Spanish Prime Minister Mariano Rajoy on Monday strongly rejected corruption allegations leveled against him as well as several other members of his Popular Party (PP), and stressed that his government would continue with its efforts aimed at stabilizing the country's ailing economy.
Rajoy has been facing calls from the opposition to step down ever since the El Pais newspaper reported that he and some other senior Popular Party members had received secret payments from a party fund made up of donations from construction industry executives.
Nevertheless, Rajoy rejected the allegations as "totally false" during a joint press conference with German Chancellor Angela Merkel in Berlin, and stressed that his government remains strong enough to overcome the allegations.
Assuring that his government continues to be "stable" due to the Popular Party's majority in the parliament, Rajoy said his government is currently "carrying out its agenda based on reforms." He also rejected the allegations, saying: "The things that are attributed to me are false. I can say it again today."
Merkel responded by expressing her total confidence in Rajoy's government to resolve Spain's current economic problems, saying: "I have the impression that the whole Spanish government is working to drive down unemployment, to push through structural reforms."
The German Chancellor said she remained convinced that the Spanish government led by Rajoy would be able to resolve the issues threatening the country's economy, and added that the "German government will support them with all of its powers."
Earlier Monday, Spain's bond yields rose to their highest level in six weeks amid increasing investor concern over the recent political uncertainty triggered by the corruption allegations against Rajoy and his party members.
The Spanish 10-year benchmark yield climbed above 5.30 percent on Monday to its highest level since mid-December. The developments come just days before the two-day European Council summit begins on February 7. Besides, the European Central Bank is due to hold its latest rate-setting session on Thursday.
Notably, the Spanish economy had contracted more than forecast in the fourth quarter of 2012 as harsh austerity measures aimed at reducing the country's huge public debt continued to hold back growth.
According to the latest figures issued by the statistical office Ine, Spain's gross domestic product contracted 0.7 percent quarter-on-quarter in the fourth quarter of 2012. This was steeper than the 0.3 percent fall in the third quarter and the 0.6 percent contraction expected.
Rajoy, who took office in December 2011, had unveiled a EUR 65 billion austerity package in July last year, comprising tax hikes and spending cuts, to shore up the sagging economy. His government unveiled more austerity measures in September, proposing budget cuts for ministries and slashing public spending.
The Spanish economy had slipped into recession in the first quarter of 2012, and GDP falling steadily since then. Nevertheless, the eurozone member-state has pledged to reduce its budget deficit to 6.3 percent of gross domestic product in 2012 and then to 4.5 percent of GDP in 2013.
But recession and surging unemployment has so far hampered the Spanish government's efforts to attain the deficit goals. The country had posted a record unemployment of 26.02 percent in the fourth quarter of 2012, while the jobless rate among youth has also jumped to a record 55.13 percent.
Last week, European Commissioner for Economic and Monetary Affairs Olli Rehn had signaled that the EU might consider easing Spain's budget targets if there is a notable deterioration in economic activity.
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