The European Commission unveiled an economic recovery proposal worth in total 1.85 trillion euros to help EU member states recover from their coronavirus slump.
The aim is also to protect the EU’s single market from being splintered by divergent economic growth and wealth levels. The 27-nation bloc of 450 million people emerges from its deepest ever recession expected this year.
The plan is to borrow on the market and then disburse to EU member states 500 billion euros in grants and 250 billion in loans. The plan is much needed for countries such as Italy, Spain, and Greece. Such countries burdened with high debt and heavily reliant on tourism, will find it more difficult to restart their economies through borrowing.
Much of the money is to go to Italy and Spain, the worst affected by the pandemic. Together they would receive 313 billion euros in grants and loans.
The recovery fund package is in addition to the EU’s long-term budget for 2021-27, which the Commission will propose being set at 1.100 trillion euros. The proposal is virtually the same as the proposal discussed by leaders in February of 1.095 trillion.
The 500 billion euros in grants is in line with the wishes of the EU’s two biggest economies – France and Germany. However some nations would rather see the recovery package comprise only loans.
The euro rose on the news to trade at 1.1022 against the dollar, up from 1.0932. The single currency has struggled since falling in March, when investors rushed for the safety of dollars. Analysts say the recovery fund proposals could push the euro higher.
START TRADINGForex – EU economic recovery proposal unveiled
Some investors are betting on a rapid resumption of economic activity following the crippling coronavirus outbreak. Others worry the threat of U.S. sanctions against China for its treatment of Hong Kong could worsen risk sentiment again. Renewed protests in Hong Kong added to the nervous mood.
Worries about the U.S. response to China’s proposed security law for Hong Kong injected a more cautious tone into forex markets.
The dollar, previously higher against a basket of currencies was last down 0.2% at 98.811.
The US dollar rose against Japan’s currency, last trading up 0.1% at 107.72 yen.
The trade-sensitive Australian dollar briefly hit a two-and-a-half month high of $0.6680.
The euro headed towards a two-month high on EU economic recovery fund proposals. The common currency rose as high as $1.1031 before falling to $1.1017, still up 0.3%.
Sterling retreated below $1.23 as the dollar regained some strength and investors’ focus shifted back to the possibility of negative interest rates in Britain.
The pound was last down 0.5% at $1.2271 GBP=D3 and shed 0.7% versus the euro to 89.68 pence, a five-day low.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money