Spain creates $41 bn fund to ease credit crunch

October 8th, 2008 - 1:47 pm ICT by IANS  

Madrid, Oct 8 (IANS) The Spanish government announced the creation of a 30-billion-euro ($40.9 billion) fund to buy bank assets to ensure credit flow amid the worldwide financial crisis, EFE reported Wednesday.The corpus could be increased to a maximum of 50 billion euros ($68.2 billion), Prime Minister Jose Luis Rodriguez Zapatero said Tuesday.

The measures were the first adopted by the government as liquidity support mechanism for banks in response to the global credit crunch, which thus far has not affected Spanish banks directly because they had minimal exposure to US subprime loans.

The government also announced that deposit insurance will be raised to 100,000 euros ($136,000) per bank account, five times the current limit of 20,000 euros ($27,200).

The European Union’s (EU) economy and finance ministers agreed Tuesday in Luxembourg to establish a minimum guarantee for bank deposits of 50,000 euros ($68,200) per account across all EU member states.

The fund that will be created in Spain will buy “assets of the highest quality” and will complement an injection of liquidity by the European Central Bank, Zapatero said.

The Spanish economy has been slowing in recent months, with unemployment rising in the wake of the meltdown of the construction and real estate industries.

Zapatero said last month that Spain’s economy would experience “weak” growth for the rest of this year and in the first half of 2009.

The Spanish government faces the difficulty of simultaneously addressing the highest unemployment rate in the European Union - 10.7 percent - and inflation of around five percent.

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