EU proposes joint borrowing to finance 400-billion euro crisis tool: sources
The fund is likely to prove one of the most controversial aspects of the EU’s budget plans, with a number of countries opposed to pooled liabilities
[BRUSSELS] The 400-billion euro (S$596 billion) crisis tool proposed by the European Commission on Wednesday (Jul 16) would be financed using joint borrowing, according to people familiar with the matter.
The European Union’s executive branch’s new budget instrument for the period 2028-2034 would provide loans to countries so they can react faster to adverse events, said the people, speaking on the condition on anonymity. Brussels told member states that it would borrow money on their behalf to raise money for the instrument, they said.
Such speed is required in emergencies like Covid or the energy crisis, which have battered the economy in recent years.
The fund is likely to prove one of the most controversial aspects of the EU’s budget plans, with a number of countries opposed to pooled liabilities, which they see as subsidising less fiscally prudent nations. The EU’s US$2 trillion budget for 2028-2034 was bigger than many expected and drew a stiff rebuke from Germany, who dubbed it “unacceptable.”
In a first discussion with EU envoys on Wednesday evening, the commission admitted the new mechanism would be difficult to accept for some member states. They emphasised the tool would disperse money using loans, not grants.
Strict controls
Wopke Hoekstra, the EU’s climate commissioner, told Bloomberg on Thursday that the mechanism would be funded using joint borrowing but that it would be subject to strict controls, including through unanimity among the bloc’s 27 member states before any spending using the tool is signed off upon.
“This is something you have in your war chest as a potential option,” Hoekstra said in an interview. “It can only be specific circumstances and with the explicitly given mandate of the member states. Not just when we finalise the budget, but then again in a specific crisis situation.”
The yield on 10-year EU debt has risen since the start of the year to hover around 3.17 per cent, but remains below the peak seen in early March which followed the German government’s plans to boost spending.
The budget put forward on Wednesday kicks off a laborious process which will see the European parliament and the European Council, representing member states, weigh in. EU leaders need to give their unanimous backing. The budget must be agreed by the end of 2027.
SEE ALSO
Commission President Ursula von der Leyen said on Wednesday that the 400-billion euro mechanism would give the EU a “shortcut” in times of crisis. The coronavirus pandemic was a seachange in EU policymaking with countries signing off on a roughly 800 billion euro recovery facility, financed using joint debt. But for many countries, like Germany, that was a one-off.
“Crisis is no longer the exception, but the norm,” she said. BLOOMBERG
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Share with us your feedback on BT's products and services
