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The European Commission will propose new joint debt instruments to harness capital markets in times of crisis, in a move to give Brussels a permanent channel for issuing EU-controlled bonds.
The proposal is still in the draft phase and explains a new mechanism to raise debts to lend subsidies and loans to member states during the crisis, three people told the Financial Times.
This emergency mechanism is part of the EU’s budget plan for the next few years from 2028, with Brussels set for mid-July.
EU countries still need to allow their use, but it will create a permanent basis for joint debt issuances that have long been resisting by countries such as Germany, Sweden and the Netherlands.
Berlin put out the red line last month, excluding more joint borrowings to fund grants to other member states. “Grants are no go for us,” said a debate-savvy.
Sweden also revealed in a position paper seen by the FT that it “opposes EU borrowing for the purposes of lending.” The Dutch government raised broader challenges in its position paper, saying it “does not support” the common debt of “new European instruments.”
Given the unanimous support of all EU 27 countries is needed to agree to a common budget, there is a significant hurdle for distribution financing using joint debt.
However, it is not controversial for the EU to borrow money to issue back-to-back loans. It has already been used during the Covid-19 pandemic and has recently issued 150 billion euros on EU defence loans.
The proposal for more joint debt is part of Brussels’ efforts to design the EU’s next long-term budget, addressing a much longer list of spending demand.
Common budgets, funded primarily from national contributions, expand to cover priorities such as defense and economic competitiveness, while at the same time finding room to repay the pandemic-era recovery fund.
Most net contributors – minorities in the country who pay more budgets than they were drawn out – are resisting the power to increase their dues and earn Brussels income.
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EU countries are also struggling to find additional funds to enhance security and defense, with NATO members recently agreeing to raise their defence spending to 5% of GDP.
These pressures have led some countries, such as Denmark and Finland, to leave more financially conservative camps in favour of more common fundraising instruments for defense spending.
“It’s not our policy that we should increase the budget, but we’re not saying no in advance because we’re facing major European challenges and realize that this could be a debate,” said Danish European Minister Marie Bierel. “We’re at war on the continent.”
Laura Dubois contributed a report from Aarhus, Denmark.
