Investors paid the Spanish State for half of the debt they financed in 2020. 50% of the debt issued last year by the Treasury was awarded at negative rates despite the brutal increase in public debt and the occasional increase in costs funding early in the pandemic. ECB policy is being essential to lower the debt bill. Interest savings exceed 2,000 million euros compared to 2019, which represents, for example, about two-thirds of the cost of the new minimum income or the increase in salaries of civil servants and pensioners.
The public debt will have risen in 2020 by about 110,000 million euros, that is, last year one of every five euros spent by all the Administrations was debt. However, the interest payment has surprisingly come down. According to the latest Treasury forecasts, the 2020 bill fell to around 26,000 million euros from 28,349 million in 2019 and 35,405 million eight years ago. How can such savings be achieved? According to the latest statistics published by the Treasury, of the 277,000 million issued by the State, half were placed with negative interest. Or put another way, investors paid to have them. Very little, but something.
In addition, the average issue rate is now 0.18%, a record low. And the cost of financing outstanding debt is also at a record low of 1.86%. Interest savings will remain as long as there is a difference between the average financing cost and the issue rate. Or what is the same: the debt that matures stops being financed at more expensive rates of a few years ago to refinance itself by paying the rates of now, much lower. And this mechanism produces great savings on the interest bill.
Last year about 80,000 million were refinanced in the medium and long term, bearing interest between 1.15% and 4.85%. For them, the State paid about 2,400 million a year. But now, when you refinance at 0.18% of the average rate, you will only pay less than 200 million. That is, a saving of about 2,200 million. On the other hand, despite the strong increase in indebtedness of around 110,000 million —only exceeded in 2012—, this new debt is only paid at 0.18%, that is, the State barely has to pay about 200 million euros. Hence, there are still significant savings.
And by raising the average life of its issues to almost eight years, the Treasury is setting these low interest costs for longer. The Government insists that these rates are a sign of the confidence that investors place in the measures adopted.
But how is it possible that there are negative rates and that investors pay to lend? The European Central Bank is charging negative rates to the banks for its liquidity and is buying so much debt that there are hardly any safe assets where to park the money. Hence, investors acquire securities even if they have to pay for them.
As Francisco Vidal, Intermoney’s chief economist, explains, the central bank is acquiring most of Spain’s new debt. And right now the ECB already has more than a quarter of the Spanish public debt, about 370,000 million euros. This is the main difference from the previous crisis. But it also constitutes the greatest weakness of the Spanish economy in the event that the rest of the euro area recovers and the Eurobank has to raise its support without Spain having redirected its accounts.
The governor of the Bank of Spain, Pablo Hernández de Cos, is pressing in Frankfurt for these policies to be maintained longer due to the inability of the economy to generate inflation. But he also calls for Spain to approve a plan to stabilize public finances in the medium term as soon as possible, once the urgency of the pandemic is over.
The Spanish public debt will end this year near 120% of GDP, levels that have not been known for more than a century, according to calculations by historian Francisco Comín. Economists such as Olivier Blanchard maintain that the current prospects for low interest rates may make higher debt figures sustainable. However, that, deep down, also reflects the bad news that growth will be low.
Calviño reduces emissions thanks to higher collection
The Public Treasury will announce this Friday a reduction in the debt issuance foreseen in the Budgets for 2021 thanks to the fact that last year’s fiscal income forecasts “have been exceeded,” as the economic vice president, Nadia Calviño, advanced yesterday. reports Europa Press. “The Treasury is going to make the announcement of the debt issuance forecast for this year, and it is going to give that good news, that we are going to reduce debt issuance with respect to what was planned when the Budget project was presented” Calviño stressed in an interview on the Cope chain granted this Thursday.
According to the projections of the 2021 Budgets, the gross issuance of the Treasury will register this year a record figure of 299,138 million, 6% more than the previous year, while the net indebtedness planned for 2021 amounts to about 110,000 million euros. This Thursday the Treasury held its first auction of the year and placed 6,025.35 million euros in bonds and obligations, setting historical lows in all the auctioned references: three, five and 30 years; and one to 15 years linked to inflation.