On the brink of the abyss, the EU is once again resorting to common debt to avoid sinking into it. When European leaders realized Friday morning that the path to using frozen Russian assets was impassable, they turned to Eurobonds to give Ukraine 90 billion to cover much of its civil and military spending in 2026 and 2027. “We have a simple choice: either money today or blood tomorrow. I’m not just talking about Ukraine, I’m talking about Europe. This is our decision. And ours alone. All European leaders must finally rise to the challenge”, always direct and direct. » declared Donald Tusk, Polish Prime Minister, crudely at the entrance to the summit. And about 20 hours later, Germany, the Netherlands and other countries, still reluctant to have the bloc turn to the markets for debt, ended up assuming, as they did in 2020, when the pandemic threatened to drag the European economy into a Great Depression, that the hot nail to cling to was once again common debt.
To do this, the ordinary margin remaining in the EU budget between expected revenues and expenditures will be used. It is not strange that the Union uses this budgetary space to finance loans. The volume is more unusual: 90 billion euros – it may be a little less, depending on the liquidity of the Commission’s coffers – is much more than usual. It is surpassed by large programs such as the Common Financial Mechanism of 150 billion euros which was used this year to finance defense projects and arms purchases (SAFE, for its acronym in English) or the Combat Recovery Fund, which amounts to almost 650 billion euros, although in this case the margin left by the ordinary EU budget was not used, but rather an extraordinary margin was activated for the first time.
“The best option is to issue Eurobonds, ensuring that there are adequate guarantees even without Russian assets,” Lorenzo Codogno, Italian Treasury Secretary between 2006 and 2015 and now a professor at the College of Europe, explains by email.
Going a little further, Jonás Fernández, Spanish socialist MEP, also sees a positive side to this option, which politically was not the favorite of the member states. “The Economic and Monetary Union needs a risk-free asset on the markets. The debt of the Recovery Fund is large, but it will soon cease to be issued. It is vital to maintain the issuance of an asset. The dam is breaking”, he emphasizes, in reference to the possibility that these Eurobonds are something more than an asset that arrives on the market because of the spasms and the long dramatic nights of the European Council.
Paul de Grauwe, professor of political economy at the London School of Economics, also goes in the same direction. For this prestigious Belgian economist, his government has exaggerated the danger of using Russian assets, but he believes that the result is good: “I have always been in favor of the common debt, it is good for the European project. It is a path towards European integration”. Before finishing, he highlights the irony of the fact that Belgian Prime Minister Bart de Wever was a fierce enemy of Eurobonds, “virtually the same as the German or Dutch chancellors”.
The drama this time came from the Belgian refusal to use part of the 180 billion euros of Russian assets frozen at Euroclear, an entity based in Belgium responsible for safeguarding securities traded on the markets. He demanded unlimited guarantees that would insure him against any type of loss if Russia went to arbitration courts and obtained a favorable decision. Ultimately, leaders other than Belgian Prime Minister Bart de Wever chose to grant their state guarantees to the option of guaranteeing a debt issue from the European budget. An option without the high degree of political symbolism of using the assets of the Russian invader but with more certainty regarding financial and fiscal risks.
This path is not easy either. The ever-imaginative legal departments of the European institutions have been looking for a way to circumvent the veto of the Trojan horses that Moscow is introducing into the EU: the governments of Hungary, Slovakia and the Czech Republic. To get around them, a figure rarely used among member states was used: enhanced cooperation, a legal figure provided for in the treaties which allows a country that does not wish to participate to be excluded from a certain project or initiative. This opens the door to Budapest, Prague and Bratislava who may not provide their guarantees.
With this element on the table, the EU was able to overcome the pro-Russian veto. Because debt issues based on the common budget margin must be unanimously approved, because ultimately it is the member states that guarantee them. But by including enhanced cooperation, they lacked arguments for rejection. The three reluctant capitals will have to give their agreement again when the legal texts reach the Council. But as German researcher Lucas Guttenberg, director of the Future of Europe program at the Bertelsmann Foundation, explains on the BlueSky social network, “European leaders (normally) respect the commitments made at the European Council”.
This attitude will spare their countries the risk that others take. If Ukraine does not return the money, it will be up to the EU budget to repay the money. This possibility cannot be ruled out because, for example, among the agreements agreed last night, kyiv will not have to start repaying the loan until Russia starts paying war reparations. And when it comes to distributing responsibilities, this is done in the same way as the contribution to the Union coffers, based on the gross national income of each Member State, which this time will increase slightly above normal.
From the point of view of the interests of the Spanish public accounts, under normal circumstances this could amount to just under 8.5%. Without the three Central European states, the percentage increases by a few tenths.
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