The European Union’s recovery plan will “change the bloc forever”, says Bernd Riegert for Deutsche Welle. Just months ago, talk of joint debt issuance was “unthinkable”, yet this week national leaders agreed to just that as part of a historic €750bn recovery fund.
The plan will see the European Commission borrow on international markets and distribute the funds to the states hardest hit by the pandemic, with €390bn in grants and €360bn in loans. Italy is in line for about €209bn of aid, including €82bn of grants. Spain, Greece and Portugal are also likely to receive substantial help. The Dutch government won an “emergency brake” to ensure that the funds are tied to economic reforms.
A step towards fiscal union
This rescue package “breaks through the fortifications” that have long prevented a “more federal and united EU” from emerging, says Mujtaba Rahman for politico.eu. The creation of the single currency two decades ago was a “federal leap forward” that was not matched by more fiscal solidarity.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
The result was that when parts of the eurozone fell behind – as happened to Greece after the financial crisis – there were few mechanisms available to remedy imbalances across the currency bloc. This plan starts to fix that structural problem and reduces the risk of a breakup of the eurozone, says Andrew Kenningham of Capital Economics.
The deal falls short of a “Hamiltonian moment”, which would have seen the EU assume all member states’ debts, says Andreas Billmeier of Western Asset Management. Yet it is still a “very significant milestone”. For bond markets, it is not “every day that a top-quality…borrower roughly the size of Germany” suddenly appears in the market.
European equities are due a bounce
With the US so overvalued, investors are turning towards Europe, writes John Authers on Bloomberg. Inflows of American money into European equity exchange-traded funds (ETFs) have been gathering steam of late. The EU’s recovery also looks more robust than America’s patchy rebound, thanks to its more successful response to the virus. Data from Deutsche Bank and opentable.com shows that US restaurant attendance is down 60% on the year; in Germany it is up 5%.
The US market’s long outperformance has been driven by its world-beating tech stocks. Yet that picture is now changing as ever more of the economy goes digital, says Michael Mackenzie in the Financial Times. Tech is now a bigger component than energy on Europe’s Stoxx 600 benchmark, while the research-intensive healthcare sector makes up twice as much of the index as banks. It is increasingly possible to invest in “tech on a global basis” and European markets look the safest bet.
There is also talk that we are on the cusp of a “post-dollar era” as global trust in US institutions wanes, says Rana Foroohar, also in the FT. A more integrated eurozone may provide just the “strong alternative to the greenback” that global investors are looking for. “We might be about to see a resurgence of the Old World.”
SIPP holders to get cash warnings and be offered default funds
News Providers will be required to offer investors a default fund and must warn customers of the inflationary risk of cash savings the regulator has said. What the new rules mean for your retirement pot?
By Marc Shoffman Published
Zoopla: Asking price discounts hit a five-year high – is now the time to buy a property?
News Zoopla’s October House Price Index shows sellers are accepting discounts of 5.5% on average to secure a sale – we reveal where homeowners are taking the biggest asking price cuts
By Marc Shoffman Published
The jury's out on the AI summit at Bletchley Park
World governments gathered for an AI summit at Bletchley Park in November, but were they too focused on threats at the expense of economic benefits?
By Simon Wilson Published
As a market correction begins, money is on the move.
The force of a market correction is equal and opposite to the delusion that preceded it, so we can imagine that the correction will also be unparalleled.
By Bill Bonner Published
How small businesses can retain staff in a competitive job market
Small businesses are struggling to retain staff and compete against large companies with deep pockets.
By David Prosser Published
The French economy's Macron bubble is bursting
Cheap debt and a luxury boom have flattered the French economy. That streak of luck is running out.
By Matthew Lynn Published
K-pop hitman Bang Si-hyuk aims to repeat BTS phenomenon
Bang Si-hyuk created the world’s biggest boy band, BTS, making K-pop music a global sensation and himself very rich. Can he repeat the trick with a girl band?
By Jane Lewis Published
Nudge theory – how does it hold up, 15 years later?
Nudge theory, the revolutionary theory of how governments can get you to change your behavior for your own good, is now 15 years old. How does it stand up?
By Stuart Watkins Published
Betting on US politics – who'll be the next US President?
In the latest betting on US politics, with just over a year until the next US presidential election, punters pick Donald Trump as the favourite.
By Dr Matthew Partridge Published
UK wages grow at a record pace
The latest UK wages data will add pressure on the BoE to push interest rates even higher.
By Nicole García Mérida Published