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Spain sees risk in possible delay of EU rescue funds, would issue debt

MADRID (Reuters) - The Spanish government would issue debt to compensate for any delay in the approval and disbursement of EU rescue funds, which represents a risk for the economic recovery, Economy Minister Nadia Calvino said on Thursday.

Spain is counting on the funds to offer a recovery plan as early as January 2021. It foresees massive investment to help it out of a steep recession brought on by the coronavirus pandemic, Calvino said earlier this week.

The government would sell debt to finance the plan if the funds are delayed, Calvino told reporters in a conference call on Thursday.

“The priority is to meet the investment needs,” she said.

Spain is due to receive around 140 billion euros ($164.29 billion) out of the EU’s 750 billion-euro coronavirus recovery package in the next few years. A little more than half that will come as grants, the rest as debt.

As part of the process to make the EU aid pledge effective, Spain will send to Brussels on Thursday a draft budget for 2021. It projects a rebound of 7.2% after the sharpest economic contraction since the civil war, 11.2% this year, which was recently revised from a previous forecast of 9.2%.

But growth could go to as much as 9.8% next year if the EU aid starts coming through as planned, the government said.

Calvino also said the government is working on creating new tools to help small and medium-size companies stay solvent despite the coronavirus crisis.

Recent data showed those companies, which benefited from cheap government loans, will face solvency issues, because the cheap loans are starting to come due and the economy is still running in slow motion.

Bank of Spain Governor Pablo Hernandez de Cos said earlier this week the government should consider the possibility of direct assistance or temporary capital injections into indebted firms.

Reporting by Inti Landauro and Belén Carreño; editing by Andrei Khalip, Larry King