Thoughts on the Eurogroup videoconference

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  After 16 hours of unsuccessful negotiations, the Eurogroup is suspended. Italy and the Netherlands are still at loggerheads. The discussion between finance ministers should resume on Thursday again. The press conference that was initially scheduled at 10 AM (Brussels Time) is canceled.


Mario Centeno, president of the Eurogroup: “After 16h of discussions, we came close to a deal but we are not there yet. I suspended the Eurogroup and we will continue tomorrow, on Thursday”.

Olaf Scholz, German finance minister urged countries not to “refuse compromise”.

Wopke Hoekstra, Dutch finance minister: “It is too early to agree on a comprehensive package”.

Videoconference result:

  • Surprisingly, the Eurogroup did not kick coronabonds down the road, so the instrument might still be debated as part of the toolkit in further negotiations.
  • On Twitter, the German Finance minister, Olaf Scholz, confirmed that they were close to a draft compromise last night supported by France, Germany and Spain but that was turned down by the Netherlands and Italy.
  • Italy asked for explicit mention to coronabonds instead of “innovative financial instrument” in the draft agreement and demanded no conditionality on ESM loans.
  • The Netherlands insisted on “phased” conditionality to ESM and ditched any discussion about a post-crisis package to deal with the reconstruction phase.
  • The Frugal four (Austria, Finland, Germany and the Netherlands) want assurances the European unemployment scheme (SURE) is temporary.
  • The French fund for joint investments and Spain’s Special Purpose Vehicle have apparently not been lengthy discussed and will be left for EU leaders to debate.

Comment

The endless game of pandemic ping-pong between Italy and the Netherlands led to a new inconclusive meeting between the finance ministers. As was the case two weeks ago, the sticking points are how to refer to the ESM and a post-pandemic recovery plan. The suspension of the Eurogroup until tomorrow is rather positive as it will allow Germany and France to increase pressure on the Netherlands and Italy in the interim.

We are optimistic about the possibility of a watered-down agreement tomorrow that could include a revised EU multiannual financial framework, higher EIB guarantees (€200bn according to preliminary discussions) and potentially a one-off transfer to countries in need whose amount could be higher than that initially suggested by the Netherlands (between €10-20bn). It is also likely that the European Commission will give the assurance that SURE, based on a loan mechanism, will be temporary. By contrast, the ESM and attached conditionality might remain a stumbling stock.

Regarding the post-pandemic comprehensive, it will certainly be up to EU leaders to discuss it further in the coming weeks or months, depending on the evolution of the health crisis. At some extend, the Netherlands are right to indicate this discussion is a bit premature given that most European countries have not even defined an exit strategy, apart from Austria and Denmark. We still believe that the discussion over coronabonds will comeback when it will be time to talk about the economic reconstruction phase, at the earliest in the summer.

 

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.