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catalan independence

People wave Esteladas during a gathering to protest against the imprisonment of leaders of two of the largest Catalan separatist organizations in Barcelona, Spain on Oct. 17, 2017.IVAN ALVARADO/Reuters

The Spanish government is set to impose direct rule on Catalonia, escalating an already tense standoff with the region and causing more uncertainty for local businesses, including some from Canada.

On Thursday, Prime Minister Mariano Rajoy indicated his government will suspend the region's parliament and impose a form of direct rule from Madrid, using a section of the country's constitution that has never been triggered before. In a statement, the government said it will use Article 155 "to restore the law in Catalonia's self-government."

The prospect of direct rule from Madrid, which could be imposed as early as next week, will complicate an already highly charged situation in the prosperous region, which accounts for almost 20 per cent of Spain's gross domestic product. The push for independence in Catalonia has been rising in recent years after an effort to give the region more powers collapsed in 2010. Many Catalans say they are fed up with sending more tax dollars to Madrid than the region gets back in the form of infrastructure, schools and health-care. But independence is far from universally popular, and no European government has said it would recognize an independent Catalonia.

Meanwhile, businesses have been caught in the crossfire. An estimated 800 companies have moved their registered offices out of Catalonia because of the instability, which has also rattled financial markets and affected the value of the euro. Many business leaders worry that if Catalonia were to separate from Spain, the region would lose its access to the European Union's single market, which allows for the free flow of goods and services. To ensure their companies keep a foothold in that market, many businesses have started moving their corporate offices to Madrid.

Several Canadian companies with operations in the region will have to ponder their future as well. About a dozen Canadian firms operate in Catalonia, including CAE Inc., Magna International Inc. and Solium Capital Inc. Most said their businesses had yet to be affected by the instability.

"We are currently seeing no impact to our business and expect, at most, limited impact," said Heidi Christensen Brown, director of investor relations for Calgary-based Solium, which specializes in business software services and opened a Barcelona office last year to serve as its European hub.

Rick Leckner, a spokesman for Montreal-based Dorel Industries Inc., which has a small facility in Barcelona, also said the company had not been affected.

The bigger issue will be what these companies will do if Catalonia declares independence. The region would be out of the EU and no longer covered by the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU. Most of that deal has come into force, and it covers tariff-free access for a wide range of goods and services.

"If they were out of the EU, then my understanding is that they would not be covered by CETA," said Jason Langrish of the Canada Europe Roundtable for Business. "My guess is that most of these companies, and many domestic firms, may relocate their operations outside of Catalonia if it leaves … and service the market from the new, EU-based location."

He added that these types of sovereignty movements "always present some sort of problem.

"The big question becomes: Is this market big enough to be worth the additional hassle, depending on how much additional hassle there is? This seems always to be the piece the sovereigntists turn to last," he said.

Madrid's preparations for direct rule came just after Catalonia's President, Carles Puigdemont, refused to back down from the regional government's plan to declare independence.

In a letter to Mr. Rajoy on Thursday, Mr. Puigdemont said Catalans had decided their independence in a referendum on Oct. 1 in which, the government said, 90 per cent of voters backed separation. Roughly 42 per cent of eligible voters participated in the referendum, which Spain said violated the constitution. Mr. Puigdemont said he has held off declaring independence in the hope of beginning a dialogue with Mr. Rajoy. He added that if negotiations do not start soon and Spain proceeds with Article 155, "the parliament of Catalonia will proceed, if deemed appropriate, to vote on the formal declaration of independence."

There are growing fears that the imposition of direct rule could prompt massive protests, civil disobedience and confusion over who is running basic services. Spain's national police also arrested two leading campaigners for independence this week and charged them with sedition, raising concerns that further arrests are coming. While even officials in Madrid aren't sure how far they can go under Article 155, some experts have said the constitutional powers could permit the imprisonment of Mr. Puigdemont and other Catalan leaders.

The EU has also signalled strong support for Spain in the dispute. As EU leaders gathered in Brussels on Thursday for a summit, French President Emmanuel Macron said the meeting would "be marked by a message of unity around member states amid the crises they could face, unity around Spain."

However, the Catalonia standoff has put the EU in an awkward spot, especially since Spain's heavy-handed reaction to the Oct. 1 vote, which included sending thousands of police to close polling stations and forcibly prevent people from voting. The EU does not want Catalonia's drive for independence to encourage other regions, such as Scotland, to follow suit, but the bloc has been forced to condemn the violence.

Luxembourg's Prime Minister, Xavier Bettel, expressed some sympathy for Catalonia on Thursday, saying at the summit in Brussels that while Spain's constitution must be obeyed, "I hope they are going to find a solution – political, diplomatic – and they talk together. No other solution would be good."

Madrid has announced it will trigger a constitutional measure on Saturday allowing it to take direct control of Catalonia's governance, after the autonomous region's leader ignored a Thursday deadline to rescind his ambiguous declaration of independence made last week.

Reuters

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
CAE-N
Cae Inc
+0.68%20.64
CAE-T
Cae Inc
+0.72%27.97
MG-N
Mistras Group Inc
-0.52%9.56
MG-T
Magna International Inc
-0.27%73.79
MGA-N
Magna International
-0.11%54.48
MGA-T
Mega Uranium Ltd
-8%0.345

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