Spain said today it will make a confidence-boosting early start to repaying a €41 billion banking rescue loan from the euro zone.

Spain grabbed the rescue line in 2012 to overcome a financial emergency in the banking system, which was flooded with bad loans after the bursting of a decade-long property bubble in 2008.

Prime Minister Mariano Rajoy's government said it could now repay the first €1.3 billion tranche back to Spain's creditors.

"Spain will reimburse €1.3 billion of financial assistance because we can do it and so as to strengthen confidence in the economy," Deputy Prime Minister Soraya Saenz de Santamaria told a news conference after a weekly cabinet meeting.

Spain will also cut its net financing requirement - the amount of money it has to raise to finance the state's activities - by €10 billion to €55 billion in 2014 as its borrowing costs fall and tax receipts rise during an economic recovery, she said. 

Spain emerged in the middle of last year 2013 from five years of stop-start recession, showing a gradual recovery in activity since then yet not enough to signficantly dent the nation's 26% unemployment rate.