Slap in the face for Rajoy? Spain goes to the polls

Spanish Prime Minister, Mariano Rajoy, got one surprise he wasn't expecting on the campaign trail in his home region of Galicia Wednesday night when he was punched in the face by a 17-year-old boy.

The incident marks a chaotic end to the final days of campaigning in the country's general election this weekend. It looks set to be one of the most intriguing and important polls since Spain's transition to democracy.

With the country finally emerging from years of hardship borne of a crippling financial crisis and the implementation of severe austerity, the emergence of new political forces is set to transform Spain's political landscape.

CNBC takes a look at the issues involved.

Establishment under pressure:

Pablo Blazquez Dominguez | Getty Images

After the domination of two main political parties – Rajoy's Partido Popular (PP) and the Partido Socialista Obrero Español (PSOE) – for decades, the political status quo in Spain is set to change irrevocably.

"Polls are pointing at a very fragmented parliament… this is the base consensus by all pollsters," Antonio Barroso, political analyst at Teneo Intelligence, an advisory firm, told CNBC in a phone interview.

The emergence of both the left wing Podemos – Spanish for 'we can' – and the centrist Ciudadanos, which translates as 'citizens', means that the outcome of the election is uncertain.

While the PP are expected to win the election, they may well lose their outright majority, with a minority or coalition government two potential outcomes.

"I think we are going through an unprecedented period of political change in Spain," Barroso said.

"The political party system is in flux because this is a country that had a two party system for the last thirty years… now you have two new entrants that basically have changed the game," he added.


Sebastien Berda | AFP | Getty Images

Spain's property bubble spectacularly burst in 2008, and the ensuing economic crisis has hit people hard.

"We wouldn't be in this situation without the crisis," Barroso said. "The crisis… has basically awakened consciousness about the imperfections of the political system," he added.

In October 2015, Spain's unemployment rate was 21.6 percent compared to 23.9 percent a year earlier, according to Eurostat.

While that decrease is welcome and the economy is showing signs of recovery, Spain still had the second highest unemployment rate in Europe after Greece, while youth unemployment is still incredibly high, at 47.7 percent in October.

"Mr Rajoy's trump card is the economy – not because Spain is roaring back to life but because of fears that a left-wing government could endanger the recovery," Nicholas Spiro, Managing Director of Spiro Sovereign Strategy, told CNBC via email.

"This election is a tug-of-war between the perceived economic competence of the PP and the disgust with the political establishment in Spain," he added. "The former appears to be resonating more strongly with voters – but it's a close contest."

La corrupción:

Over the past few years the ruling PP's reputation has been hammered by allegations of high-profile corruption.

"For the first time in a long time… when you ask people in surveys, it's the second most prominent issue for Spaniards," Barroso said.

"That's why corruption has been one of the main issues of the campaign and Podemos and Ciudadanos have been trying to exploit it in the debates with mainstream parties in order to attack them," he added.

A high-profile case erupted in 2013 when the PP's former treasurer told a judge he collected millions in cash donations from construction magnates and distributed them to senior PP figures including Rajoy, according to Reuters. Rajoy has denied that he or the PP had accepted illegal payments, the Reuters report added.

The leaders of Spain's established parties have been trading blows over the general issue of personal integrity.

"If you continue to be prime minister, the cost for our democracy ... will be enormous, because the prime minister, Mr. Rajoy, has to be a decent person and you are not," PSOE leader Pedro Sanchez told Mariano Rajoy in a recent televized debate, according to Reuters.

"I am an honourable politician, at least as honourable as you," Rajoy retorted.

Looking ahead:

Javier Soriano | AFP | Getty Images

"Spain's is the most important election in southern Europe since the acute phase of the eurozone crisis ended in late 2012," Spiro said.

"Any sign that Spain, the bloc's fourth-largest economy, is turning its back on further reforms would be received badly by markets," he added.

"Yet even if the left were to return to power, which is unlikely, the ECB's asset purchase programme will ensure that any post-election sell-off will be relatively mild."

For Barroso, Spain is set for significant changes on the domestic political scene. "I think the election is going to have an effect in the sense that a new generation of politicians is taking over," he said.

"You're going to see a renewal in the leadership of mainstream parties, no matter what happens, in the next two years," he added.

--Reuters contributed to this report