Sanchez Loses Vote to Form Spanish Government, Risking Elections

(Bloomberg) -- Acting Prime Minister Pedro Sanchez failed in his attempt to form a new Spanish government on Thursday, prolonging a period of uncertainty for the country and increasing the likelihood of another election.

Sanchez’s bid to become Spain’s premier fell short in the parliamentary ballot, with 155 votes against him versus 124 votes for and 67 abstentions. The loss starts the constitutional clock ticking toward possible new elections in November.

Spain has turned increasingly ungovernable with three elections in the last four years. The economy is continuing its recovery from the ravages of the financial crisis but the country remains in a state of deep angst over the unresolved Catalan issue.

Voters are restless and the two-party system appears broken in a fragmented landscape with populists to the right and left. A victory for Sanchez would have offered the country a measure of stability after a period of upheaval. The threat of new elections adds an element of uncertainty for a Spanish economy that’s on track to outpace every Group of Seven country this year apart from the U.S.

Royal Invitation

Over a two-month period, Sanchez can in theory continue his efforts to secure a majority and go back to parliament, if invited to do so by King Felipe VI. If he fails, the king would dissolve parliament and call new elections.

Sanchez’s Socialists would have needed the support of the anti-austerity Podemos party to cobble together a majority in the assembly. Even though they abstained in the vote, Podemos, led by Pablo Iglesias, left open the possibility of continuing to try to find a way to work together.

“I extend my hand to you once again,” Iglesias said in a speech in congress before the voting ended. “Don’t take Spaniards to elections. Negotiate with us with respect.”

The gridlock comes at a time when Spain is vying for a bigger role in the European Union, potentially upending Italy as a power broker at the negotiating table as the bloc’s new executive takes form. In fact, Sanchez has cozied up to French President Emmanuel Macron and secured one of the biggest jobs in the European Commission: foreign policy chief.

In general elections in April, Sanchez’s Socialists emerged as the biggest force in parliament but well short of an overall majority. That left him with no choice but to seek the support of Podemos and other smaller groups to ensure parliamentary approval for his bid to form a government.

Spanish bonds remained steady after erasing gains, taking a cue from European Central Bank President Mario Draghi who said rate cuts were not discussed by the Governing Council at this week’s meeting.

‘Coherent’ Government

Coalition talks broke down following fractious discussions that tracked a worsening relationship between Sanchez and Iglesias. Sanchez refused to contemplate having Iglesias in his cabinet because of their differences over key issues such as the question of Catalan independence.

When Iglesias agreed to stand aside last week, it looked as if talks between the two sides might prosper. Even so, Sanchez remained steadfast in his refusal to bow to Podemos’s demands for how much representation its officials should have in his cabinet.

“You still can’t understand, Mr Iglesias, that what’s needed is one coherent and cohesive government, not two governments in one,” Sanchez said.

--With assistance from Macarena Munoz and Charlie Devereux.

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net;Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Richard Bravo, Chris Reiter

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