Spain and Germany mull business funding plans

Spain and Germany on Monday announced joint plans to boost private investment to small and medium-sized Spanish businesses to help drive economic recovery and create jobs in the recession-hit country.

Spain and Germany mull business funding plans
Spain's Economy Minister Luis de Guindos and Germany's Finance Minister Wolfgang Schaeuble in Loja, near Granada. Jorge Guerrero/AFP

"We have reached an agreement on… the possibility of finding ways to finance investment in small and medium Spanish enterprises that are competitive," Spanish Economy Minister Luis de Guindos said.

"Jobs are created by small- and medium-sized companies and that is where we have to act," he added, at a joint news conference with German Finance Minister Wolfgang Schaeuble in the southwestern Spanish city of Granada.

The German minister said the plan was a "pilot project" that could serve as an example for other nations and whose priority would be to fight unemployment, especially among the young.

The two ministers said each country had appointed an official who would be the country manager for the plan and who would work together to flesh out the details of the project by the end of May.

Schaeuble said the plan would not run "through the usual long journey through European institutions, it will be more immediate, with direct dialogue with banks."

"Both governments are going to try to ensure that this model is implemented as soon as possible and that the money reaches small and medium-sized companies as soon as possible," he added.

UniCredit chief economist Erik Nielsen felt the programme showed that "the German government (like some other governments) has lost faith in the (EU) Commission," which he suggested "is seen as not working properly for the eurozone."

Spain, the eurozone's fourth-largest economy, is struggling through a double-dip recession brought on by the collapse of a property boom in 2008.

The country's unemployment rate hit a record 27.16 percent in the first quarter and was 57.22 percent for those between the age of 16 and 24, the latest figures showed last week.

Spain had 239,688 fewer small and medium-sized businesses in March 2013 than during the same month in 2007, before the collapse of the property bubble which sent the economy into a tailspin, according to Spain's small business association CEPYME.

Small and medium-sized firms complain that they struggle to secure financing from banks, which have been saddled with bad loans since the property market collapsed.

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Borrowing costs drop in Spanish bond bonanza

Spain's long-term borrowing costs eased on Thursday in a bond sale, authorities said, a further sign of strengthening confidence in the country as it hopes to crawl out of recession.

Borrowing costs drop in Spanish bond bonanza
The Madrid stock exchange building. Photo: Tomás Fano

The rate of return demanded by investors for the benchmark 10-year bond — a key measure of confidence in the eurozone's fourth-biggest economy — edged close to the record low level reached in 2010, the Bank of Spain said in a statement.

Investors snapped up more than €4 billion ($5.29 billion) in total, overshooting the Treasury's target of three or four billion euros, with demand for the bonds more than double the amount on offer.

The Treasury sold €2.41 billion of 10-year bonds, with the rate of return falling to 4.50 percent from 4.72 percent in the last comparable auction on July 18.

That brought the key rate closer to the record low of 4.14 percent reached in September 2010.

It also sold just under €1.6 billion worth of five-year bonds, with the rate falling to 3.48 percent from 3.56 percent in the last comparable sale on August 1.

Spain's soaring borrowing costs last year raised fears for the overall stability of the eurozone but the conservative government resisted speculation that it would seek a full euro zone bailout and financial tensions have since eased.

The pace of economic contraction eased in the second quarter of this year and the government and central bank now expect the country to return to economic growth in the current quarter.

The Madrid stock exchange rose slightly after Thursday's sale, with the IBEX-35 leading share index 0.39 percent higher in early afternoon trading.