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After five days and a whopping 90 hours of meetings, leaders of the 27 European Union (EU) member states have reached budget and spending deals that would help the region combat the COVID-19 pandemic.

And you thought your Zoom meetings were long and awkward.

Here are the points you need to know about today’s “New Generation EU” (NGEU) agreement:

ECB Stimulus

It will be a combo of loans AND grants

  • The European Commission (EC) will borrow 750B EUR using its triple-A rating and pay it by 2058
  • 390B EUR will be used for grants, while 360B EUR will be allotted for loans
  • The “Franco-German Alliance” originally proposed 500B EUR in grants and 250B EUR in loans
  • The “Frugal Four” states – Sweden, Denmark, Austria, and the Netherlands (“Frugal Five” with Finland) –wanted to cap grants at 375B EUR
  • States such as Spain and Italy initially wanted a minimum of 400B EUR in grants
  • EU leaders sure know how to pick catchy group names
  • In return for a higher-than-expected budget and as net contributors, countries like the Frugal Four and Germany will receive more rebates on their future contributions
  • The grants will be handed to states that have presented plans that (a) strengthen economic and social resilience, (b) have clear targets, (c) observes the “rule of law” *cough* Poland and Hungary *cough*, and (d) approved by a “qualified majority”
  • Today’s deal will add to the EU Finance Ministers’ 540B-EUR stimulus package in April, the ECB’s 1.35T-EUR Pandemic Emergency Purchase Programme (PEPP) in June, AND stimulus packages provided by individual states

New taxes will help fund the deal

  • Non-recycled plastic waste will be taxed starting January 1, 2021
  • The EC will study proposals on “carbon border adjustment mechanism” and “digital levy” that would be introduced by January 1, 2023
  • The EC will revise the EU’s current emissions trading system (ETS) to include the aviation and maritime industries
  • The EU will consider taxing certain financial transactions in the next Multiannual Financial Framework (MFF)

The EU is borrowing as a unit

Markets had already expected a region-wide recovery deal, but few expected an agreement to borrow as one unit.

That’s right! For the first time in history, the European Commission is authorized to borrow from capital markets on behalf of the EU.

This is a BFD considering that countries like Germany have long opposed common borrowing schemes like this.

The move not only sets precedent for how the region handles common debt during a crisis, but it’s also a small but significant step towards financial integration.

If we see more of this kind of unity, then global investors would feel a bit more confident about distributing their moolah across different EU states.

Other interesting details you should know about

  • Aside from the recovery fund, EU members have agreed on a general budget of 1.074T EUR for initiatives between 2021 to 2027
  • EU’s expenditures will comply with the goal of being climate neutral by 2050
  • The deal talked a lot about “social cohesion” and “common values,” which suggests that future stimulus packages may be tied to European values that include press freedom and independent judiciary

Today’s deal will still need to be approved by EU member parliaments over the next couple of weeks but for now, the news is enough to add to the risk-friendly environment that’s pushing higher-yielding currencies across the board.