The EU agrees to a historic $860 billion recovery fund as the bloc fights the fallout of coronavirus

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  • Leaders of the European Union reached a historic deal Tuesday on an $860 billion recovery fund aimed at the reconstruction of the 27-member bloc.
  • By the end of a 4-day summit, the heads of states agreed on distributing 390 billion euros ($446 billion) in grants, and 360 billion euros ($412 billion) in loans after reaching a compromise with a group of nations nicknamed the "Frugal Four."
  • The EU's seven-year budget, which supports long-term green and digital investments, was ratified at 1.8 trillion euros ($2 trillion).
  • New debt from the recovery package is expected to be repaid by 2058.
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EU leaders have agreed on a landmark 750 billion euro ($860 billion) recovery fund for the reconstruction of the region disrupted by the coronavirus pandemic.

The agreement was made public after European council president, Charles Michel, tweeted "Deal!" early Tuesday.

"These were, of course, difficult negotiations in very difficult times for all Europeans," he said in a statement.

French president Emmanuel Macron cheered the end of the successful 4-day summit as a historic day for Europe. 

After heated debate and difference of opinion on the specifics of grants and loans since last Friday, the heads of states reached common ground on an outline of how to invest the new funds at their first in-person summit in five months.

The leaders finally agreed on distributing 390 billion euros ($446 billion) in non-repayable grants, down from an originally proposed 500 billion euros ($641 billon) which was opposed by the Netherlands, Austria, Sweden, and Denmark — the so-called "Frugal Four."

The 27-member bloc accepted low-interest loans worth 360 billion euros ($412 billion) following a compromise with the "Frugal Four" countries, which had raised concerns on whether the funds would be used only for the health crisis.

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Originally, the total recovery fund was set at an amount of 500 billion euros in grants and 250 billion euros in loans.

The massive debt that will surface from the EU's recovery plan is expected to be repaid by 2058.

During the summit, leaders also agreed on a 1.8 trillion euro ($2 trillion) seven-year budget and COVID-19 recovery package aimed at rebuilding the bloc and supporting investment in "green and digital transitions."

The positive conclusion of the marathon Brussels summit will relieve many market participants whose hopes were pinned on the EU recovery agreement, said Sam Cooper, a vice president at Silicon Valley Bank. 

Germany's benchmark DAX index gained 1.5% in early European trading, rising to a 5-month high. The pan-continental Euro Stoxx 50 rose 1.3%. 

However, the euro remained neutral and stayed at 1.14 against the dollar.

"Although the euro initially sold off in the aftermath in what appears to be a classic case of buy the rumor, sell the fact, many will welcome the developments and view the intraday weakness as an opportunity to buy a ticket for a long-term euro rally," Cooper said.

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