the Spanish economy continues to show a very high figure: 972,000 million euros, 86.5% of GDP, slightly higher than the 85.7% observed closing 2016. This net investment position is somewhat lower than when it hit 100% of GDP there by 2014, but remains at record levels after two years of reductions. Only Greece, Cyprus and Portugal are far behind Spain across the EU. And far from the 35% of GDP that the European Commission considers an acceptable ratio. Even so, this time the rebound has occurred for two reasons that severely reduce the data: on the one hand, the Bank of Spain accuses the revaluations of the Spanish stock market, a fact that can not be called negative. On the other hand, it is also due to the fact that the Spanish funds have directed investments towards other countries.