Euro Rises to Nearly 19-Month High on Historical EU Fiscal Package

© Reuters.  © Reuters.

By Yasin Ebrahim – The euro surged to a nearly 19-month high against the dollar on Tuesday, after EU leaders agreed a historic €750 billion Covid-19 relief program.

rose 0.76% to $ 1.1530.

The EU’s coronavirus recovery fund, made up of €390 billion in grants and €360 billion in loans, should prop up the euro as economic activity picks up in the bloc, BK Asset Management said. “The size and scope of the deal are historic and open the way for greater federalism within the union which could make Europe a more integrated market and stronger economic competitor on the global stage.

With the EU showing a better handle on the coronavirus outbreak than the U.S., the economic bloc may “even enjoy a competitive advantage,” BK added.

Some, however, have been quick to point out that the path toward the deal highlighted just how divided EU members are on closer fiscal integration. The deal was held ransom by the “frugal four”: Austria, the Netherlands, Sweden and Denmark, which only backed the deal after demands to increase rebates on payments made to the EU were met.

“This fact is important as it shows that the compromise is — at least in part — built on a one-off incentive for certain countries that cannot be repeated as often as one might like,” M&> investment said.

Countries receiving support from the fiscal package would have to propose milestones and prove they are meeting them.

It also included an option for any member country to call an emergency brake on any disbursement to another country if it believes reforms have not been meant, potentially leading to headline risk and volatility, BofA said.

The deal is expected to ratified by the European parliament and national parliamentary across member states.

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