Management of debt liabilities in the EU budget under the post-2027 MFF

Key findings

The EU’s debt stock reached EUR 547 billion by the end of September 2024 and is expected to increase by an additional EUR 448 billion under current commitments. Of this total, EUR 421 billion will ultimately finance grants, with the interest and principal repayments to be made jointly by EU countries through the EU budget. The remaining amount will finance loans to countries, which will be serviced as those countries repay their loans.

During the 2028-2034 Multiannual Financial Framework (MFF), interest payments and principal repayments on NGEU grant-related borrowing are projected to amount to between EUR 140 billion and 168 billion in total, depending on timing. In addition, we estimate that fully covering interest rate costs for existing loans to Ukraine would cost approximately EUR 11.5 billion in total over the next MFF.

The interest rate risk for the 2028-2034 MFF is low. Ukraine however may face challenges in servicing EU loans, representing credit risk. A risk to the EU’s credit rating is the potential downgrades of individual EU countries’ credit ratings. 

The treatment of NGEU debt service is closely linked to decisions on the overall size of the next MFF. A political decision is required on whether NGEU represents a front-loading of future EU spending or a one-time response to the pandemic through additional EU resources. This would determine whether future debt service should crowd out other EU expenditures or remain outside the regular MFF ceilings.

Pandemic-related EU borrowing is backed by an extra annual contribution of up to 0.6% of GNI from EU countries, applicable until 2058. This extra resource is up to 9.5 times larger than NGEU grant-related liabilities between 2028 and 2058, but cannot be used for any other EU obligations.

Interest payments on NGEU grants-related borrowing during the 2021-2027 MFF are expected to total 28 EUR billion, significantly above the initially planned 15 EUR billion. A new instrument has been created to finance these costs outside the MFF ceilings if other sources, such as reallocations from other EU expenditures, are insufficient.

The EU’s borrowing costs relative to Germany increased significantly between late 2021 and June 2022, and its current value, about 0.6 percentage points at the 10-year maturity, remains high. The EU’s borrowing costs also increased slightly compared to those of the European Stability Mechanism (ESM) and the European Investment Bank (EIB) from 2023 onward.