BERLIN (AP) — Germany is setting up a credit facility for small and medium-sized firms in Spain to boost growth and job creation in the crisis-hit southern European economy. 

A document obtained by The Associated Press on Monday says the German government will guarantee a bilateral loan facility worth about 1 billion euros ($1.3 billion).

The low-interest loan funneled through Germany's state-owned KfW bank will allow its Spanish equivalent, ICO, to dish out a multiple of that amount in loans to local firms. 

The document signed by German Deputy Finance Minister Steffen Kampeter says the initiative could be extended to other economies hit hard by Europe's debt crisis such as Portugal. 

While the European Central Bank's benchmark interest rate is at a record low, much of southern Europe is experiencing a credit crunch.