Spain to Allocate as Much as $219 Billion in Virus Aid
Spain to Allocate as Much as $219 Billion in Virus Aid
(Bloomberg) --
Spain announced an economic stimulus package worth as much as 20% of its GDP as European governments unleashed their budget firepower in an effort to contain the economic impact of the coronavirus.
The Spanish government will provide 100 billion euros ($110 billion) of guarantees for company loans and another 17 billion euros of direct aid to keep firms afloat during the lockdown, Prime Minister Pedro Sanchez said at a news conference Tuesday. He said private investment will add another 83 billion euros, without explaining where that will come from.
“These are exceptional circumstances that require exceptional measures,” Sanchez said. The government will also ensure the functioning of utilities and telecommunications services, among other policies.
Spanish stocks jumped, with the Ibex-35 gaining 5.3%. Telefonica SA surged 14%, Iberdrola SA 11% and Banco Santander SA 4.5%.
After the European Commission effectively suspended restrictions on public spending across the euro area last week, governments are moving to cushion the impact of the pandemic. As the continent heads for a savage recession, the measures are designed to backstop the economy, preserve jobs and reassure investors as the leaders ask their citizens to accept unprecedented curbs on daily life in order to control the spread of the deadly virus.
Germany last week earmarked as much as 550 billion euros of state lending to support companies and France on Monday announced 300 billion euros of guarantees for loans to companies and a 45 billion-euro aid program. Finance Minister Bruno Le Maire said Tuesday that officials in Paris are prepared to consider nationalizing large companies if necessary.
The EU also plans to clear the way for national efforts. A draft proposal, circulated by Brussels, says curbs on state handouts should be loosened to aid virus-stricken industries.
European markets have been in turmoil as investors try to gauge the impact of the outbreak -- and they weren’t helped by European Central Bank President Christine Lagarde’s botched intervention on Thursday.
While Italian yields have surged this month, with 10-year rates more than doubling to around 2.4%, they remain well short of the almost 7.5% euro-era record seen during the debt crisis. German yields have also rebounded from record-lows as investors ready for more spending, but 10-year rates are still negative. Spain’s 10-year yields have increased by 77 basis points this month to 1.05%, the highest in almost a year.
EU leaders will hold another emergency telephone call later on Tuesday to discuss closing borders and other efforts.
Italy, the worst-hit country in Europe, approved a 25 billion-euro package to support its strained health system while helping businesses and families with delayed tax payments and mortgage relief. Sweden’s central bank added $30 billion to its bond-buying program late Monday, bringing its total package including bank funding and state aid to as much as $200 billion.
Spain, confronting one of the world’s fastest spreading outbreaks, has over the past week enacted a series of measures, ranging from a 400 million-euro aid package for the tourism and transport industries to declaring a state of emergency.
Spain’s guarantee program will ensure that the economy can bounce back when the number of new cases of the virus begins to fall, Sanchez said.
“It’s an impressive figure, and it’s promising”, said Angel Talavera, head Europe economist at Oxford Economics. “But if the resources are mostly going to be allocated to guarantee credit rather than actually guaranteeing income it may not be enough if the crisis extends over a long period of time.”
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