Search ForexCrunch

Is the end of the Spanish government close? An ongoing corruption scandal involving the ruling party, Partido Popular, might reach the very top: Prime Minister Mariano Rajoy.

A fresh report claims that the Rajoy received some kind of “extra pay” between 1997 and 1999, when he served as a minister in the government of Jose Maria Aznar. Ministers are forbidden to receive any kind of pay outside their salaries.

El Mundo, quoted by El Economista (original Spanish, Google translated), has obtained original documents from the Bárcenas papers, that include the head of the government. According to the article, Rajoy certainly was not the only one. Other senior political figures also appear in the documents of the PP’s ex-treasurer Luis Bárcenas, although the PM at the time, Aznar, does not appear there.

The  Bárcenas case is being run by various Spanish outlets for long months. El País published these papers back in January, and according to the paper, the revelation by El Mundo validates these papers. At one point, opposition leader Rubalcaba called on Rajoy to resign, but this was never followed, as Rajoy was not tied so closely to the corruption cases, and also the opposition PSOE party is not exactly full of saints.

If these allegations snowball, it could be the end of Mariano Rajoy’s government, which came into power in late 2011. The political issues in Spain follow a political crisis in Portugal.

Spain has had a quiet period in the bond markets, and even the QE-tapering bond exit still left its yields at low levels.  During the peak of Portugal’s crisis, bond yields soared rapidly. Will this happen to Spain?

German Chancellor Angela Merkel is facing elections on September 22nd and is set to win. However, any trouble in the euro-zone could hurt her chances, and she would prefer a quiet period. Rising bond yields in Spain’s fourth largest economy is not a desired development.

An ongoing crisis would hurt the euro.

For more on EUR/USD, see the Euro to USD forecast.