Madrid is pitching its proposal to increase joint EU borrowing as a cost-saving measure.
Gregorio Sorgi
To win them over, Spain has proposed compensating the additional costs that they would incur from EU joint debt via a new financial mechanism, called the European Sovereign Facility (ESF), which would allow the Commission to issue debt on behalf of EU countries and channel the funds via loans.
The paper argues that significantly higher debt issuance will reduce the risk premium that investors demand from the Commission.
“Over time, the resulting increase in liquidity would be expected to lower the EU’s funding costs to levels close to — or potentially even below — those of Germany, generating savings for participating countries,” the proposal reads.
Spain wants the new system to start once the bloc’s next seven-year budget comes into force in 2028 and be limited to countries that abide by EU fiscal rules. If all countries and the European Stability Mechanism, the Eurozone’s bailout fund, were to participate, the ESF could raise to €850 billion per year, it wrote.
However, Berlin and The Hague’s involvement — which will be hard to obtain — is seen as crucial to lend economic credibility to the scheme.
“We all know that eurobonds are a non-starter for a number of Member States. This will go nowhere,” said an EU diplomat, granted anonymity to speak freely.
While membership would be voluntary, the participation of the eurozone’s five largest issuers — Germany, France, Italy, Spain and the Netherlands — is necessary for the initiative to take off, according to the proposal.
