The pandemic was at its worst in mid-March, but European authorities were slow to react. Once again, the very architecture of the euro was called into question, and, in the absence of fiscal aid, the European Central Bank (ECB) had to announce unprecedented measures to avoid another liquidity crisis. But this week, an historic agreement has been reached with the creation of a 750-billion-euro recovery fund and the closure of the EU budget until 2027. In an interview with Radio Intereconomía’s A Media Sesión, Alberto Matellán, Chief Economist at MAPFRE Inversión, explained that “the agreement is proof of the shift that’s taking place in Europe — Europeans may be starting to redeem the EU’s original sin, namely the absence of a Fiscal Union.” “And I say ‘proof’ because the idea stems from the statements made by Merkel and Macron in May. In fact, even the so-called frugal countries are aligned in this regard — their opposition is merely technical. But it doesn’t change the wider fact that the EU has its own issuing and spending capacity,” he added.
Matellán believes that this agreement is the opportunity that Spain needs to reform and modernize its economy: “It’s not just about giving us money, but telling us how to use it, thereby achieving a more efficient economic policy. This represents an element of convergence in Europe that minimizes the risk of breaking up the euro.” However, he insists that “it’s important that these measures focus on raising productivity and potential growth.”
As a result, the euro soared to its highest levels in the past year and a half. According to Matellán, “the agreement has a very important effect on the euro; it drastically changes the rules of the game.” In his view, “there will be greater demand for euro assets, which is good for euro investors.” Furthermore, yield spreads have been reduced in the secondary market, especially in the periphery countries. “A new asset—European debt—is going to be created, and in the long-term (10, 15 or 20 years), European countries’ bonds will end up being mutualized into this type of debt. It’s a huge step for the European debt market and for this yield spread contraction.”
This new scenario changes the strategy for professional investors over the long-term. “In our next portfolio reviews, managers will have to include the fact that euro assets have gained greater appeal,” he explained. However, when it comes to private investors, he stresses the importance of not rushing into things and leaving matters in the hands of their advisers. “This summer, it’d be best to forget about the markets and just enjoy time with the family and in the outdoors,” he concluded.