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Corruption Accusations in Spain May Hamper Economic Recovery

  • Caroline Arbour

Former Popular Party's treasurer, Luis Barcenas, arrives at the anti-corruption prosecuting office in Madrid, Feb. 6, 2013.

Former Popular Party's treasurer, Luis Barcenas, arrives at the anti-corruption prosecuting office in Madrid, Feb. 6, 2013.

In Spain, new details keep emerging in a corruption scandal that reaches to the top ranks of the ruling party. Some analysts believe the Bárcenas affair and the numerous other cases of political dishonesty coming to light could spell trouble for the country's economic recovery. There was some evidence last week recent revelations were shaking investor confidence when Spain's debt costs rose after months of relative stability. Any setback for Spain could send shockwaves throughout the eurozone.

When Spanish newspaper El País published handwritten ledgers two weeks ago indicating the ruling Partido Popular operated a secret slush fund for years benefitting top party officials like Prime Minister Mariano Rajoy, the party fought back, questioning their authenticity.

This week El País reported that handwriting experts confirmed the documents were genuine and there was no indication of tampering.

Plus, there were revelations that the party continued until December to make severance payments to the man at the center of the scandal, the party’s former treasurer.

And this, even though Luis Bárcenas has been under investigation since 2009.

It is just the latest in a string of allegations of corruption that have been making news headlines in Spain in recent months, making austerity measures a tougher pill to swallow for Spaniards.

Jesús Lizcano, president of Transparency International Spain and an economics professor at the Autonomous University of Madrid, says the corruption scandals are certainly affecting Spain´s image and are not helpful in attracting foreign capital.

But Lizcano believes their overall impact on investor confidence will be limited.

He notes that in the Transparency International latest corruption perception index, Spain ranked 30th out of 176 countries.

Not bad, he says, even though there is room for improvement.

Some market analysts are predicting rough times ahead, however.

News of the Bárcenas affair caused Spain´s debt costs to increase slightly last week.

Bond prices are still low, but Joe Rundle, head of trading at ETX Capital in London, says they may rise to critical levels.

He says the eurozone crisis is not over and investors may pressure the European Central Bank to definitively act to put an end to it with its bailout plan.

“I think any risk, political risk, or further deterioration in economics, will cause the market to have a push of these yields up to six percent to see whether there is appetite for Draghi and the ECB to actually activate the program," said Rundle.

Rundle says a bailout would have “massive” consequences.

“France isn´t really in a position to do the bailout and it´s going to come down to Germany to decide how the eurozone is going to be shaped in the coming years," he said.

A bailout may be what the markets wish for, but it´s not something either Spain or Germany want and the tone at the meeting between Spanish Prime Minister Rajoy and German Chancellor Angela Markel last week was positive.

Meanwhile, Spain is working on polishing its credibility.

The government introduced a transparency bill last fall.

And this week Prime Minister Rajoy stated the law would not only apply to public institutions, but also to political parties.

Critics have argued the bill is hard to be enforced, but that with some amendments, it is a good start.