EU debated new collective debt

Mario Draghi and Ursula von der Leyen

While highly indebted countries such as Italy are very sympathetic to new EU joint bonds, there is clear reluctance north of the Alps.

(Photo: IMAGO/ZUMA Press)

Berlin, Brussels The Russian war against Ukraine is fueling the debate over a new European Union bond program. The heads of state and government will discuss the idea at their informal EU summit this Thursday and Friday in Versailles, France.

The first thing to do is to get a picture of the mood, the Handelsblatt learned from EU circles. A concrete proposal from the Commission is not yet expected. This should only be worked out in the second step – provided that the member states have the political will to do so.

There are discussions about using additional EU bonds to push ahead with the transformation of the energy sector in order to become less dependent on Russian gas, oil and coal supplies. There is also the idea of ​​jointly financing the upgrading of the European armed forces.

During the pandemic, the EU set up the “Next Generation EU” reconstruction fund and issued joint bonds for the first time. The payment of the total of 750 billion euros to the member states began last summer. The money is to be used primarily for investments in climate protection and digitization. Governments had to draw up detailed spending plans for this.

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The debate about a new fund is highly explosive: the step would bring the EU closer to a fiscal union, which has so far met with rejection, especially in northern European countries. Therefore, despite the serious economic and security policy consequences of the war, Brussels considers it unlikely that the EU states will agree to issue new community bonds in the near future.

Sympathy in southern and restraint in northern Europe

In the debate, the economic-political dividing line between Southern and Northern Europe reappears, which some observers already considered to have been overcome. While highly indebted countries such as Italy are very sympathetic to new joint bonds, there is clear reluctance north of the Alps.

Take the Netherlands as an example: Their finance minister, Sigrid Kaag, said in an interview with the Handelsblatt: “It is important for us that the Commission first uses the existing instruments and that the money that has not been called up is used.”

In Berlin, too, the idea of ​​a second aid fund met with little approval. According to German government circles, the “EU borrowing must remain a one-time affair, as agreed. However, the traffic light coalition does not have a unified line on the debt issue. The Greens and SPD are much more open to joint European borrowing than the FDP.

An agreement on an adjustment of the national spending plans is currently more likely than a new fund. Against the background of the energy shock, existing EU aid could be reallocated and more focused on energy sovereignty.

The federal government is open to this in principle, but warns against activism. “We are waiting with regard to a possible reallocation of the funds,” it says in Berlin. “The goal of medium-term economic recovery remains correct; if there is now a need for adjustments to the programs, we will of course take a look at it.”

On the other hand, the EU Parliament is calling for a common European investment policy. “We have to send the signal that we stand together now,” says MEP Damian Boeselager (Volt). “The economic consequences of the war and the jointly imposed sanctions will hit all EU states hard, but some even harder than others.” Without burden sharing, the EU will not be able to maintain its sanctions policy against Russia.

More: Comment: The debate about reforming debt rules is necessary – but not against the background of the Ukraine war

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