06/07/2012 12:08 pm ET Updated Aug 07, 2012

The Value of Confidence

Confidence is an economic activity of highest order, and its loss inevitably gives rise to economic costs. In addition, it satisfies a new modality of capital, social capital, which is based precisely in the confidence of agents between each other and between themselves and their institutions. It is no exaggeration to say that one of the defining elements of Spain's current situation is a generalized loss of confidence, both inside and outside our borders. Has Mariano Rajoy contributed to this loss, to this erosion of our social capital? There is much evidence to indicate that yes, in effect, he has done just that.

He has done the opposite of what he promised to do. And perhaps the worst part is not that the Executive has raised taxes when it promised to lower them; that it has enacted social cuts that it swore it would not; nor that it has left empty, one after another, its electoral promises. The worst part is that few Spaniards now doubt that the Popular Party ever intended to fulfill these promises, and joining them, many international investors who follow very closely the goings-on of our country.

Desperately seeking to blame outside parties does not build confidence. This is precisely what the government of Rajoy has done in recent months: by relentlessly resorting to the political inheritance it received; by pointing fingers at the Autonomous Communities, instead of explaining the origins of the deficit; by denouncing universities, their rectors, and their students; and, indeed, even by chipping away at the prestige of the Bank of Spain. Obviously these are not the best ways to reinforce confidence in our institutions, or, it goes without saying, in our country. Nor is it good practice to delay, for electoral reasons, the introduction of the General Budgets of the State, when European institutions have been insistently demanding them, or to embrace a rhetoric of fiscal sovereignty by announcing a deficit objective lower than that set by the Commission soon thereafter. This is all particularly ill-advised if, when public accounts are finally introduced, they are manifestly ridiculous.

Building confidence was precisely the stated objective of the financial reforms undertaken by the government. Unfortunately, the majority of its actions in this regard have simply made the situation worse -- in particular, the management of the Bankia crisis. To use the phrasing of the President of the European Central Bank, things have been done in the "worst possible way."

Of course, letting the crisis run wild for weeks doesn't seem like the best way to build confidence either. Nor does beginning to set the recapitalization needs of the entity at a sum of 4.5 billion euros, only to end up at 23.5 billion euros. What this means is that in very little time the quantity was multiplied by five -- this following the Minister of Economy's commitment to put "all the money that's necessary" in order to fix the entity. The government seems to have agreed to this final amount, uncritically accepting both the quantity and methodology used to arrive at that figure, which can only have negative effects on the people evaluating our financial system.

At this point, it is clear that the errors of the government are going to increase the necessity of recapitalizing our Banks. The fact is that the reforms have planted doubts about the entire Spanish financial system and about its solvency, when, according to the IMF itself, just one-third of our financial entities have problems.

Until now, the President of the Government has publically maintained that Spain can handle financial reform using its own resources, and this is reasonable. Nevertheless, little by little, the door has begun opening -- sometimes as a result of declarations by the Executive itself -- to the idea that Europe must contribute to the recapitalization of our Banks. Whether this help arrives directly to financial entities or is channeled through the state, it's obvious that it will come along with some "conditionality." Citizens must be told that if there's European money, there will also be demands that are going to affect millions of lives. And some of these may turn out to be unacceptable. Should outside help arrive, that debate that cannot be shirked.

In this situation, the most urgent necessity is to build confidence, internally and externally. Confidence for the Spanish, that they know where our country is going; confidence to reactivate investment and our languishing internal consumption, and to stimulate entrepreneurship. Confidence so that the world stops seeing us as a problem, because we're not. And changes in Europe, as urgent as they are profound. Beginning with a political economy that combines austerity with stimuli for growth, which is what I've been arguing for the past year.

What we need, in conclusion, is an attitude that allows for grand social covenants regarding basic aspects of our shared existence. Things are tough for a lot of Spaniards, and they are demanding this effort. Great nations are great, among other reasons, because of their capacity to come together to face challenges. And Spain is a great nation. I am convinced that today, in such a difficult situation, we need to get back that will to agree, which arises from confidence in our own capacity. As it always has been throughout its history, the Socialist Party is willing to put forward the best of itself to achieve just such an understanding.