News filtered through the markets yesterday that the EU commission had expanded on the French/German plans to borrow from international markets, by announcing a further 750bn euro initiative aimed at repairing the damage done to businesses by Coronavirus, closing the curtain on a month-long internal European crisis.
The fact that the bloc managed to unite and push the new plans forward sent markets scrambling for euros, notching up an impressive 1.82% against eh dollar and 0.50% against the pound, as not only did the plans outline that some 300bn was to be given in grants, but also detailed plans of how the borrows funds were to be repaid over a 30 year period through the EU budget.
Whilst it may seem obvious to ask someone you are lending money to how they plan to pay it back, this is seldom seen on a state-level, with markets left to trawl over budgets and statistics hoping in vain to locate where the numbers add up. By publishing this information in advance, the EU has gained the confidence of the markets allowing the euro by extension to look like a far more appealing asset to hold, diving it price higher on the unity, clarity and responsibility demonstrated.
At this point, the plans remain exactly that; they need to go through a scrutiny process like all other proposals, with more fiscally conservative countries like The Netherlands and Denmark expected to make alterations. If these changes can be kept to a minimum, or voted down altogether, the Eurozone could really start kicking off its fiscal recovery from Covid-19.
Have a great weekend,
Author: Joshua Haden-Jones, Senior Relationship Manager
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