Party funding scandal threatens Gonzalez: PM under pressure over Socialists' 1989 campaign

MADRID - Senior officials from Spain's ruling Socialist Party will meet on Monday to consider the fallout from a huge campaign finance scandal that is rapidly becoming the worst political crisis Felipe Gonzalez has faced in his 10 years as Prime Minister.

It will be the first time the party's executive committee has addressed the issue, and observers say it is impossible to predict the outcome. The leadership is split between those who want action - for example, the dismissal of certain officials - and those who fear that such measures can only increase the pressure on Mr Gonzalez.

One source fears that 'if certain leaders of the party accept responsibility, the (opposition) Popular Party will not be satisfied and will continue to demand Felipe Gonzalez's head'.

Last week the Prime Minister said he was ready to resign if corruption charges against the party were proved, but few people expect to see the back of Mr Gonzalez in the near future.

Any decision reached at the meeting of the Socialists' executive committee on Monday is likely to come from the Prime Minister alone. While two or three senior members might be forgiven for feeling nervous, Mr Gonzalez may decide to do nothing for a week or so to give the rumours time to subside. The dilemma for the Socialists is that an active stand might imperil the highest echelons, while inertia might further anger voters living through recession and a 20 per cent unemployment rate.

Spain is scheduled to hold general elections at the end of the year. The most recent opinion poll has the Socialists clinging on to a lead of less than 1 per cent over the conservative Popular Party.

The Filesa case, as the scandal is known, centres on a group of 'paper' companies allegedly set up to raise funds for the Socialists by billing sympathetic companies and banks for fictitious work. According to auditors appointed by a judge to investigate allegations of financial wrong- doing dating from the 1989 elections, the Filesa group amassed almost 1bn pesetas ( pounds 6m) for party funds. It is thought that several of the 'donors' later won government contracts.

The scandal, if proven, would mean not only that the Socialists broke electoral financing rules, but that the Spanish treasury lost around pounds 4m in unpaid taxes; the front companies receiving the donations failed to pay tax on them, while donors offset their contributions against tax.

The judge, Mariano Barbero, is expected to decide by the end of the month whether to try anyone over the affair, which was revealed by a former employee of one of the front companies acting for the Socialists.

Comparisons have been drawn with the political corruption in Italy. But recent Spanish scandals - which include allegations that donations to the Socialists secured lucrative contracts at Expo 92 - are on a much smaller scale than those in Italy. There are no suggestions that Spanish politicians enriched themselves.

In recent days Mr Gonzalez has refused to comment on the latest developments, but an air of unease hangs over his government.

According to party sources, senior members who had agreed to maintain a united front until after the elections changed their minds because of recent events. Such a position, they said, had been undermined by the auditors' report. 'Our messages will not reach the people unless we have a solution to this problem. How can we present a credible package of anti-corruption measures if we have not resolved the Filesa case?'

(Photograph omitted)