Pro-independence supporters react on as they watch on screens in Barcelona on Tuesday as Catalan president Carles Puigdemont announces he will abide by the referendum results

Spain’s government has started an emergency cabinet meeting to weigh up a response to the suspended declaration of independence made by the Catalan president last night.

The cabinet will discuss whether the declaration by Carles Puigdemont justifies a decision by Madrid to trigger Article 155 of the Spanish constitution, which would empower them to suspend the autonomy of the regional government and call new elections.

If the government uses Article 155 to curtail Catalonia’s powers, it would be a significant escalation of a tense conflict between Barcelona and Madrid that threatens to turn into a severe constitutional crisis. 

Prime minister Mariano Rajoy will address the Spanish parliament this afternoon. He could demand that Mr Puigdemont withdraw the declaration of independence or face the consequences.

The cabinet meeting comes after Mr Puigdemont on Tuesday night stepped back from making a full declaration of the region’s independence, calling for more dialogue with Spain to peacefully resolve the situation.

But the speech was ambiguous. At one point he appeared to make a declaration of independence, saying he now assumed the “mandate for Catalonia to become an independent state in the form of a republic”.

This was followed by a proposed suspension of independence for “a few weeks”.

It was unclear if the government in Madrid will view this suspended declaration of independence as enough of a provocation to push ahead with some of the threats that it had made in the lead-up to the speech.

Spain’s government says Catalonia’s independence drive, including a contested referendum held in the region on October 1 that paved the way for Mr Puigdemont’s declarations on Tuesday, is unconstitutional. It had previously warned it could suspend the autonomy of the region and even said that Mr Puigdemont could be jailed if he declared independence.

Spain’s financial markets reacted with optimism to Mr Puigdemont’s message of suspended independence pending mediation. Madrid’s main stock index made the best gain of the morning in early European trade, rising 1.5 per cent to its highest level since September 20.

Financial stocks led the rally, with Catalan-based banks making notable gains. Shares in Banco de Sabadell rose 2 per cent and CaixaBank rose 1.9 per cent. Both banks have decided to move their legal headquarters out of Catalonia since the crisis erupted, fearing disruption to their businesses.

Shares in other Spanish banks also rose more than 2 per cent in early trading while investors showed more appetite for Spain’s government debt, easing the yield on its 10-year paper by 3 basis points to 1.685 per cent.

The spread between Spanish debt and German Bunds — a measure of the premium investors demand to hold Spanish debt compared with the safer German debt — fell to its lowest level since the end of last month.

The euro rose 0.2 per cent to $1.1830 against the dollar.

Spain’s government was on Tuesday damning about the declaration from Mr Puigdemont, with Soraya Saenz de Santamaria, deputy prime minister, saying the government would never enter into talks with the Catalan president as long as he demanded independence.

“Dialogue between democrats takes place within the law,” she said. She said the referendum on October 1 had been “illegal” and “fraudulent”.

Speaking on Spanish radio on Wednesday morning, Spanish foreign minister Alfonso Dastis called the speech “a trick to say one thing and do the opposite”, without giving further details of the government’s plans.

Mr Puigdemont’s announcement came after his government said that more than 2m people voted in Catalonia’s referendum on October 1, with most of them favouring independence. Catalonia has 5.4m eligible voters. 

A law passed by the Catalan parliament in the weeks before the October 1 referendum said that in the event of a “yes” vote, the parliament would declare independence within 48 hours.

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