By Adrian Croft and Inmaculada Sanz
MADRID (Reuters) - Spain is set to install its first fully functioning government in 10 months on Saturday when parliament is expected to grudgingly grant conservative leader Mariano Rajoy a second term as prime minister.
The vote will draw a line under two inconclusive elections and fruitless attempts at coalition-building between bickering parties, but it won't guarantee political instability. Rajoy's weak minority government will struggle to pass legislation.
The opposition Socialists have instructed their lawmakers to abstain in a parliamentary confidence vote set for 7.45 p.m. (1745 GMT), allowing Rajoy, caretaker prime minister since December, to be confirmed as leader of a proper administration.
The result will be a triumph for the 61-year-old Rajoy, who is renowned as a political survivor.
After winning a 2011 election, Rajoy slashed public spending to tackle rising debt as Spain endured a severe recession. Unemployment soared to 27 percent and the country's banks needed a 41 billion euro ($45 billion) European bailout.
Voters punished Rajoy's People's Party (PP) even as the economy later recovered, stripping it of its absolute majority.
But the PP still won the most votes in elections last December and in June, and Rajoy resisted calls from rival parties to step aside and let another PP leader try and form a coalition.
He will now have to negotiate with his political opponents to pass any legislation, including the budget, given his PP has only 137 seats in the 350-seat parliament.
"This is going to require an effort from everyone, on our part too, in terms of trying to pass legislative initiatives," senior PP lawmaker Rafael Hernando said in a radio interview on Saturday.
STRUGGLE WITH THE OPPOSITION
Rajoy struck a conciliatory tone this week, offering to work with opponents on issues like pension and education reform, and opening the door to further dialogue with Catalonia, a northeastern region in the grip of a strong independence drive.
But his political foes are sceptical he can change his style. Thousands of demonstrators are expected to march in protest against a new Rajoy government in Madrid on Saturday.
The Socialists, the second largest force in parliament, are deeply divided over the party's decision to allow Rajoy to govern.
Former Socialist leader Pedro Sanchez, ousted in early October over his refusal to enable a Rajoy government, said on Saturday he would quit his seat in parliament rather than abstain in Saturday's vote. He suggested he could try and run for the party leadership again in upcoming primaries.
"I completely disagree with the decision to enable Mariano Rajoy to govern," a tearful Sanchez told a news conference.
"From Monday onwards I'm going to get into my car and go all over Spain to listen to those that are not being listened to."
Rajoy, who may need to pass fresh spending cuts to meet deficit targets next year, will be able to count on support on some issues from the liberal Ciudadanos or "Citizens" party, which came fourth in June elections.
But others, including the Socialists and anti-austerity Podemos ("We Can"), have said they will fight Rajoy's policies and will not approve his budgets.
Antonio Barroso, a senior analyst at risk consultancy Teneo Intelligence, said Rajoy would head a minority government with the weakest parliamentary support since democracy was restored in Spain after General Francisco Franco's death in 1975.
"It is unlikely that the new government will last four years," he said in a note.
(Additional reporting by Sarah White and Maria Vega Paul, Editing by Tom Heneghan and Mark Bendeich)