THE SILENT RAJOY IS DEAF TO THE SPANISH EMERGENGY / THE FINANCIAL TIMES COMMENT & ANALYSIS ( A MUST READ )

August 5, 2012 8:18 pm

The silent Rajoy is deaf to the Spanish emergency

By David Gardner

©Matt Kenyon

About this time two years ago in Dublin, it was hard to escape the talk of bond “spreads” and “yields”, as the soaring cost of Ireland’s borrowing entered the twilight zone beyond which lay an autumn rescue package from the International Monetary Fund and the EU. So it is now in a hot and febrile Madrid, where seemingly everyone is fixated by the prima de riesgo or risk premium on Spanish government bonds over German Bunds. Spain looks to be in a similar fix to Ireland, stumbling towards some sort of EU bailout this autumn.




The extent to which the government of Mariano Rajoy – or any Spanish government in these circumstances – can be considered master of its own fate is limited. As Spanish borrowing costs reach euro-era highs, the markets are not just placing bets on Spain (or Italy) but on the survival of the euro. This administration, in power for a little more than seven months, already has the feel of a government approaching the end of its term.





Since winning an absolute majority last year, Mr Rajoy’s Partido Popular has liberalised rigid hire-and-fire laws, started (albeit belatedly) to clean up regional savings banks crippled by overexposure to the burst housing bubble, slashed public spending and raised taxes. While all this has won plaudits in Brussels and Berlin, it clearly does not feel like a viable programme for recovery to a surprisingly broad spectrum of Spaniards. Among the middle classes of Madrid, Barcelona and Bilbao, there is a pervasive sense of a government losing control. Even though so much about Spain’s future depends on its eurozone partners, this is an odd situation to be in for a newly elected, majority government.




One distressed PP insider says of Mr Rajoy: “He is the wrong man, in the wrong place at the wrong time.”





There have been policy mistakes and errors of judgment. The handling of the now nationalised Bankia, a botched merger of savings banks laden with toxic property loans, has been disastrous. The consequent €100bn EU package Spain needed to recapitalise its stricken savings banks was then sold to the public as soft loans Mr Rajoy artfully negotiated to break the blockade of the markets, rather than a strictly conditional, if partial, rescue scheme.





Indeed, an increasingly alarming feature of the Rajoy government is its inability to grasp that the world is listening to what it says as well as watching what it does. “One sometimes gets the impression that Rajoy speaks in public as if he was addressing a parish where the internet has yet to arrive,” Jesus Ceberio, a former editor of the daily El País, wrote last week.






On top of the prima de riesgo, the government has taken to inflicting on itself gratuitous additional premiums. Cristobal Montoro, finance minister, said last month the government would not be able to meet the public sector wage bill – on the eve of what would turn out to be a very expensive bond issue. José Manuel García-Margallo, foreign minister, followed this by rubbishing the European Central Bank, an institution standing between Spain and the abyss, as “a clandestine bank”. To round it off, Valencia, a rickety regional government ruled by the PP, further panicked investors by announcing it was broke – while the markets were still open.





Mr Rajoy himself speaks rarely, in parliament, in public, or to the press. When he does, it is of itself top news, independent of anything he actually says. Some of the coverage of his performance at a press conference last week alongside Mario Monti, the Italian prime minister, read like theatre reviews.





When the government rammed through by decree last month’s €65bn austerity package, Mr Rajoy was absent from parliament. When he announced the measures earlier, each cut was rapturously applauded by government MPs, one of whom greeted benefit cuts for Spain’s legions of unemployed by saying que se jodan (let them screw themselves).





While few question the democratic legitimacy of a government with a majority in parliament, many do question its democratic sensibility – and it surprised no one, except perhaps the PP, that within hours this contemptuous epithet turned into a slogan rallying protesters against the cuts all over the country.





Mr Rajoy’s style of government is another problem. Despite his absolute majority in parliament, he prefers to rule by decree. Oddly, for someone who favours centralised and secretive control, he has three competing voices on the economy: Mr Montoro at the treasury, former Lehman’s banker Luis de Guindos at the economy ministry and Alvaro Nadal, his German-speaking adviser.





Yet it is his failure to even try to rally the country – trapped in a downward spiral of debt and deflation – that is really damaging. Last Friday, Mr Rajoy made his first appearance since taking office at the government’s weekly press conference, but he recoils from addressing the nation.





He seems deaf to growing calls for a national pact to confront the economic emergency, analogous to the 1977 Moncloa Pacts that helped chart Spain’s path to democracy, but to include unions and employers as well as all parties including Basque and Catalan nationalists.





Also for the first time on Friday, Mr Rajoy openly contemplated the possibility of a full EU rescue. If that is what is on the cards, then it is time for a multi-party national pact, which the government should treat not as a sign of weakness, but as vital ballast to steady Spain through the storm.



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Copyright The Financial Times Limited 2012.