The bloc is mulling a joint debt program to upgrade its defense sector
Investors are pushing for an EU-wide debt program that would bring them healthy profits while helping the bloc to increase military spending, Bloomberg has reported.
Bond investors want the bloc’s temporary joint EU debt program that was launched mostly to finance the pandemic recovery fund to become permanent, the outlet has suggested.
The EU already has some €450 billion ($492 billion) in outstanding in bonds issued to counter the effects of COVID-19, but the program will cease to issue new bonds after 2026, it noted.
Investors are interested in EU bonds because they pay higher yields than equally or similarly rated sovereign bonds, Bloomberg explained.
In February, a €3 billion EU bond received €81 billion in orders — at 27 times, that was the highest cover ratio ever recorded in Europe’s publicly syndicated debt market, the outlet said, citing its own analysis.
According to the outlet, investors also argue that issuing joint bonds would enable the EU to increase spending on military support for Ukraine, but without loading more debt onto individual member states.
That is important, Bloomberg notes, as some EU and NATO countries, such as Italy, Hungary, and Spain, already spend more money on interest payments than on defense, according to recent research by Germany’s Ifo Institute.
The issue of joint borrowing has proved controversial among EU member states. On Tuesday, Spain’s Finance Minister called for such an instrument to finance investment in the bloc’s economic security and defense. France, Belgium, and Estonia have also supported joint EU funding for common projects, according to Reuters.
Germany and the Netherlands, however, have spoken against the issue of joint bonds.
At an EU finance ministers summit in Belgium last month, German Finance Minister Christian Lindner said he did not see the need for it.
Last week, the European Union set aside an initial €1.5 billion of the budget funds to boost the bloc’s defense industry, according to Bloomberg.
Internal Market Commissioner Thierry Breton urged setting up a €100 billion EU defense fund in January, aimed at boosting joint weapons procurement and ramping up domestic arms and ammunition production.
The EU, with 23 out of its 27 member-states also being NATO members, is looking to give a boost to its defense industry after years of underspending, with some nations arguing that the current conflict between Russia and Ukraine has put the EU in danger. Russia however has repeatedly said that it has no intention of attacking NATO countries.
