Luis de Guindos , the Economy Minister, yesterday ambitiously undertook the difficult task of presenting the Spaniards with a digestible version of what is probably bad news. The European partners have had to contribute the money that Spain needs to shore up the solvency of its banking system.
The countdown began on May 10, with the overcoming nationalization of Bankia. More precisely, it was the need to finance it by contributing 19,000 million, which revealed the problem. The bankruptcy of the first bank in the national market derailed the financial reform scheme that had long been hobbling. He ended the legend of the Bank of Spain by opening a huge gap in its credibility, showed that the creation of large entities from the detritus of the most brick-lined boxes enlarged the problems instead of solving them and, above all, put on the table the State’s difficulty to continue financing more ransoms. At that time the Government assumed that it had to go to Brussels, although it was not going to accept any agreement. The distrust of the market was activated immediately, the stock market sank to unfathomable chasms and the risk premium touched the sky.
And also since that day, the government has broken copper by rejecting the pressure from Berlin, Brussels and Washington to give it up entirely. Implicitly, Guindos described it yesterday by making clear that the pretensions of some of the partners in the eurozone was to incorporate new impositions to the government’s macroeconomic and fiscal policy in exchange for the funds that the eurozone partners will contribute. This has been precisely the limited battlefield in which the dramatic conflict of those days has unfolded.
Mariano Rajoy and Guindos have avoided an intervention qualitatively similar to the Greek, the Irish or the Portuguese. That is, with a rescue package that involved the landing in Madrid of the troika – the European Commission, the European Central Bank and the International Monetary Fund – the popular “men in black” of Cristóbal Montoro, Minister of Finance.
Comprehensible resistance, because for the Government neither the Spanish economy is like the Greek or the Portuguese nor the Spanish financial sector still suffers the wave of delinquency that devastated the Irish bank and with it to the Government of Dublin.
Rajoy’s strategy has been from the first moment not to formally request the rescue, to concentrate the problem in the financial sector and wait for the proposals of the partners of the eurozone. It was both a matter of protecting themselves politically – a rescue of the Greek liquidates any government – and of summoning the partners to share responsibilities.
A strategy that implied being immune to pressure, the escalation to the sky of the risk premium, waiting for the vision of the precipice, the default, also to frighten the impatient Germans, Spain’s main creditors.
It was about gaining time and not imposing on oneself the rush of others. Spain needed days to overcome Angela Merkel’s resistance to accept a partial rescue, limited to banks with problems. For this he had the support of the new French president, François Hollande, of a sector of the European Commission, and, partially, of Barack Obama, the president of the United States.
But Rajoy’s calendar was not that of the neuralgic centers of power. The uncertainty of the result of the Greek elections, the doubts about the solvency of the Spanish banking, was bringing the world bank closer to a state of nuclear fission. And from there the final offensive was unleashed.
The serial began with the filtering by the German Government to the press of his country of the pressures that he was exerting on the Spanish, especially in the person of Guindos, so that he could ask for a full-fledged ransom. And it culminated at dawn on Saturday with the advance disclosure of the IMF report on Spanish banking, which was scheduled for tomorrow. If the Government, as Vice President Soraya Sáez de Santamaría did in the press conference following the Council of Ministers on Friday, used as an argument to avoid formalizing the request for assistance that previously had to have a quantification of the possible capital needs of the banking, he served the figure on a tray well before breakfast.
Along the way, the government met another fierce opponent: the president of the ECB, the Italian Mario Draghi. According to Spanish sources, the central banker broke a tacit compromise, perhaps more a hope of Madrid than a real agreement, that if Spain decidedly undertook the financial reform the ECB would lend a hand to relax the pressure on the debt. Thus, the meaning of Rajoy’s conversation with Draghi in Barcelona during the first days of May was interpreted and in which the nationalization of Bankia experienced a decisive impulse. But Draghi not only did not go to the market to buy debt and domesticate the premium, but openly attacked the Government for its management of the Bankia crisis.
Finally, last Thursday, the Spanish Treasury placed 2 billion euros of bonds at an interest rate of over 6%, ratifying Montoro’s words about the Spanish market access problem. Although, according to financial sources, a foreign investor stuck his nose in that sale, the burden of demand continued to fall on the Spanish banks. A dangerous complication for the entire eurozone.
Now, the benefits of the rescue will be put to the test tomorrow, when the markets and the debt judge it. The main objective of Guindos is to keep Spain alive in the markets, that is, to prevent the partial rescue from degenerating into a full one if the markets close. As a counterpart, no one can doubt that the Spanish banks will have funds to capitalize on whatever the immediate economic context.
Related The PSOE considers European aid to Spanish banks as a “rescue” IU blames the rescue of Spain to the governments of PP and PSOE He values European aid to the bank and says that “it is not a rescue of the country”