The European Commission’s stimulus package could be a turning point for the EU, but it faces a number of complex challenges before it can become a reality, Roger Hirst told Real Vision during today’s Daily Briefing.
The plan to offer €500 billion as free grants to member states was already met with resistance from the “Frugal Four,” which is comprised of Denmark, Sweden, Austria and the Netherlands, but the Euro crisis needs to be dealt with or its very existence will be threatened, Hirst said. He thinks the biggest hurdle is debt mutualization.
“Debt mutualization doesn’t work without fiscal union and that’s a massive task at this stage,” he said. He added that the benefits of mutualization are impossible if countries want to retain their individual identities, and the philosophical and logistical challenges of such a monumental structural change are where the pushback is.
On the currency front, Hirst said he is still watching FX as the best source of clarity on the global environment and he expects downward pressure on sterling versus other currencies if the Bank of England joins up with the government to allow it to spend then buy its debt.
With the potential for the UK to go hard on the fiscal front, and the potential for Brexit to still be a problem, sterling could be a good play on the downside, probably against the dollar, Hirst said.