Spain's Rajoy adds some stimulus to the austerity

 

The Government of Spain is preparing a package of small measures - such as tax breaks for young entrepreneurs - to stimulate the economy even as he vows to stick to budget cuts.

PM Mariano Rajoy, whose popularity has plummeted after a year in the job, will announce the steps on Feb. 20 in his first State of the Union address in an effort win back public trust after severe spending cuts.

He took office promising to reduce Spain's high public deficit and win back investor confidence but the recession has deepened and over26% of the workforce is unemployed.

"It's a plan of micro-policies, focused on concrete sectors," a spokeswoman for Rajoy said.

She declined to provide details or a specific cost to the programme but said: "In no way does it undermine our commitment to reducing the deficit."

The package will include tax incentives for small exporters, developing a commercial paper market for small companies that will give them access to funds, and a new official credit line for businesses, according to media reports.

Labour Minister Fatima Banez also told reporters on Monday that women under 35 and men under the age of 30 who want to start a small business will get a major break on social security tax, paying €50 instead of more than €250 per month.

Last week, during official visits to Peru and Chile, Rajoy said that Spain's massive deficit - expected to stand at some 7% of GDP at the end of 2012 - still blocked the country from investing in the economy.

But in the same trip he announced he would extend a €2,000 per-car rebate programme that would cost €150 million and help stem the fall in automobile sales .

On Monday Spain's Official Credit Institute, or ICO, priced a €1 billion 7-year bond. New low-interest credit lines from the ICO for small businesses are among the measures Rajoy is expected to announce in February, ABC newspaper reported.

PLEAS TO GERMANY

The IMF and leaders from the Americas have criticised the emphasis on austerity in the euro zone debt crisis, saying it has made the recession worse.

In recent weeks Rajoy has called on euro zone creditor countries such as Germany to do more to stimulate growth, a plea that has largely fallen on deaf ears.

He broached the subject in a brief meeting with German Chancellor Angela Merkel in Chile last week and will bring it up again when the 2 leaders meet at a Spain-Germany summit on Feb. 4 in Berlin, the government spokeswoman said.

Last year his government made an estimated €20 billion in budget savings and must make a similar effort this year to stay on track to cut the deficit to an EU-agreed level of under 3% of GDP.

Spain's borrowing costs have come down steeply since last July when the ECB said it would do whatever it took to protect the euro. A €40 billion rescue for Spanish banks also helped confidence and talk of Spain needing a full international bailout has died down.

But unemployment is now 26%, the highest level since the 1970s, and the economy shrank in Q4, dragged down by a steep drop in private consumption due in part to a September IVA hike and public wage cuts.