BRUSSELS (Reuters) - The European Commission is likely to warn next month that if problems with forming a government in Spain were to continue, they could stall reforms and hurt economic sentiment, a draft report showed.
"The difficulties of forming a government could slow down the agenda of reforms and trigger a loss of confidence and a decline in market sentiment," the Commission's draft country report on Spain, seen by Reuters, said.
A Commission official, asked for comment, said the report was part of an EU-wide assessment of the economies of the 28-nation bloc. It is to be released toward the end of February.
"This is part of the revamped ... process of economic governance and gives earlier guidance to Member States," the Commission official said.
"The country reports analyze the economic situation and policies of each EU Member State and assess whether imbalances exist."
Spain held elections a month ago.
The People's Party of Mariano Rajoy won the most votes, but not enough to rule alone, and has failed to form an alliance, trading accusations of stalling and delays with the second-placed Socialists and new anti-austerity party Podemos.
Four weeks of post-election maneuvering has left the country little closer to getting a government, fuelling uncertainty that could be damaging for Spain's economic recovery in the long run as key reforms are put on the back-burner.
Last Friday Rajoy deferred a decision to bring matters to a head and seek a confidence vote in parliament, saying that for now he did not have enough backing.
Once a vote of confidence is called, a government has to be formed within two months, or there have to be new elections.
(Reporting by Jan Strupczewski; Editing by Catherine Evans)