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Abu Dhabi, UAEThursday 20 September 2018

Uncertainty abounds for Catalonia's business community

After the Friday vote, investors sold off Spanish shares and bonds in reaction to the region's political upheaval

Catalan police prevent demonstrators from moving forward during a march against the unilateral declaration of independence approved earlier by the Catalan parliament in downtown Barcelona on Friday. Catalan lawmakers voted Friday to secede from Spain, shortly before Spain's Senate approved a request by the central government to take direct control of Catalonia's affairs. Manu Fernandez / AP
Catalan police prevent demonstrators from moving forward during a march against the unilateral declaration of independence approved earlier by the Catalan parliament in downtown Barcelona on Friday. Catalan lawmakers voted Friday to secede from Spain, shortly before Spain's Senate approved a request by the central government to take direct control of Catalonia's affairs. Manu Fernandez / AP

After weeks of precarious political division, both sides in Spain's tense political standoff have backed themselves into corners of their own making, and despite repeated attempts to prolong and prevaricate, have been forced by escalating circumstances to pursue two extreme

forms of action.

The Parliament de Catalunya voted through a motion on Friday afternoon calling for the Catalan government to secede fully from Spain to form a new republic. The Catalan President Carles Puigdemont had not wanted to make this unilateral declaration alone, having suspended the force of a previous declaration several weeks ago to allow for talks with Madrid that never came. And even on Friday he hoped to provide greater political cover for himself by encouraging a slim majority of the regional assembly to be complicit in the decision.

The motion urged the Catalan executive to draw up fresh laws, and allowed for an extended process of negotiations with the Spanish

government in Madrid. The latter may smack of wishful thinking, but when it passed, parliamentarians in Barcelona stood to clap.

Resounding applause had also greeted Spanish Prime Minister Mariano Rajoy hours earlier on Friday morning, when he had addressed the

Spanish Senate in Madrid. He told the parliament's upper chamber, dominated by members of his Partido Popular, that the Catalan

leadership had made a mockery of democracy and that there was no alternative but to continue with efforts to stop the secession

movement in its tracks. He insisted that ordinary Catalans must be protected from what he termed, "an intolerant minority that is

awarding itself ownership of Catalonia, and is trying to subject all Catalans to the yoke of its own doctrine".

A significant majority of the Spanish Senate later passed the measures proposed by Mr Rajoy's government under article 155 of the Spanish

constitution. These allow the central government to terminate the executive roles of Mr Puigdemont and his cabinet - though they could remain as local parliamentary deputies until fresh elections slated for December.

They also include the stripping of powers from the autonomous police force, which took effect just hours later, designed to help Madrid assert its legal authority through force if necessary in the days ahead. The regional police commissioner, Josep Lluís Traper Álvarez was already facing an investigation for sedition for his inaction during the preparations for the October 1 independence referendum that a Spanish court had deemed illegal; now he is out of a job, while a Spanish news agency reported that the director general of the 17,000-man autonomous Catalan police force, the Mossos d'Esquadra, was also dismissed.

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The behaviour of local police officers may come into focus, but it is the actions of the region's civil servants that should be watched closely when they return to work, if a general strike called by a local union for Monday does not bring cities like Barcelona to a halt.

Grass roots pro-independence groups responsible for many of the larger protests have called for mass civil disobedience, and the reaction of authorities in Madrid could serve to exacerbate this situation. Several days ago I asked the central government's delegate to the Catalan region, Enric Millo, how Spanish authorities would seek to enforce discipline.

Speaking from his ornate office in the 19th century Montaner Palace, protected by multiple fences, armoured vehicles and armed guards, he insisted that any separatist Catalan bureaucrats who refused to comply would lose access to their salaries and their roles, effective immediately.

Already, Spain's most senior prosecutor has told a local TV network he would pursue charges of rebellion against Mr Puigdemont, his senior

advisers and even some of the Catalan parliament's governing body who helped make the vote on Friday happen. It may be more difficult to

prosecute the 70 out of 135 parliamentary deputies who voted through the independence motion, since they did so in a secret ballot, aimed

at preventing authorities in Madrid from identifying those that could be liable to criminal charges.

Mr Rajoy has repeatedly said he will try to apply measures that return Catalonia to "normality" as gradually as he can, but that caution may

fail to prevent dangerous confrontations in the days ahead. Even politicians vehemently opposed to secession say the application of

Article 155 measures will have negative consequences. One Spanish MEP from the opposition Podemos party told me this was the "worst scenario for a democratic solution," adding that "unilateral independence is a big mistake. And 155 is the worst response to that".

One man who may have been key to mediating between the two sides, although with little success thus far, is the president of the nearby Basque region of Spain, Inigo Urkullu. He has called for "responsibility" from both parties and described the current state of affairs as "very worrying".

At this point the Madrid government already controls the financial levers in Catalonia, should theoretically have control of the police, and could move to take over public broadcasters also. Spanish authorities now assume full responsibility for the region's financial sustainability and budget stability, at a time when Spain's official companies registrar says hundreds of companies have moved their headquarters outside the region.

Following the vote on Friday, investors sold off Spanish shares and bonds, in the latest market reaction to the region's political upheaval. Flight booking forecasting business, ForwardKeys, has reported that air travel bookings to Catalonia are down 22 per cent this month compared to the same period last year, with tourism a crucial constituent of the Barcelona economy.

"Exceptional measures should only be adopted when no other remedy is possible," Mr Rajoy told the Senate on Friday morning. Many I have spoken to acknowledge Mr Rajoy chose this path for himself, but nobody I have spoken to in Madrid or Barcelona over the last month really knows what will those exceptional measures will portend, for the people and politicians of Catalonia and Spain. For businesses - local, regional, national and European - it is such unprecedented uncertainty that ultimately renders decision-making very difficult.

Willem Marx is a reporter for CNBC International

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