Spain jails separatists as growth forecast lowered

(Bloomberg) Spain cut its economic growth forecast for 2018, acknowledging the impact of an escalating political crisis that led the National Court in Madrid to jail two leading Catalan separatists.

The Spanish economy will grow 2.3% next year instead of the 2.6% previously projected, the Economy Ministry said in an emailed statement, citing the impact of the political standoff in Catalonia, which accounts for one-fifth of Spain's output.

“They are trying to imprison ideas, but they make the need for freedom even greater

Earlier Monday, Judge Carmen Lamela ordered that Jordi Sanchez and Jordi Cuixart, leaders of the two groups that have led the Catalan independence campaign, be jailed as a precautionary measure as she investigates potential sedition charges.

Catalan Police Chief Josep Lluis Trapero, another subject of the probe, was told to surrender his passport and report back to the court in Madrid every two weeks.

"Sadly, we have political prisoners again," Catalan President Carles Puigdemont said on Twitter.

"They are trying to imprison ideas, but they make the need for freedom even greater."

The Spanish state is turning up the pressure on the separatist leaders as Prime Minister Mariano Rajoy tries to persuade Puigdemont to drop his push for independence.

Rajoy has given Puigdemont until Thursday to withdraw his claim that Catalonia won the right to set up a new republic in the illegal referendum on October 1.

Unless he backs down, the Catalan leader risks seeing Madrid take direct control of the region.

Defense minister visits

The regional government meets Tuesday in Barcelona to consider its options, with chief spokesman Jordi Turull due to speak at a press conference from about 12:30 pm.

Separatists are planning a halt in workplaces at noon and a candlelit vigil in the centre of Barcelona from 8 pm.

Defense Minister Maria Dolores de Cospedal, who last week hinted that she's ready to send the army into Catalonia to assert control, will also be speaking in Barcelona.

She's visiting a barracks in the regional capital at 3 pm.

Spanish stocks fell Monday, with the benchmark Ibex losing 0.8% in Madrid.

CaixaBank, the biggest Catalan bank, fell by 1.7%, while the spread between Spain's 10-year government bond and similarly dated German bunds was little changed at 121 basis points.

More than two weeks after Catalonia made global headlines as Spanish police beat activists as they tried to defend their makeshift ballot, the strain of the crisis is beginning to show, both in the region and across the rest of Spain.

CaixaBank, the symbol of Catalonia's economic strength, led an exodus of companies shifting to other parts of Spain to shield themselves from the risk of a disorderly breakup.

Codorniu Raventos, a cava maker founded in 1551, said on Monday its holding company would move its legal base from Catalonia to La Rioja because of the legal and political uncertainty caused by the crisis.

Unless the Catalan government backs down, Spain "could once again see a crisis like the one that hit the euro at the end of 2011", Budget Minister Cristobal Montoro said at an event in Madrid Monday.

His comments were reported by El Economista newspaper.