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    Spain's Socialists bask in election glory, but pressing challenges lie ahead

    Spanish Prime Minister Pedro Sanchez celebrated an electoral triumph in Madrid Sunday night, after his earlier decision to call a snap poll in February during a moment of parliamentary deadlock resulted in his Socialist party - known as the PSOE - significantly consolidating their presence in the lower legislative chamber.

    Though the party on its own remained well short of an outright majority, the strong Socialist showing followed a highly polarized campaign. Sunday's vote was Spain's third general election since 2015, with the country's politics more splintered than at any time in its modern democratic history.

    In a victory speech that was frequently drowned out by the chants of his flag-waving PSOE supporters, Sanchez insisted that he would seek cooperation from across the political spectrum with any group that was prepared to promote social justice and to respect Spain's 40-year-old constitution.

    Five major national parties had vied for Spaniards' votes on Sunday; three on the right and two on the left. But with voting participation numbers that were substantially higher compared to the 2016 election, particularly in Catalonia where at least a million more residents voted this time around, it was Sanchez who won the most new ground as his PSOE saw 38 extra lawmakers elected to the 350-seat Congreso de los Diputados - or Congress of Deputies.

    With this gain of almost 50%, he must now persuade just another 53 lawmakers from separate parties to join his Socialists in a coalition if he is to command a 176-seat majority.

    If such a combination proves achievable, it could allay concerns about the kind of political uncertainty that plagued Spain through much of 2016, when politicians spent nearly a year haggling over the formation of a new government. But senior party officials told CNBC they do not expect a new government to be formed before June.

    Reyes Maroto the country's trade minister and a close ally of the prime minister said that the vote result was "a breath of fresh air for a congress that was a prisoner," and insisted Spanish voters had given their backing for the Socialist party to "keep up the work we have been doing over the last 10 months."

    Sanchez took power after pushing through a motion of censure against his predecessor Mariano Rajoy, with his Partido Popular mired last summer in a sprawling corruption scandal.

    Pedro Sanchez (2nd from right), Prime Minister of Spain and candidate of the Socialist Party (PSOE), cheers with his wife Begonia Gomez (2nd from left) to his supporters on election night.

    picture alliance | picture alliance | Getty Images

    Pressing challenges

    Among the most pressing challenges for Sanchez if he returns to the seat of government at the Palacio Moncloa will be Spain's slowing economy; continued high unemployment across much of the country, particularly among young people; fiscal and spending imbalances that went unaddressed when he tried and failed to pass a new budget in February; and a thus far intractable stand-off between the central government in Madrid and pro-independence politicians and supporters in the wealthy northeast region of Catalonia.

    The latter dispute dominated much of the electoral campaign's rhetoric in the euro zone's fourth largest economy, with right-wing critics of Sanchez frequently competing to highlight their anti-secession bona fides.

    That in part forced the Socialist leader publicly to rule out the possibility of any future referendum on Catalan independence, a key demand of the region's pro-independence supporters.

    A senior Sanchez ally in government, Labour Minister Magdalena Valerio, told CNBC Sunday after the vote that the result could reopen the door to dialogue with Catalan separatists. "I hope that they take notice in Catalonia that the majority of Spaniards have backed the constitution," she warned. "They have backed diversity and inclusion as long as it is done within the Spanish constitution and laws."

    Many Catalans have grown angry that some of their most high-profile former leaders have faced prosecution for their alleged roles in a 2017 referendum effort on Catalan independence that a Madrid court labelled unconstitutional. And so strong is their support in Catalonia that several of those leaders nevertheless won back seats in Spain's national parliament - from their jail cells.

    Meanwhile, after the emergence late last year of the right-wing VOX party as a significant political force in the southern Andalusian region's local elections, it has become clear that strong anti-secession sentiment has helped invigorate Spanish populism, far more than the type of immigration-driven concerns that have bolstered populist leaders elsewhere in Europe. In its first showing in a national election VOX won 24 seats.

    Supporters of Spain's far-right Vox party wave Spanish flags during a campaign rally in Burgos, northern Spain on April 14, 2019, ahead of the April 28 general elections.

    CESAR MANSO | AFP | Getty Images

    Academics and analysts insist that the Catalan issue will plague whichever leader can cobble together a governing coalition in the coming days.

    Before calling a snap election in February, Sanchez had relied on Catalan separatist lawmakers for the parliamentary majority that had helped him take power last year. But the electoral results from Sunday night could mean the Socialists no longer require that same Catalan support, which would deny the separatists their crucial role in Madrid's Congress of Deputies and the accompanying political leverage.

    "All they would need is for the nationalist parties to abstain," said Manuel Muniz, Dean of the School of Global and Public Affairs at IE University in Madrid. The result "makes it easier for the Socialist party."

    Spain's Centre for Sociological Research found that unemployment and corruption were the top two priorities among voters.

    On the economic front, a Socialist government could introduce tax increases for the banking sector and Spain's highest earners. Sanchez has previously pushed through a higher minimum wage, and has promised to gradually increase it further. But much of his agenda will rely on a stable working majority, according to analysts.

    "Sanchez might be able to get at least re-appointed" if Catalan and other regional parties abstain in a forthcoming investiture vote, said Antonio Barroso, deputy director of Research at political intelligence firm Teneo. "But economic policy would continue to be as unpredictable as during the last term."


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