Dr. Lukas Spielberger (Brussels School of Governance, Brussels, Belgium)  and Prof. David Howarth (University of Luxembourg, Belval-Esch-sur-Alzette, Luxembourg)

This blog post was first published as letter to the Financial Times, 9 July 2025.

 

Your recent article on the European Commission’s mooted borrowing mechanism to fund member states in emergencies understates the financial significance of such an operation. It is no longer true that EU loans are funded back-to-back, as you claim (“Brussels to seek more joint debt in EU budget plan”, Report, July 3). 

Since 2023, all the EU’s financial instruments have been financed through a pooled funding method, similar to those used by national debt management offices. This difference matters because it has allowed the EU to offer increasingly concessional conditions on its loans. Financial support for military expenditure under the recently agreed Safe facility can be provided at maturities of up to 45 years, with a 10-year grace period for principal. These are extraordinarily attractive financing conditions, even if grants remain off the table. 

Add to that the EU bonds currently priced just 40 bps above Bunds, which makes them financially appealing to most EU member states. In the case of the Sure facility in 2021-2022, no fewer than 19 EU member states — indeed, all those countries with higher bond yields than the EU itself — opted in to borrow cheap funds from the EU. 

Consequently, even if EU borrowing were to be used purely as a refinancing mechanism, to be activated in emergencies as recently proposed, this could have an important impact on the European fiscal architecture over time. 

The commission has good reasons to seek permanent borrowing capacities and obtain the status of a sovereign issuer. Many of its bond investors and other experts also insist that a permanent borrowing capacity will strengthen its capital market presence. In the meantime, we should not be mistaken that the commission’s new borrowing operations have changed the calculus also from the perspective of member states’ own financing. 

 

The views expressed in this blog reflect the position of the authors and not necessarily that of the PROSPER network.