Spain will plough billions of euros from Brussels into green and digital projects amid a collapse in its tourism industry during the pandemic which has wreaked havoc on its economy.
Prime minister Pedro Sanchez said he hopes the plans to shift investment in Europe’s hardest-hit economy to the green and digital transitions will help to unlock Spain's "biggest economic opportunity since the 1980s".
Mr Sanchez claimed the €140bn (£121bn) of grants and loans from the EU's Recovery Fund will boost its GDP by two percentage points annually in the coming years as he revealed details for 110 projects worth €50bn.
He said: “Chances like these only come around a couple of times a century. This plan is the greatest opportunity for Spain since its admission into the EU.”
Spain will receive around €70bn in grants and a further €70bn in loans from the EU's Recovery Fund but the help will be staggered over several years.
Under the Recovery Fund, the EU will issue significant amounts of joint debt for the first time to pay for economic aid, aiming to ease the pressure on public finances in indebted countries, such as Spain, Italy and Greece.
Spain will spend more on green and digital projects than required by Brussels with EU members needing to earmark 37pc and 20pc of Recovery Fund money for the two areas, respectively.
In a boost for its transport network, some €13bn will be invested in “sustainable mobility” while €3.2bn will be spent on renewable energy. Housing, 5G mobile networks and the digitisation of small businesses and the government will also receive a funding boost.
Mr Sanchez said Spain would press ahead with the investment despite final approval of the funding being held up legal problems in Germany.
However, economists poured cold water over Mr Sanchez’s claims of a bumper boost to growth from the Recovery Fund. Europe’s fiscal response has been dwarfed by Joe Biden’s administration unleashing a $1.9 trillion Covid relief package with more US spending on infrastructure expected to come.
Jessica Hinds, an economist at Capital Economics, said: “It's certainly very welcome that it is getting all this money, and a decent proportion of it is in the form of grants rather than loans.
“But in terms of the real economic impact, this pales by comparison to the Biden programme in the States.”
She said Mr Sanchez’s growth predictions are “a bit too optimistic”, adding the grants are “not all that large given how much the deficit rose last year”.
It came as the International Monetary Fund argued that Europe could slash the economic scarring from Covid by following the lead of the US. It said extra fiscal support worth 3pc of GDP would boost GDP by 2pc by the end of next year, and more than halve the permanent damage done to the region’s economy by the pandemic.
Its economists argued Europe could enjoy a “quicker and fuller recovery” by drawing up measures to boost hiring and investment.
More fiscal action would have greater benefits for households with low incomes and fewer side effects than additional monetary stimulus, the fund added.
New figures revealing the largest drop in eurozone industrial production for 10 months added to evidence of a weak start to the year for the region. Industrial output fell 1pc in February compared to the previous month, the biggest slump since the first lockdown was imposed. Production was down 1.6pc year-on-year with factories in France and Germany particularly weak, according to Eurostat, the EU statistics agency.
Bert Colijn, economist at ING, said: “This will lead to weaker growth in the first quarter, but underlying demand is strong and that makes us upbeat about prospects for the bloc as it reopens later in the year."