Spain's Prime Minister Pedro Sanchez will meet with cabinet colleagues Friday morning to discuss a solution to his government's legislative paralysis.
The meeting comes after two Catalan separatist parties that had supported his Socialists (PSOE) in the Madrid parliament voted against his budget for the current fiscal year.
Sanchez is one of Europe's last remaining center-left leaders, a decade on from the financial crisis that cratered the Spanish economy.
Just days after the European Commission issued surprisingly healthy economic forecasts for Spain, Sanchez had been trying to pass a budget that would increase spending to address some of the country's long-standing economic inequality.
There were almost no specific concerns raised about those draft spending proposals. But after the failed vote this week, his own budget minister acknowledged that without an approved budget for the year, Sanchez could struggle to argue that he has a mandate to govern.
Political analysts say Sanchez had the ability to simply roll over last year's spending framework, introduced by the previous party in government, the Partido Popular (PP), but that appears unlikely to happen.
"Sanchez has not passed the budget ... by himself," Pablo Simon, a political science professor at Madrid's Carlos III University, told CNBC. "It makes sense as consequence to assume that he does not have a workable majority in Parliament."
The economy could nevertheless continue to perform well in the near term, and after years of austerity under the previous government, the country's finances now look comparatively healthy despite political uncertainty.
"We face opportunity cost in terms of reforms," Simon said of the political chaos. "But the deficit is not so problematic."
Wednesday's parliamentary proceedings — with 191 lawmakers voting against, 158 in favor, and 1 abstention — marked the second time since 1979 that a government has lost a vote on its budget, and the first time in almost 24 years.
In the wake of the 2017 Catalonia crisis and a corruption scandal that together roiled the once dominant center right, Sanchez himself took power from the PP, thanks to support from a handful of Basque deputies and 17 lawmakers from two Catalan separatist parties.