BERLIN (Reuters) - Germany will grant Spanish small and medium-sized companies (SMEs) aid of roughly 1 billion euros ($1.30 billion) as part of a push to combat rising unemployment in southern Europe, a paper from the finance ministry showed.

The ministry said in a draft of the plan obtained by Reuters on Monday that state development bank KfW would provide loans of 800 million euros as part of the program.

KfW would also provide additional funds aimed at boosting the capital structure of Spanish SMEs, which have struggled to obtain credit from banks weakened by the euro zone debt crisis. These funds still need to be approved for Germany's 2014 budget.

"The bilateral package of measures proposed here is composed of different financial instruments with a total volume of about 1 billion euros," the ministry said in the draft for the budget committee of the Bundestag lower house of parliament.

"These measures are appropriate because overcoming financial and liquidity shortfalls of SMEs in program countries is crucial for maintaining existing jobs and creating new jobs and training positions."

Germany, blamed by citizens in southern Europe for insisting on spending cuts and structural reforms in exchange for bailouts, is keen to shore up its image as the risk of social and political unrest grows.

EU leaders agreed earlier this year to free up 6 billion euros over a seven-year period to fight youth unemployment and Germany, frustrated with the slow pace of European institutional progress, is pushing for that sum to be deployed rapidly.

Youth unemployment has risen above 60 percent in Greece, it stands at more than 50 percent in Spain and at over 40 percent in Portugal.

The finance ministry said it expected the European Investment Bank, European Investment Fund, Spain's development bank and private investors to contribute to the program

and hence multiply the funds available to Spanish SMEs.

The program could serve as a model for other European program countries, especially Portugal, the ministry said. ($1 = 0.7716 euros)

(Reporting by Matthias Sobolewski, writing by Annika Breidthardt; Editing by Noah Barkin)

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