It should have been a glorious event for Spanish Prime Minister Mariano Rajoy: a tête-à-tête with German Chancellor Angela Merkel. At the press conference following the 24th German-Spanish government consultation, he’d stand next to her, illuminated by her glory. He’d brag about implementing structural reforms, cleaning up the bailed-out banking sector, and moving Spain forward. He’d point at yields on government debt trending down toward normalcy. No, Spain wouldn’t need another bailout. All due to his excellent governance.
Merkel would endorse him with her benevolent smile. It would cement his political position in Spain. She’d rave about how the country has emerged from the debt crisis thanks to his tireless, bold, and courageous work in tightening the belts of his people.
But instead, Spanish stocks took a nosedive. Yields jumped. And the press conference turned into a slugfest about the corruption scandal in Spain.
The scandal burst into the open when El País published documents, allegedly handwritten by Luis Bárcenas, the ex-treasurer of Rajoy’s conservative People’s Party (PP). According to these ledgers, leading members of the PP had been paid bribes for years, with Rajoy receiving about €25,000 per year. Bárcenas himself is up to his neck in hot water; it was discovered that he had €22 million in Swiss bank accounts. The opposition has called for Rajoy’s head.
So Merkel and Rajoy were confronted with questions about the scandal—and Merkel with a blast from her past, a reference to the “black money affair” of the 1990s when her party, the CDU, under Chancellor Helmut Kohl, used an elaborate system of Swiss bank accounts to hide illegal political contributions.
The scandal broke in late 1999 with the arrest of CDU treasurer Walther Leisler Kiep for tax fraud. It ballooned relentlessly. After a few weeks, even Kohl—by then no longer chancellor—admitted to the “black accounts.” It led to an investigation by a parliamentary committee. Turns out, Kohl had used the funds to support candidates who sided with him. Numerous corporations and politicians were tangled up in it, including current Finance Minister Wolfgang Schäuble.
In short, it was a press conference from hell. Merkel emphasized that the Bárcenas scandal had not been part of their discussion. Instead, they’d talked about educational and health policies and renewable energy. And Rajoy, she said, explained his successes in implementing structural reforms and fighting unemployment....
Alas, Spain’s unemployment rate hit 26% in December, leaving 5.97 million people unemployed, up from 5.27 million when Rajoy took office in late 2011. Youth unemployment surged to 55.1%. On Monday, more bad news: the number of people receiving unemployment compensation jumped in January to the historic high of 4.98 million—up from 2 million in 2007. And the number of employed people dropped by 263,243. El País declared morosely, “the labor market begins the year with the destruction of 8,500 jobs per day.”
Nevertheless, Merkel had the “greatest respect and admiration” for what Rajoy has implemented in terms of structural reforms. It would take time for them to do their magic, she conceded, and youth unemployment was “depressingly” high. Yet she was “convinced” that the Spanish government, “with Mariano Rajoy as head,” would be able to resolve the problems. “Germany will support him with all its power,” she said.
But wasn’t she worried about Rajoy’s loss of authority? Merkel dodged; she’d already said everything, she said. “We will continue to work well together,” she added. “We have a very trusting relationship.”
Rajoy spent his time furiously defending himself. “I have the same desire, the same hope, strength, and courage that I had when I arrived to overcome one of the most difficult situations of the past 30 years,” he said. His ability to lead the government has not been weakened. His party has a “stable majority” and “clear goals” and would continue the reform efforts. And no, he would not resign.
But the questions kept coming. Rajoy had initially denied all Bárcenas-related allegations in their totality. But some of the elements in those documents inconveniently turned out to match reality. So why were these elements true but not those relating to him and other members of the party leadership? Yes, some things were true, he conceded, but “nothing that refers to me and my colleagues in the party is true.”
He was flailing to avoid the dire fate that befell George Papandreou, the conniving prime minister of Greece, and Silvio Berlusconi, the scandal-prone prime minister of Italy. Under pressure from Merkel’s Eurozone clan, they were sacked in November 2011 and replaced by unelected technocrats.
Merkel’s support suggests that replacing Rajoy isn’t on the table just yet, though Spain is sinking deeper into its crisis that started with a pricked real estate and credit bubble, morphed into a debt crisis, a banking crisis, an economic crisis with an unemployment fiasco, and now into a confidence crisis that is sending tremors through the most important institutions of the Spanish democracy.
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