Spain faces political uncertainty but euro unfazed for the moment

Conservative Prime Minister Mariano Rajoy won Spain’s general election on Sunday, but his People’s Party was short of a majority and needs allies to form a government.

But the Socialists have reiterated their unwillingness to ease the PP’s return to power as Socialist spokesman César Luena said his party will “vote against the investiture of Mariano Rajoy”.

In the 350-seat parliament this translates to: PP (123); PSOE (90); Podemos (69); Ciudadanos (40). The Socialists received the second-most votes, while anti-austerity Podemos party, which was formed only a year ago, captured third.

“As far as I know, the PP is going to put forward Rajoy, and so the PSOE will vote no to the PP and Rajoy”, he said.

The results mean parliament will be made up of four main groupings with significant clout, as opposed to the usual PP and Socialists tandem – putting an end to Spain’s traditional two-party system. PP must thus find an additional partner in either anti-austerity Podemos or regional parties that are strongly in favour of Catalan independence.

The Financial Times reports that the country’s stock markets fell today as concern over a long period of political instability, while analysts at Deutsche Bank wrote about the weakness of the Citizens Party: “This changes the post-election scenarios – a centre-right coalition can not reach a majority – and injects even greater political uncertainty”. The Partido Popular remains first with nearly 29% of the vote, the PSOE a strong second with 22%, followed closely by the extraordinary showing by Podemos, which received more than 20%. Since the current Spanish constitution was passed in 1979, the king has always nominated the candidate from the party with the most votes, who was then appointed PM by parliamentary vote.

Rajoy appealed to the “sense of state and responsibility” of the other parties to achieve a stable government, a government that will provide a “sensation of certainty, both within and outside Spain”.

Fitch ratings agency warned that there was a risk of “a weak government or one reliant on more radical parties” which could lead to “some roll-back of previous reforms and fiscal loosening”.

Two newcomer parties burst on to the scene, capitalising on many voters’ disenchantment with high unemployment, constant corruption cases and the country’s political status quo.

Podemos supporters and its leader Pablo Iglesias were energized by the outcome.

The two newly popular parties (Podemos was created previous year; Ciudadanos has been around for a while but has recently gained traction) are led by young, charismatic leaders. But he raised questions about his future as the Popular Party leader by including his deputy, 44-year-old Soraya Saenz de Santamaria, on campaign posters.