Germany to Lend Spanish SMEs €1 Billion

BERLIN--Germany plans to lend small and medium-sized companies in recession-hit Spain around 1 billion euros ($1.30 billion) via German state-owned bank KfW, according to finance ministry documents seen by Dow Jones Newswires.

"The measures are part of an overall strategy to promote growth and employment, particularly of young people, in certain so-called program countries in the euro zone," said the covering letter from Deputy Finance Minister Steffen Kampeter to the head of the parliament's budget committee dated May 31.

The budget committee of the lower house of parliament will meet Wednesday to discuss the measures, which involve development bank Kreditanstalt fuer Wiederaufbau lending Spanish state-owned business lender Instituto de Credito Oficial EUR800 million to make liquidity available to companies.

KfW will also provide funds to strengthen the capital base of small and medium-sized companies in Spain, which despite record-low interest rates from the European Central Bank still face trouble accessing credit from banks at reasonable rates.

The support for Spanish companies should provide a model for helping other countries, particularly Portugal, the ministry documents said.

German leaders, particularly Chancellor Angela Merkel and her Finance Minister Wolfgang Schaeuble, have been lampooned in southern Europe for Berlin's pro-austerity policies, which some blame for grinding recessions in the Iberian economies.

Mr. Schaeuble floated the idea of bilateral aid to help Spanish businesses create jobs more than a month ago, although the latest documents from his ministry are the first indication of the sums involved.

Youth unemployment currently stands at nearly 56% in Spain and 38% in Portugal, levels which the minister has described as "catastrophic."

Write to Andreas Kissler at [e-mail]

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