Morgan Stanley | The European Recovery Fund will not only benefit peripheral countries but also sustainable activities. In the end, this package will have an even greater green bias than initially expected: 30% of the funds will go towards climate investment compared to 25% in the initial proposal.
The ECB has finally decided to extend from 1 October this year until 1 January 2021 the recommendation to banks to not pay dividends to their shareholders. Nicolas Hardy, Analyst of Financial Institutions at Scope, thinks this measure is positive in the short term, but could be questioned in the long term as EU banks are facing different operating conditions in the wake of the pandemic.
The European Commission has signed a 63 million euro contract with US pharmaceutical Gilead to ensure the supply of the drug ‘Veklury,’ its trade name for Remdesivir, to some 30,000 patients with severe symptoms of Covid-19 during the summer months.Late last month, the US Department of Health and Human Services struck a deal to buy nearly all of Gilead’s projected production until the end of September.
Santander Corporate & Investment | The ECB published on Tuesday the aggregate results of its vulnerability analysis of the 86 banks directly supervised under the Single Supervisory Mechanism. This shows that “the euro area banking sector can withstand the stress induced by the pandemic but, if the situation worsens, the decline in bank capital would be significant. Furthermore, the ECB has extended its recommendation that banks should not distribute dividends until 2021.
Intermoney | Unlike the last crisis, Europe does not want to make an example of any country and Germany has sided with the stimulus and economic revival. This has been a turning point and has allowed the EU to gain a vote of confidence. However, it also has negative side effects in the form of the appreciation of the euro to 1.154 against the dollar on the day the agreement was announced. This was equivalent to highs not seen since January 2019.
On last Tuesday, leaders agreed on a Multiannual Financial Framework (MFF) of €1.074 Bn for 2021-2027. The European Union budget for the next seven years cuts agricultural funding by 10% compared to the previous Community financial framework, with the amount now standing at €343.9 Bn. Meanwhile, the allocation of cohesion funds has been boosted by 2.7% to €377 Bn.
Intermoney | EU supranational entities’ negotiable debt in euros which can be attractive for investors amounts to nearly 588 billion euros. This figure seems low in line with the gross emissions of the EU, the ESM, EFSF and EIB which, together, have averaged 67 billion euros between 2015 and 2019. These numbers are evidence of the fact that the markets in the EU are lacking a key element such as the supranational role of quality. Furthermore, the Recovery Plan largely dilutes the break-up premium of the European project, and this may generate an extra boost for EU equities in the coming months.
Caixabank Research |The increase in bank deposit volumes in European economies indicates a substantial increase in savings. The «pent-up savings» effect resulting from the lockdown is expected to be quickly undone, but saving driven by uncertainty will persist until the outlook improves. Both saving patterns during the 2008 financial crisis and a statistical exercise suggest a high increase in the euro area’s savings rate in 2020, which will be partially undone in 2021. This phenomenon could be particularly accentuated in the economies hardest hit by the COVID-19 outbreak.
For the first time in its history, the European Union will take on debt to finance an extraordinary economic stimulus composed of 390 billion euros in grants and 360 billion in loans.It has finally managed to put together a European instrument for sharing debt. Equally important, the plan sends a signal to markets that the EU remains united in response to existential threats. However, the price for achieving the agreement has been high: maintaining the rebate cheques, renouncing of strict control as far as respecting the rule of law mechanism in the management of EU funds, increased conditionality and the fact the fund cannot work completely without ECB’s support.