“Spain’s crisis has a new twist,” says Ambrose Evans-Pritchard in The Daily Telegraph. The ruling centre-right Partido Popular is caught in a slush-fund scandal. It allegedly financed itself illegally for 20 years, using secret donations from construction groups and other companies. The party’s former treasurer says he made cash payments of €90,000 to Prime Minister Mariano Rajoy, who continues to deny he ever received any.
The scandal is deemed unlikely to bring down the government as Partido Popular has a solid majority and remains united behind Rajoy. But it adds to the sense that “the wheels are coming off” austerity and reform programmes throughout southern Europe, as Pritchard points out. Public patience already appears close to breaking point. Four years after the crisis struck, the overall debt burden continues to rise as annual deficits are only coming down very slowly. Unemployment is at a record 27% and rising.
It’s no surprise, then, that retail sales continue to fall. More joblessness among highly indebted households implies further losses in the stricken banking sector and a worsening credit squeeze. With Europe still in recession and the world slowing, exports are hardly likely to take up the slack. No wonder the International Monetary Fund, which also says Spain needs to make its labour market more flexible to encourage faster future growth, has just revised its 2014 GDP growth forecast for Spain from 0.7% to zero.
As cutbacks undermine what little growth momentum there is, yet another year of recession is on the cards. And the recent rise in Spain’s long-term bond yields following the US Federal Reserve’s talk of printing less money is squeezing potential growth further, says Julien Toyer on Reuters.com. It implies a rise in Spain’s borrowing costs. No wonder fears of Spain needing more European help are spreading.