Anti-Catalan independence demonstrators carry a Spanish flag as they march in Barcelona, Spain on Tuesday 3 October 2017. 

Catalan Separatist Win Leaves Rajoy Counting Crackdown Cost

(Bloomberg) -- Spanish Prime Minister Mariano Rajoy is meeting with allies this morning to plot his next move after a drubbing in Thursday’s Catalan election that saw separatists reclaim control of the regional assembly.

Rajoy headed to a 9:30 a.m. cabinet meeting in Madrid and planned to sit down with his People’s Party leadership later in the day, with the resurgent Catalan independence campaign at the top of the agenda. The PP lost eight of its 11 seats in the region’s parliament as ousted President Carles Puigdemont’s party confounded projections to become the biggest group in a three-way separatist bloc. Spanish bonds fell with bank stocks.

Catalan Separatist Win Leaves Rajoy Counting Crackdown Cost

The result -- which the separatists achieved with only 47.5 percent of the vote -- doesn’t bring real independence any closer than it was at the end of October, when Puigdemont fled for Belgium to escape a Spanish court probe that resulted in a clutch of his allies being jailed. But it exposes the flaws in Rajoy’s strategy and the divisions in Catalan society, testing international support again for his hardline approach.

“This is the moment, both for the separatists and for the Spanish government, to begin talks again,” Elmar Brok, a German lawmaker in the European Parliament and ally of Chancellor Angela Merkel, said in an interview on Deutschlandfunk radio. “This is not a broad mandate for Catalonian independence and that’s why a serious effort should now be made to find a solution that is fair for everyone.”

Markets reacted. The yield spread of Spanish 10-year bonds over comparable German securities, a measure of the risk of investing in Spain, was up five basis points at 1.10 percent as of 11:37 a.m. in London, up from at a four-month closing low on Thursday. It jumped earlier on Friday to as high as 1.12 percent.

Amid the separatist celebration, Puigdemont also faces major questions about how he can implement his election victory.

For one thing, he faces a Spanish jail warrant if he returns to Catalonia from Brussels as a Madrid judge investigates whether his last effort to create a republic amounted to a crime of rebellion.

For another, Puigdemont has differences over the way to take his campaign forward with leaders of Esquerra party, who had expected to beat him in last night’s campaign and have been dialing back on their calls for immediate independence. While support for the radical left-wing party CUP slumped last night, its four deputies still hold the key to a separatist majority in the Catalan parliament.

The three separatist groups claimed 70 seats in the 135-strong assembly to restore a majority they lost in October when Rajoy used Article 155 of the constitution to oust the rebel administration before it could put a declaration of independence into effect. While they reclaim the advantage they had won in 2015, they did so with two fewer seats and with overall support down from the 47.8 percent then.

Support for Puigdemont

The Esquerra party is waiting for Puigdemont’s return to Spain to back him as Catalan president, Sergi Sabria, a regional parliamentary member of the separatist group, said in an interview with the Telecinco TV channel Friday. Esquerra and the other main pro-independence party, Junts per Catalunya, have enough seats to form a government without support from the third separatist party CUP -- all they need is an abstention from CUP.

Rajoy’s People’s Party took a hammering. It won just three seats as voters opposed to independence shifted to Ciudadanos, who’ve been demanding harsher measures against the secessionist push. Ciudadanos won 1.1 million votes, with more than a quarter of the overall votes to claim 37 seats.

“Rajoy and his allies have been defeated, they’ve taken a beating from the Catalans,” Puigdemont told supporters from his self-imposed exile in Brussels.

Rajoy, however, has shown that he’s prepared to deploy the constitutional powers at his disposal to stop in its tracks any attempt to declare independence by disbanding the regional government. Rule over Catalonia by Spain remains in place until a new administration is formed, a process that could stretch on into the spring.

At the election night headquarters of the ANC, the main separatist campaign group, supporters began with optimism and their cheers of “freedom” and “independence” grew louder over the course of the evening. By the time ANC leader Augusti Alcoberro declared victory, with 70 percent of the vote counted, the party was in full swing.

Some 400 revelers cleared a table of champagne flutes, although they were drinking Cava, the local sparkling wine that is synonymous with Catalonia, rather than its more famous French competitor.

“The people have rejected Article 155,” Alcoberro told the crowd. “We demand the immediate restitution of the legitimate government and the release of the political prisoners.”

Puigdemont’s party defied projections to win 34 seats -- the polling firm GAD3 had forecast no more than 29 at the start of the count -- while his separatist allies Esquerra claimed 32 seats. The four CUP deputies complete the pro-independence majority. Turnout was a record 82 percent.

“This is really bad for Rajoy,” Veronica Fumanal, a political marketing expert, who has advised both Ciudadanos and the Socialists, said in an interview. “He’s been completely rejected.”

Catalan Separatist Win Leaves Rajoy Counting Crackdown Cost

Rajoy invoked Article 155 of Spain’s 1978 Constitution for the first time ever in October to fire Puigdemont, and former Catalan Vice President Oriol Junqueras remains in jail in Madrid as the Supreme Court investigates him for possible charges of rebellion.

“The Catalan Republic has beaten the monarchy of article 155,” Puigdemont told supporters at midnight on Thursday.

On Friday, Supreme Court Magistrate Pedro Llarena, who is investigating possible crimes of rebellion by Catalan leaders, broadened his investigation to include six more political leaders, including former Catalan President Artur Mas, Esquerra secretary general Marta Rovira and Marta Pascal, a top official of Puigdemont’s party.

The dispute over Catalan independence attracted global attention on Oct. 1 when Rajoy deployed riot police who used some violence to disrupt an attempt to hold an independence referendum that had been ruled illegal by the Constitutional Court. With a population of about 7.5 million, Catalonia contributes about one-fifth of Spain’s economic output.

©2017 Bloomberg L.P.