When the brief but intense supernova Spain experienced between 1995 and 2008 imploded, it created a black hole that not only swallowed the construction companies and banks that had fueled it, but threw the country’s entire economy into reverse. Among the defining moments of this ongoing débâcle was the resignation of former IMF managing director Rodrigo Rato as head of Bankia in May this year, or when, soon after, Joaquín Almunia, vice president of the European Commission and the EU’s commissioner for competition, state aid and subsidies announced the restructuring of four savings banks rescued by the Spanish government at a cost of 42 billion euros and nationalized: Bankia itself; Novagalicia, Catalunya Caixa, and Banco de Valencia. As part of the restructuring, some 10,000 bank employees would lose their jobs, and shareholders would face a haircut; measures the former leader of Spain’s Socialist Party describes in this interview with EL PAÍS as “tough, painful, but unavoidable.”
Almunia says that the list of those responsible for mismanagement of Spain’s savings banks is a long one: “Chief among them are the people who ran them, who embarked on unsustainable growth, and who were simply not able to manage the risks associated with the property sector. We also need to talk about how the government of the day acted, along with the Bank of Spain, which should have taken decisions much earlier than it did. But at the top of the list are the boards of the banks, who paid themselves generous bonuses while the entities they were tasked with running were on the verge of bankruptcy.”
Almunia prefers not to name names, perhaps out of respect for the dead. At the same time he points out that not all savings banks acted irresponsibly. “There are some disasters out there, but there are also success stories, and the same applies to the banks.”
His restructuring plans have prompted an angry response from some regional politicians: Alberto Núñez Feijóo, the Popular Party (PP) head of the regional government of Galicia, insists that Novagalicia must not be sold off. To which Almunia discreetly says: “I hope that by this stage in the game, everybody understands that there is no going back to the way things were; we have to make sure that there is no repeat of what happened.”
Spain has made a serious effort to restructure its banks — more than any other country has done”
Reacting to concerns that despite an EU bailout the Spanish banking system is still far from healthy, Almunia says that “Spain has made a serious effort to restructure and recapitalize its banks — more than any other country has done.” That said, he insists over and again that restructuring is unavoidable. “There will always be those who say that disaster is waiting around the corner, and to be honest, given what has happened, we cannot rule out completely the possibility of problems down the road.”
The German media has criticized Almunia, saying that the Spanish banking sector has been let off lightly. Back at home he has been attacked for what are seen as unduly harsh measures. Some pundits point to Iceland and say that the European Commission should have allowed Spanish banks to fold rather than pumping scarce public resources into them. Meanwhile, the business sector complains that four years after the crisis hit, Spanish banks are still not lending money.
“Regarding the intensity of the restructuring, we had no choice but to take the measures necessary in each case. Bankia has received huge amounts of EU money, while others have had to apply deeper restructuring measures. As for allowing banks to fold, we know the cost of liquidating a bank, and all I can say is that it is more costly for the taxpayer.”
Asked if Spain’s savings banks really have made a clean breast of things, he says: “We have looked into their accounts. The real issue now is how we can get economies like Spain’s back onto a growth track. We have to repair the damage caused by the crisis, and at the same time, generate demand that can help compensate for the consequences of the restructuring, which is unavoidable. It is hard to defend, because the effects are being felt throughout the economy, and not just in the banking sector. But this is the only way that small businesses are ever going to get access to loans, and to get demand back up again.”
Almunia accepts that the previous government of Socialist José Luis Rodríguez Zapatero should have understood the magnitude of the coming crisis and taken evasive action sooner. Similarly, he is critical of the current PP administration, accusing it of adopting half-measures. “Those countries that acted quickly and with greater determination are already doing better. It is easy to see things in hindsight, but it has to be said that we would probably be closer to coming out of this if we had confronted the problems in the banking and property sectors sooner. The strange thing is that many of those who criticized the delay are now against taking measures.”
Overall, Almunia believes that the Bank of Spain has handled the crisis well and dismisses the government’s attacks on the regulator. “It didn’t get everything right; but nobody has over the course of this crisis.”
The EU bailout of the Spanish banking system has, for the moment, cut the link between spiraling borrowing costs and the public deficit. The question now is whether a second bailout will be necessary, as some pundits are predicting. “That is a decision for the prime minister to take based on what is best for the country. It is clear that Spain needs to reduce the cost of financing its debt, both public and private. There are a series of buttons that can be pressed to reduce it. One is the responsibility of the EU, and the others correspond to national governments. The European Central Bank is prepared to act and the Commission is ready as well — but the final decision lies with the prime minister.” Almunia accuses Mariano Rajoy’s government of telling the ECB how to do its job by calling on it to guarantee that borrowing rates do not rise above 200 basis points.