The Confidence Crisis In Spain Sends Out Shock Waves

Wolf Richter's picture

Wolf Richter

It should have been a glorious event for Spanish Prime Minister Mariano Rajoy: a tête-à-tête with German Chancellor Angela Merkel. At the press conference following the 24th German-Spanish government consultation, he’d stand next to her, illuminated by her glory. He’d brag about implementing structural reforms, cleaning up the bailed-out banking sector, and moving Spain forward. He’d point at yields on government debt trending down toward normalcy. No, Spain wouldn’t need another bailout. All due to his excellent governance.

Merkel would endorse him with her benevolent smile. It would cement his political position in Spain. She’d rave about how the country has emerged from the debt crisis thanks to his tireless, bold, and courageous work in tightening the belts of his people.

But instead, Spanish stocks took a nosedive. Yields jumped. And the press conference turned into a slugfest about the corruption scandal in Spain.

The scandal burst into the open when El País published documents, allegedly handwritten by Luis Bárcenas, the ex-treasurer of Rajoy’s conservative People’s Party (PP). According to these ledgers, leading members of the PP had been paid bribes for years, with Rajoy receiving about €25,000 per year. Bárcenas himself is up to his neck in hot water; it was discovered that he had €22 million in Swiss bank accounts. The opposition has called for Rajoy’s head.

So Merkel and Rajoy were confronted with questions about the scandal—and Merkel with a blast from her past, a reference to the “black money affair” of the 1990s when her party, the CDU, under Chancellor Helmut Kohl, used an elaborate system of Swiss bank accounts to hide illegal political contributions.

The scandal broke in late 1999 with the arrest of CDU treasurer Walther Leisler Kiep for tax fraud. It ballooned relentlessly. After a few weeks, even Kohl—by then no longer chancellor—admitted to the “black accounts.” It led to an investigation by a parliamentary committee. Turns out, Kohl had used the funds to support candidates who sided with him. Numerous corporations and politicians were tangled up in it, including current Finance Minister Wolfgang Schäuble.

In short, it was a press conference from hell. Merkel emphasized that the Bárcenas scandal had not been part of their discussion. Instead, they’d talked about educational and health policies and renewable energy. And Rajoy, she said, explained his successes in implementing structural reforms and fighting unemployment....

Alas, Spain’s unemployment rate hit 26% in December, leaving 5.97 million people unemployed, up from 5.27 million when Rajoy took office in late 2011. Youth unemployment surged to 55.1%. On Monday, more bad news: the number of people receiving unemployment compensation jumped in January to the historic high of 4.98 million—up from 2 million in 2007. And the number of employed people dropped by 263,243. El País declared morosely, “the labor market begins the year with the destruction of 8,500 jobs per day.”

Nevertheless, Merkel had the “greatest respect and admiration” for what Rajoy has implemented in terms of structural reforms. It would take time for them to do their magic, she conceded, and youth unemployment was “depressingly” high. Yet she was “convinced” that the Spanish government, “with Mariano Rajoy as head,” would be able to resolve the problems. “Germany will support him with all its power,” she said.

But wasn’t she worried about Rajoy’s loss of authority? Merkel dodged; she’d already said everything, she said. “We will continue to work well together,” she added. “We have a very trusting relationship.” 

Rajoy spent his time furiously defending himself. “I have the same desire, the same hope, strength, and courage that I had when I arrived to overcome one of the most difficult situations of the past 30 years,” he said. His ability to lead the government has not been weakened. His party has a “stable majority” and “clear goals” and would continue the reform efforts. And no, he would not resign.

But the questions kept coming. Rajoy had initially denied all Bárcenas-related allegations in their totality. But some of the elements in those documents inconveniently turned out to match reality. So why were these elements true but not those relating to him and other members of the party leadership? Yes, some things were true, he conceded, but “nothing that refers to me and my colleagues in the party is true.”

He was flailing to avoid the dire fate that befell George Papandreou, the conniving prime minister of Greece, and Silvio Berlusconi, the scandal-prone prime minister of Italy. Under pressure from Merkel’s Eurozone clan, they were sacked in November 2011 and replaced by unelected technocrats.

Merkel’s support suggests that replacing Rajoy isn’t on the table just yet, though Spain is sinking deeper into its crisis that started with a pricked real estate and credit bubble, morphed into a debt crisis, a banking crisis, an economic crisis with an unemployment fiasco, and now into a confidence crisis that is sending tremors through the most important institutions of the Spanish democracy.

As Deutsche Bank co-CEO said reassuringly, “In this uncertain world, I cannot exclude anything.” Read.... The Putrid Smell Suddenly Emanating From European Banks

As if the Eurozone troubles weren't enough: on the other end of the Mediterranean is Egypt, with parliamentary elections in April, against a backdrop of violent protests, a state of emergency in three key provinces, weapons caches discovered in Cairo, and radical Salafi forces who think the Muslim Brotherhood is far too moderate. Read....   Investors Beware: Egypt’s Revolution is Not Over.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
q99x2's picture

This is how GS takes over Nations. Perfectly understandable.

Bruin4's picture

merkel takes it up the what?

lindaamick's picture

uh...the whole nation/state idea is showing itself for what it really is:  a territory run by career criminals who operate to rob from the working class to build their wealth and their cronies' wealth. 

I keep wondering how hungry workers must get before they throw the bums out. 

Trouble is I am sure there is a new crop of bums just waiting to replace the old bums. 

Somehow there must be some non-hierarchical system that could function to "out" crooks and allow citizens to pursue endeavors in fair and honest ways using principles that respect the rights of others.

goldenbuddha454's picture

Merkel to Rajoy 'as long as you keep to the structural reforms, we'll keep you out of the lion's mouth, but if you come to us for anymore loans-CHOMP!'

pashley1411's picture

You know, the Spanish economy, and their government, is as flat as a Texas armadillo on the interstate.    And yet we call it "confidence".  

Only in finance do you need "confidence" that some institution is roadkill.    How about just reading the numbers and use 3rd-grade math?

Clowns on Acid's picture

The only "Shockwave" I see is the European Stock indices climbing and now the US markets.

Notarocketscientist's picture

You know what..... Rajoy doesn't give a fuck. 


Because worst case scenario for him is he steps down - and like the rat bastard Swiss banker who passed insider info to his slut whore wife - he'll have another job in finance within days.

Because this is a club of rat bastard cocksuckers.  Nobody ever goes to jail. 

Launder drug cartel money?  No problem - pay a little fine.

Fix Libor?  No problem - pay a small fine.

The fix is on.  Steal a pack of smokes - big hous for you baby.

Kiwi Pete's picture

I wonder what the job prospects are for a corrupt unemployed former prime minister of a babkrupt country.

Widowmaker's picture

An MD at goldfuck sacklickers.

"The self-preservation of fraud is priority one!"

espirit's picture

Reminds me of the movie "Seven Psychopaths".

Dysfunctional in a new normal sort of way.

WTFUD's picture

They are all fucking thieves each and every one including AM. What worries me more though is that Nazi germany can wield the axe and send in their TechNoKrauts replacing elected authority, allbeit pissl poor with Gestapo.

Mactheknife's picture  Died in the wool East German communists...yes.   Their aim is for a Soviet style EU without Stalin's genocide...and it will end just like the Soviet Union did.

disabledvet's picture

I imagine when the Chancellor was shown her Stasi file that she made it her mission in life to always remain pissed off by the whole idea of it all. Not that the files don't keep getting collected...nor that they remain "secret" from all of us. Who doesn't want to spend the totality of one's life figuring out what other people are up to? The fact that it is illegal makes it even better...right?

kikk's picture

The whole of the EU is a political, financial and economic madhouse. Merkel herself behaves as if she was elected by the populations of Greece, Spain, Italy, France and every other country in the EU

No-one in a position of power has been elected by anybody and that includes the people who pull Merkel's strings.

hardcleareye's picture

You have forgotten the Golden Rule..... He with the Gold Rules!

The Gold is not "held" by the "electorate".

Haus-Targaryen's picture

So Rojoy is going to get the axe and the Spanish people will become the Surf's of their Goldman Sach's overlords.  I would feel sorry for them --- but they keep voting for the Euro again and again.  

People who have the Euro have no right to complain about joblessness/taxes/deflation/etc., as they have brought this problem on themselves. 

I need more cowbell's picture

His reign in Spain is plainly on the wane

TheGardener's picture

Care to dig deeper into the 1990`s CDU black money affair?

Highly topical (Mali!) would be the involvement of French interests surrounding the 110 million DM from Elf in the Leuna affair as it had an interesting twist : As I recall, the buyer of the East German chemical plant and refinery was to receive 2 Billion in subsidies for refurbishing this key
industrial asset and the east`s entire petrol station
network as a bonus , purchasing price 1 DM.

The French version of what happened is once they realized
the bidding process was highly rigged, they put their
specialists for Africa to the task and bought off the Germans
with a cool 110 million DM, including commissions for all
the middleman. The latter were the only ones blamed and reportedly had dual employment in the oil and intelligence
community !

No Euros please we're British's picture

Bye bye Rajoy. Hello technocratic GS implant.

Maybe Carney moved too soon. But when you're doing God's work you have to go where He sends you.

ebworthen's picture

"Instead, they’d talked about educational and health policies and renewable energy."

Put a fork in it, Europe is done.

Just time and patience now...

Dead Canary's picture

In short, it was a press conference from hell. Merkel emphasized that the Bárcenas scandal had not been part of their discussion. Instead, they’d talked about educational and health policies and renewable energy.

 Renewable energy, give me a break!. South European politics is a stinking, rotting corpse. How long can they continue to contain the stench. If Merkle keeps standing up for these thief's, she could go down with the rest of them when pitch forks and torches appear in the streets.


Buck Johnson's picture

She knows that if they fail two things will happen.  The EU will implode and take the western banking system with it.  And Germany will be blamed for it.

WTFUD's picture

let me say this once more Merkel stands for Merkel and does not give a rats arse even for the the german voters! When is this going to register that we are dealing with people who cling to power at ANY cost to joe public. The whole shit shower of power hungry slime have been exposed time and time again only to jump back onto the merrygoround of golden handshakes whilst the people try to survive their misallocations of public purse.

tbd108's picture

I'd like to agree with you however I would say that Merkel really stands for the banks because she is simply a Bankster shill.