Spain's Rajoy at center of bank bailout firestorm

[June 11, 2012]  MADRID (AP) -- Spanish Prime Minister Mariano Rajoy was a lackluster career politician until, at the third attempt, he led his conservative Popular Party to a landslide win over the Socialists last November.

Rajoy, 57, inherited a devastating economic downturn that caused unemployment to soar to more than 24 percent, and a savings bank sector saddled with bad loans, the legacy of a burst real estate bubble.

When he took office, Rajoy said he had no miraculous solutions to jolt Spain out of its economic misery, but promised the country would "stop being part of the problem and become part of the solution."

Despite introducing austerity measures that hiked taxes, made it cheaper to hire and fire workers and cut government funding for education and health care, Spain's woes continued.

By mid-May, Rajoy warned Spain risked being frozen out of capital markets because of the sky-high borrowing costs.

But throughout this, Spain and Rajoy insisted that the country did not need international assistance to prop up its struggling bank sector.

Indeed, in the run-up to last month's informal European Union summit, the Prime Minister swiftly moved to dismiss suggestions from France's new President, Francois Hollande, that Spain's banks might need outside money. "Hollande does not know the state of Spanish banks," Rajoy said.

As late as May 28 Rajoy insisted that "there will be no rescue of the Spanish banking sector."

At the weekend, in an embarrassing admission for Rajoy, Spain finally agreed that it would need to seek European aid. Although he left it to economy minister Luis De Guindos to make the announcement on Saturday, Rajoy spoke to reporters the following day about how Spain could recover now it has asked for assistance.

"This year is going to be a bad one: Growth is going to be negative by 1.7 percent, and also unemployment is going to increase," Rajoy said.

Spain will regain the economic credibility it has lost by shoring up its banks, which will result in credit being restored so businesses and individuals shut off from loans can start borrowing and the economy will grow again, Rajoy said.

Rajoy has nationalized eight lenders facing bankruptcy as Spain fell into a double-dip recession, and it is now clear he has failed to hold back the tide as markets fret over the financial sector's euro180 billion in toxic real estate assets.

Rajoy, a property registrar by training, held four ministerial portfolios under the last conservative Prime Minister, Jose Maria Aznar, between 1996 and 2004 before being elected to the top job in 2011.

In 2004, Rajoy, whose appointment as party leader by Aznar was accepted by the Popular Party's congress the previous September, was strongly tipped to win. But he lost amid voter outrage over the Madrid terror bombings by Islamic militants three days before the election. The massacre killed 191 people. Outgoing prime minister Aznar, Rajoy and their party had initially blamed Basque separatists and continued to do so even as evidence of Islamic involvement emerged.

The party was devastated by the defeat, and Rajoy had to battle to keep it unified amid divisions between moderate and more conservative factions. The 2008 loss, although not as severe, exacerbated his tenuous position, thrusting even normally friendly rightist media against him.

But Rajoy fought on, skillfully remaining silent while his party and the media were ablaze with the succession debate. His eventual election victory over the Socialists has been seen as a tribute to his dogged determination to survive.

When he was in opposition, Rajoy was known to thrive on ambiguity -- rarely revealing what he thought. And, once in power, he has kept official statements to a minimum as a tide of bad economic news rose to overwhelm him.

Rajoy has blamed Spain's woes on the previous Socialist administration of Jose Luis Rodriguez Zapatero.

"Last year Spain's public administration spent euro90 billion more than it took in, this can't be maintained, we can't live like that," Rajoy told reporters.

After his press conference on Sunday, Rajoy defended his decision to jet off to Poland to see Spain's famed national football team take on Italy in the Euro 2012 competition.

"I'll be there 2 1/2 hours and then I'll leave," Rajoy said. "I think the national team deserves it."

[Associated Press; CIARAN GILES]

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