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With EU funds, Spain plans ambitious reform of crushed economy

MADRID (Reuters) - Spain will use emergency European Union coronavirus funds for an ambitious overhaul of its economy that will ramp up public investment next year and should create hundreds of thousands of new jobs by 2023, the prime minister said on Wednesday.

FILE PHOTO: The Spanish flag and the EU flag are seen during the ceremony of transfer of authority of the leadership from UK to Spain of European Union Atalanta Operation which is in charge of counter-piracy in the Indian Ocean, at the naval airbase in Rota, near Cadiz, southern Spain March 29, 2019. REUTERS/Jon Nazca

Reeling from Western Europe’s worst COVID-19 caseload and the deepest recession since its civil war, Spain’s tourism-dependent economy is set to dive 11.2% this year.

But against slogans saying “Resistance” and “Advance”, Socialist premier Pedro Sanchez sought to change the mood, saying the government would spend 72 billion euros ($85 billion) of EU funds between 2021 and 2023.

Investment spending would rise by 27 billion euros in 2021, thanks to the EU money, he said, predicting 800,000 new jobs would be created over the next three years. The pandemic has decimated employment, with 450,000 fewer jobs in September compared to the same period last year.

“It’s not just about recovering the GDP that the pandemic took from us, it’s about growing in a different way, with a more robust, fairer and more sustainable way of growing,” Sanchez said in a televised address on the government’s economic plans.

“This is a historic reform, long called for and needed now more than ever,” added the prime minister, who leads a coalition government without a majority in parliament.

MULTI-BILLION AID

Spain is to receive 140 billion euros until 2026 - 77 billion in grants and the rest in loans - from the vast EU pot designed mainly to help the bloc’s worst-hit southern nations.

Sanchez outlined ten areas of investment - from transforming cities to boosting gender equality - and said 37% of the funds would go to the “green economy” and 33% to digital transition.

Another at least 12% will go to specific environmental projects. “We are the Costa Rica of Europe, one of the countries with the greatest biodiversity in the world”, he said.

Elvira Rodriguez, a lawmaker with the conservative People’s Party and former head of Spain’s market regulator, dismissed Sanchez’ plan as vague and his presentation as “pharaonic.”

“Incomplete, without sufficient guarantees and mortgaging Spain’s future for years,” she tweeted.

Addressing concerns Spain may struggle to channel the funds, Sanchez also announced a law to remove bureaucratic bottlenecks and administrative obstacles.

Despite this year’s dire panorama, Spain is also forecasting a GDP rebound of more than 7% next year, possibly up to nearly 10% if the 2021 allocation of EU funds is fully disbursed.

But Sanchez needs to gather a majority in parliament to pass the new budget - a challenge in a fragmented assembly unable to approve a new full-year budget since 2016.

($1 = 0.8507 euros)

Reporting by Inti Landauro, Belen Carreno and Nathan Allen; Editing by Nathan Allen and Andrew Cawthorne

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