EC would extend the EU's borrowing mandate to joint bond issuance

The European Commission's new proposal would expand Brussels' joint borrowing powers to raise hundreds of billions from international markets.

Under the plan, the joint debt would be used to support Ukraine, manage crises, and make targeted payments, but “frugal” countries are strongly opposed to it.

According to Brussels, joint bond issuance would reduce the budget's dependence on member state contributions and allow EU funds to be made conditional. The proposal would be based on the model of the one-off Covid rescue package in 2020, the Recovery and Resilience Facility, but would now function as a more permanent instrument.

Italy and France support it because of the more favorable interest rates compared to their own, while Germany and the Netherlands reject it, citing the risk of debt.

According to the draft, member states can request loans if their spending exceeds the originally planned budget, and in the event of a crisis, up to €395 billion in emergency loans can be provided, but this would require approval from member states and the European Parliament. Non-repayable grants would only be available to finance Ukraine, totaling €100 billion, but no decision has yet been made on the ratio of loans to grants.

Markets currently treat joint EU debt more as international institutional bonds, but the Commission would like to see them treated as government bonds so that they can be included in the major sovereign debt indices.

Investors are already keen to buy it, partly because it reduces dependence on the dollar, but experts say that only a regular, large-scale issuance program could create the scale and liquidity that would make the euro a real global competitor to the US dollar.

With funding from the European Union. The opinions and statements expressed herein reflect the views of the author(s) and do not necessarily reflect the official position of the European Union or the European Commission. Neither the European Union nor the European Commission can be held responsible for them.

Cover photo (for illustration purposes only): EU