S&P Global Rating| The European Recovery and Resilience Mechanism (ERM) will boost public investment in Spain and Italy over the medium term. This follows a significant drop in public spending in both countries over a decade. However, the use of these subsidies is well beyond the initial 2026 deadline. We estimate that Spain and Italy had only implemented 10% and 20% of the available subsidies, respectively, by the end of…
The European Council has reached an agreement on the Rule of Law Mechanism’s application that convinces Hungary and Poland and the rest of the 25. Thus, the European Commission commits itself not to develop the specific regulation on this Mechanism and not to publish the guidelines that will structure its working until the EU’s Court of Justice has ruled on whether the mechanism is fully in accordance with European law or not. This may take between six months and a couple of years. Aids from the EU recovery fund could begin to flow from June 2021.
After more than four days of arguing, European leaders agreed on a historic European Recovery Fund worth €750 Bn, that will be split between €390 Bn in grants and €360 Bn in loans. This split represents a 52%/48% compromise for the Frugal Four versus the initial proposal of two thirds of the Fund being disbursed as grants. This is the analysis of Esty Dwek, Head of Global Market Strategies at Natixis IM Solutions, on the agreement reached at the European Summit.
Morgan Stanley | For the time being, the Fund is still only a proposal and there remains a wide divergence of views about the amount, duration, allocation, grants/loans etc. We assume that the final outcome will be in line with the Commission’s proposal: €750 Bn in joint issuance (500 Bn in grants and 250 Bn in loans). As regards to the use of the funds, the optimal scenario would be one where spending is applied via investment since it has a higher fiscal multiplier (vs for example a corporate tax cut or transfers).
As expected, European Union leaders yesterday approved the 540 billion euro package agreed by the Eurogroup last week (focused on providing the most urgent liquidity). But there was no progress on the long-awaited European Recovery Fund. As usual, details such as its amount or the distribution of the economic burden, between non-repayable transfers and loans, have yet to be specified. The Fund, which is expected to reach over EUR 1 trillion, is not expected to start operations until 2021.
The European Council will discuss the European Recovery Fund at its meeting on Thursday 23 April. If last week France was talking about a fund of 500 billion euros, while Italy continues to insist on coronabonds, now Spain is proposing an up to 1.5 trillion euros fund, financed by perpetual debt issued by the EU. The intention is for this funding to be available on 1 January 2021.