This morning the main currency pair EUR/USD was losing around 50 pips. It seems that this happened in response to information flowing after the talks of the EU finance ministers. Yesterday afternoon, the videoconference began, which was to last several hours, and the finance ministers were to agree on joint actions to minimize the economic effects of the coronavirus pandemic. However, no agreement was reached.
The main topic of talks was to the issue of joint bonds, which are called coronabonds. In practice, this would mean the full joint responsibility of all EU countries. In other words, any country could issue such bonds, but the responsibility would rest with everyone. However, northern European countries, which simply do not want to be liable for debt issued by, for example, Italy or Spain, do not want to agree. The issuance of a coronabonds would increase the credibility of the countries of southern Europe, which, for example, could reduce the costs of servicing the debt, because the guarantee of repayment of the bonds would be e.g. Germany, the Netherlands, etc.
No agreement was reached despite calls for European solidarity in these very difficult times. Today, after a teleconference, Finland's finance minister Katri Kulmuni told reporters that her country would not support the proposed joint coronavirus bonds to counter the economic effects of the global pandemic. Kulmuni added that European countries are still responsible for their own economic policy. Nevertheless, European countries showed unity and solidarity during the discussion, Kulmuni added.
The euro has already made up for some of the losses, but the political situation in Europe seems to be getting more and more difficult. The Italians said a few weeks ago that they would consider leaving the EU as soon as the epidemic was over.
Meanwhile, on another front, the Australian dollar was under pressure when the S&P rating agency lowered Australia's AAA rating outlook to negative, due to the powerful fiscal stimulus that provides the government to support a receding economy and the associated debt burst.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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