Dryblower on a European problem heading for Kalgoorlie

IT IS a bit late to reorganise the speakers list for the annual Diggers & Dealers forum, which kicks off in Kalgoorlie six weeks from now, but Dryblower suspects contingency plans are being dusted off should the high-profile keynote speaker suddenly find he is unavailable.
Dryblower on a European problem heading for Kalgoorlie Dryblower on a European problem heading for Kalgoorlie Dryblower on a European problem heading for Kalgoorlie Dryblower on a European problem heading for Kalgoorlie Dryblower on a European problem heading for Kalgoorlie


Tim Treadgold

Rodrigo de Rato, a former managing director of the International Monetary Fund, is probably the highest profile guest ever attracted to Australia’s premier outback mining event. His views on gold could be particularly interesting.

Unfortunately for de Rato it is life after the IMF which could see him forced to cancel the long haul from Spain to Australia because he is deeply embedded in the crisis gripping European banking, especially a business dubbed “the bank that broke Spain”

Bankia, an amalgam of seven failing Spanish banks, has become a major headache for European financial regulators and the Spanish government.

Until a few weeks ago de Rato was chairman of Bankia, a job he undertook at the request of the government but was obliged to quit when the government announced the privatisation of the bank little more than a year after it was floated on the Madrid Stock Exchange.

Last week, European news media was crammed with reports of what went wrong at Bankia, questioning how a business with 4000 branches, 25,000 employees and 10 million customers could go bad so quickly and speculating on what an official inquiry might reveal.

Undoubtedly, de Rato is well removed from the day-to-day problems which have triggered urgent requests for a $100 billion European-funded rescue of Bankia but he cannot avoid the fact that he was in the chair when the ill-fated bank hit the wall.

If he was only travelling to Kalgoorlie to speak about his life and times at the IMF, or as Spain’s minister for economy, it might be a different story. But, to mount the podium at the Diggers forum risks a barrage of questions about Bankia given that the event invariably attracts reporters from well-briefed international newsagencies such as Reuters, Bloomberg and Dow Jones.

This sturdy bunch of aggressive scribblers will not be in the least bit interested in that de Rato might have to say about international finance or his life and times at the IMF. They will go straight for the jugular with questions about Bankia honed by their editors, drowning out whatever message he was planning to convey or that the Diggers organisers hoped he would convey.

Inviting de Rato to Diggers was always a risk. Despite being a highly regarded senior executive at the IMF he was the man in charge of the Spanish economy for eight years until 2004, a time which can now be seen as the period when the country started to run off the rails.

Rather than being a miracle economy of rapid growth Spain has become a case study of what happens when a debt-bomb explodes with countless property developers, home owners, and retailers in the deepest possible trouble because they owe Spanish banks far more than their assets are worth.

The crash of Spain’s financial system has left the country with 25% unemployment and 50% youth unemployment. The country has become the next of Europe’s failing dominos to teeter on outright collapse.

Bankia, the bank de Rato chaired, is the outstanding failure despite being hailed as the bank to clean up the Spanish financial system by pooling troubled banks under the one umbrella. Rather than creating a business of substance to withstand the European financial crisis, Bankia simply concentrated all the bad loans in the one place, creating a business too big for even the Spanish government to save.

As London’s Financial Times said last week, the collapse of Bankia has widespread implications:

“Among the victims were not only Spain’s international standing and the reputation of its banking system but also the hundreds of thousands of bank customers who bought Bankia shares in the belief that they were a safe investment,” the FT reported.

“The government is resisting a public inquiry but the public prosecutor has launched an investigation into five possible crimes at Bankia, including fraud, false documentation and embezzlement”

It is regrettable, perhaps even unfair, that the problems of a senior European banker will follow him all the way to the Australian outback.

But what de Rato and the organisers of Diggers will find is that very few people will want to hear what he has to say about the Spanish economy (what could he say?) or about his time at the IMF.

Everyone will be focussed on his tenure at Bankia, whether he likes it, or not, and what could he possibly say about that?

This article first appeared in ILN's sister publication MiningNews.net.