EUR bulls have continued to push to the north at the start of this week, despite the failed talks with EU leaders over the weekend.
The EU27 leaders got together last Friday for discussions on the EU Recovery Fund, hoping to bridge the divide between the “frugal four” (Netherlands, Austria, Sweden, Denmark) and the rest of the EU over the size and compositions of the fund.
The original proposal was for a fund of EUR 500bln in grants and EUR 250bln in loans, funded by joint EU debt. The frugals have fought hard to reduce the ratio of grants to loans closer to 1:1. Yesterday, it appeared that the talks had reached a deadlock, with the frugals unwilling to accept grants higher than EUR 350bln and other key EU leaders (Macron and Merkel) unwilling to accept grants of less than EUR 400bln.
However, with talks set to enter a fourth day today (leaders will reconvene at 1500BST/1000EDT, probably after a long, much-needed sleep), reports have emerged that the frugals are willing to accept EUR 390bln in grants, so it looks increasingly likely that a deal is in within reach this evening.
The rescue fund optimism is something that has kept the Euro bulls alive over the past few weeks. General expectations on our side are for further moves to the north, even with the slight delay of an agreement, as it is in everyone’s best interest.
Our noted view in the blog last week still very much stands and see this remaining the case for quite some time to come.
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