The Real Threat from Spain’s Corruption Scandal

Investors worried about Spain’s political stability have been dumping their Spanish holdings and pushing up the country’s borrowing costs after the eruption late last week of a corruption scandal involving Prime Minister Mariano Rajoy.

Until now, the government’s durability had been one of the few advantages that Spain held over fellow euro-area problem- case Italy, a country that has seen almost as many elections as Christmases over the past few decades and is about to stage another.

In reality, the likelihood that the Rajoy scandal will force the collapse of the current right-of-center government is slim. But investors are right to be concerned, because political stability involves more than the survival of a country’s government — it also requires the trust of the electorate in the institutions that govern them. Allegations of corruption at the highest level are corroding that trust in Spain. Read more of this post

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