The Pain in Spain: A Banking Scandal Makes the Crisis No Joke

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Dani Pozo / AFP / Getty Images

Bankia president Jose Ignacio Goirigolzarri speaks at a press conference in Madrid on May 26, 2012

At a convenience store just off Madrid's Plaza Mayor this past weekend, a customer paid for a six-pack with his debit card. Noting the name of the bank on the card, cashier Juanjo Martínez couldn't resist a joke. "Sure you don't want to buy anything else?" he asked. "Might as well use it while you still can."

The humor in Spain has been dark ever since the crisis began four years ago. But in recent weeks, and especially in the past few days, the mood has turned decidedly blacker. On May 25, Bankia, the country's fourth largest bank, admitted that it needed a total infusion of $29 billion in public funds to avoid bankruptcy. That same day, and every weekday since, the spread between Spain's 10-year government bonds and their German counterparts has remained above the critical redline of 500, beyond which it becomes nearly impossible for a country to finance its debt. Gradually, the gallows humor is giving way to outrage.

It's hard to say who is the bigger target of it: Spain's government or the banks. They are, in any case, inextricably linked. It was the government, after all — then led by the Socialist party — that created Bankia in December 2010 by merging seven savings banks on the verge of default in the hopes that a larger entity would be better able to withstand the toxic assets plaguing Spain's lenders. At its head was Rodrigo Rato, former IMF chief and a high-ranking member of the center-right Popular Party, which won Spain's national elections the following year. On May 7, Rato abruptly resigned from that position and his replacement requested that the government partially nationalize the bank. Two weeks later, Bankia admitted that, contrary to a February report that recorded $380 million in profits, it had in fact lost nearly $3.7 billion in 2011. On May 25, the bank's advisory board resigned en masse, though not before requesting an additional $24 million from the government — an amount that the government, despite promises not to spend public money bailing out banks, agreed to supply. Three days later, Bankia's parent company, BFA, announced that it too was $4 billion in the hole — the largest loss in Spain's history.

The ridiculousness of the situation — it's hard to say whether it's worse to believe that a bank led by the former head of the IMF deliberately lied to its shareholders or that it simply couldn't keep its profits and losses straight — has provided plenty of comedic fodder. "Government to Hand Over 700 Virgins to Bankia" ran the headline of a story in the satiric newspaper Rokambol, in reference to Prime Minister Mariano Rajoy's willingness to meet the astonishing demands of the bank. One blog recently began offering a special-edition Playmobil Bankia toy, with the promise that it would give kids the chance to "discover the only bank in the world where the robber sits behind the counter!" Price tag: $25 billion, of course.

Beneath the humor lies no small amount of anxiety. Ten million Spaniards have accounts with Bankia, and another 400,000 have invested in its stocks. Mari Montoyo is one of the former, and she admits that she worries constantly about her funds. "I wake up every morning and wonder if I should empty out my account," the 47-year-old housewife says. "Maybe it would be safer hidden in a drawer at home." Miguel Morales, who has been telling fortunes for over 30 years, says he is seeing a lot of that kind of doubt. "I used to get very few people seeking financial advice," he says. "But right now I'd say about half my clients ask if they should keep their money in one bank or invest in another."

Until now, even as the unemployment rate has passed 23% and austerity measures have reduced pensions, made it easier to fire employees and cut social welfare benefits, Spain has largely avoided the kind of rage that has exploded on the streets of Greece. But there are signs that that may be changing. "I think this is the straw that breaks the camel's back," says Ignacio Escolar, former editor of the newspaper Público and creator of one of Spain's most popular political blogs, "The government is going to inject more than twice the amount of public money it has cut from education and health care into a bank. We have no money to pay teachers, but we have money to pay Bankia. If you look on social media, it's sparking a lot of anger."

There was perhaps no more potent sign of that anger than Karlos Arguiñano's outburst on television last week. As the normally jovial chef on Spain's most popular cooking show chopped vegetables for a sofrito last week, he began to describe his distress at recent cuts to education. From there, it was a short leap to the bankers. "We've all been affected by this crisis," Arguiñano said. "But we're feeling it not because of teachers or students. We're feeling it because of those gangsters — those bankers who are running the crisis."

Spurring the growing rage is the sense that the government is making it up as it goes along. Certain promises — like that it would not raise the value-added tax or create a "bad bank" into which others could off-load their toxic assets — have been discarded in the face of necessity. "What the Prime Minister says today, he may well discard tomorrow," said Iñaki Gabilondo, Spain's most prominent television journalist in a broadcast on May 29. "Not just because he keeps contradicting himself. But because you can see that he is completely overwhelmed by what is happening."

The day before, Rajoy had tried to be firm. Holding his first press conference since his inauguration in January, the Prime Minister answered a journalist's question about a possible rescue from Europe with what may well turn out to be his "read my lips" moment: "There will be no bailout. Next question?" But he also refused to hold a public investigation into what and who is responsible for Bankia's default and, in the process, only spurred more resentment. "As a journalist, I know that there's not much alternative to saving Bankia with public money," says Escolar. "But for them to do it without any transparency or explanation is deeply troubling. They're treating it as if it were a hurricane — a natural disaster that no one could control and for which no one is responsible."

On May 29, as the spread remained above 500 points and BFA confessed that it held $50 billion in toxic assets, Twitter lit up with the news that one of Bankia's directors had received a $17.5 million severance payment. "They're all a bunch of shameless thieves," says Monica Besado, 21, as she stops by her neighborhood branch of Caja Madrid, one of the savings banks that makes up Bankia. "I would take all my money out, but I don't think anyone else is any better. Unless you want to leave Spain, there's no place else to go."