Spain extends jobless payments as austerity hits

Reuters News
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Posted: Aug 14, 2012 9:54 AM
Spain extends jobless payments as austerity hits

MADRID (Reuters) - Spain's Prime Minister Mariano Rajoy said on Tuesday his government would prolong a program of benefit payments to the long-term jobless, even as it pushes through multi-billion euro spending cuts to avoid resorting to a sovereign bailout.

Rajoy said his conservative government would continue to make the six payments of 400 euros a month to citizens whose eligibility for standard two-year unemployment benefit has run out, a policy that had been due to end this week.

"We're going to extend it, we're going to try to make it work better than it has been working while it's been in place, because the fundamental objective is to get these people back into the workplace," Rajoy told reporters after he met with King Juan Carlos on his summer break.

He is expected to add more stringent conditions to the aid, which is currently contingent on people actively seeking work.

The cost of extending the plan was already included in the budget for the current fiscal year.

Unemployment in Spain is the highest in at least 30 years, with almost one in four of the population out of work.

Nearly a quarter of a million people currently claim the 400-euro-a-month payment and almost three quarters of a million could be eligible for it by the end of this year as their normal unemployment benefits run out.

El Mundo newspaper recently reported the government had allocated 525 million euros in the 2012 budget to cover the cost of the program.

The collapse of a property boom five years ago has plunged the euro zone's fourth-largest economy into recession and the unfolding debt crisis has pushed its borrowing costs to the highest since the launch of the euro in 1999.

Rajoy, whose People's Party came to power in November 2011, has already sought a 100-billion-euro bailout for the Spanish banking system, details of which are due to agreed in September. In mid-July, he also unveiled a new round of cuts intended to trim 65 billion euros from the public deficit by 2014 and help Spain avoid seeking the kind of full-scale bailout that Greece, Ireland and Portugal have taken in the last two years.

Spain must cut its public deficit of 8.9 percent of gross domestic product last year to 6.3 percent in 2012, 4.5 percent in 2013 and 2.8 percent in 2014.

FURTHER AID

Rajoy reiterated that he would wait for the European Central Bank to detail its plans before taking a decision on seeking further help from the European Union to ease his country's high funding costs.

Rajoy was asked by a reporter whether he and the king had discussed the possibility of a second bailout, after the European aid for Spain's banks.

"Until we know what decision the ECB has taken on this matter, we aren't going to take one either," he said.

The yield on the benchmark 10-year Spanish government bond has traded above 7 percent in recent weeks, a level Rajoy himself has said is unsustainable. $1 = 0.8096 euros)

(Reporting By Fiona Ortiz, writing by Sarah Morris and Clare Kane; Editing by Catherine Evans)