Allegations of corruption against Spanish PM Rajoy and reports that former Italian PM Berlusconi is gaining ground in the country’s polls ahead of this month’s election took some of the shine off the euro on Monday.
Notwithstanding its latest wobble, we continue to forecast an appreciation of the euro to $1.40 by mid-year as sentiment towards the euro-zone slowly improves. But we are also sticking to our forecast that that the exchange rate will slip back to $1.25 by year-end – a view which is predicated on the assumption that the crisis will flare up again in the second half of the year.
That being said, Monday’s news underlines the fact that such a flare-up could happen at any time.
Spain’s governing People’s Party (PP) has just said it will take legal action against whoever has leaked documents published last Thursday that purported to show Prime Minister Mariano Rajoy receiving €250,000 that had been hidden from tax authorities.
"All those who may have attributed, leaked and published,” the documents -- allegedly drawn up by two former PP treasurers -- may be subject to the action, third-ranking PP member Carlos Floriano told a news conference called before Rajoy is due to speak to the media alongside Angela Merkel after a summit in Berlin.
Rajoy denied the allegations in a televised speech on Saturday, but did not take questions. On Sunday, opposition Socialist leader Alfredo Pérez Rubalcaba called for Rajoy to resign, which the premier has ruled out.
Also on Sunday, opinion polls showed the PP’s popularity had tumbled from when they won power in November 2011 to within a whisker of the Socialists, although neither party would be able to command anything like a majority.
Fed up with record unemployment, an economic crisis with no signs of ending after five years and now fresh reports of corruption almost daily, Spanish voters have increasingly turned to small parties or the streets. Police helicopters buzzed central Madrid rooftops for three nights in a row after Thursday’s allegations as protestors rallied outside PP headquarters.
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