Friday, December 19, 2008

Spain's economy needs support

Spain's government has countered earlier claims of inaction with a flurry of initiatives, but recession in 2009 is unavoidable

Government policy has undergone a marked shift in focus over the past two months, in response to the escalating global credit crisis and increasing evidence that the Spanish economy is plunging into a deep recession. This shift coincides with the decision of the prime minister, Jose Luis Rodriguez Zapatero, to assume more direct control of economic policy and to abandon the characteristically cautious approach of the finance minister, Pedro Solbes. The government has announced a flurry of new initiatives aimed at reviving credit flows to the economy and boosting demand via increased public-sector spending. Even so, the severe economic downturn is expected to last at least until the end of 2009, with economic policy remaining in crisis management mode for the foreseeable future.

Following the creation of a bank stabilisation programme in October—at a potential cost of €150bn (15% of GDP)—the Spanish Socialist Workers' Party (PSOE) government has announced three separate emergency economic packages over the past month. These have included measures aimed at easing the economic impact of the plunging housing market and rising unemployment, with a two-year moratorium on 50% of mortgage payments for those made unemployed and an extended tax exemption period for reinvested capital gains on house sales. ...



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[Source: The Economist: News analysis

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