Pound Euro Rate Rallies After Bloody Demonstrations On The Streets Of Madrid

September 26, 2012 - Written by Minesh Chaudhari

STORY LINK Pound Euro Rate Rallies After Bloody Demonstrations On The Streets Of Madrid

This morning’s session in the currency markets has seen a triple threat to the very fabric of the eurozone emerge. The first danger signal was sounded when the Bank of Spain revealed that economic activity in the debt-addled Iberian state has contracted at a ‘significant rate’ during the third quarter of 2012. The news sent the Spanish stock market tumbling and caused the levels of interest paid by Spain’s government on its gilts spike sharply.

Meanwhile, threat number two comes from the recidivistic problem child which is Greece – crowds of protestors have hoarded around the country’s government building as the nation grinds to a halt thanks to an anti-austerity general strike.

The third flare-up occurred in Spain, as last night’s anti-austerity demonstrations in Madrid descended into violence, with riot police firing rounds of rubber bullets into protestors. With unemployment amongst Spain’s adult population running at 25%, it appears that the Spanish populace are far from willing to sit tight and accept Brussels’ cuts.

The one thing that eurozone policymakers fear more than anything else is social disorder across the massive and disparate states which comprise the region. Ordinarily, such concerns would be driven by rising price rises – inflation tends to erode living standards by punishing savers and those on fixed incomes, causing living standards to plummet and raising tensions. However, on this occasion, it appears to be the stringent government cuts which are causing unrest.

The news from across Europe has hit the euro on the day, sending the GBP EUR exchange rate up to 1.2593 earlier. If evidence builds that scenes of social disorder are becoming more frequent, then the pair may gain the momentum to make a concerted run at its near 4-year high of 1.2894, which it last reached in July.

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