Catalan President Carles Puigdemont is expected to unilaterally declare his region's independence from Spain today, amid suggestions from the Madrid government he could face jail time.
Puigdemont will address the parliament in the region this afternoon, for the first time since a referendum - deemed illegal by the authorities - was held on 1 October. Catalan leaders claim 2.2m people took to the polls, with 90 per cent of the vote in favour of independence.
An announcement has been expected for many days after the vote, which was overshadowed by widespread violence.
On Sunday (8 October) Puigdemont told Spanish TV: "If the state does not respond positively, we will do what we have come here to do."
"The declaration of independence is expected under the legislation of the referendum as an application of the results.
"Therefore we will apply what is set out by law," he said.
But during a press conference yesterday, a spokesman for the ruling Popular party said Puigdemont could "end up" like former regional leader Lluis Companys, who declared Catalan independence in 1934.
Companys was jailed soon after and shot six years later by the Franco regime.
The government later clarified that its comments only related to the possible imprisonment.
As well as the risk of jail time, Catalan faces being ostracised if it breaks from Spain.
France's European affairs minister Nathalie Loiseau said Paris would not recognise an independent Catalonia.
The political uncertainty has put pressure on Spanish companies' share prices and some firms are already in the process of relocating their headquarters out of the region.
Ipek Ozkardeskaya, senior market analyst for LCG, said: "It could be a make or break day for Catalonia... [Puigdemont's] choice of words is in focus. If Puigdemont softens his tone and takes a step back from the possibility of a unilateral declaration of independence, the Spanish stocks and bonds could rally on a temporary relief. On the other hand, a strong rhetoric from Catalonian President could escalate the political tensions and push investors away from the Spanish regional markets."
UBS analyst Roberto Luis Scholtes Ruiz said immediate secession was unlikely, but noted there was still grave risks posed by social unrest and political instability.
"The budgetary process has stalled as Basque nationalists are withholding support from the Popular Party until the situation calms down. If the government cannot resolve the stalemate, an early general election in the next 12 months would become a distinct possibility," he said.
"The conflict is starting to have some impact on the economy; anecdotal evidence indicates deposits are flowing out of Catalonian banks, and companies (such as the two main banks) are deciding to relocate to other Spanish regions to avoid the consequences of a disruptive unilateral secession. If tension persists, it could affect investments and tourism, slowing GDP growth more than we already forecast."