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Catalan Government Said To Back Off Independence Push, Will Seek Elections; Spanish Stocks Soar, Yields Tumble

Yesterday Catalonia’s government was preparing to declare independence, as we discussed. Just hours after Puigdemont snubbed Madrid, canceling his visit to The Senate to discuss their imposition of Article 155, Catalan Deputy First Minister Oriol Junqueras told AP that the Spanish government had left Catalonia “no other option” but to proclaim a new republic. Mr. Junqueras told the AP he was commenting as leader of his party, Republican Catalan Left, not as a member of the regional government. Additionally, Puigdemont posted a defiant Instagram message: "We will not lose time with those who have already decided to crush Catalan self-government. Onwards!"

However, just a few hours later, the Catalonia leadership seems to have backed down, and instead is opting for elections, reportedly just before Christmas.

According to Bloomberg, Catalan President Carlos Puigdemont may call regional elections this week, rather than declaring independence from Spain, as authorities in Madrid finalize plans to oust his rebel administration, according to two people familiar with his thinking.

After defying the Spanish courts for weeks, Puigdemont decision could either ease tensions or deepen the biggest constitutional crisis in western Europe’s fifth-largest country since an attempted coup in 1981. Spain’s chief prosecutor has warned he faces up to 30 years in jail if he goes ahead with the declaration.

 

"The scenario of independence is one that we cannot allow and which will not happen,” Economy Minister Luis de Guindos told Spanish radio on Thursday. He said there was already a "significant slowdown" in economic activity in the region. "They’re caught in a mousetrap. It seems their own decisions are producing vertigo.”

Bloomberg’s also reports that this could take place on 20 December 2017.

The Spain Report confirms as much: 

Several Catalan media outlets reported the Catalan First Minister, Carles Puigdemont, has just dissolved or is about to dissolve the Catalan regional parliament and call new regional elections in a bid to avoid the central government applying Article 155 of the Spanish Constitution to suspend home rule in Catalonia.

 

La Vanguardia and El Mon reported the likely date of the ballot would be December 20.

 

Mr. Puigdemont will make a statement at 1:30 p.m. Spanish time.

 

The Spanish government had said this week that just calling early elections at this late stage would not be enough to stop the application of the Article 155 measures.

 

The Spanish Prime Minister's office, Moncloa, told The Spain Report at 12:30 p.m. that there was so far "no change" in the central government's plan to press ahead with the implementation of Article 155

If true, the news is positive for Spanish bonds as polls taken in recent days suggest that the Catalan secessionists would lose their majority.  In the Spanish bond market, the 10-year yield has dropped by about 5 basis points while the IBEX 35 jumped over 1.3%.

Of course, this could be just another "fake news" trial balloon: Puigdemont will make a formal statement in just minutes, at 13.30 Madrid time today.