Then there is the question of conditionality foreseen by the possible issuance of European debt: a State may be reluctant to commit to respecting these conditionalities, if the autonomous indebtedness offers a slightly higher interest rate. It should also be considered that not all European states have requested the entire amount of resources made available by Recovery and Resilience Facility (RRF), the fund of Next Generation EU which finances Italy’s National Recovery and Resilience Plan (Pnrr). This could suggest a lack of interest on the part of some countries towards this instrument and, in the future, towards the expansion of the new European common debt instrument.
Last year a study by the European Parliament he underlined that, despite the measures implemented by the EU Commission and the European Central Bank (ECB), the European bond market would be less liquid than that of its national counterparts, and this would determine an additional cost. In other words, the European bond market is characterized by less trading and transaction activity compared to markets involving national bonds. This may result in an additional cost for investors, as it may be more difficult to find buyers or sellers willing to participate in transactions, especially during periods of uncertainty such as the current one.
In May 2023 the European study center Bruegel he underlined that the higher cost of European debt would be due to the fact that investors do not consider it like national debts. Second Bruegel, the EU would be considered a sort of “hybrid”, between a state and an intergovernmental entity, given that it does not have its own resources. As a result, European stocks are not yet regarded as ‘safe assets’.
Another factor that could hinder the further creation of common European debt is to be found in the position maintained by the countries of Central and Northern Europe. The latter have always had a conservative attitude towards eurobonds and towards the enlargement of the European budget. For example, when creating the Next Generation EUi Netherlands, together with Austria and Denmark, they were doubtful about the possibility of issuing a common public debt at European level and of collecting resources to distribute to the EU states, both on loan and as a non-repayable grant. In Germany the Constitutional Court has approved the ratification of Next Generation EU only as a temporary mechanism exclusively to deal with the consequences of the pandemic.
Plus i delays in some countriesincluding Italy, in the use of the resources made available to the EU could strengthen the positions of those countries already skeptical towards the common European debt.
As he underlined Bruegel, these factors of a political nature also have an economic impact: the perception of European debt as an exceptional and temporary instrument by financial operators, and the lack of clarity on its future by political parties and governments, risks undermining the ability to attract new investors. After 2026, the year by which the national recovery plans must be implemented, the lack of new bond issues will reduce the quantity of securities on the market, reducing the attractiveness of the eurobonds for the reasons seen regarding the liquidity of the European securities market.
In conclusion, if the EU evolved towards a more complete structure, with its own budget and forms of autonomous financing, it could be considered as a sovereign state and obtain financing similar to the best national issuers. Many European countries, however, do not yet seem willing to take this step, which makes European debt less attractive than that of individual member countries, despite its high creditworthiness.
