The Pound Euro (GBP EUR) exchange rate could claw back some of its losses in the coming weeks if the situation in Catalonia continues to prove turbulent.
Euro Falls as Catalonia Overwhelming Votes for Independence
The Euro fell against the majors on Monday when Catalonia voted for independence from Spain in a referendum rife with violence.
Controversy regarding Catalonia’s independence has been long-term issue, with Spain’s constitutional court ruling in 2010 that elements of the region’s autonomy statute were unlawful and that references to their independence as a nation held ‘no legal validity’.
These efforts, however, have only resulted in severe, on-going opposition, with Catalonia continuing to fight for the right to hold a legally binding vote and Madrid insisting that such a thing cannot legally take place.
This has culminated in Spain’s constitutional court declaring the latest referendum illegal and launching a massive crackdown on the voting process, confiscating millions of ballot slips and triggering violent clashes throughout the nation.
So What Happens Next for Spain and GBP EUR?
The leader of Catalonia, Carles Puigdemont, stated in an interview yesterday that Catalonia will declare independence from Spain in ‘a matter of days’.
Spain’s King Felipe VI, however, continues to insist that the vote’s organisers were acting ‘outside of the law’ so such a declaration will not be recognised.
Spanish PM Mariano Rajoy may eventually be pushed to invoke article 155 – which allows the Spanish Government to move in and take full control over an autonomous region if it fails to ‘fulfil the obligations imposed upon it by the constitution or other laws, or acts in a way that is seriously prejudicial to the general interest of Spain’.
Understandably, the ensuing chaos has damaged demand for the Euro, as it continues to illustrate a phase of political instability within the EU. If article 155 is indeed invoked then it may result in military action within the region and even more violence and unpredictability until the issue is settled.
Despite Catalonian politician Amadeu Altafaj claiming this morning that Catalan would remain within the EU (despite ceding from Spain) this remains to be seen.
In the meantime, markets remain somewhat anxious over the matter, with former French Prime Minister Manuel Valls insisting that Catalonian independence would spell the end of the EU.
Valls stated:
‘It means in a certain way the end of what Europe is, which is a federation of nation states. If one of these states decides to change its borders, the consequences can be very important at a time where Europe is fragile’.
Will the Pound (GBP) be able to Capitalise?
As of Wednesday morning, the Pound has managed to somewhat effectively capitalise on the ensuing weakness of the Euro, predominantly, however, due to a jump in the UK services sector (with Markit’s PMI print coming in at 53.6, up from 53.2) and a fall in annual Eurozone retail sales from 2.6% to 1.2%.
If Thursday’s Eurozone data also proves disappointing then the Pound could gain momentum in the build-up to the Catalonian independence announcement.
Comments are closed.