Spanish government recession spending

Spain spending more on fighting the recession than any other EU country

According to a report on public finance published this week by the European Commission the Spanish government will use 2.3% of its GDP between 2009 and 2010 on measures to combat the current economic crisis. This is more than double the amount that other EU states are spending which is estimated to be 1.1% of their GDP. It is also estimated that spending on helping financial institutions overcome the crisis has risen to an average of 16.5% of GDP throughout the EU equivalent to 1.8 billion euros.

Although it is forecast that the recession will begin to improve from 2010 onwards in its report the European Commission warns that the ‘success of current measures adopted depend on credible strategies for beating the crisis’. In reality this means that when economic growth occurs governments will have to start to reduce their public deficit which has shot up due to less revenue from taxes and higher social spending.

On Tuesday the Commissioner for Economic Affairs, Joaquín Almunia, said that the ‘efficiency of policies to stimulate budgets depended a great deal on the commitment to put an end these measures when the economy begins to recover’.

In addition to plans for stimulating economic growth ‘if automatic stabilizing factors such as more social spending are taken into account it is estimated that EU states will have spent around 5% of their GDP on their economies between 2009 and 2010 which is equivalent to 600 million euros’.

As well as Spain, Austria, Finland, the United Kingdom, Sweden and Germany have also introduced significant measures to stimulate their economies. The EU report demonstrates its concern for countries where credit and property prices have increased disproportionately. It goes on to say that ‘in a certain number of cases where significant macroeconomic imbalances have occurred the margin for possible manoeuvres to impose anticyclic policies without increasing risk factors have gone down since the beginning of the crisis’.

The report analyzes the four packages of economic stimulation which were introduced in Spain in April, August and November 2008 and during the first few months of 2009. According to Brussels not all the measures have been equally effective and well directed.

It found that the most effective plan was applied in November 2008 with the investment of 8,000 million euros in small scale projects and the 3,000 million euros for technological development in the car industry. In total this plan represents 1.5% of Spanish GDP and according to the report ‘the composition of this stimulus and its concentration in investment by local government has been very effective for national production as a whole and for employment’.

The report also said that other measures such as those adopted in April and August 2008 which include the 400 euros tax rebate for 2008 will probably have a more limited impact. The authors of the report also showed their concern for the deficit in the Spanish economy and expressed their worry that instead of extra resources going towards consumption in the economy they will instead be destined for savings.