EU lays out US$1t debt plan to fund recovery from Covid-19 pandemic

Brussels

THE European Union (EU) set out its blueprint to raise nearly US$1 trillion of debt over five years, as it seeks to fund its recovery from the coronavirus pandemic.

The bloc is aiming to issue the first debt under its NextGenerationEU (NGEU) stimulus as early as July, and will use a "state of the art" platform to begin selling bonds and bills via a network of primary bank dealers by September, said the bloc's executive branch.

Almost a third of the roughly 800 billion euros (S$1.28 trillion) will be in green bonds, using a framework of rules to be published in early summer, with issuance as early as the autumn.

"The Commission will need to execute financing operations up to 150-200 billion euros per year over the period to end-2026," the EU executive said on Wednesday.

It highlights the ambition of the EU's first meaningful entry into bond markets, which will see the total of outstanding bonds closing in on that of Spain's this decade.

It also lays the foundation to challenge US Treasuries in coming years as a haven asset, providing a boost to integration in the region and for its common currency.

Still, EU member states still have to ratify the recovery proposals and a number of hurdles have arisen that could delay issuance. In Germany, there is a challenge to the package going through the courts, while in Poland a junior coalition party has also committed to opposing it.

Bonds will be issued and regularly sold across a range of maturities from between three and 30 years, while there will also be short-dated bills, said the Commission. It highlighted the latter as a quick way to raise money, at least in the early phase of the programme.

Investors are likely to be keen. The EU will begin to issue debt via auction for the first time, as well as syndications via banks.

The NGEU package includes grants and loans to member states. The loans will have 30-year maturities, with a grace period of 10 years as nations emerge from the crisis. BLOOMBERG