Spain’s election could be the new Greek debt crisis, fear investors

Spain’s benchmark Ibex 35 index down by almost 2 percent in trading Monday, suggesting investor jitters following the result.

In a bid to soothe concerns, incumbent prime minister and PP leader Mariano Rajoy said early Monday he would strive to form a government, standing on top of a tall, blue podium in Madrid marked “Gracias” (“Thank you”) and speaking down to cheering supporters.

Spain’s opposition Socialist Party came in second with 90 seats and could join with other leftist groups.

Manuel de la Rosa, secretary for economic policy for the Socialist party, PSOE, which has previously been the main contender in Spanish politics, before the arrival of Podemos and Ciudadanos, told CNBC that his party would “certainly not support a Rajoy-led government”.

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.

Coalition has been rare in modern Spain; the country has traditionally experienced two-party rivalry between conservatives and socialists, but the emergence of radical leftist Podemos and centrist pro-EU Ciudadanos have changed the game.

“Pedro Sánchez’s Socialist party got its worst-ever election result since democracy [returned] and the Popular Party got its worst result since 1989”, a triumphant Iglesias told supporters, adding: “Today a new Spain is born”.

With all the votes counted, Rajoy’s PP is still the biggest party, with 28.7% of the vote and 123 seats.

“A new chapter of historic compromises is being opened in our country”, Podemos leader Pablo Iglesias said on Monday. Making things yet more hard, the PSOE and PP have both ruled out a grand coalition made up of the two mainstream parties.

Tsipras, whose battle against economic reforms demanded by his country’s European creditors nearly saw Greece leave the eurozone over the summer, tweeted that “austerity has now been defeated politically in Spain, as well”.

Upstart parties, the anti-austerity Podemos and market-friendly party Ciudadanos won 69 seats and 40 seats respectively.

A “coalition of losers” could form if the Socialists link up with Podemos and Ciudadanos.

In practise, unless the Socialists can be talked into supporting that option, Spain could be contemplating a period of weak minority government or new elections in the new year. PP must thus find an additional partner in either anti-austerity Podemos or regional parties that are strongly in favour of Catalan independence.

A poll for the state-owned RTVE channel gave the Popular Party 26.8 percent of the vote.

Under the Spanish constitution, King Felipe VI will first invite a party leader – normally from the party with the most votes – to form a government.

The nominated leader must then win a vote of confidence in parliament in order to take office.

Under Spanish law, the new parliament must be called by January 13, after which lawmakers have two months to elect a government.