Like many countries, Spain’s economy has recovered to pre-recession levels. However, their ongoing political uncertainty is leading some to question what’s in store for the Spanish economy in years to come. Corruption, Catalonian independence and a clear lack of consensus in the government could eventually take its toll on the country.
The question is, how does this affect Forex? Can the economy of one country have an impact on a currency used by 19 countries?
What happened in Greece
In the aftermath of the 2007-8 recession, Greece endured the longest recession of any advanced capitalist economy to date. From late 2009, their national debt soared, with the country unable to make repayments. The European Union (EU) stepped in, loaning Greece enough money to continue repaying their loans.
However, that came with conditions. Greece had to adopt severe austerity measures, which saw the country left in a recession until 2017. Since 2010, Greece has been loaned over 300 billion Euros and repaid just over 40 billion Euros, with debt payments for the next four decades and beyond.
How Greece affected the Euro
One of the most significant events in terms of currency came in 2015, when EU law was changed to ensure non-Eurozone countries wouldn’t be affected by EU bailouts. This caused one of the biggest depreciations of value the Euro has seen in recent years, with the pound making significant gains.
Of course, that was advantageous for visitors from non-Eurozone countries who were exchanging their money into Euros. However, it was also beneficial for Forex traders if they predicted the changes and were able to buy and sell accordingly – or had the right stop loss in place.
Could this happen in Spain?
Looking at what happened with Greece, it’s clear that one country’s economic crisis can have an impact on the Euro currency as a whole. The question is whether Spain will have its own crisis and whether it will have a similar impact on the currency. In truth, there is nothing to suggest Spain is going through anything like the Greek economic crisis – even if political problems worsen.
At present, Spain is emerging from one of its worst periods in recent history. 2018 was the fifth consecutive year of growth for Spain’s economy. After a ten-year period, which saw unemployment rise to 26%, the Spanish economy has finally returned to pre-crisis levels.
Europe as a whole
What’s more concerning, however, is the state of the European Union as a whole. Despite a strengthening Spanish economy, the outlook may be bleak for the EU according to Gunther Oettinger. “The economic situation will slightly worsen, and the best years are behind us,” explained the European commissioner for budget and human resources.
Oettinger cited a range of factors that could potentially contribute to a stagnation or even recession for the EU, including a no deal Brexit. “We’re counting on an orderly Brexit that won’t hurt exports and imports, nor citizens, and allow us to resolve “neighbours’” issues like those related to Gibraltar. A no-deal Brexit would be a prime risk for Europe’s economic development in the next few years.”
He also cited uncertainties with trade partners in South America, such as Argentina, Venezuela and Brazil, along with growing friction between the US and EU. Of course, if these issues do cause problems for the European economy, they could also cause the Euro to drop in value against stronger-performing currencies like the US Dollar.