European leaders reached into a $2 trillion stimulus deal, markets mixed

European leaders reached into a $2 trillion stimulus deal, markets mixed

After months of talks, the 27 European nations finally agreed in a massive stimulus deal to help curb the coronavirus pandemic.

The European Council has finally secured a new fiscal stimulus deal as its president Charles Michel expressed off Twitter.

Early this year, the European Union (EU) predicted a 7.4% contraction that would bring the worst economic shock since the Great Depression.

During the process of coming up with a massive deal, leaders of Germany and France tried to propose an agreement through grants worth 500 billion euros [AU$808 billion].

In the end, they agreed to distribute 390 billion euros worth of grants instead, out of the total 750 billion fund—a significant reduction from an initial proposal by France and Germany.

However, with the final deal in place, European Commission (EC) President Ursula von der Leyen has claimed, as per CNBC:

“Europe, as a whole, has now a big chance to come out stronger from the crisis.”

Aside from the recovery fund, the EU said its next budget, which will fund initiatives between 2021 and 2027, will total 1.07 trillion euros which brings the combined proposed funds to 1.82 trillion euros or $2 billion.

Introduction of new taxes and analysts optimism on the deal

For this massive deal to sustain, European governments will have to find other methods to repay some of the additional debt, and this includes new taxes.

According to the agreement, they would introduce a non-recycled plastic waste levy starting 2021 as well as a carbon border adjustment mechanism and a digital duty by 2023.

As the EU is often criticized for not having a common fiscal policy similar to the U.S., analysts at Berenberg bank are finally seeing cohesion between the nations as they said in a note as per CNBC:

“The EU is sending a strong signal of internal cohesion. Near-term, the confidence effect can matter even more than the money itself.”

Markets mixed upon EU announcement and earnings

European markets also tried to go back to positive territory amid the EU announcement to start the week. Earnings also became a highlight for this week as UBS reported a net profit of $1.23 billion for the second quarter of 2020.

Norwegian online marketplace Adevinta surged 26% after its announcement of acquiring eBay’s classifieds unit for $9.2 billion.

However, both Swiss drugmaker Novartis and Swedish automaker Volvo incurred losses on their earnings reports.

In addition, shares of sports betting group GVC continued to plunge over 10% this week after British tax authorities announced a probe into the company’s former Turkish gambling unit.

As the EU has made the biggest cohesive fiscal deal in Europe’s history, only time will tell if the necessary measures would indeed help the region in recovering their respective economies.

Featured image courtesy of dimschu/Pixabay

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