Spain's crisis could not have come at a worse moment - for her and for Europe

If our Prime Minister thinks he's having a hard time, he should put himself in the position of his Spanish counterpart. That country's misery affects us all

January 31, 2013: A man holds a placard depicting Spanish Prime Minister Mariano Rajoy and reading "We don't even want resignations, we want heads on spike" as he takes part in a demonstration against corruption scandals implicating the PP (Popular Party (AFP)

This last fortnight has not only been the worst in David Cameron's short premiership, but surely in his political life so far, and quite probably in the last forty years of British government.

A large portion of his Cabinet, not to mention that of the last Tory administration, stands accused of receiving money-stuffed envelopes from big business donors, and the worst thing is that the records point to him as one of the recipients.

He has denied everything, but the denials are flimsy and few media commentators - even those normally supporting his own side - seem to believe them. In other words, while demanding harsh austerity from his electorate, government politicians are giving the impression of lining their own pockets.

No joy for Rajoy

Of course, none of this is true. But it describes, pretty much, the disasters which have suddenly beset Mariano Rajoy, the unfortunate prime minister of Spain and leader of the conservative PP (People's Party), during the month of February.

And it is all because photocopies alleged to be from the handwritten ledger of his party treasurer, Luis Barcenas, have fallen into the hands of El Pais, the main quality newspaper. They imply cash payments made over many years to key figures in the party, including Rajoy and former Prime Minister Jose Maria Aznar. In Rajoy's case, the records indicate he was being paid so well as an opposition leader that he had to take a pay cut to become prime minister.

Rajoy has never been a particularly well-loved political figure - he lost one election, after which he hung on as leader. He finally reached the Moncloa palace almost by default, mainly owing to the “Crisis? What crisis?” economic incompetence displayed by his predecessor, Zapatero.

But, while they may be unloved or incompetent, you do not expect national leaders to lie. And so, the fact that large sections of the Spanish population appears to have dismissed the explanations of their own prime minister as something close to laughable, is clearly a problem.

Now, it's not as if Spain has been free from corruption historically - its regional and local governments have been rife with scandal for years, as exemplified by the recent, extraordinary case of Francisco Camps, President of Valencia region, who was last year narrowly acquitted to the great surprise of many commentators, amid accusations of jury-fixing which were by no means far-fetched.

But both cases exemplify the chickens now coming home to roost from a combination of effects: a judiciary which has become over-politicised and delivered highly questionable decisions; an unhealthy, “revolving door” political class which happily perpetuates itself in all parties; and finally, worst of all, a culture of tolerance towards corruption which dates back to the Franco era and before.

A lose-lose situation

It is this last which pretty much guaranteed that corruption would, as it invariably does, slowly and cancerously increase in scale until something like this happened. That said, when you put it against the extraordinary progress that Spain has made since its liberation from fascism less than forty years ago, we also need perhaps to make some allowances.

Whatever our judgement, it is the effects of the resultant disillusionment in the political class which triggered the birth of the now-famous “Indignados” grassroots movement in Spain, which helped in turn inspire the more global anti-politics reaction of Occupy.

And Spain is in a lose-lose situation: if there is a change of government, one somewhat less bent on balancing the books will almost certainly take charge, hurting its economic credibility. If Rajoy stays, he will be a lame-duck president in a tarnished democracy, hurting its political credibility.

But why should we in Britain care about this story? Isn't it just another foreign government which isn't quite as clean as ours? Plenty of those, aren't there?

Well, not quite. Firstly, it's genuinely shocking: this is not some developing world pseudo-democracy, but a key neighbour of Britain within the European Union and the world's fourteenth-largest economy (before the financial crisis, it was its ninth-largest). Yes, Italy has had scandals like this before; but we really thought better of Spain. In Britain it would be unthinkable.

But far, far more importantly, Spain is the member of the EU which has most been in the eye of the euro storm over the last year or so. Just about holding things together through a savage austerity program and 26% unemployment, Spain represents Britain's current stagnation troubles writ large.

But unlike Britain, it cannot devalue its currency to help ease the pain: it is stuck in the euro. While many disagree, there are some who contemplate a Greek exit as a possible solution to the euro's woes. But no-one - at least, no-one likely to have any say in the matter - seems to be saying the same about Spain; everyone senses it is simply “too big to fail”.

And we haven't even got on to the potential for austerity-fuelled political unrest on a Greek scale. Or the fact that its principal economic engine, Catalonia, is threatening to secede. Ouch.

A European tragedy

In short, Spain's political crisis could not have arrived at a worse moment, not just for it, but for the whole of Europe. If you are in the midst of holding the country together with an emergency plan, the absolutely last thing you need is for the government to be paralysed, rather than calmly managing its way out of a crisis.

Not to mention the question of trust: the BBC quotes Spanish political scientist Ferrán Requejo, telling news agency AFP that Rajoy's credibility is now fatally undermined as the key figure in the euro negotiations:

“An accusation of corruption in a governing party is a serious accusation...He is not going to be listened to the slightest bit by the European institutions.”

Perhaps significantly, some of the best analysis on the situation done so far has been carried out by the Financial Times, because there is the potential for economic impact on such a wide scale. It quotes analysis by bank Nomura:

“Should snap elections materialise in the coming months...polls suggest the outcome could deliver a very weak government that would lack the strength and the reform commitment...that overall helped win Europe and the ECB's support.”

In short, red warning lights are flashing all over the place. In the UK domestic press, it has so far been fairly quiet, but it is still conceivable that this terribly-timed political crisis could be the event that pushes Spain, and the euro, over the edge. Should that happen, the shock waves of the PP's “envelopes” saga might end up being felt as much in Berlin, Paris, London and even Washington and Beijing, as in Madrid.