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Rajoy Orders Audit of PP Finances to Stem Corruption Scandal

Spanish Prime Minister Mariano Rajoy ordered an internal and external audit of the ruling People’s Party’s finances as he tries to stem the fallout from allegations of kickbacks being paid to top officials.

The probe will go back to the founding of the People’s Party in 1989 and the results of the investigation will be made public, Maria Dolores de Cospedal, the party’s deputy leader, said at a press conference in Madrid today.

“We’re going to look at everything, everything,” Cospedal said today. “We have already started and this will happen quickly.”

Rajoy’s party has been rocked by a series of reports in the past week that risk undermining the government’s credibility as it enacts the harshest austerity program in history. Newspaper El Mundo has published stories alleging that the party’s former treasurer, Luis Barcenas, was making cash payments to senior party officials.

The extra yield investors demand to hold Spanish 10-year debt instead of similarly dated German bonds rose 4 basis points to 356 at 5 p.m. in Madrid. The Ibex-35 index gained 0.5 percent.

“Calm in the Spanish stock market and the risk premium after the weekend corruption scandals,” Jose Carlos Diez, chief economist at Madrid-based brokerage Intermoney SA, posted on Twitter today. “If this isn’t cleared up it will have an impact in the end.”

Cash Payments

Rajoy ordered Barcenas to stop monthly cash payments of as much as 15,000 euros ($19,980) using illegal contributions from construction firms in 2009, El Mundo newspaper reported Jan. 18. Rajoy never received illegal payments, it said, citing five people from successive leadership teams without naming them.

Former PP lawmaker Jorge Trias Saigner was quoted in an article in El Pais newspaper today as saying he knew of party officials receiving envelopes containing up to 10,000 euros in cash. He said most lawmakers and activists didn’t receive payments.

“I give him the credit of someone who says they know something because they’ve been told it,” Cospedal said today. “He hasn’t proved anything.”

Prosecutors have discovered that Barcenas had moved more than 20 million euros through Swiss bank accounts. His lawyer Alfonso Trallero said in a television interview last week that the funds were his from investments in Latin America and the money wasn’t used to finance bonus payments to PP officials.

The PP has no responsibility for the offshore bank accounts of individuals, Cospedal said today.

Protests

The revelations have prompted protests outside the PP’s headquarters in Madrid and come at a time when the party’s popularity was already slumping. Support for the PP dropped to 30 percent from 46 percent a year earlier in a Metroscopia poll published in El Pais on Jan. 13.

Budget Minister Cristobal Montoro was dragged into the row after Europa Press reported Barcenas took advantage of the government’s tax amnesty to repatriate 10 million euros last year. The Budget Ministry published two statements last week rejecting the claim. Montoro will testify in Parliament about Barcenas and the tax amnesty, Cospedal said.

To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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