Why Spain is different

How right Spanish politician Manuel Fraga was when he uttered the phrase for which he is best remembered: Spain is different.

Here nobody is responsible for the fact that half of our financial system has been awarded junk bond status by the ratings agencies. Here we need no investigation commissions or public appearances, the guilty parties being impersonal: recession, unemployment, default rates, the intensification of the real estate crash, the difficulty of access to wholesale financial markets, the country risk, and accounting systems that allow a bank to go from a 300-million-euro profit to a three-billion loss in just 10 days.

Yet someone, some day, will have to explain the inexplicable. On July 20 of last year, Bankia listed on the stock market. If you search on the internet, you can still find the speech made by its president, Rodrigo Rato, on an operation affecting 347,000 new individual shareholders and 280 institutional ones: “The listing of Bankia is a milestone for the Spanish economy and the Spanish financial system. [...] It is only the beginning of what is just around the corner.”

Ten months later the fourth-largest Spanish bank has been nationalized, it needs a 23-billion euro injection of public money to keep going, and many shareholders are ruined.

Why does the president of Bankia appear in a press conference, and not the president of the congressional economic affairs committee?

You needn’t go that far back to reconstruct a story that, so far, is full of holes. Only a few weeks ago the prime minister stated that there would be no public money for banks in trouble; a little later in Congress, the economy minister said that public money for banks would not exceed the 15 million euros already supplied by the Zapatero government.

Yet Bankia’s new president, José Ignacio Goirigolzarri, said last week that public aid to this bank alone would have to run to almost 24 billion euros (more than twice the amount of recent health and education cutbacks); and again contradicted the government, this time Deputy Prime Minister Soraya Saenz de Santamaría, who had just said that the inputs were loans to be returned. Goirigolzarri underlined that they were not loans at all, but non-recoverable capital injections.

Hardly surprising, then, that Rajoy’s solemn statement, when arriving at a summit in Brussels, that “Spain has no intention, at the present time, of applying for an EU bailout of Spanish banks,” has been greeted with general incredulity. It again highlights the government’s habitual, lurching improvisation in this area, as it chronically lags behind reality.

Can anyone explain, and not in generalities, where we really stand, what has happened in Bankia, why there have been these erratic lurches, and whether it is true that there is no longer to be an auction of the nationalized banks, because no buyer trusts the statements of their assets? Is Spain going to have a public banking system bigger than ever, and with a government of the right? Does the government share the view of the Institute of International Finance (the international bankers’ lobby) that Spanish banks will require provisioning for 260 billion euros in potential losses, and from 50 to 60 billion euros in further capital? Of the two models of EU bailout (Greece for its public debt and Ireland for its bank debt), Spain is beginning to resemble the latter rather than the former, due to an ever-greater relationship between bank risk and sovereign risk.

Does the Spanish public, and its parliamentary representatives, really deserve the systematic frivolity of the explanations the government is offering? Why does the president of Bankia appear in a press conference, and not the president of the congressional economic affairs committee, if Bankia represents only 10 percent of the market, and, according to the IMF, no less than 30 percent of the Spanish financial system is infirm?