By Elisabeth O'Leary
MADRID (Reuters) - Spain's embattled royal family has agreed to open its affairs to more public scrutiny under a new transparency law intended to restore confidence in a political establishment sapped by corruption and economic crisis.
Two days after King Juan Carlos's daughter was charged in an embezzlement case, a palace source told Reuters on Friday that the royal household had accepted, after weeks of talks with the government, that it should be subject to the new freedom-of-information legislation, along with other organs of the state.
The government later confirmed its bill would reflect that.
The move reflects the family's mounting concern about retaining its largely figurehead role as scandals erode its standing among Spaniards stricken with economic malaise; nearly half the nation thinks it is time the 75-year-old king stepped down and over a third now want to return to being a republic.
Juan Carlos, born in exile but chosen by dictator Francisco Franco to succeed him as head of state in the 1970s, once basked in a charisma that gave him huge popularity as a constitutional monarch, not least after he defused a military coup in 1981.
But revelations of a jet-set lifestyle - he went elephant hunting in Africa last year as Spain teetered on the brink of asking for international aid - and the case against his daughter and son-in-law have amplified calls for him to abdicate, either in favor of his son or to establish a new republic.
"It's not that this will improve the king's image, it's that he was left with no choice. Not doing it is what would have damaged them," Jose Miguel de Elias of polling firm Tecel Estudios-Sigma Dos said of the royal family's decision not to resist calls for the monarchy to be covered by the law.
"People are demanding more and more transparency now."
The royal family's troubles have been exacerbated by anger among voters at a political establishment that drove the country deep into debt and left one worker in four out of a job while enriching itself through various obscure practices now being exposed - slowly - by an overworked judicial system.
Prime Minister Mariano Rajoy, whose centre-right party is far from alone in facing accusations of graft, has responded by, among other things, sending to parliament a bill to order a public right of access to official documents.
That should give more insight into how much the state grants the royal family and for what. A lack of clarity in such matters was demonstrated last month when a parliamentary committee had to meet in camera to ask officials if a German businesswoman and friend of Juan Carlos had benefited from secret service guards.
Opposition lawmakers had pushed hard for the royal family to be included among institutions bound by the new regulations.
"Of course the royal family must come under the transparency law," said Emilio Olabarria of the Basque Nationalist Party. "In fact, since the king is head of state, transparency rules should be more demanding for him than for any other institution."
The constitution establishes an annual allowance for the royal household, which employs some 500 people. At 8.26 million euros last year, it had shrunk by 7 percent in the preceding two years as austerity bit across the country. Of that amount, the king has a personal - and taxable - salary around 300,000 euros.
While he, his wife and children have the use of palaces to provide the pomp and splendor essential to their constitutional function, Spain's Bourbon dynasty lost much of its personal wealth when Juan Carlos's grandfather was deposed in 1931.
A recent newspaper report that the king had shared in an inheritance worth some 2 million euros in Swiss bank accounts prompted opposition calls for an explanation. Neither the government nor the royal household has commented on that report.
As drafted, the transparency bill and other measures propose tighter regulation of the tax declarations, assets and activities of public employees, rules on lobbying, harsher punishment for corruption and tighter audits of a variety of institutions, including trade unions, that receive public funds.
The popularity of the royal family has declined markedly since prosecutors opened an investigation in 2011 into the affairs of Inaki Urdangarin, a former national handball player who is married to Princess Cristina, younger daughter of Juan Carlos and Queen Sofia and elder sister of Crown Prince Felipe.
On Wednesday, Cristina herself was charged with helping her husband in crimes that include fraud, tax evasion and embezzling 6 million euros of public funds from a charity.
The king himself has not been implicated in that. But his African safari at the height of the debt crisis forced him into an unprecedented apology for behavior which, along with public gossip about his friendships with younger women, has contributed to a public mood that seriously threatens his position.
A poll in January found that 45 percent of Spaniards wanted him to hand over to the 45-year-old Prince Felipe. The prince had an approval rating of 62 percent, 12 points more than his father and exactly the inverse of their ranking a year earlier.
A different poll has shown support for the monarchy overall on the decline. It found 37 percent wanted a republic, compared to just 11 percent 15 years ago, while 53 percent supported keeping the royal house, down from 72 percent in 1998.
Critics of the present state of Spanish democracy welcome the moves toward transparency, comparing them to the momentous era four decades ago when Franco's dictatorship ended:
"All the corruption cases we have in Spain right now are sad," said Mar Cabra, an investigative journalist who campaigns for transparency in public life. "But they are helping us reform our democracy in a way we haven't since the 1970s."
The royal family might take heart from their British relatives, who recovered from scandals in the 1990s that brought serious talk of a republic; headline savings like scrapping a royal yacht, a revamp of Queen Elizabeth's finances, paying taxes and the opening of the royal accounts all played a part.
Simon Lewis, who was hired as communications director by Buckingham Palace in 1998 to help revive that monarchy's image, said: "More transparency around royal finances can only be a good thing ... You can never provide too much detail."
But he cautioned that the Spanish monarchy must be seen as "pro-active" in opening up, not doing so under sufferance, and would have to expand the policy: "You have to take a long-term approach," Lewis said. "Once the genie is out of the bottle, are you prepared to continue to widen what is being provided?"
(Additional reporting by Fiona Ortiz and Iciar Reinlein in Madrid and Alastair Macdonald in London; Editing by Angus MacSwan and Alastair Macdonald)
(This story corrects the given name of pollster in the seventh paragraph)
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