July 17th, 2020
What looms large for euro zone markets is an E.U. summit in Brussels this weekend, where leaders will try to overcome differences over a proposed stimulus package - a new 750 billion euro recovery fund - meant to help economies battered by the coronavirus pandemic. The Netherlands are the main holdout among the “Frugal Four” group of countries, the rest of which include Austria, Sweden and Denmark. Dutch Prime Minister Mark Rutte wants the fund’s size to be smaller, favours loans over grants, economic reforms as a condition for funds, and keeping rebates for net payers to the bloc’s overall budget. As German Chancellor Angela Merkel puts it, the differences are still “very, very big”. The euro has rallied as markets recover from March’s mayhem, as has the closely watched Italy-Germany bond spread - but where they will go from here hangs very much on the outcome of this weekend’s negotiations.
Chart and commentary by Ritvik Carvalho
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