Separately, the Commission can also hand out up to €395 billion in cheap loans to countries facing an unexpected and unspecified crisis. In a concession to critics of joint debt, however, the approval of national capitals and the European Parliament is required to trigger this mechanism.
The only justification for grants ― effectively free money ― is to finance Ukraine, an aim that is uncontroversial in most EU capitals. A €100 billion cashpot for the war-battered country will include a mix of loans and grants that hasn’t yet been agreed.
Market reaction
Currently, markets treat EU joint debt more like the debt issued by supra-national organizations like the World Bank or the European Investment Bank.
But the Commission would like to see it treated like government bonds. That would allow EU bonds to be included in sovereign debt indexes that receive billions of euros of investment, lowering borrowing costs.
But EU debt is already “very much appreciated by investors,” said Alvise Lennkh-Yunus, managing director at Scope Ratings, which gives it an AAA rating. “I think that simply speaks to the strength of the governance framework of the European Union, the backing of the EU budget, the backing by the member states, and the whole financial architecture around issuing these bonds.”
He said big investors like pension funds and foreign central banks are scooping up EU bonds to diversify away from dollar-denominated assets like U.S. Treasury bonds, which have started to look more wobbly, victim to the uncertainty fanned by the Trump administration.