The Risk Premium Isn't Driven by the IBEX 35, but by the State

Closing the deficit by cutting redundancies barely impacts public spending by 3-4%

Every euro in circulation was born from a loan. Banks don't lend what they have; they record an amount that didn't exist before, and that entry only becomes real money when someone repays it with future work. This is the core of any discussion about public debt. It's not a mortgage that's amortized and forgotten; it's a balance that's refinanced every time it matures.

Based on this, a useful exchange of analyses has taken place. Why the structural deficit isn't closing, what truly drives the risk premium, and to what extent large listed companies and their financiers have an interest in keeping the wheel turning.

What is Perpetual Debt and Why No One Repays the Principal

Sovereign debt isn't repaid; it's renewed. When a bond matures, the State issues another and uses the proceeds to pay off the previous one. The principal lives in perpetual rotation. The real hole isn't the accumulated amount but the deficit, the annual stream of red ink that adds to the snowball.

As long as nominal GDP grows faster than the cost of money, the debt-to-GDP ratio dilutes on its own. This mechanism allows us to say simultaneously that debt is at record highs and there's no urgency. Doubting sustainability isn't questioning what is owed, but what will be owed.

There's considerable agreement on this: interest payments, between 40 and 45 billion euros annually according to available calculations, are the fastest-growing expenditure and the one that cannot be cut by decree. They must be paid, or default occurs. And default has a name: bailout, which comes with conditions.

Does the IBEX 35 Decide the Risk Premium?

No. It's important to state this clearly, as it's the most widespread confusion. The risk premium is the difference between the ten-year Spanish bond and the German bond. What drives it is the perception of the State's solvency, not whether a telecom company had a good quarter.

If the IBEX performs exceptionally well, it helps GDP and, therefore, the debt-to-GDP ratio, but this is an indirect effect. The index is an indicator, not an engine: it has little weight in an economy where most companies are not listed. It serves as a thermometer for savings and a guarantee for corporate tax collection. Nothing more.

There's a nuance that is often overlooked and does matter: if a large company gets fed up with Spanish taxation, it moves its headquarters. This peine with Ferrovial, which relocated its registered office to Belgium and now pays taxes in Spain on what it produces here, not on the group's consolidated profits. Tax pressure on large companies is not a free lever. This is also true in the Basque Country, where companies without their own industry maintain headquarters due to the regional tax regime.

Can the Deficit Be Zeroed by Cutting Redundancies?

This is the most repeated fantasy. Summing up the Senate, autonomous communities, embassies, redundancies, the monarchy, religious contributions, and party subsidies, the total savings amount to a mere 3-4% of public spending. Chatter noise. Real spending lies elsewhere:

• Pensions: ~150 billion
• Healthcare: ~90 billion
• Education: ~60 billion
• Debt interest: ~40-45 billion

No government survives touching these. And there's a second, more subtle problem: cutting spending reduces revenue. If civil servants are laid off, consumption decreases, business profits fall, and VAT and corporate tax collection drops. The scissors cut on both sides of the sheet.

Furthermore, the temptation persists to expel those deemed expendable in accounting, as if the adjustment were free. It is not.

Money is Born as Debt: Why the System Needs to Grow

Every euro in an account was born from a loan. The bank doesn't lend existing deposits; it creates an accounting entry and offsets it with the debtor's promise. When someone signs a 300,000 euro mortgage, 300,000 euros that didn't exist before appear instantly and must be made real through years of work or assets.

This mechanism leads to an uncomfortable conclusion: a system like this needs debt to grow or it gets stuck. A zero deficit within the euro, under these rules, is a chimera. Someone summarizes it brutally: if you repay the principal, the money disappears. It's enough never to repay it and refinance it eternally for the racket to function.

Housing, Funds, and Customers Who Can't Leave

Large companies' interest in a growing population is partly arithmetic. A bank or an electricity company doesn't profit by conquering markets; they profit by adding captive customers: electricity is contracted where one lives, and salaries are domiciled where the mortgage is. The larger the pen, the more recurring income.

From there, it's easy to suspect deliberate design, with investment funds buying housing to drive up rents and alleged political engineering behind it. It's important to separate things: funds respond to incentives—scarce supply, rigid demand, profitability—and a secret plan isn't needed to reach the same outcome.

Another part of the argument links population growth with the expansion of this customer base. This link is a hypothesis that mixes different phenomena and is not supported by available data.

Where the analysis truly gets stuck is here. The State needs companies to do well so they buy its cheap debt, and companies need the State not to drown them, but also not to collapse. It's a mutual dependence without an arbitrator. And no one has resolved what happens when the only available solution, growth, stops working with an aging population.