Spain Gets First Proper Budget in Years in Boost for Sanchez

(Bloomberg) -- Spanish lawmakers approved Prime Minister Pedro Sanchez’s budget, the first full-year fiscal program since 2016, giving a boost to his Socialist-led government.

The move is a signal of greater political stability after years of division best illustrated by the budget gridlock. It meant existing budgets were rolled over or, in the case of 2018, only approved for part of the year.

Parliament voted 188-154 in favor of a 2021 spending plan that channels tens of billions of euros in European Union recovery funds into the economy. Lawmakers had signaled their support in recent weeks.

Spain’s need for a new fiscal program was particularly pressing given the damage from the coronavirus pandemic. The economy is forecast to shrink almost 12% this year, more than any other euro-area country, while the budget gap will also hit double digits.

Despite the crisis, Spanish borrowing costs have been kept in check by the European Central Bank’s emergency bond-buying program. The country’s 10-year bond yield was at just 0.08% on Thursday.

The budget approval is a political victory for Sanchez, increasing his chances of holding on to power through the next election set for 2023. The emergence of new political parties in the aftermath of the 2008 financial crisis, including far-left Podemos and business-friendly Ciudadanos, fractured Spain’s parliament, making it difficult for governments to reach accords even on basic legislation.

Sanchez’s plan to help the economy recover from the 2020 recession includes investment in digital technologies and climate-friendly projects. To help fund that, the country will be one of the biggest recipients from the EU emergency virus package. It’s set to have access to 140 billion euros in cheap loans and grants.

Such support will be needed as Spain prepares to enter 2021 with a debt-to-GDP ratio of about 120% of GDP. Central bank Governor Pablo Hernandez de Cos has urged the government to lay out a medium-term plan to trim those debt levels to ease potential concerns among investors and citizens.

©2020 Bloomberg L.P.