INSIGHTS

On May 28, 2020

The United States of Europe Takes Shape

As the number of European COVID-19 cases decelerate, the Eurozone is telegraphing unprecedented plans for a strategic recovery fund that will shape the European Union’s (EU) financial framework far beyond the crisis of recent months past well into the future. The EU Recovery Plan unveiled yesterday is an ultra-ambitious plan to inject billions of euros into member states to encourage investment in the greening and digitation of the region. Initial plans indicate a €750 billion fund that can be accessed by each country in general proportion to their economic footprint. Up to €250 billion will be tacked onto the already-approved €1.1 trillion scheme to support immediate liquidity and payrolls and the remaining €500 billion+ resiliency fund will be targeted at encouraging member states to adopt grants that direct their economies in line with the EU’s ambitions on green transformation and digitization as well incentivizing economic policy that the EU has previously recommended for each individual country. 

While plans are formative and will cycle through intense political debate for several months, the signal from the EU to member states is clear: buy risk assets. The sheer weight of liquidity is unrestrained and all that is left to determine is who and how this will be paid for long term but, in the short term, focus on the latter is moot. Much like the United States – but on a reduced scale (because they don’t have dollar-printing machines) – the EU is signaling a willingness to do whatever it takes; and all else being equal, more money than has ever been seen in the history of the universe will be looking for productive places to invest.

CRN: 2020-0514-8303 R

The opinions and views of this commentary are that of C.J. Lawrence LLC and are not necessarily that of AAM.