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Rajoy’s Silence Set to Be Broken as Sarkozy Visits Madrid

Spanish Prime Minister Mariano Rajoy
Spanish Prime Minister Mariano Rajoy. Photographer: Denis Doyle/Bloomberg

Spanish Prime Minister Mariano Rajoy is set to hold his first news conference since taking office on Dec. 21, exposing his deficit-reduction plans to public scrutiny three days after Standard & Poor’s cut Spain’s credit rating.

Rajoy will convene a “brief press meeting” from 3:15 p.m. in Madrid today after he hosts French President Nicolas Sarkozy for talks, his office said. With the exception of an interview with state-controlled Spanish newswire Efe, the last time Rajoy took questions from a reporter was before his landslide victory against the Socialists almost two months ago.

“Rajoy’s style is less than transparent,” Michael Derks, chief strategist at FXPro Financial Services Ltd. in London, said in an interview. Investors “need to understand what his vision is and how he intends to rectify the enormous financial challenges Spain is now confronting.”

Rajoy was elected on Nov. 20 on a platform of tackling the euro area’s third-largest budget deficit and saving Spain from becoming the fourth European country to succumb to the sovereign debt crisis that came to light in Greece in late 2009. That didn’t deter S&P from lowering Spain’s credit rating two levels to A from AA-, its second downgrade of Spain in three months.

S&P cited ‘the impact of deepening political, financial and monetary problems” in the euro region for its decision, and warned of a possible further downgrade for Spain if “the government does not undertake additional measures to broadly meet its budgetary targets.” France lost its AAA rating among the nine euro-area downgrades announced by S&P.

Yields Edge Up

The yield on the Spanish 10-year benchmark bond rose two basis points to 5.24 percent today as Spain prepares to auction 12-month and 18-month bills tomorrow. The spread with similar German maturities widened one point to 347 basis points.

By shunning the media at a time when recession is looming and half the population aged under 25 is out of work, Rajoy risks failing to persuade voters to accept the extra budget pain that may be necessary, said Javier Del Rey Morato, a political communication professor at Madrid’s Complutense University.

“Rajoy knows he has a very difficult four years ahead which is going to be packed with bad news for everyone,” Del Rey Morato said in a telephone interview. “He is going to have to correct this communication deficit.”

Sworn In

The new prime minister didn’t take any questions when he was sworn in last month. Then, on Dec. 30, he announced a 15 billion-euro ($19 billion) package of tax increases and spending cuts to help plug a budget deficit one third larger than the previous government estimated. Moody’s estimates a 40 billion euro adjustment is needed to meet Spain’s commitment to narrow the budget gap this year to 4.4 percent of gross domestic product from about 8 percent in 2011.

Rajoy dispatched his deputy, Soraya Saenz de Santamaria, to explain to reporters the government’s decision to raise taxes in breach of an election pledge. His sole interview was granted to Efe on Jan. 10 after the opposition demanded he explain the tax increases.

“Markets are unlikely to remain patient for much longer after the big deficit target miss last year,” said Georg Grodzki, global head of credit research at London-based Legal & General Investment Management, which oversees about $515 billion of assets. “Investor concerns may rise again.”

While Chancellor Angela Merkel gave her reaction to the S&P downgrades at a press conference two days ago, Rajoy used a speech in Malaga to announce his response. He pledged spending cuts and a banking-system cleanup, saying his government “knows exactly what it has to do to improve the reputation of Spain.”

‘Actions Speak’

“The prime minister prefers to let his actions speak for him,” Carmen Martinez Castro, deputy minister for communication, said in a telephone interview. “Over-abundance of comments often confuses the situation rather than making it clearer.”

Rajoy has also increased pensions while pledging tax breaks and to preserve state-funded education and healthcare. He said he won’t raise value-added tax or cut civil servants’ wages.

That may not be enough to stop his administration from having to seek outside aid from the European Union and International Monetary Fund, following Greece, Ireland and Spain’s Iberian neighbor Portugal, said Thomas Costerg, an economist at Standard Chartered Bank in London.

“It’s time for the Spanish government to take firmer control to restore confidence, or it risks being pushed to accept an EU-IMF bailout,” Costerg said.

Parliament Waits

While the media have a first opportunity to quiz Rajoy today, members of parliament will have to wait until next month before they can put questions to the premier. Rajoy won’t address parliament before the next EU summit in Brussels on Jan. 30, Saenz de Santamaria said last week.

Rajoy’s communication approach contrasts with that of his Italian counterpart, Mario Monti, who faces a similar battle against surging yields. Monti, a former economics professor who heads an unelected government, has given four press conferences of over an hour, including one marathon lasting three hours.

Monti, who subjected Italy to its third round of austerity measures in six months to regain investor confidence, also made several TV appearances and gave interviews to foreign newspapers including Le Figaro, Die Welt and the Financial Times.

Rajoy’s low-profile strategy is a “logical continuation” of the attitude he has demonstrated throughout his career, said Antonio Barroso, an analyst at Eurasia and a former government pollster in Spain.

What’s more, the government’s austerity measures are backed by 53 percent of the population, a Metroscopia poll of 1,000 voters for El Pais published Jan. 8 showed. The poll was conducted Jan. 4-5. No margin of error was given.

Rajoy “is letting his deputy minister and economic team take the pain publicly,” Barroso said. “As long as we don’t see a fall in the support for Rajoy, he has no incentive to change.”

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