Spain heads to the polls this weekend for general elections

This is likely to mark the end of the two-party system that has prevailed for nearly four decades. The outcome of the vote nevertheless remains highly uncertain. At the very least, the status quo is unlikely to persist. Polls point to the ruling Partido Popular in a coalition, most probably with centre-right Ciudadanos, to remain in power. But the very high number of undecided voters (and the difficulty pollsters have had in predicting many election outcomes this year) means anything is possible, including an unstable minority govt or an alternative coalition altogether. 

A PSOE-Podemos or PSOE-Ciudadanos govt are both still conceivable though polls suggest these outcomes are less likely. While a left-leaning majority would represent a clear break from the current status quo, PSOE would likely exert a moderating influence on Podemos, which has itself already rolled back from some of its more controversial proposals. 

The coalition negotiations themselves could at the very least imply a prolonged period of policy uncertainty. This may weigh on business investment in particular--precisely at a time when the Spanish economy is becoming increasingly reliant on domestic demand. The fiscal/structural adjustment process also remains incomplete, and an inconclusive result may weigh on market sentiment (though seems less likely to materially impact EUR).