Talks between EU leaders' end with no agreement on recovery package, EUR/USD drops

 is With the bloc standing on the brink of an economic slump unparalleled since the Great Depression of the 1930s, talks between EU leaders' have ended with no agreement on recovery package.

COVID-19 is a very fluid situation and the countries were discussing a Europe-wide recovery fund while, a the same time, there were urges of caution today from the German chancellor, Angela Merkel, who said the coronavirus pandemic is “still at the beginning” and parts of Germany may be rushing their exit from lockdown during a video conference to try to agree a desperately needed Europe-wide recovery fund.

Merkel is worried that Germans were relaxing physical distancing efforts amid the reopening of smaller shops this week. The chancellor said some of Germany’s 16 states are too hasty and that the country remained “on the thinnest ice” despite its early achievements.

Key comments

• Merkel says EU leaders did not agree on every point but agreed to work together.
• Says it clear from EU talks that everyone says a recovery fund is needed, this is also in german interests.
• Says must expect higher contributions to next EU budget from Germany.
• Says EU leaders talks had good atmosphere, agreed we must find a way through.
• Says my view on euro bonds is unchanged.
• Germany's Merkel says the world health organisation has my full support.

A recovery fund is needed

"It is clear from EU talks that everyone says a recovery fund is needed, this is also in German interests."

EU leaders haggled over a rescue package today but failed to come to a consensus, and instead, it has reignited a bitter north-south divide between member states.

Key notes

• Merkel said Germany was ready to make “significantly higher” EU budget contributions to help the bloc cope with the fallout from the pandemic.
• Merkel said that calls from some EU countries for common debt with common liabilities were not the way to go. “That would be a very difficult process, cost time and wouldn’t even help anyone in the current situation, since we need rapid-fire instruments to tackle the crisis."
• 27 national leaders were set to debate a variety of EUR1tn-plus proposals to resuscitate the single market.
• Some European commission officials suggested a EUR2tn plan combining loans and grants and an agreement on the EU’s next seven-year budget.
• Spain wanted a EUR1.5tn programme of grants for the worst-hit countries, funded by “perpetual” (ie non-maturing) bonds.
•  France wants a special fund outside the EU budget.
• "But any big-spending plans are likely to face resistance from self-styled “frugal” member states such as the Netherlands and Austria, which feel the EU has already taken big steps to stave off economic hardship, such as by relaxing state aid rules and through the European Central Bank’s €750bn bond-buying programme," – The Guardian. 

Additional EU leader statements

• Italy's Conte: EU leaders have made great progress

• France's Macron: Disagreements persist among EU states

• EU's von der Leyen: Huge differences in how much support member states are giving in state aid

EUR/USD update

EUR/USD has dropped below 1.08 to 1.0772 on the news as the USD continues to outperform as a safe haven. DXY is back in positive territory for the session at 100.42 at the time of writing. 

• EUR/USD drops below 1.0800 as EU leaders struggle to agree on recovery package