Catalonia, which includes Barcelona and accounts for a fifth of Spain’s economy, is attempting to become the first of 17 autonomous regions that already enjoy a measure of self-government to hold a binding plebiscite on independence. It staged a nonbinding ballot three years ago that was backed by about 80 percent of voters, though barely 30 percent of those eligible turned out.

?The rebel administration is pressing ahead with the referendum even after Rajoy’s government seized 10 million ballots, deployed thousands of police and arrested more than a dozen Catalan officials.

“This is the most serious constitutional crisis Spain has faced,” said Alejandro Quiroga, professor of Spanish history at the University of Newcastle in the U.K. “The Catalan question could trigger a competition among the other regions to test how far they can go. It’s a very complex matter.”

Eoin Treacy's view

How much did the discovery of America, and the riches that flowed into Spain as a result, cement the binding together of Castille and Aragon when Isabella and Ferdinand were wed? There is no doubt economic abundance reduces nationalistic tendencies but the opposite is also true. 

When resources are scarce covetousness and resignation tend to be easily exploited by those seeking to push their agenda, not least because public sentiment becomes more inward looking. I don’t think it is too much of a stretch to draw parallels with the SNP in Scotland or indeed the rise of the AfD in Germany. 

The balkanisation of Spain is something the Madrid government is unlikely to allow but it could be pushed into a more Federal system than it already has. Spanish government bonds continue to benefit from ECB purchases and at a yield of 1.6% are 70 basis points below the US Treasuries. The contradiction represented by this condition, which has been in evidence for some time already, suggests it will eventually turn into a problem but probably not until the ECB begins to taper is QE program. 

The IBEX Index has steadied in the region of the trend mean and a sustained move below the psychological 10000 level would be required to question medium-term scope for additional upside.