Zapatero favours ‘green’ stimulus

By Victor Mallet in Madrid
Published: March 26 2009 20:25

Spain will launch a fresh round of government spending to pull its economy out of recession if another stimulus is needed later this year, José Luis Rodríguez Zapatero, prime minister, said on Thursday.
In an interview with the Financial Times and other newspapers, Mr Zapatero said he would back a fresh round of European spending focused on renewable energy and biotechnology.

He acknowledged that such a fiscal stimulus would have to be better co-ordinated, more modest and more focused than the previously announced stimulus packages that are draining the coffers of most of the world’s big economies.
Mr Zapatero insisted Spain had fiscal room for manoeuvre because its government debt was still only 38-39 per cent of GDP, much less than the European Union average. That is despite billions of euros of recent new bond issuance to finance a budget deficit likely to reach 7 per cent of gross domestic product this year.
“We have an ample margin with our debt,” Mr Zapatero said, adding Spain’s fiscal stimulus in December was only now beginning to take effect on the “nervous system” of the economy. “Let’s wait at least four months to see if there are symptoms of economic recovery.”
If it worked, there would be no need for further stimulus. If it did not, a “co-ordinated and selected effort” would be required, to concentrate on energy saving and renewable energy – in which Spain is already a leader – and on biotechnology and life sciences.
Asked if that would do much to reduce Spain’s unemployment rate of more than 14 per cent when employers wanted reforms to the country’s rigid labour market, Mr Zapatero said energy saving was a “major structural reform” that would form jobs and reduce the oil-dependent country’s external deficit.
“To change the world’s energy model is the most significant challenge facing humanity in this generation,” he said, “not only for the impact on climate change but also for its effects on the economic model.”
Mr Zapatero said he would stick to his promise to raise Spain’s foreign aid budget to the UN’s target level of 0.7 per cent of GDP by the end of the Socialist government’s mandate in 2012, up from 0.5 per cent at present. “There’s an ethical imperative,” he said. With the exception of Scandinavian countries, most developed economies have so far failed to reach the target.
Mr Zapatero would be recommending Spanish-style regulation to help restore confidence in the world’s financial systems when he attends the G20 summit of the world’s developed and emerging countries in London next week.
Measures enforced by the Bank of Spain include a de facto ban on off-balance sheet assets and “counter-cyclical” bad loan provisioning that has sheltered Spanish banks from the worst of the crisis.
“The North American and British attitude is moving closer to the European position on the need for efficient regulation – not hyper-regulation, but serious regulation,” he said, noting that other regulators were sometimes surprised to find that the Bank of Spain had inspectors permanently stationed inside the big commercial banks.
“The Spanish financial institutions are grateful now that these measures were put in place.”
The 48-year-old Mr Zapatero, now serving his second term, remains popular with Spanish electorate but is under attack from the right-wing opposition for his handling of the economic crisis, his liberal social agenda and what critics see as the government’s inept handling of foreign policy.
Copyright The Financial Times Limited 2009