Monday, March 07, 2011

Looking For Another Rato

According to some recent reports, the Partido Popular is hunting for someone who would make a credible job of implementing something which currently doesn't exist. The PP's economic policy, the miracle cure for the crisis. Although we don't know any of the content we do know, from what party leader Mariano Rajoy has said in the media, that the secret recipe will work in just two years. The problem is that, following the sad fiasco of the appointment of Manuel Pizarro at the last general election, the PP lacks any heavyweight politician who can deal with economic matters. 

The model of course is Rodrigo Rato, currently very busy with Caja Madrid or Bankia or whatever it's called this week. Rato is regarded by many inside the PP as the man responsible for Spain's economic miracle, having been economy minister between 1996 and 2004. His reward for these years of hard work (and the Spanish collaboration in the Iraqi invasion) was to become the boss of the IMF, although he didn't manage to serve a full term in that job. Indeed, a recent report on the complete failure of the IMF to anticipate the crisis has not done a great deal for the credibility of Rato.

Of course we have to recognise that Rodrigo was just the political appointee running the shop, it would be unfair to expect him to answer for the failures of the organisation which in any case he abandoned before things got really grim. But it does help to put Spain's economic problems into a bit of context. It's easy to forget, especially if you assume the PP's arguments, that there ever was an international context to the crisis. The convenient thesis for all of those unwilling to deal with the implications of the financial crisis has been to pretend that dozens of economies went simultaneously into recession because of the incompetence of their governments. Reality is turned on its head to sustain this fiction, so the budget deficit becomes a cause of the crisis rather than a consequence.

In the Spanish case it's really worth going back to the boom years before the crisis to put things into perspective. Because the economic model that Zapatero's administration pursued until the crisis brought the good times to an end was exactly the same as that implemented by Rodrigo Rato under Aznar's administration. Not so, PP supporters will protest, Zapatero has ruined the golden economic legacy left to him by the PP. So here's a party game that you can play with anyone who sustains that argument. Ask them if they can name the person who spoke for the PP on economic matters between 2004 and 2008. I know, it's not much of a party game. Frankly it's for those very quiet nights. But there is a good reason why many PP supporters won't be able to answer the question. There was no economic debate in Spain before the crisis hit.

You could put forward a good argument for saying that Zapatero should have changed the PP's economic model, so that the profits created by the bubble could have left something for the future. But he didn't, and the PP certainly never asked him to. This is important because the few clear signals we get on the PP's economic policy suggest that they are simply aiming to repeat the Rato bubble again; except that now they have to try it in circumstances that are much less favourable. Add to this their admiration for the Cameron model of turning stuttering growth back into imminent recession and you might think that the 2 year estimate is starting to look a little optimistic. There doesn't seem to be a rush of volunteers yet to fill that economics vacancy.


Guiri said...

I always enjoy your analysis Graeme.

I've never been particularly clear on what Rato did to promote an economic miracle. Euro Interest rates were slashed so that Germany could integrate East Germany and France could haul herself out of her mid-90's slump. while Spain and Ireland were already coming out of recession (their economic cycle being more closely aligned with the UK, at the time) and had no need of slashed interest rates.

Free money will always generate a bubble.

Rato was no more a genius in 2000 than Nigel Lawson was in 1985. Surely he just rode on the coat-tails of Berlin's necessity.

But maybe I am missing something.

Graeme said...

No, I don't think you've missed anything there - perhaps just the additional free money of all those EU funds that helped to build the infrastructure, something else which is no longer available for a repeat operation.

Nieves R said...

Stopping by to say you have a blog award waiting at

Best regards,