I’ll Be There For EU

France and Germany agreed to a $550 billion aid package to help the EU recover from its worst recession in history.

Image source: Nancy Beijersbergen, Drop of Light, Alexandros Michailidis, Frederic Legrand - COMEO - Shutterstock

What's going on?

So no one told Europe life was gonna be this way – clap clap clap clap – but at least it has friends like France and Germany, which agreed to help the bloc recover from its worst-ever recession with a $550 billion aid package.

What does this mean?

Under the proposal, the European Commission would raise the $550 billion by issuing bonds that would be repaid over time from the European Union (EU) budget – the lion’s share of which is covered by Germany. And crucially, all the funds will be distributed as grants – rather than loans – to the regions and sectors worst affected by coronavirus. That should help restore some balance to the EU, where deep-pocketed countries like Germany have handed firms generous subsidies while others, like Italy, have struggled. That could be why Italian government bonds jumped the most since March on the news…

Why should I care?

The bigger picture: There’s no “I” in ECB.
If the proposal goes through, it could take some of the pressure off the European Central Bank (ECB), which has so far led the response to the bloc’s worst recession in history. The ECB has been pushing member countries to do more to support their economies, while pledging to buy more than a trillion dollars’ worth of European bonds in an effort to stabilize markets. That’s partly because it’s concerned that if it doesn’t absorb some of the massive amounts of debt needed to combat the pandemic, the continent could tip into another debt crisis.

For markets: Pick a side, any side.
Coinciding nicely with the announcement was data out on Tuesday that showed German investor confidence jumping to its highest level in five years as the country started easing its lockdown restrictions. But investors who are skeptical about the recovery got some good news too: six European countries lifted their temporary bans on short-selling stocks, allowing investors to once again bet against individual shares.

Originally posted as part of the Finimize daily email.

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