Spain is taking the radical step of triggering Article 155 of the constitution for the first time in its 40-year history after Catalonia’s president, Carles Puigdemont, threatened a formal declaration of independence on Thursday.
The central government in Madrid had imposed a deadline of Thursday for Catalonia to decide whether it would declare independence. Reference to Article 155 of Spain’s constitution is where a self-governing community is obliged to fulfill its obligations to the state or risk the government taking its powers away.
Just before the 10am deadline, Puigdemont delivered a letter that outlined that should Madrid continue to repress the region and not enter into dialogue then the Catalan parliament would meet to vote on a formal declaration of independence.
But is brinkmanship leading to shaky markets?
The impact from the crisis is already causing some reverberations as Spain has had to cut its growth forecast for 2018 to 2.3% from a previously projected 2.6%.
The cut in growth according to the economy ministry was down to both slow global growth and lower consumer spending.
Spain’s constitutional crisis, triggered by Catalonia’s push for independence, is an “alarm call for global investors” according to deVere Group, an independent financial services organisation.
There hasn’t been any significant rocking of the boat and the markets remain mostly sanguine. On Thursday morning, bonds and stocks opened moderately lower.
The 10-year benchmark Spanish bond yield rose 3 basis points to 1.62%, while the Ibex 35, Spain’s stock index, slipped 0.8%.
Potential to destabilise the Eurozone
However, market commentators warn that the growing crisis can have a significant destabilising effect not only on Spain but also the wider Eurozone and on the euro.