By Jesús Aguado and Nathan Allen

MADRID (Reuters) – Spain will approve 50 billion euros (45 billion pounds) as part of a new set of measures aimed at boosting companies’ investment capacity and solvency in an attempt to revive the coronavirus-hit economy, Prime Minister Pedro Sanchez said on Thursday.

The announcement was part of other proposals such as tax reform partly focused on raising taxes on larger companies rather than smaller ones.

Sanchez said in an interview with La Sexta on Thursday that the new measures were “linked to (boosting) solvency and investment.”

A government source told Reuters earlier that Spain would approve this package at an extraordinary cabinet meeting on Friday.

“Measures are aimed at improving the financial structure of companies to also lower their risk of defaulting on their payments with lenders,” the source said, adding that financial instruments were still being discussed.

In March, the government approved state-backed credit lines of up to 100 billion euros to help support mainly small and mid-sized companies and self-employed against the fallout from the pandemic.

Last month, Bank of Spain Governor Pablo Hernandez de Cos said mechanisms were needed to encourage the growth of small and mid-sized companies to reduce their higher borrowing costs compared to European peers.

EU BATTLE

Policymakers in Europe have been discussing options for getting more equity, rather than debt, into businesses but few countries have ready-made vehicles for funnelling mass investment into SMEs.

While several governments have set aside funds for capital injections into large companies, they are having to think up innovative options for smaller firms.

On Thursday, Sanchez said it was “imperative and necessary” for the European Union to reach an agreement on a common recovery fund by July, but warned that negotiations were set to be a “big battle.”

EU members agreed in June that economic action was urgently needed but remain divided over the value of loans or grants to be provided and if the program should last two or three years.

“We believe it should be four years,” Sanchez said, adding that passing a 2021 budget would depend heavily on the outcome of the talks.

After years of political instability, Sanchez’s government has failed to pass its own budget, instead rolling over one from 2018 drafted by his conservative predecessor Mariano Rajoy.

Sanchez said he would meet with his Dutch counterpart Mark Rutte, an advocate for a smaller, loans-based program, on July 16 to discuss the fund.

(Reporting by Belen Carreno and Jesús Aguado; additional reporting by Nathan Allen, Inti Landauro and Emma Pinedo; writing by Jesús Aguado; editing by Andrei Khalip and Angus MacSwan)

PHOTO: Spanish Prime Minister Pedro Sanchez delivers a statement amid the coronavirus disease (COVID-19) outbreak, at Moncloa Palace in Madrid, Spain, June 20, 2020. Moncloa Palace/Handout via REUTERS