Currency Update: Euro Under Pressure

After much haggling, last week EU finance ministers managed to reach an agreement on financial support. The €500 billion relief package is for European countries hit hardest by the tragic Covid-19 pandemic, such as Italy and Spain.

The plan involves tapping the European Stability Mechanism for about half the amount, the balance coming from the European Investment Bank and the European Commission. In some quarters there is disappointment that the Netherlands and others remain resistant to the notion of shared debt but at least they managed to get something off the blocks. The euro weakened by an average of 0.3% over the long Easter weekend, giving up four fifths of a cent to sterling.

President of the European Commission Ursula von der Leyen offered on behalf of the EU a heartfelt apology to Italy for “letting it down” at the start of the coronavirus. No EU country responded to Italy’s initial call for aid via the bloc’s emergency mechanism. Fresh evidence has emerged, suggesting that few European countries have actually achieved herd immunity, as some begin to remove lockdown measures, albeit it cautiously and slowly.

This Thursday EU leaders will teleconference to reach a final agreement on the relief package. They’ll be discussing the mutualisation of the debt and ‘coronabonds’, as well as how to distribute the Coronavirus Response Investment Initiatives cash, gathered from unspent funds in the EU’s cohesion programme. Countries as Germany and Netherlands have already expressed reservations.

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