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The Price of Rajoy's Silence

Posted by: Ben Vickers on January 16, 2012


Spanish Prime Minister Mariano Rajoy’s month-long tenure has been characterized by quiet. He has avoided making public pronouncements about his plans to cut the country’s deficit and for structural and labor reform, delegating all that to his ministers. This strategy of saying as little as possible appears to have served Rajoy well—indeed, his deafening silence may have saved the country a tidy sum of money: The yield on Spanish bonds has declined to the lowest since the November election when Rajoy’s Popular Party swept the governing Socialists from power. In comparison, the yield on Italy’s 10-year bond is almost flat over the same period.


Those expecting Rajoy to break his silence and give the media and the markets more details of his intentions today, when he held his first press conference since taking office on Dec. 21, were disappointed. Rajoy appeared along with French President Nicolas Sarkozy, who is visiting Madrid, and they held the floor for 45 minutes. In that time Rajoy gave away nothing further about his strategies.

He said tax rises already announced are “enough.” He urged European Union members to do their “duty.” He said Spain will reduce government spending and implement the labor reform “soon.” He noted that bond spreads “haven’t reacted much” to Standard & Poor’s decision to cut the country’s debt rating by two notches on Jan. 13.

That’s right. Well, they did move today: The yield on both the 10-year and the 2-year bonds fell below their closing level on Friday. One of Rajoy’s most worthwhile policies may be not to say much about his policies.

Photographer: Eric Feferberg/AFP/Getty Images

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Financial markets are on the edge as investors await a solution to the European debt crisis. This blog examines the banks that hold billions of euros worth of Greek, Italian, and other sovereign debt; the governments that must pay off or refinance that debt; and the implications for the worldwide financial system if they can't.

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