Sentiment Improves After EU Coronavirus Fund

Posted Tuesday, July 21, 2020 by
Skerdian Meta • 2 min read

European leaders finally passed the coronavirus recovery fund yesterday, after discussing it for several days. The northern countries didn’t want the fund at all, or wanted a smaller fund, but the southern ones were in desperate need of cash after being ravaged by the lock-downs. But, they have finally reached an agreement for the fund at EUR$750 million, with Italy getting EUR210 million, which has improved the sentiment today, as well as the recovery expectations. Below are comments from Germany’s economic minister Altmaier who feels more confident about the economic recovery now:

Comments by ECB Executive Board Member, Isabel Schnabel

  • It is likely that PEPP envelope will be used in full
  • That is as long as we remain in the baseline scenario of our projections
  • There is no urgency to discuss adding fallen angels to asset purchases
  • But ECB is of course, aware of the risks
I don’t think there is much doubt that they will be using up the entire portion of PEPP by the middle of next year, even if the pace of purchases may slow down a little. If anything else, they may just extend the duration in fear of triggering a (too early) taper tantrum. On the topic of fallen angels, it was something that they could have pursued last month, although it seems like they don’t see the need for that yet.

Comments by German Economy Minister, Peter Altmaier

  • EU summit deal increases chances of economic recovery in 2H 2020
  • The likelihood of a gradual economic recovery has “enormously increased”
  • Expects a sustainable recovery in 2021 and 2022
  • Expects all European countries to return to growth in 2021
The extra funds to provide aid to the economy is no doubt a positive thing, especially for the likes of Italy and Spain – who will benefit the most from the €390 billion in grants. But do be reminded that they are many months late in terms of responding to the economic fallout and it will also be interesting to see how the promises on rebates to the “frugals” will work out down the road.
As for guaranteeing an economic recovery, I still reckon that relies much more on broader global sentiment more than anything else. Not to mention that if Europe sees a secondary wave of infections, it would derail the efforts over the last few months.
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