The economic performance always reserves some surprises, and this year is no exception, since we could be witnessing a disruptive change in the ability of States to act. Faced with the chain of wars, geopolitical threats and calamities generated by climate change (fires and drought in central Europe being the most recent vicissitudes), governments have been able to act as a counterweight and undertake investments without having to tighten their belts or raise taxes. This has also been possible in our country, even with extended budgets.
Two factors, however, are now combining to narrow—if not annul, as in France—the room for maneuver. One, the greater demand of the markets in relation to the financing of public deficits, which translates into an abrupt rise in financial costs for States: the yield on the Spanish ten-year bond has climbed to 3.8%, half a percentage point more than at the beginning of the summer, following the same upward slope as in all reference countries.
Secondly, huge amounts of debt issued during the era of cheap money are coming to maturity, which now have to be refinanced under much more onerous conditions. As a consequence of both effects, the debt is beginning to weigh heavily on public accounts: the interest bill has gone from 2.1% of Spanish GDP five years ago to 2.5% estimated for 2026. And, in the absence of changes in the fiscal trajectory, the interest burden would rise by half a point more between now and the end of the decade. In the case of Germany and, above all, France, the trend is even more pronounced, due to the pace of accumulation of liabilities and because these countries had benefited from almost zero interest rates, even occasionally negative, during the time of monetary bonanza.
The rise in debt is due in part to the new outbreak of inflation that is spreading across the planet as a consequence of the ups and downs of the conflict in the Middle East and its reverberations on energy prices. In reaction to the rise in inflation, the ECB is expected to raise interest rates again at its next meeting, and the rise in the Euribor foreshadows further adjustment later.
It is true that a hypothetical unblocking of the Strait of Hormuz—at the moment quite improbable—would relax the pressure on inflation and central banks. However, the tensions in the debt markets also reflect the anticipation of a strong increase in the financing needs of States in the coming years due to the multiplication of rearmament and investment plans, without revealing how these expenses will be financed. Everything indicates that governments, little inclined to raise tax pressure, will increase their appeals to savers to cover the deviations and to do so they will have to offer them more attractive conditions. The task will be arduous, as they will have to compete with the private sector's debt frenzy to finance the artificial intelligence investment bubble.
The bottom line is that we need to prepare for a much more demanding budget environment than the one that has prevailed in recent years. To achieve this, Spain has a great advantage compared to its European partners: the strength of its economic growth. But this is not enough: in the absence of new Budgets that allow priorities to be adapted to the great challenges, the increase in financial burdens will inexorably swallow up the extra resources provided by the expansionary cycle. It is, therefore, about taking advantage of the moment to generate macroeconomic management capacity, and that it is not the markets - and ultimately the circumstances - that end up imposing their conditions.
CPI
The CPI increased seven tenths of a percentage point in August, up to 4.3%, due to the rise in energy prices. The harmonized rate was 4.5%, exceeding the eurozone average by 1.3 points. The worsening of tensions in the Strait of Hormuz has boosted inflation in the EU as a whole, but the impact has been greater in Spain, although this has been influenced by the partial reversal of tax relief on hydrocarbons. The underlying rate is also increasing, with a divergent trajectory: increasing in Spain and decreasing in the eurozone.
