{"id":56729,"date":"2025-08-10T09:24:17","date_gmt":"2025-08-10T09:24:17","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/56729\/"},"modified":"2025-08-10T09:24:17","modified_gmt":"2025-08-10T09:24:17","slug":"eurobonds-2-0-why-more-and-more-economists-are-calling-for-brussels-to-issue-joint-debt-economy-and-business","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/56729\/","title":{"rendered":"Eurobonds 2.0: Why more and more economists are calling for Brussels to issue joint debt | Economy and Business"},"content":{"rendered":"

It\u2019s only been four years, but it seems like an eternity. On June 15, 2021, the European Commission<\/a> \u2014 for the first time \u2014 launched its \u20ac20 billion 10-year eurobond to raise funds. The symbolic value of this move was also enormous: it put an end to a debate that had been raging for years, surrounding joint debt issuance. Suddenly, the anti-eurobond attitude of then-German Chancellor Angela Merkel<\/a> was gone. Also left behind was the word \u201cNo,\u201d which had previously marked countless statements from Berlin, Vienna and The Hague\u2026 the same European capitals that, for years, repeated the damaging and misguided dogma of \u201cexpansionary austerity.\u201d This oxymoron among oxymorons was refuted time and again by the facts. <\/p>\n

In mid-2021, the Covid-19 pandemic was still raging. The risk of economic collapse was more than just a bad dream. Something had to be done. And the EU recovery funds \u2014 financed with those eurobonds \u2014 were, to the delight of many (and the chagrin of a few), the chosen way out of the quagmire.<\/p>\n

Five years later, the reality is different. The Russian invasion of Ukraine<\/a>, which began in 2022, has forced the EU to rearm and has generated enormous financing needs. The European economy is still struggling. And, even though the symptoms are somewhat better today than a couple of months ago, the stalwarts of the bloc \u2014 Germany and France \u2014 remain entrenched in sluggish economic growth. But the changing of the guard in the White House, trade setbacks aside, has opened up a range of opportunities that were difficult to imagine less than a year ago. This has resulted in fertile ground for eurobonds, which are now seen as an opportunity, rather than as a necessary pandemic-era emergency measure.<\/p>\n

The golden opportunity is palpable \u2014 and audible \u2014 in Frankfurt and Brussels\u2026 although the opportunity originates thousands of miles to the west, at 1600 Pennsylvania Avenue, in Washington, D.C. The return of Donald Trump, with his anger, his erratic tariff policy<\/a> and his rhetoric against the Federal Reserve, has badly shaken Wall Street. Investors have been quick to take note. The U.S. markets no longer look as attractive. And the promised land, surprisingly, now seems to lie in forgotten Europe. Older, yes, more boring, perhaps\u2026 but also much more reliable and predictable. Two attributes that, these days, are in short supply.<\/p>\n

Some of the dollars that once flowed to Wall Street are now euros, which end up (and not in small quantities) in the companies that make up various European stock market indices, such as the German DAX, the French CAC, or the Spanish IBEX. And not only that: EU public debt markets have also jumped on the bandwagon, with a capital injection that the British bank Barclays estimates at almost \u20ac26 billion ($35 billion) in just a few months. <\/p>\n

The central markets have rallied, but so have the peripheral markets: the Spanish risk premium is currently at its lowest level in 15 years, while Italy has gone from ostracism to financing itself at the same interest rate as its French neighbor. The EU, in short \u2014 for the first time in a long time \u2014 is holding all the financial cards. But it needs a final push to attract this huge volume of money, as investors get ready to pack their bags. <\/p>\n

The proposal<\/p>\n

The most solid proposal bears the signature of former chief analyst at the International Monetary Fund (IMF), Olivier Blanchard, and Spanish economist \u00c1ngel Ubide, the managing director and head of economic research for global fixed-income and macro at the hedge fund Citadel. In short, the plan involves issuing joint debt, with a maximum amount of 25% of GDP, so that each EU member can allocate these new funds to whatever it deems appropriate: defense, infrastructure, shoring up its social spending, or even reducing national debt. All of this, in theory, would involve a significantly lower interest rate than what each nation has to pay when it seeks financing alone. The eurobonds will be issued as they were in 2021, but on a far grander scale. <\/p>\n

\u201cThe demand is there; international investors are asking for it. Just look at the recent inflow of money into European stock markets,\u201d Ubide explains, during a phone call with EL PA\u00cdS. \u201cWhen you talk to the world\u2019s major financiers \u2014 who are currently in the midst of rebalancing their portfolios \u2014 the question is clear: \u2018Why aren\u2019t there Eurobonds?\u2019\u201d The long-awaited strategic autonomy of the 27-nation bloc has two prerequisites: military power and financial power. \u201cAnd, to have financial power, you absolutely must have a strong and liquid reserve asset to serve as an anchor: eurobonds. If we want Europe to be a leading geostrategic player, we need eurobonds. If we want the euro\u2019s international role to be different [and] much greater\u2026 [again], we need Eurobonds.\u201d The issuance of these bonds, he affirms, is \u201cthe only possible way\u201d to create a truly European capital market.<\/p>\n

\u201cWe\u2019re facing an opportunity for the EU and the euro. We can\u2019t let it pass us by. Either Europe does it now, or it won\u2019t demonstrate the place it wants to \u2013 and can \u2013 occupy in the world,\u201d Matilde Mas emphasizes by phone. She\u2019s an emeritus professor at the University of Valencia (Spain) and director of international projects at the Valencian Institute of Economic Research (IVIE). \u201cWe have to take action: eurobonds aren\u2019t technically difficult [to issue]; the instrument is already available and the market is hungry for safe havens.\u201d Both the dollar and U.S. debt, Mas emphasizes, have had a \u201chuge bargain\u201d for decades. But that\u2019s ending with Trump: his bombastic One Big Beautiful Bill Act<\/a> \u2014 a law that cuts taxes for the rich, withdraws social assistance from the poor and boosts the deficit to levels not seen since the pandemic \u2014 leaves even more room to attract capital in Europe. \u201cRight now, Germany is willing to go into debt again\u2026 and that\u2019s huge.\u201d All that remains, she says, is to overcome the EU\u2019s reluctance and thus allow eurobonds to be given the green light again. Still, this won\u2019t be easy.<\/p>\n

Much of the resistance from wealthy Northern Europe \u2014 almost always led by Germany and the Netherlands \u2014 lies in the so-called \u201cmoral hazard.\u201d There\u2019s the fear that these high-income nations would end up paying for Southern Europe\u2019s party\u2026 the waste \u201con drinks and women,\u201d as the controversial and polemical Jeroen Dijsselbloem, former president of the Eurogroup, once uttered amidst the debt crisis, sparking all kinds of anger. This rhetorical flank, however, is weaker than ever today: just look at the eurozone\u2019s economic growth chart, with the South leading the way. The trend began as something temporary, but it\u2019s now on its way to becoming long-term. <\/p>\n

\u201cThe opportunity to capture international [capital] flows is undeniable for Europe: the U.S. is losing reliability [by the day], while the potential for European growth [will be] evident as soon as a few key [steps take place], such as deregulation, decarbonization and the unification of the capital market,\u201d outlines Leopoldo Torralba, a senior economist at Arcano Research. <\/p>\n

\u201cWashington\u2019s latest moves have weakened the U.S. dollar and have called into question its role as a reserve currency. With [the issuing of] eurobonds, the euro would achieve greater global dominance,\u201d Xavier Vives, from the IESE Business School, emphasizes along the same lines. \u201c[The EU] needs a solid and very broad public debt market. It\u2019s essential to put a large European safe asset into circulation.\u201d <\/p>\n

When asked if he\u2019s optimistic about the issuance of eurobonds to raise capital, Vives replies: \u201cI think so. Something will be done. The question, as always, is: \u2018How far will [the EU] go?\u2019\u201d<\/p>\n

Evidence of this golden opportunity \u2014 alluded to by the half-dozen sources consulted by EL PA\u00cdS \u2014 is the huge inflow of money into European stock markets since Trump\u2019s return to power, which has been marked by volatility. Also evident is the powerful accumulated appreciation of the euro against the dollar, which is experiencing its worst first-half of the year in half a century. Or the rise of the STOXX Europe 50, where the main EU companies are listed, which, against all odds, is rising much more cheerfully than Wall Street. And, of course, there\u2019s the drop in the required yield on Treasury bonds, which have become significantly cheaper (especially in the Mediterranean region, with the exception of France). This is further proof of the changing appetite of those who previously invested in the U.S.: they\u2019re now investing in the Old Continent.<\/p>\n

Lagarde\u2019s Suggestion<\/p>\n

The renewed debate on eurobonds is far from a merely academic matter. Despite the lack of ambition in its new budget, the European Commission has just floated an interesting idea: an anti-crisis fund of almost \u20ac400 billion ($465 billion), fully financed by joint debt issuance. It has also permeated the very core of the European financial system. <\/p>\n

Outside the bloc, more and more traders are wondering what the 27 EU member states are waiting for. \u201cIt is a \u2018global euro\u2019 moment. [We must] seize it and enhance the euro\u2019s role in the international monetary system,\u201d acknowledged the president of the European Central Bank (ECB), Christine Lagarde, in mid-June. The French technocrat didn\u2019t explicitly mention this debt instrument, but there\u2019s little doubt as to what she was referring to: \u201cWe must act decisively as a united Europe taking greater control of its own destiny.\u201d<\/p>\n

\"PresidentEuropean Commission President Ursula von der Leyen speaks with European Central Bank President Christine Lagarde.JONAS ROOSENS (ANP \/ Alamy \/ Cordon Press)<\/p>\n

One day after Lagarde wrote those lines in the always influential Financial Times, the ECB hosted a meeting of the working group for bond market analysis at its Frankfurt headquarters. Financial figures \u2014 including representatives from Vanguard, Union Investment and the Singapore sovereign wealth fund (GIC Private Limited) \u2014 marched in. The discussion centered on investors\u2019 appetite for Europe as a natural alternative to Trump\u2019s United States. The message was clear: times have changed. Potential capital flows to Europe could reach up to \u20ac800 billion (nearly $930 billion) in the coming years. \u201cThere\u2019s unanimity regarding foreign investors\u2019 growing interest in eurozone bonds,\u201d read the minutes of that meeting, which, without naming them, directly referred to eurobonds: \u201cThe creation of a common, broad, deep and liquid safe asset would be more attractive to investors than the status quo.\u201d <\/p>\n

Even clearer, back in July, was the statement by the ECB\u2019s chief economist, Irishman Philip Lane. \u201cThe [German bond market] is too small, both relative to the size of the euro area and the global financial system,\u201d he told the institution\u2019s elite, who had gathered at its governing council. He explicitly referred to the roadmap proposed by Blanchard and \u00c1ngel Ubide: \u201cWhile this type of financial reform was originally proposed during the euro area sovereign debt crisis, the conditions today are far more favorable,\u201d<\/p>\n

There are, however, voices that soften this sentiment and temper the optimism. Despite seeing this debt instrument as \u201cnecessary to address all pending transitions, especially in energy and defense,\u201d Carlos Mart\u00ednez Mongay, former senior official at the European Commission\u2019s Directorate-General for Economic and Financial Affairs, raises several \u201cdoubts.\u201d Before ushering in eurobonds again, he emphasizes that it would be necessary to \u201cchange the fiscal rules\u201d and \u201cmove forward\u201d in three ways: by creating a truly federal tax system, while completing the banking and capital markets unions. \u201cIt\u2019s going to be very difficult to overcome the reluctance of the [Northern European] countries and make this happen,\u201d he ventures. \u201cVoluntarism,\u201d he warns, \u201calmost never works in economics: the idea is good and the need is clear, but we have to be realistic and explain the risk distribution to convince the most reticent countries.\u201d These nations include Belgium, Luxembourg, the Netherlands, and Germany. <\/p>\n

\u201cEurobonds, in general, won\u2019t be easy to achieve on a large scale; it\u2019s unclear that this mechanism can be fully implemented,\u201d adds Torralba, from Arcano Research. Germany, he argues, \u201cwould like a certain fiscal subordination from other countries… and it\u2019s difficult [to foresee a scenario in which the Germans would accept a loss of sovereignty].\u201d <\/p>\n

It won\u2019t be easy, but the path already seems to have been laid out. \u201cThe time is now. If not, when?\u201d Ubide asks rhetorically. \u201cIf we don\u2019t take this step \u2014 if we don\u2019t meet the current demand for European assets \u2014 we\u2019ll be making a huge mistake. We\u2019ll be giving up on even cheaper financing, [when we could] dedicate that money to defense, research and development (R&D), or infrastructure. And, in a way, we\u2019ll be choosing to make our economy less robust,\u201d he warns.<\/p>\n

Frugal no longer<\/p>\n

Since 2010, in Southern Europe, the month of May has been plagued by bad memories. 15 years ago, Greece \u2014 which had just been rescued by the troika (the European Commission, the ECB and the IMF) \u2014 was the epicenter of a financial earthquake that spread unchecked south of the Alps and the Pyrenees. Back then, austerity was the sacrosanct program that was imposed by the financial institutions. In Germany, the Netherlands, Austria, and Finland, it was said that Southern Europe had to pay the price for the excess spending of the previous decade. This was an argument that came with a lot of moralizing\u2026 and little empirical evidence.<\/p>\n

Time puts everyone in their place. And perspective, in the end, has ended up proving right those who thought \u2014 and said \u2014 that the financial crisis was simply caused by excess. That rigorism was the shortest route to economic disaster: a massive recession, several years of hardship, as well as an entire generation abandoned by the side of the road. That austerity, in the words of Xos\u00e9 Carlos Arias, a professor of economic policy at the University of Vigo (Spain), was an unmitigated \u201cmistake.\u201d A decade-and-a-half later, he affirms, \u201cevery serious person understands that this was the case.\u201d <\/p>\n

Mario Draghi\u2019s ECB<\/a> had to correct course, with massive debt purchases that made it possible to avoid an abrupt end to the euro and alleviate \u2014 at least partially \u2014 the refusal of Germany and its allies to accept eurobonds. This veil would eventually fall years later, with the pandemic. Long ago, a former president of the European Commission, Jean-Claude Juncker, admitted the sin of \u201cthoughtless austerity\u201d and acknowledged that Greece had been \u201cinsulted.\u201d And, he added, the IMF, which underestimated the impact of the cuts to the social safety net, went too far.<\/p>\n

Rhetoric aside, however, it was the war in Ukraine<\/a>, the first in Europe since the Balkans, that finally buried austerity. The new German government \u2014 a coalition of conservatives and social democrats led by Friedrich Merz<\/a> \u2014 has scrapped the historic balanced budget amendment, in order to double military spending and thus confront the Russian threat. And it has announced a special fund of \u20ac500 million to cover infrastructure investments for a decade. <\/p>\n

The most hardline of the hawks, former Dutch prime minister Mark Rutte<\/a>, now NATO chief, had berated Southern Europe for years. But today, he has gone from staunchly defending cuts to calling for \u201csignificantly higher defense spending.\u201d And, outside the eurozone, Denmark, where even the Social Democrats are frugal, has also made a radical shift in its positions.<\/p>\n

\u201cThe Russian invasion of Ukraine and defense spending have been what brought down austerity\u2026 1754817856 we\u2019ll see if it\u2019s definitively so,\u201d Arias acknowledges, on the other end of the phone. \u201cBut, at the same time, a very dangerous trilemma is forming between defense spending, maintaining the welfare state, and the need to reduce debt. All three are important\u2026 and something will have to be sacrificed. But if there\u2019s a way to provide an orderly and non-traumatic solution, it\u2019s by issuing eurobonds.\u201d If this step isn\u2019t taken, he says, Europe will be sending a \u201cterrible\u201d signal to the rest of the world.<\/p>\n

\u201cJust because the austerity cure was a mistake \u2014 and [even if this is] acknowledged years later \u2014 doesn\u2019t mean it can\u2019t happen again,\u201d the author warns. The champions of austerity, under the Russian threat, have seemingly changed their minds. <\/p>\n

There are always those, however, who aren\u2019t afraid to return to the past\u2026 however dark it may be. French Prime Minister Fran\u00e7ois Bayrou has just announced a \u20ac44 billion budget cut, a reduction in public holidays by two days a year, as well as the elimination of thousands of public sector jobs. To make matters worse, his arguments are reminiscent of that sad spring of 2010. It\u2019s as if nothing has been learned from the crippling austerity measures of the not-so-distant past.<\/p>\n

Sign up for our weekly newsletter<\/a> to get more English-language news coverage from EL PA\u00cdS USA Edition<\/p>\n","protected":false},"excerpt":{"rendered":"It\u2019s only been four years, but it seems like an eternity. On June 15, 2021, the European Commission…\n","protected":false},"author":2,"featured_media":56730,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[30934,30392,84,13930,30931,141,1294,2794,30935,30937,30936,150,30933,56,54,55,7181,30932],"class_list":["post-56729","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-angel-ubide","tag-angela-merkel","tag-business","tag-christine-lagarde","tag-coronavirus-covid-19","tag-donald-trump","tag-economy","tag-friedrich-merz","tag-ivie","tag-jean-claude-juncker","tag-mario-draghi","tag-mark-rutte","tag-olivier-blanchard","tag-uk","tag-united-kingdom","tag-unitedkingdom","tag-wall-street","tag-washington-d-c"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/56729","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=56729"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/56729\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/56730"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=56729"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=56729"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=56729"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}