Mariano Rajoy is eyeing up a tentative coalition as his best bet for securing backing for his budget, which is crucial to show the European Union (EU) the Mediterranean country is back on its feet.
Spain’s economy took a battering after the financial crisis, and followed by two inconclusive elections in 2015 and 2016 its recovery was fragile.
Mr Rajoy has just two months to get the budget through parliament, half-way through the year it is supposed to cover.
His ambitious budget is based on estimates of strong job growth and a record tax collection, amounting to more than £120bn (€200bn), coupled with an increase in social security contributions to hit Spain’s 3.1 per cent deficit target.
Mr Rajoy’s conservative Popular Party (PP) does not have enough support itself
The country’s public deficit still stands at an eye-watering 100 per cent of GDP, and Madrid has consistently failed to meet its EU mandated targets.
Today Chairman of Spain's Banco Popular said the bank needs to address and tackle its "difficulties" as soon as possible.
Last year it was short by £17bn (€20bn), and the government was forced to renegotiate its deficit target from 2.8 percent to 4.6 percent, in line with what it agreed with Brussels.
The 2017 budget is seen as crucial, and needs to be passed to ensure stability and strength, but may prove difficult for a government with the smallest parliamentary backing in the country’s recent democratic history.
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Gibraltar has its own political system that makes many decisions within the territory but issues like defence and foreign affairs are determined by the UK Government in London
But Mr Rajoy’s conservative Popular Party (PP) does not have enough support itself and is relying on the backing of small and fringe parties.
His PP party enjoys 137 seats in the 350-strong chamber, but the prime minister has secured support for his budget from the Ciudadanos party, which has 32 MPs.
Mr Rajoy bowed to pressure and increased social spending to placate the law-makers and get them on side.
The country’s public deficit still stands at an eye-watering 100 per cent of GDP
It’s a clearly conservative government
José Manuel Villegas
José Manuel Villegas, the party’s second-in-command, said: “It’s not a reformist government . . . it’s a clearly conservative government.”
Despite their support Mr Rajoy is still short the 176 benchmark he needs to hit, and so is turning to the Basque Nationalist Party (PNV) and the Coalición Canaria from the Canary Islands.
His ambitious budget is based on estimates of strong job growth and a record tax collection
Their sole member of parliament has promised to back the bill, and with the PNV on board Mr Rajoy would be one short the majority he needs.
The PM is pinning his hopes on the Canary Islands party, Nueva Canarias, which also has one MP, Pedro Quevedo.
Spain’s economy took a battering after the financial crisis
The budget includes more money for the Canary Islands, following demands from Coalición Canaria, meaning it is likely Mr Quevedo will back the proposals.
Mr Rajoy’s main opposition are the Socialists (PSOE), who have 85 members, but are embroiled in an internal leadership crisis and have indicated they will not back the bill.