Stock markets are enjoying this Tuesday after the agreement that European leaders have finally reached on the Recovery Fund of the European Union (EU). The politicians of the Old Continent say that it is a "historic" pact, a pact that allocates 750,000 million to the recovery of the bloc after the impact of the pandemic, with 390,000 million in direct transfers -110,000 million less than the first proposal included- and the rest (360,000 million) in the form of loans that must be repaid.
Charles Michel, President of the European Council, has emphasized the message that the agreement sends, a message from a united Europe in the face of adversity. "It is much more than money," he remarked. Experts are of the same opinion in this regard. They believe this is "a great step forward for Europe" after four days of intense negotiations, as Berenberg underlines.
"For the first time the European Union will be a major force in sovereign debt markets. The agreement authorizes the European Commission to borrow up to 750 billion euros for the so-called 'Next Generation of the EU' fund in the market. The issuance of net debt will stop at the end of 2026. The bonds will be repaid through the EU budget until the end of 2058 ", explain the German experts.
"Money matters. It will support the recovery of the economies of the European Union with a inclination in favor of investment, the environment and growth, but the most important thing is that it reinforces the cohesion of the region and can help reduce the political risks ", insist from Berenberg.
"ONLY A FRACTION OF WHAT ITALY, SPAIN AND GREECE NEED"
Danske Bank also value a deal that they consider "an important part of the path to recovery in the euro zone." Of course, they note that it is "a diluted version" of the original proposal. "Although it doesn't solve the problem of high debt levels, it will help reduce the risk of an asymmetric recovery."
Michael Hewson, chief analyst at CMC Markets in London, acknowledges that the terms of the deal, with the joint issuance of debt, convey a message of unity. "It can be interpreted as a small step towards greater fiscal integration," he points out.
However, Hewson sees a problem in the financial details. "The money in question is only a fraction of what it takes to help Italy, Spain and Greece get out of their current difficulties. This deal is likely to be another patch in a dysfunctional monetary union as it teeters from a crisis. to another, "he criticizes.
Hewson further recalls that this agreement will have to be approved by all EU Member Parliaments in the coming weeks. "This will mean that funds are unlikely to be available until early next year at the earliest, and even if all funds are made available, the money will not be anywhere near enough to make up for the billions of euros in tax revenue lost, which have plunged southern European countries even deeper into their fiscal black holes, "he acknowledges.
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