Mariano And The Mess

Who on earth would want to be a Spanish prime minister? Well, Mariano Rajoy for one, though why is anyone's guess. It says much for political ambition that you would willingly enter the lions' den unprotected and smelling of dinner. Deficit, highest unemployment rate in Europe, virtually no growth. Presumably, in the words of the election song of a certain former prime minister, things can only get better. Actually, they can't; they can only get worse, and they already have.

Surprise has been expressed that the markets have reacted with a massive thumbs-down. That's not how it's meant to work. Good, right-wing, slash-and-burn politico takes over, and the markets are supposed to cheer at the fall of the squandering, bumbling incompetents from the left. They might have done were it not for the fact that Rajoy has to wait a few weeks before getting his backside onto the prime ministerial seat. There are procedures, you know, post-electoral ones, and the markets are being blamed for not understanding that it takes weeks for the Spanish to sort these procedures out. Perhaps Spanish politicians should try understanding how markets work, though they have shown little evidence that they do.

The hiatus following the election is just one reason why the markets have reacted so negatively. Another is that they really don't have much confidence in Rajoy and the Partido Popular as they know full well that there is precious little that Rajoy can actually do. Yep, it's a great time to be taking over as prime minister, knowing that you are totally emasculated and are dead meat even before you start.

If he were allowed into the prime ministerial office now, he would be flashing into the night sky over the Gotham City of Spain the distress image of the Euro and getting Angela and Nicolas racing from the ECB Batcave. "There are only 24 hours to save Spain, Robin." Which isn't too far from the truth, as each day brings with it ever more woe. Or perhaps he would be sending out an SOS and hoping that Thunderbird 5 picks it up. "Brains, any ideas as to how we can rescue Spain?" "Er, er, well, er, Mr. Tracy, we'll have to dig very deep. Cut very deep." "Right, Brains. Virgil, take Thunderbird 2's austerity mole pod." "F.A.B., father."

Oh that it was as simple as sending out a distress signal and International Rescue comes and makes everything all right. What am I saying? This is pretty much how it is. The IMF or the European Central Bank buying up Spanish debt as quickly as it can be issued in order to give Rajoy some breathing space to stutter his words of reforms before they cart him off to the Papandreou Home For Distressed European Leaders.

There's the deficit and then there's employment creation. It's not going to happen, because JP Morgan says so. Yes you can always rely on what banks say - they got everyone into the mess and now they can gloat at everyone's misfortune; JP Morgan reckons unemployment in Spain will rise to 27% next year. Rajoy, if and when he can get his scissors out, is going to have to cut so deep that unemployment will continue its upward march and growth its downward slump. Here comes another recession. Not that the first one ever really went away.

In an ideal world, and you may have noticed that the world currently isn't ideal, Rajoy would set in motion much-needed plans to restructure Spain's economy and not just its finances. Investment in new industries to break the dependence, certainly in some regions of Spain, on construction and tourism has been demanded for years. But where would the investment come from now? Even if the banks weren't suffering liquidity problems or weren't applying a squeeze and even if the government had spare pots of cash lying around, the results would take years to bear fruit. And Rajoy hasn't got years. He's barely got days.

Some proposals like tax cuts for smaller businesses could help with stimulating the economy, but what really might would be lowering the burden on social security payments. A reduction in IVA for the tourism industry, however, would be senseless. Tax receipts have gone up this year, thanks in part to the rise in IVA, and they are likely to be up again next year.

Rajoy has inherited a God awful mess. He should demand our sympathy, but then he wanted to be prime minister. So he should get on and sort it. But he can't, not yet, because procedures don't allow it. Incredible.


Any comments to andrew@thealcudiaguide.com please.