Greece
Greece has arguably suffered more than any other European country in recent years. EU austerity measures – designed to ensure the country repays its debts – have been in place since 2009, while unemployment has hovered above 20% since October 2011. As a result, euroscepticism has been on the rise in Greece with 74% of its respondents to the 2017 Standard Eurobarometer survey stating they ‘tend not to trust’ the EU – the highest of any EU nation.
While some argue that leaving the euro and introducing a new drachma would allow Greece to set a competitive exchange rate, boosting exports and tourism, opponents argue that the country would lose out as a result of reduced trade with other EU members. The argument over ‘Grexit’ is likely to rage on, but could come to a head during the next election – expected on or before 20 October 2019.
Catalonia, Spain
Catalonia issued an unsuccessful declaration of independence in 2017, following an illegal referendum in which 92% of voters opted for independence. While turnout was only around 43%, this shows that a significant portion of the electorate feels strongly that Catalonia would benefit if it were to break away.
At least in part, this is because Catalonia accounts for 19% of Spanish gross domestic product (GDP) and contributes more in tax revenues than it receives back from the government in Madrid. With strong public support for independence, it seems that Catalonia is one of the regions most likely to break away in the coming years. And although not everyone wants to introduce a separate currency, leaving Spain would mean leaving the EU and necessitate such a move.
Germany
Germany has the largest economy in the EU – accounting for 27% of the area’s GDP – meaning there is little economic incentive for Germany to break away. However, some have argued that the nation has been forced to ‘prop up’ weaker economies and could be better off outside the bloc, while voter support for centrist pro-EU parties has fallen from 80% or more 20 years ago, to around 55% today.
If this trend continues, we could see Germans voting for independence – and a new deutschmark – at some point in the future. While an event of this magnitude is unlikely, it would almost certainly destroy the euro and have widespread consequences for the European Union and the global economy. Find out more about what would happen if Germany formed its own currency.
What could happen to markets if a country left the euro?
A move towards independence – and a new currency – could take years, so there will be plenty of time to take advantage of volatility in the markets via CFD trading or spread betting. The first sign would likely be a vote for independence in a referendum, or a eurosceptic party in an election, with the leaving nation then needing to trigger Article 50 – starting a two-year countdown towards independence and the tricky process of negotiating an exit. Here’s how the markets could shape up if faced with the uncertainty surrounding events of this nature:
Forex
Forex traders could benefit as the markets move in anticipation of a severe economic shock, with the euro likely to fall drastically against safe-haven currencies like the dollar, pound and yen. The valuation of any new currency, however, is uncertain – it would depend on the economic status of the region, how the new currency is implemented, its supply, and the policies and aims of a new central bank, among other factors.
Watch: EUR/USD, EUR/GBP and EUR/JPY
Commodities
For commodities, the effects of a country leaving the euro are likely to be mixed. On the one hand, investors are likely to invest in traditional safe-haven assets like gold and silver, which could rise as a result. But on the other, energies, base metals and soft commodities are likely to take a hit due to the reduced demand that often accompanies an economic downturn.
Watch: gold, silver and carbon emissions
Stocks and indices
Many companies are likely to be affected by the introduction of tariffs and border checks between the EU and breakaway regions, with their shares likely to drop in value as a result of the uncertainty surrounding any move towards independence. However, companies that export the majority of goods to places outside the EU could benefit from a weaker euro or equivalent new currency. Of course, if the euro or EU as a whole looks to be in trouble, major European indices could also fall significantly.
Watch: the France 40, DAX, Italy 40, Spain 35 and Netherlands 25
Bonds and rates
The yields on European bonds could rise if a country or region decided to break away from the euro, as investors are more likely to sell in anticipation of increased economic uncertainty and inflationary pressures. Conversely, money could flow into alternative high-quality bonds like US Treasuries and UK Long Gilts. At the same time, rates such as Euribor would be likely to rise due to a reduction in lending between European banks.
Watch: Italian BTP, German Bund, German Buxl, US Treasury Bond, UK Long Gilts, Euribor
To explore more scenarios in which a country or region decides to seek an independent currency – both in Europe and further afield – check out our most recent thought piece: breakaway currencies.
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