The global economy is undergoing an unprecedented crisis in modern history. The crisis began in mid 2007, triggered by a dramatic rise in subprime mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. The crisis worsened dramatically and quickly in September 2008, and joint action became necessary in the leading developed countries to avoid the collapse of the global financial system. The resulting lack of financial stability is having a deep negative impact on the real economy, restricting access to credit to both companies and households so that the usual economic activity can go on.
The Spanish economy has been particularly vulnerable to the unfavourable international context. It is the second most open economy in Europe, just behind Germany, and the intense investment efforts have resulted in a high external deficit. Thus, the need to get external financing arose. The situation is aggravated by the harsh restructuring in the property industry.
Heavily depending on the global economy, the Spanish economy –and its labour market– suffered badly in 2008. Unemployment affects 17% of the economically active population, with almost 1M unemployed workers. Lowering the unemployment rate is thus our main goal for 2009. By “us” we mean the Government of Spain and the Spanish society as a whole.
Plan E
Right from the start, the Government of Spain has taken on responsibility for the response to the deteriorating economy, being one of the most active players to face the abrupt cycle change. While taking the first package of measures, the Government sought for joint international action, as we were aware that the global crisis required a global response.
The economic policies passed in the previous session of Congress have placed the Government in a better situation to face the crisis. After three years of budget surplus, we can now have deficit without hindering the credibility of public finance, while the enforcement of new welfare policies (such as birth subsidies) and tax reliefs (both for income and corporate taxes) improve families’ income and companies’ competitiveness.
Moreover, a series of about 80 measures were taken throughout 2008 that make up the Spanish Plan to Boost the Economy and Employment –Plan E–, the most powerful boost given to economy activity in the past decades.
Plan E includes four courses of action: supporting families and companies; raising employment rates; financial and budget measures; and economic modernisation.
The Government intends to implement and follow up all the measures in Plan E over the next few months, with the help of the leading social actors and other political groups. We strongly believe that carrying out these measures we will be fighting the crisis while leaning on our economy’s strengths and overcoming its weaknesses. This is our way of protecting those who have to put up with the consequences of the crisis, reactivating growth in employment, and modernising the Spanish economy.
Supporting Families
Plan E contains a series of tax measures that are expected to be a direct support to families, increasing their income so that they are readier to face the dire economic situation. On the whole, this course of action is expected to bring a fiscal boost of €14,000M in 2008-2009. To this we should add budget action to increase social welfare in 2009, and a permission for families whose breadwinners are unemployed to put off their mortgage payment for two years.
Supporting Companies
Plan E involves an unprecedented effort to support companies, especially SMEs. The first kind of measures to be taken have to do with taxes, and they are expected to result in €17,000M. Secondly, financial instruments will be made available to facilitate access to company credit for €29,000M. For the first time in history, ICO credit lines will be used to finance companies’ working capital.
Raising Employment Rates
Given the restructuring of the residential construction industry, the crisis is having particularly bad effects in terms of job destruction. Plan E introduces direct job creation measures, among which we can mention the Fund for Local Entities and the Special Fund for Employment and Economic Reactivation, budgeted at €11,000M, which are expected to result in the creation of 300,000 new jobs across Spain.
The support to public work that these two funds mean and the allocation in the State Budgets will lead to an investment above €33,000M in 2009.
This course of action will incorporate all the developments toward job creation and job stability in the context of social dialogue.
Financial and Budget Measures
Plan E also includes all the coordinated actions by EU countries to inject liquidity into the financial system against the current background of unusual instability.
The measures in this course of action have been designed so as not to add burdens to taxpayers. Their ultimate goal is the reopening of credit channels for families and companies. In addition, the deposit guarantee fund has been raised to €100,000 per client and per bank to regain trust in the financial system.
Cutting back on public expenditure as contained in the State Budgets will be another side to the Government’s support to companies and families.
Economic Modernisation
Last but not least, Plan E contains an ambitious economic reform and transformation agenda. Specific measures have been added to enhance productivity in basic industries such as transportation, energy, telecommunications, services, and civil service. Boosting productivity is the best way of attaining long-lasting growth. The measures in this section are complementary to those in the National Reform Programme, which is the Spanish counterpart of EU’s Lisbon Strategy for Growth and Jobs.
The Government of Spain will try to reach consensus with other political groups to carry out the reforms in this section of Plan E.
