Joint debt: Let’s see
Draghi has been a consistent advocate for EU joint borrowing of the kind carried out during the pandemic to fund its economic recovery.
Fresh funds could help finance large infrastructure projects across the bloc. Maybe even more importantly, it would create what’s called a “European safe asset” — a large pool of tradable debt that could draw in investment from across the world, help promote the use of the euro as a currency internationally, and act as a benchmark for lending across the EU.
But there are a few big buts.
Joint borrowing has always been a political taboo, blocked by the so-called frugal countries like Germany and the Netherlands. So far, that taboo remains largely intact, with German Chancellor Friedrich Merz opposing further EU-level forays into the bond market.
Still, there are some signs that the old prohibition is changing: The bloc’s €150 billion defense lending program was financed by EU borrowing. It’s still a far-cry from the enormous U.S. government bond market, which is measured in tens of trillions of dollars, but it’s something.
The Commission’s new budget proposal contains new avenues for joint borrowing as well. The outstanding questions remains whether the EU can issue new debt regularly and predictably, like national governments do, and which is what investors want to see, or if it will continue to dip into the bond markets sporadically. So far, it’s the latter.