Spanish Prime Minister Mariano Rajoy apologised yesterday for mishandling a major corruption scandal, but denied he or his centre-right People’s Party accepted illegal payments and rejected opposition calls to step down.

It was the first time Rajoy had admitted any error since it emerged in January that the ruling party’s former treasurer Luis Barcenas – in jail pending trial on charges of bribery and tax evasion – hid up to €48 million in Swiss bank accounts.

“I was wrong. I’m sorry but that is how it was. I was wrong in trusting someone we now know didn’t deserve it,” Rajoy told parliament at the start of a five-and-a-half-hour special debate on the funding scandal that was carried live on television.

In a defiant one-hour speech and two shorter rounds of deb-ate, he made no other admission of wrongdoing.

But he acknowledged the scandal has damaged Spain’s image abroad at a time when his government is wrestling with a shrinking economy, 26 per cent unemployment and a big budget gap. Investors have shrugged off the scandal as it has not destabilised the government. A European Central Bank back-stop for ailing euro zone countries has held Spain’s borrowing costs at a reasonable level after they jumped last year and ignited fears of an international bailout.

Barcenas, who left his post in 2009 but continued receiving financial support from the party, told a judge he collected millions in cash donations from construction magnates and distributed them to senior PP figures, including Rajoy.

The Spanish leader has been criticised for maintaining contact with Barcenas up until recently. In January the prime minister sent the former treasurer an SMS text message that read: “Luis. I understand. Be strong. I’ll call you tomorrow.”