Spain moves to curb bailout fears with new measures

1st December 2010, Comments 0 comments

Spain announced new measures to cut costs and revive the troubled economy on Wednesday, including the end of a jobless subsidy, as it battled to ease market fears of an Irish-style bailout.

Prime Minister Jose Luis Rodriguez Zaptero's Socialist government has slashed spending to rein in a public deficit that hit 11.1 percent of GDP last year, the third highest in the eurozone after Greece and Ireland.

Financial markets have nevertheless pushed up its debt risk premium, fearing that the next dominoes to fall after Ireland could be Portugal and then the far bigger economy of Spain.

Zapatero announced Wednesday that the government would sell 30 percent of the state lottery and offload a bigger stake in the main airport operator in addition to scrapping a 420-euro (548-dollar) monthly subsidy to unemployed workers who have lost their rights to benefits.

To spur economic growth, Zapatero also announced Wednesday that taxes would be cut for 40,000 small and medium sized businesses.

"There will be other measures to encourage economic activity," he said.

The Spanish government had planned to sell a smaller stake of 30 percent in the AENA airport authority, which bills itself as the world's largest -- handling 187 million passengers last year -- but will now sell 49 percent, he said.

AENA manages 47 airports including the main gateways to Madrid and Barcelona and two heliports in Spain. It has partnership holdings in 16 Latin American airports as well as in London's Luton airport.

Zapatero said Spain's two busiest airports, Madrid's Barajas and Barcelona's El Prat, will be run by private operators under a concession system.

As recently as January the government had said it had no plans to privatise Spain's state-run Loterias y Apuestas del Estado, which posted a net profit of 2.99 billion euros in 2009, a 3.5 percent increase over the previous year despite an economic crisis.

The jobless subsidy was introduced in August 2009 and has been renewed twice before, but the prime minister said it would now be allowed to expire in February.

European Commission spokesman Amadeu Altafaj said Brussels "welcomed the concrete new measures" adopted by Spain.

"They confirm the government's determination to continue with its reform agenda," he added.

The measures announced by Zapatero come a day after the gap between Spanish and benchmark German borrowing rates hit record highs following Ireland's bailout, which has revived investor fears that Spain will also need aid.

While the debt risk premium -- the extra interest paid on Spanish bonds compared to safer German bonds -- was at a punishing 2.60 percentage points on Wednesday, this was down from a record peak of 3.0 percent the day before.

The decline in the debt risk caused Spain's stock market to surge by more than 3.0 percent on Wednesday, led by bank stocks which had led losses in recent session.

Spain's unemployment rate has soared to a European Union high of around 20 percent following the collapse of a labour-intensive construction boom at the end of 2008 that had fueled growth for over a decade.

GDP posted zero growth in the third quarter compared to the previous three months and the government expects it will expand by 1.3 percent next year.

But the European Commission on Monday lowered its growth forecast for the Spanish economy for 2011 to 0.7 percent from 0.8 percent and warned the lower expected momentum means the public deficit would be slightly higher than the 6.0 percent of GDP it has targeted for next year.

The Spanish government aims to slash the public deficit to 6.0 percent of GDP in 2011 and 3.0 percent, the EU limit, in 2013.

© 2010 AFP

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