Germany, Spain sign deal to ease credit crunch

BERLIN (AP) — Germany and Spain on Thursday signed a deal under which Berlin will provide 800 million euros (about $1 billion) to ease a credit crunch for small and medium-sized Spanish companies.

The agreement will see Germany's state-owned KfW development bank loan the money to its Spanish counterpart, the ICO. That will expand the ICO's lending power.

German Finance Minister Wolfgang Schaeuble said the accord aims to help small Spanish companies expand their workforces and train young people.

His Spanish counterpart, Luis de Guindos, said Spain is receiving a 10-year loan at "clearly favorable conditions." The ICO will be able to provide several times the amount lent by Germany in cheap loans to smaller companies — putting the total at some 2.4 billion euros, since the Spanish bank generally loans money over a three-year period.

The European Central Bank's benchmark interest rate is currently at a record-low 0.5 percent, but banks in much of southern Europe aren't passing that rate on to companies because their own finances are strained.

Spain has been in recession for most of the past four years following the collapse of its credit-fuelled real estate sector in 2008. The government has predicted the economy will contract by 1.3 percent overall in 2013.

Despite a 27.2 percent unemployment rate — one of the European Union's highest — and a still bloated deficit, the government says its reforms and austerity measures are paying off and recovery is in sight. Germany said Thursday's agreement is a sign of support.

"This is on one hand about 800 million euros, but above all it is a signal of confidence on Germany's part in the successful reforms in Spain," German Economy Minister Philipp Roesler said.

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