Why is this such an important month for the Euro?
It is expected that all of the 27-nation EU bloc will meet this month (17th and 18th) to either support or dismantle hopes for the EU recovery fund. Without the backing of all 27 EU members, this proposal cannot be enforced. There have been concerns that EU members will not be able to unilaterally agree on this proposal, with individual members such as the Danish foreign minister Jeppe Kofod citing that the current budget plan is 'simply too high.'
This stimulus package is needed to provide support across all of the 27-nation EU bloc, ravaged by Covid-19. However, several states across the EU have significant issues with debt even before the crisis, and the virus has only multiplied this, created a desperate scramble for liquidity and money supply for economic support.
EU members such as Spain and Italy that have been struck as a result of the virus are keen on leveraging the grants through this proposal to support their respective economies. To give you an idea of the magnitude of this package, Italy may be eligible to receive grants up to 5% of its GDP – that's big.
Re-cap of what the EU recovery fund is
In May, EU executives put a EUR 750 bn stimulus package proposal to help the EU tackle an 'unprecedented crisis.' The package would be composed of grants and loans issued to every member of the EU.
The president of the EU commission, Mrs. Von Der Leyen said this package would be composed of EUR 500bn in grants and the remaining EUR 250bn in loans.
The ECB would also buy EUR 1.1 trillion bonds jointly issued by EU members to keep borrowing costs down and increase the pool of coveted safe assets.
Without the backing of all 27 EU members, this proposal cannot be enforced. There have been concerns that EU members will not be able to unilaterally agree on this proposal, with individual members such as the Danish foreign minister Jeppe Kofod citing that the current budget plan is 'simply too high.'
Moreover, friction has emerged as President Emmanuel Macron and Chancellor Angela Merkel have prompted a hasty response from the rest of the bloc. It was only last night that Macron traveled to the Netherlands in a bid to convince Mark Rutte to come on board with his plan.
Additionally, the question is also raised, 'who determines what money supply is allocated to which country and what is determined on?'.
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