Eurozone shrugs off Catalonia crisis

published 3 November 2017

869_MW_P06_Markets_Box — The unrest will cause jitters, but not civil war

Catalonia's referendum, Madrid's heavy-handed response and the region's subsequent declaration of independence from Spain have all caused jitters in markets in the past four weeks. But the standoff with Madrid looks unlikely to cause a major correction. Indeed, European stocks have risen to a ten-year high and Spain's Ibex-35 index eclipsed its pre-referendum level early this week.

This makes sense, as Capital Economics points out. The spat between Catalonia and Madrid looks nasty, but there is no terrorist group like the 20th-century Basque separatists in the picture. "Spain is not heading for civil war", and even if the separatists win the elections called in Catalonia, a compromise based on more regional autonomy is a likely outcome. Catalonia is worth a fifth of Spain's GDP, but the overall economy is still on track to grow by 3% this year. Nor is this a case of the eurozone crisis flaring up again: Catalonia doesn't want to ditch the single currency.

There is also no sign of the political fracas denting the eurozone economy, which is "partying like it's 1999", or almost, as Bert Colijn of ING told FXStreet.com. The euro-area-wide Economic Sentiment Indicator (ESI), which covers both business and consumer confidence, hit its highest level since January 2001. Spain's ESI is at a 22-month high; Germany's reached a six-year peak. As Europe relies far more on exports than Britain or America in Germany, for instance, exports comprise around half of GDP the increasingly healthy global economy is also buoying sentiment. Note too that the European Central Bank, while halving its monthly bond purchases, is extending quantitative easing until September 2018 at the earliest. Europe's rally should continue.

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Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

Eurozone shrugs off Catalonia crisis

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