When contemplating which nation will be the next to suffer a fiscal crisis, Italy has traditionally been on everyone’s watch list. Including mine.

But now there’s a lot of attention on France, and with good reason.

And I think many people don’t appreciate the United Kingdom’s fiscal challenges.

Today, though, let’s focus on Spain.

I’m currently in Valencia, where I will be speaking on Thursday to the Tholos Foundation. So this is a good excuse to assess Spain’s fiscal position.

The good news is that Spain’s economy is doing reasonably well, at least by European standards (though still plagued by high unemployment).

The bad news is that the government is not using this as an opportunity to reduce the nation’s fiscal burden.

Indeed, according to IMF data, Spain is drifting in the wrong direction. Here’s a chart showing the country’s spending and debt burdens in 2007 (before the global financial crisis and before the European fiscal crisis), in 2019 (before the pandemic), and 2025.

As you can see, the spending burden has been steadily creeping upward. The debt burden, meanwhile, grew enormously between 2007 and 2013 and has remained stubbornly high since then.

The leftist government of Spain is not terrible (modest deficits and annual spending growing about 5.3 percent since the pandemic, only a bit above the average inflation rate of 4 percent).

But the challenge for Spain (and other nations) is when there is another economic downturn. Revenues will fall and there will be more spending pressures.

In that environment, investors may suddenly decide they can no longer trust the Spanish government. Similar to what happened about 15 years ago – mostly to Greece but Spain also had problems.

In other words, a fiscal crisis, leading to bailouts/defaults/haircuts and other bad outcomes.

To make matters worse, Spain has terrible demographics. Here are some excerpts from a report last year in the Washington Post by Lee Hockstader.

Spain’s baby bust began more than 30 years ago and has lately accelerated, prompting a question that confronts most rich countries and nearly all in Europe: How does society cope, let alone maintain its dynamism, with free-falling fertility driven by a soaring share of women who have no children at all? …A plummeting birthrate leaves countries with unpalatable alternatives to sustain economic growth and public finances: more immigration, higher taxes, pared-down public services and pensions, delayed retirement. Or all of the above. …In Spain, younger workers earn modest salaries — ordinarily around $20,000 a year… That isn’t enough to pay rent driven higher by gentrification, inflation and Airbnb, so college graduates typically live with their parents, sometimes for years, while embarking on careers. That can postpone many things, including couple formation and babies.

Let’s wrap up with three astounding charts that capture Spain’s demographic decline.

The nation has a population pyramid in 1950. Now the pyramid is basically upside down. And the country will be disappearing by 2100 (15 million fewer people than today).

A modest-sized welfare state is mathematically feasible with a population pyramid. That’s no longer the case in Spain.

One solution to this mess is personal retirement accounts, but Spain is lagging behind many other European nations.

And Spain obviously needs spending restraint, in which case it could learn from Greece.

P.S. One good thing about Spain is that greedy politicians inadvertently have given us more evidence for the Laffer Curve. Though that isn’t stopping them from having bad policy. Or from making it worse over time.

P.P.S. Spain also has given the world a member of the Bureaucrat Hall of Fame as well as one of my sarcastic “Great Moments in Human Rights.” And it recently had two entries in my equally sarcastic “Great Moments in Foreign Government.”

P.P.P.S. Spain does have federalism, though not nearly as good as the Swiss system.

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Image credit: Pedro Ribeiro Simões | CC BY 2.0.