Amidst Spanish Bailout Uncertainties, Euro Falls Again

Since market players were not sure about Spain’s success in getting financial aid to help better their economic conditions, this caused the euro to fall again on last Friday. The currency dropped to its two-week low of $1.2828, which is close to its last 0.6 percent drop at $1.2842. At the same time, because of the re-balancing flows of the quarter-end, the U.S. dollar was favored by the market participants.

Spain had recently unveiled the country’s budget with a focus on seeking financial help to bail out the nation from the ongoing financial crisis. However, the market remained susceptible about Spain’s move, whether the country will be able to pave the way for financial aid coming to help the debt-ridden nation or fail to reduce the staggering borrowing costs.

The euro, however, fared well in the third quarter because of Moody’s review on Spain’s debt. It gained 1.5 percent, which is the currency’s best appreciation since the first quarter of 2012. Keeping in mind the currency’s greenback in September, it gained 2.1 percent, which is commendable, considering the debt crisis that has hit hard the euro zone and the euro is the common currency of the euro zone.

The positive performance being shown by the currency is largely because of European Central Bank’s planning of bond buying to relieve heavily indebted countries of Europe. ECB President Mario Draghi has already announced about the bank’s bond buying scheme and this could be an inspiring factor to boost the euro’s performance.

However, many market analysts feel that the euro’s gains may not last longer, amidst the uncertainties prevailing over Spain’s financial recovery. Spain is the fourth-largest economy in the euro zone and its financial health could have far-reaching impact on the currency’s growth, feel the market experts. Investors are however doubtful whether Spain will be able to implement the nation’s budget plan to bring down the borrowing costs. Many feel that if the country manages to bring down its deficit, the euro will strengthen its position in the market.

It is important to know Spain’s bailout request has been set up as a precondition for the ECB to start the financial bailout initiatives focused on bringing down the borrowing costs of the economically ailing nations in the euro zone. Investors feel that Spain’s positive move can lift the euro, but Spain is yet to show any positive moves to better the nation’s economic conditions and which will follow an ECB action.

But till then Spain puts forward any concrete steps, investors will remain skeptical about the nation’s ability to get financial help and till then the euro will also keep struggling to reach a sustainable growth level. So, lots depend on the measures implemented by Spain to bail out its economic crisis situation.  The nation has however announced a detailed financial plan focused on bringing economic reforms in the country.

The recently announced budget focuses mainly on cutting the expenditures rather than implementing some tax measures. Many analysts however feel that such efforts will obstruct the preconditions that are being anticipated for a bailout.

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