The escalating constitutional crisis in Spain poses a direct threat to the country’s fragile economic recovery, stoking worries that Madrid may ultimately need a fresh financial rescue from the EU bail-out fund.
Calls for massive civil disobedience from Catalan nationalists and menacing noises from the Basque Country are the latest danger signs in a high stakes drama where Madrid seems to be stumbling into a minefield.
“This has the potential to turn into a full-blown political crisis for the whole country. We think the current minority government may be heading towards disintegration,” said Raj Badiani, a veteran Spain strategist at IHS Markit.
“I am surprised that 10-year Spanish bond yield have not yet spiked. In a worst case scenario, where Spain faces a deep recession and cant roll over its debt at an affordable rate, it may need to apply for an EU bail-out,” he said.
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