In the early hours of the morning the European Union managed to agree on a deal as to how they would spend their €750bn COVID-19 recovery fund. There had been much contention over the last 6 days making it the longest negotiation for a deal that the EU has seen. The reason for the delay was quite simply certain nations within the Bloc don’t want to see grants given out freely, they want countries to have to pay interest on the funds that the EU use to bailout the nations.
The European Commissions is able to borrow money much cheaper than the individual states as they have a triple A credit rating. Therefore if all the countries can agree on an amount and how it will be distributed the EU will start to save the economies following the Coronavirus outbreak. €390billion of the fund will be grants, while the remainder will be in low interest loans.
The deal however did not come without concessions from different EU Nations, some of the net contributor economies secured themselves further rebates down the line. Whilst the Dutch Prime Minister Mark Rutte made sure there was a clause introduced that meant any country could raise there concerns about another country not honouring promises to use the funds to rebuild their economy.
The Italian Prime Minister Guiseppe Conte was pleased with the outcome sharing the news that 28% of the entire fund would be going to Italy. This equates to another €209bn to the economy that is already managing a increasing debt level of 135% GDP. There should be no mistake here that whilst the EU may celebrate a plan this is only adding to the already enormous burden to Italy especially. There is little more going on here than trying to bluetac a crack in the Hoover Dam. Conte claimed in a statement that these funds will provide the opportunity for reform and there can now be investments into structural reforms, something many have heard before.
The Euro v pound would normally expect to see a small jump from news like this however on this occasion the champagne looks still to be on ice. Over the coming weeks and months as the EU economies do start to recover the fallout will be more obvious. The southern countries on the continent were already struggling long before the pandemic started, with tourism over the summer being down at record lows the fallout could be substantial.
Brexit Deal Optimism from German Foreign Minister
Yesterday late afternoon the German Foreign Minister Heiko Mass suggested that whilst the October deadline day for trade deal between the UK and EU was ambitious he did believe it would be possible to be achieved. This did help the EUR/GBP drop a little moving slightly back toward the 0.90 level. Since the start of the week the Euro has lost nearly 2% from the best point Friday last week and optimism on Brexit may encourage that trend to continue.
If there was to be a early stage deal agreed around October time it means those looking to sell Euros may di well to capitalise on the current levels. Alternatively if the deal clock starts to run out of time as is so often the case, then you may see some further gains to capitalise on in the coming months.
There is also some consideration for Sterling that a virus vaccine could be coming along, meaning a return to normality in the next year. This would provide a solid boost for Sterling as the economy has been hit hard from the pandemic. If the UK was to have a strong recovery and the burden of Brexit lifted with a trade deal we may start to see Sterling make back some ground against most currencies.
The key factor here is that for as long as soundbites coming from significant politicians involved with Brexit talks continue to appear, then Sterling is always going to have a chance a little spike. The volatility and the movements will always remain its just a question of by how much do the high and low ranges move. In the scheme of the last month the range hasn’t been very far but the speed it can move from the high to the low has been fast. If you’re looking a making a transfer in the future then please don’t hesitate to get in contact to see if our currency exchange service can help you to navigate the currency markets.