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Spain’s Socialists Fall Short in an Election Gamble Gone Wrong

Jeannette Neumann
Spain’s Socialists Fall Short in an Election Gamble Gone Wrong

(Bloomberg) -- Spain’s Socialists won the greatest number of seats in Sunday’s election, but the results are so fragmented that party leader Pedro Sanchez is going to struggle even more than before to form a government.

The political deadlock gripping the country has only deepened.

The Socialists fared worse than in April’s inconclusive poll. The ballot was meant to strengthen Sanchez’s standing. Instead, the main opposition People’s Party jumped in support and the Spanish nationalists of Vox more than doubled their representation in Parliament.

Sanchez, the acting premier, remains in pole position to claim a second term, yet it’s far from clear how he’ll get there. His most obvious partner, the anti-austerity party Podemos, has seen its own support shrink and relations with Sanchez have soured -- so that coalition looks easier on paper than in practice.

The scattered results confirm that weak, minority governments have become the new normal in Spain. Many voters say their lawmakers are clinging to the political order of old when Spain was for decades dominated by the center-left Socialists and the center-right People’s Party.

Even if Sanchez can win the backing of all his natural allies, he’ll still fall short of a majority in the 350-strong chamber. To get over the line, he’d need a Catalan separatist party, Esquerra Republicana, to support him or at least to abstain in a parliamentary confidence vote. With their leader in jail for organizing an illegal independence referendum in 2017, the separatists won’t be willing supporters.

One other possibility would be for the PP to abstain in a confidence vote, letting Sanchez take office in the national interest, a tall order for the conservatives.

“The feeling is that we’re stuck in the same place without having made any progress,” Enrique Sanchez, 85, a retired lawyer and Socialist Party supporter, said while he waited for Sanchez to address the crowd outside party headquarters in Madrid. “I don’t think Sanchez can be happy. The far right has taken a big stride forward and the Socialists have stood still.”

“One way or another, this time we are going to have a progressive government,” Sanchez told a group of supporters in Madrid on Sunday evening.

He is however testing the patience of voters, dragged back to the polls for the fourth time in as many years. The economy’s post-crisis surge has so far proved resilient despite more than four years without an effective government, but the expansion is slowing now and the list of challenges facing the next administration -- whenever it finally takes power -- is growing.

If Sanchez fails again, Spain would be heading to an unprecedented third ballot and he would be facing questions over why he wasn’t offering more concessions to reach a coalition agreement. The collapse of potential centrist partner Ciudadanos narrows his options further.

Another way to break the gridlock would be for the center-right PP to stand aside and abstain in a parliamentary vote in the interests of getting a government into power.

The PP would probably insist that far-left Podemos isn’t able to influence government policy.

Podemos leader Pablo Iglesias said Sunday evening that his party is willing to support Sanchez. But the far-left Iglesias said Sanchez’s decision to call new elections was misguided and allowed the surge of Spanish nationalists of Vox. They were the primary beneficiaries of a public backlash to violent protests in Catalonia and Sanchez’s decision to exhume Spain’s long-time dictator Francisco Franco from a mausoleum outside Madrid.

While the immediate and direct cost of such political paralysis on the economy has been manageable, there have been some signs that Spanish businesses have put some investment plans on hold. For now the country’s economy has continued to grow more robustly than its euro-area peers, such as Germany and Italy.

The long-term economic consequences, though, of Spain’s political stalemate are becoming increasingly evident. Lawmakers haven’t approved any major economic reforms since the aftermath of the county’s financial crisis more than half a decade ago.

The unemployment rate is still ticking downward and stands at 13.9% -- but job creation has started to stall. Economists say the unemployment rate is unlikely to fall much more because it’s bumping up against deep-seated structural impediments such as an over-reliance on temporary contracts and the small size of Spanish companies, which limits hiring.Sanchez appears undeterred by the complicated political math.

(Updates with election results.)

--With assistance from Charles Penty, Thomas Gualtieri, Esteban Duarte, Katerina Petroff and Charlie Devereux.

To contact the reporter on this story: Jeannette Neumann in Madrid at jneumann25@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Flavia Krause-Jackson

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