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Spain unveils €9 billion plan to tackle Ukraine fallout

The national aid plan will help the country weather the ongoing fallout of the conflict in Ukraine.

Published: 25 June 2022 16:35 CEST

Spain unveils €9 billion plan to tackle Ukraine fallout

Pedro Sánchez arrives at the press conference at Moncloa Palace to announce the new direct aid plan worth €9 billion. Photo: JAVIER SORIANO/AFP

Spain’s government on Saturday unveiled a €9 billion national aid plan to help the country weather the ongoing fallout of the conflict in Ukraine.

Prime Minister Pedro Sánchez unveiled the package in Madrid which comes on the heels of a €6 billion injection in March for a scheme worth €15 billion overall, or “more than one GDP percentage point”.

The government also extended other measures taken in March and set to end on June 30 by another six months till the end of the year. Those include reducing the price of a litre of petrol by 20 euro cents.

For the second time in less than a year, it also reduced value-added tax on electricity from 10 to 5 percent, a move already announced by Sánchez earlier this week.

It decided to hand out “direct aid of €200” to the self-employed and unemployed, and increase pensions and disability benefits by 15 percent.

The measures aim to help consumers deal with rising inflation, which hit 8.7 percent in May, its highest level in decades.

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'No longer black sheep': Tourism boosts Spain and other 'Club Med' economies

The three nations had to endure harsh austerity measures in the early 2010s imposed by their European Union partners, who were quick to blame their fiscal laxity and lack of competitiveness for their economic woes.

But “the situation has changed” since the Covid-19 pandemic ended, said Zsolt Darvas, an economist at Bruegel, a Brussels-based think tank.

“Today, those countries are growing faster than the European Union average, they are no longer seen as black sheep.”

Spain’s gross domestic product (GDP) expanded by 2.5 percent last year, while Portugal’s economy grew by 2.3 percent and Greece by 2.0 percent.

That compares to growth of 0.4 percent for the entire 27-member European Union, which was weighed down by Germany’s 0.3 percent contraction, making it the world’s worst-performing major economy in 2023.

The International Monetary Fund expects the three nations to continue to outperform this year, although at a more modest pace.

It sees growth this year of 2.4 percent in Spain, 1.7 percent in Portugal and 2.0 percent in Greece.

Spain’s economy is taking off “like a rocket”, Spanish Prime Minister Pedro Sánchez said recently. The country is “the locomotive” of job creation in the EU, he added on Thursday.

READ ALSO: Spain’s economy grew an unexpected 2.5 percent in 2023

‘Great efforts’

Economists say this turnaround is largely due to a strong rebound in tourism, which reached record levels last year following the lifting of pandemic travel restrictions.

The sector is key for the three nations, accounting for almost 25 percent of Greece’s economy, and 12 percent in both Portugal and Spain.

READ ALSO: 84 million – Spain welcomed record number of tourists in 2023

The trio of nations are also benefiting from the EU’s massive pandemic recovery fund, whose mix of grants and loans in exchange for structural reforms will largely go to southern countries.

Spain – the biggest beneficiary of the fund after Italy – has so far received €38 billion, Greece €15 billion and Portugal €8 billion.

The three nations have also made “great efforts to improve their economic attractiveness” with structural reforms that have boosted their competitiveness and improved their labour markets, said Darvas.

The reforms have helped draw foreign investment, especially in renewable energy and cloud computing.

Amazon’s cloud computing division AWS announced last month it would invest over €15 billion to expand its data centres in Spain.

READ MORE: Amazon to create 17,500 new jobs in Spain

Many automakers such as Volkswagen and Stellantis, whose brands include Peugeot, Fiat and Jeep, have chosen to assemble their new electric vehicles in Spain, Europe’s second largest automobile producer after Germany.

Challenges remain

The growth spurt in the three countries, however, is partly catching up after the steep falls in GDP during the financial crisis. Greece’s GDP for example plunged 25 percent.

Economists warn they still face challenges.

While they have all seen joblessness fall, the unemployment rate in Greece and Spain sits above 11 percent, way above the EU average of 5.9 percent.

And former European economic and monetary affairs commissioner Olli Rehn told AFP that “deficits and debt levels remain large in some cases” even though “divergences between euro area countries have decreased compared to 10 years ago”.

Portugal swung to a budget surplus of 1.2 percent of GDP last year while Greece’s public deficit declined to 1.6 percent in 2023 from 2.5 percent in the previous year. The EU average is 3.5 percent.

This has helped its 10-year borrowing rate to drop to 3.5 percent from 13 percent during the financial crisis.

Darvas said the “convergence” of southern European nations with northern ones “is likely to continue” but at a “slower pace”. Spain, Portugal and Greece still have “work to do,” he added.

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