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EU will propose 750b euro fiscal stimulus package

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The European Union's (EU) executive arm will propose a new fiscal stimulus package of as much as 750 billion euros (S$1.17 trillion) in an unprecedented push to overcome the deepest recession in living memory, according to an official familiar with the plan. Italian bonds rallied on the news.

[BRUSSELS] The European Union's (EU) executive arm will propose a new fiscal stimulus package of as much as 750 billion euros (S$1.17 trillion) in an unprecedented push to overcome the deepest recession in living memory, according to an official familiar with the plan. Italian bonds rallied on the news.

Of the total amount, 500 billion euros will be distributed in the form of grants to member states, and 250 billion euros could be available in loans, said the person, who asked not to be named, in line with policy. To fund the package, the commission would borrow up to 750 billion euros on financial markets.

Italian bonds rallied, with 10-year yields falling eight basis points to 1.47 per cent, the lowest level in almost two months, while German securities erased gains. The euro snapped losses on the proposal, and was at US$1.0979 as of 10.30am in London.

The long-anticipated blueprint, which will be presented Wednesday by European Commission President Ursula von der Leyen, will form the central plank of the EU's response to the devastating impact of the coronavirus pandemic. The outbreak, which has claimed hundreds of thousands of lives around the world, has hit every European economy, with the worst-affected predicted to contract by almost 10 per cent this year.

The money would largely fund investment and reforms, while some funds will also go to significantly beef up healthcare and to the EU's poorest regions to help them catch up. The bloc will also offer guarantees from its budget in order to boost private investments via temporary equity support to viable companies or more capital for sectors of strategic importance such as critical infrastructure, technology and healthcare.

An accord on the plan will require the backing of all 27 EU members and could be a watershed moment for the bloc, where financial burden sharing has long been one of the thorniest issues that's held back deeper integration. It could quell concerns that a lack of solidarity is empowering populists threatening the EU's very survival.

An agreement could also relieve some of the pressure on the European Central Bank, which has so far taken the lead in the EU-level response, pledging to buy more than a trillion euros of debt to stabilise markets.

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