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Christine Lagarde has welcomed the Spanish government’s proposal for joint borrowing, telling Euronews it marks the start of a discussion based on merit rather than “over my dead body” positions, as tough talks on the next European budget get underway.
“It’s great that a country like Spain, for instance, makes a proposal and puts it on the table for debate. Now it’s for the others to say, ‘this part we like, this part we don’t like’, and how that can be addressed. I think it’s good to move forward,” she told Euronews.
On Thursday, Spanish Economy Minister Carlos Cuerpo presented a proposal for common borrowing worth €850 billion a year to his counterparts.
In separate comments to Euronews, Cuerpo said the plan could save billions in funding costs and reduce fragmentation. He said he hoped the proposal would kick-start a technical debate.
For decades, European policymakers have considered a permanent instrument that would allow the EU to issue supranational debt backed by all member states to fund common priorities.
A challenging geopolitical landscape and the urgent need to rearm Europe at the fastest pace since the end of the Cold War have reignited the debate.
“It’s pretty obvious that we also need to have a European asset which can parallel with US treasury bonds, for instance, how we go about it, how the moral hazard is addressed, and how it’s allocated in terms of results, to be decided,” she added.
Her comments echo those of former European Central Bank President Mario Draghi, who authored an influential report urging Europe to raise €800 billion in additional funding to fundamentally transform the European economy or face “a slow agony”. In the report, Draghi said the funding should combine public and private investment.
Asked about the colossal sums involved, Lagarde said she would not point to a specific figure but noted that the EU had already tapped the markets on a similar scale through its post-pandemic recovery plan, which included the historic issuance of €750 billion in joint debt to help reboot the European economy after COVID-19.
“That was roughly the amount,” she said. “And the Commission went to the markets, we helped in the process because we act as an agent, and it was oversubscribed.”
In financial terms, an oversubscribed bond issuance means investor demand exceeded the amount on offer, a sign of strong market confidence and appetite for an asset.
Lagarde also said that a strong European capital market, capable of keeping European money invested in Europe rather than the US, would require deep liquidity.
“I’m just saying that to go with the capital market, you need depth, you need liquidity, and you need to entice the savings onto that market. But we need an instrument as well, and that could be one, or an elaboration, or an iteration, of that.”
A group of so-called frugal countries, led by Berlin and The Hague, has said it will not agree to further joint borrowing, arguing that the post-COVID recovery fund was an exception rather than the norm.
Still, the EU is already issuing common debt through its SAFE programme, under which the European Commission raises funds on behalf of member states to rearm Europe in more favorable financial terms.
Lagarde said any debate in Europe must be held in the spirit of reaching agreement among all 27 member states, rather than from what she described as ex ante or “over my dead body” positions, arguing that the challenges facing Europe have changed the parameters of the discussion.
“The circumstances have changed and it should lead the leaders of the various member states to consider and to address what their concerns are. ‘Over my dead body’, is not the best way to deal with it. The best way to deal with it is to try to analyse what is too much of a risk and how that risk can be addressed.”
While German Chancellor Friedrich Merz has already said more joint borrowing is a non-starter, French President Emmanuel Macron has repeatedly argued that there should be no taboos.