Spanish Assistance Assured Around April

Spain passed its 2009 budget despite fierce opposition to its growth and deficit forecasts that have become unrealistic as the euro zone's fourth largest economy barrels into recession.

Spain's ruling Socialists allied with small nationalist parties to win an absolute majority of 178 lower house votes needed to overrule a Senate veto.

Economy Minister Pedro Solbes said the budget's forecast for 1 percent economic growth in 2009 was unrealistic, after Spain's housing collapse coincided with market turmoil, but his spending plan remained viable.

"This budget is still valid for 2009 despite changes in the macroeconomic outlook," Solbes told Congress. There were 163 votes against the bill, mostly from the conservative opposition Popular Party (PP), which described the the 2009 budget as a "legal fraud".

"They know these accounts are false," said PP economic spokesman Cristobal Montoro. "This is the unemployment and frustration budget."

Spanish Prime Minister Jose Luis Rodriguez Zapatero won key support for the budget from the Basque Nationalist Party (PNV) and Galician Nationalist Block by promising an extra 210 million euros in infrastructure and research funds for their areas.

Analysts said parties governing Spain's autonomous regions did not want to reject the budget and spark a political crisis. "With the current financial crisis, what you want is action, not a long parliamentary debate," said Carlos Maravall at the AFI consultancy.

The over optimistic budget has helped Zapatero justify an avalanche of stimulus plans to compensate Spain's loss of access to foreign financing that allowed it to grow faster than any large, developed economy in 2007.

The world's eighth largest economy is expected to enter its worst recession in 50 years in 2009, with some analysts forecasting a 3 percent contraction in gross domestic product.

Accompanying the fall in growth is a deep slide into deficit, with 2009 public sector accounts expected to show a shortfall of 1.9 percent of GDP, according to the budget.

Solbes says it will be far worse. He expects the deficit to reach around 3 percent in 2008, then soar higher, after Zapatero kept rolling out stimulus plans long after the economy ministry said the government had exhausted room for discretional spending.

The International Monetary Fund has praised Zapatero for acting decisively but warns Spain could be mired in high unemployment and low growth for years unless he follows up with reforms to raise weak competitiveness.

Unions have threatened a general strike if the government tries to cut wage costs and Zapatero has yet to commit to labour reforms prescribed by the IMF and other multinational agencies.

Even with the package of over 60 billion euros in tax breaks, emergency credit and infrastructure spending, as well as 250 billion euros in bank aid, the IMF expects Spain's economy to contract at least 1 percent in 2009.

With over 40,000 workers signing on the dole each week, and Spain's unemployment rate already the highest in the European Union, Zapatero promised to begin creating new jobs by April with a record 33 billion euros in 2009 infrastructure spending.

"It will be at this moment, in March or April, when we have intense public work activity that without any doubt will generate a very respectable number of jobs," Zapatero told Congress, adding that the government would buy an extra 10 billion euros in bank debt in January to boost financial sector liquidity and lending.

Story from The Guardian

Like this? Then share with your friends and colleagues!