Thoughts on the EUCO videoconference

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  After six hours of intensive talks yesterday evening, the EU leaders were unable to find common ground for a coordinated fiscal response to tackle the health and economic crisis resulting from the COVID-19 outbreak. They ended up asking the Eurogroup to come up with new proposals in the next two weeks. It was laughable, a complete waste of time.


The European Council has released a “joint statement” and not conclusions because Spain and Italy refused to endorse them (see here). EU observers know well that a “joint statement” usually reveals deep divisions between members states on the policy to conduct.

EUCO final joint statement: “We take note of the progress made by the Eurogroup. At this stage, we invite the Eurogroup to present proposals to us within two weeks. These proposals should take into account the unprecedented nature of the COVID-19 shock”.

Mark Rutte, Prime Minister of the Netherlands, after the EUCO videoconference: “I cannot foresee any circumstances in which the Netherlands will accept eurobonds. This is against the design of the EMU”.

Summit results:

  • The EU leaders did not find common ground for a fiscal coordinated response (ESM credit line, coronabonds etc.) and asked the Eurogroup to come up with more proposals in two weeks.
  • According to various media reports, the Netherlands blocked any reference to the ESM treaty in the final statement as the Dutch finance minister considers it is still too early to activate this instrument.
  • Italy was firmly against the activation of an emergency credit line due to the (light) conditionality and the potential stigma attached to the ESM financial assistance.
  • Finland joined the group of opponents to coronabonds which already gathers Germany, the Netherlands and Austria (see the below map, courtesy of our graphic designer Julie).

Comment

Yesterday’s EUCO videoconference was a useless meeting, disgrace to the EU. EU leaders failed to show solidarity to other member states when they need it the most. We had low expectations but we, at least, believed there would be some progress regarding the ESM credit line. It also seems that coronabonds, which would not require major institutional changes, and still constitute one of the best hopes for countries in distress, were barely part of discussions.

We still expect some kind of unambitious fiscal coordinated response at one point, but in a period of crisis, no one cannot afford to wait for two weeks, or probably longer, to address the current tension. Europe is wasting precious time in buzzword bingo between EU leaders. We are afraid that the next Eurogroup meeting, which is tasked to come up with new solutions, will be inconclusive. Finance ministers do not have a clear mandate from the EUCO and, learning from the past, without mandate, the Eurogroup usually goes nowhere.

This crisis highlights the failure of EU solidarity and may have long-term consequences for the future of Europe. We are not saying that Europe is at risk of disappearing but Europe, which is first and foremost a political project, is no longer an attractive feature for neighboring countries. What has been the most shocking for me is that Serbia, a country that I know well, and its pro-European Prime Minister have turned to China and not the EU to request help in the fight against the COVID-19. In the last two weeks of the crisis, many other states have realized the hard way they cannot count on Europe. Thus, EU leaders should not be surprised that other countries, such as China and Russia, step in in order to fill the political vacuum.

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.