Although Catalonia is currently being overshadowed by China’s 19th Party Congress and the potential ramifications of Brexit and NAFTA negotiations, Spain’s mishandling of the secession crisis is quickly becoming a massive tripwire for the Euro project. While preaching the ideals of self-determination and democracy in its truest form, the Spanish Central Government sitting in Madrid is responding to these movements with further escalations.
The arrest of two prominent secessionist leaders on Tuesday has already galvanized additional support for an independent entity. Demonstrations swept through the region as people took to the streets to protest Madrid’s move to deny the leaders bail while labeling the referendum results as null and void. The imprisonment of political leaders could blow the lid off a precipitating crisis. Apart from repudiating the basic human rights that remain a core aspect of the European Union principles, the Central Government’s unwillingness to sit down with protesters and hear the Catalans' grievances are setting the stage for a bigger showdown.
While much of the weekend reopening’s attention was focused on the victory of Austrian right wing leader Sebastian Kurz, Catalonia presents European leaders with a much more pressing problem. Should the Central Government continue its standoffish attitude to Catalonia, the likelihood of greater bloodshed grows with each passing day. Though Catalonia’s President Puidgemont has purposely avoided taking the formal steps to declare independence, Spanish President Rajoy’s threat to invoke Article 155 to suspend Catalonia’s autonomy on Thursday absent a response could spur new turmoil and protest.
If the Central Government makes such a serious miscalculation, it could make the violence that occurred during the referendum vote seem tame by comparison. The impact on the Euro would be palpable as it could embolden other ignored secessionist and anti-EU movements that are gathering momentum. The next major support level that stands out for EURUSD is 1.1685, with any dip beneath this threshold paving the path towards 1.1475.
Euro Slips as Catalonia Exit Risks Remain Unresolved
Market Trends - 18/10/2017