Spain acts to quell mortgage crisis

   Date:2008/04/21     Source:

THE Spanish government has approved 18 billion euros (US$28 billion) of emergency tax cuts and spending to shore up an economic expansion undermined by a slumping housing market and the global credit shortage.

The measures, passed by decree late last week and enacted immediately, will provide a 400-euro tax rebate to all workers and pensioners, part of 10 billion euros of outlays this year, according to a report by Bloomberg News. The remaining 8 billion euros are earmarked for next year.

Prime Minister Jose Luis Rodriguez Zapatero is tapping a budget surplus to cushion the effect of a slowing economy, which the International Monetary Fund forecasts will ease by more than half this year to 1.8 percent.

House prices in Spain fell in real terms for the first time in 10 years in the first quarter after tripling in the past decade.

"The economic and budget policy of this government in the last four years has allowed us to accrue a surplus in the public accounts," Deputy Prime Minister Maria Teresa Fernandez de la Vega said at a press conference in Madrid.

"This lets us take measures to stimulate the economy, to reinvigorate job creation and to help people and families in greatest difficulty."

Home sales imploded in the first quarter, declining 23 percent on the year, while shares of real-estate developers have collapsed. The stock of unsold homes in Spain is more than 600,000, according to Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion.

Inmobiliaria Colonial SA, Spain's third-largest developer, has lost three-quarters of its value in six months. Last week, Barcelona-based Grupo Aisa SA fell to the lowest since the shares first traded in Madrid in 1999 after a court said it will consider whether to declare it insolvent.

The global credit crunch stemming from the collapse of the US housing market is exacerbating Spain's own housing slump by restricting funds available for banks and homebuyers. Mortgage lending fell 28 percent on the year in January.

"If this episode is prolonged, its effects on the Spanish economy may be significant, since it is an economy in which external financing is a basic element of its growth," Bank of Spain governor Miguel Angel Fernandez Ordonez said last Tuesday. "That the real estate cycle matured at the same time as international financial tensions emerged has been particularly unfortunate for our economy."

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