EU reaches historic agreement on pandemic recovery funding

European Union leaders clinched an historic deal on a massive stimulus plan for their coronavirus-throttled economies in the early hours of Tuesday, after a fractious summit lasting almost five days.

The agreement paves the way for the European Commission, the EU’s executive, to raise billions of euros on capital markets on behalf of all 27 states, an unprecedented act of solidarity in almost seven decades of European integration.

Summit chairman Charles Michel called the accord, reached at a 5.15am, a pivotal moment for Europe.

Many had warned that a failed summit amid the coronavirus pandemic would have put the bloc’s viability in serious doubt after years of economic crisis and Britain’s recent departure.

“This agreement sends a concrete signal that Europe is a force for action,” a jubilant Michel told reporters.

French President Emmanuel Macron, who spearheaded a push for the deal with German Chancellor Angela Merkel, hailed it as truly historic.

Leaders hope the 750 billion euro ($857.33 billion) recovery fund and its related 1.1 trillion euro 2021-2027 budget will help repair the continent’s deepest recession since World War Two after the coronavirus outbreak shut down economies.

Germany Economy Minister Peter Altmaier said that, with the agreement, the chances of “a cautious, slow recovery” in the second half of this year had increased enormously. In an unwieldy club of 27, each with veto power, the summit also exposed faultlines across the bloc that are likely to hinder future decision-making on money as richer northern countries resisted helping out the poorer south.

The Netherlands led a group of so-called frugal states with Austria, Sweden, Denmark and Finland, insisting that aid to Italy, Spain and other Mediterranean countries that took the brunt of the pandemic should be mainly in loans, not in non-repayable grants.

Under the compromise, the Commission will borrow 750 billion euros using its triple-A debt rating, disbursing 390 billion in grants - less than the originally targeted 500 billion - and 360 billion in cheap loans.

The recovery plan now faces a potentially difficult passage through the European Parliament and it must be ratified by all EU states.

Global stock markets rose on Tuesday on promising results from two clinical coronavirus vaccine trials, and after EU leaders finally clinched a landmark 750-billion-euro ($860 billion) stimulus deal.

Stocks are rising broadly on Wall Street Tuesday after investors were encouraged to see European leaders come together to agree on a budget and coronavirus relief fund worth more than $2 trillion. Energy companies and banks are leading stocks broadly higher on Wall Street in morning trading on Tuesday, extending the market’s recent run of gains.

The S&P 500 was up 0.6%. The gains followed strength in markets overseas as investors welcomed news that European leaders have agreed on a budget and coronavirus relief fund worth more than $2 trillion. The move comes as the pressure intensifies on Congress and the White House to reach a deal on another economic aid package before the end of the month.

Coca-Cola and Philip Morris International rose after the companies reported earnings in the latest quarter that beat analysts’ forecasts.

Energy companies notched the biggest gains among the 11 sectors in the S&P 500 as the price of oil climbed more than 3%, an encouraging sign that markets hope economies will continue to recover. Still, Treasury yields were mostly lower, continuing to reflect caution in the market.

Technology stocks and companies that rely on consumer spending, sectors that are up the most this year, were headed lower, giving up some of their gains after powering a rally a day earlier. The Dow Jones Industrial Average was up 315 points, or 1.2%, to 26,996. The Nasdaq was down 0.3% a day after notching its best day since the end of April and its latest all-time high. Small company stocks were faring better than the rest of the market. The Russell 2000 index climbed 1.6%. Stocks in Europe rose broadly after the 27 leaders of European Union countries agreed to a $2.1 trillion budget and coronavirus recovery fund after one of their longest summits. Germany’s DAX climbed 1%. France’s CAC 40 added 0.2%, and Britain’s FTSE 100 was flat. Asian markets closed broadly higher.

Oil prices gained more than 3% to hit a more than four-month high on Tuesday, helped by positive news about coronavirus vaccine trials and a European Union stimulus deal.

Brent crude rose $1.39, or 3.2%, to $44.67 a barrel by 11:19am. West Texas Intermediate (WTI) jumped $1.36, or 3.3%, to $42.17 a barrel. Both benchmarks were at their strongest since March 6.

Prices were buoyed by an agreement among EUropean Union leaders on a 750 billion EUro ($859 billion) fund to prop up their coronavirus-hit economies, lifting prospects for fuel demand.

Gold at nine-year peak: Gold rose more than 1% to a nine-year high on Tuesday, propelled by a softer dollar and expectations of more stimulus measures to resuscitate pandemic-hit economies, while silver sprinted past $20 for the first time since September 2016.

Agencies