Graft Claims Hound Rajoy's Party, Raise Chance of Spain Vote

(Bloomberg) -- New graft claims swirling around Spain’s ruling People’s Party threaten to make it harder for Prime Minister Mariano Rajoy to build the support he needs to govern and may bring an election closer.

Ignacio Gonzalez, a former PP head of the Madrid regional government, was arrested Wednesday as part of a probe into the finances of the Canal de Isabel II water company, police said. Rajoy himself was ordered on Tuesday to testify as a witness in a corruption trial of former party officials who are accused of funneling millions of euros in kickbacks through secret offshore accounts.

As the head of a minority government, Rajoy needs the support of deputies from the liberals of Ciudadanos and the socialists to pass legislation, including a budget. Even though corruption claims against PP party officials are nothing new, the fresh welter of allegations may make it harder for him to muster the support he needs to govern and potentially make new elections more likely, said Pablo Simon, a political science professor at Carlos III University in Madrid.

“This chain of corruption cases, which could probably keep making news, is reducing the room of maneuver for Rajoy to move his political agenda ahead in parliament,” said Simon by phone. “The freeze-up in parliament means the chances of new elections as soon as 2018 are increasing.”

Rajoy, who became party leader in 2004, will testify as witness in a trial that’s probing a bribery ring that allegedly helped fund the PP over at least 15 years. At the center of the case stands Luis Barcenas, who served as party treasurer.

“It is my duty to testify so I am delighted to go and answer and clarify what is necessary,” Rajoy told reporters Thursday before addressing business leaders at an event in Madrid.

In another development, Ciudadanos and Socialists said they wanted Justice Minister Rafael Catala to testify in parliament after media including El Pais wrote stories alleging Spain’s top prosecutor tried to hinder arrest and search operations carried out as part of the Canal de Isabel II probe. Catala as well as the top prosecutor’s office deny any interference.

Separately, police on Thursday called on the offices of firms including builder Obrascon Huarte Lain SA and information services company Indra Sistemas SA to seek information, the companies said. The operations are related to a probe into the PP’s financing arrangements in the Madrid region, Efe news service reported. A police spokesperson said an investigation is underway but declined to comment on specific aspects of it.

Earlier this month, Pedro Antonio Sanchez, the head of the Murcia regional government and also a member of the PP, stepped down after rivals from the Socialist, Ciudadanos and Podemos parties were threatening a censure motion after he became snared in a court graft probe. Sanchez denies any wrongdoing.

Rajoy’s ability to remain as prime minister last year showed Spanish voters were willing to give more weight to economic stability than to the corruption scandals involving his party. Rajoy said Thursday that the government plans to increase its economic growth estimate for this year to 2.7 percent from 2.5 percent, as Spain’s economic recovery retains momentum and unemployment declines to the lowest since 2008.