European shares rose today, Tuesday, with European Union leaders reaching a historic agreement to save the region from the severe economic consequences of the Corona virus, and despite the political momentum behind this agreement, it appears to be fully accounted for by the markets.
The Stoxx 600 Index moved up 1.2% to trade at 379.80 at 11:00 KSA. The Stoxx thus hit its highest level since March 3, but unlike the US indices: the S&P 500 and the Nasdaq Composite, the index was unable to return to the positive levels it had before the crisis. Stoxx is still down 10% below end-of-2019 levels, and 13% lower than levels before the Coruna virus reached Europe. This is in addition to Europe’s success in containing the Corona virus, which indicates that there is more ability to rise in the village term, due to the European shares’ equilibrium with the American stimulus packages and Europe’s superiority in containing the disease.
But European stocks lag behind US shares in the lack of technology sector stocks that benefit from the new conditions created by the Corona virus, even in light of the budget deficit smaller than its American counterpart. Also, the growth rates of the European Union are still meager, and the company is still dependent on the export business model, which is under a strong threat in light of the lack of decline in travel and travel activities, and the survival of globalization under threat.
However, the summit succeeded in removing one main obstacle that obstructed the path of European stocks during the past decade, so the Union indicated that when facing any crisis, the countries of the Union will stand side by side and choose solidarity, not disintegration. This comes at a precious price, which is the increase in money transfers from the richest countries to the poorest, and this comes at the expense of the five most powerful countries, which have recognized that paying the high price will remain cheaper than the disintegration of the bonds of the Union. Doubts about the integrity of European Union ties may resonate from time to time, but actions have a stronger impact than words, and their impact cannot be denied.
The fears of the disintegration of the European Union have been one of the biggest factors that pushed the European economy and financial markets down since 2008, when the debt of the countries of the South increased sharply. However, those fears diminished with the current agreement, and this agreement will not last forever, but at least for the length of its duration it will cover investment prospects, and this is evident by the superiority of the Italian, Spanish and Greek stocks this morning.
Skeptics note that some of this deal is unique and will not be repeated. But despite this, the agreement remains: an effort by European leaders demonstrating the unification of Europe. The positive impact on the markets will remain part of the political memory, which is constantly reminded of European interdependence, and reduces the risk of disintegration in the event of any future crisis.
But it must be remembered that the effect of the current package will be felt by the world through morale or to convey faith in the power of the union, because the money of the package will not be distributed until 2021 at the earliest, nor guarantees that this system will not be subject to organized theft, but the union may control that risk.
But the response from the committee, member states, and the European Central Bank to the current crisis is characterized by its superiority over their response to the past crisis. This should be reflected in the asset price.