Enter stage left: the woman who could break Spain's political deadlock

By Julien Toyer

MADRID (Reuters) - A new actor is waiting in the wings of Spain's nine-month-old political drama, with the potential to bring it to a badly needed conclusion and break up its male-dominated cast.

Susana Diaz, who leads a powerful faction of the Socialist party, is being encouraged by her supporters to challenge party leader Pedro Sanchez, who is under growing pressure to quit over his handling of an unprecedented political deadlock.

If the 41-year-old plumber's daughter were to take the helm, she would not only become the first woman to lead the Socialist party since it was founded 137 years ago, but also to lead any major Spanish political party.

Europe's fifth-largest economy has been without a fully fledged government since December, when its 36 million voters were called to the polls for the first of two inconclusive elections, each ending in bickering and no sign of compromise.

The stalemate has paralyzed decision-making and threatens to hinder an economic rebound from recession. The prospect of a third election is looming large - to the deep frustration of Spaniards who are fast losing faith in their leaders' ability to rise above party politics.

Against this backdrop, the stage is set for the first change in leadership of Spain's main political forces since caretaker Prime Minister Mariano Rajoy called the first election.

The Socialist party is pivotal to breaking the impasse because it holds 85 out of the 350 seats in parliament's lower house. It can allow Rajoy's conservative People's Party, which won the most seats, to form a minority government by abstaining in a confidence vote - something Sanchez has refused to do.

The party has torn itself in two; 17 rebels - led by Diaz, according to party sources - resigned from the Socialists' 38-strong executive committee on Wednesday to try to unseat Sanchez and avoid a third election that the party has virtually no chance of winning.

Diaz, the chief of the Andalusia region - a Socialist stronghold and Spain's most populous autonomous community - already has a track record of reaching cross-party compromises at local level and could take a different path.

She says she opposes a right-wing government, but her supporters say she is more pragmatic than Sanchez whose intransigence they blame for the party's slump in local government elections this month.

"She is a female version of Felipe Gonzalez," said a long-time party member who draws parallels with the way Gonzalez took over a battered Socialist party in the late 1970s to make it the biggest force of Spanish politics for more than a decade by guiding it on a journey from the fringe to the center-left.

Many of the most powerful figures in the party back Diaz but it is unclear if she will eventually topple Sanchez, given the party is divided and its grassroots, according to party insiders and analysts, are largely siding with the current leader.

In a much anticipated speech on Thursday, Diaz said the time had come to heal the wounds of the party but she stopped short of clarifying her own intentions.

"I'll be where the grassroots put me, at the top or at the bottom," she said to the cheers of her supporters.

CLOUT

Were Diaz to end up leading the Socialists, she would face the party's central dilemma: allow a conservative minority government or force a third general election in a year.

The Socialists are split over which is the best course of action, with many grassroots members opposed to allowing the People's Party to govern again. Diaz's backers say she is the only figure with enough political clout to make the call and keep the party united at the same time.

"Although I can't see much of a difference between her and Sanchez from an ideological point of view, she would bring a different style and leadership," said Teneo Intelligence analyst Antonio Barroso. "Her plan is probably to allow a minority conservative government in exchange for Rajoy's departure."

Diaz has shown a readiness to take decisions that do not sit well with the party's grassroots, just as Gonzalez did 30 years ago when he steered Spain into NATO, her supporters say.

Last year, after an inconclusive local vote, she made a pact with the center-right Ciudadanos party to reach a parliamentary majority and form a government - the first left-right coalition of Spain's new splintered political landscape, and the kind of deal that would be needed now nationally to break the impasse.

But her critics say Diaz, a career politician who has held jobs in the local administration since 1999, lacks both the life experience and national political know-how needed to run the party - or the country.

"On two occasions she said she wanted to run the party and then she balked. She doesn't scare anybody anymore. She has become a bit of a bluff," said a senior Socialist member from Sanchez's close entourage, speaking on condition of anonymity.

In the view of some opponents, she is also tainted by a corruption scandal involving her party in Andalusia - though there has been no suggestion that she did anything wrong.

BACKERS

Diaz, who landed on the frontline of national politics three years ago when she replaced her long-time boss and mentor at the top of the regional government, can count on influential supporters inside the party to succeed in her bid.

She not only controls the most powerful of all Socialist federations in Andalusia but is also backed by the heads of the big Valencia, Extremadura and Castilla-La Mancha regions.

Former party chiefs Felipe Gonzalez - who has called for Sanchez to go - and Jose Luis Rodriguez Zapatero are also on her side, according to party sources.

Newspaper El Pais, an influential voice among Socialist ranks, urged Sanchez to quit on Thursday and backed Diaz's option of installing an interim management of the party until a conference could pick a new leader.

Diaz has courted senior executives from Spain's top companies who describe her as hard-working and direct. Some would prefer to deal with her than Sanchez, according to people familiar with their thinking.

"She has a real chance of controlling the party because she has a good grip on the organization, is backed by regions where the Socialists have done well recently and by prominent figures, including Felipe Gonzalez," said Teneo Intelligence's Barroso.

(Editing by Mark Bendeich and Pravin Char)

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