European Union Shapes COVID-19 Stabilization Plan: 'Details Have To Be Worked Out'

European Union leaders debated hard to reach an agreement on the structure of an economic recovery program.

On Thursday, 27 EU leaders met in a virtual video conference to discuss proposals to stabilize Europe’s economy, which is struggling due to the coronavirus pandemic.

The Roadmap To Recovery

The EU has set out a “Joint Roadmap for Recovery” which defines key areas for action: single market, massive investment efforts, EU global action and better governance.

The heads of state have also endorsed the agreement of the Eurogroup on three safety nets for workers, businesses and sovereigns, amounting to a package worth 540 billion euros ($584 billion). The package is to be operational by June 1. 

The Guardian reports that Italian Prime Minister Giuseppe Conte told the EU group the health emergency has become an economic and social emergency. He supports Spain’s 1.5-trillion-euro plan for grants for the hardest-hit countries, funded by perpetual non-maturing bonds.

But Germany, Sweden and the Netherlands have shown resistance and are not keen on financial transfers, preferring loans.

The EU leaders discussed the necessary steps to avoid the tail risk of the COVID-19 crisis morphing into a full-blown EU and euro crisis, Frédérique Carrier, head of investment strategy at RBC Wealth Management, said in a note. 

“There is broad based agreement the recently announced €540 billion package agreed to by Eurogroup finance ministers needs to be enlarged, but details have to be worked out,” the strategist said. 

The European Central Bank is widening further its collateral rules, now accepting so-called "fallen angels" — for example, marketable securities that held an investment grade rating on or prior to April 7 but were downgraded subsequently to levels of BB or above, she said. 

“By doing so, the ECB is following in the footsteps of the Federal Reserve, which announced a similar measure recently. We think it should benefit significant areas of the corporate sector whose ratings came under significant pressure in the wake of the current economic slowdown.” 

Earlier this month, French President Emmanuel Macron warned the EU could collapse unless it embraces financial solidarity.

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