Spanish PM Rajoy – The Wrong Man At The Wrong Time

Spanish Prime Minister Mariano Rajoy has spent much of the political capital he won seven months ago in the biggest landslide in 30 years, floundering against a crisis that risks making Spain the first $1 trillion economy to need a sovereign bailout, investors and analysts say.

Rajoy, singled out by leaders at the Group of 20 summit, has been taunted by opposition lawmakers and commentators as borrowing costs soared to a euro-era record even after Spain’s banks received a 100 billion-euro ($127 billion) lifeline. Rajoy called the rescue a victory that solved lenders’ problems.

“He clearly doesn’t get it,” said Gary Jenkins, founder of Swordfish Research Ltd. near London, who has tracked bond markets for more than 15 years. “Spain needs someone who can come in and grasp the seriousness of the situation and react to that, not just pretend everything’s okay.”

The Spanish-bank bailout made Italy the next potential investor target. Together, they could overwhelm the sums committed to safeguard the 17-nation currency bloc. Southern Europe’s two major economies have 2.8 trillion euros of government debt, four times the total of Greece, Portugal and Ireland.

“A rescue for Italy is pretty much impossible without a major change in German borrowing costs, a major change in overall euro-zone levels of inflation, a major change in the level of the euro, or a major change in the structure of the euro zone,” Jamie Stuttard, Fidelity Investments’s head of international bond portfolio management in London, said in a telephone interview on June 19.

Rome Summit
Rajoy, 57, who was told by Germany’s Angela Merkel at the G-20 in Mexico June 19 to spell out the depth of his banks’ needs “as soon as possible,” will be under scrutiny today when he faces Merkel and French President Francois Hollande at a meeting in Rome hosted by Italy’s Mario Monti.