In a speech that has sparked significant debate among policymakers and economists, European Council President Charles Michel recently stated that “everything is on the table” regarding the European Union’s approach to boosting its economic competitiveness. A key aspect of the conversation is whether the EU should issue joint debt—a move that would represent a significant shift in how European economies are managed and financed.
The Case for Joint Debt
Joint debt, often referred to as EU-wide bonds, involves EU member states collectively issuing bonds to fund common projects or investments, such as infrastructure, technology innovation, or green transition programs. This could be a powerful tool to boost Europe’s economic resilience and competitiveness in the global market, particularly in light of increasing challenges from other global economic powers like China and the United States.
1. Strengthening Europe’s Global Economic Position
One of the primary motivations for issuing joint debt is to ensure the EU remains competitive on the global stage. With countries like the United States and China ramping up investments in new technologies and infrastructure, Europe risks falling behind. By pooling resources and issuing joint debt, EU countries could collectively invest in innovation, green energy, digital transformation, and other areas that could drive future economic growth.
In particular, joint debt could fund large-scale projects in technology, sustainability, and digital infrastructure—sectors where Europe has seen slower progress compared to its global rivals. This could help the EU regain leadership in emerging industries and reduce its reliance on imports of critical technologies.
2. Creating a More Unified and Resilient EU
The issuance of joint debt would be a significant step towards deeper fiscal integration within the EU. While the Eurozone countries share a common currency, their fiscal policies remain largely independent. Joint debt would create a stronger economic bond between EU member states and provide a mechanism for countries with lower credit ratings to access funds at more favorable rates.
The European Recovery Fund, created after the COVID-19 pandemic, was a first step in this direction, with the EU collectively issuing debt to finance pandemic recovery projects. This demonstrated that joint debt could be a feasible and effective tool for large-scale economic support. The question now is whether the EU should continue down this path and issue joint debt more regularly to address other long-term challenges, such as climate change and digital transformation.
Challenges and Risks
Despite the potential benefits, issuing joint debt also comes with significant challenges and risks. Several countries, particularly those with stronger economies like Germany and The Netherlands, have historically been opposed to the idea of joint debt issuance. They argue that it could lead to an unsustainable increase in the EU’s collective debt, particularly if some member states struggle to repay their share.
1. Debt Sustainability Concerns
The primary concern among critics is that issuing joint debt could lead to higher levels of debt for the EU as a whole. While member states would be responsible for repaying their share of the debt, the risk is that countries with weaker economies could default or fail to meet repayment obligations, creating a strain on stronger EU nations.
However, supporters of joint debt argue that such concerns are manageable with clear rules for how debt is issued and repaid. The European Commission has already demonstrated the ability to coordinate and manage large-scale financial projects, as seen with the Recovery and Resilience Facility (RRF). The question now is whether there is political will to make joint debt a permanent fixture in EU fiscal policy.
2. Political and Ideological Differences
Another challenge lies in the political and ideological differences between EU member states. Countries like France and Italy have been more supportive of the idea of joint debt issuance, particularly if it is used to finance long-term investments in economic growth. On the other hand, countries with fiscally conservative policies, such as Germany and Austria, have been wary of ceding control over fiscal decisions to Brussels.
The differing political ideologies between member states could make it difficult to achieve a consensus on whether to issue joint debt and how to use the funds. For instance, while southern EU countries may see joint debt as a way to boost economic growth and social investment, northern countries might worry about the implications for fiscal discipline and future debt burdens.
Why Now?
The issue of joint debt comes at a critical juncture for the EU. The global economy is facing several interrelated challenges, including climate change, geopolitical tensions, and the post-pandemic recovery. Meanwhile, the U.S. Inflation Reduction Act (IRA) and the Chinese government’s economic policies have highlighted the growing competition for technological and industrial leadership.
At the same time, the EU has committed to ambitious green energy targets and digital transformation goals. To meet these goals and remain competitive, Europe needs substantial investment in infrastructure, innovation, and clean technologies. The COVID-19 recovery fund has shown that joint debt can be an effective mechanism to quickly mobilize resources for shared challenges.
Furthermore, as the EU faces increasing global competition, it may need to take more drastic measures to ensure its long-term economic stability and growth. Issuing joint debt could be one such measure, enabling the EU to invest in key sectors without relying too heavily on individual member states’ fiscal policies.
What’s Next?
As discussions about joint debt continue, the question remains whether EU member states will be able to reach an agreement on how to implement such a policy. Charles Michel’s comment that “everything is on the table” indicates that the EU is open to exploring different models of fiscal cooperation and integration. However, any movement in this direction will require careful negotiation and compromise between member states, especially as national priorities continue to diverge.
A potential solution could involve a hybrid model, where the EU issues joint debt for specific strategic projects, such as the green transition, technological innovation, or pandemic preparedness, while maintaining national control over day-to-day fiscal policy. This would allow countries to retain some level of autonomy while benefiting from shared investments in critical areas.
Conclusion
The idea of issuing joint debt in the EU is a significant one with both potential rewards and risks. On the one hand, it could provide the resources needed to boost Europe’s competitiveness, tackle climate change, and invest in digital infrastructure. On the other hand, it raises concerns about debt sustainability and the complex politics of fiscal cooperation. As the EU continues to navigate these challenges, Charles Michel’s remarks signal that bold solutions are on the table. Whether or not joint debt becomes a regular feature of EU policy will depend on the political will of member states and their ability to balance growth with fiscal responsibility.
References:
- European Council – Press Release on EU Fiscal Policy
Source: European Council - European Commission – The Recovery and Resilience Facility
Source: European Commission - The Financial Times – EU Joint Debt: The Case for and Against
Source: Financial Times - Reuters – EU’s Economic Challenges Amid Global Competition
Source: Reuters
