Spanish bankers bailed out again

Rajoy’s strategy on the banks: privatise the gains, socialise the losses

Six months ago Mariano Rajoy pledged not to give ‘a single euro of public money’ to the banks. Last week, this promise went the same way as his pledges on not raising tax: in the shredder. Spain’s right wing prime minister has unveiled yet another – the fourth – bail out of the country’s banks since the onset of the financial crisis in 2008.

Just weeks after he unveiled €10 billion cuts to education and health in what we supposedly an unavoidable requirement to restore health to the country’s finances, Rajoy has miraculously found €15 billion to help out his friends in banking. That includes a huge chunk of public money that it has put into Spain’s fourth largest lender, Bankia, which has more of the country’s now ‘toxic’ properties on its books than any other bank.

State aid to Spain’s private banks provided over the past four years in various forms now totals €115 billion – and that excludes over €200 billion in 1% interest rate loans from the European Central Bank. Yet within minutes of the Spanish government’s announcement on Friday, already pundits were saying that this latest corporate welfare cheque is not enough, and another €40 billion needed. They are predicting that this further injection of public money will need to come from the European Financial Stability Facility (EFSF), which is funded by EU governments.

The ostensible reason for Spanish bankers’ insatiable demands for cash is their exposure to “problematic” property loans of as much as €170 billion, equivalent to 17% of Spanish GDP. This exposure was down to bankers’ gambling on the property casino that led to a bubble that  then burst in 2007, sending the economy into meltdown.

This obsession with bricks and mortar has not only done lasting damage to the environment in large parts of Spain’s coastal regions, but it has created a massively lopsided economy, starving other parts of the economy of investment. And it has left millions up to their necks in debt or out on the streets after their homes have been repossessed and whose misery is fuelling a downward spiral of unemployment and recession.

The Bankia operation has been labelled a ‘nationalisation’ as the rescue includes the state taking a 45% stake in the company. However, as with bank nationalisations elsewhere, the government will be a passive shareholder, leaving the bank to continue its drive for short term profits, and the government will seek to sell its stake back to privateers as soon as possible – after, that is, its ‘toxic’ property assets have been dumped in a ‘bad’ bank. A royal rip-off for  the public in general.

For Socialist opposition leader Alfredo Pérez Rubalcaba the main issue seems to be that this is a time-limited operation that leads to ‘no losses for the government’ and full recovery of the investment. However, the party appears divided on the issue.

Tomás Gómez,  leader of the socialists in Madrid,  argues instead that the Socialist Party should reject the government’s banking sector rescue, which he deems ‘against the interests of the Spanish people’, and instead of relinquishing its stake in Bankia the government should use it to convert the financial institution into a ‘strong public bank’ to help tackle the crisis.

Gómez argues that using money that isn’t available for health and education to save a bank to sell of at a later date at a ‘knock down price to private banks’ is ‘immoral”.  The Spanish people, as the owners, should get the long term benefit of their investment.

Gómez’s position appears close to that of communist-led United Left,  which is calling for full blown public ownership and control of Bankia and all the other Spanish banks in receipt of  public money.

Alberto Garzón, economic spokesman of the Communist-led coalition, argues that this would allow for the maintenance of the original ‘social’ function of the savings banks, or Cajas, seven of which were merged form Bankia two years ago.

Priority could then be given to extending loans to families, and small and medium sized businesses. And the empty properties on the banks’ books would constitute a stock of  ‘affordable rental accommodation’ for those who need it.

After the deal was announced Friday, the Spanish stock market had its biggest surge  of the year as the government unveiled this latest move to socialise to losses of the banking crisis to later privatise the gains.

This state largesse for this most protected of sectors means many a top banker, unlike the millions of ordinary Spaniards thrown onto the scrapheap in the name of austerity, will now keep his job.

And even Rodrigo Rato, who has been fired as Bankia chief,  has little to complain about.

An historic senior figure in Rajoy’s Popular Party, former finance minister and IMF chief, Rato was in line  a tidy €2.34 million last year –  or 260 times the minimum wage. This is now reduced to a mere €600,000 under new rules on executives of banks receiving state subsidies. But Rato is still in line for a €1.2 million leaving present.

€600,000 is presumably what his replacement, José Ignacio Goirigolzarri, will be pocketing. Just as well Goirigolzarri already has a pension of €68.7 million from his former employer, BBVA bank. Otherwise just how would he get by?