• Rajoy declines king's invitation to seek confidence vote
  • Podemos offers Socialists support for governing alliance

Socialist leader Pedro Sanchez took a major step toward claiming power in Spain Friday as Acting Prime Minister Mariano Rajoy acknowledged he doesn’t have enough backing to win a confidence vote in parliament and anti-austerity group Podemos offered its support for a progressive alliance.

Rajoy declined an invitation from King Felipe VI to seek parliamentary approval for a second term in office after losing a third of his lawmakers in December’s elections and rivals line up to vote against him. Rajoy said he’s still trying to muster enough support to win parliament’s backing and called for more dialog.

“Mr Sanchez has refused to talk to me,” Rajoy said at a televised press conference in Madrid. A government combining the Socialists and Podemos “would be neither moderate nor focused,” he said.

Four weeks after an inconclusive election, the political impasse in Europe’s fifth-largest economy is beginning to clear.

With Rajoy accepting his People’s Party chances are fading, the most likely outcome is either fresh elections or a deal for Sanchez to govern with the support of Podemos despite the concerns of some party officials.

Spanish bonds fell after the news, with the spread between 10-year paper and similarly dated German bunds widening by 7 basis points from the day’s low to 125 basis points.

Asked if Rajoy remains the best option to lead the People’s Party in negotiations, acting Economy Minister Luis de Guindos said the party stands by him during a Bloomberg Television interview from Davos on Saturday.

“He won the elections, he was the leader of government that implemented the most remarkable turnaround in recent times,” De Guindos said. “The voters gave the victory to the People’s Popular party, it’s important to remember that.”

Pressure on Sanchez

Earlier, Podemos leader Pablo Iglesias made a shock proposal to back a Socialist-led coalition after talks with King Felipe in Madrid. Iglesias, who finished third in December’s election behind Rajoy and Sanchez, is trying to seize the initiative as the two progressive parties jostle for position ahead of a potential alliance.

“I am ready to get to work,” Iglesias said. “Pedro Sanchez is not in a position to propose a Socialist-only government. I think this opportunity of becoming prime minister shows fate is smiling on him and he should be forever grateful for that.”

While advancing the chances of a governing alliance, Iglesias’s offer -- sprung as Sanchez was in his own meeting with the monarch -- placed the Socialist leader in an awkward position. With just 90 lawmakers in the 350-strong parliament, Sanchez has been maneuvering for first-placed Rajoy to face, and lose, a confidence vote in parliament before making any move to form his own government.

Iglesias and Rajoy are trying to force the pace, with repeat elections now the incumbent prime minister’s best chance of holding onto power.

“We are going to wait for Rajoy, and if he fails, the Socialist Party will do what it has to do: create a progressive majority,” Sanchez said at a news conference after his meeting with the king. “It’s important in a democratic state to respect the timing of things.”

Policy Not Posts

While Iglesias offered to serve as deputy prime minister in a Sanchez government dedicated to rolling back the austerity policies of Rajoy’s PP, the Socialist leader said it’s too soon discuss who gets which job. He insisted the two parties would need to agree on a policy program before thinking about how to implement it.

“First, we’ll have to talk about policy, and then we can go into what the government would look like,” he said. “Policy, policy, policy.”

Sanchez needs to keep a lid on tensions within his party with some senior officials concerned about a deal with Podemos, which has emerged in less than two years to challenge the Socialists’ traditional dominance of the Spanish left. Iglesias’s support for a referendum on independence in Catalonia is another potential problem for some Socialist officials, even though the Podemos leader has said he won’t insist on that becoming government policy.

Sanchez faces a meeting with his party’s federal committee on Jan. 30 which will set the parameters for coalition talks and could still derail a potential deal.

Podemos’s gambit is “clearly designed to force the Socialists to come into the open and say whether they support this or that they don’t accept it,” said Angel Talavera, an analyst at Oxford Economics in London. “It’s kind of a win-win situation for Iglesias -- if they’re part of the government that’s a great result for them and if it goes to new elections they will expect to do well.”

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