Spain public debt rises to 14-year high

Spain's public debt surged in the second quarter of 2011 to a 14-year high, the Bank of Spain said on Friday, even as the government battled to mop up red ink in its annual budgets. Big shortfalls on the government's books are pushing up the overall debt each year. By the second quarter of 2011, the public debt had climbed to the equivalent of 65.2 percent of gross domestic product from 57.2 percent of GDP a year earlier, the central bank said. Spain's public debt -- a major source of concern for financial markets fretting over the sustainability of eurozone sovereign debts -- is now at the highest level since 1997. Debts piling up Spain's 17 semi-autonomous regions are a major worry for the central government and for investors who fear they could prevent the government meeting its deficit-cutting targets. In the second quarter, the regions' total accumulated debts amounted to 12.4 percent of the country's GDP - a record high. The country's overall debt now lies above the European Union-agreed ceiling of 60 percent of GDP. But it is still well below the European Union average debt of 85.1 percent of GDP in 2010. Spain has scrambled to stay ahead of the markets by taking sweeping measures to ensure it can keep its promises to lower annual deficits and avoid the fates of Greece, Ireland and Portugal. Earlier this month, senators gave final approval to reform the Spanish constitution and impose a rule banning big budget deficits except during major crises. The constitutional reform will be accompanied by a law restricting annual deficits to 0.4 percent of GDP and curbing the accumulated debt to the EU limit of 60 percent of GDP by 2020. Spain has promised to reduce its annual public deficit from the equivalent of 9.2 percent of gross domestic product last year to 6.0 percent of GDP this year, 4.0 percent in 2012 and 3.0 percent in 2013. In August, the government took steps to raise 4.9 billion euros by forcing big companies to pay some tax installments earlier and by obliging health authorities to buy cheaper generic medicines instead of brand names. It also halved value added tax on purchases of new homes until the end of 2011 so as to inject life into a sector flailing since the 2008 property bubble collapse. Last year, the government raised sales taxes, froze old age pensions, cut public workers' wages by five percent, forced banks to strengthen their balance sheets, raised the retirement age and made it easier for firms to hire and fire.