Political fears in Spain have focused on Catalonia's independence bid, but the rise of a new radical-left party could be equally destabilizing.
The Podemos or "We can" party has surged from nowhere and could replace the Socialist Party as the predominant left-wing force in Spain—despite only being founded this year. This could subvert Spain's traditional two-party system, which sees the ruling center-right Popular Party, led by Mariano Rajoy, vie with the Socialist Party for power.
"While investors have focused on the standoff between Barcelona and Madrid, they should be paying more attention to the surge in support for Podemos (We can), the left-wing anti-establishment party that didn't even exist at the end of last year and has since taken Spanish politics by storm," said Nicholas Spiro of Spiro Sovereign Strategy in a research note on Monday.
Headed by a young pony-tailed academic, Pablo Iglesias, Podemos has capitalized on corruption scandals, reform fatigue and growing disenchantment with the political elite. The party has used online crowdfunding to help finance its campaign so far, and put in a strong performance in the European Parliamentary elections in May, winning five seats.
In a poll published in Spanish newspaper "El Pais" this Saturday, 27.7 percent said they would vote for Podemos, up from 10.7 percent in August. Support for the Popular Party tumbled to 20.7 percent of the vote, falling behind the Socialist Party, which won 26.2 percent.
Thirty-six-year-old Iglesias has vowed to restrict politicians' salaries and keep Spain's health and education systems public and free. He has garnered a strong public profile, and has 710,000 followers on Twitter. His profile on the social media site declares in Spanish: "It's time for change. Of course we can!"
General elections are scheduled in Spain for the end of 2015, and a strong performance by Podemos could complicate the formation of a government, warned Barclays Research's Antonio Garcia Pascual last week in a note. These elections will follow regional ones earlier in the year—in which pro-independence parties are seen triumphing in Catalonia.
"At the very least, Podemos has a strong chance of becoming the new left in Spain—and a much more militant, populist and anti-German one at that," said Spiro.
Reforms aimed at making Spain's economy more competitive could become much harder to enact if Podemos becomes one of the main parties in government.
"Podemos will probably try to roll back some of the reforms introduced by Rajoy," Teneo Intelligence's Antonio Barroso told CNBC on Monday. "For instance, Podemos has been pretty clear about their intention of rolling back on the pension reforms."
Upstart protest parties have thrived in some of the euro zone countries worst hit by the global financial crisis of 2007/08.
In Greece for instance, the radical-leftist Syriza party is ahead of the current dominant governing party, New Democracy, in opinion polls. A poll conducted by Greece Public Opinion (GPO) in mid-October saw Syriza garner 26.7 percent of the vote, giving it a 6.5 percent lead over New Democracy, which was the second most popular party.
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Over in Italy, the anti-establishment Five Star Movement, led by comedian-turned-politician, Beppe Grillo, took around a quarter of the vote in the country's inconclusive parliamentary election last year.