Spanish Bond Yields Spike As EU Washes Its Hands Of Catalonia, Puigdemont Demands Spanish Police Withdraw

After an unprecedented 2 million Catalans voted for independence during Sunday’s referendum, larger than the number who voted for independence during a prior independence referendum in November 2014, the will of Catalan people has been made abundantly clear: The regional government of Carles Puigdemont has an overwhelming popular mandate for independence. And in spite of the Madrid government’s brutality, the government in Barcelona hasn’t backed down.

After delivering a rousing speech last night where he called on the EU to intercede with the Spanish government to try and stop the violence being committed by the Civil Guard and the National Police, Puigdemont on Monday demanded that the national police withdraw from the region as his government prepares to declare independence. Puigdemont asserted that the result of the vote is legally binding – despite a Madrid court’s declaration that the referendum was illegal. The regional government is still verifying the final results of the ballot, but according to a preliminary count released early Monday local time, 89% of the 2.3 million Catalans who voted chose independence.

While the government in Barcelona initially said it would declare independence within 48 hours of the ‘yes’ vote being certified by the regional Parliament, Bloomberg is reporting that Puigdemont’s time frame could see him announce the formation of a Catalan republic on Oct. 6, exactly 83 years since his predecessor as regional president, Lluis Companys, declared independence. Companys was eventually executed by the dictatorship of Francisco Franco.

Puigdemont has said the vote will be sent to the Parliament for final ratification shortly.  

However, in a sign that the international community is backing away from the secessionist region even as a potentially bloody conflict looms, the European Commission officially washed its hands of the constitutional crisis, saying in a statement released Monday that the issue “is an internal matter for Spain that has to be dealt with in line with the constitutional order of Spain.” In doing so, it ignored the Catalan government's pleas for recognition.

In the latest suggestion that it unequivocally backs Rajoy, the Commission clarified that, should Catalonia leave Spain, it would also “find itself outside of the European Union.”

Read the EC’s full statement below:

Under the Spanish Constitution, yesterday's vote in Catalonia was not legal.

For the European Commission, as President Juncker has reiterated repeatedly, this is an internal matter for Spain that has to be dealt with in line with the constitutional order of Spain.


We also reiterate the legal position held by this Commission as well as by its predecessors. If a referendum were to be organised in line with the Spanish Constitution it would mean that the territory leaving would find itself outside of the European Union.


Beyond the purely legal aspects of this matter, the Commission believes that these are times for unity and stability, not divisiveness and fragmentation.


We call on all relevant players to now move very swiftly from confrontation to dialogue. Violence can never be an instrument in politics. We trust the leadership of Prime Minister Mariano Rajoy to manage this difficult process in full respect of the Spanish Constitution and of the fundamental rights of citizens enshrined therein.

Indeed, while opposition figures like Jeremy Corbyn and Nicola Sturgeon (who may look to the Catalans to inspire another Scottish independence referendum) have called on Spain to end the violence, most of the European establishment unsurprisingly has sided with Rajoy.

Add to that list US President Donald Trump, who said he felt Catalonia should remain part of Spain during a press conference with Rajoy last week.

Meanwhile, a Spanish opposition party has called on Rajoy to implement article 155 of the country’s constitution in Catalonia, which allows Madrid to impose direct rule over the formerly autonomous region, according to the Independent.

Albert Rivera, head of the business-friendly Ciudadanos party, which considered Sunday’s referendum to be illegal, told various Spanish media channels on Monday that he believes suspending home rule for Catalonia was necessary to block a possible unilateral declaration of independence and to enable fresh regional elections to be called in Catalonia.

Article 155 of the Spanish constitution describes itself in the legislation as being “for exceptional cases only” such as when a region’s failure to obey laws “gravely damage Spain’s general interest.” It has never been invoked before.

Rivera said the article should be invoked to call for another referendum allowing all Catalans to vote. Given the police crackdown on a small percentage of polling stations – as well as efforts by the Madrid government to suppress the vote that included arresting local politicians, shuttering electronic voting infrastructure, and destroying ballots – only about half of Catalans 5 million eligible voters cast ballots.

“Applying article 155, even if it is only for a few hours, to call elections is the most straightforward and most democratic solution,” Rivera – who was born in Barcelona - said. “That way all the Catalans would get to vote, not just a part.”

The Independent reports that until now, Rajoy and the ruling Partido Popular PP have not discussed article 155 publicly. But that could change this week as Spain attempts to assert its dominance over the prosperous autonomous region, which has its own language and culture – not to mention a larger economy than neighboring Portugal.

Spain’s justice minister has said it will use all means at its disposal to uphold the law in Catalonia, before praising the police for their “exemplary” action in defense of the constitution.

“We have always said that we would use all the force of the law and all the mechanisms that the constitution and laws grant to the government,” Rafael Catala told broadcaster TVE in an interview. While images of police violence provoked alarmed reactions from some European government officials, Catala praised the security force for their “measured” response.

The market reaction is downbeat - in Europe - with Spanish bond yields blowing out to 3-month highs...


Spanish stocks are drastically underperforming...


And Spanish sovereign default risk has spiked...


Which brings to mind the biggest question, what would happen to Spain in case of Catalonia’s secession?

As GEFIRA explains, in terms of the debt sustainability parameters laid down by the Treaty of Maastricht, it’d be the Eurozone debt crisis 2.0.

As Spain now maintains the second year of 3% GDP growth, an even bigger, immediate fiscal threat is looming. After multiple ineffective referendums in the previous years, this time the Catalan government is likely to finally assert independence. What will it look like against the background of the Maastricht financial requirements?

Debt to GDP ratio

The Treaty of Maastricht says it should be 60%. Spain’s debt to GDP ratio was 39% in 2007, but after the financial crisis it gradually rose to 99.4% today. Should Catalonia leave, there are two possible scenarios:

1. Catalonia agrees to take a share of the Spanish total debt, as a “divorce bill”, because after all it benefited from the government spending in Catalonia itself;




2. Catalonia leaves without taking any share of the total Spanish debt.

In the first case, nothing would change, assuming Catalonia would agree to take the share of Spanish debt equal to its share in Spain’s total GDP. In that case, Catalonia accounts roughly for 20% of the Spanish GDP, which means it would take 20% of the Spanish debt. Given that the Spanish debt is right now almost the same size as the Spanish GDP, calculations are rather simple.

Source: Statista.

The second option is rather dramatic. Without Catalonia, Spanish GDP would automatically shrink by 20%, while having to service the entirety of the debt. The debt to GDP percentage ratio would go from 99.4% to 124% overnight.

Deficit to GDP percentage ratio

The Treaty of Maastricht says it should be 3%. Spain has been way outside it since the financial crisis, with a peak at 11% in 2011. For 2016 it was 4.5%.

Here the problem is understanding how much more tax revenue Spain gets from Catalonia than it gives. Catalonia says 11.1€ billion, Spain says 8.5€.

Either way, as the deficit is calculated as expenditure minus revenue, it would be a hole in the revenue of the Spanish government of 8.5 to 11.1€ billion. Last year the deficit/GDP ratio was 4.5%, corresponding to approximately 50€ billion. With the Catalan secession, assuming a 10€ billion hole for simplicity between the estimates of the Spanish and Catalan governments, Spain’s deficit would go up to 60€ billion, while its GDP would shrink by 20%. Result? The deficit to GDP percentage ratio would be 6.7%, back to 2013.


The doomsday scenario would be Spain waking up with a debt equal to 124% of its GDP and growing, due to the 6.7% deficit, which would take another 4-5 years to be contained. The EU’s response to the possibility of Spanish bankruptcy would be predictable: more austerity. It is important to note that while Spain has been growing for the past two years and unemployment is also decreasing, the recipe chosen by the Spanish government, flexibility of the labour market in the form of temporary jobs, has exacerbated income inequality: as the OECD points out that temporary jobs are low-productivity and thus earn low wages; the precariousness of the job prevents improvements in productivity, thus improvement in wages. The poor remains poor, while the rich gets richer and the gap widens.4)

Boosting GDP and employment statistics with mini-jobs is thus masquerading an issue common to other Western countries: the collapse of the middle class.

Catalan independence could prove to be the last nail in the coffin: either Spain goes bankrupt or is forced to implement even more austerity at the risk of facing a revolution from the economically displaced.

*  *  *

And that's why Madrid doesn't want to lose Catalonia...

Once before, in October 1934, shortly before the Spanish Civil War (1936 to 1939) broke out, Catalonia had announced its independence from the rest of Spain. This prompted Madrid to sent the army to Barcelona.

*  *  *

We suspect The EU may get more involved if this risk premia blowout starts to spread.


BarkingCat Ghordius Mon, 10/02/2017 - 10:06 Permalink

Yes, you stated the current reality in responses to what the EU leadership desires.While you were 100% accurate,  your statement was a case of tricky obfuscation.  The point remain that the EU wants its own army.Situation in Spain put it in sharp focus why.While the national army of Hungary or Czech Republic or Poland will not attack its people, should they turn anti-EU, those shipped from Germsny or France or Italy or  Spain will have no problems attacking the local population with extreme brutality.   

In reply to by Ghordius

Ghordius chubbar Mon, 10/02/2017 - 09:57 Permalink

meh, it's like saying "you can be damn glad pigs don't have wings, othewise they would shit on you from the sky"besides, the whole is about sovereignty. Spanish sovereignty, to be more exact. versus the request for Catalan sovereigntysorry, but you can't invoke sovereignty... when it's about a sovereign country that has an article of it's constitution that states that it's territory is indivisible

In reply to by chubbar

Which is worse… UndergroundPost Mon, 10/02/2017 - 08:45 Permalink

The EU is threatening to isolate Catalonia from the EU for a couple of generations. Would be interesting to see a debt-free Catalonia form a sort of Singapore of Western Europe with a light touch regulatory regime, perhaps supported by Russia after being scorned by the EU, and eat the EU's lunch. Russia gets its Mediterranean seaport in Barcelona.

This is too much vision to ask from risk-averse politicians, of course.

In reply to by UndergroundPost

Ghordius Which is worse… Mon, 10/02/2017 - 08:55 Permalink

"The EU is threatening to isolate Catalonia from the EU..." how so?"a sort of Singapore of Western Europe with a light touch regulatory regime..."are you making the case for the UK or the case for Catalonia?"Russia after being scorned by the EU"funny that. I stiil see Russia and Germany building that Russian-German pipeline (and Poland shouting because of that). I still see over 6'000 Russian-German partnerships working together. I also see a German former politician and Chancellor now heading Rosneft's boardI repeat: did you notice that Schroeder is now the Chairman of the Board of the Russian oil giant Rosneft? besides being the chairman of the shareholder's board of the Nord Stream AG, supported by Gazprom?

In reply to by Which is worse…

Don Diego Which is worse… Mon, 10/02/2017 - 09:04 Permalink

"Russia gets its Mediterranean seaport in Barcelona." LOL. The official Russian position is a STRONG support (unlike the EU) of Spain:… RT news is favoring the Catalan side, but they are trusting their "Spanish" channel which is staffed with Latin American marxists. When Vlad learns the political twist the RT Spanish speaking channel is taking he is going to fire their asses. Or at least I hope so.

In reply to by Which is worse…

Déjà view Don Diego Mon, 10/02/2017 - 09:37 Permalink

"STRONG support" Spain favoring Slovenia and Croatia...

Europe, Backing Germans, Accepts Yugoslav Breakup
Published: January 16, 1992

BONN, Jan. 15— In a triumph for German foreign policy, all 12 members of the European Community, as well as Austria and Switzerland, recognized the independence of the former Yugoslav republics of Slovenia and Croatia today.


In reply to by Don Diego

GreatUncle givadam Mon, 10/02/2017 - 08:43 Permalink

Not as much as the EU refusing to recognise Catalonia so would this same position apply to Scotalnd?Last couple of years was the exposing of lies.We are now in the age of a level of hypocrisy never seen before.************************************************************************************Off topic, Sky ISP blocks private FTP servers but still returns the message not logged in 530 even thoughthe packet gets to the server. You are not logged in is a truth because we blocked the communication but do not want to put up a block notice.

In reply to by givadam

Fireman Mon, 10/02/2017 - 08:35 Permalink

/* Style Definitions */
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What Sunday's barbarism from Madrid guarantees is that the people of Catalonia will never again bend the knee to the despots in Madrid or indeed the Pedophile Politburo in Natostan sewer Brussels whose silence along with the rest of the "democratic" statelets inside the EUSSR is deafening as it condones this Third World display of brutality by a faltering fascist state. Now the people of Catalonia need to organize a massive general strike and begin the physical task of securing their borders. Freedom is not free and Catalans have seen again first hand that they will be granted only those rights that they are prepared to kill and die for. The globalist project of the EUSSR in the Natostan sewer of Brussels has no more chance of survival than the decrepit Soviet Union had before it. The rest of us must boycott Spain and everything it produces until the PP fascist remnants in Madrid are driven from power. The Franco fascist sewer that is modern Spain.

Ghordius Mon, 10/02/2017 - 08:45 Permalink

it's amazingthe same people that go like "The EU, the damned superstate", "the EU, the meddling...", "the EU, the something like the US..."now goad the EU C to interfere, to behave like a superstate, to be something "like the US" or whatevernah, if it wasn't so transparent, it would be funnyagain: the EU is an org, by and for it's members. sovereign members with a constitution eachand... every and each of those constitutions is the highest law of the said sovereign member, and the EU has no say on that whatsoever, and must have the decency of keeping numb... (besides, legally, to be bound to each of those, by treaties... of said sovereigns)further, yes, every Catalan is a EU Citizen. and, before that... a Spanish Citizen. that's the point, the independentists want something that does not exist, yet: a Catalan Citizenship of a sovereign Catalan state that does not exist yetmeh

GreatUncle Ghordius Mon, 10/02/2017 - 08:51 Permalink

EU needs to apply the rules is all and that includes the ECHR too.But of course all Catalonians are deplorables in the EU see and treated accordingly.The UK referendum should have happened over a decade ago no matter what and in better (an illusion) economic times you would have got the yes vote from the majority. After 2008 no more referendums, anger is building because economically everybody knows they are being shafted.At this time, better to have a referendum, unite the population and the majority way wins it.As for the Spanish constitution, the Spanish government have been cedeing sovereignty and watering down the constitution for the EU ... who has been breaking the law and that appointed justice system again that makes decisions what only the elected representatives should make.

In reply to by Ghordius

Ghordius GreatUncle Mon, 10/02/2017 - 09:04 Permalink

the ECHR is not part, in any way, of the EUCatalonians = deplorables? on which planet? sorry, in which world? the New World knows this term. here, on the Old World... we might talk about how Americans use this termthe UK referendum was a UK internal affair, wasn't it? who called it? PM Cameron. the British Prime Minister"the Spanish government have been cedeing sovereignty and watering down the constitution for the EU..."how so? what are you talking about? did you ever read any constitution, any foreign constitution? it's amazing how people here talk about such things. you could really think that most here have read the Spanish Constitution, or even know what the Acquis Communautaire isamazing

In reply to by GreatUncle

neptunium Ghordius Mon, 10/02/2017 - 09:19 Permalink

Staying on point for a moment - the issue Ghordius, is that EU institutions voice their concerns, views SELECTIVELY depending on their own interest.That's the same with every instutition on the planet except for the fact that a key element of EU integration is maintaining a widespread illusion that as EU citizens, the EU itself will intervene to prevent transgressions by nation-states - this illusion has now thankfully been dashed. It was also evident in Greece.Today you saw jack-booted police beating innocent people for voting, whether the vote was illegal or not under the SPANISH constitution, there was a clear use of police/paramilitary force to oppress people exercising their rights to freedom of assembly AND freedom of expression - nothing in and of itself justified any use of indiscriminate violence on those people even, if your selective and clearly somewhat stunted moral code, you feel it was right for them to force their way through picket lines and forcibly remove ballot boxes. So if this had taken place in, lets say, Poland or Hungary there would be statements by a whole plethora of EU officials, as there has been in the past, as there was with Brexit, or the Indyref, or in Ukraine or Greece or Italy, or any number of other "sovereign" matters in which the EU has excercised its right to decry and demand.

In reply to by Ghordius

Ghordius neptunium Mon, 10/02/2017 - 09:37 Permalink

the issue is that nearly everybody here talks about the EU... but not what it is, only what it ought to be, or should be, or could be"if this had taken place in, lets say, Poland or Hungary there would be statements..."ehm... no. evidence: the last decadesthe EU has a scope. called Acquis Communautaire. given to it by the members, which are sovereignand... that's it. if it's not in the Acquis... no EU whatsoever, no EU meddling, no EU nothing, it's not for the EU to do anything about it(you all seem to forget that the sovereign members "have it all": the armies, the navies, the airforces, the national police forces, the intelligence services, millions and millions of state servants, etc.and "the EU", that mythical beast, has paper and 30'000 civil servants, mostly. oh, an a whole lot of myths)

In reply to by neptunium

BarkingCat Ghordius Mon, 10/02/2017 - 10:29 Permalink

"if this had taken place in, lets say, Poland or Hungary there would be statements..."

ehm... no. evidence: the last decades

the EU has a scope. called Acquis Communautaire. given to it by the members, which are sovereign

That's because the governments in Hungary and Poland have not used violence against their population since the fall of communism (in Eastern Europe).
The EU is however acting like those countries are not sovereign, no matter how much you keep using that word.
The EU is trying to force these countries, along with Czech Republic and Slovakia, to accept 3rd world migrants.
Merkel invided them in. Germany can keep all of them, especially after being stupid enough to put her back in position to continue to run the country.

In reply to by Ghordius

chubbar Ghordius Mon, 10/02/2017 - 08:58 Permalink

Oh please. The EU is either on board with certain concepts of liberty or it's not. Self determination is a long standing tenet of liberty that is widely recognized as being central to that concept.The EU is all about concentration of power in unelected rulers and not about supporting freedom and liberty for people who want to leave that union or the state that controls them.

In reply to by Ghordius

Ghordius chubbar Mon, 10/02/2017 - 09:42 Permalink

"The EU is either on board with certain concepts of liberty or it's not"of course. the Four Freedomsthe other liberties are a matter of the constitutions of the sovereign members. by... Constitution and Treatieswhich "unelected rulers"? the EU Parliament? it's elected. the EU Council? Rajoy and Orban sit there. are they unelected?the commission? it's appointed by Rajoy and Orban and co. and confirmed by the EU Parliamentwho are those "unelected rulers"?

In reply to by chubbar