Eurobonds have re-emerged as a central point of contention in European Union fiscal policy, following a renewed push by French President Emmanuel Macron. Speaking at an informal EU summit in February, Macron called for a collective borrowing mechanism to finance massive investments in defence and advanced technologies, arguing that no single member state can meet these challenges alone.
The proposal, which would see the EU issue joint debt backed by all 27 member states, has divided the bloc for decades. Supporters, including a growing number of economists and central bankers, point to the success of the €750 billion NextGenerationEU recovery fund, which was issued jointly in 2020. They argue that eurobonds could lower financing costs for all members by leveraging the EU's top-tier credit rating, and unlock billions for shared projects like infrastructure, the green transition, and the Readiness 2030 plan.
However, a coalition of fiscally conservative countries—led by Germany, and including the Netherlands, Austria, Finland, and Sweden—remains deeply sceptical. They warn that joint borrowing weakens fiscal discipline and exposes prudent states to the debts of others. German Chancellor Friedrich Merz has been unequivocal, stating on 24 April that higher debt and eurobonds are “out of the question” from Berlin's perspective.
The Political Divide
The debate over eurobonds has long pitted northern “frugal” states against southern members like France, Greece, Spain, and Portugal, which see collective debt as a way to share risk and unlock investment. Italy, under Giorgia Meloni, has adopted a nuanced position, acknowledging the benefits while maintaining close ties with Berlin. The Nordic countries have shown some openness to joint borrowing specifically for defence, reflecting shifting priorities amid the war in Ukraine.
Macron’s revival of the idea is a strategic move to place it high on the agenda ahead of a June summit of European leaders. He has argued that repaying the NextGenerationEU fund too quickly would be “idiotic,” and has called for repayments to be delayed or refinanced through new joint borrowing. Greek Prime Minister Kyriakos Mitsotakis has echoed this, questioning whether repaying the recovery fund now would reduce the EU’s budgetary capacity at a time when demand for European bonds remains strong.
The European Commission has acknowledged the debate in preparatory notes, but the issue has not advanced in Eurogroup meetings. Eurogroup President Kyriakos Pierrakakis noted that “there is a divergence in appetite regarding eurobonds,” and discussions have instead focused on energy prices, competitiveness, and Capital Markets Union legislation. Diplomats report limited momentum, with one saying, “I don’t see a lot of appetite on eurobonds.”
Economic and Practical Considerations
Proponents argue that eurobonds would provide a safe asset for investors, backed by the combined guarantees of EU countries, and could reduce borrowing costs for highly indebted states. The Draghi report on European competitiveness, published in 2024, estimated that the EU needs an additional €800 billion in annual investment to remain globally competitive, with a significant portion requiring public funding. Eurobonds, supporters say, are the most efficient way to raise that capital.
Opponents counter that the real issue is declining productivity, not a lack of public funds. They fear that joint debt would create moral hazard, encouraging fiscal irresponsibility. The German Bundesbank, typically cautious, has voiced conditional support, acknowledging that joint borrowing could reduce financing costs, but only if tied to strict investment criteria.
The EU’s experience with NextGenerationEU offers a mixed precedent. While the fund was widely seen as successful in supporting recovery, Brussels has insisted it was a one-off. Repayments are set to begin in 2028, with a final deadline of 2058. The debate now is whether to extend that model or create a new, permanent joint borrowing capacity.
As the June summit approaches, the eurobond question remains a litmus test for the EU’s ability to act collectively. The outcome will shape not only the bloc’s fiscal architecture but also its capacity to invest in defence, technology, and the green transition in an increasingly competitive global landscape.
