Spanish public debt hits new record

Spain's public debt reached a record high at the end of the first half of 2012, official data showed Friday, fuelling concerns that the country will need a full-blown financial bailout. The debt stood at 75.9 percent of output at the end of June, according to the Bank of Spain, up from 66.7 percent during the same time last year and close to the government's target for the end of the year of 79.8 percent. While Spain's public debt is below the eurozone average of 88.2 percent, it has risen sharply following the collapse of a property bubble which caused tax revenues to plunge and social spending on items like jobless benefits to soar. The struggling country's public debt has ballooned from a pre-economic crisis low of 36.3 percent of gross domestic product in 2007 to 69.2 percent at the end of last year. Prime Minister Mariano Rajoy's right-leaning government, in office since December, has raised taxes and made steep spending cuts to put its finances in order, sparking widespread street protests. But with Spain facing a worsening recession, high borrowing costs and looming debt repayments including about 30 billion euros ($38 billion) in October, investors believe the country will soon seek a full-blown bailout. Madrid has already accepted a eurozone rescue loan of up to 100 billion euros to save banks still reeling from a 2008 property market crash. The government predicts the public debt will continue to rise and will reach 82.3 percent in 2013 before easing slighly to 81.5 percent the following year. Spain's 17 powerful regions, which account for half of all government spending, had a debt burden equal to 14.2 percent of output at the end of June, up from 12.8 percent from the same time last year, the central bank said. Catalonia is the country's most indebted region, with debt at 22 percent of its regional output, followed by Valencia with a debt 20.8 percent. The two regions have requested financial aid from an 18-billion-euro liquidity fund set up by the central government to help struggling regions service their debts. The northeastern Catalonia region, whose capital is Barcelona, is seeking 5.0 billion euros, the eastern region of Valencia up to 4.5 billion euros. Spain's municipalities had a public debt of 3.4 percent of output at the end of June, down slightly from 3.5 percent the previous year. Madrid is committed to lowering Spain's deficit to 6.3 percent of output this year from 8.9 percent in 2011, the third-largest in the eurozone. It then wants to lower the deficit to 4.5 percent in 2013 and 2.8 percent in 2014. But with the International Montetary Fund predicting the Spanish economy will shrink by 1.7 percent this year and by 1.2 percent in 2013, many economists believe it will be very difficult to meet these targets.