Spain in flux as parties oppose ruling conservative government

Three of Spain's top political parties signaled Monday they would not actively support a bid by acting Prime Minister Mariano Rajoy to form a new government, paving the way for weeks or possibly months of negotiations and political uncertainty.

The results of Sunday's vote, which saw no party win a majority in the 350-seat Parliament, sent jitters through the Spanish stock exchange, which was down 2.5 percent on a day when other European markets were modestly positive.

"We could now be facing an era of political paralysis and instability in Spain," said Craig Erlam, senior market analyst at OANDA in London.

Rajoy's ruling conservative Popular Party came first in the general election, winning 123 seats but falling far short of the 176 seats it needs for a majority and losing a chunk of the 186 seats it won in 2011. Rajoy, seeking a second term, said he will "try to form a stable government'" but has no immediately obvious partner to do that.

The Socialists came second with 90 seats and could seek a coalition with other leftist groups.

Two newcomer parties burst onto the scene, capitalizing on many voters' disenchantment with high unemployment, constant corruption cases and the country's political status quo. The far-left Podemos group gained 69 seats for third place while the centrist, business-friendly Ciudadanos party got an influential 40.

The Socialists and Podemos on Monday ruled out voting in favor of Rajoy. Ciudadanos, which has repeatedly said it will never vote for Rajoy, said that at most it would abstain so the Popular Party could try to form a minority government given that it had won the most votes.

"Even if a stable coalition partnership emerges, the negotiations are unlikely to be swift, which implies that both consumers and businesses face a prolonged period of uncertainty," said RBC Capital Markets in an analysis note.

"This could in turn weigh on business investment in particular precisely at a time when the Spanish economy is becoming increasingly reliant on domestic demand to fuel the recovery," it added.

Rajoy's government is credited with dragging Spain back from the economic abyss and returning it to strong growth. But its public finances remain strained and unemployment levels hover around 20 percent.

Spain didn't need a financial bailout like others in the 19-country eurozone, such as Greece and Portugal, but the Popular Party government has been pursuing relatively tough budgetary policies and wide-ranging economic reforms. Markets fear the election results may reduce the Spanish impetus for austerity and reform.

If forced out of government, Rajoy's Popular Party would become the third European victim this year of a voter backlash against austerity measures following elections in Greece and Portugal.

Under the constitution, King Felipe VI will invite a party leader — normally from the party with the most votes — to form a government. The nominee must garner a majority of deputies' votes in Parliament in a first round to take office, or the most votes in the second round.

Deputies take their seats by Jan. 13 but there is no time limit on staging the first vote. If the candidate is not immediately successful, Parliament has two months to elect a prime minister or call a new election.

The Associated Press