Key facts
- Spain has proposed a new common EU borrowing mechanism valued at up to €850 billion per year.
- The proposal aims to lower borrowing costs for highly indebted EU countries.
- Spain claims the mechanism could save countries up to €5 billion annually initially, rising to over €25 billion long-term.
- The initiative, termed a 'European Sovereign Facility,' would be voluntary for member states.
- The proposal faces opposition from Germany and the Netherlands, while France and Greece support it.
Spain is pushing the European Commission to establish a new common borrowing mechanism that could raise up to €850 billion annually on behalf of EU countries. Economy Minister Carlos Cuerpo is expected to present the proposal to eurozone finance ministers, aiming to reduce borrowing costs for highly indebted member states.
The Spanish initiative, detailed in a discussion paper, argues that increased EU borrowing would lead to cheaper interest repayments, potentially saving countries €5 billion annually initially and up to €25 billion in the long term. The proposal envisions a voluntary 'European Sovereign Facility' (ESF) where the Commission would issue debt and channel funds via loans.
However, the idea of common EU debt is highly controversial, pitting Southern European nations like Spain and France against a Northern bloc led by Germany and the Netherlands. These countries have historically opposed permanent EU debt issuance, having only agreed to the post-Covid €750 billion program as a one-off measure. Germany and the Netherlands, with strong credit ratings, have little to gain as they can borrow at lower costs independently.
To address these concerns, Spain suggests that higher debt issuance would eventually lower the EU's funding costs to levels comparable to or below Germany's. The proposal aims for the new system to begin with the next EU budget cycle in 2028. Despite voluntary membership, the participation of major eurozone issuers like Germany, France, Italy, Spain, and the Netherlands is considered crucial for the scheme's success, though German and Dutch involvement is seen as a significant hurdle.