Spain threatens Catalonia with direct rule from Madrid

MADRID (Reuters) - Spain's central government threatened on Thursday to suspend Catalonia's autonomy after the region's leader said it could go ahead with a formal declaration of independence if Madrid continued its "repression".

In an unprecedented move since Spain returned to democracy in the late 1970s, Prime Minister Mariano Rajoy said he would hold a special cabinet meeting on Saturday to impose direct rule in Catalonia.

Catalan president Carles Puigdemont, ignoring a 10 a.m. deadline to drop his secession campaign, threatened Rajoy with a formal declaration of independence in the Catalan parliament.

The two statements increased uncertainty over a one-month political crisis that has raised fears of social unrest, led the euro zone's fourth-largest economy to cut its growth forecasts and rattled the euro.

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Deadline for Spanish ultimatum on Catalan independence
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Deadline for Spanish ultimatum on Catalan independence
Catalan regional government president Carles Puigdemont arrives at the Generalitat Palace in Barcelona on October 19, 2017. Puigdemont, who sparked Spain's worst political crisis in decades by holding a banned independence referendum on October 1, has been ordered by Madrid to say by 10:00 am (0800 GMT) whether or not he is unilaterally declaring a split from Spain. / AFP PHOTO / PAU BARRENA (Photo credit should read PAU BARRENA/AFP/Getty Images)
BARCELONA, SPAIN - OCTOBER 19: A clock on City Hall of Barcelona shows shortly after 10am on October 19, 2017 in Barcelona, Spain. Catalonia's regional president Carles Puigdemont let a 10am deadline set by the Spanish government pass and threatened to declare independence. The Spanish government responded by announcing it will suspend Catalonia's autonomous status beginning Saturday. (Photo by Sean Gallup/Getty Images)
Pedestrians pass by a doorway painted in the colors of the Catalan seperatist flag and the word Arran, (A Catalan pro-indpendence leftist youth organization) in Barcelona, Spain, October 19, 2017. REUTERS/Gonzalo Fuentes
BARCELONA, SPAIN - OCTOBER 19: A television crew does a standup report outside the Palau de la Generalitat de Catalunya, the building that houses the Catalonian presidency, shortly before 10am on October 19, 2017 in Barcelona, Spain. Catalonia's regional president Carles Puigdemont let a 10am deadline set by the Spanish government pass and threatened to declare independence. The Spanish government responded by announcing it will suspend Catalonia's autonomous status beginning Saturday. (Photo by Sean Gallup/Getty Images)
Tourists with umbrellas walk in the rain outside the Generalitat Palace (Catalan government headquarters) in Barcelona on October 19, 2017. Spain said today it will press ahead with suspending all or part of Catalonia's autonomy after the region's leader warned he may declare independence, heralding an unprecedented escalation of the country's worst political crisis in decades. / AFP PHOTO / PAU BARRENA (Photo credit should read PAU BARRENA/AFP/Getty Images)
Picture shows a copy of the letter sent by Catalan regional government president Carles Puigdemont to Spanish Prime Minister Mariano Rajoy on October 19, 2017 in Madrid. Catalonia's leader clarified today that independence had not been declared, but warned he could go ahead with announcing a split from Spain if Madrid follows through on a threat to suspend the region's autonomy. / AFP PHOTO / GABRIEL BOUYS (Photo credit should read GABRIEL BOUYS/AFP/Getty Images)
Spanish Minister of Education, Culture and Sports and Government spokesperson Inigo Mendez de Vigo arrives to make a statement on the situation in Catalonia at the Spanish Congress in Madrid, October 19, 2017. Spain said today it will press ahead with suspending all or part of Catalonia's autonomy after the region's leader warned he may declare independence, heralding an unprecedented escalation of the country's worst political crisis in decades. / AFP PHOTO / OSCAR DEL POZO (Photo credit should read OSCAR DEL POZO/AFP/Getty Images)
Spanish Minister of Education, Culture and Sports and Government spokesperson Inigo Mendez de Vigo arrives to make a statement on the situation in Catalonia at the Spanish Congress in Madrid, October 19, 2017. Spain said today it will press ahead with suspending all or part of Catalonia's autonomy after the region's leader warned he may declare independence, heralding an unprecedented escalation of the country's worst political crisis in decades. / AFP PHOTO / OSCAR DEL POZO (Photo credit should read OSCAR DEL POZO/AFP/Getty Images)
Spanish Minister of Education, Culture and Sports and Government spokesperson Inigo Mendez de Vigo (C) makes a statement on the situation in Catalonia at the Spanish Congress in Madrid, October 19, 2017. Spain said today it will press ahead with suspending all or part of Catalonia's autonomy after the region's leader warned he may declare independence, heralding an unprecedented escalation of the country's worst political crisis in decades. / AFP PHOTO / OSCAR DEL POZO (Photo credit should read OSCAR DEL POZO/AFP/Getty Images)
A man with a backpack in the colors of a Catalan separatist flag passes near the regional government headquarters the Generalitat, after the final ten o'clock deadline set by Spain's government for Catalan President Carles Puigdemont to retract an ambiguous declaration of independence, in Barcelona, Spain, October 19, 2017. REUTERS/Gonzalo Fuentes
Soccer Football - Champions League - FC Barcelona vs Olympiacos - Camp Nou, Barcelona, Spain - October 18, 2017 Fans in the stands display the Estelada (Catalan flag of independence) REUTERS/Albert Gea
Soccer Football - Champions League - FC Barcelona vs Olympiacos - Camp Nou, Barcelona, Spain - October 18, 2017 Pitch invader displays t shirt in support of Catalan independence whilst being escorted out of the stadium by stewards REUTERS/Ivan Alvarado
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Spanish government bond yields rose and stocks sold off after the deadline passed, while the euro dipped into negative territory.

"If the government continues to impede dialogue and continues with the repression, the Catalan parliament could proceed, if it is considered opportune, to vote on a formal declaration of independence," Puigdemont said in a letter to Rajoy.

It is not yet clear how and when a Catalan declaration of independence would take place and whether it would be endorsed by the regional assembly, though many pro-independence lawmakers have openly said they wanted to hold a vote in the Catalan parliament to lend it a more solemn character.

If Rajoy invokes Article 155 of the 1978 constitution, which allows him to take control of a region if it breaks the law, it would not be fully effective until at least early next week. It needs previous parliamentary approval, offering some last minute leeway for secessionists to split unilaterally.

LAW UNCLEAR

The terms of Article 155 are vague and could spur more wrangling with the restive region, though the government said on Thursday it had a wide political backing from other parties.

"The government will use all the tools available to restore as soon as possible the law and the constitutional order, recover peaceful cohabitation between citizens and stop the economic damage that the legal uncertainty is creating in Catalonia," the government's spokesman Inigo Mendez de Vigo said in a statement.

Madrid can in theory sack the local administration and install a new team, take control of police and finances, and call a snap election.

But some members of the Catalan government have already questioned this interpretation of the constitution, suggesting the stand-off could extend for at least several more days.

Puigdemont has already defied Rajoy once this week, when he ignored a first deadline to drop the independence campaign and instead called for talks.

Rajoy says the Catalan government has repeatedly broken the law, including when it held a banned vote on independence on Oct. 1 and made a symbolic declaration of independence on Oct. 10, only to suspend it seconds later.

Puigdemont says a violent police crackdown on the referendum and arrests of pro-independence leaders on charges of sedition show the Spanish state has become authoritarian.

(Additional reporting by Isla Binnie; Editing by Ralph Boulton)

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