Stitching together a refinancing plan.                                            Photographer: Simon Dawson/Bloomberg
Stitching together a refinancing plan.                                            Photographer: Simon Dawson/Bloomberg

One of the consequences of the European debt crisis is that some of the region's biggest borrowers will face big debt repayments sooner than they might have otherwise. In simple terms, Spain and Italy found it easier and cheaper to take out short-term loans, rather than longer-term funding. The result, though, is a repayment hump in 2015 that will need to be financed with fresh debt sales.

Here's a chart of the how the average length of time until Italy's debts come due has changed year by year:

In the first quarter of 2011, Italy had an average of 7.25 years to repay its debts. As it sold more debt with shorter maturities, that average has dropped to 6.27 years.

Here's the same chart for Spain:

In the first quarter of 2010, Spain had an average of 6.51 years to repay its debts. That figure is down to 5.76 years. Here's Spain's current repayment profile, showing how much it owes in principal and interest in the coming years:

Note how there's a bulge of almost 130 billion euros ($178 billion) of principal and more than 30 billion euros of interest payments next year. Here's the same chart for Italy:

Italy's 2015 funding needs spike at more than 248 billion euros of principal and almost 56 billion euros of interest payments. Contrast those profiles with the U.K., which has a shallower slope to its schedule:

The challenge, then, is for Spain and Italy to undergo what the bond market calls "terming out" their debt, selling longer-dated bonds to replace maturing shorter-maturity securities. While that won't ease next year's payment humps, it would help improve the debt profile and smoothe the path for refinancing in the years ahead. Of course, the optimal solution would be less debt; something Europe's governments seem incapable of achieving.

To contact the author of this article: Mark Gilbert at magilbert@bloomberg.net.

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net