The Jim Bakker Show

EU to sign joint defense pact in show of post-Brexit unity

By Andrea Shalal and Robin Emmott

BERLIN/BRUSSELS (Reuters) – At least 20 countries in the European Union will sign up to a new defense pact next week, promoted by France and Germany, to fund and develop joint military hardware in a show of unity following Britain’s decision to quit the bloc.

After years of spending cutbacks in Europe and a heavy reliance on the United States through the NATO alliance, France and Germany hope the accord, to be signed on Nov. 13 in Brussels, will tie nations into tighter defense collaboration covering troops and weapons.

The Permanent Structured Cooperation, or PESCO, could be the biggest leap in EU defense policy in decades and may go some way to matching the bloc’s economic and trade prowess with a more powerful military.

But differences remain between Paris and Berlin over what countries legally bound by the pact should do, EU diplomats said.

France wanted a core group of governments to bring money and military assets to PESCO as well as a willingness to intervene abroad. Germany has sought to broaden the pact to make it inclusive, which some experts say could make it less effective.

“This has to bring about a higher level of commitment if it is going to work,” said a EU official, describing PESCO as a ‘defense marriage’. “The EU already has plenty of forums for discussion,” the official said.

So far France, Germany, Italy, Spain and around 16 other EU countries have pledged to join the pact, which could formally be launched when EU leaders meet in December. Some other members, including Denmark, Portugal, Malta and Ireland, have yet to commit themselves publicly.

But it was clear that Britain, which intends to leave the bloc following the Brexit referendum of June 2016, would not participate, officials said. Britain has long sought to block EU defense cooperation, fearing it could result in an EU army.

French diplomats said the pact would have several areas where EU governments would agree to work together and pledge funds, including EU military operations, investment and acquiring defense capabilities together as a group.

A German official said the initiative won momentum from French President Emmanuel Macron’s call for a European intervention force in September and U.S. President Donald Trump’s insistence that Europe do more for its security.

Proposals for PESCO include work on a European medical command and a network of logistic hubs in Europe, creation of a crisis response center, and joint training of military officers.

A key goal is to reduce the numbers of weapons systems and prevent duplication to save money and improve joint operations.

It could also serve as an umbrella for projects such as a Franco-German initiative to design a new fighter jet, and existing bilateral military cooperation agreements, such as the close ties between Germany and the Netherlands.

MILITARY “SCHENGEN”

Efforts under the pact will be closely coordinated with the U.S.-led NATO alliance to ensure transparency and avoid any redundancies, the German official said.

One area where NATO and EU officials see common ground is in the need for a military zone for free movement of troops and equipment, loosely based on the EU’s passport-free travel “Schengen” zone.

“I welcome integration to the maximum extent practical. We obviously want to avoid duplication and maximize transparency,” U.S. Air Force General Tod Wolters, NATO Allied Air Commander, told Reuters.

Under the plans, the North Atlantic Treaty Organisation would focus on collective defense, while PESCO would ensure a quicker and more efficient EU response to events like the 2014 Ebola crisis in Africa, the official said.

“This will not happen in competition with NATO,” the German official said.

(Reporting by Andrea Shalal and Robin Emmott; Editing by Richard Balmforth and Peter Graff)

Catalonia declares independence from Spain, direct Madrid rule looms

By Sam Edwards and Julien Toyer

BARCELONA/MADRID (Reuters) – Catalonia’s parliament declared independence from Spain on Friday in defiance of the Madrid government, which at the same time was preparing to impose direct rule over the region.

Although the declaration was in effect a symbolic gesture as it will not be accepted by Spain or the international community, the moves by both sides take Spain’s worst political crisis in four decades to a new level.

Spanish Prime Minister Mariano Rajoy immediately called for calm and said the rule of law would be restored.

The motion passed in the regional parliament in Barcelona — which was boycotted by opposition parties — said Catalonia constituted an independent, sovereign and social democratic state. It called on other countries and institutions to recognize it.

It also said it wanted to open talks with Madrid to collaborate on setting up the new republic.

“It is not going to be easy, it is not going to be free, it is not going to change in a day. But there is no alternative to a process towards the Catalan Republic,” lawmaker Marta Rovira of the Junts pel Si pro-independence alliance said in a debate leading to the vote.

After the debate, lawmakers from members of three main national parties — the People’s Party, the Socialists and Ciudadanos, walked out.

Members of the pro-independence parties and the far-left Podemos then voted in 70-10 in favour in a secret ballot aimed at hindering any attempt by the central government to lay criminal charges on them.

Spanish shares and bonds were sold off when the result of the vote was announced.

Catalan leader Carles Puigdemont left the chamber to shouts of “President!”.

Meanwhile in Madrid the upper house of Spain’s parliament, the Senate, was due to approve Article 155, the law that allowing the central government to take over the autonomous region.

“Exceptional measures should only be adopted when no other remedy is possible,” Spanish Prime Minister Mariano Rajoy said in an address to the Senate. “In my opinion there is no alternative. The only thing that can be done and should be done is to accept and comply with the law.”

The Catalan leadership was ignoring the law and making a mockery of democracy, he said.

“We are facing a challenge unprecedented in our recent history,” said Rajoy, who has staked out an uncompromising position against Catalonia’s campaign to break away from Spain.

After the Senate vote, Rajoy was expected to convene his cabinet to adopt the first measures to govern Catalonia directly. This could include sacking the Barcelona government and assuming direct supervision of Catalan police forces.

But how direct rule would work on the ground – including the reaction of civil servants and the police – is uncertain.

Some independence supporters have promised to mount a campaign of civil disobedience, which could lead to direct confrontation with security forces.

The crisis developed after an independence referendum on Oct. 1 was declared illegal by Madrid. Although it endorsed independence, it drew only a 43 percent turnout as Catalans who oppose independence largely boycotted it.

WORRIED, NERVOUS

In Barcelona, crowds of independence supporters were swelling on downtown streets, shouting “Liberty” in the Catalan language and singing traditional Catalan songs.

“I’m worried, I’m nervous like everybody. But freedom is never free,” said Jaume Moline, 50, musician.

Montserrat Rectoret, a 61-year-old historian, said: “I am emotional because Catalonia has struggled for 40 years to be independent and finally I can see it.”

The crisis has split Catalonia and caused deep resentment around Spain – national flags now hang from many balconies in the capital in an expression of unity.

It has also prompted a flight of business from the wealthy northeastern region and alarmed European leaders who fear the crisis could fan separatist sentiment around the continent.

Catalonia is one of Spain’s most prosperous regions and already has a high degree of autonomy. But it has a litany of historic grievances, exacerbated during the 1939-1975 Franco dictatorship, when its culture and politics were suppressed.

(Reporting by Paul Day and Julien Toyer, writing by Angus MacSwan, editing by Mark Heinrich)

EU leaders talk up Iran nuclear deal hoping to save it from Trump

By Gabriela Baczynska

BRUSSELS (Reuters) – European Union leaders on Thursday reaffirmed their full commitment to the 2015 nuclear deal between Iran and world powers, hoping that the U.S. Congress would not let it collapse despite relentless criticism by President Donald Trump.

But the bloc, reluctant to isolate itself completely from Washington, is also stepping up criticism of Iran’s ballistic missile program and its role in what the West sees as fomenting instability in the Middle East.

Trump last week adopted a harsh new approach to Iran by refusing to certify its compliance with the nuclear deal, struck with the United States and five other powers including Britain, France and Germany after more than a decade of diplomacy.

“We fully stay committed to the complete implementation by all sides of the Iranian nuclear deal. We see this as a key security interest for the European Union and the region,” said the bloc’s top diplomat, Federica Mogherini.

The EU leaders’ joint statement, agreed after talks in Brussels on Thursday, “reaffirms full commitment to the Iran nuclear deal”.

The bloc has been stepping up efforts to save the deal, saying it was crucial to regional and global security, and it has appealed to the U.S. Congress not to let it fall.

Trump has given Congress 60 days to decide whether to reimpose economic sanctions on Iran, lifted under the pact in exchange for the scaling down of a program the West fears was aimed at building a nuclear bomb, something Tehran denies.

The EU leaders also highlighted the need to protect their companies and investors dealing with Iran from any adverse effects should Washington reinstate the sanctions, officials said.

Should Trump walk away from the deal, Supreme Leader Ayatollah Ali Khamenei said on Wednesday that Iran would “shred” it.

The bloc sees the agreement as a chief international success of recent years, and fears tearing it apart would hurt its credibility as well as harming diplomatic efforts to defuse tensions around a nuclear stand-off with North Korea.

In outlining his tougher stance, Trump said Tehran must also be held accountable for advancing its ballistic missile program and its regional political role.

“We will defend the nuclear deal and stand by the nuclear deal and implement the nuclear deal. But we also don’t want to be standing on a completely opposing side to the U.S.,” an EU official said.

“If they withdraw, we would be left in a rather interesting company with China and Russia. So there may be an issue of separating the nuclear deal from the ballistic program and Iran’s regional role, sending signals on the latter two.”

Iran’s elite Islamic Revolutionary Guards (IRGC) said on Thursday the ballistic missile program would accelerate despite U.S. and EU pressure to suspend it, the semi-official Tasnim news agency reported.

The EU, which has expressed “concerns related to ballistic missiles and increasing tensions” in the Middle East, has said these issues should be discussed without direct links to the nuclear deal.

“They were never very fond of the nuclear deal in the first place but now the situation has changed a lot. Both many Democrats as well as some Republicans feel like they need to play a more active role on foreign policy to restrain the president,” the official said.

(Reporting by Gabriela Baczynska; Editing by John Stonestreet, Toni Reinhold)

Britain’s May urges EU to break deadlock in Brexit talks

Britain's Prime Minister Theresa May (C) attends the EU summit in Brussels, Belgium October 19, 2017. REUTERS/Yves Herman

By Elizabeth Piper and Alastair Macdonald

BRUSSELS (Reuters) – Prime Minister Theresa May urged the European Union on Thursday to break the deadlock and move forward with Brexit talks, asking the bloc’s leaders to respond with “urgency” on easing the fears of their citizens living in Britain.

Arriving at a two-day summit in Brussels with other EU leaders, May sought to lower any remaining expectation that she could win a breakthrough in the talks to unravel more than 40 years of union. Instead, she turned the focus to making progress in the coming weeks, particularly on citizens’ rights.

Weakened by losing her Conservative Party’s majority in a June election and failing to rally support at an ill-fated party conference, May cannot move on the EU’s insistence on increasing her pay offer for the divorce agreement.

She is hamstrung by demands in her own party for her to walk away unless the EU agrees to moving the talks forward to discuss trade, and Germany which does not want to be left with a large bill when Britain leaves the bloc in March 2019.

“We’ll … be looking at the concrete progress that has been made in our exit negotiations and setting out ambitious plans for the weeks ahead. I particularly, for example, want to see an urgency in reaching an agreement on citizens’ rights,” May told reporters.

But she avoided questions about increasing the amount Britain is willing to pay when it leaves the EU, instead referring back to a speech last month in Italy when she outlined an offer of around 20 billion euros ($24 billion) to try to improve the tone.

“That speech … set out that ambitious vision and I look forward to us being able to progress that in the weeks ahead,” she said.

Without a new offer on the money, May has attempted to change the focus by offering concessions on the protection of the rights of around 3 million EU citizens living in Britain, promising to make it as easy as possible for them to stay.

On her Facebook page, May wrote that “we are in touching distance of agreement” and asked the EU to show the “flexibility and creativity” to secure a deal in the coming weeks.

While welcome, this is unlikely to alter the outcome of the Brussels summit, where on Friday morning, when May has left, the bloc is expected to say the Brexit talks had not yet made enough progress for them to open the post-Brexit trade negotiations.

CHANGE OF TACK

That lack of movement has increased the pressure on May from her own party, particularly a small number of Brexit campaigners who have long said that the prime minister should walk away from the talks if the EU did not move them forward.

In an open letter to May on Thursday, pro-Brexit lawmakers and business people said that unless the talks moved to trade, Britain should signal it is ready to be subject to World Trade Organization (WTO) rules from March 30, 2019, when Brexit takes effect.

The government says it does not want to crash out of the EU and is working to secure a deal. But comments that ministers are planning for the possibility of a no deal have been pounced on by the Britain’s main opposition Labour Party.

Jeremy Corbyn, whose party has matched and sometimes beats May’s Conservatives in the opinion polls, arrived in Brussels on Thursday to meet EU lawmakers to try to break “the Brexit logjam” created by what he called government “bungling”.

Seen as having little chance of becoming prime minister last year, Corbyn is now being listened to in Brussels and was due to meet the bloc’s chief negotiator, Michel Barnier, and other officials on Thursday.

Recognising May’s position at home, EU leaders are expected to make a “gesture” by telling EU staff to prepare for talks on a transition period needed to ease uncertainty for business. But they warn there is still a lot to be done.

“We have to work really hard between October and December to finalise this so-called first phase and to start negotiating on our future relationship with the UK,” Donald Tusk, the chairman of EU leaders, said on Wednesday.

($1 = 0.8454 euros)

(additional reporting by William James and Estelle Shirbon in London, Philip Blenkinsop and Gabriela Baczynska in Brussels; Editing by Alison Williams)

EU to ban business ties with Pyongyang over nuclear tests

North Korean leader Kim Jong-Un inspects the January 18 General Machine Plant in Pyongyang, North Korea in this undated photo released by North Korea's Korean Central News Agency (KCNA) on August 10, 2016. KCNA/via REUTERS ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY. NO THIRD PARTY SALES. SOUTH KOREA OUT. NO COMMERCIAL OR EDITORIAL SALES IN SOUTH KOREA.

By Robin Emmott

BRUSSELS (Reuters) – The European Union is set to agree on Monday to ban business ties with North Korea, part of a new package of sanctions to isolate Pyongyang over its nuclear and missile programs.

The practical impact of the moves is likely to be mostly symbolic: Brussels will impose an oil embargo and a ban on EU investment, but it sells no crude to North Korea and European companies have no substantial investments there.

North Korean workers in the EU, of which Brussels estimates there are about 400 mainly in Poland, will face a lower limit on the amount for money they can send home and their work visas will not be renewed once they expire.

The measures to be agreed by EU foreign ministers in Luxembourg go further than the latest round of multi-lateral sanctions imposed by the United Nations Security Council.

“The North Koreans appear to be uninterested in having the EU get involved as a peace mediator,” said an EU diplomat. “The North Koreans want direct talks with the United States, but President (Donald) Trump has ruled that out,” the diplomat said.

The sanctions will add three more top North Korean officials and six businesses to a blacklist banning them from travel to the EU and freezing their assets. That will take the total of those sanctioned by the EU to 41 individuals and 10 companies, a senior EU official said. Separately, U.N. sanctions target 63 people and 53 companies and institutions.

“We have in place everything that we possibly could do to try to get the DPRK to change their behavior,” the EU official said, using North Korea’s official name of the Democratic People’s Republic of Korea.

Although the EU does not export crude to North Korea, its aim is to push other countries to ban oil exports, either unilaterally or at the United Nations. The U.N. Security Council last month capped North Korean imports of crude oil, but China and Russia resisted an outright ban.

Diplomats said that if Pyongyang launches more missiles, the EU could consider imposing sanctions on non-EU firms doing business with Pyongyang, as the United States has done.

However, such “secondary sanctions” need clear evidence to avoid legal challenges and the bloc is reluctant to anger China, a top trading partner, by targeting Chinese people and firms.

(Reporting by Robin Emmott; editing by Peter Graff)

‘They have to pay’, EU’s Juncker says of Britain

President of the European Commission Jean-Claude Juncker listens at a news conference during the European Union Tallinn Digital Summit in Tallinn, Estonia, September 29, 2017. REUTERS/Ints Kalnins

LUXEMBOURG (Reuters) – Britain must commit to paying what it owes to the European Union before talks can begin about a future relationship with the bloc after Brexit, European Commission President Jean-Claude Juncker said on Friday.

“The British are discovering, as we are, day after day new problems. That’s the reason why this process will take longer than initially thought,” Juncker said in a speech to students in his native Luxembourg.

“We cannot find for the time being a real compromise as far as the remaining financial commitments of the UK are concerned. As we are not able to do this we will not be able to say in the European Council in October that now we can move to the second phase of negotiations,” Juncker said.

“They have to pay, they have to pay, not in an impossible way. I’m not in a revenge mood. I’m not hating the British.”

The EU has told Britain that a summit next week will conclude that insufficient progress has been made in talks for Brussels to open negotiations on a future trade deal. London has been hoping and pressing for this to happen at the summit.

(Reporting by Philip Blenkinsop in Brussels; Editing by Alastair Macdonald)

Allies press Catalan leader to declare full independence, ignore Madrid deadlines

People walk under a huge Catalan flag during Spain's National Day in Barcelona. REUTERS/Gonzalo Fuentes

By Isla Binnie and Paul Day

MADRID (Reuters) – Catalan leader Carles Puigdemont came under pressure from one of his key allies on Friday to declare full independence and ignore a threat of direct rule from the Spanish government.

Puigdemont made a symbolic declaration of independence on Tuesday night, only to suspend it seconds later and call for negotiations with Madrid. [nL8N1ML2NZ]

Spain’s Prime Minister Mariano Rajoy has given him until Monday to clarify his position – and then until Thursday to change his mind if he insists on a split – threatening to suspend Catalonia’s autonomy if he chooses independence.

But far-left Catalan political group CUP called on Puigdemont to make an unequivocal declaration of independence in defiance of the deadlines.

“If (the central Madrid government) wants to continue to threaten and gag us, they should do it to the Republic that has already been claimed,” the party said.

The CUP only holds 10 seats in the 135-seat Catalan parliament. But Puigdemont’s minority government relies on its support to push through legislation and cannot win a majority vote in the regional parliament without its backing.

The wealthy region’s intention to break away after a referendum has plunged Spain into its worst political crisis since an attempted military coup in 1981.

Sources close to the Catalan government said Puigdemont and his team were working on an answer to Rajoy though they declined to say what line he might take.

The CUP statement echoes the position expressed late on Thursday by influential pro-independence civic group Asamblea Nacional Catalana which said: “Given the negative position of Spain toward dialogue, we ask the regional parliament to raise the suspension (on the declaration of independence).”

But the leader of Puigdemont’s party, Artur Mas, who served as the region’s president until 2016 and is still believed to influence key decisions, said on Friday declaring independence was not the only way forward.

“If a state proclaims itself independent and cannot act as such, it’s an independence that is merely aesthetic,” he told Catalan television TV3.

“The external factor must be taken into account in the decisions that will be made from now on,” he said.

The European Union, the United States and most other world powers have made it clear they wanted Catalonia to remain within Spain.

“If we allow Catalonia – and it is none of our business – to separate, others will do the same. I do not want that,” Jean Claude Juncker said in a speech at Luxembourg University.

(This refiled version of the story adds dropped word in paragraph six).

(Writing by Julien Toyer; Editing by Andrew Heavens)

Trump resists pressure to soften stance on Iran nuclear deal

By Steve Holland and John Walcott

WASHINGTON (Reuters) – President Donald Trump finds himself under immense pressure as he considers de-certifying the international nuclear deal with Iran, a move that would ignore warnings from inside and outside his administration that to do so would risk undermining U.S. credibility.

Trump is expected to unveil a broad strategy on confronting Iran this week, likely on Friday. There was always the chance he could still have a last-minute change of heart and certify Iran’s compliance with the 2015 accord, which he has called an “embarrassment” and the “worst deal ever negotiated.”

Senior U.S. officials, European allies and prominent U.S. lawmakers have told Trump that refusing to certify the deal would leave the U.S. isolated, concede the diplomatic high ground to Tehran, and ultimately risk the unraveling of the agreement.

Signed by the United States, Britain, France, Germany, Russia, China, the European Union and Iran, the deal relieved sanctions on Tehran in exchange for curbing its disputed nuclear program.

The International Atomic Energy Agency (IAEA) concluded that Iran secretly researched a nuclear warhead until 2009, which Tehran denies. Iran has always insisted that its nuclear program is for peaceful purposes and denies it has aimed to build an atomic bomb.

After Trump made clear three months ago he would not certify Iran’s compliance with the deal, his advisers moved to give him options to consider, a senior administration official said.

“They came up with a plan that protects the things they are concerned about but doesn’t recertify, which the president made clear he was not going to do. That ship has sailed,” according to the official, who spoke on condition of anonymity.

The official said Trump has been telling foreign leaders and U.S. lawmakers that his refusal to certify the Iran deal would not blow it up.

“He’s not walking away from it. The chances of him walking away from it go down if they work with him on making it better,” the official said.

White House officials said Trump is expected to announce a broad, more confrontational policy toward Iran directed at curbing its nuclear and ballistic missile programs and financial and military support for Hezbollah and other extremist groups.

Trump has said he believes the nuclear deal is too generous toward Iran and would not stop it from trying to develop a nuclear weapon.

He has criticized the agreement’s “sunset clauses,” under which some restrictions on Iran’s nuclear program would expire over time. He also wants to toughen language on ballistic missiles and inspections. The International Atomic Energy Agency says Iran is complying with the agreement.

FILE PHOTO: Women hold anti-U.S. banners during a demonstration outside the former U.S. embassy in Tehran November 4, 2015. REUTERS/Raheb Homavandi/TIMA/File Photo

NO RENEGOTIATION

European officials have categorically ruled out renegotiating the deal, but have said they share Trump’s concerns over Iran’s destabilizing influence in the Middle East.

Several diplomats have said Europe would be ready to discuss sanctioning Iran’s ballistic missile tests and forming a strategy to curb Iran’s influence in the region.

Officials have also said there could be room to open a new negotiation for what happens once some of the core terms of the deal begin expiring in 2025, although there is no reason to believe Iran would be ready to enter in such a negotiation. Iran has said it may exit the deal if the U.S. withdraws.

De-certifying would not withdraw the United States from the deal but it would give the U.S. Congress 60 days to decide whether to reimpose the sanctions on Tehran that were suspended under the agreement.

One U.S. official involved in administration said that declining to certify Iran’s compliance would probably leave all of the parties to the deal on one side and the United States on the other.

“That means that while the French and others are also interested in curbing Iran’s destabilizing activities, they may be less likely to follow (the U.S.) lead at the risk of the agreement blowing up,” the official said.

British Prime Minister Theresa May and French President Emmanuel Macron both spoke to Trump this week to express their concerns about the potential decision not to recertify the Iran deal.

“If the feeling is that the United States no longer supports the agreement, then the political reality is that the agreement will be in serious jeopardy and its implementation will be very difficult,” a senior French diplomat said.

Two other U.S. officials, who also requested anonymity, said Trump’s bellicose rhetoric on a number of fronts is troubling both many of his own aides and some of America’s closest allies, a few of whom have asked U.S. officials privately if Trump’s real objective is attacking Iran’s nuclear facilities.

One of the officials said that like the heated rhetoric with North Korea on its nuclear program, the Iran discussion has vexed White House Chief of Staff John Kelly, Defense Secretary Jim Mattis and Secretary of State Rex Tillerson “who have tried to advise the President that there are significant risks in the course he’d prefer to pursue.”

“At the end of the day, though, everyone recognizes that he’s the decider.”

Trump allies who oppose the deal have watched the president closely to see if he might buckle under pressure.

“He’s not going to re-certify,” said Sebastian Gorka, a former Trump national security aide. “I’m not worried. His gut instinct is absolutely right.”

(Reporting by Steve Holland and John Walcott; additional reporting by John Irish in Paris; Editing by Caren Bohan, Yara Bayoumy and Grant McCool)

Spain takes step toward direct rule over Catalonia’s independence move

Spain´s Prime Minister Mariano Rajoy attends a cabinet meeting at the Moncloa Palace in Madrid, October 11, 2017. Moncloa handout via REUTERS

By Blanca Rodríguez and Sonya Dowsett

MADRID/BARCELONA (Reuters) – Spanish Prime Minister Mariano Rajoy took the first step on Wednesday toward suspending Catalonia’s political autonomy and ruling the region directly to thwart a push for independence.

He demanded that the regional government clarify whether it now considered itself independent following a speech by Catalan president Carles Puigdemont on Tuesday night.

This requirement is a necessary step before triggering Article 155 of the constitution, which would allow Madrid to suspend the region’s political autonomy.

Rajoy’s move could deepen the confrontation between Madrid and Catalonia but it also signals a way out of Spain’s biggest political crisis since a failed military coup in 1981.

The prime minister would be likely to call a snap regional election after activating the constitutional mechanism allowing him to do so.

Puigdemont made a symbolic declaration of independence from Spain on Tuesday night but then immediately suspended it and called for talks with the Madrid government.

“The cabinet has agreed this morning to formally request the Catalan government to confirm whether it has declared the independence of Catalonia, regardless of the deliberate confusion created over its implementation,” Rajoy said in a televised address after a cabinet meeting to consider the government’s response.

Without giving a specific deadline for the Catalan government to reply, Rajoy said: “The answer from the Catalan president will determine future events, in the next few days.”

It is not yet clear if and when the Catalan government would answer the requirement but it now faces a conundrum, political analysts say.

If Puigdemont says he did declare independence, the government would likely trigger Article 155. If he says he did not declare it, then far-left party CUP would likely withdraw its support to his minority government.

“Rajoy has two objectives: if Puigdemont remains ambiguous, the pro-independence movement will get more fragmented; if Puigdemont insists on defending independence then Rajoy will be able to apply Article 155,” said Antonio Barroso, deputy director of London-based research firm Teneo Intelligence.

“Either way Rajoy’s aim would be to first restore the rule of law in Catalonia and this could at some point lead to early elections in the region”.

DIALOGUE CALL DISMISSED

Puigdemont had been widely expected to unilaterally declare Catalonia’s independence on Tuesday after the Catalan government said 90 percent of Catalans had voted for a breakaway in an Oct. 1 referendum that Spain had declared illegal and which most opponents of independence boycotted.

Madrid responded angrily to Puigdemont’s speech, saying the Catalan government could not act on the results of the referendum.

“Neither Mr. Puigdemont nor anyone else can claim, without returning to legality and democracy, to impose mediation… Dialogue between democrats takes place within the law,” Deputy Prime Minister Soraya Saenz de Santamaria said.

Invoking Article 155 to ease Spain’s worst political crisis in four decades would make prospects of a negotiated solution to the Catalonia crisis even more remote.

A spokesman for the Catalan government said earlier on Wednesday that if Madrid went down this road, it would press ahead with independence.

“We have given up absolutely nothing…We have taken a time out…which doesn’t mean a step backwards, or a renunciation or anything like that,” Catalan government spokesman Jordi Turull told Catalunya Radio.

Socialist opposition leader Pedro Sanchez said he would back Rajoy if he had to activate Article 155 and said he had agreed with the prime minister to open a constitutional reform within six months to discuss how Catalonia could fit better in Spain.

It was not clear how the Catalan government would respond to the offer.

MARKET RELIEF

Puigdemont’s speech also disappointed supporters of independence, thousands of whom watched proceedings on giant screens outside parliament before sadly leaving for home.

Financial markets, however, were encouraged that an immediate declaration of independence had been avoided.

Following Puigdemont’s speech, Spain’s benchmark IBEX share index rose as much as 1.6 percent, outperforming the pan-European STOXX 600 index. The rally pushed the main world stocks index, the MSCI’s 47-country ‘All-World’ index, to a record high.

Spain’s 10-year government bond yield — which moves inversely to the price — dropped 5 basis points to 1.65 percent in early trade, according to Tradeweb data.

In Brussels, there was relief that the euro zone’s fourth-largest economy now had at least bought some time to deal with a crisis that was still far from over.

One EU official said Puigdemont “seems to have listened to advice not to do something irreversible”.

The Catalan crisis has deeply divided the northeastern region itself as well as the Spanish nation. Opinion polls conducted before the vote suggested a minority of about 40 percent of residents in Catalonia backed independence.

The stakes are high — losing Catalonia, which has its own language and culture, would deprive Spain of a fifth of its economic output and more than a quarter of exports.

Some of Catalonia’s largest companies have moved their head offices out of the region and others were set to follow if he had declared independence.

(Additional reporting by Julien Toyer, Paul Day, Jesus Aguado; Writing by Adrian Croft; Editing by Julien Toyer and Angus MacSwan)

EU lawmakers give tentative nod to Brexit clearing law that could clobber Britain

European Commission President Jean-Claude Juncker addresses the European Parliament during a debate on The State of the European Union in Strasbourg, France, September 13, 2017. REUTERS/Christian Hartmann

By Huw Jones

LONDON (Reuters) – European Union lawmakers on Tuesday gave broad support to a law that could end the City of London’s global dominance in clearing euro-denominated financial contracts after Brexit.

The plan has raised hackles in Britain, where it threatens both job losses and tax revenues.

The draft EU law proposes that a foreign clearing house — which stands between two sides of a transaction to ensure its smooth completion — must be subject to more intense supervision by the bloc’s regulators if it wants to serve customers in the EU.

But if a clearing house is systemically important to the euro zone, then euro-denominated business with EU based customers must move to the bloc.

The draft law is anathema to Britain, which voted to leave the EU in a referendum last year.

It is home to LCH, an arm of the London Stock Exchange that clears most euro-denominated swaps in Europe. Financial services represent Britain’s biggest tax earning sector and the LSE has warned that thousands of jobs could leave the UK if euro clearing was forced out.

In the first debate in the European Parliament on Tuesday, lawmakers from the two biggest parties, the center right European People’s Party and the center-left Progressive Alliance of Socialists and Democrats, gave broad backing to the draft law, but called for some changes.

“It’s a good proposal from the European Commission,” Polish center-right MEP Danuta Huebner told parliament’s economic affairs committee.

“In principle, I support the proposal, which I find necessary,” added Roberto Gualtieri, an Italian center-left lawmaker who chairs the committee.

The European Parliament and EU states have final say on the reform, with changes expected during the approval process.

No timetable has been agreed for approving the law and, separately, there has been scant agreement on any new relationship between the EU and Britain.

That means LCH’s European customers don’t know at the moment if they can continue using the London clearer after Brexit.

Exploit this uncertainty, Frankfurt-based Eurex unveiled a “Brexit-proof” package of sweeteners on Monday to woo LCH customers.

BREXIT PROTECTIONISM

Huebner said parts of the draft law were too complex, creating uncertainty over how exactly EU regulators and the European Central Bank would decide when euro clearing conducted outside the bloc must move to the EU.

“We have to do everything to avoid potential inconsistency in decision-making,” Huebner said. “We must not politicize the whole process.”

Gualtieri said there was a need to “upgrade” EU supervision of clearing, but lawmakers should be “very cautious, reflective and in a listening mood” given the potential consequences.

Others said there was need to avoid protectionism or using clearing as a stick to beat Britain given that the UK was already “fighting with itself”.

Kay Swinburne, a British center-right lawmaker, a lone voice in outright opposition, said a regional restriction on a global currency is the wrong approach.

“There is a reason why we have done so much work at the global level, and I really hope that we are not going to throw all of that away to have some protectionism with regards to a Brexit decision,” Swinburne added.

Banks and the LSE have warned that forcing out some clearing would split markets and bump up costs for EU companies who use swaps to insure against adverse moves in borrowing costs, raw material prices, and currency swings.

(Reporting by Huw Jones Editing by Jeremy Gaunt)

Sign up for Jim Bakker Show