Spain: The EU’s Next Test
Surprise, surprise. Spain’s newly elected government has announced that the EU periphery economy is expected miss it’s deficit reduction target for this year – as austerity measures and high unemployment continue to stifle growth. Unemployment in the country still ranks among the highest in the EU – at 22.85%. Since the end of last year, newly elected Prime Minister Mariano Rajoy has elected to push stronger austerity measures in order to meet targets set by the European Union.
But, even attempting to meet EU goals and with growth actually next to nothing, it seems that the Spanish economy may now be the next test to European solvency. As per previously released figures, the Spanish economy actually contracted slightly by 0.3% on a year over year basis.
According to official announcements, the Spanish economy is expected to miss its deficit reduction target of 4.4%, instead reducing the deficit to only 5.8% of overall GDP. Now, although the figure is an improvement over the 10% seen back in 2008, it’s still not in line with what European leaders set as a benchmark for the befallen nation. The announcement is likely a cause for concern for Euro investors as the European Union now has to make a choice – place previously prepared sanctions against Spain for failing or once again make an exception to the rule.
Should European leaders choose the latter, confidence in the region’s recovery and austerity plans may come into question – leading to a possible and rapid depreciation in the Euro. The news will likely keep traders on their toes over the weekend – with the potential for details to emerge. As a result, we look to the close of today’s session – especially with the Euro lingering around the 1.3200 support against the US dollar.
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