Half-truths and half-measures

The president of the European Central Bank (ECB), Mario Draghi, summed up European unease over the Bankia crisis with a concise, to-the-point analysis that, while applying to other governments, seemed tailor-made for Spain: “That is the worst possible way of doing things, because everybody ends up doing the right thing but at the highest possible cost and price.”

With this phrase, Draghi concluded an impeccable description of reality, in which governments systematically underestimate the recapitalization needs of their troubled banks and, rejecting reality, “come out with a first assessment, a second, a third, fourth...” All of which come up short, we might add.

The Spanish government has provided up to three assessments of the banking sector’s capital needs, and the latest one, of 24 billion euros, may not even be the last.

One has to admit that the ECB president’s criticism is right on target. The Economy Ministry has acted with a certain degree of improvisation in the Bankia case, to the extent that — as is demonstrated by the risk premium — it is bringing the Spanish economy to the brink of a bailout. The question remains whether such frivolity is the result of a desire to conceal from public opinion the enormity of the financial catastrophe in which the Madrid branch of the Popular Party (PP) and one of its leading politicians, Rodrigo Rato, played active roles, or whether it is simply the result of ignorance. In any case, it is unacceptable to claim, as the government and the PP enthusiastically do, that Bank of Spain governor Miguel Ángel Fernández Ordóñez is solely to blame for the financial disaster. Neither is it admissible for the prime minister to try to lay the blame on Greece. No matter how hard Mariano Rajoy tries to prove otherwise, the main responsibility for the bailout threat posed by a risk premium of 534 lies with his government’s deplorable handling of the financial reform and the Bankia crisis.

But there is one point on which it is impossible to agree with Draghi, and that is his rhetorical self-exoneration when it comes to the ECB’s role in the euro zone’s convulsions. “Can the ECB fill the vacuum of lack of action by national governments on growth and deficit? The answer is no.” Too easy. That interpretation would be correct if the European financial space worked in an integrated manner, but this is not so. One of the perverse effects of the crisis that erupted with the fall of Lehman Brothers was the national compartmentalization of the banking systems, so that it is the national systems that go into crisis and national discrimination measures that go into effect to prevent contagion. The situation is such right now that German banks only trust other German banks, British banks only trust British banks, and so on. While the European financial space is restored and Draghi and European Council President Herman Van Rompuy’s idea about a European banking union gets organized, with a common guarantee fund for deposits, one of the ECB’s jobs is to bring down the fever of national debt. If it turns down that job, it will be running away by making an inaccurate assessment of the political reality of the euro.

There is another reason to reject that portion of Draghi’s speech: time. The banking federation and fiscal union are interesting but vague ideas for the moment, and considering the speed of execution of European institutions, very long-term concepts. Spain can only hold out for a few months with a risk premium above 530 points; it cannot even dream of a slight recovery in 2014 if the capital drain continues at the current rate (66.2 billion euros in March, no less) and deposit holders at troubled lenders keep withdrawing their money. These are problems of the economic area as a whole, because the weakness of European institutions has contributed to provoking them and making them worse.