Market Overview

Euro Gains Momentum as Spain Announces Reforms


The euro opened Friday at 1.2917, a reflection of the positive effect Spain's budget reform announcement had on investors Thursday afternoon.

Bloomberg reported that the budget reform included cuts in the ministries' spending as well as a new tax on lottery winnings. This is coupled with 43 new laws, including new taxes on capital gains and reformed tax laws to discourage big company write-offs, which are expected to reduce Spain's budget deficit from 6.3 to just 4.5 percent of GDP.

The new budget may have calmed investor nerves a bit, but there are still major concerns. For one, the world watched the value of the euro temporarily plummet as Deputy Prime Minister Soraya Saenz de Santamaria announced the government's plans to dip into the country's social security for a total of three million euros to pay workers pensions. The sudden drop in value was only temporary, though the decision is sure to cause problems for the government in the future.

The news of the Spanish budget has done little to ease the country's political tensions, as riots continue and talks of Catalonia seeking independence become more serious.

Friday brings the release of the Spanish banking audit, which will reveal their capital shortfall. The accuracy of the results will play a key role in convincing Germany's parliament, which has been vocal about its lack of support, of Spain's commitment to reform.

While many look to Spain to determine the fate of the euro, France is also ruffling feathers with an upcoming announcement of the first socialist budget plan in ten years. Massive taxes to large companies and wealthy individuals are expected to reduce the deficit from 4.5 to three percent.


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