BRUSSELS. Reducing national debts, while increasing the common European one. Inflation is disrupting EU strategies, significantly impacting NextGenerationEU, the recovery mechanism launched following the Covid-19 pandemic, and its financing of the national recovery plans (Pnrr). To relaunch the growth of the States, the Commission has launched for the first time European bonds, common debt securities whose interest rate has literally skyrocketed within two years, also in the wake of the choices of the European Central Bank.
“Interest rates on ten-year EU bonds increased from 0.09% at the time of the inaugural issue in June 2021 to 3.05% in June 2023”, acknowledges the Commissioner for the Budget, Johannes Hahn. Twelve-star bonds are costing the Commission more and more, given that the Community executive sees the cost of yield on its bonds rise. Currently, the commissioner points out, “the weighted average cost” of financing all issues is 1.84%, in any case higher than the starting level (0.09%). Therefore the common European debt towards the subscribers increases. Only the new ones, at least. Because European securities have a fixed rate, established at the time of market launch.
The good news for Brussels is that with an increase in interest rates, newly issued bonds may be more attractive to investors, who are tempted to buy precisely because of the higher premium. This can help find the necessary resources to finance the recovery mechanism and national plans. But at the same time all this translates into exposures and greater burdens for the Commission, but not only. Because “the interest expense to finance the non-repayable support to the Member States under the recovery mechanism is borne by the EU budget”, underlines Hahn. But the EU’s common budget is financed by the States, which draw on national treasuries to allow the Union to function. So it is all of Europe that has to deal with the increase in interest rates and the natural consequences for common bonds.
For the next EU multiannual budgetary framework for the period 2028-2034, the horizon in which the ten-year bonds will reach maturity, it may become necessary for governments to provide Brussels with more resources to guarantee coverage for repayments that have become more expensive. Hoping, in the meantime, for rate cuts.