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Euro Surges on Massive Stimulus Package to Support Economy

May 27, 2020 at 13:38 by Andrew Moran

Assorted stacks of euro coins with euro banknotesThe euro is surging midweek after the European Union announced a monumental €750 billion ($826.5 billion) to support the eurozone economy. The region faces the worst financial crisis since the 1930s, which comes as many trade bloc members already faced anemic growth before the pandemic.

On Wednesday, the European Commission unveiled details of its recovery fund. The initiative will be divided between 500 billion euros in grants and 250 billion euros in loans to member states. Also, of the 500 billion euros in loans, 310 billion euros will be invested in the green and digital economies. The plan would be funded by borrowing on financial markets and will be repaid between 2028 and 2058.

While the proposal has been described as a “breakthrough” and “historic,” nothing is set in stone. Each leader will meet through a video call on June 18 to iron out the details, address concerns, and come to some type of stimulus agreement. Germany, which opposed this kind of rescue package during the Great Recession, is reportedly on board. The Commission might have also gained support from the so-called Frugal Four – Austria, Denmark, the Netherlands, and Sweden – because the group has been against a recovery fund that is not based on loans.

So, who will get what? Under the current framework, Spain would receive up to 140 billion euros, France might receive 39 billion euros, and Greece could get 32 billion euros.

The European Parliament will also need to approve the financial efforts.

Commission President Ursula von der Leyen said in a statement:

This is Europe’s moment. Our willingness to act must live up to the challenges we are all facing.

Things we take for granted are being questioned. None of that can be fixed by any single country alone. But all of us and it is way bigger than any of us.

Until the Commission establishes an official agreement, there will be other short-term measures being employed, particularly from a monetary policy standpoint. The European Central Bank (ECB) has expanded its quantitative easing (QE) program by purchasing 750 billion euros in government bonds and another 540 billion euros business investments, public loans, and unemployment schemes.

The EUR/USD currency pair rose 0.24% to 1.1010, from an opening of 1.0982, at 13:18 GMT on Wednesday. The EUR/GBP surged 0.74% to 0.8969, from an opening of 0.8905.

If you have any questions, comments, or opinions regarding the Euro, feel free to post them using the commentary form below.

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