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29th Mar 2024

Germany to help Spain with cheap loans

  • Spain has one of the highest youth unemployment rates in the EU (Photo: Valentina Pop)

Germany's state-owned development bank Kreditanstalt fuer Wiederaufbau (KfW) will provide Spanish enterprises with cheap loans to help them boost employment.

Created in 1948 to administer the Marshall Plan funds for German post-war reconstruction, KfW is expected to earmark €800 million to €1 billion for Spain, according to a German official.

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The money will go to KfW's counterpart in Spain - Instituto de Credito Oficial (ICO) - which is in turn meant to give cheap loans to small and medium enterprises in Spain, which are currently being choked by high interest rates from local banks.

The plan needs the approval of the Bundestag's budget committee, with a hearing with finance minister Wolfgang Schaeuble scheduled for next week.

Schaeuble earlier this month criticised the European Commission for moving too slowly on youth unemployment in Spain, Portugal and Greece and promised to set up bilateral schemes.

He said last week that Spain is the only country which already has a counterpart development bank to take on the KfW loans.

Portugal is in the process of setting one up and Greece is also considering the option.

Not all politicians agree with the move, however.

"In my opinion it would be illegal for the KfW to give loans directly to a government-owned bank in Spain. And we also should not increase the risk or burden for Germany any further, it is already big enough from the euro-crisis," Liberal MP Frank Schaeffler told this website on Tuesday (28 May).

His colleague Priska Hinz, who is the Green Party's budget expert, said her group is "in principle" in favour of helping small and medium enterprises in Spain.

But she added: "We expect the budget committee to be informed immediately. Such measures need to be discussed calmly and we will examine if the amount of this aid is sufficient and also if they will lead to notable investments."

"We also expect concrete answers about the liabilities risk for the German budget," she noted.

The Bundestag can approve risk exposure via loan guarantees of up to €12 billion a year.

Even with backbenchers in the coalition parties possibly voting against the Spanish loans, the plan is expected to pass as the Social-Democrat and Green opposition parties are set to vote in favour.

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