GBP EUR Exchange Rate Could Rise Again Following Pro-Independence Result In Yesterday?s Catalonia Election

Published: Monday, 26 November 2012 09:00 BST - Written by John Cameron

STORY LINK GBP EUR Exchange Rate Could Rise Again Following Pro-Independence Result In Yesterday?s Catalonia Election

Catalonia has been an integral part of Spain since the year 1456. The 550+ years which have insured have been largely positive, with the autonomous region becoming the wealthiest part of the Iberian state. However, yesterday’s Catalonian election could spell the beginning of the end of the would-be independent state’s association with its parent country.

Early indications are that the election will be won by the pro-independence CiU party, which wants to hold a popular ballot on whether Catalonia should break away from Madrid. At this stage it appears unlikely that the CiU will garner an overall majority in the latest election. However, with exit polls suggesting that the socialist ERC party, (also fervently pro-independence), is likely to win second place, it appears a distinct possibility that a rainbow alliance of pro-independence parties could form a working government with the aim of taking Catalonia forward, apart from Madrid.

Tensions in Barcelona and beyond have been exacerbated in recent months by the stringent austerity measures which Madrid’s centre-right ruling party has enforced on the nation as a whole since coming to power late last year. Catalonians objected to the countrywide measures, questioning why they should have to pay for the perceived profligacy of the remainder of the country.

The situation in Spain provides a microcosm for the state of affairs in Germany versus the other sixteen eurozone nations; the Teutonic country’s taxpayers are becoming increasingly tired of funding less industrious southern states. At this stage, German calls for an exit from the euro area have been limited, (perhaps because such an occurrence would be so difficult to achieve in practical terms). However, investors holding euro-denominated assets will be closely monitoring events in Catalonia in coming weeks and months. A Catalan bid for freedom based on anti-austerity popular sentiment by the autonomous region could act as a catalyst for other similar moves across Europe as a whole. Any hint that such a scenario is unfurling would be likely to severely hamper the euro, potentially sending the GBP EUR exchange rate back up towards July’s four year high at 1.2894.

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