Spain's Rajoy forces new round of talks to counter left-wing alliance

By Julien Toyer and Blanca Rodríguez MADRID (Reuters) - Spain's acting prime minister, Mariano Rajoy, deferred on Friday a decision on whether to seek a confidence vote to form a government, forcing a new round of talks on resolving the country's political deadlock. The unexpected move came in response to an announcement earlier in the day that the Socialists and anti-austerity party Podemos would, after meeting King Felipe, seek a deal to form a left-wing coalition. Discussions on the next government with all groups with parliamentary representation would resume on Wednesday, the palace said in a statement. Spain's political landscape was fragmented as never before in national elections on Dec. 20, leading to an unbroken two-month stalemate. Rajoy, whose conservative People's Party came first in the ballot, albeit well short of a majority, had said until now he would take the first shot at trying to win a majority. But most parties have already said they would reject a second administration under his leadership. "I am still candidate but I can't present myself now because I don't have the support that is needed," he told a news conference late on Friday after meeting with the king. "I am not giving up anything." He did not say if he would leave the floor to the socialists or simply seek more time to secure his own alliance. The Spanish constitution sets no deadline for a prime ministerial investiture vote to take place, but once a candidate seeks the confidence of parliament a two-month deadline for the formation of a government comes into effect. A failure to reach a deal within this limit would lead to a new national election, potentially in May or later. "PROGRESSIVE GOVERNMENT"? Socialist leader Pedro Sanchez said earlier on Friday his party still rejected a German-style right/left 'grand coalition' under Rajoy and would instead try to form a "progressive" government with Podemos and other leftist groups, including the former communists of Izquierda Unida. Such a combination remains uncertain but, after five days of talks between the King and political leaders, it still appears a better bet than Rajoy's proposal. "We made an serious offer for a government and Rajoy has taken a step back. Change is possible. I hope the socialists will rise to the challenge," Podemos leader Pablo Iglesias said on his twitter feed in reaction to Rajoy's decision. The Socialists, Podemos and Izquierda Unida have a combined 161 seats. That puts their coalition some way short of a majority in the 350-seat legislature, meaning they would also need backing from regional parties from the Basque Country and Catalonia to form a stable administration. A major sticking point so far has been Podemos's promise to allow an independence referendum to go ahead in Catalonia, which the Socialist leader rejects. On Friday, however, the two parties softened their respective stances on that issue and insisted they rather wanted to focus on economic and social questions, with Iglesias stopping short of calling again for a plebiscite. The PP and the Socialists, who have alternated in power over the last 40 years, came first and second in December's election with greatly reduced support while Podemos and a second newcomer party, centrist Ciudadanos, attracted significant support underpinned by a new generation of voters disillusioned with the old elite. A majority of Spanish voters oppose holding another election and want parties to agree on a coalition government, a survey showed on Sunday. (Editing by Angus MacSwan and John Stonestreet)