Spain moves to stem bailout fears with privatisations

1st December 2010, Comments 0 comments

Spain, battling to douse market fears of an Irish-style bailout, on Wednesday unveiled plans to raise billions of euros through the partial privatisation of the state lottery company and the sale of a bigger stake in its airport operator.

Prime Minister Jose Luis Rodriguez Zapatero also announced his Socialist government would scrap a monthly subsidy to unemployed workers and would cut taxes for 40,000 small and medium sized firms to help spur growth.

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

Zapatero will skip the December 3-4 Ibero-American summit in Argentina and an official visit to Bolivia scheduled for December 2 to attend a cabinet meeting on Friday where the new measures will be approved, a government official said.

The privatisations of airport management company AENA and of state-run Loterias y Apuestas del Estado could net the government around 14 billion euros (18 billion dollars), the online edition of business daily Cinco Dias reported citing unnamed government sources.

Deputy Prime Minister Alfredo Perez Rubalcaba said they would help to "reduce debt and provide more room for manoeuvre in the budget."

The Spanish 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 and Greece could be Portugal and then the far bigger economy of Spain.

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.

Markets and the European Union cheered the measures.

Spain's main stock market index closed up 4.44 percent, its second highest one-day rise this year, while the return for investing in Spanish government 10-year bonds declined to 5.23 percent from 5.50 percent a day earlier.

European Commission spokesman Amadeu Altafaj said the measures "confirm the government's determination to continue with its reform agenda."

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

AENA manages 47 airports, including the main gateways to Madrid and Barcelona which will now be allowed to run by private concessions, and two heliports in Spain.

It has partnership holdings in 16 Latin American airports as well as in London's Luton airport.

The government had said as recently as January that it had no plans to privatise the state-run lottery firm, 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 420-euro monthly subsidy to unemployed workers who have lost their rights to benefits was introduced in August 2009 and renewed twice before, but the prime minister said it would be allowed to expire in February.

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.

Spain 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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