Spanish elections: PSOE win but far-right Vox celebrates surge

Center-left PSOE managed to secure another win in Sunday’s general elections in Spain but failed to clinch an absolute majority with talks between the main parties to form a coalition expected in the near future.

Not only is it a bittersweet victory for PSOE, which lost 1.0% of its vote in comparison to the April elections (declining to 28.0%), Spain also saw a surge in support for far-right party Vox.

Vox managed to take 15.0% of the vote, which was up from just 10.0% in the previous elections, turning it into the third-largest force in the country's lower house, the Chamber of Deputies, with 52 seats.

The centre-right PP party won 88 seats, garnering just under 21.0% of the vote, although that was four percentage points above its share in the April elections.

The election also saw the collapse of pro-market Ciudadanos's voter base, which shrank from almost 16.0% of the vote to less than 7.0%.

Its leader, Albert Rivera, congratulated Sánchez, expressed regret at the rise of Vox and resigned.

Left wing Podemos meanwhile saw its representation in the Chamber of Deputies fall from 42 to 35.

However, it was set to retain the key for PSOE to be able to form a government. Pablo Iglesias, Podemos’ leader, said that to stop the advance of the far-right it was a “historic necessity” to form a coalition between his party and the Socialists.

The pro-independence Catalan Republican Left party meanwhile came away with 13 seats.

Turnout in the elections was only 6.7m, with 760,000 fewer people than last time having cast a ballot, a possible reflection of election weariness among Spaniards.

Sunday's general elections marked the fourth time in as many years that Spaniards had been asked to vote.

Fresh elections were called after then interim Spanish President, Pedro Sánchez, had failed to craft a working coalition or to clinch the backing of the Parliament in Madrid to form a government.

At the weekend, Sánchez called on other political parties to show “generosity and responsibility to unblock the political situation” and vowed to form a stable, “progressive” government.

In parallel, the yield on the benchmark 10-year Spanish Treasury note rose by four basis points to 0.43%, while the risk premium versus similarly-dated German bunds edged up by only two basis points to 68.

The Spanish stock market reacted better than some had expected, with its top-flight index, the Ibex 35, ending the Monday session down by just 0.06% in full electoral hangover. Analysts already predicted that neither the Ibex nor Spanish sovereign debt would suffer significantly despite the political uncertainty hanging over the country.

Nonetheless, according to analysts at Rabobank, while the election results would not send the economy into a crisis, they would keep it and Spain's public finances from being prepared for one.

Sanchez could still rule in minority if PP and Ciudadanos abstained in a second-round of voting in Parliament, Rabobank said, albeit conceding that it might not prove easy to convince the former.

"The bottom line is that Spain is set to remain deadlocked for some time to come. While the stalemate in parliament is unlikely to bring down the economy in the short run, it does have negative implications for the longer-term outlook."