Spain acts to boost coffers, stimulate housing

Spain's Minister of Economy and Finance Elena Salgado gives a press conference on Friday in Madrid to announce the adoption of measures to inject life into the battered property sector and to boost state coffers. Photo: AFP

Spain's government agreed Friday steps to boost state coffers by 4.9 billion euros ($7.0 billion) and aid the property sector in 2011, aiming to calm fears of a sovereign debt crisis.
A cabinet meeting called by Prime Minister Jose Luis Rodriguez Zapatero agreed three key measures:
-- Big companies will have to pay some tax installments earlier, bringing in an extra 2.5 billion euros for the state this year.
-- Health authorities will be obliged to buy generic drugs instead of more expensive branded treatments, saving another 2.4 billion euros this year.
-- Finally, the value added tax on purchases of new homes will be slashed from 8.0 percent to 4.0 percent until the end of 2011 so as to inject life into a sector flailing since the 2008 property bubble collapse.
Finance Minister Elena Salgado said the measures would take effect immediately by decree although they must still be ratified by lawmakers in parliament.
The government has asked parliament to convene an extraordinary session next week to formally ratify the decree, government spokesman Jose Blanco told a news conference.
A second cabinet meeting on August 26 will take aim at boosting employment in a country suffering an overall jobless rate of 20.89 percent and more than 45 percent for the under-25s, she said.
"We are going to carry on taking measures to stimulate and favour growth, which will strengthen those we already have in place, in the labour market," the minister added.
The Spanish economy slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of a property bubble. It stabilised in 2010.
Spain first announced it would take extra fiscal steps this month when the cost of government borrowing on the markets hit euro-era highs, sparking concern about Madrid's ability to pay its debts.
The European Central Bank halted the rout when it intervened in the market, buying hard-hit Spanish and Italian government bonds after the two countries promised extra belt-tightening measures.
But fears of a spreading eurozone debt crisis continue to haunt the financial markets.
France's Nicolas Sarkozy and Germany's Angela Merkel vowed in a summit earlier this week to give the eurozone bloc a "true economic government" but provided no specifics and failed to halt the slide on the markets.
The Spanish government's battle against the crisis has two sides, domestic and foreign, said Blanco.
"Externally, the path is more Europe, not less. Better coordination and better economic governance. And internally, the government re-affirms the reforms in the measures approved by the government today."
Spain's public deficit last year amounted to the equivalent of 9.2 percent of its gross domestic product, or total economic output, far above a eurozone-agreed limit of 3.0 percent.
The government has vowed to cut the deficit progressively to 6.0 percent of GDP this year, 4.0 percent in 2012 and 3.0 percent in 2013.