A Spanish judge ruled Wednesday that King Felipe's sister, Princess Cristina, and her husband should face fraud charges, opening the way to an unprecedented criminal trial.
A file picture taken on April 22, 2010 shows Spain's Princess Cristina arriving to attend a funeral mass for former International Olympic Committee president Juan Antonio Samaranch at Barcelona's cathedral
Six days after Felipe, 46, came to the throne promising an "honest and transparent" monarchy, the decision refocused attention on a scandal that had blighted the reign of his 76-year-old father Juan Carlos.
However Cristina's defence team and the anti-corruption prosecutor announced immediately they would appeal the decision, arguing there were not sufficient grounds to pursue charges against the princess.
"The basis of this appeal is that there is no crime. There is no evidence of crime, and that is the same thing that the tax office and the prosecutor say," the princess's lawyer, Miquel Roca, told reporters.
Once considered untouchable, Cristina, 49, is now accused of tax- and money-laundering crimes linked to the business affairs of her husband, 46-year-old former Olympic handball player Inaki Urdangarin, who is himself accused of embezzlement.
"There are abundant signs that Dona Cristina of Bourbon and Greece intervened by on the one hand enriching herself for her own benefit and on the other facilitating the means for her husband to do so, by her silent collaboration," Palma de Mallorca investigating judge Jose Castro wrote in his judgement.
A final decision on whether to put the suspects on trial is to be taken by the Palma de Mallorca provincial court.
- 'Not with satisfaction' -
Roca said Cristina was not satisfied with the judge's ruling and added he was confident the appeal would succeed.
A royal palace spokesman expressed "full respect for judicial decisions" but declined to comment further.
If the judge's findings are upheld, Cristina would be the first direct relative of a Spanish monarch to stand in the dock as a criminal defendant.
But some Spaniards doubt that day would come.
"I suppose they'll find some reason to say that she won't go on trial because she's the princess and she'll come up smelling of roses, like always," said Berta Pizarro, a 20-year-old student.
"I don't think they will judge her, but I think they should," said 47-year-old street cleaner Maria-Isabel Garcia Lucas.
- Harry Potter books -
The judge has delved into allegations that Cristina's husband and his former business partner creamed off six million euros ($8 million) in public funds from contracts awarded to Noos, a charitable foundation.
Cristina sat on the board of Noos and Urdangarin was its chairman.
Together with her husband, the princess jointly owned another company, Aizoon, which investigators suspect served as a front for laundering embezzled money.
In February this year, Castro grilled Cristina in a six-hour hearing over accounts that indicated Aizoon money was used for personal expenses, including work on the couple's Barcelona mansion, dance lessons and Harry Potter books.
But the princess, a mother of four with a master's degree from New York University, said she had simply trusted her husband and had no knowledge of his business affairs.
In his 167-page ruling wrapping up four years of investigations, the judge said that with regard to Urdangarin's alleged tax crimes: "It would be difficult to have committed them without at least the knowledge and acquiescence of his wife."
The scandal overshadowed the final years of the reign of Juan Carlos, who guided Spain from dictatorship to democracy after the death in 1975 of General Francisco Franco but tearfully abdicated in favour of his son on June 18.
- Fall from grace -
As prince, Felipe was unscathed by royal scandals. But now that he sits on the throne, it is unclear how his reputation will fare in light of the allegations against his sister and brother-in-law.
"It is clearly bad news for the monarchy, " said Felipe's biographer, Jose Apezarena. "A daughter of the former king, a sister of the current king, is involved in a lawsuit. The effect on public opinion will be one of astonishment and anger."
Cristina and Urdangarin have suffered a dramatic fall from grace since they married in 1997 in a lavish ceremony in Barcelona and were bestowed the titles of Duke and Duchess of Palma.
Their multi-million-euro mansion has been impounded by the courts. Cristina was notably absent from ceremonies marking her brother Felipe's ascension to the throne on June 19.