Even without a government, Spain moves to clean up financial scandal

Since its December parliamentary elections, when no single party earned a majority of votes and efforts to form a coalition were unsuccessful, Spain has been without a government. But that has not kept it from taking steps to shore up its scandal-ridden financial sector.

With a budget passed last year before the elections, the prior conservative-led government has carried on in a limited caretaker role. Meanwhile, activists calling for greater transparency and accountability since the height of the Euro crisis four years ago have kept up the pressure – and on Monday, they saw evidence that their work may be paying off.

Rodrigo Rato, a former economy minister and former head of the International Monetary Fund, reported to a Madrid court along with 64 other executives and former board members of Bankia and Caja Madrid, its main founding bank. They are accused of illegally using company credit cards to spend 12 million euros (about $13.25 million) for themselves on jewels, vacations, expensive clothing, and other items.

Mr. Rato, for whom prosecutors are seeking a four-and-a-half-year prison term, served as chairman of lender Bankia until he was forced out shortly before it nearly collapsed in 2012. He has denied any wrongdoing, but the case has angered Spaniards who see Rato as emblematic of broader corruption.

“He is the symbol of the revolving doors culture,” activist Simona Levi told the BBC, referring to Rato. “He has been a minister, then managing director at the IMF and a banker. And he was a very well-known figure.”

Ms. Levi is prominent with 15MpaRato, a campaign that has pushed for accountability, specifically for Bankia and Rato himself, as an avenue by which to fight corruption more broadly. Spain's 15M movement, a forerunner to the global Occupy Movement, found widespread support from young Spaniards, in particular, as a generation hit with unemployment rates of more than 40 percent called for political and economic reform.

A crowdfunding campaign associated with the movement had sought to raise 16,000 euros over 40 days to cover legal fees for a class action lawsuit against Bankia and Rato. But the goal was reached within 24 hours, as the Monitor reported in 2012, and dozens of Bankia employees and stockholders came forward to testify.

Despite the lawsuit and a subsequent investigation by a government prosecutor, ongoing efforts to reassure the Spanish public have been no easy undertaking.

“When we find out everything through the press, we lose our trust,” Purificación Ramos, a museum employee in Madrid, told the Monitor in 2012, bemoaning the government’s lack of explanation for its actions.

The Bankia story has roots in government attempts at bank reform after the bursting real estate bubble in 2008, as Andrés Cala reported in 2012:

Bankia was born out of the merger of seven savings banks in the first financial reform in 2010, most of them indirectly controlled by the conservative Popular Party currently in power.

But their books, like those of most savings banks in Spain, were plagued with bad debts, not of homeowners, but of construction companies that went bankrupt when real estate collapsed. Bankia held 32 billion euros in real estate toxic assets.

That’s when Rato entered the picture. He was named Bankia’s chairman, then took the bank public in 2011.

But the bank was crippled by huge losses from its credit business. When more recently the Spanish government tightened bank regulations to increase contingencies to cover toxic debts, Bankia could no longer hold out.

On May 7, [2012], the conservative government forced the resignation of Mr. Rato, and two days later it partially nationalized the bank.

Rato allegedly took nearly 100,000 euros in bills during his two years with Bankia, but has paid back that money, according to court statements. His predecessor, Miguel Blesa, faces a six-year prison sentence and 9.3 million-euro fine for damages, if prosecutors get their way.

The credit card case, however, is among several corruption investigations involving the ruling People’s Party, which Rato had once been in the running to lead. Party leaders are accused of using a slush fund provided by friendly businesses, and Spain’s High Court is investigating Bankia’s 2011 initial public offering of stock, which took place under Rato’s watch. Many everyday Spaniards lost money as the value of their shares plummeted during the bailout.

Meanwhile, People’s Party leader and acting Prime Minister Mariano Rajoy is trying to muster support for a new coalition government to punctuate the political impasse that has dragged on for nine months.

This report includes material from Reuters.