EU Green Deal and the aftermath of COVID-19
Kim Catechis and Zehrid Osmani, Head of Global Long-Term Unconstrained discuss the European Union’s new Green Deal and how the sustainability focus of the stimulus is particularly exciting for investors.
Questions will be about how quickly the recovery fund makes it into the real economy, but that’s always the case with infrastructure stimuli.
Kim: Hello and welcome to another edition of the AFTERMATH. Today we are going to be talking about the European Union’s new Green Deal, and with me to go over the significance of this, is Zehrid Osmani, Head of the Long Term Unconstrained franchise.
Zed, really good to see you.
Zehrid: Likewise, Hi Kim.
Kim: So, Z, let’s cut to the chase here and say that you know investors, they do tend to be sceptical, particularly about large scale projects announced by governments. Can you tell us, reassure us that this EU new Green Deal is for real right? It’s going to happen?
Zehrid: Absolutely, the European Union has been very focused on ensuring a deal does get announced, does get agreed across member states, and this has taken some weeks and months of preparation, but in the end, we did get what the market wanted. Questions will be about how quickly that recovery fund that they have announced makes it into the real economy, but that’s always the case with all this infrastructure stimuli, and this one is no different.
And just to quantify the size Kim, the recovery fund, so the fiscal stimulus that Europe has announced about 1.3 trillion euros, the recovery fund is about 750 billion euros which is equivalent to about 4% of GDP.* So that really highlights a magnitude of the ambitions that the European Union has put in place, so definitely serious about implementing this.
Kim: Ok great. So, tell me, which particular aspects of it do you find most exciting as an investor?
Zehrid: I guess when you look at it, it’s been very much focused on sustainability and that’s an important focus point for policy makers in Europe. It’s also an important focus point across the globe, but Europe seems to want to take the lead on this front and therefore focusing projects on increasing sustainability, increasing energy efficiency of the buildings through some upgrades, as well as focusing on future of transportation with electric vehicle incentives, those are the kind of things that are important to highlight as part of this deal.
Kim: I think you're absolutely right; the European Union is at the forefront of legislation around climate change and the alleviation of the downside thereof. Tell me, is there any evidence that you’ve seen of other countries trying to follow suit or following along the same lines?
Zehrid: It’s worth highlighting Norway, that’s another country that’s at the forefront of the Green initiatives and their focus on green energy, but also future of transportation is omnipresent, so they are going to carry on to lead on that front, same way as the European Union.
The other one is China; China is labeling every infrastructure initiative as “green”, and that’s something that really highlights the policy maker’s intentions and focus on this aspect.
Kim: I guess that’s its probably fair to say that China absolutely needs to because it is one of the top emitters in the world and it needs to clear air pollution and water pollution as fast as possible.
Now Z, when we think about another aspect of it, would be, that one of the things about the EU taking this line it’s going to be particularly important as a rule setter or a specification setter for the rest for the world. Why because the EU is the biggest trade zone in the world right now, and if you want to sell goods to the EU it doesn't matter what you’re local legislation says the EU is going to extract a price if you don’t follow suit with a new Green Deal. Is that the right way to think about it?
Zehrid: Yes absolutely, so regulation will be an important aspect of this recovery fund, and therefore trading partners to the European Union will need to pay particular attention to whether they are complying, and in fact it’s going to put a bit more pressure on them complying. So it’s going to be relevant for all trade partners. The UK, I think, is worth highlighting now that there on the cusp of exiting the European Union, it will be an important focal point again for policy makers.
Kim: That’s fair. Z thank you very much for this, that is very helpful.
Thank you for watching and tune in again next week with something completely different.
* Source: JPMorgan Research
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