Bank of Spain veteran Luis Maria Linde was named head of the central bank as Prime Minister Mariano Rajoy’s government prepares to seek a bailout to clean up its financial industry.
Linde will replace Miguel Angel Fernandez Ordonez, who leaves a month early amid criticism of his banking supervision. Spain may seek European aid as soon as tomorrow, said a German government official and a European Union aide who declined to be named, after Rajoy said he’s talking to his counterparts about recapitalizing the country’s banks.
“Linde was in the Bank of Spain trenches directing soldiers during the crisis of 1992,” which led to the peseta being devalued, Jose Carlos Diez, chief economist at Madrid- based brokerage Intermoney SA, said by telephone. “In the current situation, it will help to have someone who has that experience.”
Spain’s 10-year bond yield rose 12 basis points today to 6.21 percent at 1:10 p.m. in Madrid, compared with a euro-era high of 6.78 percent on Nov. 17 and the 7 percent level that triggered bailouts in Greece, Ireland and Portugal. The spread with similar German maturities widened 21 basis points to 4.92 percentage points.
Economy Minister Luis de Guindos told lawmakers in parliament late yesterday as he announced Linde’s appointment that he “is a person of recognized international prestige and has extensive knowledge of the institution.”
Linde will return to the Bank of Spain, which he joined in 1983, four months after leaving it to retire at age 67. He managed international affairs and the country-risk division during his almost 30 years with the central bank, according to the government’s website. He inherits banking supervision and a seat on the European Central Bank’s rate-setting council.
The government has tightened rules in its second attempt in three months, and Spain’s fourth in three years, to make provision for 184 billion euros ($231 billion) of what the Bank of Spain calls “troubled” real estate-linked assets.
Rajoy said yesterday that he’s spoken to his colleagues in the European Union and that once he has estimates from international consultants on banks’ capital needs, the government will find “the formula for the financing of the capitalization of the banking sector.” The premier will take the decision that “best defends the interests of Spaniards,” he told a news conference in Madrid.
Fitch Ratings cut Spain’s credit grade yesterday to BBB, within two steps of junk, citing a deepening recession and a bank recapitalization that could cost up to 100 billion euros ($125 billion).
Rajoy’s People’s Party government chose Linde for his technical profile, said Ricardo Santos, a European economist at BNP Paribas SA in London. “He is a technocrat and that is positive to remove doubts regarding the Bank of Spain’s actions due to political connections,” Santos said by telephone.
Ordonez, who had ties with the Socialists who named him to the post in 2006, denounced a “campaign” to undermine the Bank of Spain’s prestige on May 30. Even so, his resignation was demanded last month by the institution’s own inspectors, who accused the top management of undermining its credibility in a letter to Rajoy.
Deputy Trade Minister Jaime Garcia-Legaz said he held Ordonez responsible for the events that led the government to nationalize the Bankia group this month. Ordonez responded to criticism today, saying the credibility and independence of regulators is essential to confidence in the economy.
“The richest countries and those with the most solid democracy in the world are those with competent and independent regulators and supervisors that serve as a counterweight to the possible temptations of government interference,” Ordonez said in in a speech released on the Bank of Spain’s website today.
Trained at Madrid’s Complutense university, Linde started out as a civil servant in the economy and trade ministries. He is also a former executive director for Spain at the Interamerican Development Bank.
Linde knows Bank of Spain inspectors well and it will help them recover self-esteem after the Bankia crisis and the hiring of foreign companies to audit banks, said Rafael Pampillon, head of economic analysis at the Instituto Empresa business school in Madrid.
“The Bank of Spain is the economy’s most vital organ,” he said by phone. “Whoever is in charge of the heart should know the body well.”
Linde’s age means the ruling People’s Party will be able to name another governor in three years, as Bank of Spain rules impose retirement at the age of 70, Pampillon said.
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