Intermoney | Spain could issue gross sovereign debt worth up to 297.657 billion euros in 2020. This figure contrasts with initial plans for gross emissions totalling 196.504 billion euros this year, which was already an increase from the 192.814 billion euros issued in 2019.
Spain’s higher gross financing needs, which are well above the historical maximum of almost 240 billion euros in 2014, come as no surprise. And the effect of the economic support measures is as important in explaining them as is the collapse of public revenue, due to the very sharp drop in activity. This deterioration in the situation has forced the Treasury to budget for net financing needs rising to 130 billion euros in 2020; well off the 22.067 billion euros in 2019 or the 32.5 billion euros initially planned for this year. This is a huge amount of money, and it has been decided, appropriately, to raise 77.7% of the total through medium and long term emissions.
The financing needs flagged by the Treasury also lead us to consider which scenario for Spain they would fit in with. In principle, it could be one in line with a 12.5% drop in nominal GDP in 2020 and a public deficit that could exceed the maximum of 11.3% reached in 2009. However, we must bear in mind that financing figures usually have a certain cushion, i.e. their maximum corresponds to a scenario which is worse than the central one.
However, regardless of approaches such as the above, what is clear is that the finances of countries like Spain are only sustainable thanks to the ECB’s very important support. And also thanks to the EU’s action which is much better than in the previous crisis. In fact, some support measures have already been agreed upon at the pan-European level. For example, the Ministry of the Economy highlighted that nearly 15 billion euros could be raised by the new European fund for unemployment (SURE). So the 17.984 billion euros to finance the ERTEs’ would almost be covered on the basis of government calculations; a figure which, unfortunately, we believe will be exceeded.
At the same time, if the German and French Recovery Plan, based on subsidies, is successful, Spain’s need for financing will be lower; in other words, Community transfers would help keep net financing well below the 130 billion euros target. So it becomes blatantly obvious that the plight of countries like Spain would be unsustainable without EU and ECB support, as is currently the case. Otherwise, in a context of extreme economic weakness where public debt threatens to soar to 120% of GDP in a few quarters, as in Spain, the Treasury’s successful 6.937 billion euros issue last week would become impossible.
The average interest on the 1.311 billion euros issued in 3-year bonds was -0.160% compared to 0.036% in the last transaction, while the 1.746 billion euros placed in 5-year bonds had an average interest rate of 0.053% (compared to 0.254%). The longer term issues faired worse. The 2.532 billion euros issued in 2030 bonds had an average rate of 0.711%, slightly worse than the 0.694% in the last comparable operation. The worst result was for the 1.348 billion euros issued in the 50-year tranche, since the average yield required rose from 1.62% to 1.69%.
That said, the returns demanded by the market in all the Spanish Treasury’s operations were quite moderate, given the underlying situation. Whatsmore, it should be noted that the amount raised in longer term issues with respect to the last transaction increased by 115.1% in the case of 10-year debt and 57.5% in the case of 50-year debt. These increases indirectly suggest that the Treasury is doing a good job by increasing the duration of national debt, thus diluting the stress caused by recurrent calls on the market for large amounts of money.