UPDATE 4-Spain to kick-start industry with 83 bln euro plan

* Spain announces 83 bln euro 5-yr industrial plan

* Econ min expects yields on bond auctions to rise

* No petrol tax or further sales tax hikes planned

(Releads with industrial plan, adds byline)

By Andres Gonzalez and Elisabeth O’Leary

MADRID, Dec 10 (BestGrowthStock) – Spain kicked off an 83 billion
euro ($111 billion) five-year plan to make its flagging
industries more competitive on Friday, the government’s latest
effort to drag the country out of economic stagnation.

The Socialist government insisted the budgetary impact of
the measures was within deficit reduction commitments made to
the European Union.

“(Industry) is a sector which is going to drive the economy
in the long term with more employment…and more productivity,”
Industry Minister Miguel Sebastian said on Friday.

The measures, a mixture of old and new projects, had the
backing of unions and opposition parties, Sebastian said. They
would raise the weight of the industrial sector in Spain’s gross
domestic product to 18 percent from 15 percent.

Spain needs diversify its sources of economic growth after
its economy was shattered in the crisis by the collapse of a
housing and construction boom.

Its recovery plan hangs on growth forecasts fuelled by an
export boom and a private consumption turnaround, but with
crippling debt-financing costs and massive welfare payments, the
outlook is unrealistic. [ID:nLDE6B11H5]

The new measures include spending on infrastructure,
research and developments and support for small and medium size
firms, along with further liberalisation of energy markets. (For
a FACTBOX on the government’s plan, click: [ID:nLDE6B913X]

“I don’t think this will have any impact on the public
finances because they have already said these plans are
consistent with the 2011 budget,” said one analyst who asked to
remain anonymous.

Madrid has rushed in a series of new proposals to strengthen
its finances over the past 10 days, seeking to rebuild investor
confidence following the bailout of Ireland.

But the Spanish yield premium that investors demand over
German bunds, Europe’s debt benchmark, has remained stubbornly
high and jumped again on Friday to 245 basis points.

Earlier, Economy Minister Elena Salgado acknowleged Spain’s
cost of borrowing will probably rise at bond sales next week,
adding the government would take further steps if necessary to
meet its budget targets.

Spain’s financing costs have soared since October as
investors fear other highly indebted and fragile economies in
the euro zone will end up needing rescue packages similar to
those of Greece and Ireland.

Salgado told national radio station Onda Cero that the
increase to Spain’s borrowing costs was a temporary phenomenon
and that yields of more than 5 percent on Spanish government
debt were not “alarming”.


Madrid has two more auctions planned this year and will sell
both 10- and 15-year bonds on Dec. 16. Its 10-year bonds
currently trade at yields of around 5.37 percent on the
secondary market, while 15-year yields are around 5.9 percent.

“We are paying an average interest rate of 3.6 percent and
it is possible that … we might have to pay 5 percent. But it
would only be on those issues that we do at this moment,”
Salgado said in the interview with Onda Cero.

“It’s true that we might have to pay a little more for bond
issues than we have in the past. For that reason we have said we
will reduce the volume until the markets stabilise.”

UBS said investor concerns about Spanish government debt and
the banking sector had abated but not disappeared. Worries “may
persist until larger provisioning buffers and stronger capital
are rebuilt in the financial sector,” the investment bank said
in a research note.

Shares in the euro zone’s largest bank Santander (SAN.MC: )
and BBVA (BBVA.MC: ) were 2.4 and 1.7 percent lower, while Spain’s
smaller banks also lost ground during the morning.

Spain has responded to the latest phase in the euro zone
crisis by bringing forward plans to partially privatise assets
including the national lottery — best known for the “El Gordo”
Christmas draw — while increasing taxes and cutting benefits.

Spain would stick to its budget target come what may,
Salgado said, saying this was “unconditional”.

Spain and Portugal have moved into the eye of the storm
since Ireland was forced into an 85 billion euro aid deal, with
bond yields rising steadily for both.

A bailout for both Lisbon and Madrid would likely stretch
the current funds the EU has put aside to deal with the crisis
but Salgado insisted that an Irish-style rescue package for
Spain had never been contemplated.

She added there were no plans or need to raise either
gasoline taxes or value-added tax (VAT), which was increased to
18 percent from 16 percent in July.
(Additional reporting by Rodrigo de Miguel, Nigel Davies,
Manuel Ruiz and Fiona Ortiz; writing by Alexander Smith; editing
by Patrick Graham/Ruth Pitchford/Toby Chopra)

UPDATE 4-Spain to kick-start industry with 83 bln euro plan