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NEWSMAKER-Rajoy leans on abrasive economist in Spanish crisis
Thu, Oct 25 10:05 AM EDT

* Economist in shadows is top adviser to Rajoy

* Abrasive style complicates vital Berlin relations-sources

By Fiona Ortiz

MADRID, Oct 25 (Reuters) - His face is frequently on television and yet few Spaniards know his name; Alvaro Nadal is central to Madrid's crucial but often tetchy relationship with Berlin as his government edges towards taking an international bail-out.

Nadal is Prime Minister Mariano Rajoy's right-hand man as he struggles to lift Spain out of its crisis. A fluent German speaker with strong conservative credentials, Nadal ought to go down well in Berlin, where Spain's fate in the euro zone crisis will ultimately be decided.

Instead, the combative young economist is winning few friends in Germany, which will have to put up much of the money if Madrid finally seeks a euro zone rescue.

"Nadal is difficult. You could say he has become part of the problem, rather than the solution. He is not a very good listener and conversations with him are often not pleasant," said a high-level German official, who asked not to be named.

As director of the prime minister's economic office, Nadal prefers to remain in the shadows. He appears regularly on television at Rajoy's side, and yet he never speaks publicly.

Instead Economy Minister Luis de Guindos and Treasury Minister Cristobal Montoro face the public as the government imposes austerity and struggles with shaky public finances, recession, joblessness and street protests.

Nadal, 42, is an unelected official, having given up his seat in parliament along with fellow state secretaries when Rajoy's conservative Popular Party (PP) won power last year.

Nevertheless, he exercises considerable power; he sits on the PP's influential executive committee and sources say he acts as arbiter in conflicts between de Guindos and Montoro.

The economist - who wears dark, half-rim glasses and sometimes a three-piece suit - serves as one of Rajoy's "sherpas", officials who prepare meetings between leaders and often attend the top-level talks themselves.

MIXED MESSAGES

Nadal seemed to offer so much to the dialogue with Berlin. For years he lived part-time in Germany where his wife worked at the Spanish embassy, and he had hoped to use his neo-liberal economic beliefs to help Rajoy build a strong relationship with conservative Chancellor Angela Merkel.

But German officials complain they get mixed messages from Nadal, de Guindos and Montoro, and say Rajoy has failed to sell his economic reforms properly both at home and more widely across the euro zone.

Spanish officials, for their part, say Germany has given conflicting guidance on whether Rajoy should apply for aid, which would allow the European Central Bank to buy Spanish government bonds and help to ease Madrid's high borrowing costs.

Economists, diplomats, party insiders and euro zone sources put part of the blame for the sometimes rocky dialogue on Nadal, saying his combative style has become a liability for Rajoy.

Even at home critics say Nadal has not helped win allies in Brussels and Berlin. "He's a guy who puts everyone off because of his peculiar personality. He's tense, arrogant," said a PP deputy who asked not to be named.

Reuters spoke to more than a dozen sources in Madrid, Brussels and Berlin who either know Nadal, have met him, or have been briefed on meetings he attended.

Much of their comment covered sensitive diplomatic or domestic political matters and none of these sources wanted to be named in this report. Reuters contacted Nadal a number of times seeking his response to the specific criticisms, but he declined to give any.

Several sources familiar with Nadal's thinking say he has turned sour with the German government. "He thought Spain would be a privileged partner for Germany, but he discovered they see us otherwise, and his love and trust in Germany turned into a negative view," said a political consultant with close ties to the party.

One economist said Nadal had clashed with German Finance Minister Wolfgang Schaeuble. However, a source in Rajoy's office denied this and said relations with Berlin were generally good.

Sources said it was not clear whether Nadal's change of approach to Germany was strategic or merely reflected a personal frustration.

Some said he was behind a confrontational approach to Merkel earlier this year. At that time Rajoy talked openly about how Spain's problems with borrowing on the markets - where its costs were close to unaffordable in anything but the short term - could hurt the wider euro zone.

In effect, Rajoy was threatening to sink the euro unless the European Central Bank came to Spain's aid with a bond-buying programme. In the end, Germany called Rajoy's bluff. The ECB came up with a plan but said it would buy Spanish bonds only if Madrid signed up to a bailout plan with strict conditions.

Weeks later, Madrid has still announced no decision. Rajoy and Nadal apparently believe the government must seek aid but they are wary about the conditions and therefore moving forward very slowly, taking advantage of the fact that borrowing costs have moderated since the ECB announced its plan.

The strong ties they had hoped for with Germany have been replaced by France.

"Rajoy has seen the limits of the relationship with Germany and is concentrating on relations with France, where he discovered an unexpected partner in Socialist President Francois Hollande," said Jose Ignacio Torreblanca, Head of the Madrid office of the European Council on Foreign Relations.

Torreblanca said Rajoy has taken care not to be seen as teaming up with Hollande against Merkel. Instead, the alliance is being built up through diplomatic channels and at the ministerial level. Nadal speaks daily with his French counterpart, said a source with knowledge of the matter.

RAJOY'S GATEKEEPER

Nadal, who is unrelated to Spanish tennis star Rafael Nadal, does not talk in public about his personal life. However, others give glimpses of his life outside politics.

A cycling fan and student of military history, he and his twin brother Alberto both graduated near the top of their class at the ICADE business and law school in Madrid. A former professor said Alvaro received a combined degree in economics and law, and got top marks the year he took the civil service examination for specialists in economics.

Nadal, who also studied as a post-graduate in the United States at Harvard, declined to confirm his academic history or any other detail about him in this story.

In the 1990s he worked in the economy ministry, and became a disciple of then-Economy Minister Rodrigo Rato who later headed the International Monetary Fund and remains a power in the PP.

After the PP lost elections in 2004, Nadal served as adviser to the party's top economic policymakers, first Miguel Arias and then Montoro, who are now agriculture and treasury ministers.

"He's a technocrat, but with political ambitions," said one person familiar with his work.

Nadal is regarded at home and abroad as the prime minister's gatekeeper. Along with Deputy Prime Minister Soraya Saenz de Santamaria, he is one of Rajoy's most trusted confidants.

"FLAWED STRUCTURE"

Rajoy's promises to cut state spending as he tries to avoid following Greece, Portugal and Ireland into a bailout have been undermined by the economic malaise, which has hit tax income. In June, Madrid negotiated aid of up to 100 billion euros for its banks and a sovereign rescue is seen as just a matter of time.

Rajoy has tried to answer foreign concerns about his policies by naming internationally-known orthodox economist de Guindos to the economy ministry to sell the spending cuts and reforms abroad. He has also placed Montoro, a long-time political ally, at the treasury to soft sell the austerity measures at home.

Protests have grown in Spain as spending cuts have hit schools, hospitals and public sector wages. With de Guindos and Montoro as equals - media have reported clashes between the two - Rajoy himself heads the economic cabinet. Since he is not an economist, Rajoy depends on Nadal to guide him.

Critics say Rajoy's cabinet structure is flawed and has led to confusion over Spanish policy at home and abroad. It has also allowed Nadal a good deal of influence.

"In the absence of an economy-finance supremo who calls the shots, Rajoy has chosen to do that himself, which gives a lot of power to Alvaro Nadal," said another political consultant, who also asked not to be named.

Investors and euro zone sources say Spain's European partners have concentrated on trying to figure out what Nadal's position is, since they seem him as the final arbiter. "Nadal's become the referee when Montoro and de Guindos disagree," said a prominent economist, who did not want to be named.

The economist said Rajoy could achieve a more unified message by naming an economic deputy prime minister to present decisions after internal cabinet debate. But he said there are few players with credibility at the European level who are also trusted by Rajoy.


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