The Man Who Dithered: The Bankia crisis

If the Spanish Government, rather than bailing out Bankia, were to give everyone in Spain an equal share of the sum it will end up pumping into the bank, everyone would be better off to the tune of 25 million euros.

Well, actually no, they wouldn't be. Toss large numbers around with lots of noughts, and chances are that there will be a miscalculation along the way. Everyone would end up with around 250 euros, which is quite a difference.

The 25 million thing has been doing the rounds as indignation grows as to the parlous state of Bankia and most of Spain's banking sector. To indignation, one can add genuine fear. It's finally happening.

The crisis at Bankia is not one of the past few days. It has been brewing. A solution to the problems with what had been a merger of various banks (i.e. Bankia) was to have been a further merger - of Bankia with La Caixa. This had been on the table since at least March, but nothing happened because the now ex-president of Bankia, Rodrigo Rato, wouldn't countenance a merger that would have resulted in power over what would have become Spain's main bank residing in Barcelona with La Caixa. In Catalonia.

There was a further reason why nothing happened. Rajoy dithered, as Rajoy always dithers. For once though, his indecisiveness might not have been a bad thing. Why it was thought that a merger with La Caixa was sensible, who knows. While many of the problems with the Spanish banking sector have been put down to the debts held by small savings banks, another problem is that the sheer size of some banks threatens to collapse the whole banking edifice in Spain.

Bankia's toxic debt would have been added to what La Caixa has. And what might this be? Good question, but it should be recalled that, as an example, it was La Caixa which was at the vanguard of aggressive mortgage selling that led to the bursting of the property bubble in the Andalusian town of Benalup, the town in Spain with the highest level of young-person unemployment.

Rajoy has at least ordered there to be independent audits of Spanish banks. It's something, but Rajoy's credibility, crumbling as rapidly as the Spanish banking system, has been severely undermined by the fact that he has gone back on his word that there wouldn't be bailouts for banks. Other promises broken, such as that on IVA, and Rajoy is heading towards his own crisis. He should have acted sooner, before Bankia's crisis deepened and continues to deepen. The only solution was a bailout.

Amidst this crisis, Rajoy insists that he's the man for the crisis as he is a rarity among European leaders in having a strong parliamentary majority. He hasn't taken at all kindly to suggestions as to what he should be doing from Italy's prime minister who doesn't have a majority as he wasn't actually elected.

Rajoy may be right, but what has he been doing with his majority? Monti may have been parachuted in as unelected leader, but he does at least give the impression of knowing what he's doing, unlike Rajoy. And while Rajoy may have a majority, support in the country is ebbing away. He does little to try and reassure his supporters as he is so rarely visible. It may be his style to work behind the scenes, but Spain is crying out for a leader who is credible and who can carry the country through what is now at the point of being its worst moment of the whole economic crisis. Increasingly, there is little alternative for Rajoy than to have to go cap in hand to the IMF or the European Financial Stability Facility.

There is probably also little alternative to the Spanish Government having to step in and support some other major Spanish banks, but would it have the wherewithal to be able to do so?

Politically, there is a worry that Rajoy, shielding himself behind his whistling-in-the-dark majority boast and having dismissed an offer from  the leader of PSOE, Alfredo Rubalcaba, to form a pact, has created a vacuum of economic and financial leadership. His own inaction, combined with confusion as to who within his cabinet is really in charge of economic affairs, unnerves everyone: the markets, Frau Merkel, anyone you care to mention.

Rato is the rat who left the sinking ship of Bankia. He's been blamed for a lot, but who was it who got him appointed at Caja Madrid before Bankia? The man with a majority, the man who dithered.


Any comments to andrew@thealcudiaguide.com please.