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EXPLAINED: The plan to lessen Ukraine war impact on Spain’s economy

The Spanish government on March 28th unveiled its investment of €16 billion to address the issue of spiralling living costs in Spain caused by Russia’s invasion of Ukraine. Here are the measures that cover everything from jobs to rent, fuel, electricity and benefits.

EXPLAINED: The plan to lessen Ukraine war impact on Spain's economy
A lorry driver puts some petrol in his vehicle at a petrol station in Pamplona on March 15, 2022. - Energy prices have risen sharply in recent months, driven by strong demand triggered by the revival of the economy following the covid-19 epidemic. This dynamic accelerated considerably after the start of the war in Ukraine on February 24, especially in the European Union. (Photo by ANDER GILLENEA / AFP)

On Monday March 28th, Spanish Prime Minister Pedro Sánchez unveiled details of the long-awaited emergency response plan to Spain’s economic struggles in the face of runaway inflation and rising prices.

This follows an ongoing truck drivers’ strike, production stoppages, mass protests by farmers and fishermen, all adding to a period of social discontent in Spain, one that’s being replicated elsewhere in Europe.

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Of the €16 billion promised, the Spanish government will release “approximately €6.0 billion in direct aid and tax rebates and €10 billion in state-guaranteed loans to cushion the impact of the crisis on families and businesses”, Sánchez told a business forum on Monday.

So what are the measures proposed and which are likely to come into effect in the coming days?

Ban on layoffs and other job-protecting measures 

Spanish employers will not be able to sack any employees until June 30th under the government’s plans.

“Companies will be able to resort to internal flexibility measures such as furlough (ERTE),” Sánchez pointed out on Monday about the scheme which was available to struggling businesses during most of the Covid-19 pandemic, having only ended last February. 

Although all the job protection measures are yet to be disclosed, Labour Minister Yolanda Díaz has hinted her department also wants to prevent company salaries from being lowered during this period of high inflation and sky-high energy costs.

Minimum bonus of 20 cents on every litre of fuel

The Spanish government plans include “a minimum reduction of 20 cents per litre of fuel”, Sánchez said.

The State will finance 15 cents whilst the oil companies will cover 5 cents, although Sánchez praised the fact that some multinationals have committed to subsidising an even higher cost. 

Last week, the government announced a similar reduction but only for lorry drivers, with the new reduction to impact everyone.

On March 28th 2022, average petrol prices in Spain ranged between €1.84 and €1.98 per litre, while diesel stood at between €1.86 and €1.95, according to dieselogasolina.com.

Minimum vital income will increase by 15 percent

This non-contributory benefit that Spain’s Social Security offers guarantees a minimum income to people without work or unemployment benefits.

The benefit, which ranges between €461 and €1,015 depending on different factors, will be increased on average by 15 percent. 

Extension of VAT reduction for electricity

The Spanish government reduced VAT on electricity bills from 21 percent to 10 percent in June 2021, deciding in December to extend the measure until April 2022, before the crisis in Ukraine pushed prices to even more exorbitant levels.

What is likely to happen next is that this drop in IVA (VAT in Spanish) will be extended yet again until further notice in order to help vulnerable consumers. 

This reduction in VAT on the bill will apply to all consumers with a contracted power of up to 10 kilowatts, provided that the average monthly price of the wholesale electricity market is above €45 per megawatt/hour (Mwh).

More cost-cutting energy measures

Even though they didn’t set a final amount, the Spanish government has announced it will put a “cap” on the price of gas for the production of electricity as an “exceptional” measure that will reportedly not curtail incentives for renewables nor distort the market, and will allow “electricity prices to be significantly lowered immediately. 

This will be approved shortly across Europe, Sánchez said, “and the next day it will be published in the Spanish BOE bulletin with immediate effect on the electricity bill”. 

Additionally, there will continue to be a temporary suspension of the 7 percent tax on electricity production.

Spanish authorities also plan to add 600,000 more vulnerable families to the country’s social energy tariffs, taking the total up to 1.9 million households.

READ ALSO: How to apply for a discount on your Spanish electricity bill 

Rents can’t be raised by more than 2 percent 

Landlords will not be able to increase the rent of tenants by more than 2 percent for the next three months. 

One of the consequences of the rise of the Consumer Price Index in Spain is that many landlords are using this general increase in costs to raise the rents of their tenants.

This is legal, but only in certain circumstances.

Renting in Spain: Can my landlord put up my rent due to rising inflation?

Money to support different sectors

There will be a new line of credit guarantees of a value of €10 billion offered by Spain’s Official Credit Institute to cover liquidity needs caused by the temporary increase in the cost of energy and fuel, as well as extended grace periods for repayment. 

The government has also promised an aid package of €362 million for the agriculture and livestock sector, and another of about €68 million for Spain’s fishing sector. 

As for the industrial sector, a large consumer of energy that has suffered the rise in prices in particular, €500 million will be allocated to help soften the economic blow.

A further €450 million in direct aid will be offered to freight and passenger transport companies. Depending on the type of vehicle, the amount they receive will vary from €1,250 per truck, €900 per bus, €500 per van and €300 per taxi.

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PROPERTY

What the Euribor rise means for property buyers and owners in Spain

The rise in the Euribor interest rate, used to calculate mortgage payments in Spain, is causing big changes in the mortgage rates.

What the Euribor rise means for property buyers and owners in Spain

Looking to buy property in Spain? Already a homeowner here? Well, you may have heard something about rising interest rates recently.

Or perhaps changes to the terms of your mortgage. Or the Euribor – but what is it, and what’s going on?

What is Euribor?

In Spain, Euribor is the interest rate most often used to work out mortgage payments and to calculate both variable and fixed rates.

It is anchored to the interest rate set by the European Central Bank, and, as we are now seeing, quite responsive to global economic events.

It’s the interest rate that banks in the Euro Zone use to lend to each other, so when the base rate goes up, the Euribor does too, which sends mortgage interest rates across the Eurozone rising. 

Rising rates

Most Spanish mortgages with variable rates normally vary based on a variety of factors, but this number has been rising and in May 2022 saw figures of 0.240 percent (Tuesday May 17th), well above the average. 

The rises throughout May are leading many in Spain, and indeed across Europe, to wonder how high their mortgage rates can go, and when the rises will stop.

Banco de España has estimated that the increases could range from anything between €35 a month to an additional €400. Bankinter predicts the Euribor rate will finish the year at a staggering 0.40 percent, but, more encouragingly, Caixabank’s prediction puts it at just 0.13 percent by the end of 2022.

On Euribor.com.es, a website that tracks the index on a daily basis, they suggest that the market consensus predicts the Euribor will finish at around 0.3 percent at the end of the year, but could reach as high 0.8 percent in 2023.

All of them agree, and most other economic indicators suggest, that whatever the figure at the end of the year, it will remain positive, so it seems almost certain that mortgages will continue to rise throughout 2022 at the very least.

This instability, in addition to global inflation and supply chain problems, could mean that mortgage rates will be affected at least until 2023, with some predictors even signposting 2024 as the possible end of a rise in mortgage prices.

With things uncertain in the mortgage industry, and the world economy more broadly, perhaps you’re thinking of ways to try and insulate yourself from the climbing interest rates.

How to protect yourself from the rising rates

One way to weather the storm of interest rate increases is to change your mortgage from a variable to a fixed rate, either by negotiating with the your bank or by changing bank altogether – a process known as subrogation.

According to data from MyInvestor, during March and April the number of subrogations has started to rise.

Subrogation basically means switching the mortgage from one bank to another to change its interest rate. Although it does involve certain charges in order to do so – you pay the valuation of your house, which normally costs a few hundred euros, and a fee charged to the bank you are leaving, which can cost up to 2 percent of the outstanding amount – it could, and probably would, work out cheaper than paying the hiked interests rates over time.

You could also try and take out a new mortgage with another bank and use the borrowed money to settle the loan. This is, of course, a more expensive option as you have to pay the appraisal, the commission for early repayment of the current credit (again, up to 2 percent of the outstanding amount) and the expenses associated with its cancellation of registration, which normally runs to around €1,000.

READ ALSO: Spanish mortgages – Ten things foreigners should know before getting one

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