The much-awaited EU Summit that took place over the last weekend with a deal being reached earlier in the week. This was cheered by financial markets, but also institutions to governments, everyone had only positive words about the achievement – joint debt and common fiscal policy.
While in an embryonic phase, the deal sets up the road for further similar steps. Suddenly, the Euro is not viewed anymore as a doomed currency, but a viable alternative to other fiat currencies.
Since the opening on Monday, the Euro rose across the dashboard – both the major, and some crosses, celebrated the negotiations’ result. The EURUSD reached 1.16 in late Wednesday’s trading, while the EURJPY cross exceeded 124 for the second time in two months.
Already calculations are being made. As it turns out, the EU Recover Fund alone is responsible for moving the GDP for the Eurozone, albeit not equally for each country. Judging only by this measure, the EU Summit is a success.
GDP Growth to Recover to Pre-Pandemic Levels Six Months Earlier
The length of the negotiations at the summit revealed the complexity of the discussions. The original plan made public by the European Commission a couple of months earlier totaled €750 billion to be distributed in grants and loans.
Northern states insisted on more loans instead of grants, Southern states the other way around. To reach a compromise, the Recovery Fund (RFF), which counts only for a part of the €750 billion, was split between loans and grants. Unfortunately, to reach the deal, most of the innovations that the original plan brought disappeared. It may be a long shot, but the stringent need for money replaced strategic planning.
The markets, as mentioned earlier, celebrated the outcome. Judging only by the impact on the Eurozone’s GDP, they are right. The recovery fund should boost the Eurozone growth outlook and will add between 0.5% and 2% on individual countries.
As a result, the overall Eurozone GDP is expected to recover to pre-pandemic levels six months earlier than anticipated – by late-2021, rather than mid-2022. Still, a long way to go, but nevertheless, a positive statistic.
As always, extrapolating numbers should be taken with a grain of salt. While the calculations are correct, they consider all other factors staying stable on the mentioned horizon.
In other words, any worsening situation on the pandemic front will change the calculus completely. However at least a precedent exists showing how things can be done to solve the money problem.