Last Monday morning when most of Spain’s citizens were busy watching YouTube videos or TV news coverage of Rodolfo Chiquilicuatre doing his bit of buffoonery at the Eurovision Song Contest, many readers of the English speaking financial press were hard at it peering into another video, the one of the Financial Times’ Ralph Atkins interviewing Spain’s representative on the ECB executive board JosÃ© Manuel GonzÃ¡lez-PÃ¡ramo (transcript here, curiously whilst almost everyone in Spain seems to know who Chiquilicuatre is, almost no one has heard of GonzÃ¡lez-PÃ¡ramo).
The Spanish representative was busy trying to allay fears that European banks have become over-dependent on European Central Bank liquidity injections and in particular trying to deny that the Spanish banks are gearing their operations to take advantage of the extra help which has been made available.(In other words while the good Rodolfo was dando-nos a todos verguenza ajena, GonzÃ¡lez-PÃ¡ramo was simply doing his job, and dando la cara for Spain).
â€œI donâ€™t think in any way the banking system is becoming addicted,â€ said JosÃ© Manuel GonzÃ¡lez-PÃ¡ramo, ECB executive board member, in an interview with the Financial Times. â€œThey are now behaving a little bit different than they were behaving before August 2007, but the reasons behind that are quite obvious to everyone.â€
If GonzÃ¡lez-PÃ¡ramo was having to work hard to keep the Spanish end up, this was in part a result of the growing concern being expressed that Spanish banks are creating ever riskier collateral to swap with the ECB, much riskier collateral than the central bank ever envisaged. The fear is that the ECB has already accumulated too much risky collateral, and that the funding is being used to far to great an extent to keep “business as usual” going, rather than as bridge finance to enable a sizeable restructuring of the Spanish economy (which was, I think, the original intent). Just such a view was expressed earlier this month by Yves Mersch, Luxembourgâ€™s central bank governor â€“ who, like GonzÃ¡lez-PÃ¡ramo, sits on the ECBâ€™s governing council â€“ when he indicated that the type of collateral now being accepted by the ECB was â€œa matter of high concernâ€.
Since the global financial market crisis erupted last year, Spanish finance houses have been able to fall back on the ECBâ€™s liquidity operations, available to a large number of banks on the basis of a broad range of collateral, including some mortgage-backed securities. Residential construction and public works were responsible, at the height of the boom, for an incredible 18% of Spain’s GDP and for 13% of total employment. All this now has to change, and is the major macroeconomic restructuring which will be the end product of the financial crisis. In the future Spain will be able to depend a lot less on household borrowing and consumer consumption to drive growth, and will now need to depend to a considerable extent on exports. That is the sea change which is (or should be) underway.
But I will not dwell further on all this here, since my intention is only a short post, and one intended to make a very simple point: our horizons about what really interests us, and what is really important to us is actually pretty restricted. For all the hard work being put in at the ECB to influence inflation expectations, they haven’t it seems to me been able to even generate sufficient interest in Spain that the proverbial man or woman in the street knows the name of the person taking the important decisions (to some extent) on their behalf.
For those of you who have the appetite to dig a little deeper into what is actually happening to the Spanish (yawn) banking system, I will simply refer you to the much longer post I have on the topic on my Spanish economy blog. And for those of you who could just as easily live without going further, well as they say, dance on, and what better way to while away your time doing that than by taking dancing lessons at the hands of Spain’s very own – and why not, let’s be honest, one and only -Rodolfo Chiquilicuatre.
Meanwhile, watch out London, watch out Frankfurt, here comes the Spanish banking armada!