Sanchez Is Front-Runner as a Divided Spain Charts Political Path

(Bloomberg) -- For many Spanish voters now mulling their choice for prime minister, Pedro Sanchez, the incumbent, has made the most convincing case.

Since calling a snap vote almost two months ago, the Socialist leader has watched opinion polls move in his favor. As voters contemplate their options on what is officially a “day of reflection” after the formal election campaign closed on Friday night, Sanchez looks best-placed to be able to form a government.

For him, the best outcome from Sunday’s elections would be reaching the 176 seats needed for a parliamentary majority with his left-wing ally Podemos -- without having to rely on the Catalan separatists who helped him win power last year.

Sanchez Is Front-Runner as a Divided Spain Charts Political Path

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With the Basque Nationalists prepared to offer a handful of seats, that scenario was looking within reach before a pre-election polling blackout began on Tuesday. Kiko Llaneras, from Madrid-based political risk adviser Quantio, gives it a probability of about 45 percent.

The prospect of Sanchez building a secure governing pact might bring reassurance to investors, who have had to get used to a splintered political landscape in Spain since his predecessor Mariano Rajoy lost his majority in elections in 2015.

Socialist Concern

Even so, the 47-year-old was keen to take nothing for granted, using his last media interviews to stress the danger for Spain, as he sees it, of a right-wing coalition of the People’s Party, Ciudadanos and the insurgent Spanish nationalist party Vox snatching power away from him.

Causes for Socialist concern include the large number of voters who have said they’re still undecided and the unpredictable nature of support for Vox, a nationalist party that looks poised to make an electoral breakthrough.

“What’s at stake is that the extreme right influences Spanish politics and this is an extreme right to be feared,” Sanchez said in an interview with Ser radio on Friday.

The prime minister has built his political reputation on his ability to pull off an unlikely victory.

He’s twice won party leadership votes after starting as an outsider. After his first stint was ended in October 2016 by an internal putsch, he drove around Spain canvassing local party groups to win the ballot that was supposed to have gone to his successor.

Last June, he defied most commentators to claim the premiership by forcing the separatists into an alliance to push out Rajoy of the People’s Party.

And in January polls were projecting that anger at Catalan separatists would hand a majority to a trinity of parties on the right led by PP’s Pablo Casado. There’s still a chance those groups could confound the predictions of pollsters who underestimated support for Rajoy before the last election.

Casado’s pledge to cut taxes for companies and workers would probably mean a boost for stocks and the Spanish economy, but the parties’ hard-line stance on Catalonia would also mean political turbulence in the medium term. Llaneras gives that outcome a 10 percent chance.

For many investors, the favored partner for the Socialists would be the liberals of Ciudadanos. Sanchez signed a coalition agreement with Ciudadanos leader Albert Rivera in 2016 based on their shared commitment to moderate, pro-market economic policy.

Three quarters of Ciudadanos’s voters would welcome that outcome, according to a poll by IMOP Insights for ElConfidencial.com, even if it might be difficult to swallow for Rivera. So far, he has refused to contemplate joining a government led by Sanchez, whom he accuses of betraying Spain’s constitution with his gestures to Catalan nationalists.

While ruling out any independence referendum, Sanchez says extending self-government in Catalonia could be a way to resolve the political crisis there following a failed attempt to break away from Spain in 2017.

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