It has been unthinkable for many years. Above all, after the burst of the real estate bubble in 2008 and the subsequent euro crisis, in which Spain was one of the PIIGS (the acronym for Portugal, Ireland, Italy, Greece and Spain, which in English means pigs, which was the intention with which the British financial press coined it at that time). But the recovery from the shock of the pandemic has turned Spain’s position in the European Union (EU) upside down.
Currently, our country pays less for its debt than France due to smaller imbalances in public accounts. That is, because we are more reliable. It’s not a joke. No irony. Investors are demanding a lower return on the reference bond (with a 10-year maturity) from Spain than on the neighboring country’s bond since the end of September (exactly both bonds are close to 3%, but the French one is a little more expensive), something that It hasn’t exactly happened since 2008, when our economy was artificially inflated.
This milestone now does not respond to a bubble, but is the result of the sum of a structural transformation of the Spanish economy due to the policies deployed since 2020 by the coalition governments and, in contrast, a period of greater political uncertainties and economics in France. To better understand the dimension of the ‘sorpasso’ we must analyze the history of debt markets.
The differential between the interest required on Spain’s debt with respect to that of France exceeded 500 basis points (five percentage points), when the yield on our country’s 10-year bond came close to 8%, in July 2012, and that of the neighboring country was below 3%.
This same differential constitutes the ‘famous’ and feared risk premium when observed with respect to Germany, because it compares the cost of financing in the financial markets of a country against the State that pays the best and has more solid accounts. At the moment, the Spanish risk premium, which shot up to 600 basis points in August 2012—just after the bank bailout—is stable at around 70 points.
The latest update of the macroeconomic projections of the International Monetary Fund (IMF) serves to understand the turnaround in the financial profile of Spain and France. The organization led by Kristalina Georgieva places our country as one of the economies that will lead GDP growth among the largest in the coming years, after already doing so in 2023 and 2022.
Thanks in large part to this notable advance in economic activity, but also to the historic creation of jobs – both factors increase tax collection and reduce the ratios that have GDP as their denominator – Spain obtains a fiscal business card much healthier than that of France. Again according to the IMF, the deficit (the imbalance between public income and expenditure) will be reduced in our country to 3% of GDP at the end of this year, compared to 6% in the neighboring country or 4% in Italy.
The IMF does not trust that France will be able to control its deficit in the coming years. In June, the European Commission already opened a file against the neighboring country for excessive deficit, a process provided for by the new EU fiscal rules according to which it will be forced to make cuts in public spending to reduce the budget imbalance and public debt ( It is also observed in relation to GDP, because that is how its sustainability is initially measured), with intervention from Brussels.
Spain avoided this process of excessive deficit. 3% of GDP is once again the maximum imbalance allowed in the reactivated community fiscal rules. A limit that our country will meet from 2024. Starting in 2025, the main ratio under surveillance becomes the growth of public spending, considered the crucial factor to reduce the deficit and debt.
Of course, the IMF estimates differ from those that the Government included in the Fiscal and Structural Plan sent to the European Commission on October 15 – the umbrella that will govern the General State Budgets (PGE) for the next seven years -, according to It can be seen in the following graph, the fourth of this information.
With these figures on the table, the IMF indicates that Spain will reduce its public debt below 100% of GDP in 2026, while France’s will not stop rising year after year.
In practice, the greatest imbalances that France suffers translate into two things. Firstly, their financing costs increase, while in our country they remain stable. According to the Fiscal and Structural Plan being studied by the European Commission, Spain’s debt interest bill will exceed 40 billion in 2024, 2.5% of GDP, a level that will rise a couple of tenths in 2025 by “ the “snowball effect” of the increases in the official rates of the European Central Bank (ECB) from 2022 to 2024, where it will remain in the following years.
In an extreme scenario, if mistrust increases in France (between investors and the funds that make up the debt market), the risk is a debt crisis similar to that suffered by the eurozone between 2010 and 2014.
Secondly, what the financial markets indicate means that Spain is better prepared than France and also than Italy to face a new economic shock that implies an increase in public spending, as happened in 2020. In other words, our country has and will have a greater fiscal ‘cushion’ to take measures such as those that have been necessary in the pandemic and the inflation crisis. From public financing of ERTE, to reductions in VAT on electricity or food, to various direct aid to companies or the most vulnerable families.
“In a context of uncertain domestic and global geopolitical and economic stability, volatility in the risk premiums of French sovereign debt and other eurozone countries could be a constant rather than an episodic phenomenon. The return of fiscal rules in the EU, less strict than in the past, could give countries some more room to maneuver. However, this temporary relief does not solve the underlying fiscal problems faced by several countries, including France. The implementation of adjustment policies in an environment of slowdown and/or greater political fragmentation could introduce upward pressure on debt spreads,” reflect analysts José Manuel Amor, Camila Figueroa and Javier Pino in a report recently published by Funcas.
“Political polarization in several key countries makes it difficult to form stable governments capable of implementing necessary fiscal and economic reforms. We believe it is logical to manage a horizon in which the volatility in sovereign risk premiums becomes chronic to compensate for political and fiscal uncertainty, limiting the ability of governments to consolidate their debt ratios, and increasing the risk of vicious circles that perpetuate instability. economic and political. France is at a disadvantage when facing this horizon,” these experts continue.
Meanwhile, despite the increase in employment, our country will continue to be the economy with the highest unemployment rate among the large economies in the eurozone. Unemployment will reduce by one point, to 11.2% in 2025, from 12.2% from 2023. In the eurozone as a whole it will remain at 6.4%, according to the IMF.
Spain leads GDP growth among large economies
Taking as a reference the Funcas data, published just before the update of the IMF projections and which glimpses a similar horizon, Spain’s GDP level will exceed the pre-pandemic level by 6.7 percentage points at the end of 2024, that of the end of 2019, and in 2025 at 8.9 integers. Meanwhile, the GDP level of the eurozone as a whole will rise to 4.2 and 5.7 points, respectively.
The headlines and political accusations about our country being at the tail end of the recovery have aged very poorly. A catastrophic story that could only prosper due to the INE’s error in the calculation of the National Accounts (as explained in this information), and that after three historical corrections has still not been completely corrected.
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