Why Catalunya’s battle for independence is a bigger problem for EU than Brexit

Discussion in 'Forex News, Fundemental Analysis, Market Events' started by mang_ncep, Oct 5, 2017.

  1. mang_ncep

    mang_ncep Forum Newbie

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    On Sunday the people of Catalunya voted overwhelmingly for independence, some 2 million from 2.3 million votes cast (5 million were eligible to vote), in what the Spanish government had already declared an illegal vote.

    Days of tensions erupted into a day of extended violence as over 850 were injured as the authorities attempted to block entry into polling stations and riot police were called in to quell tensions.

    The area is famous for its football team and Antoni Gaudi’s haunting Sagrada Familia but this vote will have ramifications not just for Spain but for the European Union.

    Catalunya effectively subsidises the rest of Spain, generating 20% of the country’s GDP. One third of all investment into Spain occurs in the region and it is responsible for one third of its worldwide imports. Without the region’s revenues Spain would be heavily weakened.

    By comparison Scottish independence would result in the UK losing 7.5% of GDP.

    Long before declaring Sunday’s vote illegal the Spanish government had already made it abundantly clear that it would resist Catalunya being part of the EU if it achieved independence. And it has the legal right to exclude the Catalans.

    But the EU is in a phase where unity and economic viability is a priority, something that including Catalunya makes more viable.

    The European Commission issued a statement on Monday (October 2) which effectively ruled out an independent Catalunya being part of the EU. However, if the rift between Spain and Catalonia cannot be repaired the economic impact on the EU could be greater that Brexit.

    A unilateral declaration of independence is expected this week or early next week by Catalan President Carles Puigdemont. Independence may be declared on October 6, exactly 83 years since Puigdemont’s predecessor Lluis Companys was executed by the Franco dictatorship after declaring independence.

    Spain’s economy, which had staged an impressive recent recovery, may now stall if the minority government struggles to get anything done and Catalunya remains the centre of attention.

    A declaration of independence, despite having no legal force and no support from the international community, is going to have a destabilising effect on the Euro.

    The initial reaction by the Euro saw it fall 0.5% against the US Dollar – which is no disaster. However, the Euro could be in for some heavy falls while the possibility of Catalan independence remains in focus as it may encourage other areas to promote the agenda for independence from the EU.

    Source FXB Trading
     

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