FXTM information and reviews
FXTM
95%
OctaFX information and reviews
OctaFX
94%
XM information and reviews
XM
93%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
91%
HFM information and reviews
HFM
89%

Is Europe Headed for a Fiscal Union?


23 October 2020

Amid the gloom of the pandemic’s second wave, some European enthusiasts are wondering whether this crisis might finally usher in a “fiscal union” of states — something akin to the U.S.

The roaring success this week of the European Union’s first social bond, issued to help fight off the pandemic recession, shows investors are eager to lend money to the EU as a whole, rather than just to constituent countries. At the same time Christine Lagarde, president of the European Central Bank, is encouraging the bloc to consider turning the joint-debt instruments created during the pandemic into permanent tools. This would move the EU a step closer to becoming a federation of states, since the European Commission —which is issuing the bonds — would have a bigger budget to redistribute resources toward countries in need.

Europe, and the euro zone in particular, would gain plenty from a system of cross-border fiscal transfers, provided adequate Brussels checks on national budgets were in place to stop reckless spending. The currency union has a single central bank and monetary policy that cannot easily cater to the needs of an individual country that faces a deep or isolated shock.

But for all the enthusiasm of investors and Lagarde, the obstacles to a fiscal union remain above all political. These won’t disappear despite the breakthrough of agreeing joint pandemic funds.

This week’s bond auction to fund an EU scheme that supports labor markets attracted 233 billion euros ($275 billion) in orders — well above the 17 billion-euro issuance=

Unfortunately the political hurdles to closer union still look sizeable, as some countries with stronger finances fear having to support their endlessly flailing neighbors.

For all its success in terms of orders, this week’s auction reinforced this concern: The EU’s social bonds yield more than comparable securities from Germany, the Netherlands and Finland, and less than those from Spain, Italy or Greece. At a time when yields are compressed everywhere, these differences are minimal. However, they still show that participating in such “euro bonds” is better for fragile countries (they pay out less than their own bonds) and relatively expensive for those with more robust shoulders.

The EU did manage to overcome such difficulties in the summer, when it reached a historic agreement over a joint 750-billion euro fund that will disproportionately help countries such as Italy and Spain. Crucially, this tool will offer grants — essentially giving money to the recipients — as well as loans, breaking a euro zone taboo. But negotiations over the fund are ongoing and arduous. The European Parliament is demanding stricter mechanisms to deny money to those countries that break democratic principles such as Hungary and Poland. The Netherlands, long opposed to grants, is also demanding tougher terms on the fund.

As a result, it’s unlikely that EU countries will receive any help until mid-2021. For now, individual governments have no trouble funding themselves on the market at very low rates. It’s troubling nonetheless that an instrument set up to deal with an emergency will be delayed because of political wrangling. Old habits die hard in Europe — and excited investors won’t change that.

#source

Share: Tweet this or Share on Facebook


Related

Dollar flat as market braces for central bank decisions later in the week
Dollar flat as market braces for central bank decisions later in the week

The dollar was up modestly in early trading in Europe on Monday, at the start of a key week for central bank meetings on both sides of the Atlantic. By 03:00 ET (08:00 GMT), the dollar index...

30 Jan 2023

Mega Central banks, OPEC, NFP & Earnings week
Mega Central banks, OPEC, NFP & Earnings week

China Stock market returns from Luna New Year break. Chinese stocks rose while most other Asian equities fell as investors looked to interest rate decisions scheduled this week in the US...

30 Jan 2023

XAU/USD remains on the defensive around $1,925 ahead of US PCE
XAU/USD remains on the defensive around $1,925 ahead of US PCE

Gold price remains on the defensive for the second straight day amid modest US Dollar strength. Thursday’s upbeat US macro data fuels hawkish Fed expectations...

27 Jan 2023

XAU/USD retreats from multi-month top amid modest USD recovery, ahead of US GDP
XAU/USD retreats from multi-month top amid modest USD recovery, ahead of US GDP

Gold price pulls away from a fresh multi-month top amid a modest US Dollar strength. Bets for smaller rate hikes by Federal Reserve, recession fears should help limit losses...

26 Jan 2023

Microsoft: Still Trapped Within Descending Channel
Microsoft: Still Trapped Within Descending Channel

Microsoft Corp., an American multinational technology conglomerate currently ranked the third largest company by market capitalization ($1.728T) which actively engages...

24 Jan 2023

Same story new week
Same story new week

Chinese New Year celebrations – many centres are closed in Asia. Treasuries sagged to end on a bearish week. USDIndex at 101.30 low as the market continued...

23 Jan 2023


Editors' Picks

FXCM information and reviews
FXCM
87%
ActivTrades information and reviews
ActivTrades
86%
RoboForex information and reviews
RoboForex
85%
MultiBank Group information and reviews
MultiBank Group
84%
Libertex information and reviews
Libertex
83%
Vantage information and reviews
Vantage
83%

© 2006-2023 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.