The Day at a Glance | July 17 2020

The Top

· Trump will not approve new fiscal package if there is no payroll tax cut; Democrats consider it non-negotiable.

· European leaders meet to discuss a recovery fund; little optimism regarding an agreement.

· Economic indicators: A slight rebound in Europe`s inflation is confirmed (0.3% annual, June).

Economic environment

US Congress will resume sessions next Monday to discuss the extension of government aid programs in light of the pandemic, but some fundamental disagreements threaten to slow down negotiations in a time when fast decisions are needed. President Donald Trump threatened he will not sign a package if it doesn`t include a payroll tax cut, which is something that Democrats find unacceptable. Before the first week of August, unemployment benefit programs and loans to companies will come to an end. In September, the freezing of student loan payments will end along with aid to airline`s payrolls. Congress will debate which programs it will keep and which ones it will allow to disappear, as time continues to run out. Nancy Pelosi, Speaker of the US House of Representatives, assured that they are aware that more help is needed in the next few months and is committed to approve a package; however, the package`s approval is conditioned by the White House, which could threaten an agreement from being reached. A good portion of an economic recovery depends on the government`s aid, and nervousness in markets could increase if no agreements are reached as we approach the end of said programs.

Chancellor of Germany Angela Merkel showed skepticism about a European consensus to finance an economic recovery fund this week, during the summit that took place with European leaders on Friday and Saturday. Member countries will discuss a package of up to 750 billion euros, necessary to avoid the worst economic consequences of the virus in the long term. However, several countries oppose the proposal of issuing collective debt financed by the European budget. “We`re entering these discussions with plenty of vigor, but I have to say that the differences remain very, very great […] I expect very, very difficult negotiations,” Merkel assured the media. It`s been weeks since an agreement has been reached in Europe, with strong opposition from Austria, Denmark, Sweden and Holland. The lack of an agreement will limit the economic response in countries with a limited fiscal margin (Spain, Italy, etc.), and could cause strong division in the EU, similar to what occurred during the 2010 sovereign debt crisis. Nevertheless, most European officials are optimistic about reaching an agreement in the future.