How Spain scared away circling vulture funds

As Ireland rolled out the red carpet, other European countries took a macho approach to retain dignity...

How Spain scared away circling vulture funds

Picture by Mosa'ab Elshamy AP/Press Association Images

"RESISTIR!" A command echoing the sentiments found in many leaked Spanish text messages concerning the banking crisis and potential sale of the country's assets, according to one Corkman based in Madrid.

"[The Spanish authorities were] almost talking about it in macho surrender terms," Joe Haslam, an entrepreneur and lecturer at the IE Business School, told Newstalk Breakfast.  "That the image of the country was at stake:

"'Spain is not Uganda, you don't have to bow in front of these vulture funds'. So that was a very different attitude [to Ireland]. And that attitude also takes place in Greece and Portugal...

"In general, Spain is not impressed by Texan bankers flying in on private jets and bringing people out for meals and talking about what they have in common," he continued.

"Spain took very much of a gruff approach to meetings. 'Who are you guys? You guys aren't my friends' - that kind of stuff."

Haslam was painting a picture of the road Ireland could have taken and – given the outcry at some of the deals the National Asset Management Agency (NAMA) has done – one that would have appealed to a large swathe of the general Irish public.

Spain had, in fact, initially planned to take its post-global economic crash cues from Ireland.

"What Spain did was set up a bad bank similar to what Ireland was doing and it had all the intentions that what happened in Spain would be what happened in Ireland. In other words, a business-friendly approach whereby the assets would all be arranged and neatly packaged up for sale."

However, political change and an easing of pressure allowed the country to change course:

"There were elections, and when governments have a majority, they're under less pressure. And that's one of the factors in Italy and Greece, and also in Portugal, where the government changes and therefore policy changes."

While it remained unclear what policy would prevail, interest rates stayed low, meaning that "there just weren't that many deals coming out."

"Living in Madrid," Haslam explained, "lots of these people who work for banks are former students of mine or people I would get to know socially. Their frustration was that they were getting different messages on different days. Ireland generally had a consistent message and because of that, business happened."

Spaniards protest against banks and financial institutions in front of Spain's central bank in Madrid Oct. 13, 2008. Protesters hold signs that read "where is the money?" (AP Photo/Victor R. Caivano)

Business that didn't always primarily benefit the tax payer.

Haslam agreed that, on reflection, vulture funds were primarily the only investors open to doing business with Ireland when the crash happened, though he argued "you can negotiate a better bargain".

"That's the other point of view. Time will tell. It may be possible that Ireland did manage to get assets away and is managing to clean up the problem, albeit at quite a considerable loss...

"Maybe Ireland's approach is right. Which is to say that [with] Big Finance, ultimately you should play ball. And that resisting might make you feel good but over time the best thing is just to face your problem, deal with it and move on. So maybe Ireland will turn out to be right. But I don't think so..

"You can also put your best team on the field. There's also those kinds of issues.

"The finance minister in Portugal is a PhD from Harvard, you look at the finance minister in Italy [current minister Pier Carlo Padoan is a widely-published former Sapienza University economics professor, for example]... They put out their best guys and they faced down these guys."

When asked if the Irish approach was vindicated by its economy now growing at a faster rate than its EU counterparts, Haslam responded:

"That's to do with the law of large numbers. When you've a small economy, small differences can make a big difference in statistics. When you're dealing with a country like Italy, it takes a lot more to move the needle."

"I certainly thing we could have gotten a better deal on certain packets that were let go," he concluded. "I think we could have negotiated. Once the initial bad bank was set up and some deals were done, Michael Noonan took a decision to accelerate the process and I think that might be seen in retrospect as [not being] a good decision.

"Spain changed tack, where Ireland continues with the tack and then accelerates it."