Spain unveils $14.3 billion recovery package to fight economic meltdown

The Spanish government on Thursday announced an €11-billion stimulus package aimed at creating 300,000 jobs and cushioning the Spanish economy from the global crisis. The legislation is expected to be approved by the Spanish Parliament today.

Prime Minister José Luis Rodríguez Zapatero told the parliament that the package, which will cost the equivalent of about 1 per cent of gross domestic product and be equivalent to $14.3 billion, would include about €8 billion for public works and an additional €800 million to help the country's ailing auto industry.

The package would be paid for as part of the 2008 budget, Zapatero said. It forms part of a €200 billion European Union (EU) stimulus package outlined Wednesday and devised to ease the impact of the financial crisis. (See: EU planning €200 billion stimulus)

The Spanish economy contracted by 0.2 per cent in the third quarter for the first time in 15 years after the property bubble that fueled a decade-long boom deflated and Spain felt the ripples of the global financial crisis. The unemployment rate has risen to 11.3 per cent, the highest in Europe. Some economists believe it will reach 15 per cent next year.

"The public investment measures I have just announced are meant to protect and create jobs," Zapatero told lawmakers. "Particularly due to the big contraction taking place in our property sector, Spain is especially sensitive to the poor international environment."

The government has already announced a series of measures intended to promote economic activity, which will cost around €40 billion and include mortgage relief, tax cuts and credit lines for businesses. It has also created a €50 billion fund to buy assets from banks that need liquidity and said it will underwrite up to €100 billion in new bank debt.

The Spanish government said it would invest €800 million in the ailing car industry, which has been through a severe downturn and seen sales plummet 54.6 per cent since the beginning of the year. The construction industry has also been severely hit by the financial crisis, with property prices falling and companies slashing thousands of jobs.

The European Commission has demanded that each EU member must spend about 1.2 per cent of GDP to fight the economic slowdown. Germany launched a similar €50 billion euro package, while next week France is expected to unveil economic measures worth €20 billion.