Building of European Central Bank ECB in Frankfurt, Germany. Image source: xxphoto © 123RF.com
Two days ago, French and German political leaders announced comprehensive plans for their mutual collaboration in mitigating the economic fallout from the coronavirus pandemic.
The European Commission will raise 500 billion euros, which are going to be injected into the European capital markets to support and stimulate the devastated companies and sectors.
The news is important for two prime reasons. Firstly, this financial support is going to be injected into the broader European economy in a new form, which is going to bolster the liquidity from the ECB's relief package that was already advanced in the wake of the crisis.
Consequently, the overall response to the crisis is going to become much more diversified and far-reaching, which is going to make the European economies much better suited for tackling the continually developing uncertainties, rather than merely bolstering the aggregate money supply.
This would alleviate some of the strain off the ECB's shoulders, as up until now the Bank has been the sole major player in the combat against the economic fallout. Subsequently, the ECB can now focus on resolving the recent issues with its asset-purchasing programs, which were raised by the German Constitutional Court.
Secondly, an accord between French President Emmanuel Macron and German Chancellor Angela Merkel means that in its capacity as a political organisation, the European Union remains cohesive and stable.
Now there is a clear and concise roadmap at the top tiers of European policymaking for navigating the uncertainties of the coronavirus crisis, which was lacking until recently.
Previously there were fears of division as European leaders struggled for a long time to reconcile a common stance on the hot topic of shared debt.
The primary issue was encompassed by the fears of the fiscally-responsible northern states, that by agreeing to share the burden of the coronavirus fallout with the more fiscally-irresponsible southern states by means of issuing the so-called coronabonds, they would also have to pay the price for the latter's previous mishandling of debt.
Such disagreements have evidently been resolved as Germany, which was stringently opposed to the proposition in the past, has now agreed to pursue a common strategy with its European partners.
Consequently, European stocks and the bloc's common currency jumped on the renewed investors' optimism.
The EURUSD has finally managed to break out above the minor resistance level at 1.08800 and is currently gaining bullish momentum as it nears the next crucial test – the major resistance level at 1.09880.
EURUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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