Pedro Sanchez, Spain’s prime minister, applauds his supporters during a campaign rally in Madrid, Spain. (Photographer: Angel Navarrete/Bloomberg)

Voting Begins in Spain With Prime Minister in Tight Contest

(Bloomberg) -- Spanish voters deliver their verdict Sunday on whether Socialist Prime Minister Pedro Sanchez should form a new government after the collapse of his administration less than a year after he took power.

Turnout by 6 p.m. local time was 10 percentage points higher than in the 2016 general election, with 61 percent of the 37 million eligible voters casting ballots for the 350 seats in Congress and 208 in the Senate. Left-wing parties are seen as the biggest beneficiaries of a high turnout. In Catalonia, where separatists made a failed bid for independence from Spain, turnout soared to 64 percent, 18 points more than in 2016, newspaper El Pais reported.

Polls close at 8 p.m., and the government will release preliminary results at 10:30 p.m.

Voting Begins in Spain With Prime Minister in Tight Contest

With the years of financial crisis consigned to the past, voters are being asked to decide how they want to take the country forward. Sanchez is offering measures to help more Spaniards share the benefits of growth and conciliation with the separatists who tried to take Catalonia out of Spain 18 months ago. His main challenger, Pablo Casado of the People’s Party, wants to inject another dose of stimulus to the economy with widespread tax cuts and is pushing for a more severe crackdown on the separatists.

Recent polls show Sanchez has pulled ahead, but the surveys have been wrong in the past and a polarized political landscape has broken the two-party system. For the first time, Spain has five significant parties to watch -- with three of them that feed off anger at Catalan separatists.

Follow TOPLive’s coverage of Spain’s election on Sunday

One outcome from the election could be Sanchez reaching the 176 seats needed for a parliamentary majority with his left-wing ally Podemos, and without relying on the Catalan separatists who helped him take power last year.

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 wasn’t taking anything 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 Casado’s PP. There’s still a chance those groups could confound the predictions of pollsters who underestimated support for Rajoy before the last election.

Voting Begins in Spain With Prime Minister in Tight Contest

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 likely stir up the trouble that roiled markets in 2017. Llaneras gives that outcome a 10 percent chance.

For many investors, the favored partner for the Socialists would be the economic 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 for Rivera to swallow. 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.

©2019 Bloomberg L.P.