Spain’s financial mkts jolted by violent Catalan referendum

LONDON, Oct 2, (RTRS): The Spanish government’s borrowing costs surged and its stock market tumbled on Monday as investors weighed up the political fallout from the violent police crackdown on an independence vote in the wealthy region of Catalonia.

The euro also drifted lower against the dollar after local officials said 90 percent of voters favoured secession in Sunday’s referendum, which Madrid declared illegal.

That opened the door to a unilateral declaration of independence in a region that accounts for a fifth of Spain’s economy and whose tax revenues are crucial to the national budget.

While many analysts expect the crisis to be resolved with an offer of more autonomy, they said the uncertainty could have an impact on the country’s economic growth and taint the reputation of Prime Minister Mariano Rajoy, who heads a minority government.

“This is probably the worst outcome for Madrid — there was violence but they didn’t stop the vote either and public opinion in Catalonia is more polarised,” said Federico Santi, an analyst at Eurasia Group in London, referring to reports of nearly 900 injured in the clashes with police.

“It is clear that risks to government stability are increasing.”

Mainstream parties largely back Rajoy’s opposition to Catalan independence, but the premier faces criticism over his handling of the issue.