As if its continuing economic problems were not enough for Spain to deal with, the country has now been enveloped in a political crisis. Here is a quick guide to the implications of the crisis in a Question/Answer format, with a few useful links for those wanting a bit more detail or background and a few extra quotes from articles by both Reuters and the Financial Times...
The implications of the crisis:
Q: What could this latest scandal mean for general market and foreign investor confidence, bearing in mind that Spain is one of the most troubled eurozone nations?
A: The scandal will negatively affect the credibility of the Spanish government at a key moment and could force Spain to ask for a full rescue. A weak government will not be ideal when it comes to implementing structural reforms, and Prime Minster Rajoy is already struggling badly in public opinion polls thanks largely to the impact of the painful reforms that the government has adopted since coming to power in late 2011.
Q: Does the scandal reveal anything about current policy, or does it all relate to past events?
A: The scandal has more to do with past practices of illegal party funding than with current economic problems. The "secret accounts" go back to the 1990s, at a time when anonymous donations to parties were possible.
Q: Could this trigger major social and economic reforms in the country?
A: These reforms are already under way. Instead, what we continue to lack is proper political reform to make parties and politicians more accountable and transparent.
Q: Could this be the decisive push for the markets which could force Spain to agree the terms for the bailout?
A: It's too early to say but this is of course a possibility.
Q: Opposition parties have been urging Mr Rajoy to resign. Is there a strong enough alternative to replace him in the ruling Popular party?
A: There are several viable candidates inside the Popular Party who could replace Rajoy. The real question is whether an eventual resignation by Rajoy would lead or not to early elections and whether Spain can afford them.
Q: Many Spaniards see corruption as pervasive in politics. With high unemployment and rife tax evasion, what measures should be taken to clean this mess?
A: Spain needs both a new Transparency Law and a judicial system able to deal with corruption issues in due time. Our current system is too opaque and cases take ages to be solved.
Q: Could the crisis in Spain spread to other countries?
A: Both Spain and Italy are undergoing political turbulence at a precarious time. The uncertainty generated by this crisis could contribute to the instability, with political turmoil and economic problems interacting and feeding off each other. Investors will be watching both the forthcoming Italian elections and Rajoy's domestic problems for any complications that could exacerbate the economic challenges faced by Spain and Italy.
Further Quotes from José Ignacio Torreblanca:
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