For all complaints about painful, unprecedented (f)austerity, the PIIGS (even those with restructured debt such as Greece) sure have no problems raking up debt at a record pace. Over the weekend, Spanish Expansion reported that Spanish official debt (ignoring the contingent liabilities) just hit a new record. “The debt of the whole general government reached 942.8 billion euros in the second quarter, representing an increase of 17.1% compared to the same period last year. Debt to GDP of 92.2% exceeds the limit set by the government for 2013…” Moments ago, it was Italy’s turn to show that with employment still plunging, the only thing rising in Europe is total debt. From Reuters, which cites a draft Treasury document it just obtained: “Italy’s public debt will rise next year to a new record of 132.2 percent of output, up from a previous forecast of 129.0 percent.”
The Treasury is due to officially update its economic and public finance forecasts on Friday.
The debt-to-GDP ratio came in at a record 127.0 percent last year and is forecast at 130.4 percent for 2013. The document did not contain any new forecast for this year.
The document said Italy “cannot afford” to allow its budget deficit to exceed 3 percent of output this year, which would risk a return to the European Union’s blacklist of countries with excessive deficits.
Which, incidentally is driven by the same factors as those faced by the US where total commercial loans and leases are now roughly where they were at the time Lehman filed.
And while in the US the slack is taken up by the Fed which pumps reserves into the economy and monetizes Treasurys to stimulate credit creation, in Europe in lieu of direct monetization, it is the Sovereign-Bank complex which is the sole source of debt issuance (banks buy sovereign debt, and pledge it back to the ECB as collateral) in Europe at a time when, when supposedly well into the “recovery”, loan issuance to private businesses has never declined at a faster pace. Expect many more such budgets to be breached in the near and not so near future as the credit-driven recovery funded by sovereigns fails to translate into private sector credit creation.