European stocks closed mostly higher on Friday, as EU leaders held high-levels talks on plans for joint economic recovery measures.
EU leaders met in Brussels on Friday for the first of two days of planned talks, negotiating proposals for a recovery fund for the bloc and the EU’s budget plans for 2021 to 2027. It is their first face-to-face summit since the coronavirus struck.
Hopes of progress towards a stimulus package lifted stocks. The pan-European STOXX 600 index (^STOXX) rose 0.2%, Germany’s DAX (^GDAXI) rose 0.4%, and Britain’s FTSE 100 (^FTSE) closed 0.6%. higher. France’s CAC 40 (^FCHI) marked the exception, down 0.3%.
The euro also hovered around four-month highs against the dollar ($EURUSD=X), up 0.4% to just over $1.14 at around 5pm in London.
Yet a major breakthrough is not widely expected this weekend on how a recovery fund, estimated at €600-750bn (£544-635bn, $683-797bn), will be funded, allocated and used. The talks also cover the EU’s budget, expected at just over €1tn.
“Although an agreement is still possible this weekend, it would now be a positive surprise, and there’s no indication so far of the differences of opinion between the member states having been bridged yet,” the Deutsche Bank analysts wrote.
Some of the stumbling blocks reflect long-standing north-south dividing lines over collective burden-sharing. The so-called “Frugal Four” of Austria, the Netherlands, Sweden, and Denmark are reluctant to sign off on the plans, calling for smaller measures and more strict conditionality on economic reform when countries receive funds.
Italy and Spain have pushed for grants rather than loans, while Hungary has threatened to use its veto over proposals to link funds to conditions around democratic policies. But Germany and France back a significant package funded through joint borrowing.
It comes after official EU forecasts last week predicted the eurozone will shrink by 8.7% this year, with southern European economies facing the hardest battle to recover.
But ING analysts expect some progress to be made, before a deal is struck at a later date. They expect a €600bn compromise deal to eventually emerge, with half grants and half loans. Investors appeared to see chances of a deal edging higher, with long-term Italian government bond yields falling to their lowest in months on Friday.
It follows a mixed trading session in Asian on Friday. China’s SSE Composite Index (^SSEC) gained 0.1%, though it was down 5% for the week in its worst week since February. The Hang Seng (^HSI) closed up 0.8% in Hong Kong, and Japan’s Nikkei (^N225) closed down 0.3%.