Last week was one of contrasting fiscal policy fortunes between the eurozone and the United States, with the eurozone apparently taking a big step forward to deal with its design flaws and the US appearing to struggle with the challenges of gridlock in an election year. This narrative has helped the euro reach its highest levels against the US dollar since 2018, as the greenback struggles against a broad basket of currencies, with even returning risk aversion unable to help it much.
The main headline-grabbing event of last week was the EU budget deal reached by the European Council, which featured a €750 billion (Dh3.2 trillion / US$874.2bn) recovery fund, known as 'Next Generation EU'.
The progress from the EU is in contrast to developments in the US, where negotiations over a fresh round of spending have stalled.
Climbdowns by the so-called ‘frugal four’ of the Netherlands, Austria, Sweden and Denmark will see the EU for the first time borrowing from capital markets to finance its expenditures, moving the 27-member bloc further along the path of fiscal integration. However, the deal also reduced the overall amount of grants to Covid-affected countries to €390bn from an original proposal of €500bn, but increased the amount of loans to €360bn from €250bn.
As ever with EU compromises, the headlines were probably more encouraging than some of the details. Anybody who expects this fund to result in a sudden boost to EU growth will likely be disappointed, as €750bn is a relatively small fraction of the eurozone economy and 70 per cent of the grants will not be disbursed until 2021 and 2022, and the rest in 2023.
Debt issuance is also scheduled to end in 2026, casting doubt on whether this will be a permanent arrangement. Furthermore, the overall budget has to be ratified by the EU Parliament and by individual EU Parliaments, and may yet face opposition from some countries.
In fact, according to some analysts, it will be the bigger countries like France and Germany that will benefit the most from the overall budget rather than the smaller indebted economies of the periphery, for whom the fund is intended. The euro benefited from the promise of fiscal integration, but it still largely remains a promise and not yet the real thing.
The progress from the EU is in contrast to developments in the US, where negotiations over a fresh round of spending have stalled. The delay was caused by Senate Republicans abandoning their plan to unveil a coronavirus relief bill after failing to agree with the White House on direct cash payments and extending unemployment insurance.
The legislation should now be released this week, but original expectations of it being in excess of US$1tn have been reined in. In a week when America’s Covid-19 infections passed 4 million and the number of deaths rose to nearly 150,000, the delays were hardly constructive, especially as new jobless claims still exceeded 1 million.
The coming week will see the full extent of the economic devastation wrought by Covid-19 lockdowns on the US in the second quarter, with the consensus estimate being for the US economy to contract by almost 35 per cent on a quarter-on-quarter seasonally adjusted annualised basis.
However, beyond the optics of the EU making progress on fiscal integration and the US being frustrated by gridlock, what should not be overlooked is that overall US fiscal impulse this year is at nearly 12 per cent of gross domestic product, far outweighing that of the eurozone, which will really only start in 2021.
And it is for this reason that the US dollar is struggling; not that the US is falling behind Europe in its coronavirus response. With the US 10-year Treasury yield slipping to 0.58 per cent last week, not far from the record low of 0.54 per cent posted in March, and with the 10-year real yield at its lowest level since 2012, it is not surprising the US dollar fell nor that the euro rallied along with most other currencies.
The US budget deficit is on track to reach 20 per cent of US GDP in the current fiscal year, while its debt-to-GDP will rise above 100 per cent. With US real yields negative, even with market risk aversion coming back, it is getting increasingly hard for the US dollar to benefit, let alone resist encouraging eurozone news.
Tim Fox is a prominent regional economist and financial market analyst
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
UAE currency: the story behind the money in your pockets
'Gold'
Director:Anthony Hayes
Stars:Zaf Efron, Anthony Hayes
Rating:3/5
Name: Colm McLoughlin
Country: Galway, Ireland
Job: Executive vice chairman and chief executive of Dubai Duty Free
Favourite golf course: Dubai Creek Golf and Yacht Club
Favourite part of Dubai: Palm Jumeirah
Company profile
Date started: 2015
Founder: John Tsioris and Ioanna Angelidaki
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Sector: Online grocery delivery
Staff: 200
Funding: Undisclosed, but investors include the Jabbar Internet Group and Venture Friends
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Everton 4
Richarlison 13'), Sigurdsson 28', Digne 56', Walcott 64'
Manchester United 0
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A mark of Chatham House’s influence 100 years on since its founding, was Moscow’s formal declaration last month that it was an “undesirable
organisation”.
The depth of knowledge and academics that it drew on
following the Ukraine invasion had broadcast Mr Putin’s chicanery.
The institute is more used to accommodating world leaders,
with Nelson Mandela, Margaret Thatcher among those helping it provide
authoritative commentary on world events.
Chatham House was formally founded as the Royal Institute of
International Affairs following the peace conferences of World War One. Its
founder, Lionel Curtis, wanted a more scientific examination of international affairs
with a transparent exchange of information and ideas.
That arena of debate and analysis was enhanced by the “Chatham
House Rule” states that the contents of any meeting can be discussed outside Chatham
House but no mention can be made identifying individuals who commented.
This has enabled some candid exchanges on difficult subjects
allowing a greater degree of free speech from high-ranking figures.
These meetings are highly valued, so much so that
ambassadors reported them in secret diplomatic cables that – when they were
revealed in the Wikileaks reporting – were thus found to have broken the rule. However,
most speeches are held on the record.
Its research and debate has offered fresh ideas to
policymakers enabling them to more coherently address troubling issues from climate
change to health and food security.
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Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
The specs: 2018 Mazda CX-5
Price, base / as tested: Dh89,000 / Dh130,000
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Key facilities
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1. Never respond to e-mails, calls or messages asking for account, card or internet banking details
2. Never store a card PIN (personal identification number) in your mobile or in your wallet
3. Ensure online shopping websites are secure and verified before providing card details
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Electric scooters: some rules to remember
- Riders must be 14-years-old or over
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- Solo riders only, no passengers allowed
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Killing of Qassem Suleimani
Global state-owned investor ranking by size
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1.
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United States
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2.
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China
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3.
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UAE
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4.
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Japan
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5
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Norway
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6.
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Canada
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7.
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Singapore
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8.
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Australia
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Saudi Arabia
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South Korea
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