We can lead a minority government: Spain's PP

Spain's People's Party (PP) might not have won enough seats in the general election this weekend to govern alone but it is confident that it can hang on to power and lead a minority government, its vice secretary told CNBC on Monday.

The ruling conservative People's Party (Partido Popular), led by Prime Minister Mariano Rajoy, won the highest number of votes on Sunday but it only obtained 122 seats out of the 350-seat parliament, falling short of the 176 needed for a parliamentary majority.

This means Rajoy will have to partner with the Socialist party, which won 91 seats, or newcomers Podemos and Ciudadanos, who secured 69 and 40 seats respectively, to form a coalition or minority government. Spanish stocks fell on Monday with the IBEX down 2.2 percent as investors offered their gloomy verdict on the vote.

It is unlikely that the Socialists or Podemos will join Rajoy's PP and so his best bet might be to turn to the centrist, pro-European Ciudadanos to join PP in a minority, coalition government.

Spanish Prime Minister Mariano Rajoy
Spanish Prime Minister Mariano Rajoy

Despite widespread concerns of more political instability to come, the vice secretary of the People's Party told CNBC that he was confident that his party could lead a minority without a problem.

"In Spain, in the past eleven terms there have only been four in which there has been a majority government so I think that even now, while we don't have a majority, we can have an agreement," Pablo Casado told CNBC on Monday.

"We will have to reach agreements on each law, on each bill as Zapatero did about ten years ago(José Luis Rodríguez Zapatero is a former Spanish prime minister who led a minority government from 2004-2008)," he said, denying that such a set up would lead to more volatility at a time when the economy is seeing a robust recovery.

Casado was adamant that Rajoy and the PP could lead negotiations. "We have several options and what we want is to lead those options."

"The only thing we want to say (is) that the government under Mariano Rajoy has to lead this new scenario and we want stability, not only for the economy but for challenges such as terrorism and Catalonia," he said.

Rajoy's days numbered?

As talks begin between the parties over power-sharing, some politicians were clear that they would not be content to see Rajoy, whose party has been hit with corruption scandals, continue as Spain's leader.

Manuel de la Rosa, secretary for economic policy for the Socialist party, PSOE, which has previously been the main contender in Spanish politics, before the arrival of Podemos and Ciudadanos, told CNBC that his party would "certainly not support a Rajoy-led government."

He tried to reassure markets that his party would ensure ongoing stability in Spain were it to be a part of a coalition.

"Anything that the Socialists decide will give confidence to markets, we are a party firmly anchored in the European social democratic family, within the European framework and we will not do anything that is not responsible and leads the country down a path that we want to avoid," he told CNBC on Monday.

Sofia Mirandos, the Madrid city councilor for Ciudadanos – a centrist party that could be kingmaker if approached by the PP to form a coalition – told CNBC on Monday that her party could work with the Socialists.

"We could work with the Socialists as long as they respect that democracy must be reformed, that the constitution and administration must be reformed. As long as they agree with that we could work with them," she said.

- Nyshka Chandran contributed reporting to this story by Holly Ellyatt, follow her on Twitter @hollyellyatt. Follow CNBC International on Twitter and Facebook.