Spain unveils $85 billion stimulus to aid fragile recovery

Sanchez said the government will spend that total between 2021 and 2023, a fiscal jolt that should boost gross domestic product by an additional 2.5% and make the economy more digital and greener. Around 80% of it will come from the European Union recovery fund and the rest from another of the bloc's financing vehicles.

"The world has changed, and we have to accelerate the transformation of our country," the Socialist premier said in a televised address on Wednesday. Sanchez explained that Spain will be able to tap additional EU funds, but that he was eager to provide details on a first-round stimulus plan to get the economic reconstruction under way as soon as possible.

The prime minister wants to be seen acting decisively amid growing criticism from voters and opposition lawmakers that he has let the crisis spiral out of control. Spain is enduring one of Europe's worst outbreaks of covid-19, and ministers have battled for weeks with regional leaders in Madrid to impose stricter lockdowns to contain mounting infections.

The fragile recovery is at risk, economists have warned, and investors are starting to take note of Spain's challenging outlook too. The country's bonds are lagging a European rally, and the gap between Spanish and Italian yields is the smallest in more than two years.

Sanchez said the stimulus he announced on Wednesday should create 800,000 jobs through 2023. The government will include nearly 40% of the total in its 2020 budget plan, which he still needs to present and then pass through a divided parliament.

A quick fiscal boost is sorely needed. The central bank sees the economy contracting as much as 12.6% in 2020. Unemployment -- a chronic Spanish problem exacerbated by the pandemic -- could hover around 20% for at least the next couple of years.

European governments have been racing to come up with plans for spending their portions of a landmark 750 billion-euro recovery fund that EU leaders agreed on in July. The unprecedented stimulus, financed by jointly issued debt, is aimed at spurring a post-pandemic economic rebound in the hardest-hit countries, and the region overall.

Spain is set to be among the three biggest beneficiaries of the recovery fund, with as much as 140 billion euros in grants and loans earmarked for the country over six years. Italy, which could receive the largest allocation of as much as 209 billion euros, is also hammering out the details of how it would spend that.

In France, the government has penciled in 40 billion euros of EU funds for a 100-billion euro stimulus plan that will run for two years.

There are still hurdles to a quick deployment of the EU funds, including disputes over governance. Economists and lawmakers have also warned that Spain and other countries will struggle to efficiently and effectively spend such massive amounts in a short period of time because of potential administrative and political snags.