INVESTORS cheered a key step toward fiscal integration in the European Union via a new recovery fund agreed Tuesday, seeing it as a turning point for the region’s financial assets plagued for years by debt crises and a north-south divide.

The 750-billion-euro (US$864.68 billion) fund had been hailed as a game changer and unprecedented act of solidarity in almost seven decades of European convergence. The move helped the single currency hit one-and-a-half-year highs.

For years, threats like Greece’s debt crisis and a eurosceptic populist government in Italy had stirred fear among investors that the end could be near for the eurozone.

So it was no surprise that the euro and Italian government bonds, assets that have taken a beating whenever those threats flared up, shined on hopes of European fiscal integration.

“This deal removed almost completely the risk of a European break-up, which has always been on the mind of investors,” said Ugo Lancioni, head of global currency at Neuberger Berman.

Investors say the landmark deal to rescue EU economies from the coronavirus crisis bodes well for the euro and the bloc’s equities, while Italy’s soaring debt levels could cap further gains in Italian government bonds.

“One of the reasons you would have been sceptical of the long-term value of the euro has been diminished,” said Quentin Fitzsimmons, portfolio manager at T. Rowe Price, which manages US$1 trillion. Fitzsimmons has been building a long position in the euro over the last six weeks.

Tuesday’s breakthrough deal sent borrowing costs in Italy to their lowest since March, wiping much of the coronavirus sell-off. (SD-Agencies)