Spain unveils 11bn euro stimulus

Spain adds €11bn to stimulus plan
By Victor Mallet
Financial Times, 28 November 2008

José Luis Rodríguez Zapatero, Spain’s Socialist prime minister, has announced an extra €11bn of urgent government spending on infrastructure, the motor industry and other targets: the latest part of a multifaceted fiscal stimulus plan he called “unprecedented in its magnitude”.

Mr Zapatero’s generosity with state funds underlines the divisions within the European Union over how to handle the recession arising from the global financial crisis. His deliberate use of heavy government spending differs markedly from the more cautious approach of Angela Merkel, the German chancellor.

Speaking in parliament on Thursday, Mr Zapatero boasted that the Spanish state was in a strong position to revive the economy because of its relatively modest debt burden and the fiscal prudence of the Socialist government over the past four years.

He said he had already announced 80 different measures in response to the crisis. The new plans, amounting to 1.1 per cent of gross domestic product, were designed to create 300,000 jobs.

About €8bn ($10.3bn, £6.7bn) is to be allocated to cash-strapped local authorities for the construction, rehabilitation and maintenance of infrastructure and buildings such as schools and sports centres. The remaining €3bn includes €800m for the motor industry, which Mr Zapatero described as a vital export industry, and €600m for the environment.

Confusion surrounds the cost of the various batches of emergency stimulus measures Mr Zapatero has announced. Some independent calculations put their total value at just over €90bn until the end of 2009. By contrast, Germany’s fiscal stimulus is put at €12bn over the same period.

In addition, governments are providing banks with liquidity aid in the form of asset purchases and loan guarantees, reaching up to €250bn in the case of Spain.

Mr Zapatero’s own estimates for Spain’s overall fiscal stimulus are lower than those of his critics, but he has not hesitated to talk of exceeding the EU limit for national budget deficits of 3 per cent of gross domestic product. “Whether it is going to be 3.5 per cent, 4 per cent or 4.2 per cent, we’ll have to see how the economy turns out,” he said last week.

Mr Zapatero is eager to control rising unemployment because he has put jobs at the centre of his policy platform. But the collapse of the housing market has accelerated job losses in construction and pushed the jobless rate to more than 11 per cent of the workforce.

Economists have become more pessimistic on the Spanish economy. BNP Paribas this week predicted that recession would persist for more than a year.

Copyright The Financial Times Limited 2008
Spain launched an €11bn plan aimed at boosting the economy and creating 300,000 jobs on the 27 November 2008.