The Socialist Workers Party (PSOE) led by José Luis Zapatero has won a second term in government, receiving 44 percent of the vote compared to the opposition right-wing Popular Party’s 40 percent. The PSOE now has 169 seats in the 350-seat parliament, 5 more than in 2004. The PP has 154 seats, adding 6.

“The Spanish people have spoken clearly and decided to begin a new era,” Zapatero told supporters outside the party’s headquarters in Madrid on Sunday night. “I will govern with a firm but open hand.... I will govern for all, but do so thinking most of all of those in need.”

Despite the increase in seats, Zapatero is still seven short of a majority and will have to either form a coalition or continue as he did over the past four years by forming ad-hoc alliances for different pieces of legislation. During that period, Zapatero relied on the Catalan Republican Left (ERC) and the Communist Party-led United Left (IU) to keep him in power. The decline in their support means he may have to reach an agreement with the conservative Catalan nationalist party Convergencia i Unio (CiU), which won 11 seats. Zapatero said he would be talking to smaller parties over the coming weeks in order to reach an “understanding” but added that a decision about formal alliances was “premature.”

The media has speculated on the future of the PP leader Mariano Rajoy despite the PP receiving an extra 400,000 votes, polling 10,169,173 in total. The PP mouthpiece El Mundo asked, “Is Rajoy the leader the PP needs to beat Zapatero in 2012? He himself encouraged doubts last night by avoiding confirmation that he is going to continue at the helm of the party and even suggesting the opposite. The sparse enthusiasm he showed when addressing his followers—honest and conscious as always—feeds speculation.”

Although the party’s popularity had hit a low before the election, the PSOE’s result held up primarily because of the widespread hatred for the PP amongst working people—the same sentiment that brought Zapatero to power in 2004 when the Aznar government was swept from office as a result of its neo-liberal economic policies and support for the war in Iraq.

The PP has played its own part in the following years in rallying support behind the PSOE by waging an aggressive political campaign in tandem with the Catholic Church and sections of the army portraying the PSOE’s victory as a virtual coup. Rajoy launched repeated provocations on the issues of regional autonomy, negotiations with the Basque separatist ETA, the PSOE’s social policies; and in defence of Francoism. Such has been the extreme nature of the right wing’s attacks that even PP official Gabriel Elorriaga was forced to admit shortly before the election that the party had “a very hard, right-wing image at the moment” and that “Even our own voters think they are more centrist than the PP.”

The Church has focused its attack on Zapatero’s social policies, which included easier divorce, recognising gay marriages and making religious education in schools optional.

But these are the very policies that have been popular with a large proportion of the population, particularly the young, few of whom want to go back to the days when the Church sought to control every aspect of personal and private life.

An e-mail to the Times Online from Carme in Barcelona gave an indication of the political impact of these issues when she explained, “Rajoy has failed in his attempts to instigate an era of power and control by making people feel afraid, and the Spanish population has had their voice heard in the elections.

“While it is true that during the four next years the government will have to focus its attention to the economy, it is also true that Spain was in need of some social reforms during the last term.”

Another correspondent added, “And so many of us Spaniards hope the People’s Party will finally shut up and admit they were defeated four years ago because people didn’t want them in the government after they got us into the Iraq war against our will.”

The PSOE was thus able to increase its vote slightly by 40,000, up to 11,064,524. But both the PSOE and the PP won additional seats by squeezing the smaller parties.

There was a sharp decline in votes for most of the nationalist parties and the IU—down from 38 in the last election to 27 this time. The results are complicated by the nature of the constituency-based voting system in Spain, which penalises the smaller parties. For example, the PSOE’s 11 million votes gave it 169 seats, but the IU’s 1 million votes resulted in it only winning 2 seats.

In the Basque Country the conservative Basque National Party (PNV) lost one quarter of its votes (falling from 420,980 in 2004 to 303,246), although this only resulted in the party losing one of its six seats. The smaller Basque Solidarity (EA) lost nearly 40 percent of the 80,905 votes it received in 2004.

The call for people to abstain after the ban last month of the Basque National Action Party and the Communist Party of the Basque Country, electoral vehicles for Batasuna, the political wing of the outlawed separatist organisation ETA, may have contributed to the lower turnout in the province—65 percent compared to 74 percent nationally. But the murder of former socialist councillor Isaías Carrasco in the Basque country two days before the election also impacted badly on the nationalist vote, provoking widespread disgust and an agreement between all the political parties to stop campaigning.

A new nominally left-leaning party—Union, Progress and Democracy (UpyD)—mainly based in the region and formed in September 2007 opposed to Zapatero’s discussions with ETA, won more than 300,000 votes and gained one deputy in Congress.

In Catalonia, the conservative CiU lost nearly 10 percent of the 835,471 votes it won in 2004 but still managed to increase its 10 seats by 1.

The Republican Left of Catalonia (ERC)—which rules in a tripartite coalition in the regional parliament with the PSOE’s sister party, the Catalan Socialist Party (PSC), and the Initiative for Catalonia-Greens/United and Alternative Left—suffered a far greater catastrophe. It lost more than 50 percent of its 2004 vote, falling to just under 300,000 and as a result lost five of its eight seats in Congress. As a result of the drop in support for the nationalists, the PSC was able to win its best-ever result, obtaining 45 percent of the vote (compared to the CiU’s 25 percent) and 25 seats in Congress.

ERC leader Josep-Lluís Carod-Rovira blamed ERC supporters for abstaining or thinking that “to stop the PP it was more useful to vote for the socialists.” Joan Ridao, the ERC candidate for Barcelona, said, “We have paid for the bi-polarisation, the fear of the PP and the weariness of the voters with Catalan politics.”

The decline in the vote of the nominally left nationalists also shows that regionalism finds its most determined constituency amongst those bourgeois and petty-bourgeois layers determined to extend their privileges at the expense of society as a whole and which make no pretence that this is the main issue in championing a regional agenda—particularly given the PP’s opposition to regionalism.

The election result was also an unmitigated disaster for the IU, which ended up with less than 4 percent of the vote nationally, something unheard of since 1982. The number of votes it received declined by more than a quarter from 1,359,190 million in 2004 to 936,040 on Sunday. IU coordinator Gaspar Llamazares also blamed the two-party “tsunami” for the defeat and the unfair electoral system before he announced he would not be standing for re-election as coordinator. “It is a bad result, without any palliatives, and I take the responsibility,” said Llamazares. It is a bitter blow to his faction of the Communist Party, which had purged the IU in December of so-called “critics” in the hope of becoming the indispensable electoral partner of the PSOE after March 9 and receiving ministerial portfolios.

The IU lost its only deputy in Valencia, one of its two deputies in Barcelona, and one of its two deputies in Madrid, leaving Llamazares as its sole representative in the capital. The IU will now have to conduct its bankrupt politics as part of a “mixed group” (Grupo Mixto) of deputies from different organisations rather acting as a group in its own right. Without a parliamentary group, there is little money, and this will also have a profound effect on the party’s finances.

In the days before the election, Zapatero made a virtually unheard of appeal directly to IU supporters and condemned social injustices. With the IU lining up with the PSOE on many issues, many of its supporters took the logical decision and voted for the PSOE as the lesser of two evils and as the best means of registering opposition to the PP.

The illusions amongst workers and young people that the PSOE will extend the minimal social reforms of its first term in office will be cruelly dashed. Labour Minister Jesus Caldera has declared that the PSOE has “the confidence that comes from a budget surplus,” which means that the new government would be able to fund public works programmes and cut taxes. But the future is fraught with danger for the PSOE and the ruling elite as a whole.

There are warnings of a rapid slowdown, slump or stagflation—stagnant growth with rising inflation. Predictions of economic growth have fallen—from 3.8 percent in 2007 to an estimated 3.1 percent this year, according to the government, and only 2.7 percent, according to the European Commission and the International Monetary Fund. The real estate boom on which much of Spain’s economic growth has relied is grinding to a halt, contributing to a rise in unemployment to 2.3 million, already one of the highest figures in Europe.

International capital is calling for the government to push through long-demanded industrial reforms and raise productivity, introduce more modern technology and tackle the huge current accounts deficit—now standing at 10 percent of gross domestic product and the second largest in the world after the US.

Since the election result, the Wall Street Journal has advised Zapatero that his “major task” is “reinvigorating” the Spanish economy and implementing “significant structural reform.” It warned against the list of Keynesian-style public works programs and tax rebates that Caldera is proposing to stimulate the economy, saying that it “may help ease the pain for a while—but it won’t lead to sustainable growth.”

Analysts say that the financial markets were looking for a victory for Zapatero and his economy minister, Pedro Solbes, as the best way to broker a new agreement between the government, big business and the trade unions to stave off the financial storm and prevent any movement of the working class. However, the problem is that the election result is an expression of far more profound processes—the ever-deeper social and political polarisation of Spain, which has already seen the unravelling of the consensus established during the “peaceful transition” to a parliamentary democracy following Franco’s death in 1975.