https://www.euractiv.com/opinion/europes-quiet-debt-revolution/For decades, Brussels prided itself on fiscal restraint. Today, it sits among Europe’s biggest debtors – a position that will be worsened by last week’s EU decision to grant Ukraine €90 billion in financial support over the next two years.Since the pandemic, the European Commission has transformed itself from a marginal issuer into one of the continent’s largest sovereign and supranational borrowers. Its outstanding debt has ballooned from roughly €50 billion in 2019 to an estimated €700 billion by 2025 – a shift that has received surprisingly little scrutiny given its long-term implications for markets, budgets, and EU politics.This change did not happen overnight. Before Covid-19, common EU borrowing was largely theoretical. The first meaningful issuances came during the euro-area sovereign-debt crisis of 2011–13, when outstanding EU debt rose to about €55 billion. For the next decade, issuance remained a footnote in European capital markets.
>Covid vaccineThe pandemic changed everything.In 2020, the Commission issued €40 billion in debt – more than double any previous year – to finance emergency programmes such as SURE and, more consequentially, the €750 billion ‘NextGenerationEU’ (NGEU) recovery fund. Unlike earlier instruments, much of this borrowing was designed not for back-to-back lending but to finance direct grants to member-state governments.The scale of the shift is striking. Annual issuance surged to nearly €200 billion by 2025, while total outstanding debt climbed above €670 billion. Much of it will remain on the EU’s balance sheet until at least 2058 – longer still if the Commission chooses to refinance maturing bonds rather than repay them outright.The result is a little-noticed milestone: the EU is now the fifth-largest sovereign or supranational borrower in Europe, surpassing Belgium and 22 other member states, and trailing only Italy, France, Germany and Spain. Brussels has quietly entered the fiscal big leagues.
>A permanent debtor?First, for capital markets. EU bonds, buoyed by an AAA rating, increasingly function as a de-facto safe asset. Their rapid expansion risks crowding the highest-quality national sovereign debt, potentially nudging yields higher for member states already burdened by heavy borrowing needs. As governments continue to issue at scale, the interaction between EU-level and national financing costs will matter more than ever.Second, for the EU budget. Early NGEU issuance benefited from ultra-low – even negative – interest rates. That era is over. Post-pandemic inflation pushed policy rates above 4%, lifting EU borrowing costs sharply. Yields on EU bonds rose from near zero in 2020 to roughly 3% in recent years. Because much of this debt finances grants rather than revenue-generating assets, higher servicing costs will weigh on EU budgets for decades.Third, for EU politics. Debt has a way of hardening divisions. Future borrowing will complicate already-fraught negotiations between fiscally cautious states and those favouring a more expansive EU role. As new crises emerge – from Ukraine to defence to industrial policy – pressure will grow to reach again for the common credit card.These tensions will come into sharp focus during negotiations over the next EU budget for 2028-34. For the first time, debt-servicing costs for NGEU will be explicitly embedded in the budget, forcing governments to confront the trade-offs of decisions taken during the emergency years.The EU’s pandemic response was widely judged a success. But that success came at a price. Accumulating nearly €700 billion in supranational debt in five years marks a structural shift in European public finance – one with implications that extend far beyond the crisis that justified it.For the moment, EU common debt as part of GDP is still marginal.
However, whether this becomes a permanent feature of the EU’s fiscal architecture, or a one-off response to extraordinary circumstances, is a question Brussels will have to answer sooner or later.
Net contributor EU states would be mad to agree to permanent EU-level borrowing. France would just spend their money and credit rating like mad. Just look at France's current budget chaos
>>1469764>Covid vaccinehttps://archive.4plebs.org/pol/thread/225497848/#225499413Wed 04 Sep 2019 17:54:45
