Opinion

The European Union has finally agreed on an $860 billion stimulus package for 27 nations. The eurozone’s stock market is surging.

  • The Eurozone will soon see a $860 billion stimulus package after a 4-day meeting in Brussels.
  • Europes stock market indices are surging, with Germanys Dax index erasing losses from the pandemic.
  • The sentiment of investors is improving, as strategists say the new stimulus is a game-changer.

The European Union has finally agreed on an $860 billion stimulus package for 27 nations. The eurozones stock market is surging, with Germanys Dax index and Frances CAC 40 index taking the lead.
The package would provide relief to the eurozone in the near-term, rescuing nations from a severe recession. Calls for a stimulus deal intensified when the European Commission (EC) predicted the eurozones recession would worsen.
Europes Stock Market Indices Are Reacting, And So is the Dow Jones
On July 20, U.S. Treasury Secretary Steve Mnuchin said another round of stimulus is coming. It would include $1 trillion for kids, jobs, and vaccines, he said.
Merely a day after Mnuchins statement, the European Union finalized a massive stimulus package to offset the economic consequences of the pandemic.
The EC previously said that the recession of the eurozone would likely be worse than the forecasts of analysts.
The gloomy outlook on the eurozones economy led Europes stock market indices to plunge.
When the EC released its report on July 7, Germanys stock market index rallied from 12,616 to 13,286. It posted a 5.3% gain within less than three weeks.
Investors likely expected the European Union to introduce a new stimulus package, given the severity of the eurozones economic decline.
The EC said in the first week of July:
At the global level, the still rising rate of infections, particularly in the U.S. and emerging markets, has deteriorated the global outlook and is expected to act as a drag on the European economy.
In pre-market trading, the Dax has surged by another 242 points, recording a 1.85% gain. On July 20, Germanys stock market rallied by 1.83% as anticipation for the new stimulus grew.
Germanys stock market index Dax recovers from pandemic losses. | Source: Holger Zschaepitz
Pivotal Deal Could Rescue European Stocks
The deal, which is unprecedented for the eurozone, could kickstart a strong economic recovery in Europe.
Ursula von der Leyen, the President of the European Commission, said the deal would allow Europe to emerge stronger from the pandemic.
He said:
Europe, as a whole, has now a big chance to come out stronger from the crisis.
For now, investors are reacting positively to the agreement. The four-day discussions in Brussels seemingly improved the sentiment around the near-term trend of the economy and the stock market.
According to Emmanuel Macron, the President of France, the deal would double the budget of Europe in the upcoming years.
Relaxed financial conditions, a low-interest rate, and an aggressive approach from European leaders position Europes stock market for recovery.
Excess liquidity in the eurozones financial system indicates relaxed financial conditions. | Source: Jeroen Blokland
Speaking to Financial Times, Morgan Stanley economist Reza Moghadam said the recovery fund is a game-changer for Europe.
Germanys stock market has already rebounded beyond March levels, fully recovering from the pandemics effect on equities. Moghadam explained:
We see the recovery fund as a game-changer for Europe, supporting a synchronised recovery and stronger growth over a sustained period, while making monetary union more stable and the euro more attractive.
Europes stock market found a breathing room in the form of a new stimulus package. As stocks in the U.S. and Asia steadily recover, hopes of a global equities market recovery are rising.
Samburaj Das edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.