The Spanish scandal that I mentioned earlier in the week continues to slowly blossom into a political crisis. The Spanish newspaper, El Pais, has published evidence that between 1990 and 2009 members of Rajoy’s ruling party ran special accounts in order to hide payments from business people and make payments to party members. Many members, including Mariano Rajoy himself, along with former IMF head Rodrigo Rato are implicated in the scandal. The party has issued a denial of the allegations claiming all payments were above-board, but given the party’s former treasurer, Luis Bárcenas, was discovered to have a secret swiss bank account containing €20m recently I’m not sure anyone is going to believe it.
More from Reuters:
Spain’s ruling People’s Party denied on Thursday that Prime Minister Mariano Rajoy and other leaders received payments from a slush fund after a newspaper published what it said were secret party accounts.
El Pais published images of excerpts of almost two decades of handwritten accounts that it said were maintained by People’s Party treasurers. The newspaper said the accounts showed 11 years of payments to Rajoy of 25,200 euros ($34,200) a year.
The accounts – which El Pais said amounted to a parallel unofficial bookkeeping system – indicate donations from companies, mostly builders, and regular payments of thousands of euros to a number of party leaders.
The report is the latest twist in a scandal that has damaged the credibility of 57-year-old Rajoy as he battles a deep recession and one of Europe’s highest unemployment levels.
Rajoy – a longtime politician widely thought of as boring but honest – has demanded sacrifices of Spaniards as he slashed public spending to avert a fiscal crisis that could push Spain into an international bailout.
Obviously, given the current state of the Spanish economy and the on-going austerity, this is now a huge political problem for the Spanish government. Very high and rising unemployment, failing industrial production and weakening GDP are difficult enough to deal with, but if the citizens have no faith that the government is sharing the burden its very difficult to see how this isn’t going evolve into a full-blown crisis.
In the meantime the latest data from the Eurozone continues to show further economic retrenchment in the periphery. Greece, like Spain, continues to weaken and, even after 5 years of recession, the country is still searching for the bottom:
Already reeling from big falls in sales during the Christmas and New Year’s holiday period, the news for Greek retailers was even bleaker with the news that their sales in November of 2012 dropped off a cliff, falling 16.9% percent, heightening the likelihood that many more will go out of business this year.
The data came from the Hellenic Statistical Authority, (ELSAT) which showed consumer confidence was deader than a store mannequin with austerity-weary Greeks keeping their wallets in their pockets as the government readies to lower the boom with more pay cuts, tax hikes and slashed pensions.
Some 68,000 stores have closed in the nearly three years since the government began imposing harsh conditions on the order of international lenders putting up rescue loans to keep the economy from collapsing. The country is now in a sixth year of a deep recession with no signs it is going to relent despite rosy predictions from the government a recovery will begin later this year.
Other retail PMI data is available from Markit here, apart from Germany the data remains very poor:
The Eurozone’s Retail PMI followed the earlier Flash PMI for manufacturing and services upwards in January, but remained well below the neutral threshold of 50.0 as the sector clearly remains a major drag on the region’s economy. The current downturn in month-on-month sales revenues looks set to be the longest over the survey’s nine-year existence.
“The main positive from the latest data was a return to growth in Germany, as its Retail PMI hit a seven- month high. This did not, however, provide much of a smokescreen for the underlying weakness in both France and Italy, where consumers continued to rein in spending.
More manufacturing PMI data will be released tonight, I expect it to show further divergence between Germany and the rest of the zone.
And don’t forget this: http://online.wsj.com/article/SB10001424127887323374504578217384062120520.html?mod=europe_home
“At least 90% of the €65 billion ($85.7 billion) [Social Security Reserve Fund] has been invested in increasingly risky Spanish debt”
In the end, the people are free to demand an exit from the EU and an Iceland-like decision to burn the bondholders while ring fencing deposits. Hundreds of thousands of people could easily storm the parliament and expel their politicians. A lynching might be be just.
My point is that they aren’t even close to doing this so we must assume that they are happy to believe the lies and suffer in perpetuity while their past and future is plundered. Same goes for every other crisis striken nation.
Why is the Iceland model so willfully ignored? No-one is saying it won’t be ultra-painful. But we’d all be back to growth if we let it all go in 2008.
The babyboomers around the world would prefer to through their youth on the bonfire than take any actions that would threaten their wealth and security.
In Europe it is a matter of protecting their Bondholders (aka Pension funds), at the expense of >50% youth unemployment.
In Australia it is protecting their property values, at the expense of their children starting families of their own.
Far from being a problem confined to Spain, I think it has the potential to re-ignite a new period of crisis for the eurozone in 2013. Spain, Greece, Cyprus, and Italy will be primed to go off as the wether improves. Scandals abound. And the UK’s continuing distance from everything European has already set off a new discussion as to the zone’s long-term viability.
Oh, the other problem is the high Euro.
Germany has low internal consumption figures, soon to be mirrored by slowing export figures….
re-ignite ? the fuse was never put out, it was only dampened but it’s still burning. I would say as word of this latest problem spreads there will be a big problem in Spain. It is just criminal have gov’s over there and here continue to hide the truth.
Agree, the fuse was never put out, but the talk has been of ‘night’ and ‘day’ difference, if we take van Rompoy’s poetic tweeting as an indicator.
The ‘stabilisation’ and ‘positive contagion’ is breeding complacency – everyone goes skiing in Italy – and then comes the summer of discontent.
It’s a truly heartbreaking situation when people that had little to do with the crisis are the ones feeling the most pain.
That’s what I fear for here too.
Perhaps Eddie Obeid could get a gig as a Spanish politician?
Seems to have the right qualifications.
Political and economic turmoil in Spain worries me greatly.
They don’t have the best track record in dealing with either particularly peacefully.
The last attempted coup was not so long ago (1981), remember; http://en.wikipedia.org/wiki/23-F
I don’t get it.
The popular narrative is that _those_ people (meaning all Greeks, Spaniards, Italians, Portuguese) got what they deserved: they were living beyond their means, they didn’t pay their taxes…
But when the names of people involved in corruption, nepotism, traffic of influence, tax fraud, bribery, money laundering, drug trafficking and such start to pop up, what we see is (1) politicians (all of them moderates, too: a lot of conservative politicians, a few PSOE and CiU in Spain; plenty PASOK in Greece, as well), (2) business people and even (3) the Russian maffia.
But, where is the “everybody” else? Where are the illegally enriched cleaners? The corrupt pensioners?
The King of Spain’s son-in-law got a mortgage, for 5 million euros, paying 17K a month; at the time, the couple’s monthly income was less than 7K and the husband’s income was 3K [*]. It’s pretty obvious their house maid was at least partially responsible, isn’t it?
[*] http://politica.elpais.com/politica/2012/10/25/actualidad/1351194908_537211.html