In an announcement that took everyone by surprise, Germany and France opened the road to what many say is a groundbreaking moment for Europe. The two propose the creation of an economic recovery fund of €500 billion to help nations most impacted by the coronavirus. The money will be raised from financial markets in the form of common debt guaranteed by the European Commission.
Common European Debt
The European Union was built on the desire to prevent conflict within the continent, by eliminating internal economic competition. Moreover, the idea was to put the region on an equal foot with international competitors, like the United States, China, Russia. Yesterday’s decision showed one of the greatest moments of this unity with the bloc and the markets moved in accordance with the enormity of it.
The Euro rose dramatically all over the board. The EURUSD had one of its best days in more than a month, and EURJPY and other crosses followed. Moreover, European stocks indices closed at highs, and Italian spreads dropped.
Furthermore, the announcement looked like being part of a much larger agreement, with different institutions aware that something big is potentially on the horizon.
For instance, in the immediate aftermath of the news, the European Commission greeted it, the ECB President welcomed it, and the major German coalition CDU expressed its support too. Markets understood the significance of it, and the Euro did not look back. The move sets an important precedent, backed by the already existing European laws, leaving Euro doubters in shock.
Some hurdles still exist for the road ahead. The plan must be ratified by the national Parliaments of all the European countries. Some fear that the Nordic countries will oppose it.
However, when you have Germany, the European economic engine and powerhouse, supporting it, then the chances are that the Parliaments will ratify it step by step.
The plan details are very much original and based on an infrastructure (legislative) one that already exists. The money raised will barely be a burden for individual states to repay but will go to the countries that need it the most.
More details about this fascinating development in the days to come!