Investors are concerned that protests could mushroom or that markets could again start punishing Spain, which saw its interest rate on 10-year government bonds shoot above the 7 percent level last summer. The interest rate had fallen down to 5 percent, but shot back up to 5.3 percent amid the slush fund allegations.
Depending on developments, Rajoy might also choose to reshuffle his cabinet "as the last silver bullet to regain some political momentum," said Antonio Barroso, a London-based analyst for the Eurasia Group political risk consultancy.
But the possibility of an investigation looms over him. Though it could take some time, "calls for his resignation would likely be too strong to ignore," Barroso said.
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