Splintered Spanish vote heralds arduous coalition talks

By Julien Toyer and Sonya Dowsett MADRID (Reuters) - A historically fragmented vote in Spanish elections on Sunday heralded weeks of talks to form a coalition government, with neither Prime Minister Mariano Rajoy's conservatives nor left-wing parties winning a clear mandate to govern. Despite garnering the most votes, the center-right People's Party (PP) had its worst result ever in a general election as Spaniards angered by high-level corruption cases and soaring unemployment turned away from the party in droves. The outcome was reminiscent of a similar situation in neighboring Portugal, where the incumbent conservatives won an October election but a socialist government backed by far left parties was ultimately sworn in. An unexpected surge from upstart anti-austerity party Podemos, which now partly holds the key to power, is the latest example of rising populist forces in Europe at the expense of mainstream center-right and center-left parties. In Spain, the fragmented vote heralded a new era of pact-making, shattering a two-party system that has dominated Spain since the 1970s and casting a pall over an economic reform program that has helped pull the country out of recession. "We're starting a period that will not be easy," Rajoy told cheering supporters from the balcony of the party headquarters in central Madrid. "It will be necessary to reach pacts and agreements and I will try to do this." However, the likelihood of a PP-led coalition faded with the robust showing of Podemos who roared into third place, outpacing fellow newcomer Ciudadanos whose market-friendly policies had been seen as a natural fit for the PP. A tie-up between the PP and Ciudadanos would yield 163 seats, far short of the 176 needed for a majority administration. The strong results of Podemos tipped the balance to the left of the political spectrum with five left-wing parties led by the opposition Socialists and Podemos together winning 172 seats. Such a left-wing alliance will be hard to form, however, as groups differ on economic policy and the degree of autonomy that should be awarded to the wealthy northeastern region Catalonia, home to an entrenched independence movement. "This result confirms Spain has entered an era of political fragmentation," said Teneo Intelligence analyst Antonio Barroso. "The key question is whether there will be a coalition of parties against Rajoy." 'SPAIN IS NOT GERMANY' The Spanish constitution does not set a specific deadline to form a government after the election. Analysts say negotiations to secure enough parliamentary support for a new prime minister could go for weeks - and maybe trigger another election. "What most worries me is what the new government will look like and how it will govern," said PP supporter, 29-year-old teacher Carlos Fernandez, standing outside the party headquarters in central Madrid. "The PP can't form a majority with Ciudadanos, but nor can anyone else form a majority. A grand coalition between the PP and the opposition Socialists seems the best option, but I doubt that will happen." Leader of the opposition Socialists, Pedro Sanchez, said on Sunday Rajoy had the right to have a first go at forming a government as he had won the most votes. "Spain wants the left, Spain wants change, but the PP has won the most votes," he said. "It falls to the leading political force to try and form a government." A minority PP government would be technically possible but unlikely due to the strong left-wing vote, as would be a grand coalition between the PP and the Socialists, which both parties vehemently ruled out during campaigning. "The results are so close, but Spain is not like Germany and will not form a grand coalition," said Rodrigo Serrano, a retired 67-year-old and former coach company owner at a Ciudadanos supporters event in Madrid. "Now everyone will have to listen to each other, negotiate and talk. And put Spain and its government and stability ahead of everything else." (Additional reporting by Sarah White, Adrian Croft, Liz O'Leary, Angus Berwick, Jesus Aguado, Blanca Rodriguez, Inmaculada Sanz and Carlos Ruano; Editing by Mary Milliken)