Euro reaches a two-week high as tensions ease in Catalonia
The Euro has regained ground against the US Dollar following two weeks of tensions in Spain. After declaring Catalonia’s independence following the region’s vote to leave Spain, President Carles Puigdemont’s decision to hold talks with the Spanish government in Madrid has eased economic worries.
Euro Impact Of Political Tensions
Uncertainty has surrounded Spain since an independence referendum took place on October 1. After business leaders threatened to remove their companies from the country if Catalonia became independent, investors’ concerns led to a rise in bond yields and a 3% drop in Spain’s largest stock market index, Ibex 35. Meanwhile, the two major banks in the Catalan region, Banco Sabadell and Caixabank, both saw their shares fall by more than 5%.
EUR/USD Live Prices
Spanish economy minister, Luis de Guindos, also said that Spain’s GDP could fall by as much as 30% if Catalonia achieves independence.
It is feared that a declaration of independence could prompt the Spanish government to suspend autonomy in the region. This, in turn, could lead to political, constitutional and social chaos. Amid legal uncertainty in the week after the vote, some businesses were already drawing up plans to move their headquarters to Madrid.
In fact, Oryzon Genomics, a pharmaceutical company, announced its decision to move out of Catalonia following the referendum, which led to its shares rising by a startling 33%. By removing itself from the political chaos, Oryzon clearly addressed the worries of investors.
Independence Talks Welcomed By Investors
It is clear that that Puigdemont’s desire to negotiate with the Spanish government in Madrid, rather than declare independence, comes as welcome news to economists in Spain and across Europe.
As tensions eased, the Ibex 35 Index futures rose by 1.1% on Tuesday afternoon (October 10). When the stock market opened on Wednesday October 11, the Euro rose again to 1.184 against the US dollar – its highest point in 14 days.
Some investors will be awaiting the conclusion of talks between the Catalan and Spanish governments with baited breath. While the markets have settled down for now, the future of the Spanish economy relies on avoiding further chaos.