Image Credit: Luis Vazquez/©Gulf News

Spain’s general election on Sunday has ended the long-running political duopoly of the People’s Party (PP) and the Spanish Socialist Workers’ Party (PSOE) that has dominated the country since the late 1970s.

Although the ruling right-of-centre PP has emerged again as the largest party, it is more than 50 seats from a majority in the lower house of parliament, and there has been a potential electoral breakthrough for two ‘new parties’ — the anti-austerity Podemos, which finished a strong third with over 20 per cent of the vote, and the centrist Ciudadanos, which came fourth.

The combined vote of PP and PSOE, which was 84 per cent of the ballot in the 2008 general election, fell to around 50 per cent. Filling this political vacuum are Podemos and Ciudadanos whose rise has been fuelled by popular anger over political scandals, the fall-out from the deepest economic recession in the country in recent years, and also the growing political clamour for independence in Catalonia.

The success of Podemos, seen as the sister party of the ruling Syriza in Greece, is especially striking. In the period since it was created in 2014, Podemos has now secured not just its significant new representation in the national parliament, but also more than 100 seats in regional parliaments, five MEPs in the European parliament elections, while candidates associated with the party won mayoralties in Madrid and Barcelona this year.

The expected next step in the process will be for the king to propose a prime ministerial-candidate. The person must win a majority within 48 hours after the first vote, in order to form a government.

If this cannot be achieved, the king can propose other candidates. However, if no one has the numbers to do so within two months of the first vote, parliament will be dissolved and new elections triggered.

Given Sunday’s electoral earthquake, there is now more than one scenario for the future national governance of the Eurozone’s fourth largest economy behind Germany, France and Italy. Firstly, given the PP’s status as the largest single party, it will probably now test out the waters with Ciudadanos which is its closest rival, ideologically speaking, and explore the possibility of a pact.

One key challenge here is that the two parties will not collectively have the 176 seats in the lower house for a majority by themselves. Moreover, Ciudadanos leader Albert Rivera has previously pledged not to support a second term for incumbent PP leader and Prime Minister Mariano Rajoy who appears keen to stay in office.

Given that any post-election pact between PP and PSOE appears exceptionally unlikely, the most likely other scenario now is for PSOE to seek to try to reach an accommodation with Podemos, and possibly Ciudadanos too. PSOE will be disappointed that it has not performed better, but it is still widely blamed for the fact that it was in power at the time when the Spanish economy first went into recession.

A PSOE-Podemos combination, which Podemos has dismissed as an option in the past, would fall short of a parliamentary majority. It may also require at least the tacit backing of Ciudadanos or other smaller parties to be a realistic alternative option for sustained governance.

One challenge here is that Ciudadanos has previously pledged not to support current Socialist leader Pedro Sanchez as prime minister.

Another hurdle is the differing political philosophies of PSOE, Podemos and Ciudadanos. For instance, Podemos was formed in part to provide a stronger structure for Spain’s so-called indigados political protest movement, after a series of political scandals, and favours an ‘in-out’ Catalan referendum, although it nominally remains opposed to Catalonian independence. By contrast, the centrist, business-friendly Ciudadanos originally came into being in 2006 as a regional-focused party opposed to Catalan separatism.

From the vantage point of financial markets, none of these governance options will be as attractive as the 2011 election result when the PP won 44.6 per cent of the vote and an outright majority of 186 seats. And the increased political uncertainty has the potential to undermine the nascent economic recovery which has recently seen gross domestic product growth rise to 3 per cent, following the worst recession in decades that saw a property crash, and unemployment peaking at 27 per cent, and almost 60 per cent for young adults under 24.

While the jobs market is improving, unemployment is still above 20 per cent and is forecast by the International Monetary Fund to be 16 per cent in 2020, around double the pre-crisis rate of 8.5 per cent, and the second highest in Europe behind Greece. Moreover, there are around 2.5 million people who have been jobless for such a long period they can no longer receive benefits. And it is also estimated that temporary workers make up more than a quarter of the workforce, with short term work comprising about 90 per cent of contracts signed in 2015, with around a quarter of these lasting for less than a week.

It is in this context that the gap between rich and poor is growing in Spain at the fastest rate in Europe, according to a report last year by the IMF.

As well as the economic pain and political scandals of recent years, a key backdrop to the election campaign is growing tension between Madrid and separatists in Catalonia over issues such as linguistic rights and fiscal autonomy. Support for Catalan independence has increased since 2010 when a reform to extend the regional government’s powers was struck down by the Spanish Constitutional Court.

In September, pro-independence parties won regional elections with just under 50 per cent of the vote. With the wind on their backs, separatists in Catalonia are looking to begin the process of independence from Spain, including the drafting of a new regional constitution.

Whereas the PP has taken a hard-line stance to the separatists since its election victory in 2011, the other parties have talked about the need for reform of the Spanish constitution to try to quell the regional demands for independence. Podemos, which performed strongly in Catalonia in Sunday’s election, has gone furthest by calling for a referendum on independence, and a new Spanish federation of semi-independent nations, both of which PSOE and Ciudadanos have previously opposed.

Taken overall, the end of the post-Franco two-party system has increased political uncertainty in Spain. If no party can secure agreements in the next two months, that will command a majority in the Lower House of parliament, fresh elections will take place in 2016.

Andrew Hammond is an Associate at LSE IDEAS (the Centre for International Affairs, Diplomacy and Strategy) at the London School of Economics.