MADRID (Reuters) - When Jose Luis Penas recorded fellow councillors allegedly taking bribes from businessmen a decade ago, it marked the start of a series of corruption scandals that have engulfed Spain's ruling party and could thwart its chances of retaining power.
The secret recordings in Madrid's Majadahonda municipality controlled by the People's Party (PP) culminated in a High Court investigation into allegations the party's top brass had a slush fund bankrolled by friendly businesses. Four senior former PP politicians are among 40 suspects awaiting trial.
Since the beginning of the so-called Gurtel investigation in 2007, there have been a string of other graft inquiries into the PP, with the latest ones implicating the party's leadership in Madrid and Valencia this month.
Penas said he knew Gurtel - investigators' code name for the case - would be big when he made the audio recordings, but had never imagined it might reach the upper echelons of the conservative party.
"I didn't know how deep the corruption would go," Penas, who left the party after the scandal erupted, told Reuters in an interview in the community center he now runs.
"From Gurtel came everything."
The PP denies any senior party officials were involved in any cases of alleged corruption, including Gurtel. It says only a tiny number of its politicians are corrupt, and that it is tackling the problem.
But the political cost has nevertheless been high for the party and its leader, Prime Minister Mariano Rajoy.
Public anger at the PP was a factor in its failure to win a parliamentary majority in a December election. Since then, its attempts to form a governing coalition have floundered, snubbed by rivals who say they will not work with a party tainted by corruption scandals.
Should no other party succeed in forming a coalition, as most political analysts expect, another election will be held this year. While the PP is still expected to win the most votes, opinion polls suggest it will again fail to gain a majority.
According to a poll last week in right-wing newspaper El Mundo, the center-right party would actually lose votes and parliamentary seats, with many of those surveyed blaming corruption and Rajoy's inability to cobble together a coalition.
Acknowledging the damage, PP lawmaker Andrea Levy said earlier this month the corruption allegations "shamed and embarrassed" the party's members and voters.
"The people that have done these things should neither represent the PP nor should they be politicians," said the 31-year-old, one of the party's newest and youngest faces.
"They should be expelled from politics," she told a Spanish radio station.
Fernando Jimenez, a political scientist at the University of Murcia and contributor to an annual EU anti-corruption report, said worse could be yet to come for the party.
"Most likely new cases of corruption will continue to erupt," he said. "I don't think the PP's vote has bottomed out, it could fall quite a lot more."
He said the party was losing support due to perceptions among voters that it was shielding those implicated in scandals, something denied by the party's leadership.
"The PP is a family and when one member suffers the party shelters and hides them," he said. "But this strategy was born in an era when corruption was not a great concern for people."
Times have changed. Corruption is now Spaniards' second biggest worry behind unemployment.
When Rajoy assumed office in December 2011, just 6 percent of people said corruption was a major concern, in a survey by official pollster the Sociological Research Centre (CIS). Over the last year the figure has reached as high as 60 percent.
Transparency International said in its annual report in January that Spain had suffered one of the sharpest declines in public perceptions of corruption in the world, having slipped from 30th on its index in 2012 to 36th.
The 40 suspects awaiting trial over the Gurtel case include three former PP treasurers and a former health minister, as well as local party officials and businessmen. All the suspects, and the party, have denied wrongdoing.
Earlier this month the PP's Madrid head Esperanza Aguirre resigned after police raided her headquarters and investigated some of her employees, including senior staff, for bribery and money laundering in an unrelated case. Aguirre and the party denied any wrongdoing, but she said she quit as a "gesture" of political responsibility.
Almost simultaneously a similar scandal erupted at the party's Valencia offices, with police launching an investigation into alleged money laundering there, and saying senior officials could be involved. The PP denied any wrongdoing.
Liberal party Ciudadanos, which has won popular support by campaigning against graft, has distanced itself from any alliance with the PP. It has said Rajoy is not the right man to lead Spain's next government and the fight against corruption.
"Right now, Mariano Rajoy cannot lead a project to regenerate Spain's politics and institutions, he has had four years to put an end to corruption and he failed," Ciudadanos' representative for Madrid, Ignacio Aguado, told Reuters.
The main opposition Socialists have ruled out allying with the PP in a coalition over the corruption allegations. Its leader Pedro Sanchez called into the question the integrity of Rajoy himself during an election debate. "If you win, the cost to democracy is enormous because the prime minister must be a decent person and you are not," he said.
After failing to form a coalition, Rajoy in January passed the baton to Sanchez, who has until March to form a government that receives the backing of parliament. If he too fails, other parties will have a further two months to form a government, before a new election will be called.
Some of the PP's younger generation of politicians say the party is fighting graft in its ranks to regain the public's trust.
Not far from Majadahonda, in the well-heeled Madrid suburb of Boadilla del Monte, PP Mayor Antonio Gonzalez Terol - who took over in 2011 after two predecessors resigned following investigations into their finances as part of the Gurtel probe - said his first action was to kick out the existing PP municipal team and cancel all contracts with firms accused of wrongdoing.
"We became the active pursuers of those people that had slipped a hand into the public purse," the 37-year-old told Reuters.
Others in the PP said the branding of the party as corrupt was unwarranted given Rajoy had passed legislation to tackle the problem such as bringing in new penalties.
"We consider (corrupt) only a tiny number of all the politicians in the PP," the party's head of international relations, Jose Ramon Garcia-Hernandez, told Reuters. "There are corrupt people but there are not corrupt systems."
Back in Majadahonda, however, Penas said the PP's woes were structural and would not be resolved by rooting out a few bad apples.
"They have changed some of the party's faces but its nucleus remains the same."
Editing by Julien Toyer and Pravin Char