Spanish government announces €11bn support package for hospitality, tourism sectors

The measure is aimed at helping ‘companies, small and medium-sized enterprises and self-employed workers’ who have been hit by the economic fallout of the coronavirus crisis

Prime Minister Pedro Sánchez in Congress today.
Prime Minister Pedro Sánchez in Congress today.Andrea Comas

Spanish Prime Minister Pedro Sánchez announced on Wednesday an €11-billion support package aimed at helping “companies, small and medium-sized enterprises [SMEs] and self-employed workers” in the tourism and hospitality sectors recover from the fallout of the coronavirus crisis.

“We do not just want to save businesses, but to strengthen them as well,” Sánchez told Spain’s lower house of parliament, the Congress of Deputies, on Wednesday. The prime minister said the package is aimed at improving the solvency of struggling companies “so that they can resume activity, make necessary investments and hire the staff required to fully begin the economic recovery.”

Spain’s tourism and hospitality sectors have been the hardest hit by the pandemic, with restrictions on travel and social gatherings leading to historic losses in revenue. Sánchez said the goal was to help these sectors that “were competitive before the pandemic” but are now “in a difficult situation.”

The announcement comes just a few weeks after an internal report from the Economy Ministry indicated that direct aid was needed to save companies, in particular small businesses, which have struggled to remain afloat due to the restrictions aimed at curbing the spread of the coronavirus. This has been a key demand of business leaders, unions and others who were dissatisfied with a recent relief package that focused on tax breaks, state-guaranteed loans and other forms of indirect support. Indeed, last week, a group of industry associations from the hospitality and tourism sectors, including the Spanish Business Confederation (CEC), called on Spanish authorities to provide €12.5 billion in direct aid. Pablo Casado, the leader of the conservative Popular Party (PP), went further, demanding €50 billion in direct aid from the government at Wednesday’s congressional session.

But despite these calls, it is not clear whether the new package will be in the form of direct aid or other economic support. The likelihood, however, is that the plan will be more geared toward strengthening the solvency of firms than providing direct aid, with the latter approach being left to regional governments.

Excessive corporate debt

When the coronavirus pandemic hit Spain last year, the government responded with the ERTE job retention scheme that allowed companies suffering losses from the health crisis to temporarily send home workers or reduce their working hours, and offered loans guaranteed by Spain’s Official Credit Institute (ICO). These measures were designed on the basis that the impact of the crisis would be short term, but as the pandemic has dragged on, they are no longer enough to help struggling businesses.

One year on, many companies that were once viable have since accumulated excessive debt – just as the Bank of Spain warned would happen. In these cases, even if a business does not go bankrupt, it may spend years trying to pay back this debt, making no investment and cutting jobs.

In a bid to address this problem, the government is considering forgiving a part of the 70% or 80% of loans guaranteed by the ICO. The Economy Ministry is also finalizing a plan to provide aid to companies that have been granted ICO loans. This would provide aid exclusively to businesses that are in need, that have suffered as a result of the coronavirus restrictions and are considered commercially viable. In principle, this would leave out companies that are financially sound and those that have no prospects of recovery.

But the banking sector and many experts are critical of this approach, arguing that support should also be provided to the businesses that have not asked for a loan and instead stayed afloat by using their own savings. These critics claim that the main problem currently facing companies is a lack of revenue, not a lack of liquidity or over-indebtedness. Their argument is that relieving debt will not help businesses if they have no revenue.

While government sources did not elaborate further on the plan, other sources said that the Economy Ministry is also working on a type of recapitalization fund for small businesses in Spain, given that large corporations already have access to a €10-billion fund created by the state holding company SEPI. Spanish airline Air Europa and the engineering firm Duro Felguera have already requested loans from this fund.

State of alarm

Sánchez announced the aid package at a congressional appearance to explain the government’s handling of the pandemic. In order to secure support to extend the current state of alarm until May 9, Sánchez had to agree to appear before lawmakers every two months to provide an account of the crisis. The state of alarm was approved in October to give the regions the power to limit mobility in order to contain the spread of the coronavirus. Several opposition groups had proposed that the emergency measure be extended only until March 9. But the government made clear on Tuesday that it will not be lifted two months earlier as it is not recommended given the high coronavirus transmission rates in Spain.

English version by Melissa Kitson.

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