Bank of Spain Divided as Chief Rallies to Defend Rajoy

Updated on

Bank of Spain Governor Luis Maria Linde joined the political debate over his country’ austerity policies, disregarding the central bank’s tradition of political impartiality and provoking the criticism of a senior colleague.

Taking steps to reduce imbalances like Spain’s budget deficit is “patriotism,” Linde, who is also a member of the European Central Bank Governing Council, said during a speech in Madrid on Wednesday.

Narrowing the deficit, as Prime Minister Mariano Rajoy has done, shouldn’t be described as austerity, Linde said. He described it as “common sense and, in a real sense, patriotism.”

Rajoy, who nominated Linde for his post in 2012, is suffering a backlash against his budget cuts that has helped propel Podemos, an anti-austerity party, take the lead in opinion polls. Rajoy is banking on a strengthening economy to help improve his chances of securing re-election later this year.

“It’s not right to use the term patriotism,” Bank of Spain Board Member Guillem Lopez Casasnovas said in an e-mailed response to questions. “So often the term has been misused to ignore some international realities for the supreme good of the nation.”

Manuel de la Rocha-Vazquez, head of economic policy for the Socialists, Spain’s main parliamentary opposition, said the comments were “extremely unfortunate” and compromised the credibility and independence of the central bank.

Linde also reiterated the central bank’s outlook for the Spanish economy, forecasting a 2.8 percent expansion this year because of a favorable exchange rate, a pick-up in internal demand and the benefits of fiscal reform. That is higher than the European Commission’s 2.3 percent estimate for 2015.

“It’s an error to bring up the austerity debate in patriotic terms,” said Antonio Barroso, a London-based analyst at Teneo Intelligence, which advises investors on political risk. “There are several ways to implement the austerity measures and that’s a political decision that a government has to make.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE