Is Spain’s €200 billion Covid-19 aid package just ‘A cynical ploy to look good in the world’s media?’

Written by Sandra Piddock of Spain Life Exclusive


On  Tuesday, 17 March 2020, Spain’s Prime Minister Pedro Sanchez announced ‘A financial rescue without historical precedent,’ to ensure that workers and their dependents were not ‘left behind’ in  the aftermath of the Covid-19 outbreak in Spain.


Many business owners breathed corporate sighs of relief, from Spain’s biggest employers down to small businesses and autonomos (self-employed workers). However, more than two weeks after this bullish announcement from the government, the reality is very different. Help is limited, while conditions and restrictions are stringent. Lee, an established  real estate agent in the community of Valencia says:


The money isn’t there to do this – they still haven’t paid out to the flood victims of the Gota Fria last September. It’s just smoke and mirrors, so Spain looks good in the world’s media.



Image by Rai Woods, Torrevieja

That may sound like a cynical comment from a disgruntled small business owner hoping for more. However, Brian, a freelancer from Catalonia, says pretty much the same thing. While the press conferences look pretty impressive, with the Police and members of the military showing off their medals, the reality is somewhat different.


The Spanish government’s handling of this has been like a Marx Brothers film in its incompetence. There is no €200 billion available. There may be around 17% of that amount in cash support, but the rest comes from soft loans and guarantees, channelled through the banks so they can skim off their own cut.


Spain’s banks received a €60 billion tax payer bail-out in the last financial crisis, and have yet to pay any of that back, despite record profits in the years since their recovery. It’s clear when you read through the conditions attached to these so-called benefits that most of the measures depend on deferment of payments, not exemptions.


These debts will eventually attract interest charges on top, since payments are not being cancelled, just suspended in the short term.  It’s not a lot of help right now, because when these sums become due, after months of little or no trading, the pot will be empty for many small businesses and autonomos. That’s if they haven’t already closed their doors for good.




Amy from Catalonia is a toy designer and manufacturer. Her successful business has been established for 16 years now, and she exports her products all over the world. However, she told us that, without the ERTE system (expedientes de regulación temporal de empleo), whereby Spanish firms of any size can lay off their workers temporarily, her entire business would have collapsed within two or three months.


Spain’s businesses haven’t just been impacted recently by Covid-19, although the measures taken since the declaration of the State of Alarm have certainly not helped the situation. In Amy’s case, she has to import some of the necessary components from China. When that country went into lock-down, Amy’s team were unable to manufacture and ship their products. By the time China was able to send the missing parts, most of Europe, Australia, the UK and the USA was under restriction. Now they can make the toys, they can’t ship most of their orders, therefore they can’t invoice customers and be paid.


How was China able to mobilise its businesses so Amy could be supplied so quickly? Because they bailed out their domestic businesses at the start of the lock-down, rather than waiting until they pleaded with the government for help. There are some theories that this is a deliberate ploy by China to become the strongest economy in the world. The way Huaweii is dominating the 5G market would seem to add credence to this.


The plain, unavoidable truth is that China is back on its feet with a healthy stock market because their government acted quickly to stop the spread of the virus and to shore up the domestic economy. They did not make empty promises, or stare at Covid-19 like a rabbit caught in the headlights of a juggernaut, hoping it would pass over and leave them unscathed. This threat to public health and the economy is not going away any time soon. Help from the government and the banks is needed now, to preserve liquidity, as promised by Pedro Sanchez on 17 March.


A pigeon stops hopefully outside Casa Pepe, but there will be no tit bits today, or any time soon. This restaurant would normally be very busy, and so would the other restaurants and shops in the row. They are all small, independently owned enterprises, and they have no idea when they will open their doors again, if at all. Photo courtesy of Rai Woods, Torrevieja.


China immediately put pressure on the banks to help SMEs (small to medium enterprises), and also made exemptions for social security payments and taxes. Spain please note: exemptions, not deferments. And candidates for aid were able to apply from around date of lock-down, and for up to 6 months afterwards, without compromising their business standing or incurring penalties.


From 1 March to 31 May, small taxpayers in Hubei province – the seat of the outbreak of the Covid-19 pandemic –  are exempt from payment of 3% VAT. SMEs in other provinces see their tax liability reduced from 3% to 1% for the same period, and there is provision to extend this. Again, this is exemption and reduction, not deferment. And social security payments are exempted, with a facility to reclaim payments already made.


In the case of loans and overdue debts, the period of payment deferment is six months, with a facility to extend this term to a year if necessary. Contrast this with the Spanish government response of deferring payments for just one to three months, and only for people who have no existing social security debts, despite the fact that many autonomos have paid several thousand euro in advance taxes already.


Amy says she has received more help from the private sector than the government. Her landlord has voluntarily reduced rent by 50% while the crisis lasts – reduced, not deferred! The factory which manufactures her products has been patient. They agreed a manageable payment schedule for outstanding invoices, and they have also been very understanding about cancelled orders.


This is a huge relief for Amy, and a beacon of hope in a very dark situation. As she explains:

For almost all of the first trimester of this year, we have paid out with no income to show for it. We’ve had to bear the burden of paying companies tax and VAT on imports, but we can’t charge VAT on exports, so we have to wait until the end of the tax year to reclaim it. It’s then an average wait for around 9 months, during which there are several inspections before we actually get the money back.




It’s clear that this government ‘help’ is conditional on all taxes being paid beforehand, so they have money at their disposal which is not yet outstanding, mainly from small businesses and autonomos. However, the conditions imposed to even apply for aid are almost impossible to fulfil. All first trimester financial reports must be filed on time, yet people are banned from leaving home for other than essential reasons.


By complying with the law, Spain’s small business owners run the risk of either being fined for accessing the required documentation, or fined for filing reports late. And if the reports are late, there is no access to aid at all. Catch 22 is alive and well, and living in Spain!


The much-trumpeted moratorium on mortgages and rentals is not all it seems either. Rental moratoriums must be agreed with the landlord, and while the government are advising them to be compliant, there seems to be no enforcement at the moment. And again, it’s not a financial lifeline, just another deferment which will be put on hold until later, when people will be even less able to meet their liabilities than they are now.


As far as mortgages go, aid seems to be an impossible dream for most people. If the total monthly family income is more than €1,600 per month, with an extra €53 allowed for each dependent child, disabled person or family member over 65, you may be ineligible for aid, even if you meet one or more of the other conditions. And it’s still unclear whether you need to meet one, or all of the conditions. There’s been no government clarification on that.


The moratorium does not extend to second homes, just the habitual residence. So if someone is renting their main home, but has a mortgage on a second home, there is no aid for them. The definition of ‘financial vulnerability due to the Covid-19 outbreak’ is open to interpretation, and lenders may use this to deny help to those who need it most.


There’s also a problem with proving eligibility, since lock-down rules preclude visiting the institutions holding the required documents – assuming they are still open. Various reports from around the country seem to indicate it’s not possible to get copies of some documents  online, so what happens then?


The main concern of most small business owners and autonomos right now is what’s going to happen towards the end of the year, when they have to start paying social security and other deferred statutory payments? The ‘aid system’ as it stands seems to be virtually inaccessible. For most autonomos, they need to show a drop in revenue of at least 75% in March 2020 over the average of the last 180 days.



As any businessman worth the title knows, revenue doesn’t always show up when it’s supposed to. Real estate agent Lee’s income hasn’t really taken a nose dive on paper, because he’s received commission payments on sales completed before the State of Alarm was announced. And he can’t suspend his business operations to save on overheads, because then he wouldn’t be allowed to invoice for completions on more recent sales.


With people unable to leave home other than for essential reasons, Lee is unlikely to sell anything until there’s more freedom of movement. Yet he still has to meet the running costs of his office. Realistically, he feels it will be at least 6 months before people start buying again, so after 20 years of successful trading in Spain in the only niche he has ever known, this could be a very bleak winter indeed.


His daughters and their partners are also laid off from their employment, with no information on when they can expect help. It’s reprehensible that hard-working residents should find themselves in such a situation when the rest of the world believes that Spain is looking after its workers.


Start-ups fare no better. James from the Community of Valencia set up as autonomo in mid 2019. His insurance business has been building up nicely, but has now pretty much come to a halt. Because of the 180 day revenue condition, James’s income for March has increased on paper, since he’s been successful with his advertising and he’s worked hard. Although he has no idea where his next income will come from and when, he’s not eligible for aid. By the time he is, it could be too late to save his blossoming business.


New government decrees were issued on 31 March, but all this does is extend the moratorium from one month to three, and vaguely promise that more people will be brought into the claim area than before. More smoke and mirrors from a government with no clear majority. It’s time for all the parties to work together on this to find a solution they can agree on, rather than putting on a show for the media while Spain’s unemployment statistics rise by 302,000 in March alone, to an official total of 3.5 million jobless.




Once this crisis is over, those figures look set to rise even further, once the impact of lock-down hits home as businesses either fail to re-open their doors, or are obliged to do so with a reduced workforce. It was 27 March before the government issued a decree to prevent the dismissal of employees as a direct result of Covid-19, and this was not back-dated to the beginning of the State of Alarm. This will, of course, prove academic for those employees whose bosses fail to open their doors again.


It’s yet another measure that looks good on TV and in the press, but doesn’t actually put money in the pockets of those who need it most – those ‘vulnerable people’ that are repeatedly mentioned in statements with plenty of promises of aid, but no timetable as to when that aid will be forthcoming, or who will actually get it. And it’s all couched in terms of asking the banks and financial agencies to co-operate with business and personal clients, rather than insisting that they do so, and imposing penalties if they don’t.


It seems that the only people being penalised right now are the workers. Not only are they being made to jump through so many financial hoops to prove they need assistance, everything has to be done through gestors. Once the required forms are in the system, it’s virtually impossible to get answers, and there is no mechanism in place to defer payments such as autonomo social security charges.


Those outside Spain may not realise that, under the stringent autonomo system, the self-employed pay a fixed monthly amount, whether they earn anything for that month or not. This is automatically debited, and there is as yet no facility to halt payment. On Monday 30th March, almost two weeks after the announcement re social security payments, Amy was debited for her autonomous payment and other social security amounts. The system knows full well who pays what and when, so surely it’s not so difficult for Labour Minister Yolanda Diaz to direct the relevant agencies not to take payments, and also arrange immediate refunds to those whose payments were taken in error?


The general feeling is that the 75% loss of earnings threshold for applying for aid is way too high – with many small businesses operating on a small profit margin, even a 20% drop in revenue can be catastrophic. As has already been demonstrated, the markers for assessment are not true reflections of the state of trading for most companies.


Interestingly, despite all the press conferences, statements and decrees, we have not been able to find anyone who has accessed any government aid of any description. People have applied for liquidity loans at low interest, but have yet to be approved at the time of writing. It’s now three weeks since Spain’s bars and restaurants were ordered to close, and 17 days since the much-trumpeted workers aid announcement which promised a €200 billion package of measures.


Image by Rai Woods, Torrevieja


The reality is, in tourist hotspots like the Costa Blanca, those restaurants and bars forced to close have no date for re-opening, and no assistance in any form, or even the promise of aid to come. When the tourists do finally return, it will be too late for many of these businesses, spread all over Spain. Even high end restaurants are not immune from this situation, because overheads like advertising and company taxes have already been paid, and they’ve also had the expense of attending the spring trade fairs.


Companies like Amy’s, who have spent a lot on research and development, have had to postpone the launch of new products and ranges until 2021. There has been no return on any of these legitimate investments, and there is no indication of when things may change.


Smaller budget establishments are also extremely concerned, as they will miss the first real revenue boost of the year, the Easter holiday period. No matter how long your business in Spain has been established, there are worrying times ahead, with no hope of assistance from the government or the banks as yet.


So, we ask these questions of the Spanish government, and we demand immediate answers and action, rather than vague promises that ‘Nobody will be left behind.’ (Pedro Sanchez, Prime Minister, 17 March, 2020).




Is the government going to pay small businesses the money they need to pay their workers and their living expenses NOW? And if not, why not? People need help now, not in several weeks or months, when it is too late for their businesses to survive the massive hits they have taken from this enforced lock-down. If the money for these measures isn’t available, why was it announced as ‘A financial rescue without historical precedent?’




Is it, as Lee suggested, a cynical ploy to look good in the eyes of the world’s media, while the workers of Spain are brought to their knees? Maybe, as we’ve also heard mentioned, there’s an element of trying to look like Spain are managing the crisis better than their French and Italian neighbours.


The truth is, no single country can be said to be handling this well. China was a bit slow to realise the implications of Covid-19, but once the threat was recognised, the government acted. They didn’t promise – they acted, and now it’s time for Spain to act.




Will those workers laid off due to Covid-19 restrictions be paid by their employers, and will the government help those employers NOW? If not, how will businesses come back after this?


At the moment, despite all the hot air flying around, there is nothing happening to ease the misery of employers and employees waiting to see what relief will come from their ERTE applications. Yolanda Diaz has stated that 620,000 ERTEs have already been processed. That’s news to those waiting for answers!




What about mortgages? Business owners need a break to allow them to pay their workers and their overheads, and workers need a break so they can keep their heads above water. Scrap the impossible conditions which preclude most mortgage payers from taking advantage of the much-publicised moratorium and announce a three month suspension of payments, with the option for extension, NOW. And instruct the banks to comply NOW.




Why must all applications go through gestors? They are already overwhelmed with paperwork as a result of the new decrees, which they have to absorb and interpret so they can advise their clients and process the forms. When the forms are submitted, all efforts to check on progress are ignored. When can people expect to get the aid they have been promised? Ignoring the problem won’t make it go away.


It’s all fine and dandy to insist everyone stays indoors and send the Guardia Civil, Police and the Military out to enforce this and impose fines, but who benefits from that income? Certainly not the general public. By imposing these fines, local governments are making money out of the misery of its residents, while the national government is not keeping its promises.




We have one final thing to say to Pedro Sanchez and his government – stop playing games with people’s lives as you try to impress the world outside Spain and Show us the Money NOW.


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