Rajoy Faces Pressure to Explain Spanish Graft Claims in Court

Spanish Prime Minister Mariano Rajoy faces increased pressure to respond to a corruption investigation into his People’s Party as a judge weighs a request to call him as a witness.

Public-workers union Clean Hands, which has filed a private complaint against former party treasurer Luis Barcenas, will ask Judge Pablo Ruz to call Rajoy to testify, union secretary Miguel Bernad said in a telephone interview today.

Rajoy has denied the allegations from Barcenas that he accepted cash payments before becoming premier. He said he won’t yield to what he called “blackmail.” The scandal has overwhelmed the political agenda as ministers aim to persuade investors the recession is ebbing.

The risk premium on Spanish 10-year bonds rose the past two days reaching 322 basis points at 9:49 a.m. today compared with 271 basis points on May 3.

Senior party officials shared at least 8.3 million euros ($10.9 million) between 1990 and 2008 from a secret slush fund that Barcenas helped to manage, El Mundo reported yesterday, citing documents and a pen drive the former treasurer handed over to the national court.

Clean Hands is also asking the court to call PP Party Secretary Dolores de Cospedal, former Bankia SA Chairman Rodrigo Rato and party officials Javier Arenas and Jaime Mayor Oreja, Bernad said.

‘Major Problem’

“The slush fund scandal in Spain is a major problem” for Rajoy, Berenberg Bank’s London-based chief economist Holger Schmieding said in an e-mailed note today. “It would be virtual suicide for the party to call new elections in a grave adjustment recession and amid such a scandal. Most likely, Rajoy will simply try to sit out the scandal.”

The premier will probably also bow to pressure from opposition parties to testify to parliament about the allegations, Industry Minister Jose Manuel Soria said today.

“The prime minister communicates with parliament whenever he considers it appropriate and he will also do that on this occasion,” Soria said in an interview on the state radio broadcaster. “He won’t avoid taking responsibility in any way whatsoever.”

Rajoy says that the allegations against him are ploy by Barcenas to force the government to intervene to halt a criminal investigation into his own finances. Swiss authorities have frozen Barcenas’s accounts in their country with 17.5 million euros in assets as part of the National Court’s investigation into charges of tax evasion and bribery, a court spokeswoman said today by phone.

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