King Felipe is due to meet with leaders of all the parties, excluding the United Left (whose leader the king met on Monday), in his third attempt to unblock the situation, Reuters reported. He will then meet caretaker Prime Minister Mariano Rajoy, who heads the PP, later in the day. The talks are widely seen as the last chance to form a government before a May 2 deadline but analysts think new elections on June 26 are now the most likely scenario.
"The king's last round of consultations with political parties will not lead to a government formation deal," Wolfango Piccoli, co-president of risk advisory Teneo Intelligence, said in a note on Monday.
"Once the meetings conclude, (King Felipe VI) will probably confirm that new elections will have to be held on 26 June, as parties are not expected to make any last-minute efforts to form a government," he said.
Not boding well for any forthcoming election, opinion polls currently suggest a "very similar picture to the one that emerged after the 20 December elections, with the PP dominating the new vote and, crucially, an equally fragmented parliament," Piccoli noted.
"Whether the results of the new vote will substantially differ from those of the last election will depend on: a) how parties manage to tag each other with the blame for the failure to form a government; b) the ability of Podemos to cut a deal with the United Left and; c) potential internal turmoil within the main parties."
Further political stalemate is the last thing that Spain's recovering economy needs with unemployment still high at 20.4 percent in February, according to Eurostat, although the rate is steadily improving.
So far, however, the economy has shown "surprisingly few signs that Spain's political uncertainty has dented economic activity," Pantheon Macroeconomics' Chief euro zone economist Claus Vistesen said in a note on Monday.
"Real gross domestic product (GDP) likely rose 0.7 percent quarter-on-quarter in the first quarter, down only slightly from 0.8 percent in Q4, and still far stronger than the other major euro zone economies," he noted.
Another election was Pantheon's base-case scenario and that "an increase in Spanish bond yields is a good bet in the coming months." Over the last week, Spanish 10-year bond yields have risen from 1.535 percent to 1.645 percent, showing market nerves over the drawn-out talks.