LGIM: Commentary on EU Summit and ECB-decision

LGIM: Commentary on EU Summit and ECB-decision

17 juli 2020

ECB
ECB.jpg

By Hetal Mehta, Senior European Economist, LGIM

The market focus this week was on both the ECB meeting and the EU Summit where leaders will discuss the recovery fund.

In the end, the ECB meeting was largely a non-event, with no change to policy or forward guidance. There was however one notable snippet: Lagarde said that “convergence to the capital key would not impair the efficiency of policy”. We see this as confirmation of our long-held view that the ECB will continue deploy flexibility in its purchases.

The more contentious event is certainly the EU Summit. With compromise proposals from the President of the European Council, there is much food for thought, particularly how the allocation key proposed by the European Commission is amended. We continue to expect the size of the package and the relatively split between grants and loans to be largely unchanged. Any watering down of the grants component beyond €400bn is likely to be market-negative.

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