Spain Announces $10B Aid Package Amid Inflation

Facts

• On Tuesday, Spain's center-left government, led by PM Pedro Sánchez, announced a new €10B ($10.65B) package to counter inflation in 2023 — bringing the total government-funded aid to €45B since early 2022.¹
• Like other European countries, Spain has been grappling with a cost-of-living crisis exacerbated by the impact of the war in Ukraine on energy prices. The new package will see the extension of tax cuts for energy bills into the first half of next year.²
• It also includes a one-off bonus of €200 for about 4.2M households with annual incomes up to €27K, an increase of pensions by 8.5%, the freezing of existing rental contracts for half a year, and the extension of free travel in local and regional transport until the end of next year.³
• Spain's efforts have seen some success, with inflation slowing to 6.7% in November from the prior year, largely due to a sharp fall in electricity prices, which decreased by 22.4%. However, food prices have continued to hit Spaniards’ wallets, climbing 15% during October and November above the previous year.⁴
• To address food inflation, the government said it would cut the value-added tax (VAT) on essential foods such as bread, cheese, and milk, to 0% from 4%. However, Sánchez announced the discount on the price of gasoline for all consumers — except the haulage division — would be discontinued.⁴
• According to Sánchez, the aid provided so far has helped Spain record strong economic growth during 2022, which he put at more than 5% — greater than the government's previous forecast of 4.4%.⁴

Sources: ¹Market Screener, ²Reuters, ³Daily Sabah and ⁴Al Jazeera.

Narratives

• Establishment-critical narrative, as provided by The Strategist. The EU’s energy relationship with Russia is at the center of its economic struggles, and leaders have been slow to acknowledge this. European economies are on the brink of recession, and skyrocketing gas prices as a result of reckless Western sanctions will likely be the breaking point. Aid packages such as Spain's latest one is merely a band-aid to cover the gaping hole that is Europe's energy crisis.
• Pro-establishment narrative, as provided by Associated Press. Europe is indeed facing an energy crisis — an unavoidable reality as Putin uses oil to bully his way through the war. While it's impossible to avoid the economic repercussions of this, aid packages will go a long way to alleviating the pain. This latest plan will provide much-needed relief for thousands of Spaniards.