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ROME – The first time it was talked about in the nineties: it was 1993 when Jacques Delors proposed, albeit in embryonic form, in “White Paper” presented to the European Commission, the issuance of European bonds to finance investments in the Union’s infrastructure. The debate resumed and progressively intensified with the financial crisis of 2008, then with the subsequent European sovereign debt crisis, but it was only with the pandemic that the first issue of European public debt securities was achieved, to finance the Next Generation Euthe large investment program to bring the countries most affected by the pandemic out of the crisis, and to help them face the energy and digital transition.
100 days from the polls: “Europe to vote” is born, the guide on EU dossiers and policies to make your voice heard throughout the continent by Alberto d’Argenio 29 February 2024
An 800 billion plan
Between October 2020 and December 2022, under the program Sure, the European Commission issued 98.4 billion in bonds to finance its social projects. From June 2021, approximately 170 billion euros of medium and long-term securities must be added for the Next Generation Eu program, launched to relaunch the European economy after the pandemic crisis: a total collection of 800 billion euros is expected by the end of 2026. There are currently issues of around 450 billion in debt in circulation.
The weak points of Eurobonds
The Eurobond they were very well received by the market. But they suffer from the lack of a real country to guarantee them. It is essentially for this reason that current EU bonds pay a slightly higher yield than that of German and French public debt securities. No placement problem, that’s for sure: the first release in October 2020 as part of the post-pandemic program set the bond market’s all-time order record: 233 billion requested. The second element that makes them less stable and safe than the public debt securities of the more solid countries is their transitory nature: the current issuance program will end in 2026, with the limit of 2058 for the repayment of all the debt.
Is there a future for Eurobonds?
The European Union has not yet equipped itself with its own sources of financing for the common budget (a series of its own taxes) which would make the issuing of public debt securities solid, stable and continuous. In short, it’s useful the fiscal union, also hoped for by Mario Draghi, who has repeatedly stated that only a common tax system of a federal nature, aimed at financing investments relating to challenges common to the entire European Union, can support the huge investments necessary for the green transition. Not to mention the tools common defense. In short, several pieces are missing for Eurobond issues on an institutional basis.
There is no EU tax system
For this reason, EU finances do not offer large reimbursement guarantee margins, linked as they are only to the payment of 0.30% of VAT, to the proceeds of duties, to a minimum quota of the energy ETS, to pro quota state contributions for this which is missing from time to time (for example for Italy, which is worth 12% of this type of contributions, an outlay of 14-15 billion is expected in 2024). The situation could improve with Carbon Border Tax and some withdrawals on digital assets: but we are far from the patrimonial “base” to be used as collateral to repay the Eurobonds in circulation.
Defense options
For the defense there was talk of Defence bond: once again it would be a specific emissions project, with an equally specific purpose. Also the Letta report on the future of the European Union he underlined the need for “a single market for security and defense”: “The single market should strengthen European defense capabilities, imagined as a common market that guarantees all members access to military capabilities necessary for the defense of their citizens and the promotion of global peace.” And to finance it, Eurobonds are one of the main options on the table.