Beleaguered Prime Minister Mariano Rajoy just broke another record. As if a plague of corruption scandals was not enough, Spain's debt-to-GDP has now reached levels not seen in over 100 years. As El Pais reports [5], Spanish debt levels rose at an alarming EUR 400 million per day in 2012 making for the largest annual increase in debt in the nation's history - all the while proclaiming austerity.
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The EUR 146 billion increase in debt in 2012 is the equivalent of more than 14 percentage points of GDP leading to a staggering EUR 882.3 billion or 84% of GDP overall - far exceeding the government's own budget forecast of 79% and expected to rise significantly further in 2013. The last time levels of debt were this high relative to GDP Spain was recovering from war and the loss of its colonies.
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At EUR 38.7 billion, Spain has never spent so much money to pay only the interest on its debt, 33% more than budgeted for last year. Despite the apparent Draghi-inspired truce that investors appear to have agreed with Spain's bond markets, the average interest expense remains 4.1% and as one economist put it, Spain fails in all the variables that serve to stabilize the debt: its economy does not grow, its pays a relatively high interest rate, and has a primary deficit (prior to payment of interest on the debt); unless this situation is corrected, this "is a dynamic that eventually leads to non-payment," especially as the nation's unemployment surges and GDP shifts from recessionary to depressionary.
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