Three Options for Governing Spain and One Way to Duck the Issue

(Bloomberg) -- Spaniards have now gone almost nine months without a proper government and two elections later, party leaders are still struggling to carve a working majority out of the divided parliament.

After caretaker Prime Minister Mariano Rajoy lost a confidence vote last week, lawmakers have until Oct. 31 to rally behind a new administration or the country will be heading for an unprecedented third election in a year.

Here are the options:

Rajoy Gets Through

After the pro-market reformers of Ciudadanos reluctantly agreed to back him in this month’s vote, the acting premier insisted he’ll keep pushing to broaden his support. The most obvious solution would be to persuade at least some of the 85 Socialist lawmakers to abstain next time -- he needs an absolute majority of 176 to take office in first-round vote; a simple majority will suffice on the second ballot.

Three Options for Governing Spain and One Way to Duck the Issue

But Socialist leader Pedro Sanchez has been resisting pressure from party grandees to let Rajoy govern in the national interest. Sanchez says the unresolved corruption allegations against Rajoy and his party are a dealbreaker. (Rajoy denies any wrongdoing.)

Another option for Rajoy would be to approach the Basque Nationalists, whose five lawmakers would put him on the brink of a majority. While the Basques’ separatist instincts would sit uncomfortably with Rajoy and his party, pragmatism could prevail.

The Nationalists face an election in their home region on Sept. 25. If they end up needing PP support to maintain control of the Basque Country’s regional government, the stars could line up for a deal at national level too.

For any potential allies, the political price of supporting Rajoy will rise as the deadline approaches. On Oct. 4 the National Court in Madrid will begin a trial of former PP officials with ties to the prime minister accused of running a bribery ring.

The PP Kicks Out Rajoy

Of the 150 policy measures that Rajoy’s People’s Party negotiated with Ciudadanos before the last confidence vote, about 100 of them had previously been endorsed by the Socialists, suggesting there’s a broad consensus on what the next government should do.

The main problem is Rajoy himself -- the questions over his integrity make him toxic for the Socialists in particular.

When Ciudadanos leader Albert Rivera floated the idea of an alternative PP candidate in parliament this month as a way to break the deadlock, PP spokesman Rafael Hernando emphatically ruled out such a move. But the theory has gained ground all the same and it was boosted by Rajoy’s botched attempt to hand disgraced former minister Jose Manuel Soria a lucrative World Bank job, provoking a backlash among voters and also PP officials.

Rajoy’s resignation “could help a lot,” according to Juan Cornejo, the deputy head of the Socialists in powerful Andalusia branch.

A Patchwork Alternative

Since Rajoy’s defeat this month, Socialist leader Sanchez has revived talks with Ciudadanos and the anti-establishment group Podemos about forming their own alliance. A similar effort foundered in April because of the ideological differences between the two smaller groups.

But analysts say that all three parties risk losses if there’s another election, so there is more incentive to compromise now while they still have 188 lawmakers between them.

If Ciudadanos won’t buy that option, Podemos has also floated the possibility of bolting on support from the Basque and Catalan Nationalist. In theory, that lineup could muster 178 votes. In practice, it’s likely to run afoul of Socialist activists’ aversion to separatists.

Make the Voters Try Again

Antonio Barroso, a political analyst at Teneo Intelligence in London, says a repeat election is the most likely outcome, giving it a 55 percent probability.

In that scenario, Rajoy’s position is bolstered by the strength of the economy while supporters of the new parties Podemos and Ciudadanos may begin to flag due to the attritional process. Polls suggest the PP and Socialists would strengthen their hands marginally, though not by enough to break the deadlock.

So the party leaders would still have to broker an agreement along the lines of one of the three models outlined above. Because Spain has to have a government again one day, doesn’t it?