The Bankia catastrophe

Politically, the crisis in Bankia has become the worst-handled bank crash in Spanish history. The nationalization of the group, the rapid substitution of its managers, and the appearance of a hole that keeps growing (estimated at some 23 billion euros), together with the high probability that the required capital input will take the form of public debt, has caused Spain’s risk premium to rise above 510 basis points, Bankia shares to lose 25 percent on their return to the trading floor, and Spanish bank securities to drop generally, auguring a considerable worsening of the economic and financial crisis.

The public wonders why, without responsibilities being demanded of anyone, 23 billion euros of public money are to be injected into a bank.

Prime Minister Mariano Rajoy, alarmed at the critical situation of the financial system and at the obvious risk of bailout in a 510-point debt differential, spoke to calm the public and the markets. But then the risk premium, which was leveling out, shot up again, while the stock market fell. Hardly surprising: his words on Monday were vague and unconvincing, proving that the government is tending dangerously toward resignation. His remark that the Spanish debt differential has “nothing to do” with the decisions on Bankia denies the obvious, and underestimates the consequences of this episode. His assertion that there will be “no EU bailout of Spanish banks” is merely that, a groundless assertion.

Rajoy must explain where the necessary public money will come from, to capitalize Bankia and other bailed-out banks. If it comes from new public debt, then Spain takes another step toward bailout. The optimal solution would be for the European Rescue Fund to inject directly into the banks the public capital required, but at present this is not legal. If Rajoy wished to calm anyone, he would explain how he intends to negotiate the entry of EU capital into Spain’s banks; or otherwise, how he will prevent the new public debt from being another nail in the coffin of the Spanish economy.

Of course, the ECB should act to moderate the differentials of Spain and Italy, while they resolve their internal banking crises. But the performance of national governments counts for a great deal. And ours is fast losing credibility, always lagging behind events. Its vague statements disturb investors, while the public is angered by the political silence on the subject of Bankia. Parliamentary explanations are due from Bankia’s executives, its board, the regional government of Madrid (holding seats on the board), and the regulators (Economy Ministry and the Bank of Spain), as to what went wrong with the mergers and the stock market listing, and with the auditors, who could not tell profits from losses.

Blame must be assigned. Only thus can Rajoy prove that Spain is a serious, reliable country. This is why a parliamentary commission of investigation is indispensable. While not ruling out, of course, any legal actions that the shareholders may see fit to take.