MADRID—Spain's governing conservative party, seeking to end months of political impasse, embraced an agenda of anticorruption measures and judicial overhaul in return for a centrist party's agreement to support Mariano Rajoy for a second term as prime minister.

The agreement Sunday between Mr. Rajoy's Popular Party and rival Ciudadanos still leaves the incumbent short of the 176 votes he will need for re-election Wednesday by the country's new parliament. But it signaled a willingness by his party, hurt by allegations of illegal financing, to bend to critics on the sensitive issue of corruption.

Spain has been without a full-fledged government since a hung parliament elected last December failed to pick a prime minister and was dissolved. The new parliament, elected in June, is also deadlocked among four major parties, none with close to a majority of parliament's 350 seats.

Sunday's agreement assures Mr. Rajoy, who has remained in office as acting prime minister, of 169 votes in parliament—137 from his own party plus 32 from Ciudadanos. He is expected to get the backing of a small conservative Canary Islands party, giving him 170 votes, but he faces near-certain defeat Wednesday because all six other parties in parliament say they will oppose him.

In that case, a second vote would take place Friday, and Mr. Rajoy would need more votes in favor than against to allow him to form a government. If he loses again, parliament would have two months to break the deadlock; otherwise, Spain would face yet another general election, in December. On Saturday Mr. Rajoy told supporters his re-election "is today still more of a wish than a fact."

In announcing their agreement Sunday, he and Ciudadanos leader Albert Rivera appealed to the main opposition Socialist Party to allow Mr. Rajoy to govern—by allowing some of its 85 lawmakers to abstain in Friday's vote.

Socialist leader Pedro Sá nchez vowed last week to block Mr. Rajoy's re-election. Spanish politics needed cleansing and rejuvenation, he said, and that will happen "only if Rajoy leaves office and the Popular Party assumes its responsibilities related to political corruption."

Prosecutors are investigating several cases involving Popular Party officials suspected of taking bribes from construction companies in exchange for hundreds of millions of dollars in public works contracts. The party's former treasurer, Luis Bá rcenas, is awaiting trial on charges of tax fraud and money laundering in connection with an alleged party-financing scheme. He denies the charges.

Mr. Rajoy conceded this year that the scandals had "hurt the party," costing it the parliamentary majority it enjoyed during his first term. But he said he saw "no reason why this should hinder negotiations" to pick a prime minister.

Under Sunday's agreement, parliament would set up a commission to conduct a parallel probe of the illegal-financing allegations against Mr. Rajoy's party. The pact also requires that any public official under judicial investigation for corruption be suspended from office.

Mr. Rivera, the Ciudadanos leader who campaigned on a clean-government platform, had insisted on both measures.

In addition, Mr. Rajoy's party agreed to a change that Mr. Rivera said would make the judiciary less susceptible to political influence. Judges and prosecutors are now chosen by a 20-member board elected by parliament. Under the change, 12 of the 20 board positions would be elected by members of the judiciary.

Sunday's agreement is a wide-ranging legislative program of 150 measures, including economic and social policies. Mr. Rivera said his party was willing to support those measures in parliament but not to join a Rajoy-led government.

Messrs. Rajoy and Rivera conceded that the agreement might have to be renegotiated if Mr. Rajoy loses the votes in parliament this week and tries again later. But Mr. Rajoy said he was "comfortable" with the package.

The agreement calls for steps to ease the lingering pain of Spain's double-dip recession, which lasted from 2008 to 2013. It includes temporary wage subsidies for low-income families and a restoration of cuts in public spending on health and education.

Rather than raise personal income taxes, the government would reopen the cases of tax delinquents who were given amnesty from prosecution in return for payment of 10% of what they owed. Mr. Rivera said the Rajoy government allowed these delinquents to pay an average of 3% and that the treasury can recoup €2.8 billion ($3.1 billion) by demanding full payment.

Write to Richard Boudreaux at richard.boudreaux@wsj.com

(END) Dow Jones Newswires

August 28, 2016 21:35 ET (01:35 GMT)

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