Public support for Spain's governing People’s Party (PP) has fallen significantly since the party was voted into office in 2011. This is a reflection of the generalized economic misery resulting from a combination of severe austerity, economic decline, and skyrocketing unemployment.

A corruption scandal implicating numerous PP members holding government positions at both the national and regional levels, including Prime Minister Mariano Rajoy, all but rules out any chance of a reversal of the trend anytime soon.

The PP’s comfortable majorities in both legislative chambers mean that Rajoy’s government cannot be toppled from power as long as his party remains united. However, the PP’s majority will not ensure the Rajoy administration’s ability to govern effectively. If the PP’s claim to a mandate is thrown into doubt, Rajoy could face intense pressure from both the domestic opposition and international investors to dispel those doubts by calling an early election.

In that event, the PP would almost certainly incur significant losses. It is less clear which parties would benefit most from the PP’s troubles.

Risks stemming from social instability will remain high.

It has been less than two years since the center-left PSOE was tossed out of government by voters, most of whom still blame the PSOE for the economic mess inherited by Rajoy’s administration. Consequently, an early election could very result in greatly enhanced political power for smaller parties, most of which represent the narrow interests of regional constituencies.

Under the circumstances, it is not inconceivable that the PP might seek to avoid an early election by forming a national unity coalition with the PSOE, which, assuming it did not see any advantage to forcing an early return to the polls, might be willing to enter into such an arrangement.

Whether the current administration remains in place, or is replaced in the near term by an alliance of the PP and the PSOE, there is a high probability that the government will press ahead with the economic program dictated by Spain’s dependence on external financial support. As such, risks stemming from social instability will remain high. But given the dire state of the domestic labor market, foreign-owned firms are unlikely to become targets of the wrath of a population that will welcome any source of fresh jobs.

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