Geopolitical Events

EURUSD: EU Recovery Plan and EU’s Frugal Four
May 27, 2020

By Deepta Bolaky  @DeeptaGOMarket EU Recovery Fund After a standoff between the EU and Germany, following a critical ruling on ECB’s quantitative easing program by Germany’s constitutional court, the gradual reopening of economies of member ...

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The Lockdown, the Fallout and the Roadmap to Recovery
May 1, 2020

By Deepta Bolaky  @DeeptaGOMarkets Global Lockdown In an abrupt and unprecedented manner, the world witnessed a mass halt to global activities due to the pandemic. Governments and central banks rushed in to intervene and support the global econ...

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The Loonie – Best Performing G10 Currencies
October 24, 2019

By Deepta Bolaky  @DeeptaGOMarkets The Loonie Best Performing G10 Currencies After a tight campaign marred by scandals, Justin Trudeau secured another term as Prime Minister. Unlike a clear win in 2015, the Prime Minister did not pass the thre...

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Critical Hours for Brexit
October 16, 2019

By Deepta Bolaky  @DeeptaGOMarkets Critical Hours for Brexit As the clock ticks for Brexit, Brussels and London seem to be working harder than before on their differences for a last-minute Brexit deal. The headlines in the past 48 hours have rene...

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One Country, Two Systems
September 5, 2019

By Deepta Bolaky  @DeeptaGOMarkets One Country, Two Systems The Hong Kong protests have reached a point where it is threatening the “one country, two systems” that exists between the special international financial hub and the mainland. It...

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The European Union Top Jobs
July 4, 2019

By Deepta Bolaky  @DeeptaGOMarkets The European Union Top Jobs The European Central Bank (“ECB”) President The European leaders nominated Christine Lagarde, a French lawyer and a politician serving as Managing Director and Chairwoman of the ...

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The G20 Summit: President Trump-Xi Meeting
June 27, 2019

By Deepta Bolaky  @DeeptaGOMarkets The G20 Summit The G20 Summit is an international forum for the governments and central bank governors from 19 countries and the European Union to discuss global economic challenges. Non-member countries can al...

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US Jobs Report
May 4, 2019

The Buraeu of Labor Statistics have released the latest jobs report for April. Let’s take a look at the latest numbers. The total non-farm payroll employment increased by 263,000 the U.S. Bureau of Labor Statistics reported today, beating th...

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From Singapore to Hanoi – Summit 2.0
February 26, 2019

By Deepta Bolaky  @DeeptaGOMarkets President Trump is on the “Tweet Rally” with positive headlines on the trade front and much confidence ahead of the Summit in Hanoi, Vietnam. Singapore Summit The Singapore Summit marked the f...

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Trade Deadline Delayed – “Substantial Progress”
February 25, 2019

By Deepta Bolaky  @DeeptaGOMarkets Monday started on a buoyant note as the weekend negotiations between the US and the Chinese officials on structural issues, including intellectual property protection, technology transfer, agriculture among...

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The Dalian Port – “China’s Coal Ban”
February 22, 2019

By Deepta Bolaky  @DeeptaGOMarkets Wednesday was the bearer of bad news for Australia. Despite the buoyant employment report which briefly lifted its local currency, the Australian dollar plummeted on Westpac’s rate cut forecasts and the n...

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A Busy End of the Month
January 29, 2019

By Deepta Bolaky  @DeeptaGOMarkets US Government Shutdown President Trump has agreed to temporarily end the shutdown, putting an end to the most extended shutdown in US history. The three-week pause initially lifted investor sentiment and hel...

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World Economic Forum: Buzzword – Populism
January 25, 2019

By Deepta Bolaky  @DeeptaGOMarkets  The word Populism is probably the buzzword at the World Economic Forum this year. The headlines this week were heavily dominated by the concerns of the rise of populism around the globe. “Brazil’...

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International Monetary Fund (IMF): Growth Warnings
January 22, 2019

By Deepta Bolaky @DeeptaGOMarkets The World Economic Outlook has further shifted to the downside. The growth estimates for 2019 and 2020 were downgraded in October 2018 mainly due to trade tensions. The recent further downward revisions were...

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432-202 – Biggest Defeat in Modern Times
January 16, 2019

By Deepta Bolaky @DeeptaGOMarkets Theresa May suffered the worst defeat in recent times in British history. The House has spoken, and Theresa May stated that the government will listen. “It is clear that the House does not support this...

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By Deepta Bolaky
 @DeeptaGOMarket

EU Recovery Fund

After a standoff between the EU and Germany, following a critical ruling on ECB’s quantitative easing program by Germany’s constitutional court, the gradual reopening of economies of member states within the Eurozone has brought some optimism.

The downside risks for the Eurozone and its shared currency have somewhat eased on the fact that Europe, which was the epicentre of COVID-19 after China, might have gone through the worst phase of the pandemic. The sentiment for the Euro was also buoyed by the EU Recovery fund proposed by Chancellor Angela Merkel and President Emmanuel Macron to help Europe’s mostly hit countries.

Unfortunately, the optimism over the coronavirus fund proposal, which aims to show unity in overcoming the crisis and to achieve quicker economic recovery, was short-lived.

Europe’s Frugal Four 

Amid an unprecedented crisis, the Franco-German proposal was to provide support and reinforce EU financial relations and show that Europe is standing together. Austria, Denmark, the Netherlands and Sweden, dumbed as the “frugal four” put forward a counter-proposal that highlights the diversion of opinions in helping the Southern members states.

Grants or Loans

The Franco-German proposal is about “overcoming the crisis united and emerging from it stronger”. Both leaders proposed to make outright grants to help countries in need. They want to launch a temporary fund of 500 billion euro for EU budget expenditure:

“This would not provide loans, but rather budget funding for the sectors and regions hit hardest by the crisis. We firmly believe that it is both justified and necessary to now provide funding for this from the European side that we will gradually deploy across several European budgets in the future.”

In contrast, the frugal four wishes to provide loans rather than grants to southern European countries and expect the recipients of loans to comply with the fundamental principles of the EU and commit to strong reforms in repaying the loans. Their two-year and “one-off” proposal appears to also outline how those countries should use the funds and target sectors that are mostly hit based on an assessment.

The coronavirus pandemic is testing the solidarity of European members and is threatening to reawaken a euro crisis. Southern countries like Greece, Italy and Spain lacked the fiscal space they need to put forward an economic stimulus package to support their economies, compared to Northern countries. 

Disparity? Compromise?

Both proposals are saying “yes” to emergency aids to assist with recovery, but the disparity lies on how the funds will be financed to respond to the economic wreckage. The size of the emergency fund, the conditions of the funds or whether it will be grants or loans will be a compromise the markets are expecting to see. However, the type of compromise might be a key factor in determining the relationships of EU members.

Unprecedented times probably need unprecedented Unity.

Euro – The Shared Currency

The fact that Europe may have gone through the worst phase of the coronavirus has somewhat eased the downside risks of the shared currency. But the current geopolitical tensions with China and uncertainties on the EU Recovery plan are putting a lid on the upside momentum of the Euro.

After the sharp plunge in March, the EURUSD pair has been trading within the 1.08 to 1.09 range. Yesterday, the better-than-expected IFO Surveys in Germany has helped the pair to hold ground and hover around the 1.09 level. The recovery plan could mitigate the selling pressure and allow a probable move above 1.10 level if there is a compromise that satisfies the frugal four.

EURUSD

Source: Bloomberg Terminal

The immediate attention turns to the European Commission which is supposed to unveil a draft recovery plan on May 27th, 2020.

By Deepta Bolaky
 @DeeptaGOMarkets

Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.

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