The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Spain is fertile ground for a “shareholder spring” over executive pay. Bosses in some cases make multiples more than their peers in other European countries, as do board directors. Investors turned a blind eye in the boom times. Now their inaction is even harder to excuse.

Take Telefonica, where Cesar Alierta has been executive chairman since 2000. In 2011, he made 10.2 million euros in basic salary, cash bonus, benefits and pension. His counterparts at France Telecom and Deutsche Telekom were paid 1.6 and 3.9 million euros respectively, including bonuses and contributions to pensions. In the oil sector, Antonio Brufau, executive chairman of Repsol, received a 10.5 million euros last year, double the pay for Eni’s chief executive officer.

It’s the same story in the troubled banking sector. BBVA’s executive committee enjoyed a 26 percent increase in compensation between 2007 and 2011, while its share price more than halved, according to estimates by Exane BNP Paribas. Meanwhile, Santander had set aside 158 million euros at December 2011 to fund the pensions of its top three executives.

Board directors in Spanish companies are the second highest paid in Europe, behind Switzerland, earning more than double their French counterparts, according to headhunter Heidrick & Struggles. In 2011, Spanish boards saw a 5 percent pay rise on average, despite a drop in profits, according to the stock market regulator. The proportion of pay that is fixed rather than performance-related in also tends to be higher than elsewhere in Europe. Unsurprisingly, directors in Spain have longer tenures than the European average of 5.7 years.

Spain is moving towards greater transparency in executive pay. Up until last year, Alierta’s remuneration was not even disclosed. And Telefonica plans to cut variable pay by 13 percent this year. But corporate governance still looks behind the curve when other countries, notably the UK, are introducing new powers – such as binding votes on overall pay policy – enabling shareholders to hold their executives to account.

With Spain’s economy sinking into recession, real incomes falling and more austerity in store, huge corporate pay packets are even more jarring. No wonder Spanish bosses are also glued to their seats: few faces have changed over the past decade. Shareholders in British companies have lost their patience with such excess. Investors in Spanish companies should also make themselves heard.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Spain’s current government, like its predecessor, always seems behind the curve. It has made some progress in passing budget cuts and some structural reforms, but it’s not enough. Only recently did it start to mention additional measures to get the country’s finances under control. The hope is that it won’t fall short.

Spain’s 2012 budget target of 5.3 percent of GDP will be impossible to reach and is arguably too ambitious (last year’s deficit ended at 8.9 percent). The central government’s deficit already adds up to 3.4 percent at the end of May – when the target for the whole year is supposed to be 3.5 percent. Madrid argues that it’s due to up-front transfers to the liquidity-starved regions. But the regions themselves will struggle to hit their own targets. And the economy is also getting worse: the Bank of Spain has warned that the recession intensified in the second quarter of the year.

But even if this year’s target looks out of reach, Spain can’t sit on its hands – and doesn’t have to. As part of the 100 billion euro bailout for its banks, the EU said progress on deficit targets would be closely reviewed. The European Commission has already made several recommendations: broaden the VAT tax base, boost other special taxes, eliminate tax breaks on housing, and speed up plans to raise the retirement age to 67. Simultaneously, it recommends actions to fight poverty and a youth action plan.

Boosting VAT may hit consumption, but Spain must find a way to boost dwindling revenues without hurting the economy’s competitiveness. It should also focus on cutting waste in government at the regional and local level: Spain has over 8000 municipalities, 60 percent of which have a population of less than a 1000. Unemployment benefits, the most generous in Europe, should be overhauled to encourage job seeking. Then there is a long list of pending privatisations: airports, buildings, utilities and prime real estate.

Spain needs to come up with answers because the government must soon approve next year’s spending ceiling. Meanwhile, other structural reforms are on the to-do list, such as liberalising services or the energy sector. Spain still hasn’t done everything it can to get the markets off its back.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Bankia will face its day of reckoning at last. Spain’s parliament had disappointingly declined to investigate the events that led to the Spanish lender’s spectacular 23.5 billion euro bailout. But after a suit launched by one of Spain’s smaller independent parties, the country’s High Court has launched a high-profile fraud probe, meaning that bank’s former board members will have to face the music. At the top of the list is ex-chairman Rodrigo Rato, former conservative finance minister and head of the International Monetary Fund. This is a welcome step towards a necessary Spanish banking cleanup.

No specific charges have been brought against these executives yet. But the 49-page document is seething about Bankia’s bailout, just months after its stock market listing. The judge says there are grounds to investigate, among other things, whether executives falsified the true state of Bankia’s accounts both before and after the IPO in July 2011. He also mentions political meddling, dubious investments and fat pay packages.

The case should clarify whether fraud or mere incompetence was at the source of Bankia’s implosion. The savings banks that formed the bank had sought to list the supposedly cleaner entity (Bankia) while leaving some of the more toxic assets in the parent (BFA). The idea was to separate the banking business from the contaminated parent. But the fall in Bankia’s value (driven by fears over dud properties) made the whole structure vulnerable, as did over-valued tax credits.

High profile characters will now be forced to explain what happened. The former governor of the Bank of Spain will be called to testify, as well as the auditors and the head of the stock market regulator. More may be implicated. Many of BFA-Bankia’s investment decisions were taken before Rato’s time. Bankia’s army of IPO advisors, including investment banks, shouldn’t escape scrutiny. The 347,000 new investors in the IPO have already lost three-quarters of their investment.

The Bankia case will hopefully lead to probes of other bailed-out banks. These weren’t publicly listed, but their gullible retail clients are still stuck with billions in illiquid preference shares. No wonder the public is baying for blood.

At the very least, the country will get a clearer picture of how the world’s “most solid” financial system, in the words of former Prime Minister Jose Luis Rodriguez Zapatero, helped bring a country to its knees. And those responsible may be held to account.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Mariano Rajoy has won a victory, of sorts. Germany yielded to the Spanish prime minister’s request that the euro zone should be able to prop up his country’s teetering banks directly. If that happens, the state’s debt load won’t need to shoot up by 100 billion euros.

But there are many unanswered questions – including when, on what terms and even if Spain will tap the funds. This is because Germany’s Angela Merkel insisted that such direct bank recaps can only happen once there is an effective new banking supervisor for the whole region, based around the European Central Bank. And that won’t happen until the end of the year, at the earliest. The snag is that Spain’s banks need their recapitalisation sooner. So there will have to be a bridging operation – with Madrid borrowing the money first and that loan eventually replaced by direct funds to the banks.

Another problem is that Madrid will be injecting more money into the banks than they are worth. Just look at BFA-Bankia, the bailed out lender. It has requested 19 billion euros in fresh capital from the state, and an independent expert just determined that BFA, the parent, is worth a negative 13.6 billion euros.

Who would bear these losses?

It will be hard for Germany to agree a bailout that immediately inflicts losses on its taxpayers. But equally Spain won’t want a bailout that crystallises losses for its citizens. Nor will it want to inflict losses on the banks’ subordinated bondholders, as just over 60 percent of those are retail investors.

Then there is a question of what Spain will have to do to clean up its financial sector in return for the money. To be fair, conditions will be set whether Madrid borrows the money or the cash goes direct to its lenders. But this still could be a bone of contention.

To recap, the euro zone has agreed to use a mechanism which doesn’t yet exist to recapitalise banks on as yet unspecified conditions which Spain may or may not like. No wonder progress in the euro zone is slow.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Joaquin Almunia, the vice-president of the European Commission, has prematurely weighed into the debate on possible conditions attached to the country’s 100 billion euro bank bailout. Before the rescue operation even began, he opined that liquidating a bank could make sense if the costs of keeping it alive with public money exceed the costs of shutting it down. This sounds sensible in theory. But in Spain, it’s not that simple.

Spain does not have a specific bank resolution scheme to deal with bank liquidation. The central bank’s preferred route has always been to intervene, clean it up, and then sell the troubled lender to a third party. However, it is technically possible for a bank to declare bankruptcy. The last to so this was the tiny Eurobank, nearly nine years ago.

Shutting down a bank in Spain would raise three problems. Shareholders are the first to suffer losses, followed by holders of preferred equity and subordinated debt. A large chunk of these subordinated instruments – 62 percent – is in the hands of depositors, according to Barclays estimates. In most cases they are the bank’s best clients, some of whom complain that the risks of these instruments weren’t properly explained. Wiping out retail holders risks triggering the deposit flight.

There may still be some ways of imposing pain. Some weak banks have stopped paying the coupon. Some others have been more creative. Holders of preference shares in bailed-out CAM, later bought by Sabadell, have been offered an exchange of Sabadell shares – at a 39 percent premium to the current share price – plus a cash bonus to be paid over four years.

The second problem is that imposing losses on senior debt holders without hitting depositors as well isn’t easy either. Senior debt holders in Spain, like elsewhere in the European Union, currently rank on a par with depositors.

Finally, winding down one nationalised lender might provoke panic in the banks currently on state support, hitting confidence in the entire system.

Little wonder the International Monetary Fund, in its recent report on Spanish banks, urged Spain to introduce a framework that can ensure an orderly liquidation. This is fair. But in the short term, not practical.

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Spain is still vulnerable after its mega bank bailout. Madrid has finally got a credible plan for its lenders: it will receive up to 100 billion euros from its euro partners to boost their capital. But the state’s debt will rise as a result, the economy is still shrinking and the government has lost a lot of credibility. Spain may yet require a full bailout. That would really test the single currency.

The 100 billion euro figure is at the top end of most analyst estimates, and more than double the 40 billion euros that the International Monetary Fund had estimated the banks needed. It should go a long way towards reassuring investors that Spanish lenders are sufficiently capitalised to withstand shocks. It should also reduce the risk of a bank run if there is trouble following next Sunday’s Greek elections. It may even help limit a severe credit crunch.

If Mariano Rajoy’s conservative government had taken this bull by the horns soon after it took office in December, that might have been the end of the matter. It could have blamed the bailout on the previous socialist administration. Unfortunately, it wasted six months dragging its feet on the problem, with two incomplete financial reforms. In the process, market confidence has been knocked. And Rajoy’s own credibility both at home and abroad has suffered.

Fortunately, Rajoy still has a solid majority and three and a half more years before he has to face an election. The best he can now do is take the brickbats and press ahead rapidly – both with the recapitalisation of the banks and the further economic reforms, where he has actually been quite decisive. On the former front, it is slightly worrying that the government is talking about giving lenders some more time to raise capital themselves rather than take state cash. If there is any further time, it should be very short. It would be a mistake to let this drag on any longer.

The bank bailout could add up to 10 percentage points to Spain’s debt ratio. Even then, it should peak at about 100 percent of GDP in 2015. That’s high but a lot less than Italy, whose debt is over 120 percent of GDP. A big difference, though, is that Spain has been running a large current account deficit for years and so is heavily dependent on foreign finance, even if the gap is shrinking.

Some details of the bailout are not clear. One is whether the loan would be senior to Madrid’s existing debt. If so, that could make it hard for Spain to sell any new bonds. Even if that’s not the case, investors will be put off by an economy that is expected to shrink this year and next – as well as possible further downgrades in its credit rating. If Greece were then to quit the euro, Madrid could be shut out of the market.

The question then would be what to do. Spain would probably want the European Central Bank to buy its bonds in the market. But the central bank would be wary of doing that. The alternative would be a full bailout for the country. But it’s not clear whether the euro zone funds have enough money to finance that. They certainly wouldn’t if Italy also got dragged into the vortex.

Any relief provided by Spain’s bank bailout could be short-lived.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

With multiple government officials speaking at once, it’s hard to know exactly what Spain is thinking. Having one authoritative voice would help. One thing seems clear: the government is not yet asking for a bailout. Still, some outside help might be inevitable for the country’s banks.

The cacophony was loudest on June 5. Treasury Minister Cristobal Montoro spooked markets by admitting that “Madrid does not have the door to the markets open”. There is no misinterpreting that line, but he was much more ambiguous on Spain’s need for external aid for its banks, other than saying that the lenders’ capital needs was “not a drama”.

The problem is that Montoro’s statement contradicted that of the deputy prime minister, who the same day boldly said that the market was beginning to trust in a country that was assuming its responsibilities. Then, the next day, Economy Minister Luis de Guindos weighed in, reiterating that Spain has no immediate plans to request a European bailout of its banks.

Yet, despite all the noise, the government’s position is starting to become clear. Madrid blames the bulk of its soaring financing costs on market fears over a euro break-up. Although it does admit that the banks will need capital, it doesn’t believe that pumping in billion of euros into the industry would reduce substantially the risk premium. Therefore, it is calling on Europe to make an irreversible commitment to the euro by agreeing to a roadmap to further integration, including a banking union, and asking for some sort of undefined firewall from the European Central Bank. Madrid also favours allowing the future European Stability Mechanism to recapitalise the banks directly, which seems to mean it would tap it if it was the case.

Spain has the potent bargaining chip that it is too big to bail. If it falls, so would the euro, the argument runs. This may be true. But Spain will regret not requesting a bailout for its banks sooner if the crisis accelerates, because its cost will then be much higher. So far, Madrid’s attitude, including Montoro’s lame joke that “the men in black” will not descend in Spain (he was referring to the troika) is not exactly constructive.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Madrid’s elites profess shock at the fact that the country has been pushed to the brink. Spain’s top companies have even put together a report outlining the country’s strengths, and asking investors to look at the hard data. But laying the blame on ignorant investors, evil foreign media and the euro zone’s paralysis doesn’t help.

The frustration is understandable. Spain’s debt load is lower than the European average. The government feels it has kept its end of the bargain with its euro zone partners, making deep cuts to the budget and carrying out difficult reforms. And European inaction is destructive. After all, that’s why Italy’s sovereign bond spreads aren’t far behind Spain’s.

Meanwhile, business leaders point to Spain’s economic strengths: a robust export sector, a shrinking current account deficit, and productivity on the rise. The financial system is being purged of real-estate nasties. The report concludes that the country’s spread over German bunds should hover around 150 basis points – far below the current 540.

Uncertainty over the euro’s future has indeed hit Spain hard. But one of the country’s main problems is the lack of credibility of its successive governments. Instead of under-promising and over-delivering, Spain has done the opposite. Take the country’s banks. There have been five financial reforms, including two this year, and counting. The Bankia bailout ended up much bigger than the government ever admitted, and its refusal to allow an investigation into the fiasco is a worrying sign.

Or take the budget deficit. The 2011 fiscal deficit number has changed twice in the past five months, climbing from 8 percent to 8.9 percent. What’s more, communication from the government has been patchy at best, and investors have also been thrown off by the contradictory messages from the country’s ministers.

Markets hate uncertainty, and there is still too much of it in Spain. Investors are voting with their feet. And capital flight is likely to have accelerated in recent weeks. Spain won’t regain credibility overnight. But the country’s political and business leaders must be more transparent and own up to the full extent of the country’s problems. Then under-promise, and over-deliver.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Bankia’s whopping bailout is a mixed blessing. The Spanish lender has asked the government for a higher-than-expected 19 billion euros to fill its capital hole. State support will shore up a systemic institution. But the scale of the cleanup implies other weak lenders are also short of cash. It is unlikely that Madrid can fill the gap on its own.

The recapitalisation of Bankia’s recently nationalised parent, BFA, should go a long way to protecting against further shocks. The bank’s new board – mercifully free of political representatives – has taken a no-nonsense approach to building up bad debt buffers. When the dust settles, provisions will cover 12.6 percent of Bankia’s entire loan book, and 50 percent of its total real estate exposure. The lender’s core Tier 1 capital ratio will be a respectable 9.5 percent.

Bankia’s shareholders, who currently own 55 percent of a company with a market capitalisation of 3.1 billion euros, are likely to suffer massive dilution. Though they will have the right to participate in Bankia’s 12 billion euro equity issue, which will be underwritten by BFA, those rights are likely to be worthless. Other creditors will get off more easily. The bank has decided not to convert 4 billion euros of preference shares into equity, because these are mostly owned by depositors.

The scale of the cleanup raises questions about unrecognised losses in Spain’s other banks. True, Bankia had the sector’s highest real estate exposure, and a large chunk of the write-down is due to the falling value of stakes in listed companies and tax credits. But Bankia is also assuming that 8 to 10 percent of its mortgages will go bad – more than three times the sector’s current ratio. And the bank’s real estate haircuts are now greater than required by the government.

It’s also far from clear where Madrid will find the additional money. Spain’s bank bailout fund, the FROB, has only about 5.3 billion euros of cash left over – a fraction of the 50 to 100 billion euros that analysts estimate is needed. One option would be to inject capital in the form of Spanish sovereign bonds which Bankia could then exchange for cash with the European Central Bank. But that type of fudge – similar to the promissory notes that Ireland has issued to its banks – would undermine the objective of restoring confidence in the financial sector. Spain is still resisting asking for help from Europe. Bankia’s bailout means it is running out of arguments.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Bank nationalisations are never pretty, but they are generally supposed to reassure savers. That’s why a report that depositors fled Bankia after the government last week took control of Spain’s fourth-largest lender is so troubling. The government has denied the report, and Bankia’s new chairman said depositors can be absolutely calm. Yet the latest share price plunge inflicts further pain on clients who participated in the lender’s IPO last summer.

To be fair, recent nationalisations of Spanish banks, such as Caja del Mediterraneo or Cajasur, have led to some deposits shifting to competitors. And even if the reports about Bankia losing 1 billion euros of deposits were correct, that’s still less than 0.6 percent of the bank’s deposit base. However, given the crisis in Greece and worries about contagion to the rest of the euro zone, it’s understandable that investors are particularly sensitive to any signs of capital flight in other countries.

Yet if some Bankia clients have turned their backs on the bank, this is more likely to be as a result of the bank’s plunging share price than a lack of confidence in Spain’s government to protect their deposits. Many retail customers who bought shares in Bankia’s initial public offering last July have lost 60 percent of their investment – a fall that was exacerbated by the government’s decision to take control of BFA, Bankia’s parent company. Despite various leaks, the state has yet to detail how it plans to recapitalise the bank.

The unhappiness seems to be concentrated on Bankia, which suggests that clients who do defect will move their money to other Spanish banks. The government and Bankia’s new management team could clear the uncertainty by spelling out their plans as soon as possible. But it’s hard to see any plan that doesn’t lead to large-scale dilution of existing shareholders, raising the prospect of a vicious cycle. The government may be afraid to lean on them too heavily for fear of damaging the franchise. But given the steep fall in the share price, it may be a bit late for that.