MADRID—Six months after Prime Minister Mariano Rajoy won a parliamentary majority by promising to bring credibility and stability back to fiscally troubled Spain, doubts are growing over when and whether it's happening.
Some critics say his conservative government has reacted too slowly to the debt crisis, and overpromised and underdelivered on key measures.
They say that's helped build a crisis atmosphere in the euro-zone's fourth-biggest economy that is helping to push its bond yields to record levels and further restrict Mr. Rajoy's options.
In one sign of declining confidence, the European Central Bank said Wednesday that private deposits were fleeing Spain's banks, with retail and corporate deposits decreasing nearly 2% in April to €1.62 trillion (roughly $2 trillion).
"It's extreme crunch time" for Spain, said Luis Garicano, professor of economics and strategy at the London School of Economics.
Mr. Rajoy's government has introduced a number of important measures, he said, but they have "basically not been getting credit abroad because there has been no uniform plan. [Its measures] all seem like improvisations."
A Rajoy spokeswoman said the highly indebted economy—and a wider-than-expected budget deficit last year, before the new administration took office in December after beating out the Socialist Party—have prompted the crisis of confidence.
To plug the wider gap, Mr. Rajoy broke a campaign pledge by announcing tax increases. Mr. Rajoy inherited the European Union's highest jobless rate, a contracting economy and a banking sector struggling to absorb fast-souring loans in the real-estate sector.
Euro-zone-mandated budget cuts have constrained him. Since it uses the euro, Spain also can't devalue its currency to help it become more competitive.
And Germans and other Europeans are loath to underwrite Spain's debt to help persuade bond investors that Spain can pay its bills.
Still, Mr. Rajoy's government has won plaudits from Europe for implementing a controversial labor-market reform that aims to spur hiring. His government also undertook a financial reform plan designed to push banks to sell their real-estate holdings at a loss.
Spain got some good news on Wednesday when the European Commission said it was considering an extension on Spain's time frame for meeting budget-deficit targets, even as it urged Madrid to raise taxes and be wary of bank bailouts.
But Madrid raised questions by waiting three months to issue its proposal for big cuts required to meet budget-deficit targets. It announced the plans shortly after Andalucía, Spain's largest region, held its regional elections in March.
Critics said Mr. Rajoy feared that any earlier news about the cuts would hurt his party's electoral prospects. Mr. Rajoy's party was unable to gain a majority, anyway, failing to gain control of the region.
Mr. Rajoy's ministers have publicly contradicted each other on a number of issues, ranging from whether Spain would raise its main value-added tax to whether the central government would issue bonds to help local administrations finance themselves.
Mr. Rajoy didn't intervene in any of the debates. Those who know him say his silence reflects a reserved leadership style that is comfortable delegating authority to others and eschews the spotlight.
The Spanish government is "doing some things well, but they're not communicating it well," said Juan Carlos Martínez-Lázaro, an economics professor at IE Business School.
Madrid's efforts to tackle its banking-sector problems have damaged credibility, investors say; it has until recently continued with a go-slow approach of the prior administration.
Only this month did Spain begin a muscular cleanup of Bankia SA, the ailing Spanish bank, in which it pledged to inject €19 billion.
The sharp shift, however, rattled international investors, who are concerned about Spain's ability to finance the cleanup.
New Spanish officials "have found themselves facing a large accumulation of problems that are nearly out of control," said Victor Pérez Díaz, head of Spanish research firm Socio-Political Analysts.
wsj.com
Some critics say his conservative government has reacted too slowly to the debt crisis, and overpromised and underdelivered on key measures.
They say that's helped build a crisis atmosphere in the euro-zone's fourth-biggest economy that is helping to push its bond yields to record levels and further restrict Mr. Rajoy's options.
In one sign of declining confidence, the European Central Bank said Wednesday that private deposits were fleeing Spain's banks, with retail and corporate deposits decreasing nearly 2% in April to €1.62 trillion (roughly $2 trillion).
"It's extreme crunch time" for Spain, said Luis Garicano, professor of economics and strategy at the London School of Economics.
Mr. Rajoy's government has introduced a number of important measures, he said, but they have "basically not been getting credit abroad because there has been no uniform plan. [Its measures] all seem like improvisations."
A Rajoy spokeswoman said the highly indebted economy—and a wider-than-expected budget deficit last year, before the new administration took office in December after beating out the Socialist Party—have prompted the crisis of confidence.
To plug the wider gap, Mr. Rajoy broke a campaign pledge by announcing tax increases. Mr. Rajoy inherited the European Union's highest jobless rate, a contracting economy and a banking sector struggling to absorb fast-souring loans in the real-estate sector.
Euro-zone-mandated budget cuts have constrained him. Since it uses the euro, Spain also can't devalue its currency to help it become more competitive.
And Germans and other Europeans are loath to underwrite Spain's debt to help persuade bond investors that Spain can pay its bills.
Still, Mr. Rajoy's government has won plaudits from Europe for implementing a controversial labor-market reform that aims to spur hiring. His government also undertook a financial reform plan designed to push banks to sell their real-estate holdings at a loss.
Spain got some good news on Wednesday when the European Commission said it was considering an extension on Spain's time frame for meeting budget-deficit targets, even as it urged Madrid to raise taxes and be wary of bank bailouts.
But Madrid raised questions by waiting three months to issue its proposal for big cuts required to meet budget-deficit targets. It announced the plans shortly after Andalucía, Spain's largest region, held its regional elections in March.
Critics said Mr. Rajoy feared that any earlier news about the cuts would hurt his party's electoral prospects. Mr. Rajoy's party was unable to gain a majority, anyway, failing to gain control of the region.
Mr. Rajoy's ministers have publicly contradicted each other on a number of issues, ranging from whether Spain would raise its main value-added tax to whether the central government would issue bonds to help local administrations finance themselves.
Mr. Rajoy didn't intervene in any of the debates. Those who know him say his silence reflects a reserved leadership style that is comfortable delegating authority to others and eschews the spotlight.
The Spanish government is "doing some things well, but they're not communicating it well," said Juan Carlos Martínez-Lázaro, an economics professor at IE Business School.
Madrid's efforts to tackle its banking-sector problems have damaged credibility, investors say; it has until recently continued with a go-slow approach of the prior administration.
Only this month did Spain begin a muscular cleanup of Bankia SA, the ailing Spanish bank, in which it pledged to inject €19 billion.
The sharp shift, however, rattled international investors, who are concerned about Spain's ability to finance the cleanup.
New Spanish officials "have found themselves facing a large accumulation of problems that are nearly out of control," said Victor Pérez Díaz, head of Spanish research firm Socio-Political Analysts.
wsj.com
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