In typical European style, the EU leaders gathered in Brussels to discuss the composition of the Recovery Fund have yet to reach a decision. Despite the summit starting last Friday, the weekend did not bring much progress as the Northern states favor more loans instead of grants to the troubling Southern states.
Once again, domestic politics and small country thinking make investors wondering what is more important for investors – Euro stability in present times or the construction of a true European Union, one that has both a common fiscal and monetary policy?
Stuck on €50 Billion
The little progress seen over the weekend surrounded the relatively small amount of €50 billion. More precisely, at the Dutch suggestion, the Northern states, also called frugals, asked for the Recovery Fund composition to be altered – instead of €400 billion in grants to Southern states, the amount to be reduced to €350 billion.
In the grand scheme of things, it is not much, considering that the difference to the €750 billion, the size of the Recovery Fund, is made up of loans. But it just may mean that the Northern states want to make a point in not giving away money to the Southern ones without some commitments related to future reforms.
The events over the weekend showed that Europe is far from speaking with one voice. The coverage of the summit progress showed a lot of doomsday opinions, finger-pointing, and negativity. Despite Germany and France being on the same side of the fence, it is not enough to bring together a majority and to influence unanimity when it comes to the final vote.
At the time of writing this article, the summit is not over. Negotiations took place all night long and will likely continue into the following Asian session.
The Euro was all over the place. It opened with a bid tone – like it ended the previous week. If anything, the expectations are that a deal will be reached, and the most ambitious multilateral financing negotiations on the planet in the past decades will end up with success.
One thing is for sure – Europe cannot afford to be seen as weak by financial markets. The EU leaders are well aware of the dire market conditions in the 2012 sovereign debt crisis when the common currency’s existence, the Euro, was threatened by financial speculators. To avoid that, a clear and strong message from Brussels is needed.