Spain To Activate Article 155 Process, Suspending Catalonia Autonomy

Spain announced it will trigger the so-called “nuclear option” of Article 155 under the Spanish Constitution, and move ahead with the process of suspending Catalan autonomy and the powers of the local government, after Regional President Carles Puigdemont for the second time in four days refused to comply with a Spanish ultimatum to clearly drop his claim to independence.

Spain deployed the ultimate constitutional weapon after Puigdemont said the regional parliament may declare independence unless the government in Madrid agrees to talks. Puigdemont’s response came to an ultimatum from Madrid to renounce his claims to full autonomy by Thursday or face the consequences. “It’s not that difficult to reply to the question”, but there is still no definitive “yes” or “no”. Consequently, Madrid is poised to trigger Article 155 this Saturday, suspending the autonomy of the breakaway region.

As previewed last night, the “final” deadline passed and the Catalonian leader failed to satisfy Madrid’s demands.

Puigdemont had sent a new letter to Mariano Rajoy minutes before the second Article 155 deadline ran out at 10 a.m. on Thursday morning. That new letter did not provide the clarity the central government was seeking about the status of the independence of Catalonia, the Spanish Prime Minister’s office said.

“The suspension remains, it’s up to the Spanish Government to enforce article 155 with the authorisation of the Senate… If the central government persists in blocking dialogue and continues its repression, the Catalan Parliament may proceed, if it considers it appropriate, to approve a formal declaration of independence,” Puigdemont said in his letter to Rajoy.

Puigdemont also said that his request for a face-to-face meeting had been ignored, and that Spanish “repression” of Catalonia was being stepped up with the jailing of two separatist activists on Monday. “My request for the repression to end has not been met either,” Puigdemont said. “On the contrary, it has increased.”

Final line could be interpreted as puigdemont saying there was no declaration – ultima frase “que NO voto” pic.twitter.com/DBW8lvccVh

— Maria Tadeo (@mariatad) October 19, 2017

In response, the Spanish government said in a Thursday morning statement that “the government will continue with the procedures set out in Article 155 of the Constitution to restore the legality of self-rule in Catalonia.”

The deadline had been imposed by the Spanish Government and yesterday Deputy Prime Minister, Soraya Saenz de Santamaria, warned that anything less than dropping the secession bid meant that it would begin the process of taking control of the Catalonian Administration. This morning, Madrid’s initial response has been to accuse Puigdemont of blackmail and confirm it will continue the process of triggering Article 155.

Next, the Spanish Cabinet will meet this Saturday to trigger Article 155: the Spanish Senate, under the control of Rajoy’s party, would initiate the transfer of power from Catalonia to Madrid “in order to protect the general interest of Spaniards, among them the citizens of Catalonia, and restore constitutional authority in that autonomous community [region]”.. It is expected to take 48 hours to appoint a replacement for Puigdemont and set a timeframe for regional elections in Catalonia. After that, it is expected to take several more days for the Government’s decisions to be implemented. So, we are probably looking at late next week before Madrid might take control of policing in Catalonia.

Besides the possibility of civil unrest in Catalonia, Rajoy is also likely to face pressure from groups which are sympathetic to the Catalans. From a BBC report “The Spanish parliament has seen sharp exchanges in recent days, with the head of one left-wing Catalan party accusing the government of choosing humiliation, repression and fear over dialogue. At one point, politicians from radical left-wing Spanish party Podemos held up placards urging the release of the Catalan independence activists, calling them ‘political prisoners’.” In addition, Rajoy has lobbied the Socialists to back him over Catalonia, but they are advising him to take adopt a gradual approach to intervention.

Article 155 is contained in Spain’s 1978 constitution, which was drawn up in the wake of Franco’s death. It has never been invoked, so Spain and financial markets are heading into uncharted territory.

The initial market reaction has been negative, with Europe’s Stoxx 600 extending losses to as much as 0.8%, while Spain’s IBEX 35 slid as much as 1%. Spain 5Y CDS was currently quoted 73.53 according to CMA data as of 9:56am London Wider than South Korea (70.38) and India (71.76) and just inside inside Peru (78.04) and Panama (78.30), according to Bloomberg. The Euro initially slumped on the news, dropping as low as 1.770 before recouping all losses.