Europe News

Still no government after 8 months: Is anyone in charge in Spain?

It's eight months and counting and Spain still has not got a government. But hopes are tentatively rising that recent slow progress made towards forming a ruling coalition will get the country back on a stable political footing.

A general election last December failed to give the ruling Partido Popular (PP) a majority, leaving its leader and the incumbent Prime Minister Mariano Rajoy to hold a series of discussions with its rivals in an effort to form a coalition – all to no avail.

Following that, the country held another election in June but that vote also ended in a hung parliament, leaving Rajoy back at square one, trying to find a party that will support the PP in power.

Andy Sotiriou | Digital Vision | Getty Images

The second biggest political party in Spain, the Socialist Workers' Party (PSOE), quickly ruled out being a part of a proposed "grand coalition" with the PP, its ideological nemesis and likewise, the anti-establishment leftist alliance Unidos Podemos ruled out working with the PP too.

This has left the smaller, centrist party Ciudadanos as one of the few potential kingmakers left and as such, it could now be the only key to solving Spain's political deadlock.

Support, but not for free

Ciudadanos' leader Albert Rivera - who had previously said that Rajoy had no "moral authority" to govern after corruption scandals engulfed the PP – has changed his tune, saying in the last week that he was willing to hold discussions with Rajoy – but at a price.

On Wednesday, Rivera handed Rajoy a list of six political reforms that would need to be enacted in order for his party to support the PP. The reforms are mainly related to anti-corruption measures and reform to electoral law that Ciudadanos wants to see in place before it commits to supporting the PP.

Rajoy welcomed Ciudadanos' approach but said he would have to put the party's demands to the PP's executive committee for approval next Wednesday.

Even if Ciudadanos' reform proposals pass muster, however, its support alone would not be enough to give the PP a majority in parliament and it would still need the Socialist party to refrain from preventing Rajoy's re-election.

It's complicated

In Spain, incoming governments need to secure the support of a parliamentary majority in order to take office. Spain's socialists are now being pressured to abstain from such an "investiture vote" in order to allow Rajoy to become prime minister and avoid the need for yet another election. There is no guarantee that the socialist party will be willing to facilitate a Rajoy-led government, however.

Antonio Barroso, deputy Director of Research at Teneo Intelligence, said in a note Wednesday that despite Rivera upping the ante with its approach to the PP, Rajoy's re-election was "still not a done deal."

"While the proposed institutional reform and anti-corruption measures should be palatable to the PP, Rajoy's re-election is not a done deal, however, as this will still require the abstention of the socialists (from the investiture vote). A PP-led minority government remains the base case scenario (60 percent) but a third round of elections cannot be discarded given parties' entrenched positions," Barroso said.

"Regardless, it is unlikely that any major decisions to resolve the issue will be taking before the last week of August/early September," he added.

Apolline Menut, European economist at Barclays, was more confident, stating in a note Thursday that a "government was in sight" and that the PP exec committee was likely to approve Ciudadanos' demands, paving the way for an investiture vote by early September.

Follow CNBC International on Twitter and Facebook.