Catalan independence puts a dent in the Euro

The European currency along with government bonds and Spain’s debt markets dropped on Friday last week against the backdrop of Catalonia declaring independence from Spain.

Late-October saw Catalonia become an independent republic after the regional assembly’s ballot showed an overwhelming result with 70 votes for the departure of Catalonia from Spain, while there were only 10 deputies advocating the opposite. Howbeit, three parties opposed to secession, which have 55 seats in parliament, had left the meeting room before the ballot.

EUR/USD was confirmed declining to 1.1579 by 17:00 Moscow time (GMT+3), the lowest level since the beginning of the third quarter. Nevertheless, this decline was also accelerated by the Greenback’s strengthening which had been boosted by positive GDP announcement.

The Spanish benchmark index, the Ibex, also dropped around 2.1% in reaction to the news. Meanwhile, Spain 10-Year Government Bond Yield rose to 1.599% from its previous 1.5210%.

On Moscow Stock Exchange, the Euro totally erased its gain against the Ruble in Thursday’s morning session. By 17.44 GMT+3, EUR/RUB dropped to 67.45 from the 68.15 level.

Spanish Prime Minister Mariano Rajoy has confirmed that the rule of law will be returned to Catalonia. “Spain is living through a sad day,” he said. “We believe it is urgent to listen to Catalan citizens, to all of them, so that they can decide their future and nobody can act outside the law on their behalf.”

According to Rajoy, thousands of independence backers surrounding the Sant Jaume Square in front of the Catalan regional headquarters expressed their joyful mood on the declaration.

Jordi Mercade, a 32-year- old engineer, said he had mixed feelings about the day’s events. “It’s a day for history but many of us here also know we are not independent. We are proud to declare independence but we know this is not something definitive,” he said.

Antonio Barroso of Teneo Intelligence appraised that tensions would climb sharply over the forthcoming months. “Demonstrators might try to prevent the police from removing Catalan ministers from their offices if the central government decides to do so. This increases the risk of violent clashes with the police.”

Having anticipated that this event would likely put a dent in the eurozone, ECB’s Mario Draghi in his Thursday press conference had tried to calm the potential risks caused by Catalan independence.
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