Can Spanish prime minister Mariano Rajoy survive the kickback scandal?

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It’s hard not to feel some compassion for Spanish prime minister Mariano Rajoy’s government, which limped to its one-year anniversary only in December 2012.Spain_Flag_Icon

In that time, Rajoy’s government has weathered all of the following:

  • the passage of four budget cut packages and painful tax increases — income tax rates have increased, tax breaks for home owners have been eliminated and the Spanish value-added tax increased from 18% to 21%;
  • a volatile bond market that saw Spanish 10-year rates peak at 7.50% briefly at the end of July 2012, and the constant specter of yet another sovereign debt crisis;
  • an increase in the Spanish unemployment rate to 26%, just narrowly below Greece’s 26.8% unemployment rate;
  • yet another contraction in 2012 to Spanish GDP (1.4%) with a 1.5% contraction forecast for 2013;
  • a European bailout in June 2012 of €40 billion for Bankia, a conglomerate of conglomerate of cajas (savings banks) with exposure to Spain’s sagging real estate market, despite Rajoy’s campaign promise not to seek or accept a bailout;
  • the avoidance of a full European bailout of Spanish sovereign debt, while cagily working to ensure that the terms of any eventually bailout are on terms as favorable as possible (in part by holding out until the last possible moment for any potential future bailout);
  • a separatist coalition, propped up by former leftist supporters of the Euskadi Ta Askatasuna (ETA), took control of the regional Basque government in October 2012;
  • a high-profile showdown with Catalan premier Artur Mas in advance of Catalunya’s regional elections in November 2012 that exacerbated federal-Catalan tensions and all but assured a showdown over holding an independence referendum in 2014.

But now Rajoy’s government — and Rajoy personally — is facing perhaps its biggest crisis yet, in the form of an entirely self-inflicted scandal over slush funds, when it was reported last week that Luis Bárcenas, the former treasurer of Rajoy’s Partido Popular (PP, People’s Party), had been keeping unofficial books that provided expense payments for party leaders, including Rajoy, who received payments of up to €25,000 annually from 1997 to 2008.

The accusations come in addition to an ongoing investigation into the prior PP government of José María Aznar, the so-called Gürtel scandal involving kickbacks for contracts.  The most recent allegations involve slush funds, whereby proceeds came to Bárcenas from private construction companies and went out as payments to top party officials.  So the latest allegations could now also become a major focus of a judicial inquiry into the Gürtel corruption matter, endangering Rajoy’s government.

Alfredo Pérez Rubalcaba, leader of the center-left opposition Partido Socialista Obrero Español (PSOE, Spanish Socialist Workers’ Party), called on Rajoy to resign as prime minister last Sunday, and 10-year bond rates are already creeping back up once again.

Rajoy’s resignation could open a further Pandora’s box of adverse outcomes for Spain, including the appointment of an even more right-wing prime minister (ahem, Esperanza Aguirre) and early elections result in strengthening more radical leftists, in the same way that Greece’s 2012 parliamentary elections strengthened SYRIZA, a coalition of the radical left, in the Hellenic parliament.

Rajoy didn’t help matters much on Monday, when he perplexingly explained that reports are all ‘untrue — except for some things.’

That’s certainly not a great reassurance for Spain or for Europe — the last thing the European Union wants, with a Cyprus bailout now on the horizon, is for a political scandal to launch Spain into even more turmoil or cause financial panic anew.  German chancellor Angela Merkel, of course, is widely seen as hoping to wait through her reelection campaign later this year before pursuing any dramatic action on a new European treaty or more decisive action in the eurozone. 

Given that the scandal affects not only Rajoy, but the entire party leadership, it’s not clear that his resignation would do much good, although his more right-wing rival, Esperanza Aguirre, formerly the regional president of Madrid from 2003 to 2012, and still the Madrid leader of the PP, remains well-placed to succeed Rajoy as the federal PP leader or even prime minister.  A former senator and minister of education and culture in the late 1990s before becoming Madrid’s president, Aguirre nearly challenged Rajoy’s party leadership after the PP lost the 2008 Spanish general election.

Despite having stepped down late last year as regional president, Aguirre remains one of the party’s top figures, and she’s called for a speedy investigation into the matter.

Early elections, moreover, might cause even more turmoil, with voters apparently in a mood to punish both the PP and the PSOE — both of Spain’s major parties are now saddled with having supported harsh austerity measures and having presided over increasingly difficult economic times for Spain.

A CIS poll released earlier this week showed the PP with a lead of just 35% to 30.2% for the PSOE — a precipitous fall, and the data comes from before the latest reports of the Bárcenas scandal.

While 82% of Spanish voters have little or no confidence in Rajoy, 88% say they have little or no confidence in the PSOE.  That explains, in part, why 21.5% of surveyed voters said they would abstain and another 19.7% said they didn’t know who they would support.

Meanwhile, support for two leftist alternatives is on the rise.

Izquierda Unida (IU, United Left), a merger of several far-left parties, including Spain’s communist party, would win 9.4% of the vote.  That’s an increase from the 6.92% it won in 2011 and the 3.77% it won in 2008.

The progressive Unión Progreso y Democracia (UPyD, Union, Progress and Democracy), a party founded in 2007 by Basque leftists in opposition to the PSOE government’s approach to the ETA and to civil liberties, would win 6.8%, also an increase over its 4.70% result in the 2011 election.  Unlike the United Left, the UPyD is unimpeachably pro-Europe.  It’s also incredibly pro-federalist, perhaps surprising for a party with overwhelmingly Basque leadership.

Support for both the IU and UPyD is certain to remain strong in advance of any snap elections, given their ability to campaign against the austerity measures implemented by both the PP and PSOE.  But the UPyD in particular seems well-placed to benefit, especially given the popularity of Rosa Díez, the UPyD leader, a former PSOE member who is consistently the highest-ranked party leader among voters.

Díez, a member of the Spanish parliament, left the PSOE in 2007 to form the UPyD — she previously served as a member of the European Parliament from 1999 to 2007 and as minister of tourism and commerce in Basque regional government from 1991 to 1998.

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