Monex: Euro maakt pas op de plaats ondanks historisch EU-akkoord

July 21, 2020

"The euro is treading water this morning despite the historic nature of the EU recovery fund, in a classic case of “buy the rumour, sell the fact”. The writing was on the wall for some type of deal with substantial grants as early as May when Angela Merkel and Emmanuel Macron made a public joint proposal for mutualised debt to fund grants. Markets correctly predicted the outcome of the last couple of weeks of horse-trading with the “frugal four” and traded the euro higher accordingly.

"Although euro traders priced in the development weeks or even months ago, the significance of today’s deal is hard to overstate: there will finally be a joint European debt instrument. Although the €750bn package may be relatively modest in comparison to fiscal stimulus in the US, this is beside the point. A mutualised debt instrument allows governments such as Italy and Spain to deploy recovery funds without further stressing their debt sustainability. More importantly, it sends a signal to markets that the European Union remains willing to evolve in response to existential threats, and that in future crises the Union may be less reliant on unilateral heroics from the European Central Bank."