Spain's Rajoy: Asleep at the Helm?

Sorry to go on about Spain, but it is really a crucial country in the current set of European circumstances. In my last blog, I ended by saying - “... this can only work well if Rajoy comes out as a stronger visionary than he has appeared to be in the past.” Today, I'd say, even a visionary needs to share his vision.

With a comfortable absolute majority in the Congress after November's general elections, Spain's new Prime Minister Mariano Rajoy was in the best conceivable starting position to fix his country's economic troubles. As the weeks go by, however, one begins to wonder what he's making of it.

For one thing, he is literally nowhere to be seen. Though he is known to be somewhat reserved, by the third week of his governance people started talking about his absence. “Mariano who?” - “Has Rajoy been kidnapped?” His deputy fields all the media, and she's undeniably competent. On election night, she was the one who first appeared on TV to acknowledge the victory. At the formation of the government a month later, Rajoy showed up at the press conference to read out the list of ministers, then left without even answering the single question he had consented to hear. The remainder of the session was handled by Deputy Prime Minister Soraya Saenz de Santamaria. The deputy also runs the government's weekly press conferences. The Prime Minister himself waited three more weeks before he appeared and gave a speech at a party meeting in Malaga. Making himself scarce seems to be his tactic.

Still, the nation wants to see its elected leader once in awhile. Moreover, it's his duty to hold the government together. Leaving that task to a deputy is not good practice, even if the deputy's name sounds like a prayer. Now the ministers have started contradicting each other in public.

The background is that Rajoy decided to split the former Finance Ministry in two (Ministerio de la Economia, and Ministerio de la Hacienda) when he formed his government on December 21. Though a significant change, it was not a huge surprise, since this was the way it was the last time his party ruled the country (1996-2004). But today the change may have crucial implications. After all, the Ministry of Finance is the “Crown Jewel” of any serious-minded government anywhere seeking secure control of its own policy implementation. Under the current circumstances, Rajoy was expected above all to bring the country under tighter fiscal and financial control. The decision to split the ministry seems to be a step in the other direction. Rajoy's calculation may be that this way he makes it easier for himself to control economic policy from the top. If so, he may be wrong; at least he's liable to be wrong before he's right.

The reason I say this is that the two ministries are now competing publicly, both in the media and – more serious - apparently also in the execution of their functions. The misson of one, Economia under Minister Luis de Guindos, is to focus on the broader lines of policy and the internal and external financial relations of Spain. The other, Hacienda, under Minister Cristobal Montoro, focuses on the implementation of fiscal measures to control actual spending and collect taxes, including handling the relations with the autonomous regions in this regard.

Hence, one can discern the outline of two very different constituencies for these two ministries: the first speaks to the markets abroad and the other governments of the EU and the IMF, but also to the private banking sector at home. The second speaks to the autonomous regional governments of Spain and their underlying structures (provinces, municipalities) that deliver taxes to Hacienda in Madrid. Both ministries are to some extent dependent on their constituents. Spain needs credibility abroad for its public debt to be supportable, inter alia through the regularly repeated international auctions of government bonds (which on Jan 12 went unexpectedly well for Spain). The policies of Economia are primary in serving that end, and they need to look tough. De Guindo gave support to foreign anticipation when he told the Financial Times recently that strict budgetary controls were to be instituted whereby each autonomous regional budget had to be subject to prior authorization from Madrid.

A few days later his rival Montoro in Hacienda told a gathering of representatives from Spain's autonomous regions (in a speech given wide circulation) that they would receive “the full respect of the Partido Popular regarding their economical, political and financial autonomy”, and would be treated the way the EU (eurozone) treats its member states. Given the decentralized structure of the Spanish governmental system, controlling expenditures in the regions is more a matter of persuasion than dictation, and so Hacienda finds itself conducting diplomacy - rather than exercising power - among the regional governors. That notwithstanding, the system will not be without sanctions even under Montoro's Hacienda. If Montoro has his way, those who exceed the limits set by the center will be punished by fines, on the model of the EU system for member countries in the eurozone. (Does that model seem ominous?)

It seems to this writer that had the two units been under one hat as a Ministry of Finance, the diverging missions they now have could more easily have been synchronized without losing the rigorous control necessary for a healthy economy. In any case, the prior control model seems to require considerably more bureaucracy, not an easy thing to introduce under current conditions. In short, the budgetary horse has been out of the ministerial stable for years and is not about to come back soon.

At the moment Rajoy is said to be working on a new law to revise the present free-wheeling status of the autonomies in economic affairs. That might be why he's so invisible. In that case, we should all, in the name of eurozone stability, wish him good luck. And hope that he finds time for a break once in awhile to pop out his head and say hello to his countrymen. They'd love to hear what's keeping him so long.

TO MAKE A COMMENT, please check the option "anonymous" before clicking "publish" - even if you sign by name, otherwise the system will not show your comment.