Separatists in Spain's Catalonia won regional elections yesterday but failed to get a resounding mandate for a referendum on independence.
The referendum had threatened to pile political uncertainty on top of Spain's economic woes.
Catalan President Artur Mas, who has implemented unpopular spending cuts, had called an early election to test support for his new drive for independence for Catalonia.
Catalonia is a wealthy but financially troubled region in northeastern Spain.
Voters are frustrated with the economic crisis and the Spanish tax system.
Catalonia was handed almost two-thirds of the 135-seat local parliament to four different separatist parties that all want to hold a referendum on secession from Spain.
But they punished the main separatist group, Mr Mas's Convergence and Union alliance, or CiU, cutting back its seats to 50 from 62.
That will make it difficult for Mr Mas to lead a united drive to hold a referendum in defiance of the constitution and the central government in Madrid.
The result will come as a relief for Spanish Prime Minister Mariano Rajoy.
The prime minister is battling a deep recession and 25% unemployment while he struggles to cut high borrowing costs by convincing investors of Spain's fiscal and political stability.
Mr Mas, surrounded by supporters chanting "independence, independence", said he would still try to carry out the referendum but added: "It is more complex, but there is no need to give up on the process."
Resurgent Catalan separatism had become a major headache for Mr Rajoy.
Catalonia is threatening to provoke a constitutional crisis over the legality of a referendum just as he is trying to concentrate on a possible international bailout for troubled Spain.
Catalonia shares some of its tax revenue with the rest of Spain and many Catalans believe their economy would prosper if they could invest more of their taxes at home.
The tax issue has revived a long-dormant secessionist spirit in Catalonia.
Mr Mas had tried to ride the separatist wave after hundreds of thousands of people demonstrated in the streets in September.