The corruption scandal surrounding Spanish Prime Minister Mariano Rajoy erupted once more on Tuesday, and one analyst warned that the possibility of early elections meant financial markets could be in for more pain.
Spain's El Mundo newspaper reported on Tuesday that it had presented the Spanish High Court with documents that showed payments were made from an illicit "slush fund" to leading members of the ruling People's Party, including Rajoy. The scandal first came to the fore in January, when another Spanish newspaper, El Pais, published similar documents, alleging that Rajoy had received regular cash payments from the fund, which distributed donations from construction magnates to party leaders.
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Alistair Newton, a senior political analyst at Nomura said the renewed allegations significantly increased the pressure on the Spanish government and could possibly spur further civil unrest.
"We cannot rule out early elections which could unsettle markets again," Newton said, in a research note on Tuesday. "Especially in the light of market reaction to recent political turbulence in both Greece and Portugal, we wouldn't be at all surprised to see Spanish equity and bond markets reacting, if there is further momentum behind these latest allegations."
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If Rajoy were to resign as a result of the accusations, Newton warned that new elections would result in neither of Spain's main political parties gaining a clear majority. This would point to a coalition government and "significant political uncertainty", like that seen in Italy earlier this year.
