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‘Whatever it takes...’

After long negotiations, the 27 European Union (EU) member states finally agreed on a broad-based Covid-19 recovery fund. The Union is thus breaking new ground in several respects. Patrik Lang, Head of Global Equity Research & Equity Strategy, explains his view on what's coming up in the markets.




For the first time ever, joint debts are being incurred at a significant scale. In addition, this is the first time unified debt obligations will be issued on the capital markets. Furthermore, most of the funds raised will be passed on directly to the states in the form of grants that do not have to be repaid. This is also a historic novelty. The Union is thus taking an important step away from the previous national budget policies towards a fiscal union. Against this background, the summit breakthrough can be considered a groundbreaking step towards a fiscal union, with the agreement being probably the most important step towards stabilising the monetary union since Mario Draghi’s famous ‘Whatever it takes’ speech in July 2012.

What are the consequences for capital markets?
Firstly, a break-up of the monetary union has been prevented for the time being. The agreement increases the creditworthiness of all member states and a revival of an EU debt crisis like the one in 2012 has therefore become less likely. The main winner for the time being is the euro. As an agreement had already been anticipated on the financial markets, the single currency has been on the upswing for some time. Nevertheless, our currency specialists still see some room left for improvement and have raised their 12-month target for the EUR/USD to 1.20.

The main winner for the time being is the euro.

Patrik Lang, Head of Global Equity Research & Equity Strategy

How will these measures impact growth?
As far as growth prospects are concerned, it remains to be seen how efficiently the available funds will be used. It is still too early to make any forecasts. In the equity markets, we therefore continue to rely on stronger structural growth in the US and especially on growth stocks in the internet and information technology sectors. The current stronger momentum in the profit performance of European companies is probably mainly due to regional differences in the handling of the Covid-19 infection cycles and may only be temporary in nature.