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Spanish Prime Minister insists Socialist party must lead any new government in Madrid

Key Points
  • There have been more than eight weeks of negotiations since the last election failed to produce a parliamentary majority.
  • Sanchez has accepted a commission from the Spanish monarch, King Felipe VI, to try and form a new government.
  • Catalan parties and others are now insisting on onerous terms for their respective participation in any Socialist-led government.
Spain's Socialist Party (PSOE) leader Pedro Sanchez attends an investiture debate at parliament in Madrid, Spain, March 2, 2016.
Andrea Comas | Reuters

Spanish Prime Minister Pedro Sanchez told CNBC that a government led by his Socialists Workers' Party remains the only option for a future political coalition in Madrid. This after more than eight weeks of negotiations since the last national vote have so far failed to produce a parliamentary majority.

"There's no other alternative, because I have double the seats of the second political force in the parliament," Sanchez said in Brussels on Friday.

"The rest of the political forces must assume their own responsibilities" in Madrid, he insisted, and those would include efforts to avoid yet another general election and "to facilitate the governability of Spain."

A Spanish election on April 28 proved largely inconclusive, with his Socialist party, the PSOE, and their natural allies, the anti-austerity Podemos movement, unable to clinch enough combined seats in Madrid's Congress of Deputies to form a simple majority.

Since then, under the terms of the country's constitution, Sanchez has accepted a commission from the Spanish monarch, King Felipe VI, to try and form a new government.

But this has proven far from straightforward for the left-wing politician, whom supporters describe as a consensus builder and who was photographed late at night on Thursday in Brussels, deep in conversation with European power players like German Chancellor Angela Merkel, French President Emmanuel Macron and the EU Council President Donald Tusk.

Sanchez dissolved Spain's previous parliament in mid-February after Catalan separatist lawmakers had refused to vote in favor of the legislative framework for his government's budget proposals.

Those same Catalan parliamentarians belonging to pro-independence parties from Spain's wealthy northeast region of Catalonia had previously backed Sanchez in his effort to topple his center-right predecessor Mariano Rajoy the previous summer.

Now they and other smaller regional parties are insisting on onerous and often conflicting terms for their respective participation in any Socialist-led government, ahead of parliamentary votes to approve Sanchez as prime minister that are provisionally scheduled to happen in mid-July.

"The threat of a repeat election might be enough for parties to allow his re-appointment," wrote Antonio Barroso, deputy director of Research at political consultancy Teneo Intelligence in a recent research note to clients.

But an unstable coalition of supporters in the Spanish legislature may herald further uncertainty for businesses and investors focused on the country's growth potential.

"The fragmentation of parliament will continue to make it difficult for the government to pass legislation," says Barroso. "As a result, the room for substantial economic policy changes is still likely to remain rather limited even if Sanchez is re-elected."

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