FT interview: Mariano Rajoy
Spanish PM insists
his reform programme will begin to bear fruit this year
The Financial Times
In
his first year in office, Mariano Rajoy, Spain’s prime minister, has at times
resembled a latter-day Saint Sebastian. Assailed on all sides – by a meltdown in the banking sector,
soaring unemployment and a
crisis in the public finances – he has been forced to break one election
promise after another. He has slashed spending and raised
taxes, to the fury of Spanish voters. The low point came last June
when he had to go cap-in-hand to the EU to negotiate a €100bn bailout
for Spain’s tottering banks.
The
economic and political turmoil has
left Mr Rajoy bloodied but resolute. In a two-hour interview at the Palacio de
la Moncloa, his official residence on the outskirts of Madrid, the Spanish
prime minister is at pains to explain why he is determined to stay the course,
and why he believes his strategy is beginning to bear fruit.
“It is the old cliché that Rajoy never takes
decisions,” he says, “They say about the Gallegos [Galicians] that they
like to wait and see – and they say the same thing about me. But in the year
since I took over the government I reduced the public deficit in a situation
where we were in recession. I pushed through structural reforms and a reform of
the banking sector. I would like to know: How many non-Gallegos would
have taken those decisions?”
Spaniards
often describe their prime minister as a typical Galician – reserved, reluctant
to give a clear answer, ever keen to keep his options open. Popular lore has it
that when you meet a Galician on a staircase, you never know whether he is
going up or down.
Mr
Rajoy retorts that he is “proud and happy” to be from Galicia, a northwestern
stronghold of his conservative Popular party. The prime minister’s attachment
to his home region is evident from the pile of newspapers on his desk: ABC, the
conservative daily, lies on top, followed by La Voz de Galicia, the main
regional paper; El Mundo and El País, the biggest Spanish dailies, form the
bottom of the pile.
With
his air of small-town rectitude, Mr Rajoy offers a sharp contrast to more
flamboyant predecessors, the outspoken José María Aznar or Felipe González, the
charismatic socialist. Where his critics detect indecision and procrastination,
Mr Rajoy sees calm and prudence. He bides his time. This is, after all, a man
who lost two elections before he led the PP to a crushing victory in December
2011.
Yet,
for all his caution, Mr Rajoy is strikingly assertive as he makes his case that
the economic tide in Spain has finally started to turn. He points to rising
exports and falling bond yields, and boasts that his labour market reform of
last year has helped Spanish companies to regain competitiveness: “I think that
the second half of 2013 is when we will start to see a recovery, and it will
come through very clearly in 2014.”
Not
everyone shares his optimism. Critics argue that the incipient recovery is
being driven more by the prospect of intervention by the European Central Bank
than the reformist spirit of the Rajoy government.
Spain’s
prime minister firmly rejects that assertion, but is fulsome in his praise of
Mario Draghi, the ECB president, whose promise last July to do “whatever it
takes” to defend the single currency was seen as a turning point in the eurozone crisis. Now, says
Mr Rajoy, any doubts about the future of the euro are “history”.
Mr
Draghi threw Spain and other debtor countries another lifeline in September,
when he announced a new programme that allows the ECB to buy government bonds
in the secondary market. The catch is that Mr Draghi can only activate the
programme (known as outright monetary transactions),
once a government has formally requested a bailout or credit line from eurozone
finance ministers. Until now, Mr Rajoy has not made that request, betting
perhaps that the mere option of triggering ECB intervention is enough to calm
markets.
Economists
say this reluctance has made it more costly for Spain’s Treasury and Spanish
companies to borrow money, delaying the recovery. There is also fear that the
eurozone crisis will flare up again – for example, as a result of a potentially
messy Italian election next
month. (Mr Rajoy is following the run-off closely, as he refers to a recent
poll in Lombardy.) Uncertainty in Italy could force Spain to seek an ECB
programme amid fresh market turmoil, rather than locking in lower interest
rates during the current, more tranquil period.
The
failure to request intervention is often held up as Exhibit A in the case
against Mr Rajoy, though it is likely that the prime minister was swayed as
much by German resistance to a new programme as by his own doubts. He firmly
rejects any suggestion that he was moved by a sense of Spanish pride.
“People
might say that I wasn’t right by not entering the OMT. I am not really bothered
by that ... We took a decision that was right for Spain.”
The
shift in market
sentiment suggests he is right, for now. Last week, for example, the
Spanish Treasury raised more than €5.8bn in its first debt auction of the year.
The issue was oversubscribed, and yields were comfortably below the levels seen
in recent auctions. The sale was hailed as a powerful signal that investor
confidence is finally starting to return.
There
are other positive signs: Spanish exports are on the rise,
defying the economic slowdown in many of the country’s key trading partners.
The current account has moved into surplus, and labour costs have been
flattened – a result of fierce job cuts and stagnant wages.
In
fact, Spain was the only large economy in the EU in which there was a fall in
unit labour costs between 2009 and last year, a trend that has not gone
unnoticed in boardrooms across the continent. Carmakers such as Peugeot,
Ford
and Renault
have all announced recently that they are either expanding or maintaining
production in Spain in spite of closures elsewhere in Europe.
Towards
the end of last year, Spain also made significant progress in sweeping up the
mess left behind by the banking crisis. The worst-affected banks have been
recapitalised and have moved their toxic assets into a state-run “bad bank”.
Doubts linger about the quality of the assets and loans that remain on the
books of Spain’s lenders, but Mr Rajoy is adamant that there will be no more
nasty surprises: “The banking system has done a complete striptease,” he says,
in an unusually colourful reference to the bank stress tests conducted last year.
These
bright spots, however, appear against the backdrop of a dismal – and worsening
– economy and labour market.
Most
international forecasters expect Spain’s gross domestic product to shrink by
about 1.4 per cent this year, after a drop in output of 1.5 per cent in 2012.
Spain’s shockingly high
unemployment rate, meanwhile, is expected to remain above 25 per
cent this year, and will continue to cast a deep shadow over the lives of
millions of Spaniards and their families.
Mr
Rajoy acknowledges that unemployment remains Spain’s “most important problem”,
but insists that the labour market reform he
pushed through last year will help. The legislation makes it easier for
companies to depart from region-wide collective wage agreements, allowing more
flexible deals at factory level. It also makes it easier and cheaper to fire
workers on fixed contracts, a change long demanded by Spanish employers.
. .
.
Economists
say that the jury is still out on Mr Rajoy’s overhaul of the job market, and
they highlight the lack of mobility of Spanish labour. But Mr Rajoy is
sanguine. “Recent job losses have taken place in the real estate sector, in the
financial sector and in the public sector,” he says. “But in other sectors of the
economy jobs have not been lost. So the labour reform has started to bear
fruit.”
The
employment legislation was passed just three months after Mr Rajoy entered
office. In other crucial areas, however, notably the banking sector, his
government was slow out of the blocks. It was also too trusting of assurances
given by institutions such as the Bank of Spain. Mr Rajoy says it is
“pointless” (a favourite word) to look back at past mistakes – but he cannot
resist a dig at his Socialist predecessors. “I found out only a few days after
I took office that the deficit could be around 8 per cent,” he exclaims.
Spain’s
continuing economic crisis will dominate the rest of Mr Rajoy’s tenure. But he
faces at least one other daunting challenge:
Catalonia.
In
the past months there has been a surge in separatist sentiment in Spain’s most
important economic region, heightening fears that the government in Barcelona
and Mr Rajoy are destined for a cataclysmic constitutional battle.
Artur
Mas, the Catalan leader, has promised to hold a referendum next year in which
Catalans would vote on whether to form an independent state. Mr Rajoy and his
government insist that such a plebiscite is not allowed under the Spanish
constitution – and warn that they will not tolerate any move towards Catalan
secession.
“One
thing you cannot ask a prime minister to do is to give up on his own country,”
Mr Rajoy says, suggesting that the very idea of Spain without Catalonia is
unconscionable. Though he steers clear of the inflammatory rhetoric towards
Barcelona used by some of his ministers, Mr Rajoy leaves no doubt that he
regards national unity as non-negotiable.
“The
unity of Spain goes back more than five centuries. This is the oldest country
in Europe,” he says, insisting that Spaniards, including Catalans, are “united
by many things”. Many Catalans offer a radically different interpretation of
Spanish history, and insist that Catalonia has always been a nation – and a
people – apart.
But
Mr Rajoy argues that the Catalan push for independence runs counter not only to
history, but also to the present. “The world is going in a totally different
direction,” he asserts, pointing to the increasingly dense web of supranational
alliances and federations that spans the globe. “We are working towards greater
integration and not the opposite,” he says.
. .
.
The
prime minister says he is ready to discuss a new financial compact between
Madrid and the regions, including Catalonia, suggesting that such a deal may be
sufficient to calm the current tensions. Like many decision makers in the
capital, he is convinced that the Catalan leadership, for all its rhetoric,
will ultimately step back from all-out conflict with Madrid.
For
much of his first year in office, Spain’s prime minister has been so busy
stamping out political and economic fires that he has been preoccupied by
crisis management. Asked what he hopes to achieve as his political legacy, Mr
Rajoy responds that he would be happy to “lay the foundations for a strong
economy” and “help European integration”.
These
are challenging but modest goals for a country that, only a few years ago, was
poised to join the Group of Eight leading world nations; that served as a
crucial US ally during the Iraq war; and that – under Mr Rajoy’s predecessor –
launched a high-flying diplomatic initiative known as the Alliance of
Civilisations.
Where,
then, is the poetry in his political ambition?
“Poetry?”
asks Mr Rajoy, momentarily taken aback. “My thing is prose.”
Biography:
Cautious path from provinces to power
Mariano
Rajoy could have easily led a quiet life. Born, raised and educated in the
coastal region of Galicia, he became the youngest Spaniard to pass the
examination for property notaries after his law degree. The country’s registradores
make up a much-envied caste that is well paid, protected from competition
and redolent of a respected, comfortable existence in the provinces.
Instead,
Mr Rajoy embarked on a career in politics that took him from his home region to
Madrid, and finally on to the European stage. He served as minister for public
administration, education and interior affairs – before taking over the
leadership of the centre-right Popular party in 2004. What followed was seven
years as opposition leader and two consecutive election defeats; he finally
swept to victory in November 2011.
The
57-year-old father of two is widely seen as a cautious figure, lacking in
charisma. His supporters, however, say he is hard-working, solid and
persistent. Mr Rajoy is said to keep his distance from business leaders, and
has shown little interest in the trappings of wealth and power.
Like
many of his countrymen, Mr Rajoy is an avid sports fan, taking great pride in
the recent successes of Spanish teams and athletes. Football is a particular
passion, and he closely follows the fortunes of Real Madrid, his club side, and
the national team. In fact, Mr Rajoy raised eyebrows when – fresh from
negotiating a €100bn bailout package for Spain’s banks – he decided to travel
to Poland to watch Spain’s opening match at the European Championships last
year. Critics accused him of unstatesmanlike behaviour, saying he should have
addressed the crisis-scarred nation instead.