Financing post-pandemic recovery via EU borrowing has proved remarkably straightforward. So why keep it temporary?
The issuance of European Union bonds to finance NextGenerationEU
(NGEU)—the common recovery programme agreed by member states during the
summer of 2020—has begun. This represents a small revolution in the
supranational bond market.
Before the Covid-19 crisis, the EU had been issuing bonds for decades
but it was a relatively minor player in the bond market, only borrowing
for small, back-to-back lending programmes. But with the debt issued
for NGEU, the EU will become one of the major borrowers
in Europe in the coming years—up to around €800 billion, depending on
the amount of loans member states take out. It will already issue €80
billion this year and could issue up to €150 billion per year in the
next five years, putting it on a par with major European sovereign
issuers, such as Germany, France and Italy.
As documented in our recent paper,
the first issuances since June have evinced strong interest from
investors all over the world. This was to be expected, given the current
high demand for safe, well-rated assets, as well as for ‘green’ bonds.
Significant change
The European Commission has quickly assembled a qualified
debt-management team and adopted a diversified borrowing strategy,
similar to that of other major issuers, to raise money reliably and
cost-effectively. This represents a significant change in the way the EU
interacts with financial markets...
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