Germany to help Spain with credit for growth, jobs

Germany is setting up a loan program for struggling small and medium-sized firms in Spain to boost growth and jobs in the crisis-hit southern European economy, according to a document obtained Monday.

Germany's state-owned KfW bank will provide about 1 billion euros ($1.3 billion) at low interest rates to its Spanish counterpart, which will be probably able to lend out several times that amount in cheap loans to local firms.

The move is aimed at easing a credit crunch that is afflicting much of southern Europe, where small and medium-sized firms in particular are struggling to access affordable loans that would allow them to expand their business.

Top ECB officials and several EU leaders have described the lack of access to credit in heavily indebted countries as one of the most pressing issues to deal with as the continent tries to emerge from recession.

Germany, on the other hand, enjoys a top-notch AAA rating that investors see as a safe haven. It can therefore borrow money at rock-bottom interest rates.

The initiative could also be extended to other countries, such as Portugal, that have been hit hard by the 17-nation eurozone's debt crisis, German Deputy Finance Minister Steffen Kampeter said in the document obtained by The Associated Press.

Spain, the eurozone's fourth-largest economy, is mired in recession, with an unemployment rate of about 27 percent and about one in two young people lacking a job.

The German initiative's design as ``bilateral aid with rapid impact'' reflects growing impatience in Berlin about the slow progress by the EU in freeing up existing funds to assist hard-hit countries.

The European Central Bank's benchmark interest rate is currently at a record low 0.5 percent, but banks are not passing on that low rate to companies because their own finances are strained. Firms in economies like Spain, Portugal, Greece and to a lesser extent Italy still struggle to get affordable financing. Even when banks are willing to lend, the interest rates demanded are significantly higher than in, say, economically robust Germany.

(AP)