-- Mr. Linde's comments contrast with conciliatory tone preferred in Madrid
-- Says central bank partly to blame for loss of confidence
-- Finance Minister De Guindos criticizes EU slowness to act
(Rewrites, adding new material throughout.)
By Christopher Bjork and David Roman
MADRID--Spain's new central bank chief was sharply critical of his
predecessor Tuesday, saying he had failed to act swiftly after the
country's housing market crashed half a decade ago, a belated
admission that mistakes were made by the banking sector's regulator as
the government enters the last stretch of negotiations on bailing out
the industry.
Bank of Spain Governor Luis Maria Linde said the central bank's
failure to stem rising debt levels and deteriorating balance sheets in
the financial sector had contributed to the loss of investor
confidence in the country's banks.
"The loss of confidence in our banking system cannot be blamed
exclusively on the global economic downturn, on problems in the euro
zone... or on our own recession," Mr. Linde told a parliamentary
committee, his first significant public statement since he was
appointed by conservative Prime Minister Mariano Rajoy a month ago,
replacing Miguel Angel Fernandez Ordonez, a Socialist appointee.
His comments are an indication that Spain's political elite is
starting to come to terms with the totally unexpected collapse of what
was once called "the Spanish miracle," largely driven by mounting
problems in a banking system that many had hailed as one of the
world's strongest even after the 2008 Lehman Brothers' bankruptcy.
Mr. Linde's comments are in stark contrast with the conciliatory tone
preferred in public by Mr. Fernandez Ordonez and many of Spain's
officials. They also mark a shift from the official line taken by
Spain's government in recent weeks, as it has sought to pile pressure
on European Union institutions to do more to help the euro zone's
fourth-largest country.
Mr. Rajoy and other members of the government have said Madrid has
done its part and EU partners, together with the European Central
Bank, must now do theirs to ensure that Spain's borrowing costs drop
from the unsustainable levels seen at present.
Finance Minister Luis de Guindos reinforced that line Tuesday, saying
the EU's "extremely slow" decision-making process was hindering
Spain's recovery. He added that just as Germany benefited from
flexibility on budget deficits and a favorable low-interest rate
policy as it emerged from its own crisis in the early 2000s, it was
now the EU's turn to be accommodative to the problems of others like
Spain--hurt by low ECB rates that fed property bubbles as the economy
expanded rapidly until the real estate crash in 2008.
The minister, who was speaking at an event after being held up in
traffic by anti-austerity protests by civil servants in the Spanish
capital, is spearheading negotiations for a 100 billion euro ($122
billion) bailout for the country's banking system, which are due to be
completed after a conference call with euro-zone finance ministers
Friday.
In recent months, Spain has seen its bond yields soar over concerns
the country could default on its debt. Tuesday, the country paid less
than last month to borrow EUR3.562 billion of 12-month and 18-month
treasury bills, but it faces a potentially bigger challenge Thursday,
when it plans to sell between EUR2 billion and EUR3 billion worth of
bonds with a maturity of up to seven years, a tougher sale for foreign
investors concerned about Spain's creditworthiness.
The ECB has intervened in secondary bond markets in the past when
Spanish and Italian bond yields have risen to critical levels. Mr.
Linde, a member of the ECB's governing council, said it is "not
impossible" that the central bank could reactivate the bond purchasing
program, but that such a measure wasn't "strictly necessary right
now."
Mr. Linde offered few clues about the Bank of Spain's roadmap to fix
the banking sector over the next few months, when the first batch of
EU funding will be available, but indicated the sort of mistakes he
will want to avoid.
He said former central bank chief Fernandez Ordonez acted "with little
determination or insufficiently or inadequately" in several ways.
He faulted the bank for allowing so-called virtual mergers of ailing
savings banks instead of full mergers, which he said contributed to
delaying key decisions and restructuring efforts.
The Bank of Spain also was "too timid" in forcing banks to create
buffers against potential losses on loans during the construction
boom. More recently, the bank failed to foresee the double-dip
recession Spain fell into earlier this year, he added.
"Looking at what happened with the information that we have today, we
have to recognize that at the Bank of Spain we didn't succeed in what
we now call macroprudential supervision," Mr. Linde said.
Civil servants took to the streets Tuesday to protest salary cuts
announced by the government last week. The number of anti-austerity
protests in Spain has soared: in Madrid alone some 1,400 rallies have
taken place so far this year--an additional headache for a government
grappling with recession, major austerity reforms, multilateral talks
and a banking crisis.
-Emese Bartha in Frankfurt contributed to this story.
Write to Christopher Bjork at christopher.bjork@dowjones.com and David
Roman at david.roman@dowjones.com
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(END) Dow Jones Newswires
July 17, 2012 13:08 ET (17:08 GMT)
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